2014 (6) TMI 813 - Board - Companies Law

Vacation of interim order - Oppression and mismanagement of company - controversy over the shareholding of the Petitioners - restriction with regard to immovable assets to be mortgaged with the banks/institutions - Held that - the license to construct the Hydro Power Project was obtained by Respondent No.5 i.e. Spacebars Switchgears Ltd. and the said project seems to have been assigned to Respondent No.l Company. However, the Respondent No.l Company has not been able to start the construction activity on the Hydro Power Project till date and has been paying extension fees of Rs.10,000/- per Mega Watt i.e. Rs.50,000/- per month since 1.7.2008. Presently, the Respondent No.l Company is faced with a situation of cancellation of its license to build, own and operate the Sechi-II 5 MW hydro power project, being its only asset. However, on one side, the Respondent/Applicant Advocate alleged that the malafide intention of the Petitioner is evident from the fact that while they claim to be 14% shareholders, they have suppressed the transfer of all their 14% shares and resignation from Board of directors of the Respondent No.l Company. Construction of 5 MW hydro electric project is a capital intensive project and requires an estimated expenditure of Rs.42 crores and hence, it is the necessity to get funding from banks/financial institutions against the security of immovable and movable assets of Respondent No.l Company. Nonetheless, the argument given by the Petitioners Advocate that the heavy burden or the assets of the company cannot be undone, carries some force. But, it is relevant to highlight that the interest of the Respondent Company is supreme and such interest lies in completion of the 5 MW hydro electric project. Therefore, to part finance the project, there is requirement to raise funds from banks/financial institutions against security of immovable and movable assets of the company. Keeping in view the allegations contained in the Company Petition, facts and circumstances explained supra, I am of the considered opinion that the 5 MW hydro electric project be taken up by the Respondent No.l Company by raising loans from banks/financial institutions and the sums so borrowed be utilised for efficient and effective completion of this project without involvement of diversion of funds for other purposes - Interim order stands vacated - Decided in favour of company / respondents.

Summary

Issues Involved:
1. Alleged acts of oppression and mismanagement under Sections 397 & 398 of the Companies Act, 1956.
2. Request to vacate the interim order dated 11.4.2013.
3. Financial implications and the necessity to raise funds for the 5 MW Small Hydro Electric Project.
4. Dispute over shareholding and management control.
5. Allegations of forgery and fraudulent transfer of shares.
6. Compliance with the Implementation Agreement and potential cancellation of the project license.

Detailed Analysis:

1. Alleged Acts of Oppression and Mismanagement:
The Petitioners filed a Company Petition under Sections 397 & 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement by the Respondents. The Petitioners claimed that the Mehra family, in connivance with other Respondents, ousted them from the Board of Directors and forged share transfers and resignation letters.

2. Request to Vacate Interim Order:
The Respondents requested to vacate the interim order dated 11.4.2013, which had halted construction activities on the 5 MW Small Hydro Electric Project. They argued that the project was facing potential cancellation due to delays and the necessity to raise funds against the company's assets to continue construction.

3. Financial Implications and Fundraising Necessity:
The Respondents highlighted the financial urgency, stating that the project required an estimated expenditure of Rs. 42 crores. They emphasized the need to secure funding from banks/financial institutions against the company's immovable and movable assets to avoid license cancellation and financial loss.

4. Dispute Over Shareholding and Management Control:
The Petitioners claimed to be co-promoters and significant shareholders, alleging that their shares were fraudulently transferred. The Respondents countered, stating that the Petitioners had suppressed the transfer of their shares and resignation from the Board. The Mehra Group had sold their shares, and the new management was investing in the project.

5. Allegations of Forgery and Fraudulent Transfer of Shares:
The Petitioners accused the Respondents of forging share transfers and resignation letters to gain control of the company. They filed a petition under Section 482 of the Cr. P.C. in the Punjab & Haryana High Court, which issued a notice of motion and directed the State of Punjab to file a status report on the complaint.

6. Compliance with Implementation Agreement and License Cancellation:
The Respondents stressed the importance of complying with the Implementation Agreement signed with the Government of Himachal Pradesh. They highlighted the risk of license cancellation if construction did not commence promptly. The project was capital-intensive, and securing funding was crucial for its completion.

Judgment:
The Board acknowledged the complexities and financial implications involved. It recognized the necessity of completing the 5 MW hydroelectric project to avoid irreparable loss and financial hardship. The interim order dated 11.4.2013 was vacated for the limited purpose of raising finance from banks/financial institutions against the company's assets. The Respondent Company was directed to submit monthly bank statements showing receipts and payments, with liberty given to the Petitioners to report any diversion of funds.

Conclusion:
The judgment allowed the Respondent Company to secure funding for the hydroelectric project while ensuring transparency and accountability in financial transactions. The Company Application No. 173/2013 was disposed of accordingly, with no order as to costs.