C.P. No. 120 of 2006. Case: ABP (P) Ltd. and Ors. Vs United News of India (UNI) and Ors.. Company Law Board
| Case Number | C.P. No. 120 of 2006 |
| Counsel | Sudipto Sarkar, Avijit Deb, Gopal Jain, Nandini Gore, Diya Kapur, Prachi Goel and For Respondents: Dushyant Dave, Shweta Verma and Bina Gupta, S.N. Mookherjee and R.K. Handoo |
| Judges | S. Balasubramanian, Chairman |
| Issue | Companies Act, 1956 - Section 25 |
| Citation | (2008) 77 CC 404, 2008 3 CLJ 162, 83 CLA 408, 142 CompCas 688 |
| Judgement Date | January 21, 2008 |
| Court | Company Law Board |
Order:
S. Balasubramanian, Chairman, (At Delhi)
There are two main allegations in the petition. One relates to allotment of shares to one Media West, the fourth respondent, alleging that this issue and allotment of shares has not only changed the character of the company but also has resulted in creation of a new and absolute majority. The second allegation is that immediately after Media West became a shareholder, by co-opting four of the nominees of Media West, the control and management of the company has been handed over to Media West. With these allegations, the petitioners have sought for cancelling the allotment and for declaring the board meeting wherein the four nominees were co-opted as null and void.
The facts of the case are that the United News of India ("UNI") was incorporated under section 25 of the Companies Act, 1956 ("the Act") in the year, 1961 with the main object to promote the spread of knowledge, political, cultural, art, history, sports and other useful objects of public interest and to disseminate news to the general public both about Indian and foreign affairs. In terms of article 4 of the articles of association, no shares shall be allotted or transferred to any person other than the owner or owners of the newspapers published in the Union of India. The authorised capital of the company is Rs. 25 lakhs consisting of 25,000 equity shares of Rs. 100 each. 20,397 shares had been issued of which 10,189 shares were subscribed and paid up leaving a balance of 10,208 shares unsubscribed out of the rights issue made in 2003. Before the allotment impugned in the petition on September 2, 2006, the company had 28 members holding shares in the company. Before the impugned allotment, the first petitioner held 22 per cent, shares and petitioners Nos. 2, 3 and 4 collectively held 15.16 per cent, shares. The company has been in financial difficulties during the past few years. In a board meeting held on August 21, 2006, the board appointed a committee to suggest measures to revive the company. In a meeting on September 2, 2006, the committee considered three offers for acquiring the balance shares of 14,811 shares of the authorised capital, which remained unissued/unsubscribed and recommended to the board to accept the offer of Media West for Rs. 32.05 crores. On September 2, 2006, Media West remitted a sum of Rs. 5 crores. In a board meeting held on the same day, the board accepted the offer of Media West and allotted 10,189 shares which remained unsubscribed out of the right issue made in 2003 with the decision that the balance 4,603 unissued shares would be offered as rights issue and unsubscribed shares out of the same would also be allotted to Media West. Media West paid the balance on September 23, 2006, by way of a cheque which was encashed by the company on September 25, 2006. The share scrips were handed over to Media West on the same day and one of its nominees attended the annual general meeting on. September 26, 2006, which was held in the morning. In a board meeting on the same day in the afternoon, four nominees of Media West were appointed as additional directors pursuant to a request made by Media West by a letter dated September 25, 2006. Both the allotment of shares and appointment of four directors have been impugned in the petition. In a board meeting held on September 9, 2006, a committee of management was constituted with five members of which Media West had three of its nominees. Initially, when the petition was mentioned on December 5, 2006, I passed the following interim order: "The petition mentioned and arguments on interim reliefs heard. Prima facie it appears the allotment of shares to Media West is in violation of article 4 and that co-option of four directors, immediately after the general meeting on the same day does not appear to be bona fide. In view of this, I direct that the status quo with regard to shareholding should be maintained and that no board meeting should be held without the leave of this Board, I also direct maintenance of status quo with regard to fixed assets of the company". Thereafter, the first respondent filed an application C. A. No. 462 of 2006 seeking for modification of the said order and after hearing the parties I passed the following order on December 14, 2006. "Subject to final order on the allotment of shares to the fourth respondent and on co-option of four directors on September 26, 2006, I direct the company to maintain the status quo as of date in regard to the shareholding in the company as also its fixed assets. The company is permitted to hold board meetings with ten days notice to all the directors along with the agenda and the four directors co-opted on September 26, 2006, may attend and participate in the board meetings but they shall not vote on any resolution that may come up for a decision in the board meetings". Media West got a road map prepared for revival of the company for consideration of the board which the board declined to consider and the committee of management was disbanded in a board meeting on May 12, 2007, that is during the pendency of the present proceeding. Media West filed an application seeking for a direction to the board to consider the road map while the first petitioner filed an application alleging that Media West has taken over the management in spite of the order of this Bench. The arguments were advanced on both the petition and the applications.
The second respondent is the chairman of UNI, the third respondent is the general manager of UNI, the fourth is Media West to which shares were allotted, the fifth respondent is a nominee director of Media West and he controls Essel group of which Media West is a part, respondents Nos. 6 to 16 are the directors of UNI, of which respondents Nos. 6 to 8 are the nominees of Media West and the sixteenth respondent is the nominee of the first petitioner. Media West has filed its reply and a common reply has been filed on behalf of respondents Nos. 1 to 3, by the third respondent who is the general manager of UNI.
Before I elaborate the arguments of counsel, 1 consider it appropriate to extract the relevant articles of the articles of association of the company which have a bearing on the issues raised in the petition:
"Article 4: Shares can be allotted or transferred only to owners of newspapers: 'Notwithstanding anything contained in these articles no share or shares shall be allotted or transferred to any person other than the owner or owners of a newspaper or newspapers published in the Union of India. The "owners" referred to above may be an individual residing in India or a body corporate with its registered office situated in the Union of India. The decision of the board as to whether a person is eligible to become or be or remain a member of the company shall be final and binding'.
Article 8. Allotment of shares -. Subject to the provisions of section 81 of the Act, the shares shall be under the control of the board who may allot or otherwise dispose of the same to such persons subject to article 4 on such terms and conditions and either at a premium or at par or subject to the provisions of section 79 of the Act at a discount and at such terms as the board may think fit.
Article 47. 'Rights issue: Subject to any direction to the contrary that may be given in the meeting that sanctions the increase in capital, all new shares shall be offered to the persons who, at the date of the offer, holders of the shares of the company in proportion as near as circumstances admit, to the capital paid-up on these shares at the date, and such offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined; and after the expiration of such time as specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such a notice is given, that he declines to accept the shares offered, the board may dispose of the same in such manner as they think most beneficial to the company. The offer aforesaid shall be deemed to include all rights exercisable by the persons concerned to renounce the shares offered to him or any of them in favour of any other person and the notice referred to above shall contain a statement of these rights'. The highlighted portion of the article is a reproduction of section 81(l)(d) of the Act which deals with rights issue of shares.
Article 89. Appointment of additional director: 'The company in general meeting may, and from time to time, appoint any other qualified person as a director, either to fill up a casual vacancy or as an addition to the board, but so that the total number of directors shall not at any time exceed the maximum number fixed. Any director so appointed shall hold office only until the conclusion of the next following annual general meeting of the company but shall be eligible for re-election at such meeting.'
Article 90. Who can be appointed director: '(a) Except as mentioned in sub-clause (b) of this article no person shall be a director of the company unless he is himself a member of the company or is nominated by a member which is a body corporate and holding shares in the company.
(b) Subject to the maximum number of directors not exceeding fifteen as stated in clause 85 hereinabove, the directors may co-opt as directors not more than two persons who are men prominent in the public life of India, and such co-opted directors need not be members of the company. Such co-opted directors may hold office for such time as may be prescribed by the board of directors at the time they are co-opted and/or may be re-appointed from time to time. The regulation under article 101 shall not apply to such co-opted directors'."
The arguments of Shri Sarkar, senior advocate, appearing for the petitioners: The company is a non-profit organisation registered under section 25 of the Act and the main...
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