SANMUKHLAL RANGILDAS GHAEL Vs. RELIANCE PETROLEUM LTD

JUDGEMENT

(1.) MR. Sanmukhlal Rangildas Ghael along with 17 other petitioners who were members of the same family ('the petitioners') have filed petitions under section 111A of the Companies Act, 1956 ('the Act') for issuance of directions, to Reliance Petroleum Ltd. ('respondent-company') to allot in their favour equity shares in lieu of tradeable warrants held by them on payment of the consideration. They have further sought for directions that the purported allotment made in favour of the promoters/third parties in lieu of the tradeable warrants held by the petitioners be cancelled and set aside and be allotted in their favour. They have further sought for directions that the respondent-company be restrained from entering the name of any other person in their register of members if they were allotted the shares in lieu of the warrants held by them, or if any other persons' names have been entered into the said register, the same may be deleted and be restrained from transferring the said shares or in alternative the respondent-company be ordered and directed to repay the consideration for the said tradeable warrants held by the petitioners.

(2.) Since the cause of action in all these 18 appeals is the same, they are being disposed of by this common order.

(3.) THE board of directors of the respondent-company proceeded to allot the shares to all those who exercised their option and also allotted the shares which remained unallotted due to non-exercise of option by warrant-holders. According to the petitioners the board of directors allotted the shares relating to unexcrcised option to the persons of their choice in an arbitrary and discriminatory manner. It is the petitioners' case that by subsequent letters also they requested the respondent No. 1 company to consider their request by allotting two equity shares against unexercised warrant and shown willingness to pay the interest and principal amount on the said shares and the petitioners are still ready and willing to pay the price of shares with interest on such unexercised rights vide their letter dated 13-9-1999 and 19-9-1999. According to petitioners, in response to their aforesaid letters Karvy Consultants Ltd., Registrars and Transfer Agents of the Respondent No. 1 company informed that the rights attached to the unexercised warrants to apply for equity shares had lapsed, according to the petitioners, the said stand of the respondent No. 1 is contrary to the terms stipulated in the prospectus and articles of association of the company. According to petitioners the power of forfeiture is a power of fiduciary nature and ought to be exercised in good faith for the benefit of the company. According to petitioners, no notice of forfeiture was served upon the shareholders which was condition precedent and even the slightest defect in the notice will invalidate the forfeiture. According to petitioners as per the prospectus which empowered the board of directors/Commit tee of directors to charge the interest at the rate of 21 per cent per annum or such lower rate in case of failure to pay the amount due on allotment and/or on calls before the last date fixed for payment. According to petitioners in exercising of the right of forfeiture the basic principles of law that it should be in the interest and for the benefit of the company, has not been exercised by the Board. According to petitioners these warrants were transferable/transmittable in the same manner and to the same extent and subject to same regulations and limitations as in the case of existing equity shares of the company. According to the petitioners, the tradeable warrants of the respondent-company No. 1, were share warrants within the meaning of sections 114 and 115 of the Act. THE board of directors of the company have allotted 45.53 crores (approximately) shares to the promoters on account of unsubscribed portion of the tradeable warrants ignoring the petitioners' request for extending the time for payment. According to petitioners, the board of directors have misused their power and deprived the actual/rightful owners who are holding tradeable warrants and the same has been done with fraudulent and mala fide intention. According to petitioners, under the circumstances, if any allotment took place in favour of the promoters/associates, it was bad in law and said allotment requires to be cancelled and promoters/associates be restrained from dealing with, disposing of or alienating these shares and/or receiving dividend warrants in respect thereof.