C.A. No. 194 of 2012 in C.P. No. 86 of 2012. Case: Aruna Hotels Ltd. and Others Vs Kamal Babbar and Others. Company Law Board

Case NumberC.A. No. 194 of 2012 in C.P. No. 86 of 2012
CounselFor Appellant: T.K. Bhaskar and For Respondents: R. Sankaranarayanan
JudgesKanthi Narahari, Member (J)
IssueCompanies Act, 1956 - Sections 397, 398, 399, 399(1), 80
Judgement DateDecember 24, 2012
CourtCompany Law Board


Kanthi Narahari, Member (J), (Chennai Bench)

1. The present company application has been filed under regulation 44 of the Company Law Board Regulations, 1991, by the respondents praying this Bench to dismiss the petition as not maintainable. Shri T.K. Bhaskar, learned counsel appearing on behalf of the applicants/respondents submitted that the company petition filed by the first respondent/petitioner is not maintainable as the first respondent/petitioner does not fulfill the criteria for eligibility to file or maintain the petition. The applicant is constrained to file the present application challenging the maintainability of the above company petition. This application is being filed to seek the dismissal of the company petition in limine on the basis that the first respondent/petitioner, does not fulfill the eligibility criteria under section 399 of the Companies Act, 1956. He submitted that the present authorised share capital of the first applicant-company is Rs. 32,00,00,000 divided into 2,40,00,000 equity shares of Rs. 10 each and 8,00,000 redeemable cumulative preference shares of Rs. 100 each. The total paid-up share capital of the first applicant-company is as follows:

2. He further submitted that the abovementioned 2,00,000 (16.5 per cent.) redeemable cumulative preference shares of Rs. 100 each, amounting to Rs. 2 crores, were issued to PNB Capital Market Services Ltd. ("PNB Cap") pursuant to the loan of Rs. 2 crores provided by PNB. Though these shares were eligible for redemption in 1997, it has not been redeemed and PNB Cap continued to hold the said preference shares even as of date. It is submitted that section 80 of the Companies Act, 1956, clearly specifies that preference shares can be redeemed only out of the profits of the company or out of proceeds of fresh issue of shares made for the purpose of redemption. In 2005, the first applicant-company, being a loss making entity, was unable to redeem the said shares in 1997 because it had no profits and it could not make any fresh issue of shares. However, PNB being the creditor of the first applicant-company, it was advised that the first applicant-company should pay Rs. 2 crores to PNB Capital Market Services Ltd., and account the same as "loan". The first applicant-company paid to PNB the said amount of Rs. 2 crores in 1998-99 and it has since been accounted for as "loans and advances" in the books of the first applicant-company. Upon perusal of every audited balance-sheet of the company, it would be evident that the said preference shares have not been redeemed and are shown as part of the share capital schedule and on the asset side the schedule of loans and advances includes the above amount of Rs. 2 crores.

3. Learned, counsel further submitted that the allegation contained in paragraph 2(b) of the petition is denied as false and baseless as it is incorrect to state that the 2,00,000 redeemable cumulative preference shares have been already redeemed in the year 2005 itself. It is also incorrect to state that the audited financial statement fails to mention such redemption and reduce the total paid-up capital accordingly. The 2,00,000 redeemable...

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