Mumbai: The National Company Law Tribunal (NCLT) has set aside the allotment of 9,500 shares to existing shareholders of Rang Sharda Hotel, located in Bandra Reclamation, following a petition filed by Girish Lotia, Director of the company. The case was brought against Girish's father, Prabhu Das Lotia; mother, Dinmati Lotia; and sisters, Madhavi Bilaney and Poornima Shah, over the alleged illegal allotment of shares.
Girish Lotia challenged the allotment of 35,000 additional shares to the respondents and the appointment of Poornima Shah as a whole-time director. He argued that these actions were executed without his knowledge and consent, reducing his status from a majority to a minority shareholder. The petition sought the cancellation of the additional share allotment and the appointment of Shah as a whole-time director.
The dispute traces back to a development agreement from 1981 between Prabhu Das Lotia and the Rangsharda Pratishthan Trust, granting development rights over a 3,000 square meter property in Bandra Reclamation. A subsequent agreement in 1983 allowed Prabhu Das to nominate his rights to the property.
The trust permitted Prabhu Das to become the managing director of Rang Sharda Hotel without monetary consideration, allotting him 3,000 equity shares at a face value of Rs 100 each. As per the shareholder list, Girish held 500 shares, Prabhu Das 3,000 shares, Dinmati 1,000 shares, and their sister Meena Desai 250 shares.
The NCLT found that records indicated Girish was actively involved in the company's operations as late as 2006, evidenced by his signatures on balance sheets from 2001 to 2006. This undermined his claim of complete ignorance about the 1993 share allotment.
Furthermore, the tribunal observed that despite Girish's contention of an alleged family arrangement to restore his 50% shareholding, he failed to provide any substantial evidence to support this claim or initiate proceedings to enforce it.
Regarding the disputed allotment of 25,500 shares, the NCLT noted that the company was facing financial difficulties, exacerbated by communal unrest and political issues, which affected its ability to meet debt obligations. This suggested a potential justification for the share allotment to raise capital.
The NCLT emphasized the fiduciary duty of the board of directors to act in good faith and disclose all pertinent information to shareholders. It criticized the board's lack of transparency in the share allotment process and found that the allotment was likely an attempt to consolidate control by reducing Girish's shareholding to a negligible minority.
Concluding that the allotment of 9,500 shares constituted an act of oppression against Girish, the NCLT ordered the cancellation of the allotment made in 2009. The tribunal directed the company to rectify its allotment register and member register within one month of the order.
However, it granted the company the liberty to issue new shares in compliance with the Companies Act and its articles of association, considering such allotments as an increase in the company's paid-up capital.
