POLAR LATEX LIMITED Vs. LAKSHMI NARAYAN REZ
LAWS(CL)-1995-2-2
COMPANY LAW BOARD
Decided on February 17,1995

Appellant
VERSUS
Respondents

JUDGEMENT

- (1.) THIS is a petition under Section 111(4) of the Companies Act, 1956, by the petitioner above-named before the Company Law Board, seeking rectification of the register of members of the company by deleting the names of 53 (fifty-three) respondents from the register of members on account of the shares having been mistakenly allotted to the respondents, out of the shares reserved for allotment to the employees of the company. The said respondents are : Lakshmi Narayan Rez, Sujata Rout, Dwarka Prasad Gupta, Mahesh Chand Singal, Usha Rungta, Shruti Rungta, Kamala Jalan, Suresh Kumar Agarwal, Ruma Debnath, Lakshmi Chand, Nathu Ram Agarwal, Seema Bajaj, Seema Bajaj, Prakash Bajaj, Prakash Bajaj, Prakash Bajaj, Vinod Kumar, K. Sanjay Mathur, P. R. Venkatachalam, Raj Kumar Mundhra, Satish Gupta, Nandini Chatterjee, Kusuma Yamala, Gautam Banerjea, Sushil Kumar Rungta, Lalita Devi Agarwal, Gyanankur Das, Ravindra Kumar Jain, Susanta Chatterjee, Aloke Kumar Dey Biswas, Ram Chandra Bhuwalka, Indra Devi Bhuwalka, Maitryee Basu, Sudeshna Bhowmick, Bimalendu Adak, Suresh Ranjan Bhattacharyya, Bhakti Pradhan, Swagata Ghosh, Gouri Adhya, Raj Kumar Ganeriwala, Omprakash Choudhary, Kanhyalal Ganeriwala, Rajiv Kumar Kedia, Ajoy Kumar Kedia, Shimla Devi Kapoor, Arya Bhusan Mittal, Deepak Narula, Munmun Moitra, Manju Bhardwaj, Jai Prakash Babel, Smt. Kiran Maheshwari, Satya Narayan Maheshwari and Dr. Rajeev Sharma. The petitioner has also sought for direction from the Company Law Board to return the money paid by the respondents on account of the mistaken allotment of shares.
(2.) The facts of the case are, in brief, that: the company made a rights issue of its equity shares to the existing shareholders for subscription of 18,87,900 equity shares of Rs. 10 each, totalling to Rs. 1,88,79,000. Out of the said issue, 89,900 equity shares, totalling to Rs. 8,99,000 were reserved for preferential allotment to the employees of the company including its working directors. The letter of offer was issued for the purpose. The issue opened for subscription on June 1, 1992, and was closed on July 15, 1992. Separate application forms were made available for subscription by the employees of the company including its working directors. Some forms were possibly taken by the employees of the company and were subsequently used for application by the relatives/friends of such employees. Resultantly, the applications were received from a total number of 227 persons using the application forms meant for the employees of the company. These application forms as per the issue procedures were deposited with the bankers to the issue, viz., Allahabad Bank and the Federal Bank who, in turn, forwarded the same to the registrars to the issue, viz,, Computech International Limited. The respondents in the present petition, applied on the application forms meant for the use of the employees of the company, and thereby, created a mistaken impression about their identity as the employees of the company, which' fact went undetected due to oversight arising out of heavy pressure of issue related work. Resultantly, allotment of shares has been made to the respondents by a board resolution dated September 9, 1992. The shares allotted to the respondents were subject to a lock-in-period of 3 (three) years, and, therefore, the company has reasons to believe that none of these shares have been transferred by the allottees. As the allotment of the shares to the respondents was done under mistake, the names of the respondents ought not to have been entered in the register of members of the company but their names have been entered in the register of members. The petitioner seeks to rectify this mistake by seeking an order of the Company Law Board to the effect that the entries in the register of members in respect of the respondents have wrongly been made and the same need to be omitted and that the company do return the application money paM by the respondents. A copy of the petition is stated to have been served upon all the respondents to which no representation has been made by any one of them. In the course of hearing held on March 16, 1994, Shri Vinod Kumar Kothari, practising company secretary, appearing on behalf of the petitioner, reiterated the contents made in the petition and urged this Bench to pass an order as sought for. At the hearing it was indicated that it would not be possible to pass any order for the return of the share allotment money by the petitioner-company to the respondents as it would amount to reduction of issued capital of the company. The possibility of getting back the share certificates from the allottees and reallotting the shares to other parties under the employees' category need be explored by the petitioner. As per direction of this Bench, the company has filed an affidavit dated March 18, 1994, proposing a scheme for reallotting the shares in question to other parties. The proposed scheme is, in brief, set out herein below : (a) The company would cancel the impugned allotment made by mistake arising out of misrepresentation by the respondents. The total number of shares so cancelled would amount to 20,400 shares of Rs. 10 each. The company shall intimate the order of the Bench to all the respondents, calling upon the respondents to surrender their share certificates forthwith and in any case not later than 15 (fifteen) days from the date of the notice. Shares not surrendered within the said time shall be liable to forfeiture and cancellation. (b) The company would invite bids from the employees on the following basis : (i) only those persons who were the employees of the company as on the record date of the offer of the shares originally offered would be eligible to apply ; (ii) an employee would be eligible to apply for the present offer only if he has either not originally applied for the offer or has applied for a number less than 500 shares, in which such employee would now be eligible to apply for the balance number of shares, so as to make his total shareholding in the employees' quota share equal to 500 or less ; (iii) the offer shall be, as far as possible, on the same terms as the original offer. (c) From the offers so received, the board of directors or any other authorised person shall decide the allottees on the following basis : (i) in case the offers received in the aggregate are less than for 20,400 shares, all such offers shall be accepted and the balance unsubscribed shall be allowed to lapse as it would have been in case originally not subscribed, the directors of the company are also agreeable to take up the unsubscribed portion ; (ii) in case the offers exceed for 20,400 shares, the allottees shall be decided so as to give full allotment to those applying for less than 500 shares and partial allotment to those applying for 500 shares. The basis of allotment shall be decided by the board of directors in a manner which ensures broad-based employee participation in equity as also which minimises the scope for non-marketable lots. (d) The sum received from the applicants shall be kept in the ordinary banking account of the company until the offer is closed and soon after reallotment of the shares, the sum appropriated/received on account of allotment shall be utilised for refund to the respondents. (e) Filing of a copy of the order of the Bench with the Registrar of Companies shall amount to a rectification of the return of allotment in respect of the impugned shares and the Registrar may be directed to effect consequential rectification in the letter's records.
(3.) SHRI Kothari urged this Bench to take into account the scheme as aforementioned while considering the petition for rectification of the register of members.;


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