Calcutta High Court Sets Aside Order Restraining IIBI From Redemption Of ₹221.08 Crore Preference Shares At 20% Value

The Calcutta High Court on March 12 allowed an appeal filed by Industrial Investment Bank of India Limited (IIBI). The court set aside a single judge's order that had confirmed an interim direction requiring the bank to set apart properties worth Rs 2 crore in a dispute relating to a resolution adopted in its 13th Annual General Meeting regarding redemption of preference shares.

While allowing IIBI's appeal, the Division Bench of Justices Debangsu Basak and Md. Shabbar Rashidi observed:

“Therefore, on the basis of discussions made hereinbefore, we are of the opinion that the impugned order confirming the order dated December 11, 2013, cannot be sustained. Accordingly, the impugned order is hereby set aside.”

IIBI was originally set up as the Industrial Reconstruction Corporation of India in 1971 to revive sick industrial units. It was later renamed in 1997 and operated from Kolkata, providing project finance. Due to rising NPAs, the institution was eventually closed and finally liquidated in 2012.

The dispute concerned a resolution passed at the bank's 13th Annual General Meeting held on September 20, 2010. The resolution approved redemption of redeemable cumulative preference shares amounting to Rs 221.08 crore, across multiple series, at 20% of the principal amount as full and final settlement

Persis A. Khambatta and others were holders of C-series redeemable cumulative preference shares worth Rs. 1 crore purchased in December 1998. They challenged the resolution, claiming that their rights as a specific class of shareholders were altered without following the procedure prescribed under Section 106 of the Companies Act, 1956.

They argued that no separate meeting of C-class preference shareholders had been convened. According to them, the resolution was therefore illegal.

IIBI, however, contended that the resolution was valid. It said written consent had already been obtained from more than 75% of the preference shareholders before the meeting.

The bank also produced documents including the AGM notice, attendance sheets, minutes of the meeting, and consent letters. These were relied on to demonstrate compliance with statutory requirements.

The court examined the materials and noted that preference shareholders representing about 85.5% of the share capital had already conveyed their consent to the proposal before the AGM. The court held that consent of shareholders representing more than three-fourths of the share capital had been obtained, satisfying the requirement under Section 106 of the Companies Act, 1956.

The bench observed, “The allegation that the terms were altered in violation of the provisions contained in Section 106 of the Act does not stand.”

The division bench therefore set aside the impugned order. The appeal filed by IIBI was allowed.