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

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.