2009 (5) TMI 985 - Board - Companies Law

Summary

Issues Involved:
1. Transfer of interest and rights over the Machilipatnam Port Project to a third party.
2. Failure and refusal to provide funds for the Subarnarekha Port Project.
3. Illegal closure of the registered office.
4. Refusal to shift the registered office.
5. Freezing of the company's bank accounts.
6. Forcing petitioners to fund the company from personal sources.
7. Preventing the company from pursuing its lawful objectives.

Detailed Analysis:

1. Transfer of Interest and Rights over the Machilipatnam Port Project:
The petitioners alleged that the respondents transferred the interest and rights over the Machilipatnam Port Project to a third party, depriving the company of business opportunities and profits. The respondents contended that the company or the petitioners had no stake in the Machilipatnam Port Project. However, evidence showed that SREI committed to funding its share through the company, and the project was awarded based on the technical competence of the petitioners. The third respondent's withdrawal from the project without the petitioners' knowledge and the subsequent sale of equity to Maytas and NCC for Rs. 50 crores was deemed oppressive.

2. Failure and Refusal to Provide Funds for the Subarnarekha Port Project:
The petitioners argued that the second respondent failed to provide timely funds for the Subarnarekha Port Project, violating the Investment Agreement. Evidence indicated that the second respondent had met some funding requirements but failed to provide crucial financial support, such as a bank guarantee and strategic expenses, forcing the petitioners to mortgage personal assets. This breach of the Investment Agreement was found to be oppressive and prejudicial to the petitioners.

3. Illegal Closure of the Registered Office:
The petitioners claimed that the second respondent unlawfully locked the registered office, preventing access and halting operations. The respondents did not provide a specific denial or justification for this act. The closure of the registered office was found to be prejudicial to the company's operations and constituted an act of oppression.

4. Refusal to Shift the Registered Office:
The petitioners proposed shifting the registered office to ensure smooth functioning, which was opposed by the respondents. The opposition was deemed unjustifiable, given the paramount interest of the company. The refusal to shift the office contributed to the deadlock and was considered an act of oppression.

5. Freezing of the Company's Bank Accounts:
The respondents instructed the company's bankers to freeze the bank accounts, allegedly to safeguard funds. However, the accounts were jointly operated, and there was no evidence of wrongful withdrawal by the petitioners. The freezing of accounts was found to be prejudicial and oppressive.

6. Forcing Petitioners to Fund the Company from Personal Sources:
Due to the second respondent's failure to provide necessary funds, the petitioners were forced to secure an overdraft facility and a bank guarantee against personal assets. This financial burden was deemed oppressive and contrary to the terms of the Investment Agreement.

7. Preventing the Company from Pursuing its Lawful Objectives:
The cumulative effect of the respondents' actions, including the closure of the registered office, freezing of bank accounts, and failure to provide funds, prevented the company from pursuing its lawful objectives and carrying out profitable projects. These actions were found to be burdensome, harsh, and wrongful, constituting oppression.

Conclusion:
The judgment concluded that the respondents' actions were oppressive and prejudicial to the petitioners. The second respondent was directed to transfer its shares and interests in the company to the petitioners at a price of Rs. 52.50 crores or a fair value determined by an independent valuer. The respondents were also required to reimburse 30% of the benefits derived from the Machilipatnam Port Project to the company. The petitioners were allowed to reconstitute the board of directors, excluding the respondents' nominees, and were required to keep the second respondent informed of major developments in the Subarnarekha Port Project until the exit formalities were completed.