# HASMUKHLAL MADHAVLAL PATEL AND ANR v. AMBIKA FOOD PRODUCTS PVT. LTD. AND ORS

- **Citation:** [2023] 8 S.C.R. 243
- **Court:** Supreme Court of India
- **Decided:** 2023-06-15
- **Case number:** Civil Appeal No. 8194 of 2018
- **Bench:** K. M. Joseph, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hasmukhlal-madhavlal-patel-and-anr-v-ambika-food-products-pvt-ltd-and-ors-37545
- **Pages:** 40

## Headnote

Companies Act, 1956 - s. 2(32), 81, 81(1A), 81(3), 397, 398
- Companies Act, 1913 - s. 105-C - First respondent is a private
limited company having authorised capital of Rs.1 crore - There
are three groups i.e. HMP, S and VPP - Appellant nos. 1 and 2
described as the 'HMP' Group had 30.80% of the paid up share
capital - 'S' Group represented by respondent nos. 4 & 5 had 45
per cent share and 'VPP' Group represented by respondent nos. 2
& 3 had 24.20 percentage in the paid-up capital - In response to
the proposal for a term-loan made by the appellants, Bank advised
them to increase Share Capital for minimum level of Rs. 2 Crore -
First respondent company send a Notice to its Directors, four in
number, viz., the appellants and Respondents 2 & 3 - Meeting was
convened on 18.12.2009 - Directors of 'S' group resigned earlier
and directors of 'VPP' Group were granted leave of absence - In
the said meeting, the company proposed to issue further shares to
its existing members in the ratio of 1:1 - S and VPP group sought to
treat the first respondent company as disputed company - Thereafter,
in minutes of Extraordinary General meeting of shareholders
(27.01.2010), the authorised share capital of the company was
increased to 2 crores - VPP Group and the S Group, purported to
project a case of mismanagement and oppression by the appellants
in the petitions u/s. 397 and 398 of the Companies Act, 1956 -
NCLT found that the increase in the share capital and the allotment
of shares itself, was not an act of oppression of the rights - NCLAT
found that the allotment in the ratio of 1:1 was not oppressive -
However, the manner in which allotment is done, may be illegal
and, thus, oppressive - The act of increase in the share capital was
upheld - The distribution of shares was 'defective' - On appeal,
held: The authorised capital of a company, which is also known as
nominal capital of the company, represents the maximum number of
shares that can be issued - It must be indicated in the Memorandum
 [2023] 8 S.C.R. 243
243
A
B
C
D
E
F
G
H
244
SUPREME COURT REPORTS
[2023] 8 S.C.R.
of Association - It can be increased only by the company by passing
a resolution in a General Body Meeting - By the Resolution dated
18.12.2009, the Board of Directors had not actually purported to
increase the Authorised Capital - The contents of the last paragraph
of the Resolution, makes it abundantly clear that the Board of
Directors was aware that the power lay with the General Body of
shareholders to bring about an increase in the authorised capital -
It has, no doubt, undertaken to resolve to issue further capital,
even though it could be said that as on 18.12.2009, there was 'no
further capital' subsisting in terms of the limit of Rs. 1 crore, which
constituted the Authorised Capital as on 18.12.2009 - What is more
shares have been offered on a ratio of 1:1 to the existing
shareholders - They were given the choice of refusal or to apply
for more or lesser number of shares - This is not a case where the
Resolution was to allot the further shares to the Directors or
Members of their Group alone - There is a concurrent finding that
the decision to go in for increase in capital, viz., Authorised Capital,
was not vulnerable to attack - The decision was based on the advice
given by the Bank - The purpose of the Board of Directors to
increase the capital has been admittedly found to be bona fide - An
incidental gain, namely the change in the shareholding pattern is
entirely the inevitable result of the refusal of the respondent's groups
to apply - On the whole, in the facts, the appellants cannot be
described as having acted in a defective or in an unfair manner, in
the matter of allotment of further shares particularly when the
contention of the respondents about the bona fides of the decision
to increase the authorised capital has been found in favour of the
appellants.
Partly allowing the appeals, the Court
HELD: 1.1 The Authorised Capital of a company, which is
als

## Text

_Characters 0–39,805 of 87,880. This is a partial read: ask again with offset=39805 for what follows._

A
B
C
D
E
F
G
H
243
HASMUKHLAL MADHAVLAL PATEL AND ANR.
v.
AMBIKA FOOD PRODUCTS PVT. LTD. AND ORS.
(Civil Appeal No. 8194 of 2018)
JUNE 15, 2023
[K. M. JOSEPH AND B. V. NAGARATHNA, JJ.]
Companies Act, 1956 - s. 2(32), 81, 81(1A), 81(3), 397, 398
- Companies Act, 1913 - s. 105-C - First respondent is a private
limited company having authorised capital of Rs.1 crore - There
are three groups i.e. HMP, S and VPP - Appellant nos. 1 and 2
described as the 'HMP' Group had 30.80% of the paid up share
capital - 'S' Group represented by respondent nos. 4 & 5 had 45
per cent share and 'VPP' Group represented by respondent nos. 2
& 3 had 24.20 percentage in the paid-up capital - In response to
the proposal for a term-loan made by the appellants, Bank advised
them to increase Share Capital for minimum level of Rs. 2 Crore -
First respondent company send a Notice to its Directors, four in
number, viz., the appellants and Respondents 2 & 3 - Meeting was
convened on 18.12.2009 - Directors of 'S' group resigned earlier
and directors of 'VPP' Group were granted leave of absence - In
the said meeting, the company proposed to issue further shares to
its existing members in the ratio of 1:1 - S and VPP group sought to
treat the first respondent company as disputed company - Thereafter,
in minutes of Extraordinary General meeting of shareholders
(27.01.2010), the authorised share capital of the company was
increased to 2 crores - VPP Group and the S Group, purported to
project a case of mismanagement and oppression by the appellants
in the petitions u/s. 397 and 398 of the Companies Act, 1956 -
NCLT found that the increase in the share capital and the allotment
of shares itself, was not an act of oppression of the rights - NCLAT
found that the allotment in the ratio of 1:1 was not oppressive -
However, the manner in which allotment is done, may be illegal
and, thus, oppressive - The act of increase in the share capital was
upheld - The distribution of shares was 'defective' - On appeal,
held: The authorised capital of a company, which is also known as
nominal capital of the company, represents the maximum number of
shares that can be issued - It must be indicated in the Memorandum
 [2023] 8 S.C.R. 243
243
A
B
C
D
E
F
G
H
244
SUPREME COURT REPORTS
[2023] 8 S.C.R.
of Association - It can be increased only by the company by passing
a resolution in a General Body Meeting - By the Resolution dated
18.12.2009, the Board of Directors had not actually purported to
increase the Authorised Capital - The contents of the last paragraph
of the Resolution, makes it abundantly clear that the Board of
Directors was aware that the power lay with the General Body of
shareholders to bring about an increase in the authorised capital -
It has, no doubt, undertaken to resolve to issue further capital,
even though it could be said that as on 18.12.2009, there was 'no
further capital' subsisting in terms of the limit of Rs. 1 crore, which
constituted the Authorised Capital as on 18.12.2009 - What is more
shares have been offered on a ratio of 1:1 to the existing
shareholders - They were given the choice of refusal or to apply
for more or lesser number of shares - This is not a case where the
Resolution was to allot the further shares to the Directors or
Members of their Group alone - There is a concurrent finding that
the decision to go in for increase in capital, viz., Authorised Capital,
was not vulnerable to attack - The decision was based on the advice
given by the Bank - The purpose of the Board of Directors to
increase the capital has been admittedly found to be bona fide - An
incidental gain, namely the change in the shareholding pattern is
entirely the inevitable result of the refusal of the respondent's groups
to apply - On the whole, in the facts, the appellants cannot be
described as having acted in a defective or in an unfair manner, in
the matter of allotment of further shares particularly when the
contention of the respondents about the bona fides of the decision
to increase the authorised capital has been found in favour of the
appellants.
Partly allowing the appeals, the Court
HELD: 1.1 The Authorised Capital of a company, which is
also known as nominal capital of the company, represents the
maximum number of shares that can be issued. It must be
indicated in the Memorandum of Association. It can be increased
only by the company by passing a resolution in a General Body
Meeting. In other words, the Authorised Capital cannot be
increased by the Board of Directors. It is out of the Authorised
Capital that a company issues shares. It then becomes the Issued
Capital. Whatever is issued, need not be subscribed to. Whatever
A
B
C
D
E
F
G
H
245
is subscribed to, would become the Subscribed Capital. Paid-up
Capital is defined in Section 2(32) of the Companies Act, 1956 as
including capital credited as paid-up. The Subscribed Capital may
be wholly or partly paid-up. [Paras 67, 68][279-D-G]
1.2 The position under the Companies Act, 1956, under
Section 81, remained the same in that it is only the company, in
its General Body Meeting, which could increase the Authorised
Capital. The position still continued that call it increase in
Subscribed Capital, it must be within the limits of the Authorised
Capital. By the Resolution dated 18.12.2009, the Board of
Directors had not actually purported to increase the Authorised
Capital. The contents of the last paragraph of the Resolution,
makes it abundantly clear that the Board of Directors was aware
that the power lay with the General Body of shareholders to bring
about an increase in the Authorised Capital. It has, no doubt,
undertaken to resolve to issue further capital, even though it
could be said that as on 18.12.2009, there was 'no further capital'
subsisting in terms of the limit of Rs.1 crore, which constituted
the Authorised Capital as on 18.12.2009. The Resolution to allot
the shares in 1:1 ratio and the indication that shares, which are
not applied for, could be the subject matter of allotment to other
shareholders, were all to become operative upon the applications
being considered. The Minutes further reveal that the
consideration of the application was to await the increase in the
Authorised Capital in a duly constituted meeting of the General
Body of shareholders. It is, no doubt, true that the proper way of
doing it could have been to pass a Resolution after the
shareholders resolved to increase the Authorised Capital. It is
equally true that such a Resolution was passed on 27.01.2010.
The question is, as to whether the act of the Board of Directors
attracted the opprobrium of it being an act of oppression. We
would think that the decisions of the Board of Directors on
18.12.2009, understood as a whole, only means that the
Resolution to issue further capital was to become effective only
after the Authorised Capital was duly increased. This is not a
case where the Board of Directors had resolved to allot the shares
otherwise disregarding the mandate of Section 81 of the Act. What
is more shares have been offered on a ratio of 1:1 to the existing
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD.
A
B
C
D
E
F
G
H
246
SUPREME COURT REPORTS
[2023] 8 S.C.R.
shareholders. They were given the choice of refusal or to apply
for more or lesser number of shares. This is not a case where the
Resolution was to allot the further shares to the Directors or
Members of their Group alone. There is a concurrent finding
that the decision to go in for increase in capital, viz., Authorised
Capital, was not vulnerable to attack. The decision was based on
the advice given by the Bank. The purpose of the Board of
Directors to increase the capital has been admittedly found to be
bona fide. An incidental gain, namely the change in the
shareholding pattern is entirely the inevitable result of the refusal
of the respondent's groups to apply. This Court cannot proceed
on the basis that the appellants foresaw and deliberately planned
the whole affair. If only the respondents had applied, the situation
would not have happened. [Paras 71, 72][280-E-H; 281-A-E]
1.3 As far as the aspect that, the purported object was shown
as generating fresh funds but in place of Rs.90 lakhs only Rs.21
lakhs was brought in goes, the fact that the paid-up capital was
apparently shown as credited by cancelling loans due by the
company to the appellants group, should not prevent this Court
from overlooking the fact that the debt-equity ratio has
undoubtedly been improved. It must be borne in mind that the
whole idea was to get funds from the Bank for the expansion of
the company. The case of the respondents that there were loans
due to them also may not advance their case. It would have been
different if the respondents had applied and sought adjustment
of the consideration by cancelling loans given by them to the
company and it was rejected. On the whole, in the facts, the
appellants cannot be described as having acted in a defective or
in an unfair manner, in the matter of allotment of further shares
particularly when the contention of the respondents about the
bona fides of the decision to increase the authorised capital has
been found in favour of the appellants. The appeals are partly
allowed. The direction to allot shares in the impugned order is
set aside. The order for conducting audit will remain undisturbed.
There will be no order as to costs. [Para 73][281-F-H; 282-A]
Nanalal Zaver and another v. Bombay Life Assurance
Company Limited and another AIR 1950 SC 172 :
[1950] SCR 391 - followed.
A
B
C
D
E
F
G
H
247
Dale & Carrington Invt. (P) Ltd. And another v. P.K.
Prathapan and others (2005) 1 SCC 212 : [2004] 4
Suppl. SCR 334 - distinguished.
Needle Industries (India) Ltd. and others v. Needle
Industries Newey (India) Holding Ltd. And others (1981)
3 SCC 333 : [1981] 3 SCR 698 - referred to
Case Law Reference
[1950] SCR 391
followed
Para 6
[2004] 4 Suppl. SCR 334
distinguished
Para 21
[1981] 3 SCR 698
referred to
Para 26
CIVIL APPELLATE JURISDICTION : Civil Appeal No.8194
of 2018.
From the Judgment and Order dated 02.04.2018 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
No.273 of 2017.
With
Civil Appeal No.8195 of 2018.
Ms. Meenakshi Arora, Sr. Adv., Mohit D. Ram, Ms. Monisha
Handa, Rajul Shrivastav, Anubhav Sharma, Advs. for the Appellants.
Ritin Rai, Sr. Adv., S. S. Shroff, Malak Manish Bhatt, Siddharth,
Advs. for the Respondents.
The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. The first respondent is a private limited company. It can also be
described as a closely held private limited company. The authorised
capital of the first respondent was Rs.1 crore. It consisted of ten lakh
equity shares of Rs.10/- each. The paid-up capital was also the same.
There are three groups. Appellants 1 and 2, together and relatives can
be described as the H.M. Patel Group. They had 30.80 percentage of
the paid-up share capital. The next Group to be noticed is the Sheth
Groupwhich is represented by Respondents 4 and 5, viz., Kirti Kumar
Ochachhavlal Sheth and Ashwinikumar Kirtikumar Ochachhavlal Sheth
(hereinafter referred to as, 'the Sheth Group', for short). The Sheth
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD.
A
B
C
D
E
F
G
H
248
SUPREME COURT REPORTS
[2023] 8 S.C.R.
Group had 45 per cent share in the paid-up capital. The third Group is
represented by Respondents 2 and 3, viz., Manish Vipinchandra Patel
and Krunal Vipinchandra Patel. They had 24.20 percentage of the paidup share capital. They are referred to hereinafter as the 'V.P. Patel
Group'.
2. The V.P. Patel Group filed T.P. 197 of 2016 (C.A. 16 of 2012)
whereas the Sheth Group filed T.P. 10 of 2016 (C.P. 86 of 2010). The
first respondent is the company. Respondents 2 and 3, in both the petitions,
are the appellants before us. The V.P. Patel Group and the Sheth Group,
through the aforesaid Petitions, purported to project a case of
mismanagement and oppression by the appellants in the Petitions styled
under Sections 397 and 398 of the Companies Act, 1956 (hereinafter
referred to as 'the Act', for short). By Order dated 17.05.2017, the
NCLT, Ahmedabad Bench disposed of the petitions with the following
directions:
"92. In this set of facts, it is not just and equitable to order winding
up of the company. If the company Is to be wound up it is not in
the interest of the company or and it is not in the interest of the
three groups of shareholders. Therefore, this Tribunal is of the
view that it is just and expedient to give following directions/ orders
in this matter: -
(a) In view of the findings on point No. 3 it is held that increase in
the authorised share capital of company from rupees one crore to
two crores is valid and binding on all the shareholders. However,
the allotment of shares in respect of increased share capital shall
be made to all the existing shareholders of the Company as on
18.12.2009 in proportion to their shareholding. In case if any
shareholder is not willing to subscribe for additional shares, then
those shares shall be allotted to other shareholders taking their
options again proportionate to their shareholding.
(b) In view of findings on point No. 4, the removal of respondents
2 and 3 as directors of the company is not valid.
(c) In view of finding on point No. S, this Tribunal direct that there
shall be audit of accounts of the company from the financial year
2009-20l0 and determine what are the amounts siphoned by each
petitioners and respondents 2to 5 and place the report before the
General Body of the company duly convening Extra Ordinary
A
B
C
D
E
F
G
H
249
General Meeting. The company is directed to take steps for
recovery of such amounts from the concerned persons.
(d) Mis. A.R. Sulakhe& Co., 515, Loha Bhavan, Opp. Old High
Court, Near Income Tax Circle, Ashram Road, Ahmedabad 380009
is appointed as auditors for the purpose auditing accounts of the
company as directed above. The Auditors shall file report before
this Tribunal within two months from the date of this order serving
copy to the company and its directors. Fee of the auditorsis
tentatively fixed at Rs. 50,000/- (Rupees fifty thou sand only).
The auditors are at liberty to ask for further remuneration
depending on work load.
(e) This Tribunal direct the Independent Valuer to determine the
fair value of the shares of the first respondent company as on the
date of filing (CP 85/2010) TP 10/2016.
(f) A.S. Gupta & Co., 203/1 New Cloth Market, 1st Floor, Outside
Raiput Gate, Ahmedabad 380 002 is appointed as independent
valuer to assess the fair value of the shares of the first respondent
company as on the date of filing of this petition taking into
consideration report of the auditors also. Independent valuer shall
file his report fixing fair market value of the shares of the first
respondent company before this Tribunal. Valuer shall take up the
work of assessing valuation of the shares of the company after
report of the auditor is filed. Independent valuer shall file report
before this Tribunal within two months from the date of filing
auditor's report. Any one of the shareholders is at liberty to file an
application before this Tribunal seeking directions/orders regarding
the manner and mode in which the shares of company shall be
sold and who has to purchase and at what value the shares are to
be sold.
(g) Fee of the independent valuer is tentatively fixed at Rs.50,000/
- (Rupees fifty thousand only). The independent valuer is at liberty
to ask for further remuneration depending upon the work load.
(h) Pending completion of the entire process as per this order
there shall not be any alienation of properties both movable and
immovable of the respondent no. 1 company by any of the parties.
(i) Pending completion of the entire process as per this order there
shall not be any allotment of shares or transfer or sale of shares
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
250
SUPREME COURT REPORTS
[2023] 8 S.C.R.
except as indicated in this order.
(j) The company shall bear the fee of independent valuer and
auditors.
(k) Both Petitions are disposed of accordingly. No order as to
costs."
3. The appellants thereupon filed Company Appeals under Section
421 of the Companies Act, 2013, viz., Company Appeals (AT)272 and
273 of 2017 against the Common Order in the aforesaid Petitions. The
National Company Law Appellate Tribunal, New Delhi (NCLAT) has
affirmed substantially the Order passed by the NCLT. The modification
was only in regard to paragraph-92C (supra) of the Order of the NCLT.
The NCLAT substituted the words 'financial year 2008-2009' in place
of '2009-2010'. Affirming the rest of the directions, the Appeals were
disposed of. It is this Order, which is impugned in the Appeals before
this Court.
4. We have heard Smt. Meenakshi Arora, learned Senior Counsel
on behalf of the appellants. We have heard, on the other hand, Shri Nitin
Rai, learned Senior Counsel, on behalf of the V.P. Patel Group and Shri
Malak Manish Bhat, learned Counsel on behalf of the Sheth Group.
5. The bone of contention between the parties has narrowed down
to one issue. The appellants take exception to the Order of the NCLAT,
affirming the direction of the NCLT, by which, allotment of shares in
respect of the increased share capital, was to be made to all the existing
shareholders of the company as on 18.12.2009, in proportion to their
shareholding. It was the further direction in paragraph-92A (supra) of
the NCLT, that in case, if any of the shareholders is not willing to subscribe
for additional shares, then, those shares shall be allotted to other
shareholders, taking their options again, proportionate to their
shareholdings. Smt. Meenakshi Arora, after taking us through the
sequence of facts, would point out that after finding that there was no
mismanagement or oppression, as alleged andthe NCLT and the NCLAT
have clearly erred in regard to the above matter. She would submit that
first respondent is a private limited company. Section 81 of the Act did
not, as such, apply to the company. Nevertheless, this is a case where
the appellants have made an offer to all the existing shareholders and,
what is more, in the ratio of 1:1. All that happened was since the company
was advised that the authorised capital must be increased so that its
A
B
C
D
E
F
G
H
251
capital requirements could be considered, the appellants decided to go in
for increase in the authorised capital. The authorised capital was increased
from Rs.1 crore to Rs.2 crores. She reminds us that this is a case where
the Sheth Group quit in April, 2009 by resigning from the Board of
Directors. They took away nearly 90 lakhs. On account of their activities,
the company had run into rough weather. It was, in such circumstances,
the need for increase in the authorised capital was felt. It is further
pointed out that though the Sheth Group and the V.P. Patel Group
attempted to impugn the decision to increase the authorised capital as an
act of mismanagement and oppression, significantly, the NCLT and
NCLAT have found no merit in the same. Therefore, once the increase
in the capital was not found illegal or malafide, it is inexplicable, it is
submitted, as to how the actual allotment of the shares could be found
tainted. The rationale in the reasoning, viz., that the allotment was
'defective', was insupportable, it is contended. All the shareholders were
given an equal opportunity to apply for shares in proportion to their existing
shareholdings (1:1). They could apply for lesser number of shares. They
could also apply for more number of shares. Lastly, they could exercise
the choice to not apply for any shares at all. This choice was made
available to all the shareholders across the Board falling in the three
Groups. The fact of the matter is the Sheth group and the V.P. Patel
Group did not apply. Without finding any illegality otherwise, the NCLT
and NCLAT, it is contended, clearly erred.
6. Per contra, Shri Nitin Rai, learned Senior Counsel, would point
out that the Court must bear in mind that the first respondent is a closely
held company. It is more or less a quasi-partnership and it ran on trust.
The authorised capital of the company was Rs.1 crore. Without the
company, in the General Body Meeting, resolving to increase the
authorised capital, there were no shares, which could have been allotted
by the Board of Directors. In this regard, he sought support from
Judgment of this Court reported in Nanalal Zaver and another v.
Bombay Life Assurance Company Limited and another1. In other
words, the authorised capital was increased by the decision of the General
Body, only on 27.01.2010. However, the Board of Directors decided to
allot shares, which were non-existent, prior to 27.01.2010. The action of
the Board of Directors was unauthorised and impermissible in law. He
further pointed out that even the V.P. Patel Group and also the Sheth
1 AIR 1950 SC 172
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
252
SUPREME COURT REPORTS
[2023] 8 S.C.R.
Group had evinced and manifested their dispute in a formal manner with
the Registrar of Companies. On account of the dealings of the appellants,
the parties were at loggerheads. Though, the contents of the notice sent,
was disputed, however, the matter was not pressed. It is further contended
that the NCLT has found the allotment flawed. This is for the reason
that under law, when allotment of further shares is made by the Board
of Directors, the question of allotment of shares, which are not taken up
by the shareholders, must be taken up only after the shareholders, in the
first place, decline the allotment. In other words, in this case, the appellants
have rolled-up the initial allotment, as also the issue relating to further
allotment of shares in a single decision and notice. The NCLT has
frowned upon the matter and rightly so. No prejudice will be caused, if
impugned direction is upheld. He did take up the contention that the
shares of the company were not got valued and it was issued on par,
viz., at face value of Rs.10/-. The value did not do justice to the actual
valuation of the company, which would have been on the higher side.
But fairly, Shri Nitin Rai acknowledged that this aspect was not, as such,
canvassed before the Tribunal. There is no offer made after 27.01.2010
he points out. He next complained that even proceeding on the basis that
the decision to increase the authorised capital was well advised, it is
noteworthy that only Rs.21 lakhs came in by way of the allotment of the
additional capital. In other words, though the authorised capital was
increased from Rs.1 crore to Rs.2 crores and the whole effort was
purportedly to infuse fresh capital, in substance, only Rs.21 lakhs came
into the coffers of the first respondent company. The additional capital
offered was subscribed only in a sum of Rs.90 lakhs. Besides Rs.21
lakhs, which was brought in, the balance of Rs.69 lakhs was shown
accounted by way of cancelling the loan due from the first respondent
company to the appellants. This would nail the lie of the appellants that
they had acted bonafide and in the best interest of the company. It is
contended that the object of the appellants was to wrest control of a
closely held company and it is this impermissible object, which alone will
be frustrated by this Court upholding the concurrent directions of the
NCLT and NCLAT.
7. Shri Malak Manish Bhat would echo the contentions addressed
by Shri Nitin Rai. The fact that the company is closely held family and
Group Unit, is stressed.
A
B
C
D
E
F
G
H
253
ANALYSIS
8. On 24.11.2009, in response to the proposal for a term-loan
made by the appellants, the Bank of Baroda, undoubtedly, communicated
the following:
"1. We advise you to increase Share Capital for minimum level of
Rs.2Crs.
2. We advise you to expand the board of directors so personal
guarantee of additional eligible can be available to the bank for
increase of bank's exposure.
3. We request you to let us know the full details of Reserve and
Surplus mentioned in your Balance Sheet as of 31.03.2009."
9. On 08.12.2009, the first respondent company send a Notice to
its Directors, four in number, viz., the appellants and Respondents 2 and
3 (the V.P. Patel Group). It must be remembered that the Directors
representing the Sheth Group had resigned earlier in the year. The
meeting was convened to take place on 18.12.2009. In the Agenda for
the Meeting, we find the following, inter alia:
"2. To take note of letter dated 24th November 2009 received
from Bank of Baroda, instructing Company to infuse additional
funds by way of equity for proposal submitted for Term Loan.
3. To decide on the methology to increase the equity.
4. To consider increase in Authorised Share Capital of Company
from Rs.1,00,00,000/- to Rs.2,00,00,000/-."
10. The Meeting did take place on 18.12.2009. The Directors of
the V.P. Patel Group, viz., Manish Patel and Krunal Patel were granted
leave of absence. The first appellant Chaired the Meeting. The second
appellant was the other participant as Director. The following is the
Minutes of the Meeting:
"MINUTES OF MEETING OF THE BOARD OF DIRECTORS
OF AMBIKA FOOD PRODUCT PRIVATE LIMITED HELD
ON 18TH DECEMBER, 2009 AT REGISTERED OFFICE OF
THE COMPANY AT RAJODA PO. BAVLA - 382 220
AHMEDABAD AT 11.00 A.M.
The following Directors were present:
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
254
SUPREME COURT REPORTS
[2023] 8 S.C.R.
1. Mr. Hasmukhbhai Madhavlal Patel.
2. Mr. Dilipkumar M. Patel
1. CHAIRMAN OF THE MEETING
Mr. Hasmukhlal Patel, with the consent of the Directors present,
chaired the meeting.
2. LEAVE OF ABSENCE
Leave of absence was granted to Mr. Manish Patel, Director and
Mr. Krunal Patel, Director.
3. TAKE NOTE OF THE LETTER RECEIVED FROM
BANKOF BARODA:
It was informed to the Board that Company is in receipt of letter
dated 24th November, 2009, advising Company to bring in additional
equity of Rs. 100 Lacs in order meet its requirement for proposed
Term Loan application. Copy of the letter received from the Bank
duly initiated by the Chairman of the purpose of identification was
put before the Board. The Board took note of the same.
4. TO DECIDE MEHODOLOGY TO INCREASE THE
EQUITY.
It was informed to the Board that in order to raise the equity it
would be appropriate that initially offer is made to the existing
shareholders. The Board discussed in detail and was of the opinion
that the considering the present equity offer be made to exiting
shareholders of Company to apply for one equity shares for every
share held. It was then resolved as under:
RESOLVED that pursuant to the requirement of the fresh funds
for expanding the business activity of the Company, Company be
and is hereby authorized to issue 10,00,000 (Ten Lakh) equity
shares of Rs. 10/- each at per to the existing shareholders in the
ratio of one share for every share held.
RESOVLVED FURTHER that shareholders shall have right to
apply for and in case of shares not being subscribed by any other
shareholder be allotted to the shareholder who is willing to take
additional shares.
A
B
C
D
E
F
G
H
255
RESOLVED FURTHER that a notice inviting the shareholders
to subscribe for an get allotted their entitlement be forwarded to
the shareholders in this regards and the same shall be considered
for allotment upon authorized capital for the Company having been
increased."
11. Following this decision, Notice of Extraordinary General Meeting
to be held on 27.01.2010, was given. The shareholders were informed
that as decided in the Meeting on 18.12.2009, the company proposed to
issue further shares to its existing members in the ratio of 1:1. Interested
members were required to exercise their rights on or before the
05.02.2010. Next, it was indicated as follows:
"Please note that this is advance intimation and eligibility to apply
for shares would be subject to approval of the increase in authorised
capital by the shareholders in the EGM to be held on 27th January,
2010.
Application Form for applying shares is attached with this letter."
12. The Special Business, viz., increasing the authorised capital
was specified. The first appellant, as Chairman, was also authorised to
give effect to the Resolutions.
13. The Application Form for applying and getting the equity shares
in the first respondent company, pursuant to the decision dated 18.12.2009,
may be noticed:
"APPLICATION FORM
AMBIKA FOOD PRODUCT PRIVATE LIMITED
NH-8, VILL. RAIODA: TALUKA: BAVLA: DIST:
AHMEDABAD
PIN:382220
Application for applying and getting equity shares allotted in Ambika
Food product Private Limited pursuant to the decision taken by
the Board of Directors in their meeting held on 18th December,
2009.
Name of the Share Holder:
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
256
SUPREME COURT REPORTS
[2023] 8 S.C.R.
Address:
Folio No.:
Number of Share Held: equity share ofRs.10/- each at Par
Number of Shares eligible for application: ___ equity shares
Note for option to be exercised:
- Please tick on the appropriate option below
- Only one option can be exercised
- In correct and more than one selection shall invalidate the form
and it shall be presumed that last option is exercised.
- In case of non-selection of any option, it shall be presumed, that
last option is exercised.
1. I/We wish to apply for the full number of shares for which I/
We am/are eligible.
a. I/We enclose herewith an amount of Rs. _____ /- towards our
subscription money by way of DD/PO/Cheque No. ___ dated
____ I I 2010.
b. We hereby authorized the company to convert the amount of
unsecured deposit of Rs. _____ /- standing to our credit in the
books of the Company.
2. We wish toapply for lesser no. __ Equity Shares from which I/
We am/are eligible.
a. I/We enclose herewith an amount of Rs. --/- towards our
subscription money by way of DD/PO/Cheque No .. ___ dated I
/ 2010.
b. We hereby authorize the company to convert the amount of
unsecured deposit of Rs. _____ /- sanding to our credit in the
books of the Company.
3. We wish to apply for higher no. __ Equity Shares from which
I/We am/are eligible.
a. I/We enclose herewith an amount of Rs. ____/- towards our
subscription money by way of DD/PO/Cheque No. ___ dated I
12010.
A
B
C
D
E
F
G
H
257
b. We hereby authorize the company to convert the amount of
unsecured deposit of Rs. _____ /- sanding to our credit in the
books of the Company.
4. We do not wish to apply for any shares of the company.
I/We hereby agree to accept the Equity Shares applied for on
such smaller number as may be allotted to me/us subject to the
terms of Application Form and Articles of Association of the
Company.
I/We undertake that I/We will sign all such other documents and
do all such other acts. necessary on my/our part to enable me/us
to be registered as the holder(s) of the Equity Shares which may
be allotted to me/us. I/We authorized you to place my/our name(s)
on the Register of Members of the Company as the holder(s) of
the equity shares and to register and address(es) as given below.
I/We note. that the Board of Directors are entitled in their absolute
discretion to accept or reject this application in whole or in part
without assigning any reason whatsoever.
I/We agree to the allotment of shares subject to the Rules,
Regulations and Conditions laid down by Financial Institutions,
Securities Exchange Board of India if any and Board of Directors
of the Company.
I am/we are Indian National(s) resident in India and 1 am/we are
not applying for Equity Shares as nominee(s) of any person resident
abroad or a foreign national.
(Signature of First Holder)
(Signature of Second Holder)
(Signature of Third Holder)
Date:
Place:
Note:
Above signatures should tally with the signatures on record."
14. On 18.12.2009, the second respondent, viz., Manish Kumar
V. Patel, wrote to the Registrar of Companies, Gujarat, requesting that
the first respondent company be marked as a disputed company and not
to take any documents, papers, forms, including e-forms, on record, as
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
258
SUPREME COURT REPORTS
[2023] 8 S.C.R.
per decision of majority, are not considered. It is stated in the letter that
they would be deprived of their basic rights. It is stated that the appellants
may increase the authorised capital and allot shares to them and
fraudulently take the control of the company. It is further stated that
they were in the process of convening Extraordinary General Meeting,
to be held shortly, to inform the shareholders and resolve to remove the
appellants from the MCA-21 Portal and Record of ROC.We find along
with the same, a communication signed by shareholders, which combined
the Sheth Group and the V.P. Patel Group and consisted of 68.98 per
cent of the shares, supporting the letter seeking to treat the first
respondent company as disputed company.
15. Next, we must notice the Minutes of the Extraordinary General
Meeting of shareholders held on 27.01.2010. The appellants were the
Members, who were present. There was no one from the Sheth Group
or the V.P. Patel Group. The authorised share capital of the company
was increased to Rs.2 crores. On the very same day, a Meeting took
place of the Board of Directors. The appellants participated in the
Meeting. Respondents 2 and 3 were given leave of absence. We find
the following from the Minutes of the said Meeting:
"MINUTES OF MEETING OF THEBOARD OF DIRECTORS
OF AMBIKA FOOD PRODUCTPRIVATE. LIMITED HELD
ON 27, JANUARY, 2010 ATREGISTERED OFFICE OF THE
COMPANY AT RA.JODA PO.BA VLA - 382 220
AHMEDABAD AT 03.00 P.M.
The following Directors were present:
1. Mr. HasmukhbhaiMadhavlal Patel.
2. Mr. Dilipkumar M. Patel
I. CHAIRMAN OF THE MEETING
Mr. Hasmukhlal Patel, with the consent of the Directors
present,chaired the meeting.
2. LEAVEOF ABSENCE
Leave of absence was granted to Mr. Manish Patel, Director and
Mr.Krunal Patel, Director.
3. OUT COME OF EXTRA ORDINARY GENERAL
MEETING:
A
B
C
D
E
F
G
H
259
It was informed to the Board that Share Holders of the Company
haspassed Ordinary Resolution for increase in Authorized Share
Capitalof theCompany from Rs. 1 ,00,00,000/- to Rs. 2,00,00,000/
-. TheBoard has took note of the same. Any one of the director of
theCompany was then authorized to file the necessary Form 5
with theoffice of Registrar of Companies.
4.BOARD MEETING FOR ALLOTMENT OF SHARES:PROP
It was informed to the Board that as mentioned Shares Holders
of theCompany has passed resolution for increase of Authorised
ShareCapital and therefore, and as per the application and notice
alreadycirculated the last date of receipt of application is 5th
February, 2010.It is therefore. proposed to convene meeting of
the Board of Directorsis proposed. to be held on 9th February, 20
l 0, for considering allotment of further issue of Equity Shares.
The Board disuccsed the matter and decided to hold Board Meeting
on 9th February, 2010. It was also informed to the Board that the
Company is taking steps to inform the shareholders about the
outcome of the meeting so that they can take immediate steps to
subscribe to the equity.
5. VOTE OF THANKS:
There being no other business, the meeting ended with vote of
thanks to the chair.
Date: 27.01.2010
DIRECTOR
(HASMUKHBHAI PA TEL)
CHAIRMAN"
(Emphasis supplied)
16. Pursuant to the same, it is the specific case of the appellants
that the shareholders were sent Notices by Registered Post about the
decision of the Extraordinary General Body Meeting so that they could
take steps to subscribe to the additional capital sought to be raised. There
is, indeed, evidence of the Notices. It is true that the respondents still
dispute the receipt of the same.
17. On 09.02.2010, we find the following Minutes of the Meeting
of the Board of Directors, of the said date:
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
260
SUPREME COURT REPORTS
[2023] 8 S.C.R.
"MINUTES OF MEETING OF THE BOARD OF DIRECTORS
OF AMBIKA FOOD PRODUCT PRIVATE LIMITED HELD
ON 9TH FEBRUARY, 2010 AT REGISTERED OFFICE OF THE
COMPANY AT RAJODA PO. BA VLA - 382 220
AHMEDABAD AT 11.00 A.M.
The following Directors were present:
l. Mr. Hasmukii'bhaiMadhavlal Patel.
2. Mr. Dilipkumar M. Patel
1 . CHAIRMAN OF THE MEETING
Mr. Hasmukhlal Patel, with the consent of the Directors present,
chaired the meeting.
2. LEAVE OF ABSENCE
Leave of absence was granted to Mr. Manish Patel, Director and
Mr. Krunal Patel, Director.
3. ALLOTMENT OF SAHRES:
It was informed to the Board that Company has received 7
Applications from Share Holders, who have shown their interest
in further issue of Company. Some of the Share Holders has made
application for higher number of shares then what were offered
to.
The Board then considered the all application received and having
found the same in order passed the following resolutions:
RESOLVED THAT 9,00,000 Equity shares of Rs. 10/- (Ten
Only)@ per be and are hereby allotted to the applicants as under:-
Sr. No.
Name of Allottee
Name of
Share Allotted
1.
Himanshu Madhavlal Patel
165000
2.
Varshaben Hasmukhlal Patel
140000
3.
Dilipkukar Madhavlal Patel
149000
4.
Jyotsna Dilipkumar Patel
185000
5.
Nisatgkumar Hasmukhlal Patel
92000
A
B
C
D
E
F
G
H
261
6.
Bankimkumar Dilipkumar Patel
71000
7.
Dishaben Hasmukhlal Patel
98000
Total
900000
RESOLVED FURTHER THAT company do issue necessary
share certificates for the above shares within the stipulated period
and Mr. Hasmukhlala Patel ad Mr. Dilipkumar Patel be and are
authorised to sign the said certificates under the Common Seal of
the Company.
RESOLVED FURTHER THAT the necessary Return of
Allotment in Form 2 be filed with the Registrar of Companies,
Gujarat.
Date: 09.02.2010
DIRECTOR
(HASMUKHBHAI PATEL)
CHAIRMAN"
THE FINDINGS OF THE NCLT
18. Answering the question, as to whether increase in the paid-up
capital from Rs.1 crore to Rs.2 crores in the Extraordinary General
Body Meeting dated 27.01.2010 was an act of oppression or not, the
NCLT finds that Notices for the Board Meeting on 18.12.2009 were
sent to all the Directors by registered post. In the Board Meeting on
18.12.2009, decision was taken to convene the shareholders meeting on
27.01.2010 to increase Authorised Share Capital. On the date of the
Board Meeting itself, it was found that the V.P. Patel Group wrote to the
Registrar of Companies that the H.M. Patel Group (appellants) is going
to increase the Authorised Capital.Thus, V.P. Patel Group was having
knowledge, it was found, of the proposal to increase the Authorised
Capital. After noting the contention of the Sheth Group and V.P. Patel
Group that they were insisting on the appellants sending communication
by registered post, acknowledgment due, the Notice dated 08.12.2009
to convene the Board Meeting and Notice of the Extraordinary General
Meeting dated 24.12.2009, were sent by registered post. The Tribunal
finds that the V.P. Patel Group shareholders were having knowledge of
the proposal to increase the share capital. The Sheth Group also, with
knowledge, did not chose to participate in the Board Meeting on
HASMUKHLAL MADHAVLAL PATEL v. AMBIKA FOOD
PRODUCTS PVT. LTD. [K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
262
SUPREME COURT REPORTS
[2023] 8 S.C.R.
18.12.2009 and the Extraordinary General Body Meeting on 27.01.2010.
The Tribunal, therefore, rejected the contention of the V.P. Patel Group
and the Sheth Group that they had not received Notice or had no
knowledge of the Board Meeting on 18.12.2009 or the Extraordinary
General Body Meeting on 27.01.2010.