HANUMAN PRASAD BAGRI Vs. BAGREES CEREALS (P) LTD.

JUDGEMENT

(1.) The above motion has been taken out by the Plaintiffs for the following interlocutory reliefs:

(2.) Going by the petition being grounds of the notice of motion the grievance of the Petitioners is against the decision of the board of directors to issue -rights shares and further against any future attempt or action to increase or decrease the share capital aiming to disturb the pattern of shareholding of the existing shareholders. Though in the plaint, various reliefs have been claimed, however, at the present moment I am not concerned with the same. The sum and substance of the case of the Petitioners is that going by the financial position and the activities of the company there was no need to increase the share capital by issuance of rights shares. From the balance sheet it will appear that Defendant No. 1 has sufficient surplus funds, which can be utilised for expansion of the business. The whole idea to increase share capital is to decrease the percentage of the Plaintiffs/Petitioners so much so that the existing directors can retain their absolute control as long as possible. There are other allegations hinting at mismanagement and misappropriation of fund without any check and balance. The extravagant expenditure of the directors has led to deprivation of the Defendant and existing shareholders for a long time. In sum and substance, the decision to issue rights shareholding is not bona fide and has abused the fiduciary power of the directors.

(3.) Mr. S. Sarkar, learned senior advocate, appearing in support of the motion, while inviting my attention to the balance -sheet and the audit report, submits that the company has enough funds and in fact the fund has been diverted by granting loan to various third parties which could be recovered and be utilised to expand the business. He further submits that the real business activity of Defendant No. 1 has been stopped long time back. Now the business activity is confined to letting out of the godowns and premises of the company and the incomes therefrom are the main source. As such there is no need to increase further share capital. Moreover, there is no detailed project or scheme as to how the increased share capital will be utilised and despite having sufficient funds in the hands of the company why further fund is required. Therefore, the decision of the directors to issue rights shares to the existing shareholders without any right of renouncement of any share is nothing but to marginalise the Petitioners who have a considerable extent of shareholding. In view of the absence of right of renouncement the unsubscribed shares might be issued to the chosen persons of the directors so that in the office of the board they can perpetuate and mismanage as long as possible. According to him, the aforesaid fact demonstrate amply the lack of bona fides. In support of his contention he has relied on an old English decision reported in Piercy v/s. S. Mills and Company Ltd., (1920) 1 Ch. D 77.