PIK SECURITIES P LTD Vs. UNITED WESTERN BANK LTD

JUDGEMENT

(1.) THE petitioners collectively holding 10.61 per cent shares in United Western Bank Ltd. (the bank) have filed this petition under section 397/398 of the Companies Act, 1956 ('the Act') alleging acts of oppression and mismanagement in the affairs of the Bank and seeking appropriate reliefs. THE 11th respondent, holding about 9 per cent shares in the bank has filed affidavits supporting the petition.

(2.) This bank is a private sector bank incorporated in 1936. It has about 53,000 shareholders and its shares are listed in the stock exchange. The authorized and paid up capital on the company was Rs. 50 crores and about Rs. 30 crores respectively. The equity shares are of the denomination of Rs. 10 per share. The Bank convened an extraordinary general meeting on 7-8-2000 to transact the businesses relating to amendment to articles, issue of bonus-cum-right shares. In all, there were 4 proposals to be considered as special resolutions. The second item was to increase the authorized capital from Rs. 50 crores to Rs. 100 crores, issue of Bonus shares in the ratio of 1:2 was the third item and issue of right shares at a premium of not exceeding Rs. 15 per share was the 4th item. According to the petitioners, while the first three resolutions were passed unanimously by show of hands, the shareholders protested against the resolution relating to the right issue and demanded a poll. However, the Chairman of the meeting announced the withdrawal of this item and abruptly concluded the meeting and left. Thereafter, according to the petitioners, the remaining shareholders continued the meeting and passed a unanimous resolution by show of hands rejecting the proposal for the right issue. However, the Board of Directors passed a resolution in the Board Meeting on 8-8-2000 to issue the right shares at 1:5 with a premium of Rs. 10 per share. According to the petitioners, the conduct of the Chairman in withdrawing the resolution, the action of the Board to approve the issue of right shares when the same had been rejected by the shareholders arc oppressive to the petitioners. Accordingly they have filed this petition seeking for a permanent injunction against the bank from taking any further action in pursuance to the resolution of the Board dated 8-8-2000. The 2nd respondent is the Chairman of the Bank and respondents 3 to 9 are directors and the 10th respondent is the company secretary.

(3.) SHRI Sarkar, the senior Advocate appearing for the petitioners argued as follows: The members of the Board of Directors collectively hold only 0.4 per cent shares in the Bank but they have been carrying on the business of the Bank to the detriment of the shareholders and the Bank. The 11th respondent, which is the largest single shareholder having about 9 percent shares in the company, is supporting the petitioners. The motive for the issue of the right shares is not to benefit the shareholders but to allot the same to a foreign bank to be identified by KPMG, with whom the company has entered into an agreement for identifying a suitable foreign bank as is evident from the press report dated 31-5-2000, annexed at page 94 of the petition. Even though the Bank claims, that, in a Board Meeting held on 29-5-2000 prior to the annual general meeting, the decision to issue bonus-cum-right issue was taken, yet, the same was not mentioned in the annual general meeting held on the same date. Further, the bank had also not intimated the Stock Exchange about the same in time. Reference was made to the pamphlets at RJ-3/4 which were circulated to the shareholders during the annual general meeting on 29-5-2000 wherein the bank had projected the paid up capital as in March 2005 at Rs. 30 crores which is the present paid up capital. Normally, banks issue shares only for the purpose of maintaining prescribed capital adequacy ratio (CAR). As far as this bank is concerned, the CAR is higher than the prescribed ratio and at no time the bank had indicated inadequate CAR. Therefore, the decision to issue right shares was with some ulterior motive and not for the interest of the Bank. Therefore, this aspect has to be kept in mind while considering the proceedings of the EOGM held on 7-8-2000.