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

Citation: [2023] 8 S.C.R. 243 · Decided: 15-06-2023 · Supreme Court of India · Bench: K.M. JOSEPH · Disposal: Case Partly allowed

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Judgment (excerpt)

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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
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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 

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