1982 (6) TMI 238 - HC - Companies Law

Directors Power of Oppression and Mismanagement Right to apply under section 397 and 398 Power of Tribunal on application under sections 397 and 398

Issues Involved:
1. Competency of the Committee of Management to enter into the proposed terms of settlement.
2. Conduct of the Committee of Management.
3. Scope and effect of the terms of settlement.
4. Allegations of mental and physical incapacity of B.C. Mittal.
5. Allegations against members of the Committee of Management.
6. Allegations of improper sale and undervaluation of the Dankuni unit.
7. Allegations of non-publication of balance-sheets and profit and loss accounts.
8. Allegations of benami purchase by Indra Sen Mittal.
9. Allegations of conflict of interest and improper conduct by the Committee of Management.
10. Allegations of improper advertisement and sale process.
11. Allegations of improper valuation and offer process.
12. Allegations of improper registration and execution of the decree.
13. Locus standi of the appellants.

Detailed Analysis:

1. Competency of the Committee of Management to Enter into the Proposed Terms of Settlement:
The court examined whether the Committee of Management had the authority to enter into the terms of settlement without prior sanction under Section 293 of the Companies Act. It was concluded that Section 293 did not apply as the Committee of Management was not the board of directors and was functioning under the court's appointment. The court emphasized that the Committee of Management must act under the court's supervision and direction but did not require prior sanction for the transaction in question.

2. Conduct of the Committee of Management:
The appellants alleged that the Committee of Management was acting under the influence of Indra Sen Mittal and was not managing the company's affairs properly. The court found that the Committee of Management, consisting of independent members and representatives from financial institutions, was functioning with diligence and bona fide intentions. The court did not find sufficient evidence to support the allegations of misconduct.

3. Scope and Effect of the Terms of Settlement:
The court upheld the terms of settlement, noting that the Bank of India, a major creditor, had agreed to the terms after due consideration. The court found that the settlement was in the best interest of the company and its creditors, and there was no evidence of mala fides in the transaction.

4. Allegations of Mental and Physical Incapacity of B.C. Mittal:
The appellants claimed that B.C. Mittal was mentally and physically incapable of participating in the company's affairs. The court noted this allegation but did not find it relevant to the decision on the terms of settlement, as the Committee of Management was functioning independently of B.C. Mittal's condition.

5. Allegations Against Members of the Committee of Management:
The appellants alleged that certain members of the Committee of Management were acting at the behest of Indra Sen Mittal. The court found that the Committee was functioning with the involvement of independent members and representatives from financial institutions, and there was no substantial evidence to support the allegations.

6. Allegations of Improper Sale and Undervaluation of the Dankuni Unit:
The court considered the appellants' claim that the Dankuni unit was being sold at an undervalue and that the sale process was not conducted properly. The court found that the sale price was consistent with the valuation and that the Bank of India, a major creditor, had agreed to the terms. The court did not find sufficient grounds to invalidate the sale.

7. Allegations of Non-Publication of Balance-Sheets and Profit and Loss Accounts:
The appellants alleged that the Committee of Management had not published balance-sheets and profit and loss accounts for several years. The court noted that the Committee had faced difficulties in obtaining the company's books and records but had made efforts to prepare and audit the accounts. The court did not find this issue sufficient to affect the validity of the terms of settlement.

8. Allegations of Benami Purchase by Indra Sen Mittal:
The court examined the appellants' claim that Indra Sen Mittal was attempting a benami purchase of the Dankuni unit. The court found no substantial evidence to support this allegation and noted that the sale process involved independent parties and financial institutions.

9. Allegations of Conflict of Interest and Improper Conduct by the Committee of Management:
The court considered the appellants' allegations of conflict of interest and improper conduct by the Committee of Management. The court found that the Committee was functioning with the involvement of independent members and representatives from financial institutions, and there was no substantial evidence to support the allegations.

10. Allegations of Improper Advertisement and Sale Process:
The court acknowledged that the advertisement for the sale of the Dankuni unit could have been more specific and clear. However, the court found that the overall sale process was conducted in a manner that was consistent with the interests of the company and its creditors.

11. Allegations of Improper Valuation and Offer Process:
The court noted that the valuation report was not produced before the learned trial judge but found that the sale price was consistent with the valuation. The court did not find this issue sufficient to invalidate the sale.

12. Allegations of Improper Registration and Execution of the Decree:
The court considered the appellants' claim that the decree was not properly registered. The court found that the terms of settlement did not transfer any immovable property and that the decree itself would be duly registered.

13. Locus Standi of the Appellants:
The court examined whether the appellants had the locus standi to challenge the terms of settlement. The court found that the appellants, being shareholders who had supported the original application under Section 397, had sufficient locus standi to be heard and to be added as parties in their own names.

Conclusion:
The court dismissed the appeal, upholding the terms of settlement and the sale of the Dankuni unit. The court found that the Committee of Management had acted within its authority and that the sale process was conducted in a manner consistent with the interests of the company and its creditors. The court also allowed the appellants to be added as parties to the original application under Section 397 of the Companies Act.

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