CASE TITLE
HASMUKHLAL MADHAVLAL PATEL AND ANR. Vs AMBIKA FOOD PRODUCTS PVT. LTD. AND ORS.
DATE OF ORDER
15th JUNE 2023
PARTIES
APPELLANT- HASMUKHLAL MADHAVLAL PATEL AND ANR
RESPONDENT- AMBIKA FOOD PRODUCTS PVT. LTD. AND ORS.
FACTS OF THE CASE
- The respondent is a closely held private company which is represented by three groups altogether. Respondent No.1 & 2 are referred as ‘H.M PATEL Group’. Respondent no.3& 4 as ‘Sheth Group’ and Respondent no.5&6 as ‘V.P PATEL Group’.
- V.P PATEL Group and Sheth Group through petitions purported to project a case of mismanagement and oppression by appellants under Section 397 and 398 of Companies Act,1956.
- The petitions were rejected by NCLT, Ahmedabad Bench by an order dated 17.05.2017. Thereupon, they filed appeals before NCLAT, New Delhi which affirmed the order passed by NCLT.
- The present appeal is directed against the impugned order of the NCLAT, New Delhi before the apex court.
ARGUMENTS BY THE APPELLANT
- The learned counsel appearing on behalf of the appellant submitted that NCLT has erred in its decision as there was no finding of oppression and mismanagement.
- The counsel submits that the company has complied with the advise of increasing authorized capital. The appellants have increased the authorized capital from Rs.1 Crore to Rs.2 Crore.
- It was also submitted by the counsel that all the shareholders were given equal opportunity to apply for shares in proportion to their existing shareholding.
- The counsel rejected the contention of respondents that the allotment was tainted and defective.
ARGUMENTS BY THE RESPONDENT
- The learned counsel appearing on behalf of the respondent categorically stated that the company is a closely held company and it ran on trust.
- It was submitted by the counsel that the allotment of shares, which was non-existent before 27.01.2010, by Board of Directors was unauthorized and impermissible in law. The NCLT also recognized the same.
- It was contended that the object of the appellants was to take control of a closely held company which was rightly caught by NCLT and NCLAT.
OBSERVATIONS OF THE COURT
- The apex court partly allowed the appeals. The order of allotment of shares was set aside without disturbing the order of conducting audit.
- Court held that the decisions of the appellants to increase the authorized share capital cannot be regarded as act of oppression and mismanagement.
- Court held that the purpose of the Board of Directors to increase the capital was bona fide. It was not a case where the board was to allot further shares to the Directors of the Board alone. The decision was based on the advice of the bank.
- Court held that the whole idea of the appellants behind bringing Rs.21 lakhs in place of Rs.90 lakh with the purported object of generating fresh funds was to get funds from the bank for expansion of the company.
- Court held that the appellants cannot be said to have acted in defective and unfair manner in context to allotment of further shares.
- Court referred to the decision in the case of Nanalal Zaver in the context of allotment of shares. It was then held by the Court that the directors could at their own initiative only increase the shares from out of the existing authorized capital, but the increase in Authorized Capital could only be done by the company in a meeting of its shareholders.
- Court held that although private limited company are not within the ambit of section 81 of the Companies Act yet the conduct of the directors are placed on higher level.
