New Delhi, July 14: The Supreme Court has barred Mafatlal Industries Ltd from transferring to third parties any of the shares issued under a disputed 1987 rights issue without its permission. The order was given in a special leave petition filed by Mafatlal Industries against Miheer Mafatlal, a nephew of Arvind Mafatlal.

Two more petitions have been filed by group companies Nocil and Surekha Holdings Pvt Ltd challenging an order of the Gujarat High Court holding that the extra shares allotted to Nocil and Surekha in the 1987 rights issue were invalid. These shares had been allotted to Nocil and Sushripada Investments (a company acquired later by Surekha Holdings) by Mafatlal Industries following undersubscription to its rights issue.

An Ahmedabad city civil court had earlier barred Mafatlal Industries from allotting the undersubscribed portion to anyone other than banks and financial institutions, but the company went ahead and did so anyway.

Since the thrust of the petitions now before the Supreme Court was that the allottes of the rights issue were not heard before the passing of the order, the judges were of the view that the matter must be decided by the lower courts.

Nevertheless, Harish Salve, counsel for Miheer Mafatlal, insisted that Mafatlal Industries was heard before the Gujarat high court passed the order. It was, therefore, necessary that the apex court consider the case. Thus leave to be heard has been granted in the petitions, which shall come up for detailed hearing in the near future.

The dispute between Arvind Mafatlal and his nephew Miheer Mafatlal essentially relates back to April 1987 when the rights issue in Mafatlal Industries Ltd. (MIL) offering 8,10,000 equity shares of Rs 100 each at a premium of Rs 200 per share was announced. This issue was challenged in the city civil court of Ahmedabad by three shareholders of MIL. A stay order was granted in June 1987 and MIL was directed to maintain status quo in respect of the allotment of shares.

Although the subscription to the rights issue closed on July 3, 1987, Miheer Mafatlal did not subscribe to the rights issue.

The petition reveals that in December 1987 the MIL board allotted 5,34,839 equity shares, which included 42,500 shares allotted to Sushripada as rights entitlement. The board of directors of MIL also allotted 1,24,400 shares to Nocil as additional shares in addition to 9,258 shares applied for by it.

About 30,000 shares were allotted by MIL to various other shareholders who had applied for additional shares in the rights issue.

In September, MIL took out another rights issue of 13,45,000 equity shares of Rs 100 each at a premium of Rs 400 per share. This issue was challenged by Miheer Mafatlal in the city civil court of Ahmedabad praying that any additional allotment to any person, including Sushripada and Nocil, out of the unsubscribed portion of the rights equity shares was illegal. The court agreed with him and set aside this allotment which was challenged at various levels.

The main allegation of Miheer Mafatlal is that his holding in MIL was being diluted by Arvind Mafatlal by alloting shares to his close associates. The dispute between the two sections of the family is not limited to these allotments, but also extends to the amalgamation proceedings between MIL and Mafatlal Fine Spinning & Manufacturing Company Ltd. The amalgamation was approved by the Mumbai high court, which was upheld by the apex court in a previous round of litigation.

When a petition was filed in the Gujarat high court for the sanction of the amalgamation of the companies, Miheer Mafatlal objected on the ground that the additional allotment was in breach of the previous court order, and thus the votes cast by the allottees were invalid. Although the single judge of the Gujarat High Court upheld the amalgamation, he held that the additional shares were allotted in breach of the previous court order, and were therefore invalid.

Aggrieved by the orders of the lower courts doubting the validity of their allotments, MIL, Nocil and Sushripada have filed special leave petitions in the apex court.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.