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Issues Involved:
1. Closure of the mill. 2. Cancellation of the adat agreement. 3. Agreement dated 10th January 1958. 4. Execution of the memorandum of equitable mortgage and pledges. 5. Sale of movable and immovable properties to Bharat Kala Bhandar Limited. 6. Payment of debts to directors and their relatives. Detailed Analysis: 1. Closure of the Mill: The mill was closed on 23rd April 1957 due to continued losses since 1949, except for a small profit in 1955. The machinery was old, and the unit was uneconomic. The committee appointed by the Government of Gujarat confirmed that the mill could not operate efficiently without a large rehabilitation program. The closure was not motivated by an ulterior motive to benefit the directors or controlling shareholders but was necessary due to the financial condition of the company. 2. Cancellation of the Adat Agreement: The adat agreement was terminated on 8th December 1957 following a letter from Shah Manilal Mulchand dated 1st December 1957, citing the closure of the mill. The termination was justified as the agreement's obligation was co-extensive with the mill's operation. The termination was not prejudicial to the company's interests as the adat payable was on the higher side, and there was no evidence that finances could not be obtained from other sources at the same rate. 3. Agreement Dated 10th January 1958: This agreement was made to align with the Companies Act, 1956, and was effective from 1st January 1957. The mill was operational until 25th April 1957. Despite the agreement providing for annual remuneration of Rs. 25,000, Messrs. Prahladji Sevakram and Company Limited did not receive any part of this remuneration, negating the petitioners' claim of exploitation. 4. Execution of the Memorandum of Equitable Mortgage and Pledges: Executed on 29th March 1958 to secure debts owed to Shah Manilal Mulchand and other creditors, this action was not oppressive to minority shareholders. The debts were admitted, and the securities were given to avoid distress sales and further financial deterioration. The execution was not a preference over other creditors as there were no other significant unsecured creditors at that time. 5. Sale of Movable and Immovable Properties to Bharat Kala Bhandar Limited: The sale was not at an undervalue; the price of Rs. 11,40,000 was reasonable given the condition of the machinery and the unit. The sale was necessary as the mill could not operate profitably, and the proceeds were used to pay off secured creditors. The sale was not prejudicial to the company's interests. The resolution for the sale was valid, and there was no contravention of section 173 of the Companies Act, 1956. 6. Payment of Debts to Directors and Their Relatives: The sale proceeds were used to pay off the secured creditors, including directors and their relatives. This action was not oppressive as it was necessary to settle the company's debts. The directors and their relatives were also shareholders, and their interests were aligned with the company's financial health. Conclusion: The petitioners failed to establish that the affairs of the company were conducted in a manner oppressive to them or prejudicial to the company's interests. The actions taken by the directors and controlling shareholders were justified and necessary given the financial condition of the company. The petition was dismissed, with each party bearing its own costs.
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