MAFATLAL INDUSTRIES LTD. Vs. STATE

JUDGEMENT

(1.) THE company has preferred cross -objections against the finding recorded by the learned single judge [see [1995] 84 Comp Cas 230] that the allotment of shares to NOCIL and Shushrupad Investment Limited out of the rights issue of 1987 was contrary to and in breach of the prohibitory order of injunction issued by the City Civil Court, Ahmedabad, in Suits Nos. 3181 and 3182 of 1987, and NOCIL and Shushrupad could not have legitimately participated in respect of those shares at the meeting of the shareholders in pursuance of the directions issued by this court on an application having been made under Section 391(1) of the Companies Act though the court ultimately found that even after excluding participation in respect of such unauthorisedly issued shares, the proposed scheme of amalgamation had got the approval of the requisite majority under Section 391(2).

(2.) CONTROVERSY had arisen in the wake of objections raised by the objector -appellant that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under Section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admitted to the capital paid up on those shares on that date. Two civil suits were filed in the City Civil Court at Ahmedabad, which were numbered as 3181 of 1987 and 3182 of 1987, by two different shareholders. Before allotment had taken place, the City Civil Court had issued injunction on September 4, 1987, in the following terms :

(3.) IT was the case of the company that NOCIL had applied for allotment of 1,50,000 shares on July 2, 1987, for participating in MIL's equity shares and Shushrupad had already been a shareholder, and was eligible to apply for additional shares more than to which it was entitled. Both were subscribers to the equity issue of 1987 and there was no violation of the order of the court. It was also contended that even if the allotment has been made in violation of the injunction order of the court by the company, it does not affect the validity of the allotment and, therefore, such allottees cannot be excluded from participation in the meeting of the shareholders, though punishment for disobedience of the injunction order may be imposed on the company or its officers responsible for the breach. Lastly, it was contended that even if such shares are held to be illegally allotted to the abovereferred to two companies to the extent stated, and they are excluded from the shareholding, the scheme had been approved by the requisite majority.