Case: H. Fillunger &amp; Company Private Limited &amp; Others Vs. Ajit Arvind Marathe &amp; Others

2. Respondent No. 1 hereinShri Ajit Arvind Marathe is the original plaintiff and the appellants herein are the original defendant nos. 1 to 3 and respondent nos. 2 to 4 herein are original defendant nos.4 to 6 in Special Civil Suit No. 1210 of 2015 (New Special Civil Suit No. 177 of 2016) filed in the court of Civil Judge, Senior Division, Pune.3. The plaintiff is one of the directors of the appellant no.1Company Pvt. Ltd. (for short the Company). Suit was filed for declaration, cancellation, injunction and other reliefs against the Company and its directors. The directors are from the same family. Prayer clause (a) of the Suit reads asIt may kindly be declared that the alteration made in the share capital clause No. V and increase made in the authorized share capital from Rs.5,00,000/in the Memorandum of Association of the defendant no.1 Company in its extra ordinary general meeting dated 27/01/2015 by the defendants are illegal, null and void and the same may kindly be cancelled and/or set aside.4. The plaintiff sought other declarations by way of various prayer clauses as described in the plaint. Pending the hearing, the plaintiff sought temporary injunction for giving effect to the Resolution passed in the EOGM dated 27/01/2015 and from passing proposed special resolution No.1, causing alteration in the Articles of Association of the defendant no.1. Plaintiff seeks restraining order against the defendants from claiming any rights on the basis of allotment of shares (rights issue) on 27/4/2015.5. By an order dated 23/9/2015, learned 8th Joint Civil Judge, S.D., Pune passed an interim order restraining the defendants from holding EOGM on 25/9/2015. Plaintiff had filed an application Exh. 40 seeking temporary injunction against the defendants. An application Exh. 54, praying for restraining and passing a resolution, causing alteration in the Articles of Association of the defendant No.1 Company was also filed. Applications Exhs.5, 40 and 54 were commonly decided by the learned trial Judge on 3/4/2017.6. According to the plaintiff, defendant no.1Company was incorporated under the provisions of the Companies Act, 1956 (Old Act) with an authorized share capital of Rs.The Company initially was incorporated by family members and one of the uncles of the plaintiff. The authorized capital of the Company was increased from Rs.2,00,000/ed into 5000 equity shares of Rs.100/each on 17/12/1969. The original defendant nos.2 to 5 are the directors of the Company. The defendant no.4 is a Managing Director and the defendant nos.2 to 4 are controlling the affairs of the company.7. According to the plaintiff, the defendant nos. 2 to 5 being directors of the defendant no.1Company called an Extra Ordinary General Meeting (EOGM) on 27/01/2015 with an agenda to bring change in the Memorandum of Association of the defendant no.1Company to increase authorized capital of the Company from Rs.5,00,000/to Rs. 1,00,00,000/and to alter the Articles of Association of the Company under the provisions of the Companies Act, 2013. It is submitted that despite strong objection raised by the plaintiff, the proposed resolution No.1 for altering the clause No.V of the Memorandum of Association for increasing authorized capital of the Company from Rs.5,00,000/as passed by an ordinary resolution. Due to resistance made by the plaintiff and other directors of the company, the proposed resolution No.2 in respect of altering Articles of Association, including its capital clause of the Company could not be passed by securing 3/4th votes of the directors of the defendantCompany.8. The plaintiff submits that defendant nos.2 to 5, as board of directors, approved the alleged rights issue of Rs.2,00,00,000/in their meeting held on 9/3/2015 without altering the share capital clause in the Articles of Association of the Company, which action, according to the plaintiff, was illegal, null and void. In para 18 of the plaint, it is contended by the plaintiff asIt is further to the shock and surprise of the plaintiff that the defendant No. 2 to 5 as board of directors approved the alleged rights issue of Rs.2,00,00,000/(Two Crore Only) in their meeting held on 9/3/2015 without altering the share capital clause in the Articles of Association of the defendant No.1 Company, which action is grossly illegal, null and void on the part of the defendant No.2 to 5 being directors of the defendant No.1 Company and is liable to be set aside the same. The action of approving right issue by the defendant No.2 to 5 without altering the Articles of Association of the defendant No.1 Company cannot sustain under the provisions of law. Consequently, the defendant No.1 Company by its letter of offer dated 9/3/2015 allegedly offered alleged 10000 equity shares of Rs.100/each at a premium of Rs.1900/per equity share aggregating Rs.2 Crore as rights issue to its members, which is in gross violation of the provisions of the Companies Act, 2013 and the same is liable to be set aside. It is submitted that the alleged letters of offer dated 9/3/2015 are issued to the plaintiff allegedly offering totally 3724 shares, which are illegal and bad in law and also the same are liable to be set aside. The said letter of offer dated 9/3/2015 is illegal and bad in law and is liable to be set aside.9. The plaintiff addressed a complaint dated 10/4/2015 to the Registrar of Companies, Pune. The plaintiff made certain correspondence with the Company in respect of subject issue. The Company informed the plaintiff by letter dated 9/5/2015 that the Registrar of Companies had allegedly approved the increase in authorized capital of the defendantCompany. The plaintiff thereafter addressed a letter on 17/6/2015 to the Registrar of Companies requesting to direct the Company not to make any allotment of shares in contravention of the Articles of Association of the Company. By communication dated 27/8/2015, the Registrar of Companies informed that according to the resolution passed, the Company allotted new shares to the defendant nos.2 to 4 and 6 in their meeting dated 27/4/2015 without altering the share capital clause in the Articles of Association of the Company. The plaint prescribed the said details of allotment of new shares under Rights issue.

Court's reasoning:
22. During the course of hearing, it was submitted that the company business had come to a standstill, because of which the company could not grow by expanding its business. The purpose of the new Companies Act, 2013 in regulating the affairs of the company will have to be considered in the light of the facts of the case and the interest of trade and commerce, as canvassed by the learned senior counsel appearing for the appellants. The company had issued additional shares on 9/3/2015 and the Registrar of Companies had already registered the amendment to the Memorandum of Association. This fact cannot be overlooked. Therelief was granted by the trial court on 21/9/2015 directing not to conduct the meeting when in the month of January 2015 itself the meeting of the Board of Directors was conducted. In fact, by retrospective effect theinjunction was interpreted to have been operated against the resolution passed in the meeting of the Board of Directors held in the month of January 2015. The second meeting was held on 30/9/2015 and accordingly the resolution was passed amending he Articles of Association by simple majority. The company consists of six directors who are family members inter se. The trial court while passing order below Exhs. 5, 40 and 54 prescribed the reasoning, which appears to be in para 27 of the order. It is the finding of the trial court that if the defendants want to make any alteration in the Articles of Association, it should be in consonance with the provisions of the newfacie, we find that the plaintiff approached the trial court at a belated stage. By that time, the resolution for amending Memorandum of Association was passed in the meeting held on 27/1/2015 by simple majority. Additional shares were issued on 9/3/2015. The Registrar of Companies had registered the amended Memorandum of Association. Objection raised by the plaintiff before the Registrar was overruled and thereafter the trial court passed anorder not to hold a meeting called on 25/9/2015. By a further order, the defendants were temporarily restrained from making changes in the Articles of Association in the meeting scheduled on 30/09/2016 only.In the present facts of the case, the Board of Directors had amended the Memorandum of Association and Articles of Association by simple majority but in an EOGM of the company called on 23/3/2017 passed a special resolution for amending the Articles of Association. In accordance with the provisions of Section 13(6) of the Act of 2013, after amendment of Memorandum of Association, the company had filed an application with the Registrar of Companies for recording alterations of its memorandum. Accordingly, the Registrar of Companies had registered the same. In accordance with the increased share capital, new shares were distributed. It was argued that shares were even offered to the plaintiff but he declined to accept the same. The Articles of Association were amended in accordance with the provisions of Section 14 of the Act of 2013. We, therefore, find that there was reasonable and statutory compliance of the provisions of law.