LILLY UPPAL Vs. SHIVA CEMETECH PVT LTD

JUDGEMENT

(1.) IN this order I am considering Company Petition No. 42 of 2004 filed by Smt Lilly Uppal under Sections 397, 398, 402,403 and 406 of the Companies Act, 1956 (hereinafter referred to as the "Act") against M/s Shiva Cemetech Pvt. Ltd. alleging dilution of the petitioner's shareholding and illegal induction of the relatives of R-2 on the Board of R-1 with an oblique motive to gain control of the business of the R-1 company and mismanaging the affairs of the company allegedly indulging in forgery and fabrication of statutory records and documents.

(2.) The undisputed facts of the case are: M/s Shiva Cemetech Pvt. Ltd. (R-1) was incorporated on 2.11.1995 having its registered office at 1091-92, Pipliwala Town, Opposite Gurudwara, Manimajra, UT, Chandigarh. The authorized share capital of the company is Rs. 20,00,000/- divided into 20,000 equity shares of Rs. 100/- each. The main objects of the company are to produce, manufacture, mine, quarry, treat, process, refine, import, export, purchase, sell and to deal in all kinds of cement, cement products, etc.

(3.) FURTHER, the Counsel for the petitioner argued that other than wrongly taking the said defence under Articles of Association Respondent has not denied the fact that there has been a dilution of the shares of the Petitioner. It was argued that the Respondents have failed to show that the issuance of the shares was unavoidable and was resorted to as an emergency measure with an object of saving the existence of the company. Reliance was placed on the decision in re: Gluco Series P. Ltd. (1987) 61 Comp Cas 227 (Cal) wherein it was held that it is not open to the Directors to issue and allot shares in a manner by which an existing majority of the shareholders are reduced to a minority, the Court must be satisfied beyond reasonable doubt that such issue was unavoidable and was resorted to as an emergency measure with an object of saving the existence of the company, the Court will not allow the existing balance of power in the company to be disturbed, if the issue of shares disturbs the existing majority of the shareholders and if it is not bona fide, it will amount to oppression and mismanagement and the Court will grant relief. It was contended that in the present case the Respondents have also failed to show that the said issuance of the shares was done in good faith. FURTHER, reliance was placed on the decision in PIK Securities P. Ltd. v. United Western Bank P. Ltd. (2001) 4 Comp. LJ81 wherein it was held that increasing capital by making a further issue is a decision of managerial nature and, therefore, it belongs to the domain of directors and it should be exercised in absolute good faith in the interest of the company as a whole; use of this power for consolidating their own position by those in control and by creating a new majority is improper, in such a case a petition for prevention of oppression and mismanagement would be maintainable.