Allotment Of Shares At Lesser Price, An Oppressive Act Against Existing Members : NCLT Mumbai

The bench held that the allotment of the share value at a face value, which is less than its book value is not in accordance with the provision of Section 42 of the Companies Act.

Brief Facts:

Mr. Ajay R. Tajpuriya and Manoj R. Tajpuriya (“Petitioners”) approached the National Company Law Tribunal, Mumbai-I (“NCLT”) alleging acts of oppression and mismanagement by the respondents and sought various reliefs including appropriate management of the company, appointment of administrators, special auditors, and directors, along with injunctions against the respondents.

The Petitioners argued for the appointment of suitable individuals to oversee company affairs, disclosure of company records, appointment of special auditors, and injunctions against the Goel Ganga Infrastructure & Real Estate Pvt. Ltd. (“Respondents”) to prevent false records or actions detrimental to the company's interests. They contested the legitimacy of certain share allotments, notices, and meetings, and argued for their annulment and reinstatement as directors.

The Petitioners claimed that they initially were equal owners and managers of the company, part of a quasi-partnership agreement between the Tajpuriya and Goel families. However, they alleged a breach of this agreement by the Respondents which included failure to fulfill financial obligations and attempts to increase their shareholding and control over the company.

The Petitioners further argued the misappropriation of funds regarding a loan from HUDCO meant for a construction project, with inadequate disclosure of project expenses and diversion of funds.

The issue of illegal dilution of the Petitioners' shareholding was also raised before the NCLT.

Observations by the NCLT:

The NCLT noted that the Respondents had increased their own shareholdings from 50% to 93.39%, significantly reducing the Petitioners' stake to 6.61%. This dilution was contested by the Petitioners, who argued that the company was initially formed as a quasi-partnership, and such dilution altered the partnership structure to their detriment.

In response, the Respondents argued that the share allotments were conducted in accordance with the procedures outlined in the Companies Act. They contended that the allotments were necessitated by the fresh infusion of capital by the Respondents into the company through share contributions and unsecured loans.

The NCLT held that the shares were allotted to the Respondents at a face value of Rs. 100/-, despite the book value of the company's shares being significantly higher at Rs. 299.86. This discrepancy raised concerns regarding the fairness of the allotment process. The NCLT noted that the Companies Act, 2013 mandates that shares be allotted at a value not less than the fair market value at the time of the offer, which the Respondents failed to demonstrate.

The NCLT held that the allotment of shares at a concessional price, without proper justification, was an oppressive act towards existing members who did not benefit from such allotments. It held that the Respondents took advantage of the Petitioners' unwillingness to contribute further capital to the company.

Therefore, the NCLT held against ordering the winding up of the company and noted the potential adverse effects on stakeholders and the company's ongoing real estate projects. Instead, it directed the Respondents to compensate the company for the difference between the fair value of the shares and the amount actually paid on the allotment, along with interest.

Case Title: Mr. Ajay Tajpuriya & Anr. Vs Goel Ganga Infrastructure & Real Estate Pvt. Ltd. & Ors.

Case Number: T.C.P. NO.08 OF 2014

Advocate for the Petitioner: Nausher Kohli

Advocate for the Respondent: Sumukh Valimbe

Date of Judgment: 22.05.2024

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