Case Law Details
Relevant Extracts :
The Appellant, a State level institution incorporated for the purpose of development of industries in the State, was an equity shareholder in the Third Respondent Company. The company was referred to the Board For Industrial Reconstruction (BIFR) for the purpose of framing a scheme for rehabilitation. The Board approved the draft revival scheme and circulated the scheme seeking suggestions and objections of the shareholders including the Appellant.
The Appellant objected to the scheme on the ground that it would adversely affect its rights as its equity shareholding was sought to be reduced to almost nothing and hence sought that the revival scheme be sanctioned without reduction of existing share capital. The further objection was that since it was a trustee of public funds for investment, it would not agree to the writing away of public funds, which would adversely affect the public interest.
The Board ordered sanction of the draft scheme which was confirmed by the Appellate Authority for Industrial and Financial Reconstruction.
On a writ petition challenging these orders, the single judge dismissed the petition [145 Comp Cas 9 (Mad)] by holding that the Appellant being an equity shareholder was not under any obligation to grant consent for the approval of the rehabilitation scheme and the Board has power under sections 18 & 19 of SICA to frame a scheme for the revival of the company.
The Division Bench of Madras High Court dismissing the appeal, held that the Appellant was only an equity shareholder in the company and was not required to make financial assistance by way of loans and advances or guarantee or relief or concession or sacrifice under the scheme. In respect of the curtailment of rights of shareholders there was express provision u/s.18(2) of SICA empowering the Board to make such reduction. Thus, the reduction of share value was authorised by law and the experts could do so for revival of the company. Further, under the scheme, the share value of the company had reduced not only against the Appellant alone but also other equity shareholders. By circulation of the draft scheme to the Appellant would not alter the status of the Appellant from equity shareholder to that of either lender or assistance provider or sacrificer under the scheme for revival of the company in the absence of any financial assistance offered by the Appellant. Thus, the Appellant did not come within the persons whose consent was required by the provisions u/s.19(2) of SICA.
