During pendency of oppression petition no further issue of shares permissible unless proved to be in Companies interest

COMPANY LAW BOARD, CHENNAI BENCH

Sharvani Energy (P.) Ltd.

versus

N. VenkateshwarRao

KANTHI NARAHARI, JUDICIAL MEMBER

C.P. No. 82 of 2011
C A No. 154 of 2012

DECEMBER  21, 2012

ORDER

1. The present company application has been filed u/s 403 of the Companies Act, 1956 (hereinafter referred to as “the Act”) r/w Regulation 44 of the Company Law Board Regulations, 1991 by the respondents praying this Bench to permit the Applicant No. l to increase its authorized share capital to Rs. 24.75 crore, allot further shares of a value of Rs. 12.50 crore and restrain the respondents herein from making erroneous, dishonest statements and representations to electricity authorities in Odisha, bankers and machinery suppliers of the Applicant No. 1 Company.

2.Shri S. Ravi, learned counsel appeared for the applicants. He submitted that the respondents herein filed CP No. 82/2011 against the applicants herein under sections 397, 398, 399 and 403 of the Act seeking various reliefs as prayed in the company petition. The applicants herein filed their counter in the above company petition and the Company Law Board was pleased to pass an interim order dated 09.02.2012 holding that the Applicant No. l has to seek permission of the Company Law Board before increasing the authorized capital and allotting its shares. It is submitted that the respondents herein have no interest in the business of the Applicant No. l Company and are doing serious damage to the said Company by meeting electricity authorities in Odisha, and also the bankers and machinery suppliers with a view, to kill the project. As a result of the negative campaigning by the respondents herein, various agencies have been calling upon the Applicant No. l Company to achieve financial closure and also to ensure that the project implementation is not delayed. It is further submitted that the total project cost is expected to be Rs.82.50 crore. The expected loan financing is Rs. 57.75 crore (70% of the project cost) and equity to an extent of Rs.24.75 (30% of the project cost) has to be infused into the Applicant No. l Company for implementation of the project. It is submitted that this applicant has mobilized an amount of Rs. 5.04 crore towards implementation of the project. It may be appreciated that while this Applicant is leaving no stone unturned to implement the project for the benefit of the Applicant No. l Company, the respondents herein are leaving no stone unturned to damage and destroy the Applicant No. l Company. It is submitted that the interest of the Company is paramount and the substratum of the Company has to be safeguarded from being lost.

3. It is submitted that the Applicants have been unable to implement the project at Dumajhori SHEP on River Kolab in Koraput District of Odisha due to the disputes between the applicants and the respondents and the negative campaigning by the respondents herein. The Applicant No. l Company has received a letter dated 23.06.2012 from Engineer-in-Chief-cum-Principal Chief Electrical Inspector, Odisha, Bhubneswar stating that the Applicant has not been able to achieve financial closure and requesting the Applicant to make a sincere effort to obtain financial closure. In the aforesaid circumstances, it is imperative for the Applicant Company to increase its authorized share capital and to issue further shares in the Applicant No. l Company. The Company is badly in need of equity capital and the failure to infuse capital will spell a death knell to the Applicant No. l Company.

4. The Applicant craves permission of the Company Law Board to increase its authorized share capital to Rs. 24.75 crore and its issued, subscribed and to allot further shares of a value of Rs. 12.50 crore to meet the requirements of financial institutions/banks and the Government of Odisha to finance the project on the accepted norms for debt/equity ratio. It is submitted that the interests of the Applicant No. l Company would be adversely affected and irreparable damage would be caused to it if the interim reliefs prayed for are not granted.

5.Shri R. Sankaranarayanan, learned counsel appearing for the respondents herein submitted that the present company application is filed based on frivolous and untenable grounds and is an attempt by the applicants to delay valuation of the shares of the Company as directed by this Bench by an order dated 09.02.2012. It is submitted that the applicants have not handed over the statutory books and accounts of the Company to the auditor appointed by this Bench for the valuation of shares of the Company. It is submitted that the respondents/petitioners were holding 50% shares of the 1st Applicant/Respondent Company and on the date of filing of the company petition they were holding 31.44% shares of the Company. But by the various actions taken by the Applicants/Respondents, the Respondents/Petitioners have been reduced to 21.83% of the paid-up capital of the Company. It is to say that the certificate given by the company secretary dated 25.09.2010 would clearly show that the Respondents/Petitioners were holding 50% shares of the 1st Applicant/Respondent Company. The Respondents/Petitioners submit that the 3rd Applicant/3rd Respondent had already allotted 11,00,000 shares of the 1st Respondent/1st Applicant Company in the following ratio:

It is submitted that during the period 01.04.2011 to 31.12.2012, the bank account of the 1st Respondent Company/1st Applicant Company would show that for the whole financial year the deposits were only to the tune of Rs. 53,49,500/- whereas the shares along have been allotted to the tune of Rs. 1,10,00,000/-. It is further submitted that one Mr. JyotirmonyMisra, company secretary from Bhuwaneshwar, has given a statement before the XIV Addl. Chief Metropolitan Magistrate, Hyderabad, wherein he has stated that the 3rd Applicant had brought some other person to impersonate as the 1st Petitioner and made the company secretary file Form 32 for the resignation of the 2nd Respondent herein. As a primary stakeholder of the 1st Applicant Company, it was in fact the duty of the Petitioners/Respondents to keep a Government Enterprise informed of the present situation of the 1st Applicant Company and therefore they have not caused any harm to the 1st Applicant Company. Moreover, it is stated that the communication from the Petitioners/Respondent to the said IREDA was merely to keep the loan application in abeyance till the case is finalized.

6. The petitioners are shocked to see the figures mentioned in the application with respect to the project cost. It is amazing the manner in which these figures have been stated without any kind of documentary evidence or proof to substantiate such project costs. Surprisingly, neither any project report nor any statutory documents is provided to prove that the said cost of Rs. 82.50 crore is the project cost and out of which Rs. 24.75 crore has to be infused in the form of equity. These respondents have been ousted from the 1st Applicant Company and therefore have no idea at all about the state of affairs of the 1st Applicant Company. The contention that the Applicants mobilized amounts to the tune of Rs. 5.04 crore towards implementation of the project is again a fraud being played primarily on the 1st Applicant Company and also on these Respondents as there are no documents to show the flow of funds and authenticity of any such funds being brought in. The fact of the matter remains that they intend to actually sell the 1st Applicant Company to third parties and with this objective only they have allotted shares to outsiders.

7. Further it is submitted that the Applicants/Respondents have approached this Hon’ble Bench with unclean hands to raise the authorized and paid-up share capital of the 1st Applicant Company and the sole objective of this act is to further dilute the shareholding of the Petitioners as they have been doing in the past. The Applicants/Respondents know very well that by keeping the Petitioners in total dark about the internal affairs of the 1st Applicant Company, it would be extremely difficult for these Petitioners to participate in any such allotment of shares. In view of the reasons, the learned counsel prayed this Bench to dismiss the application.

8. Heard the learned counsel for the parties. The petitioners, who are the respondents in this application, have filed the company petition by invoking various provisions of the Act, alleging certain acts of oppression and mismanagement against the applicants herein. This Bench by its order dated 15.02.2012 recorded that the parties agreed for valuation of shares taking into consideration that both parties were holding 50% stakes in the Company and the issue of buying out the shares was deferred till the completion of valuation. The Bench appointed a valuer to value the shares of the Company. Further this Bench directed the parties to continue the settlement process. Pending the same, this Bench also directed in case any increase in authorized share capital and allotment of shares of the Company is required, the respondents shall seek leave of this Bench. In view of the above directions of this Bench, the respondents have filed the present application praying this Bench to permit them to increase its authorized share capital to Rs. 24.75 crore and allot further shares of a value of Rs. 12.50 crore. The petitioners are opposing the increase of share capital and allotment of shares on the ground that they were holding 50% of the shares in the Company and their shareholding was diluted by allotment of shares and their present shareholding is 21.83%) which is under challenge. The petitioners apprehend that if the respondents are allowed to increase its capital and allot shares, their shareholding will further get diluted. From the documents it appears that there are disputes between the petitioners and the respondents. Admittedly, the petitioners and the respondents are family members and the Company seems to be closely held. The contention of the applicants is that the capital is required for the only project of the Company. In Para 6 of the rejoinder, the applicants state that the project cost was approved for Rs. 72 crore by high-level State Technical Committee vide letter No. 1149 dated 27.09.2006. Due to inflation and other input costs, the project cost has escalated to Rs. 82.50 crore as of now. Further it is stated that it is a standard practice that the financial institutions will finance only 70% of the project cost and the remaining 30% should be brought in as equity. It is stated that the 30% comes to Rs. 24.75 crore. In responding to the above averment, Shri R. Sankarnarayanan, learned counsel for the petitioners submitted that the applicants have not produced any documents in respect of their claim and stated to be that it is only a trade practice. He further submitted that there is no documentary proof that the project cost has escalated further from Rs. 72 crore to Rs. 82.50 crore.

9. From the perusal of Office Memorandum (O.M.) it appears that the Government of Odisha and the Applicant Company signed an MOU on 15.04.2002 and a revised MOU on 14.09.2006 for establishment of 15 MW (2 x 7.5 MW) Small-Hydro-Electric Project near Dumajhorhi Village on Kolab River. The Company deposited a sum of Rs.15 lac towards bank guarantee which is valid up to 26.02.2007. The actual cost of execution was estimated as Rs. 72 crore. Further as per the above O.M., certain conditions, guidelines were prescribed. The applicants have filed a photocopy of an Implementation Agreement dated 03.12.2010 entered between the Government of Odisha and the Applicant Company. According to the Implementation Agreement, it was agreed that the Company has to Build, Own and Operate (BOO) the said project within a period of 24 months from the date of this Agreement in accordance with the stipulations of Techno-Economic Clearance issued by the Government of Odisha. As per the said Implementation Agreement, the project has to be completed by 03.12.2012. It is not known whether the said Implementation Agreement dated 03.12.2010 is further extended. In the eye of law, the project has to be completed by 03.12.2012. The applicants have produced a letter dated 23.06.2012 addressed to the Company by the Engineer-in-Chief, Government of Odisha wherein it is stated that the Implementation Agreement which was signed on 03.12.2010 and since then almost one-and-half-a-year having passed, the Company has not submitted any financial closure and requested the Company to obtain financial closure without any further delay. The Engineer-in-Chief further stated that the same may be reviewed to take appropriate steps at government level. Though the letter is dated 23.06.2012, the applicants have not explained either in the application or in the rejoinder as to what action has been taken pursuant to the letter of the Engineer-in Chief, Government of Odisha. Moreover, the applicants have not produced any document regarding the advancement of loans or finances from any banks or financial institutions which is required for the increase of capital and infusion of funds into the Company by allotting the shares. Therefore, I am of the view that the applicants have not produced any documents that the banks or financial institutions have come forward for lending finances to the Company on the ground that if the Company is able to infuse/procure the minimum percentage of funds. There is no doubt that the interest of the Company is paramount. The Company has to carry on its business provided its affairs are carried out without prejudice to any of its members or shareholders. The allegation of the petitioners is that the applicants have allotted 4 lac shares to respondent No. 4 on 12.05.2011 and further allotted 7 lac shares on 14.10.2011 to respondent Nos. 3, 4 and 2 thereby diluting the shareholding of the petitioners. The petitioners further expressed their concern that they are out of management and are not aware as to how the Company will spend the monies received by further allotment of shares. As stated supra, the interest of the Company is paramount provided the applicants come out with documentary evidence either from the financial institutions or banks that may come forward to lend money to the Company for its project. Further, the Company also may get extension from the Government of Odisha for completion/implementation of its project. On obtaining/producing necessary approvals/documents in that regard, the applicants are at liberty to approach this Bench. In view of the reasons, as stated supra, the applicants have failed to establish with documentary proof in seeking permission of this Bench for increase of its capital and allotment of shares. Hence, the CA No. 154/2012 in CP No. 82/2011 is dismissed.

10. The applicants filed a company application being CA No. 186/2012 praying this Bench to fix an early date for the hearing of CA No. 154/2012. Since the CA No. 154/2012 is disposed off, accordingly CA No. 186/2012 becomes infructuous and the same is also disposed off.

NF