Case Law Details
Hasmukhlal Madhavlal Patel And Anr. Vs Ambika Food Products Pvt. Ltd. And Ors. (Supreme Court of India)
Supreme Court of India’s decision in the case of Hasmukhlal Madhavlal Patel And Anr. vs Ambika Food Products Pvt. Ltd. And Ors., focuses on the issue of disproportionate allotment of shares in a right issue by a private limited company. Supreme court examines the applicability of Section 81 of the Companies Act, 1956 and analyzes the directors’ duty and responsibilities in such cases.
This decision though reiterates the principles laid down earlier in Dale & Carrington and Nandlal Zaver, an important decision the way private limited company shares changes hands and will be relevant in the context of income-tax act also particularly Section 56.
The Supreme Court in this case was dealing with an interesting situation where the respondent company was controlled by three groups of shareholders who held varying percentage of shares and upon directions of Bank of Baroda it was decided to increase the share capital from Rs 1 crore to Rs 2 crore and right shares were offered to all the shareholders in the ratio of 1:1 with an option to apply and be allotted additional shares to the extent of unsubscribed shares proportionately.
The Authorised Capital cannot be increased by the Board of Directors. It is out of the Authorised Capital that a company issues shares. It then becomes the Issued Capital. Whatever is issued, need not be subscribed to. Whatever is subscribed to, would become the Subscribed Capital. Paid-up Capital is defined in Section 2(32) of the Companies Act, 1956 as including capital credited as paid-up. The Subscribed Capital may be wholly or partly paid-up.
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