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2017 (5) TMI 853 - Tri - Companies LawDemerger - Held that - We are convinced that the petitioners and respondents cannot get along and conduct business of the company. Both the parties have agreed to the parting of the ways by giving exit to the petitioners. We hold that it would be just and proper that the respondent group namely, R-2 to R-13 and particularly R-2 and R-3, who are admittedly in the control of the affairs of the company be directed to buy out the shares held by the petitioners in the company at a fair price to be determined by an independent valuer. The instant petition therefore stands disposed of with the following orders A. As discussed the alleged violators of section 314 namely, S.Gursimran Singh Grewal (R-3), S.Paramvir Singh Grewal (R-4), S.Saminder Singh Grewal (R-6), S.Mandeep Singh Grewal (R-10) and Mrs.Harsimran Dutta (R-11) are required to refund to the respondent company, the amount paid to them in excess of the permissible limits u/s 314 along with interest payable at the bank rate enhanced by 2% within 30 days of receipt of this order. For this purpose, the bank rate applicable as on 31st March of each of the financial year shall be taken. B. M/s Ernst & Young, 6th floor, Wing A & B, Worldmark-1, Aero city, IG1 airport Hospitality District, Opp. Holiday Inn, Mahipalpur, New Delhi 110037 is appointed from out of the list of valuers submitted by the petitioners and agreed to by the respondents, as an independent valuer for fair value of the shares held by the petitioners of the company. The cut- off date for determining the value of the shares will be 31.3.2007 i.e, the date nearest to the filing of the petition. While computing the share value, the Valuers Shall also consider the asset based valuation as the Respondent Company has a large asset base. C. The date of filing of the petition is April 2007. Hence, the said valuer will find out the fair value of the shares of the company as on 31.3.2007 on the basis of going concern by all recognised methods and applicable rules and regulations as applicable on the said date in this regard. D. The parties are directed to extend every cooperation to the said Valuer. The company shall submit all the necessary documents and papers for the purpose of valuation as desired/required by the said Valuer. E. The valuation report shall be prepared within 90 days from the date of receipt of copy of this order. F. Copy of the report shall be supplied to the parties who shall be entitled to file their respective objections, if any, to the valuation of the shares. After receipt of the objections the valuer shall dispose of the same within four weeks and shall prepare a comprehensive/speaking supplementary report dealing with each and every objection. Thereafter, the Valuer shall send final report to the parties. G. After determination of the value of the shares, the respondents 2 to 13 shall pay the amount to the petitioners, other than those who have withdrawn from the petition and whose application for withdrawal is pending (as per (he petitioners shareholding proportions) within 30 days thereof and upon receipt of the amount, the petitioners shall execute all the documents/deeds necessary for the transfer of the shares held by the petitioners of the company in favour of the respondents and/or their nominees within two weeks. H. In case, the respondents decline to purchase the shares of the petitioners as aforesaid at the determined share value, the petitioners shall have the right to purchase the same from the respondents. The procedure and the time line as detailed above shall be followed. I. The remuneration of the Valuer shall be negotiated and paid by the company in three equal instalments. First instalment shall be paid on the commencement of the valuation process and the second instalment shall be paid after submission of the valuation report by the Valuer within the stipulated period. The third and final instalment shall be paid to the valuer after submission of the final report together with objections and the supplementary report.
Issues Involved:
1. Violation of Section 314 of the Companies Act, 1956. 2. Improper appointment and remuneration of directors. 3. Allegations of oppression and mismanagement. 4. Purchase of a second-hand 22-inch rolling mill. 5. Writing off debt of ?7.22 crores. 6. Dilution of cheque signing authority. 7. Mismanagement regarding increase in rent for the guest house. 8. Subsequent events post-filing of the petition. 9. Request for exit of petitioners from the company. Detailed Analysis: 1. Violation of Section 314 of the Companies Act, 1956: The petitioners alleged that certain relatives of directors were employed with salaries exceeding the limits prescribed under Section 314 without the required special resolution or Central Government sanction. The Tribunal found that these violations were statutory and could not be waived by the consent of the parties. The respondents were directed to recover the excess emoluments paid or seek permission from the Central Government to waive the recovery. 2. Improper Appointment and Remuneration of Directors: - Smt. Jitender Kaur Punia (R-9): The petitioners alleged she was paid without performing any duties. The Tribunal dismissed this allegation due to lack of evidence and her subsequent death. - S. Gurparshad Singh Grewal (R-7) and Ms. Kushal Grewal (R-8): These allegations were not pressed in the written submissions, leading to their dismissal. - S. Saminder Singh Grewal (R-6): His appointment was challenged due to violation of Section 314. The Tribunal directed recovery of excess remuneration as discussed above. - S. Pritpal Singh Grewal (R-2) and S. Gursimran Singh Grewal (R-3): The Tribunal found no infirmity in their appointments as managing directors, rejecting the petitioners' claims of seniority and qualification requirements. 3. Allegations of Oppression and Mismanagement: The petitioners claimed various acts of oppression and mismanagement, including the systematic reduction of dividends and exclusion from management roles. The Tribunal found that most allegations were business decisions or directorial complaints, not meeting the threshold for oppression or mismanagement under Sections 397 and 398. 4. Purchase of a Second-hand 22-inch Rolling Mill: The petitioners questioned the feasibility and necessity of purchasing the mill without a detailed report. The Tribunal, citing business judgment rule, dismissed this allegation, noting that such decisions fall within the domain of business management. 5. Writing Off Debt of ?7.22 Crores: The petitioners alleged this was done to benefit from tax deductions. The Tribunal dismissed this claim, noting that writing off debts is a common business practice and was accepted by the Income Tax Department. 6. Dilution of Cheque Signing Authority: The petitioners argued that P-1's cheque signing authority was diluted, effectively excluding him from financial decisions. The Tribunal found this to be a business decision and dismissed the allegation. 7. Mismanagement Regarding Increase in Rent for the Guest House: The petitioners claimed the rent was increased from ?5,000 to ?20,000 per month to favor certain shareholders. The Tribunal dismissed this, finding the increase reasonable after ten years. 8. Subsequent Events Post-filing of the Petition: The Tribunal considered subsequent events connected to the original cause of action, despite the respondents' objections. These included allegations of further mismanagement and financial irregularities. However, the Tribunal found these to be business decisions and declined to interfere. 9. Request for Exit of Petitioners from the Company: Both parties agreed to the petitioners' exit from the company upon payment of fair value for their shares. The Tribunal appointed Ernst & Young as an independent valuer to determine the fair value of shares as of 31.03.2007, with interest compounded at the bank rate plus 2%. The valuation report is to be prepared within 90 days, with objections to be addressed in a supplementary report. The respondents are directed to buy out the petitioners' shares at the determined value, failing which the petitioners may buy the respondents' shares. Conclusion: The Tribunal directed the recovery of excess remuneration paid in violation of Section 314, dismissed most allegations of oppression and mismanagement, and ordered the exit of petitioners from the company at a fair value determined by an independent valuer. The decision emphasizes the distinction between statutory violations and business decisions, providing a structured exit mechanism to resolve the family dispute within the company.
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