No Injunction Against Rights Issue—Share Dilution Is CoC’s Commercial Choice | NCLAT

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Injunction Against Rights Issue

Case Details: Glas Trust Co. LLC v. Shailendra Ajmera - (NCLAT) 179 taxmann.com 663 (NCLAT-Chennai)

Judiciary and Counsel Details

  • N. Seshasayee, Judicial Member & Jatindranath Swain, Technical Member
  • C. Aryama Sundaram, Krishnendu Datta, Sr. Advs., Prateek Kumar, Ms Raveena Rai, Siddhant Grover, Ms Moha Paranjpe, Ms Niharika Sharma, Kevin Joseph, Abhi Udai Singh Gautam & Abhishek P., Advs. for the Appellant.
  • Abhinav Vashisht, Gopal Subramanium, Arun Kathpalia, Dr UK Chaudhary, Sr. Advs., Ms Pooja Mahajan, Ms Arveena Sharma, Savar Mahajan, Ichchha Kalash, Ms Samridhi Shrimali, Ms Akshita Sachdeva Jaitly, Sparsh Jain, R. Chandrachud & Vishnu Mohan, Advs. for the Respondent.

Facts of the Case

In the instant case, Think and Learn Pvt. Ltd. (TLPL), the corporate debtor (CD), held about 25.41 % shares in Akash Educational Services Ltd. (Akash). TLPL was admitted to Corporate Insolvency Resolution Process (CIRP) and a Resolution Professional (RP) had been appointed. The appellant, Glas Trust Company, holding 99.41 % voting share in the Committee of Creditors of TLPL, alleged that Akash’s proposed rights issue and increase in authorised share capital would reduce TLPL’s shareholding from about 25 per cent to nearly 5 per cent and diminish its value. The appellant accordingly sought an injunction to restrain Akash from convening its proposed extraordinary general meeting and from undertaking any steps that could lead to reduction of TLPL’s shareholding.

NCLAT Held

The NCLAT noted that what Akash proposed was a rights issue, not a public offer, implying that TLPL would be offered shares in proportion to its existing 25.41 per cent stake. If TLPL, acting through its CoC, considered it necessary to maintain value or preserve any strategic influence, it was fully within its right to subscribe to the rights issue. Conversely, if the CoC chose not to subscribe, any consequent reduction of TLPL’s shareholding would be a direct result of the CoC’s commercial decision, in which Akash played no role.

The Appellate Tribunal held that the power to maintain or alter TLPL’s shareholding in Akash vested entirely with the CD/CoC, regardless of any interim status quo order passed by the NCLT. Accordingly, the application seeking to restrain Akash from convening its EGM or proceeding with the rights issue was found to be devoid of merit and was therefore dismissed.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied