MODI RUBBER LTD. Vs. MODI FIBRES LTD.

JUDGEMENT

(1.) IN this order I am considering Company Application No. 255 of 2008 filed in Company Petition No. 48 of 2008 by the applicant (respondent No. 1 company, Modi Fibres Ltd. ("MFL")) against the respondent (petitioner -company, namely, Modi Rubber Ltd. ("MRL")) in terms of Section 399 of the Companies Act, 1956, challenging the maintainability of the company petition No. 48 of 2008. The Company Petition No. 48 of 2008 was filed by Modi Rubber Ltd. ("the petitioner") against Modi Fibres Ltd. and Others ("the respondents") under Sections 111A, 235(2), 250(3), 397 and 398 read with Sections 402, 403 and 408 of the Companies Act, 1956, alleging oppression and mismanagement.

(2.) M /s. Modi Fibres Ltd. (respondent No. 1) was incorporated on May 18, 1984, having its registered office at 1/180, "Shreyas", Nariman Point, Mumbai -400 021. The authorised share capital of the company was Rs. 10,00,000 divided into 90,000 equity shares of Rs. 10 each and 1,000 preference shares of Rs. 100 each with the main business of manufacturing, buying, selling, exchanging, converting, altering, importing, exporting, processing, twisting and to carry on business as agents and establish agency or agencies for and on behalf of local or foreign supplies of textile fibres and yarn and for developing a commercial forestation for planting trees to be used as raw material for the manufacture of rayon grade pulp, etc.

(3.) FURTHER , counsel for the applicant contended that the basis of allotment of shares can only be decided by the board of directors of the company and the existing shareholders in the present case, allotment of shares to the respondent/petitioner -company has never been considered either by the board of directors or the shareholders of the respondent -company, the only basis for claiming shares by the petitioner -company is its own board resolutions. Further, it was argued that even if one were to go with the board resolution dated August 30, 1990, passed by the petitioner -company, whereby a conditional approval was granted by the board of the petitioner -company to invest in the shares of the respondent -company, the said approval was subject to the four conditions (a) obtaining the approvals of the financial and term lending institutions/banks; (b) obtaining the approvals of the Central Government under Section 372 of the Act and Section 30B of the MRTP Act; (c) the funds were to be first made available for the implementation of the expansion/modernisation scheme of the company; and (d) the funds were to be actually made available out of the convertible debenture issue. These four conditions were never fulfilled, so the petitioner -company could not invest in the equity share capital of the respondent -company. Furthermore, it was contended that even the petitioner -company, has nowhere averred in its petition that these conditions were ever fulfilled, IFCI, which was the lead financial institution of the petitioner -company, in fact, directed the petitioner -company not to invest in the respondent -company until the project of the respondent -company was duly approved by IDBI, which never happened. Further, as per the approval given by the Department of Company Affairs to the petitioner -company, the petitioner -company was required to subscribe to shares worth Rs. 13 crores in the respondent -company within one year from the date of approval, i.e., by August 30, 1992, which it never did. Therefore, the petitioner -company could not have invested in the share capital of the respondent -company.