| The Supreme Court on Wednesday set aside a judgment of the Gujarat High Court which had held that the sale of shares of Mafatlal Industries to National Organic Chemical Industries Ltd (NOCIL) was invalid.
|
| |
| The judgment emphasised that the company court of the high court had no jurisdiction to pass such an order in an amalgamation petition. The high court had approved the amalgamation, but held that the allotment of shares in favour of National Organic was in contravention of an injunction order of the city civil court of Ahmedabad.
|
| |
| The high court ruled so in an amalgamation petition. The Supreme Court bench headed by justice Santosh Hegde stated that the high court went beyond its power to invalidate the sale of shares. The dispute started when certain shares of Mafatlal was allotted to National Organic and three members of Mafatlal challenged in two suits in the civil court.
|
| |
| The court ordered status quo in respect of the allotment of shares. While this status quo order was pending, Mafatlal made a rights issue which doubled the holding of National Organic, raising it to 3 per cent.
|
| |
| Mafatlal then made an application for approving the amalgamation before the high court. The scheme had been approved by 94 per cent of the shareholders of Mafatlal, much beyond the statutory requirement of the Companies Act.
|
| |
| At this stage, Mafatlal questioned the allotment of shares alleging that it was in contravention of the injunction passed by the civil court.
|
| |
| The high court, while approving the amalgamation scheme, found that the allotment of shares in favour of National Organic was in breach of the injunction.
|
| |
| The Supreme Court stressed that the validity of the transfer of shares should have been decided by the civil court and not by the high court in an amalgamation petition.
|
| |
| The high court, while deciding upon the amalgamation, can either approve or reject the scheme. It cannot go beyond that and pass orders on other issues raised by the parties.
|
| |
| The Supreme Court further pointed out that in none of the proceedings National Organic was made a party, though its right to hold shares in Mafatlal was seriously affected.
|
| |
| This was violation of natural justice, the judgment said, while allowing the appeal of National Organic. |
| |
|
| |
Content Guide
