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TMI Blog2017 (5) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act. 1956 was also filed for grant of interim relief. 2. It is seen that there are 36 petitioners in the case who are all shareholders of R-1 company. Petitioner No.1 has been given Powers of Attorney and authorisation by each of the other petitioners namely, P-2 to P-36. Respondents R-2 to R-13 are also shareholders of R-1 company, while R-14 and R-15 are proforma respondents, namely the Regional Director of Companies, Noida and the Registrar of Companies, Punjab. R- 1 to R-3 are the only contesting respondents. 3. The National Company Law Tribunal was notified on 01.6.2016. As the Registered office of R1 company is situated at Ludhiana, Punjab, the instant CP was transferred to National Company Law Tribunal, Chandigarh. 4. The brief facts of the case are discussed hereinafter. R-1 company was incorporated as a private limited company on 17.08.1961 and registered with the Registrar of Companies, Jalandhar. Initially, its business of setting up of steel furnace for steel melting and rolling steel was initiated by way of constituting a partnership concern styled as "The National Steel Manufacturing Company, Ludhiana". This partnership was taken over by the R-1 company. The sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Dhallwal (P28) 0.02% 29. Dr. Gurmohan Singh Grewal (P29) 4.3% 30. Mrs. Gretchen Ann Grewal (P30) 4.1% 31. Warren Stuart Grewal (P31) 2% 32. Ms. Gurdeep Kaur (P32) 1.60% 33. Ms. Gurmit Kaur (P33) 1.92% 34. Ms. Kanwal Lehl (P34) 0.12% 35. Lt. Col. Charanjiv Singh Lehl (P35) 0.12% 36. S. Sarabmeet Singh Lehl (P36) 0.12% 37. S. Pritpal Singh Grewal (R2) 3% 1970 38. S. Gursimran Singh (R3) 1.2% 7 March 2007 39. S. Parambir Singh Grewal (R4) 1.2% 40. Dr. Surjit Singh Grewal (R5) 0.9% 1976 4 Oct 2006 41. S. Saminder Singh Grewal (R6) 3.6% 7 March 2007 42. S. Gurparshad Singh Grewal (R7) 3.1% 43. Ms. Kushal Grewal (R8) 2.25% 44. Ms. Jitinder G. Punia (R9) 1.59% 2001 (since deceased) 45. S. Mandeep Singh Grewal (R10) 1.7% 46. Ms. Harsimran Dutta (R11) 1.6% 47. S. Guriqbal Singh Grewal (R12) 6.8% 2002 (since deceased) 48. S. Sant Prasad Singh Grewal (R13) 2.9% 2002 5. Directors of the company; The petition includes year-wise list of directors of the company. It is seen that the R-1 company had Public di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while the other two alleged violators namely, Sardar Saminder Singh Grewal and Sardar Gursimran Singh Grewal were not placed in the agenda. The resolution was not approved. 6.1.3 The petitioners have pointed out that R-3 was appointed as Production Coordinator in 1987 at a monthly remuneration of Rs. 2610/-In 1995-96 he had earned promotion and the annual salary payable became Rs. 1,26,874.50, meaning thereby, he was earning more than Rs. 10,000/- per month. As no special resolution for this appointment was passed, and permission of Central Government as required was not taken and thus, R- 3's appointment was violating the provisions of section 314. Subsequently also, in 2001-02, when his salary was revised beyond Rs. 20,000/- per month and again, no special resolution was passed, nor the permission from Central Government was obtained. This violation was also not addressed. It is also stated that the appointment of R-3 as the CMD as per EOGM of 10.1.2007 is not sustainable under law as he was a violator u/s 314 and is an act of oppression and mismanagement on the part of the majority. 6.1.4 Appointment of Sardar Saminder Singh Grewal as Assistant Manager Marketing in 1997 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned as Principal of the Guru Nanak Dev Engineering College in 1986 His appointment was to expire in June, 2001, but his re-appointment was taken up as a miscellaneous item in the notice calling for Board Meeting on 06 09,2001. In this meeting, he was appointed as Chairman-cum-Managing Director, It is stated that when he was appointed as CMD on 06.9.2001, he was not even a director as his appointment as Joint Managing Director (JMD) was to expire on June, 2001. 6.4.2 In the Board of Directors Meeting held on 15.12.2006 when Sardar Pritpal Singh had already reached the age of 75 years, he informed the Board of Directors that "the family had decided to appoint Sardar Gursimran Singh Grewal (son) as the new Chairman-cum-Director". In the meeting of Board of Directors held on 15.12 2006, it was resolved as per majority that R-3 be appointed as CMD. It is stated in the petition that the objection raised by P-1 that, he (P-1) was a fully qualified person and had looked after the company for the last 43 years, is the right person to be appointed as MD and was also one of the senior persons among the family members who constituted the closely held company, was not recorded. In this meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resolution was passed to consider retirement plan of working directors. The gist of this resolution is that the retiring working directors would be given a monthly pension of Rs. 45,000/- for life and / or lifetime of his or her spouse. It was further resolved that the said retirement policy shall come into effect from the date of retirement of R-2 Managing Director of the company and he was authorised to take due steps to give full effect of the policy. 6.6.2 The petitioners have alleged that this resolution was in violation of section 318 of the Companies Act, 1956 and there is no such provision under the Articles of Association of R-1 company. It is stated that such benefits were granted to Dr. S.S. Grewal who had not retired but had tendered his resignation which was accepted at the AGM held on 25.9.2006. Also, the proposal to make similar payments to Sardar G.P.S. Grewal who had tendered resignation for the benefit of his daughter to be inducted as director be also paid benefit under the retirement plan is in violation of section 318 of Companies Act, 1956. The proposal to pay similar retirement benefits to R-2 who had resigned as MD allegedly with effect from 10/11.01.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised only to affix his signatures along with one of the co-directors belonging to the majority group. 6.12 The Petitioners have pointed that R-2 tendered his resignation from the office of MD by communication dated 10th January. 2007 but the said communication is not indicative as to whether he would continue as a director of the company. It is stated that this resignation was accepted in Board of Directors meeting held on 24.1.2007, but in the draft minutes it was stated that R-2 shall continue as a non-working director of the company and shall act as a Chairman accordingly. Such act is stated to be oppressive. 6.13 The Petitioners have questioned the monetary gain to an individual by an increase of monthly rent of a guest house from Rs. 5000/- per month to Rs. 20,000/- per month as per Board of Directors meeting resolution dated 15.12.2006. It is stated that this rent is paid to one group of shareholders headed by Shri Gurdarshan Singh Tur ostensibly to retain their support as they hold one and a half per cent of the shareholding of the company. 7. The Petitioners have stated that though the facts disclosed by them in the petition justified the winding up of the R-1 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such securities remain effective till the final relief, in regard to reimbursement of the amount is ordered by this Hon'ble Bench. 8. This Company Petition has been pending for almost 10 years. During the pendency of the petition, several Company Applications (CAs) have been filed by both the petitioners and the respondents. Some of these CAs have been disposed of by the erstwhile Company Law Board (CLB) and final orders passed. Some of these orders of CLB have also been agitated before the Hon'ble Punjab and Haryana High Court and decisions obtained in some. However, in other cases, the Hon'ble High Court has declined to interfere and have directed the applicants to await the orders of CLB. 9. After filing the instant company petition, the CLB had issued status quo orders on 8.5.2007 in CA No. 163/2007 and 164/2007 filed in CP No.49/2007. This order is reproduced below for ready reference: "UPPER INDIA STEEL MFG. & ENGG. COMPANY LTD. ORDER Company Petition 49 of 2007 in the matter of M/s Upper India Steel Manufacturing & Engineering Company Limited (the company) and CA 163 of 2007 thereof seeking interim reliefs were mentioned. Heard the arguments of the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Singh Grewal in 2001. R-2, Sardar Pritpal Singh Grewal was appointed as MD thereafter. The petitioners have primarily alleged that R-2 committed various illegal acts of oppression and mismanagement to muster up majority and illegally got himself appointed as MD and later in 2007, he got his son R-3 illegally appointed as MD. The public directors were made to resign in 2001 after the death of Sardar Inder Mohan Singh Grewal and prior to the AGM of 2001. 11.1-11.2 have gone through the detailed pleading in the regard of the above allegation. R-2 was elected MD in 2001 in the AGM and was voted so unanimously by the shareholders. Thus, his appointment as MD cannot be said to be illegal. 11.3 Removal of public directors: The Petitioners have not been able to bring anything on record to show the illegality in removing the public directors in 2001. R-1 company is a closely held family company, though treated as a public limited company due to the fact that there are 96 shareholders. Appointment or removal of directors is the prerogative of the shareholders of the company. As long as such action is approved by the majority shareholders, and the person appointed as director is not barr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors. It is stated that at present, there are 9 directors, of whom four are working directors, as Smt. Jitender Kaur Punia and Sh. Guriqbal Singh Grewal have passed away during the pendency of the petition. 13.1-13.2 It may be mentioned that replies, statements etc filed by the Respondents are only on behalf of R-1 and R-2 and R-3. The other respondents namely, R-4 to R-13 have not filed any reply and have neither given any power of attorney to the answering respondents to act on their behalf. It is also noticed that R-9 and R-12 namely. Smt Jitender Kaur Grewal Punia and Sardar Guriqbal Singh Grewal have passed away during the pendency of the petition, but, their legal representatives have not sought to be impleaded as respondents in the company petition. 14. The reply of the respondents R1, R2 & R3 to allegations made in the petition are discussed hereafter. 14.1-14.2 The specific allegation of oppression and mismanagement is that R2 gave undue benefits to muster up majority in his favour, by paying salary to Smt. Jitender Kaur Punia (R9) and Ms Kushal Grewal (R8) as working directors even though they did not perform any work for the company. The Petitioners have filed the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion have defended the appointment of R-9 as Whole-Time Director on 29.09.2001 and subsequent appointment as JMD on 2.9.2006. It is stated that R-9 was entrusted with bill verification process and labour welfare activities and her appointment cannot be said to be unnecessary. It is stated that as R-9 had passed away on 26.05.2012, the allegation made against her, which is in personal capacity does not survive as on today. P-3, P-10 & P-15 and R-10 had attended the AGM on 29.09.2001 and had voted in favour of the resolution for appointment of R-9 as Whole-Time Director. Subsequently also, they voted for re-election of R-9 in 2004. Apart from this the respondents have stated that P-1 and P-10 were present and had attended the, Board meeting on 27.06.2006 where the resolution for reappointment of R-9 was deferred to 2.09.2006. It is stated that such deferment was not due to any objection raised by anyone. In the meeting held on 2.09.2006, P-1 was present and did not raise any objection to the same. On 25.09.2006, P-1, P-3, P-10 and P-15 attended the AGM and voted in favour of the appointment. 14.2.3 We have considered the averments made by both Respondents and Petitioners regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressive. This allegation has been discussed in detail above and the same is not repeated for the sake of brevity. 14.3.3 The appointment of both R-2 as MD and subsequent appointment of R-3 as MO has been approved by the members/shareholders of the company in board meetings and AGM. The Petitioners have alleged that as security guards were present during the EOGM held on 2007, the shareholders were terrorised. The main grievance of the Petitioners group is that R-3 who was otherwise not eligible for appointment as a director of the company being a violator of section 314 of the Companies Act, 1956, was appointed as MD but more experienced persons such as P-1 and P-10 were ignored. 14.3.4 The respondents in the written submission have stated that the appointment of R-2 as a Whole-Time-Director cannot be questioned for the following reasons: (i) R-2 is well qualified and has the requisite work experience being B.Sc. from University of Colorado, USA and MS. from MIT USA. He has also taught metallurgy at Engineering College, Ludhiana. (ii) R-2 was on the Board of the company from 1970 as a Director and made a technical director in 1985 and subsequently elevated to Joint Managing Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of R-3 was proposed and approved for the first time to be inducted as Whole-Time-Director w.e.f. the date of the ensuing shareholders meeting i.e. 25.09.2006. (iii) R-3 is stated to have refused to accept the said appointment as Whole-Time-Director as his father R-2 was already on the Board and leading the company as CMD. Thus the resolution of appointment of R-3 was not required to be put to vote. (iv) In December, 2006, R-2 desired to step dawn as CMD and a Board meeting was called for 15.12.2006. The agenda for this Board meeting included the appointment of R-3 as an Additional Director, and Whole-Time-Director and election of MD, in this meeting R-3 was appointed as an additional Director. He was also to be appointed as a whole-Time-Director in view of the proposal to appoint him as Managing Director. (v) R-3 was appointed as vice-CMD w.e.f. 11.01.2007 for a period of five years and it was also resolved that R-3 will take over as a CMD on cessation of office by the then CMD namely R-2. (vi) EOGM was fixed for 10.01 2007. (vii) P-1 and P-10 attended the Board meeting on 15.12.2006 and did not raise any objections to these resolutions which were passed unanimously. (viii) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n where it is stated that:- "In the meeting of Board of Directors which was held on December 15, 2006 the factual status was recorded despite the objection raised by Shri Guriqbal Singh Grewal to the effect that he being fully qualified person and having looked after the business of the company for the last 43 years is the right person to be appointed as the Managing Director of the Company and of course is one of the senior persons amongst the families who constituted closely held company. This objection was never recorded and the recommendation was made for appointing Shri Gursimran Singh Grewal as the Chairman-cum-Managing Director of the company." However, it is stated that in the criminal complaint filed by P-1 titled "Guriqbal Singh Grewal vs. Surjeet Singh Grewal and others" in a Ludhiana court, P-1 made the following statement on 13.07.2012 under oath during cross-examination "I never intended to become the Managing Director of the said company M/s. Upper India Steel till date" and further stated that "I have not given any opposition to appointment of Gursimran Singh Grewal as Managing Director during the meetings of Board of Directors. I was present in the said mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it mandatory that any salary received in violation of section 314 has to be refunded and such relative who has been employed shall be deemed to have vacated his office. It appears that the R-1 company has not taken any action even till date in this regard. 14.2 The Petitioners have further stated that R-4 and R-11 alleged violators u/s. 314 are stated to be subsequently working for R-1 company without any remuneration. The Petitioners have doubted this statement and have stated that these two persons are being paid in cash. 14.5 The Petitioners have stated that R-3 and R-6 who have been brought on the Board of Directors as MD and a working director cannot be directors as (org as the default u/s 314 continues. The Petitioners have also stated that till the remuneration received in default of section 314 is not refunded to the company u/s 314(2), the same is to be treated as a loan to a director within the meaning of section 295(1) of the Companies Act 1956. They have further referred to section 203(1)(h) which provides that if any loan is given to a director in violation of section 295, the director shall be deemed to have vacated his office. Accordingly, the Petitioners have mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of a sanction letter duly signed and recommended by P-1. It is also stated that even after the amount was written off the company has made subsequent recoveries and is duly making efforts to recover other amounts as well from the creditors by initiating appropriate legal proceedings. 14.7.1 The Petitioners have alleged that the act of purchase of a second-hand 22 inches rolling mill without the approval of Board of Directors as required under section 292 of the Companies Act, 1956 and without obtaining any detailed project report has caused a loss of Rs. 10 crores to the company. On going through the details submitted by the Petitioners in this regard, it appears that in the meeting of Board of Directors on 30.6.2005, various expansion plans were discussed and it was decided that the project may be discussed with the consultants to assess its viability. It is stated that this item was taken up under the miscellaneous head and the minority group directors namely P-1 was taken unaware. Subsequently a second-hand rolling mill was purchased for Rs. 5.22 crores in July-August, 2005 without any approval of the Board of Directors. It is further stated that on 28.3.2006, the Board of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rolling Mills and the amount of expense involved, and did not raise any objections. (d) P-1 having signed all the Balance Sheets for the relevant period is estopped from raising questions about this acquisition. (e) The petitioners' averment that a new Plant would have cost Rs. 15 crores in based on pure conjecture as cost of sheds rolls, allied equipment, electrical and sub station equipment has not been considered. (f) The petitioners' contention that similar objective could have been achieved by making minor adjustments to the existing 20" rolling mills is not accepted by the respondents. It is stated that the 22" mill is capable of better quality production and lower wastage. The respondents have also averred that if this was so, P-1 who was actively involved in the management and was in charge of production affairs, would have done so before the purchase. (g) The respondents have also given technical details with regard to the petitioners' contention regarding the competitors. The respondents have stated that all the competitors named by the petitioners also have 22" rolling mills and their machinery is modern as compared to the old machinery of R-1 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om them and given to their competitors. The Petitioners have denied this. The Respondents have stated that P-1 is permitted access to his office area. During the oral arguments, the Respondents have averred several times that P-1 continues to draw salary since filing the petition though he has not done any work for the company. However, this statement is not made in any pleading or written statement filed by the Respondents and is hence liable not to be considered. 15.3.1 The Petitioners have alleged that the majority group have siphoned off funds from the company while purchasing raw material i.e. scrap from the vendor M/s Raghav Industries. They have stated that these purchases were at higher prices when compared to quotations of other sellers namely, Mittal Merchants and Shiva International. It is stated that a loss of approx Rs. 57,32,000/- was caused to the company from 01.3.2007 to 20.4 2007 Detailed chart of calculations has been given in CA 75/2014 to compute the above loss and also to show that M/s Raghav Industries was earning profit @ more than 30% which is unheard off The Petitioners subsequently stated that the photocopies of the documents regarding the above transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shares. Respondents were agreeable. On 21.5.2008 at 2.30 p.m. respondents will indicate the consideration that they are willing to pay" and order dated 21.5.2008 reads "the counsel for the respondents has offered a sum of Rs. 12 crores for the shares of the petitioner Sr. Counsel for the petitioner is not agreeable to this amount and seeks time to indicate his price for the shares. For doing so he desires to have some information on the affairs of the company. He may write to the company as to what information he desires and the company will furnish the same within 10 days from the date of receiving the request to report on 21.7.2008 at.4.00 p.m." Following reliefs were sought a. Direct that the orders dated 13.5.08 & 21.5.08 shall be enforced in same manner as a decree of Civil Court and direct petitioners to disclose their demand of fair price to exit. b. Direct that if petitioners disclose unfair price, the shares of the company be valued by an independent chartered Accountant, and c. Pass such order and further orders as this Hon'ble Board may deem fit and proper. Held vide order dated 25 2 2009 - (i) Board held that petitipners are bound by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any meeting of the Board of directors for issuing fresh preference shares. CA 653/2011 - was filed by the petitioners on 8.12.11 for striking off annexure "N" from the record, alleging the same to be forged and fabricated document and same deserves to be struck off from the record. This CA is pending. CA.27/2012-was filed by the petitioners on 16.112011 for filing an additional affidavit along with Annexures PA-1 to PA-9 which are TA/DA bill, attendance registers, salary register, invoice etc. Respondents by order dated 19.1.12 were allowed to file reply to same. CA 136/2012 - was filed by P.No.31 for withdrawal from the present petition. This CA is pending. CA 159/2012 - was filed by the petitioners on 27.3.12 for extension of time for filing the replies to the application filed by respondents dated 16.3.12. On 29.3,12. CA 159/2012 was heard. This CA is pending. CA 396/2012 - was filed by the petitioners under Regulation 44 for modifying the order dated 24.8.11 and for transposing petitioner Nos. 29, 30 and 31 as respondents on 6.8.12. It was stated that Gurmohan Singh Grewal and his wife P. Nos. 29 & 30 have been permitted to withdraw from the company petition vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction of the assets of the company. (xii) The board of directors have not been discharging their duty diligently and in the best interests of the company. (xiii) Removal of senior staff members as well as drastic reduction in labour strength. (xiv) Re-employment of employees removed under section 314. (xv) In this CA, the petitioners have prayed for the following reliefs: a. To take cognizance of the additional facts pleaded in this application and grant additional reliefs. b. Under section 406, direct the delinquent respondent / director / chairman to jointly and severally refund the loss caused to the respondent company. c. Under section 406, initiate prosecution against the delinquent respondent / director / chairman for their acts of misfeasance. d. U/s 406 attach the personal properties of the delinquent respondent / director / chairman. e. Reconstitute the board of directors of the respondent company by excluding the delinquent respondent / director / chairman. This CA is pending. CA No. 562/2008 - The Petitioners have given chronologically the events related to inquiry ordered by the Hon'ble High Court regarding fabrication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the respondents that the court is to take notice of all subsequent events to grant reliefs finally after trial in a company matter. The respondents in the written submissions had stated that this case is not applicable on facts as in that case the respondents had brought on record subsequent events to show that the petition was infructuous whereas in the present case the alleged events have been referred to by the petitioners which cannot be looked into as the petition itself did not make a case. 17.2.3 Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2000] 23 SCL 71 (Bom.) The Bombay High Court in this case has held that in a petition for relief u/s 397 of the Companies Act 1956, it is permissible to bring on record by amendment not only the facts pertaining to the events up to the filing of the petition but also subsequent events. Once the court comes to the conclusion that the petition is maintainable then subsequent events can also be considered in order to do complete justice between the parties and to make appropriate orders for removing the oppression. 17.2.3.1 The respondents have stated in the written statement that the subsequent actions have to be incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining to allegations of mismanagement and oppression in a company, for each instance of mismanagement and oppression filing of an independent petition u/s 397/398 of the Companies Act 1956 would be necessary if the subsequent acts can be said to be connected with the main allegations." The petitioners have referred to the following case regarding not mentioning of important items of agenda such as appointment of director but including them under the miscellaneous head: 17.3 Netball Association of Chandigarh v. Union of India CWP 12808 of 2013, dated 05.3.2016]. The Punjab and Haryana High Court in this case noted that the respondents did not include the item of removal of the petitioners from the membership in the agenda though it was an important agenda item which should have been specifically mentioned and circulated to the members so that they could have come prepared for deliberations and voting on the said agenda item and it could not have been taken up under the miscellaneous head because the miscellaneous head is only meant for those items which are emergent in nature and are not known at the time of preparation of the agenda - the respondents have also violated the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accounting practices leading to additional items like rolls being capitalized in the period after the petition. (c) the investment particulars in R-1 company are as follows: - Period Investment amount. (1) 1965 to 2001 = 31.07 crores. (2) 2001 to 2007 = 34.91 crores. (3) 2007 to 2013 = 36.27 crores. Thus the respondents have contended that there has been no major change in the quantum of capital investments made between the six years from 2001 to 2007 and six years from 2007 to 2013. It is also stated that during the period 2007 to 2013 the rolls used in the rolling mills have been capitalized as per the tax authorities, store stock items like spare parts used by the company to maintain old equipment have also been capitalized as per accounting practices and the new assets and equipment have also been capitalized. Thus it is stated that the contention of the petitioner that investments in fixed assets have not lead to increase of profitability is without any basis. It is stated that each and every addition has been duly accounted for in the audit books of account. It is also stated that the allegations of the petitioners comparing investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company run by the petitioners group and therefore the Petitioners cannot question the same. The Petitioners in their rebuttal have stated that the auditors themselves stated in their report that the fixed assets have not been physically verified. 21.1 The Petitioners vide their written submission have also referred to the allegedly unprecedented and unexplained increase in labour cost in F.Ys 2010-11 and 2011-12. It is stated that despite the reduction of sale in tonnage, the employees cost increased by 5 crores each in FYs 2010-11 and 2011-12 whereby in the earlier years, it would show an annual increase of only 1 crore. As a percentage of turnover the expenditure on employees has increased from 4.16% in 2005 to 12.06% in 2013 It is stated that similar expenditure on employees for competitors is much less at a higher turnover. 21.2 The Petitioners have also alleged that as per the EPF records, the number of employees was reduced from 1519 in 2012 to 1248 in 2013, but the employee's expenditure increased from 27.78 crores in 2011-12 to 28 85 crores in 2012-13 even though no increment was given in 2012-13. The Petitioners have also alleged that the documents regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 2.92 crores. On raising of objection, the cars were refinanced. It is stated that the limits of remuneration provided in sections 198, 269 and 309 read with schedule XIII stand violated. 24. Vide CLB's order 25.6.2009, the Respondents were permitted to increase the working capital limits from Rs. 50 to Rs. 65.50 crores. At that time, Canara Bank imposed certain conditions one of them being that the company would close all other facilities. However, it is stated that the company has not closed the factoring limits with M/s SBI Factors and Commercial Services, as the CRISIL study carried out on 13.1.2014 indicate that still the factoring services to the tune of Rs. 30 crores are still being availed. 25. The Petitioners have alleged in the written submission that the Respondents have raised unsecured loans from the majority group of shareholders without following due procedure. They have specifically mentioned the deposit of Rs. 10.89 crores Sardar Gurmohan Singh Grewal (P-29 who has since withdrawn) at 13% interest and deposit of the same in a bank FD earning only 9% interest. It is stated that while accepting the above deposit, compliance of Section 292 has not been made as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the issue of fresh preference shares to redeem the old shares is not sustainable as it is not in the best interest of the company but is for the personal aggrandisement of the majority group. It is also stated that issue of fresh preference shares would be an act of oppression on the minority. b. The Petitioners have stated that several acts of perjury were committed by Respondents. c. The Petitioners have further stated that from the averments made by the Respondents in CA 135/2012 it is evident that an area of 4 acres of land at Ludhiana has been released from the charge of Canara Bank, but that is falsified as Canara Bank has actually released approx. 20 acres on 5.12.2011. The Petitioners have stated that this information has been withheld from the CLB. d. The Petitioners have detailed that in response to their submission that they would be willing to go out of the company at a fair value of their shares, the Respondents had offered them Rs. 12 crores. Considering that at that time the Petitioners constituted approx. 37% of the shareholding the R-1 company was valued at approx. 36 crores. This offer was rejected by the Petitioners and also challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondents that the Petitioners should be given a fair valuation of their shares and should be made to exit the company. (i) The Petitioners have stated in the written submissions that this relief in itself would not be sufficient as the Respondents have committed serious acts of fraud and siphoning of crores, thereby making a profitable company into loss making and debt ridden. (ii) The Petitioners have also referred to the judgment of Hon'ble Supreme Court in the case of National Textile Workers' Union v. P.R.Ramakrishnan [1983] 53 Comp. Case 184 in which it has been stated that the interest of workmen must be protected. (iii) The Petitioners have further stated that the Respondents would be estopped from making the prayer that the Petitioners be made to exit the company on being given a fair value of their shares as substantial assets of the company i,e. the 12-inch mill and its shed as well as the 20-inch mill have been destroyed. (iv) The Petitioners have stated that granting share value would not be viable as the petition was filed in 2007 and the land prices were much lower then. It is also stated that in 2012 the value of only the land at Ludhiana was given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2005] 57 SCL 476 (SC) The respondents have drawn our attention to paras 183-214 of the said judgment which are reproduced below for reference: "183. The expression 'oppressive', it is now well-settled, would mean burdensome, harsh and wrongful. 184. 'Oppression' complained of, thus, must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs. 185. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation, a further relief or reliefs, as the court may deem fit and proper, is warranted. (See Bennet Coleman & Company v. Union of India MANU/MH/0054/1977 and Syed Mahomed Ali v. R. Sundaramurrthy MANU/TN/0089/1958: (1958) 2ML1259. 186. But the same wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be rejected. 204. The Court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (See Re London School of Electronics, (1986) Ch.211). 205. Furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Nobie & Sons (Clothing) Ltd, (1983) BCLC 273) 206. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties.' 207. It is now well-settled that a case for grant of relief under Sections 397 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management were made by the Respondent No. 12 only. 214. For the purpose of grant of relief, the High Court could only consider the pleadings filed in Company Petition No.51 of 1991. If no relief could be granted having regard to the pleadings contained therein, it is inconceivable in law that such relief would be granted on the basis of the pleadings made in other proceedings and totally ignoring the admissions made by the Respondent No.1 herein in the proceedings initiated by PLEADINGS -AND PROOF - LEGAL REQUIRMENTS." 29.2 The respondents have stated that the petition is liable to be dismissed as:- a. Matters complained off in the petition are primarily those where P-1 himself was a party and had given an unequivocal consent, waiver and acquiescence on the part of the petitioner group. The judgment in the case of B.V. Reddy v. Legend Technologies (India) Pvt.Ltd (2009) 147 comp, cases 81 (CLB) has been referred to the CLB stated "...The Petitioner and the second respondent are parties to the decision regarding The appointment of additional directors. At the annual general meeting held on 21.8.2004, admittedly attended by among others the petitioner, the additional direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the supervision of R2. While Ludhiana unit made profits, the Tirupati unit made huge losses and subsequently had to be sold off. Petitioners have stated that Tirupati unit was sold off due to its relocation from Mandya district to Chittoor district and finally due to non-availability of electricity from APSEB. The Tirupati unit was sold off in 1999 and the P1 shifted to Ludhiana and started participating in the management of R1 company at Ludhiana. (vi) P1 has set up independent businesses using the resources of R1 company and is not dependent on the R1 company and its business for his livelihood. h. Intention of petitioner group was to go out of R1 company. They have taken benefit of technicalities to prolong the litigation with a view to harass the Respondents so as to extract an unrealistic high value for their shareholding in the R1 company. i. Support of Petitioners group is dwindling withdrawal by P-29 and P- 30 vide order dated 24.8.2011 and withdrawal by P-17 and P-28 vide order dated 14.12.2011. Petitioners did not raise a whisper when the above petitioners moved CAs seeking permission to withdraw. P31's (2%) CA 136/2012 for withdrawal was contested by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement for R3 and R6 as R-3 was being considered to be appointed as Additional Director and Petitioners group opposed the said resolution as an afterthought in the EOGM on 10.1.2007. Though substantial relief has been claimed against R-10 in the petition, he has not been represented through a counsel,or has neither filed any pleadings in the matter. Stand of the Petitioners itself is contradictory and self-defeating as investments in the business of P-1 including by way of shareholding have been made by vendors and customers of R-1 company. Some of the creditors of R-1 company whose debts were written off as per instructions of P-1 are investors in his individual business. The conduct of Petitioners in voting against ratification and future employment of the family members is in effect oppressive and unfair in a family company. It is stated that R-4 and R-11 are working without remuneration or perquisites and mere violation of section 314 is not a ground of O&M The Respondents have stated that on demurrer, a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of law may be in the interest of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o resign is completely false. Apart from saying that they had resigned on their own volition, the respondents have not given any detailed reasoning in their support. 29.3.5 REJECTION OF PROPOSAL FOR APPOINMENT OF P-10 (ASHOK SINGH GARCHA) AS WHOLE TIME DIRECTOR. The respondents in their written statements have stated that no grievance in this regard can be made out by the petitioners as P-10 who is the grandson of Jate Sardar Shamsher Singh Garcha {one of the initial investors in 1961 who was related to the Grewals by way of marriage of his son with one of the daughters of Sardar Joginder Singh Grewal) cannot be clubbed with the Sardar Joginder Singh Grewal family. It is also stated that neither Sardar Shamsher Singh Garcha nor any of his descendants have ever been working in the R-1 company and also P-10 has his own business and is not dependent on R-1 company on his livelihood. It is also stated that there is no written shareholding agreement or arrangement between the shareholders whereby representation must be given in the Board of Director and in a working capacity to any so called family group particularly when he or she is involved in another business. The respondents have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are wrong and the petitioners have created a false hypothesis on the basis of two false assumptions namely that the term HMS (Heavy Melting Scrap) denotes imported scrap and that imported scrap is cheaper than the domestic scrap. As per the respondents, HMS can be domestic or imported- It is also stated that the origin of material has no predetermined bearing on its price. The respondents have given detailed reasons for their decision to purchase scrap only from a direct importer after inspection of scrap and not from the traders or agents. They have also questioned the quotation relied upon by the petitioner as the said firm is listed as a conveyer belt dealer and exporter. (2) The respondents have countered the allegation that M/s. Raghav Industries had been verbally black-listed as no documentary evidence has been adduced to support the same. The respondents have countered the petitioners' arguments that if better quality scrap was being procured then why burning losses have not come down, by stating that the company has continued to procure good quality scrap all through. So there is no major change in burning losses. (3) The respondents have stated that the regenerated q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners and thus the allegations of inspection and other related grievances are ill-founded. 29.3.9 BURDENING THE COMAPNY WITH LIABILITY. (A) INCREASE IN SECURED WORKING LOAN - The respondents have stated that there is no change in working loan limit as suggested by the petitioners but there is only a change in methodology. It is stated that letter of credit limits provided by the bank were also secured by creating a lien on the fixed assets of the respondents. In 2005 apart from loan limits of 10.91 crores, there were also 37 crores of secured LC limits. As the charge on these LC limits had already been closed and the P-1 did not provide the Chartered Accountant with the ID No., the same could not be reported. Thus, there is no abnormal increase in total debt as a percentage of total income of R-1 company. (B) RAISING LOANS WITHOUT FOLLOWING DUE PROCESS. The respondents have stated that the interest pay outs in the deposits is 12.5% and not the figures alleged by the petitioners. Apparently the respondents are referring to the alleged 13% interest paid to P-29 and P-30 on their deposit of Rs. 10.89 crores though the same has not been mentioned. The respondents have stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of Rs. 1000 each were allotted on 21.04.1962 and another 310 redeemable cumulative preferential shares of Rs. 1000 were allotted to various people. Furthermore, 29 acres 2 Kanals of land was also brought from M/s. Sherpur Small Scale Industrialists Cooperative House Building Society Ltd., Ludhiana on payment of Rs. 3,10,000/- as per Board minutes of 7th May, 1962. Subsequently in a meeting on 5.9.1962, the cumulative preferential shares were converted to ordinary equity shares. The respondents have thus averred that the company having 11.7 shareholders had bought the land after raising Rs. 6,83,000/- vide cumulative preferential shares and no ancestral land was given to the company in lieu of equity shares as alleged by the petitioners. 29.3.11.2 The Petitioners have stated that all the shareholders including the Petitioners have contributed their ancestral land for setting up the factory. It is stated that the Grewal family had sold land to M/s Sherpur Small Scale Industrial Cooperative House Building Society (which was managed by the Garcha family) and this corpus money was invested in the company, later, the Sherpur Small Scale Industrial Cooperative House Building Society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble High Court of Punjab and Haryana wherein they have sought to seek enquiry on alleged fabrication of documents by the respondents. The respondents have stated that the allegation that ten quotations from Dec. 06 to April, 2007 are fabricated as per expert opinion is baseless. It was stated that these were regenerated. 29.3.15 ALLEGATION OF PERJURY AGAINST RESPONDENTS IN PROCEEDINGS OF CA 135/2012. This issue has been dealt with by the CLB in their order dated 19.03.2013 which was confirmed by the Hon'ble High Court of Punjab and Haryana on 9.5.2013 wherein it was observed that CLB had adequately safeguarded the interest of the petitioner while disposing of the appeal. 29.3.16 RELIEFS. The respondents have stated that the present petition is liable to be dismissed as it is nothing but personal grievance and vendetta of P-1 against the respondents. It is alleged that the petitioners used delaying tactics and it is a fit case to be dismissed with exemplary costs to be paid by the petitioners to the respondents. (Hanuman Prasad Bagri v. Bagree Cereals (P.) Ltd. [2001] 33 SCL 78 (SC) (CAL Paras 22 and 25 confirmed by Supreme Court Hanuman Prasad Bagri. 29.4 The resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Bhagwandas and Company 1959 Supp (2) SCR 217: AIR 1959 SC 689, The Supreme Court has held that "waiver is not a pure question of law but it is a mixed question of law and fact. They have quoted Surajmull Nargoremult v. Trition Insurance Co. (1924)LR 52 IA 126 128 where Lord Sumner said that "No court can enforce as valid that which competent enactments have declared shall not be valid, nor is obedience to such an enactment a thing from which court, can be dispensed by the consent of the parties or by a failure to plead or to argue the point at the outset." The respondents have stated that this case is not relevant as no statutory right of petitioners has been taken away from them and therefore, estoppel against a statute will not arise. It is stated that this proposition is applicable only where the provision is in public interest and not to benefit a particular shareholder or director (B) M/s Motilal Padampat Sugar Mills Co. Ltd. v. The State of LLP. AIR 1979 SC 621. In this case the Supreme Court had observed that "waiver means abandonment of a right and it may be expressed or implied from conduct but its basic requirement is that it must be an intentional act with knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the firm which was taken over by the company and also one of the original promoters of the company and has been the chairman-cum-managing director of the company for nearly a period of 20 years. Admittedly, DB came into the management, notwithstanding the fact that he was the majority shareholder, irrespective of the fact whether the status was acquired rightly or wrongly, only in the year 1991. The Company Law Board, being a court of equity, has to keep these aspects in mind while moulding appropriate relief. It is on record that both the groups agreed for the division of assets and as a matter of fact, there has been a de facto division by which the petitioners are managing the forge division and the respondents other two divisions for nearly a year. It is at the last minute that the respondent resiled from this stand. According to us, the most appropriate direction that we could give, with a view to put an end to the disputes between the parties is that there should be division of assets of the company by which the petitioners will continue to control and manage the forge division and the respondents the other two divisions. This would be in line with our decision in Jaidka Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by the petitioners' group, and effect reduction in the share capital of the company. The valuer will also determine the value of the forge division which will be sold to the petitioners at that value. In giving these directions, we have taken note of the decision of the Supreme Court in Cosmosteels (P.) Ltd. v. Jairam Das Gupta [1978] 48 Comp. Cas. 312; AIR 1978 SC 375, according to which the Company Law Board need not follow the provisions of sections 100 to 104 of the Act in a proceeding under Section 397/398. The ICICI with nominate a suitable person as the chairman of the company latest by December 15, 1999, who will ensure that the final division of the assets is completed by June 30, 2000. The function of this board will be restricted to working out the modalities of carrying out the above directions. Expenses connected with these tasks will be borne by the company. During this period the company's bank accounts which stand frozen now, will be operated only as per the directions/authority of the chairman. However, the petitioners and the respondents are at liberty to open and operate new accounts in the names of the forge division and track components divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above case of T. Ramesh Pai. The respondent company in that case was carrying on business of collecting rent and managing the hotel Green Y Park at Manipal with 30 or 40 rooms without any boarding facility. The respondent's contention that this was a real estate company is not correct. (C) Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal. 512. In this case the Calcutta High Court held that "the special auditor should be directed to find out the fair value of shares as was directed by Lord Denning in Scottish Cooperative Wholesale Society Ltd. case 1059 AC 324-we also order the respondents to the petition to buy the shares of the petitioners, in case respondents are unable or unwilling to buy the shares, the petitioners should have an option to buy the respondents' shares at the same price. The price is to be arrived at on the basis of the breakup value of the shares. The respondents should he given three months' time after the submission of the report of the special auditor and the ascertainment of the value of the shares to buy out by the petitioners in default the petitioners wilt have the right to buy up the respondents' shares within a furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 397 and 398 case must be made out in the petition itself and the defects cannot be cured by evidence, oral or documentary." The Apex: Court noted the decision in the case of Shoe Specialities (P.) Ltd. v. Standard Distillaries & Breweries (P.) Ltd. [1997] 90 Comp. Cas. 1 (Mad.). It held that the Court considers not only the relief but also the nature of the complaint and how it is to be rectified. The Apex Court in paragraph 205 observed as under: 'The burden to prove oppression or mismanagement is upon the petitioner. The Court, however, will have to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se be oppressive. Bhagwati. J.(as His Lordship then was) in Mohanlal Ganapatram v. Shri Sayaji Jubilee Cotton and Jute Mills Company Ltd. MANU/GJ/0003/1964: (1964) GLR 804 at 103 stated the Jaw, thus "-it may be that a resolution may be passed by the Directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interests of the Company. Such a resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass. "Under clause (a) of Section 402, the court's order may provide for the regulation of the conduct of the company's affairs in future and under clause (g) the court's order may provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made. An examination of the aforesaid sections brings out two aspects; first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power, with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. Further, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority shareholders from acts of oppression and mismanagement or presenting its affairs being conducted in a manner pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th section 402 and other provisions of the Act including section 255 which deal with normal corporate management of the company. The contention that the reframing or insertion of a new article like article 95 as done in this case will be hit by section 9(b) could not be accepted The contention that the reconstituted board was violative of section 408 of the Act was also ill-conceived. The restrictions contemplated by that section are applicable when the Central Government exercised the power conferred on it thereunder, whereas in the instant case powers have been exercised by the court under section 398 read with section 402 of the Act. The decision to reconstitute the board with three directors being the representatives of the shareholders, three directors being the representatives of the Central Government and five directors being appointed by the court was taken by the learned judge himself and after taking this decision, he invited suggestions as to who should be the representatives of the respective parties and it was in this manner that the learned judge came to appoint the three members of the Central Government on the reconstituted board. Nothing had been pointed out whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in violation of the provision of articles and statutory provisions." "12. In a later portion of the judgment the Supreme Court further observed, while referring to S.398 as follows (pp. 375, 376): This section only comes into play, as the marginal note shows, when there is actual mismanagement or apprehension of mismanagement of the affairs of the company, it may be contrasted with section 397 which deals with oppression to the minority shareholders, whether there is prejudice to the company or not. 13. From a reading of the aforesaid passages it is clear that s 397 would be applicable only in the case of oppression by the majority shareholders of the minority shareholders. Section 397 does not come into play in the case of wrongful acts being done by the management. That may be a ground for winding up. One of the pre-requisites of the applicability of s 397 is that the complaint of oppression has to be by the minority shareholders, in the present case, it is an admitted fact that the shareholding amongst the two groups is equal. The shareholding being equal, no group can be said to be ether belonging to the majority or the minority group of shareholder. The allegations ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were being conducted in a manner oppressive to some apart of the members. From the aforesaid judgments it clearly follows that (1) past acts which have come to end cannot be challenged under s. 397 or 398 (2) the relief under ss.397 and 398 should available only if there are continuous acts of oppression by the majority shareholders, (3) illegal acts committed by the directors, unless they are oppressive on the minority shareholders, cannot be challenged in a petition under s.397 of the Act. The instances of violation of the provisions of the Companies act, which were referred to by the learned counsel for the petitioner, cannot be complained of in the present proceedings under s.397 or 398 of the Act. Whether the provisions of s.292 or s.314 have been violated or not is not a matter which is to be gone into in these proceedings (emphasis supplied). What has to be seen is whether there has been any action taken, legal or illegal, which has resulted in the oppression of the minority shareholders. It wilt be seen that respondent No. 2 has been the managing director of the company since its very inception. If there was any illegality or irregularity in the convening of the meeting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents have also cited the Delhi High Court judgement in the case of Suresh Kumar Sanghi (supra) VALIDITY OF MINUTES OF MEETING Karnataka Bank Ltd. v. A.B. Datar [1994] 79 Comp. Case. 417 (Kar.) held that "...According to the provisions of section 195 of the Companies Act, the minutes of the meeting of the board of directors shall be presumed valid end that the meeting was to be duly called and held and all decisions taken shall be deemed to be valid." "...Section 195 deals with the presumptions available in respect of the minutes duly drawn. Nowhere do these provisions require confirmation of the proceedings of the earlier meeting in subsequent meeting. On page 83 in Shackleton on the Law and Practice of Meeting, 7th Edition, by fan Shearman, it is noted as under. "Decision once arrived at do not need confirmation - At a vestry meeting it was the usual procedure to read over at the next meeting the resolutions of the preceding one. At the second of two meetings there was considerable diversity of opinion as to the votes admitted at the first meeting, but judgment was to the effect that there was no necessity for the confirmation by the second vestry of what was legally done a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment or the date of expiry of the period of three months referred to in the second proviso of sec.314(1) and shall also be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite enjoyed by him Clause (b) of sub section 2 provides that the company shall not waive the recovery of any sum refundable to it unless permitted to do so by the Central Government. Section 295 provides that any such emoluments paid in violation of section 314 and not refunded to the company shall be treated as a loan given to the director. U/s 314(2), the same is to be treated as a loan to a director within the meaning of section 295(1) of the Companies Act, 1956 Further, section 283(1)(h) provides that if any loan is given to a director in violation of section 295, the director shall be deemed to have vacated. It is clear that there have been violations u/s 314 by five persons Proposals/ resolutions for rectifying the same were raised in the board meeting in December 2006 in respect of three of the said violators. The petitioners voted against the said resolution as they were opposing the omission of two violators. Thus the violation is still continuing and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion regarding the appointment was passed unanimously. The petitioners have raised the issue that R-8 was appointed as working director on the understanding that she would shift to Ludhiana and work full time for the company. The petitioners have alleged that she did not shift from Chandigarh to Ludhiana but has been shown to be present for 17 days in January 2007. They have also stated that she is not qualified. The respondents have replied that R-8 holds an MBA degree from USA and has the requisite experience. As the petitioners have not pressed these allegations in the written submissions, the same are dismissed. c. S.Saminder Singh Grewal (R-6) The petitioners have objected to the appointment of R-6 as director on the ground that his appointment is in violation of sec. 314 of Companies Act, 1956. This has been discussed above in para 1 of this section. As we have directed that the excess remuneration paid to violators, of section 314 may be recovered, this allegation does not need any further adjudication. 1.4 Appointment of S.Pritpal Singh Grewal (R-2) and thereafter S.Gursimran Singh Grewal (R-3) as managing directors: This appears to be the chief grievance of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that appointment or otherwise of a Director is solely within the domain of the shareholders of the company, we decline to interfere in this matter. 1.6 Retirement benefits for retiring directors: The petitioners have mentioned in the pleadings that retiring directors were given retirement benefits and have challenged the same. However, as petitioners have not argued the same either in the oral arguments or in the written submission, this allegation is dismissed. 1.7 Purchase of second hand 22-inch rolling mill: The petitioners have questioned the expenditure on purchase of second hand 22-inch rolling mill and its installation. The resolution to purchase mill for expansion of the manufacturing capacity of R-1 company was taken in 2005 when P-1 as working director and Joint MD was very much involved in the management of the company. The petitioners have questioned the purchase of this mill on the ground that no detailed feasibility report for the same was obtained from the experts. He has further questioned the purported feasibility report given by M/s Korus stating that the same was only of two-page report and appears to be ante- dated as the person who has signed it was on that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation namely that P-1 was earlier authorised to sign cheques individually but this power was diluted as per board resolution passed in the meeting on March, 2007 which required two of the working directors to sign each cheque. The working directors given such signing power included P-1 and three other working directors who as per p-1 belong to the minority group. We agree with the respondents that giving cheque signing powers is solely a business decision and does not require any interference from the CLB/Tribunal. The same is therefore dismissed. 1.9 Resignation of R-2 as MD: This allegation is connected to the allegation above at Sl.No.3. The same is dismissed. 1.10 Mismanagement on account of increase in rent paid for guest house: This allegation pertains to increase in monthly rent from Rs. 5000/- per month to Rs. 20,000/- per month regarding a guest house rented for the past 10 years. The same was not pressed by the petitioners either during the oral arguments and also written submissions. As such we find little merit in this allegation as the rent has been increased after more than 10 years. The allegation is accordingly dismissed. 1.11 Subsequent events. The petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Promode Kumar Mittal v. Southern Steel Ltd. (1980) 50 Camp Cas. (Supra) the Calcutta High Court observed in a petition under sections 397 and 398 of the Companies Act that the court can take notice of the subsequent events to grant reliefs finally after trial in a company matter and the interim orders passed from time to time by the court in the applications, the meetings held under the chairman appointed by the Court, and the resolutions passed by majority shareholders and directors present therein are at) relevant. In the case of Inder Kumar Jain v. Osra Bottling Company (P) Ltd. [1977] 47 Comp. Cas. 194 the Delhi High Court has held that "on an analogy of Order VI Rule 17 of the Code of Civil Procedure, the High Court has power to grant leave to amend a pleading in a petition under section 397 and 398 of the Companies Act, 1956 for relief against mismanagement or oppression in the affairs of a company. In the case of the Court has held that the provisions of the Code of civil Procedure, so far as applicable, would govern proceedings under the Companies Act also. There is thus no provision under the companies Act which prohibits a Court from looking at subsequent events in a pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h prohibits a court from looking at subsequent events in a petition under Section 397 and 398 of the Companies Act". In the case of Vinod Kumar v. Singmalon Equipment (P.) Ltd. [Civil Appeal No. 5729 of 2008, dated 17-9-2008] the Supreme Court held while remanding " the matter to the Board for reconsideration and fresh appropriate decision by taking note of all events which have taken place till now and the facts and circumstances as they exist today in accordance with law. In the case of Prasanta Kumar Mitra v. India Steam Laundry (P.) Ltd. Cal HC 06.02.2014, the Calcutta High Court observed that the subsequent events intrinsically connected with the original cause of action and have the material bearing on the principle issue involved therein, the Court should take note of the same to render complete, effective and appropriate remedies to the litigant. The Court should take note of the subsequent events to minimize the litigation and to render complete and effective adjudication of a dispute between the parties. It must be interconnected and intertwined with the original cause of action not capable of being divorced. The subsequent event which stands alone independently and hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 1956 seeking relief against oppression and mismanagement by the majority. Several allegations have been made and several interim applications, company applications have been filed before the CLB/Tribunal as well as civil and criminal complaints lifted before the Hon'ble/Punjab and Haryana High Court. It is seen that the petitioners have questioned virtually every decision or action taken by R-2 and R-3 since September, 2006 when R-3 was inducted as additional director and subsequently made Managing Director of the company. Most of the allegations made in the petition relate to the period when P-1 was a Joint Managing Director of the company and was actively involved in the management of the company and had voted in favour of the resolutions/decision of the meeting of the Board of Directors/AGM/EOGM. These decisions are now being questioned by him and other petitioners who together hold 26.74% shareholding of the company. It is true that P-1 who was actively participating in the management as JMD and was part of all the decisions now being alleged as being oppressive and indicative of mismanagement by the majority holds only 2.71% of the shareholding and hence the remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valued by an independent valuer. In CA 272/2008. the petitioners before the CLB had agreed to exit from the company on being paid a fair price for their shares by the respondents (order dated 13.5.2008) However, the petitioners did not agree to the price being offered by the respondents for their shares. & Both the petitioners and the respondents have asked for an independent valuer to be appointed. They have given the names of the independent valuers (as below) to whom they are agreeable. 1. Ernst & Young, Mahipalpur. New Delhi 2. Pricewaterhouse Coopers India LLP, Gurgaon, Haryana 3. Deloitte, Gurgaon, Haryana. Now the dispute between the petitioners and respondents is regarding the method of valuation adopted for calculation of the fair price of the shares. The petitioners in their written submission have stated that the relief of the petitioners being given a fair valuation of their shares and they being made to exit the company would not be sufficient as it is stated that the respondents have committed serious acts of fraud and siphoning of crores due to which a profit making company has been turned into a debt ridden unit. They have also mentioned that the Board would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petition was filed in April 2007 and the land prices were much lower. In 2012 (CA 135/2012} the respondents have given a project report for relocation of the unit and for creation of a land bank at the existing factory premises. This project report took the land to be valued at the rate of 15,600/- per sq.yd, thereby the land at Ludhiana only is worth about Rs. 262 crores as per respondent's project report. 3.6 The petitioners have stated that the respondents have burdened the company of Rs. 100 crores while in 2007 the liability was only about Rs. 14.2 crores but the inventories were Rs. 24.57 crores. The petitioners have stated in their written submission that all the shareholders including the petitioners have contributed their ancestral land for setting up the factory. This issue, has been discussed in detail at para (F) on page 81 to 83 above. 3.6.1 We have gone through the averments made by the both the petitioners and the respondents in this regard. The Petitioners have given details of sale transactions of land to M/s Sherpur Small Scale Industrial House Bldg. Society and subsequent sale of the same by this society to M/s Upper India Steel. The table appended on pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at Ludhiana, shows that the land at Ludhiana can be partitioned by minor relocation of the factory and the petitioners be given their share of the land apart from the value of their shares in the remaining assets and liabilities of the respondent company. However, considering all the facts and circumstances especially that the respondent company is a single indivisible business and is a going concern, it would not be in the interest of the company to order division of assets However, it would be appropriate for the valuer to consider the immovable assets while determining the fair value of shares. 3.8 After considering and weighing all the facts, arguments made by the petitioners and respondents, and the judgments cited by them, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 procedur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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