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2020 (11) TMI 757 - Tri - Companies LawOppression and Mismanagement - Extraordinary General Meeting held or not - It is the case of the petitioner that there was no extraordinary general meeting for passing resolution for sale of a major portion of the land held by respondent No. 1-company - HELD THAT - The alleged agreement of sale was not produced before the Advocate Commissioner. Not only the said document was not produced before the Advocate Commissioner, but even before the Tribunal it was not furnished. It is not known why respondents Nos. 1 to 4 are withholding the said document from being produced. The petitioner being a shareholder is entitled to have the information related to sale of a big chunk of land of respondent No. 1-company. The majority shareholders are running the company. Thus, the petitioner, a minority shareholder is being oppressed. Thus, neither proof of extraordinary general meeting nor proof of notice of service to the petitioner, nor copy of the alleged agreement of sale is filed. The next contention of the petitioner is that respondents Nos. 1 to 4 have not filed any documents showing any settlement with the secured creditors of respondent No. 1-company. No proof about terms of settlement with the secured financial creditors. It is the case of respondents Nos. 1 to 4 that in order to meet the one-time settlement proposal entered with secured financial creditors, respondent No. 1-company was forced to sell the land. It is the case of respondents Nos. 1 to 4 that respondent No. 1-company owed ₹ 612 crores to the secured creditors. Besides there were other liabilities to other creditors. There was absolutely no difficulty for respondents Nos. 1 to 4 to produce all the documents connected with the one-time settlement proposal entered with the secured creditors. The purpose behind the sale of a big chunk of land of respondent No. 1-company was to meet the commitments of one-time settlement proposal entered with the financial creditors. If this is the reason, then why respondents Nos. 1 to 4 have not submitted the relevant documents - No resolution approved by the extraordinary general meeting that the land in question was allowed to be sold for meeting the commitments of one-time settlement proposal entered with the secured financial creditors. The contention of learned counsel for respondents Nos. 1 to 4 is that there was no procedure prescribed that notice should be published in newspapers for sale. In all prudence, when the company proposes to sell 400 acres of land, notice could have been published in newspapers in order to get an attractive price for the land. Thus, respondent No. 1-company has not properly conducted the sale transaction and the procedure adopted by respondent No. 1-company is not in tune with the established practice. This is also one of the grounds to set aside the sale entered with respondent No. 14. The serious contention of the petitioner is that the land was allegedly sold for ₹ 4 lakhs per acres bringing the total sale consideration at ₹ 16 crores. Learned counsel for the petitioner would contend that the sale price as per the Ready Reckoner was ₹ 15 lakhs per acre. This extent of land, if sold at ₹ 15 lakhs per acre, it would have fetched ₹ 60 crores - the sale is hit on the ground that it was entered with a related party. It is not in dispute that respondent No. 14 is owned and controlled by Ravi Sanghi, who was promoter and ex-director of respondent No. 1-company. Thus, it is nothing but a related party transaction. Therefore, the sale transaction with respondent No. 14 suffers from several irregularities and it is nothing but an act of oppression and mismanagement on the part of respondents Nos. 1 to 4. The sale transaction therefore, deserves to be set aside being an act of oppression and mismanagement. The next contention of learned counsel for the petitioner is that there was an irregular conversion of partly-paid shares into fully-paid shares. Two crore shares were given as partly-paid shares. ₹ 4 was collected for each share of the value of ₹ 10 at the first instance. Thus, the partly-paid shares were converted into fully-paid shares after receiving balance of ₹ 6 per share. This was done only to meet with the one-time settlement proposal requirements - The petitioner cannot question the conversion of partly-paid shares into fully-paid shares, because need arose for conversion in order to raise money for clearing debt liabilities of respondent No. 1-company. Therefore, this cannot be held as an act of oppression and mismanagement. In fact, the partly-paid shares were issued long prior to the petitioner acquiring the shares in respondent No. 1-company. Therefore, he cannot question issuance of partly-paid shares when he was not a member of respondent No. 1-company. As there was need to raise money, partly-paid shares were converted into fully-paid shares by collecting balance. How this conversion can be said to be oppressive against the petitioner. The case of the petitioner is that he wants to exit from respondent No. 1-company and for the said purpose valuation to be done. If respondent No. 1-company is not ready to purchase shares after taking valuation, then the petitioner may be permitted to sell the shares to a third party. In the alternative to this prayer, the petitioner further asked relief that respondent No. 1-company may be wound up - valuation cannot be done at this stage. Valuable assets of respondent No. 1-company consist of possessing of vast extent of land. Land Ceiling proceedings are pending against the lands possessed by respondent No. 1-company. Whether the lands belong to respondent No. 1-company or the lands to be surrendered to the Government under the Land Ceiling Act is the matter yet to be determined in the Land Ceiling Proceedings started against respondent No. 1-company. Therefore, valuation cannot be taken unless ownership of the lands of respondent No. 1-company is decided. Thus, sale of land by respondent No. 1-company to respondent No. 14 is an act of oppression and mismanagement and as such sale transaction with respondent No. 14 is liable to be set aside. Secondly, the petitioner is allowed to sell its shareholding to the existing shareholder at the price offered by him and in case the existing shareholders of respondent No. 1-company do not wish to purchase the shares at the price offered by the petitioner, then the petitioner is entitled to sell the same to third party. Respondent No. 1-company is further directed to return the sale price to respondent No. 14 along with interest at 12 per cent. per annum from the date of sale till the date of payment. The petition is allowed by cancelling the sale agreement entered with respondent No. 14 for the sale of lands of respondent No. 1-company - petitioner is permitted to sell its shareholding to the existing shareholder of respondent No. 1-company at the rate offered by him. Petition disposed off.
Issues Involved:
1. Alleged oppression and mismanagement by Respondent No. 1. 2. Sale of 400 acres of land to Respondent No. 14. 3. Conversion of partly paid-up shares to fully paid-up shares. 4. Petitioner's request for exit from the company. 5. Petitioner's alternative request for winding up the company. Detailed Analysis: 1. Alleged Oppression and Mismanagement by Respondent No. 1: The petitioner alleged that the respondents engaged in acts of oppression and mismanagement, including selling a significant portion of land at a throwaway price without proper authorization or valuation, and without convening an extraordinary general meeting. The Tribunal found that the sale of land was conducted without proper notice to the petitioner and without a valid resolution from an extraordinary general meeting, constituting an act of oppression and mismanagement. 2. Sale of 400 Acres of Land to Respondent No. 14: The Tribunal noted that the sale of 400 acres of land to Respondent No. 14, a related party, was conducted at a price significantly lower than the market value and the Ready Reckoner price. The sale was also found to be in violation of an interim order by the Company Law Board and lacked transparency as no public notice was issued. The Tribunal concluded that the sale was an act of oppression and mismanagement, and thus, the sale agreement was set aside. Respondent No. 1 was directed to return the sale price to Respondent No. 14 with interest. 3. Conversion of Partly Paid-Up Shares to Fully Paid-Up Shares: The petitioner challenged the conversion of partly paid-up shares to fully paid-up shares, alleging it was done to dilute their shareholding. The Tribunal found that the conversion was necessary to raise funds to meet the debt obligations and was not an act of oppression or mismanagement. The shares were converted to fully paid-up shares to raise money for clearing the company's debt liabilities. 4. Petitioner's Request for Exit from the Company: The petitioner sought to exit from the company by selling their shares at a fair valuation. The Tribunal noted that valuation could not be done at this stage due to pending land ceiling proceedings. However, the petitioner was allowed to sell their shares to existing shareholders at the offered price, and if the existing shareholders were not willing to purchase, the petitioner could sell the shares to a third party. 5. Petitioner's Alternative Request for Winding Up the Company: The Tribunal rejected the request to wind up the company, citing the pending land ceiling proceedings and the unresolved ownership of the company's lands. The Tribunal emphasized that winding up should be a last resort and other remedies should be pursued first. Conclusion: The Tribunal allowed the petition, setting aside the sale agreement with Respondent No. 14 and permitting the petitioner to sell their shares to existing shareholders or third parties. Respondent No. 1 was directed to return the sale price to Respondent No. 14 with interest. The request for winding up the company was denied due to the pending land ceiling proceedings.
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