9911796707
TMI Blog2017 (5) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... oup 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: 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. M/s Ernst & Young New Delhi 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. Other procedures to be strictly adhered to. X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. comprising of 100 lakhs equity shares of ₹ 10 each and 20 lakh redeemable preference shares of ₹ 10 each. Thus, the total authorised capital of the company is ₹ 12 crores. The paid-up capital of the company is ₹ 11.60 crores, comprising of 96 lakhs'equity shares of ₹ 10 each and 20 lakhs redeemable preference shares of ₹ 10 each. 4.2. The following table gives the details of the shareholding of each of the petitioners and respondents. List of Shareholders who are parties to the petition S. No Name of Shareholder Shareholding Director since 1. S. Gurlal Singh Grewal (P1) 2.71% 1974 2. Mrs. Ranjeet Grewal (P2) 1.3% 3. S. Randeep Singh Grewal (P3) 1.7% 4. Ms. Seerat Grewal (P4) 0.2% 5. Master Rayaan Grewal (P5) 0.15% 6. Mrs. Pooja Grewal (P6) 0.05% 7. Mrs. Nagina Grewal (P7) 0.05% 8. Mr. Ranvir Grewal (P8) 0.05% 9. Ms. Jasbir Kaur (P9) 1.35% 10. S. Ashok Singh Garcha (P10) 6.25% 2002 11. Ms. Harjeet Garcha (P11) 1% 12. Ms. Harkiran Khera (P12) 1% 13. S. Deepinder Singh Guram (P13) 1.66% 14. Ms. Navreet Garcha (P14) 1% 15. S. Apinder Singh (P15) 1.66% 16. Ms. Poonam Jeet Kaur (P16) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat section. Briefly section 314 provides that any relative of a director cannot be employed at a salary exceeding a certain limit without a special resolution of the company and sanction of the Central Government. Initially, this section applied to payment of salaries above ₹ 10,000/- per month and the limit was subsequently increased to ₹ 2,50,000/- per year. As per the petition, the following employees have violated the provisions of section 314. 1. Sardar Gursimran Singh Grewal, R-3 and S/o Sardar Pritpal Singh Grewal. MD from 1995-96 and subsequently from 2002-03 onwards till the date of filing the petition. 2. Sardar Paramvir Singh Grewal, R-4 and S/o Sardar Pritpal Singh Grewal, MD from 1996-97 and subsequently from 2002-03 onwards till 2005-06. 3. Sardar Saminder Singh Grewal, R-6 and S/o S.S. Grewal from 1998-99 and 2004-05 onwards till 2005-06. 4. Sardar Mandeep Singh Grewal, R-10 and S/o P1 namely Gurlal Singh Grewaf from 2000-01 till 2003-04 up to 2005-06. 5. Mrs.Harsimran Dutta, sister of Smt.Jitender Kaur Grewal Punia (then working Director and later Joint Managing Director) who is daughter of founder MD Sardar Inder Mohan Singh Grewal from 1997-98 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was paid a salary of ₹ 3.6 lacs per annum plus perks, she did not do any work for the company. Subsequently, the agenda for AGM held on 25.9.2006 provided for her election as whole time director for another period of five years at a salary of ₹ 45,000/- per month plus perks which was subsequently increased to ₹ 1,15,000/- per month plus perks. The petitioners have alleged that her appointment and payment of salary is to gain the support of her family that hold 11.3% shareholding in the company. 6.3 Appointment of R-8 Ms. Kushal Grewal as whole-time-Director. The petitioners have mentioned that Shri Guru Parshad Singh Grewal, R-7, was proposed to be elected as whole-time director in the AGM held in September, 2003, but. the same was contested on the ground that he was above 70 years of age. In December 2006, he tendered his resignation which was accepted, but his daughter Ms, Kushal Grewal R-3 was inducted as a whole-time director on monthly remuneration of ₹ 45.000/- along with perks, it is stated that R-8 was being paid remuneration even though she did not do any work for the R-1 Company, The petitioners have questioned her appointment and have stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the EOGM on 10.1.2007 as follows. "Resolved that subject to sections 198, 309 and 310 of the Companies Act, 1956 and other applicable provisions thereof, Sardar Gursimran Singh Grewal, be and is hereby appointed as Managing Director and Vice-Chairman of the company for a period of five years from the date 11.01.2007. the Managing Director will exercise the substantial powers of the management which be and are conferred on the Managing Director. The terms and conditions would be as under" 6.4.4 The petitioners have questioned this appointment and have alleged that the minutes of the meeting of Board of directors were neither circulated nor confirmed in the meeting of the Board of Directors held on January 24. 2007. 6.5 It is further stated that Sardar Ashok Singh Garcha, P-10, who had been appointed as director of the company mainly for the purpose of quorum or otherwise was not inducted as a whole-time director despite his rich experience. P-10's name was proposed by P-1 for being inducted as a whole-time director in the meeting held on 15.12.2006. It is stated that this proposal was ruled out allegedly on the ground that P-10 refused to support the majority gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not correctly recorded and objections regarding the same have been sent to the company. The petitioners have objected to the minutes of Board of Directors meeting dated 15.12.2006, EOGM dated 10.01.2007 and the Board of Directors Meeting dated 24.01.2007 as the confirmation of the same have been recorded despite oral objections. 6.9 Petitioners have raised the issue of purchase of a second-hand rolling mill 22 inches / 18 inches which had run for about 20 years and required a lot of upgradation and change of parts at the time of installation. It is stated that the proposal in this regard was floated in the Board of Directors meeting held on 30.6.2005. wherein it was decided that the project may be discussed with consultants to assess its viability, but this issue was never discussed further nor any feasibility report obtained for purchasing the rolling mill. The purchase of this mill has been discussed in great detail in this petition to show that the second-hand mill was not required and does not serve any useful purpose. It is alleged that the majority has caused a loss of ₹ 10 crores approximately to the company by purchase of this second-hand rolling mill and such ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d increase in rent from ₹ 5000/- to 20,000/-. c. The appointment of Sardar Gursimran Singh Grewal (R3) as Vice-Chairman-cum-Managing Director being illegal, he be removed from the office of Vice-CMD and in his place, as per practice of the company, the senior most person and rich with experience and with longest stay in the company, in regard to carrying on the business and affairs of the company be appointed as CMD. d. It is also prayed that Shri Pritpal Singh Grewal, who is illegally holding the office of Director-cum-Chairman be removed and in his place, a suitable person, rich with experience be appointed as director. e. Additionally, it is prayed that the appointment of Shri Saminder Singh Grewal as director being illegal and not sustainable under law, he be removed from the office of director and in his place, a suitable person rich with experience be appointed as a whole-time director. f. It is further prayed that the respondent company being a closely held company, the Board of Directors be re-constituted by granting indulgence to the shareholders for proportionate representation in the Board as well as amongst working directors, keeping in view the experience. g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of the petition, they constituted about 35 per cent of the shareholding. Subsequently, P-No.17 and P-28 were allowed to withdraw from the petition by the CLB. P-No.29 and P-30 namely Sardar Gurmohan Singh Grewal and his wife have also withdrawn from the petition vide order dated 24.8.2011 passed in CA 348/2011. P-31 (son of P-29 and P-30) has also filed CA No.27/2012 dated 16.3.2012 for withdrawal from the list of petitioners, but this is still pending. After withdrawal by the above named petitioners, the remaining petitioners hold 26.74% of the shareholding of the R1 company. 10.1-10.2 In their written submission, the Petitioners have alleged that the withdrawal of P-17, P-28, P-29, P-30 and P-31 is due to a quid pro quo deal of these petitioners with the majority group (respondents) which has accepted deposits at 13% return to the tune of ₹ 10 89 crores on 8.12.2011 and 15.12.2011. It is further alleged that a bank fixed deposit has been created by the respondents of ₹ 9 crores at only 8 to 9% interest. The answering Respondents in their written submission have denied such a quid pro quo deal and have stated that only 12% interest is being paid to P 30 and 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May, 2001 till September. 2001. Thus, the reappointment of R-2 as director was not done. In their view, this was at best a technical default which does not invalidate the appointment of R-2 as MD as the same was done unanimously in the very next meeting held after the demise of Sardar Inder Mohan Singh Grewal. They have also emphasised that R-2 was on the Board of the Company as director in 1970 much before the appointment of P-1 as director in 1974. Thus, the Respondents have stated that R-2 was the senior most person in the company in September. 2001 and was rightly appointed as MD. The Respondents have also referred to Petitioners averments in the pleadings that it was a practice of the company to appoint the senior most person in terms of experience as the MD and have stated that even though they do not agree that there was such a practice, or such parameter also the appointment of R-2 as MD in September, 2001 is correct. 13. The Petitioners have stated that there were 11 directors of the company of whom five were working directors at the time of filing of the petition in April 2007. While R-2, Sardar Pritpal Singh Grewal was Chairman (which as per the petitioners is illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now that R8 and R9 will not be performing any duties for the company nor attending the office regularly. The Petitioners have stated that the majority group at the behest of R-2 continued to pay salary in order to keep the voting power of R-9, The Respondents have also stated that P-1 was a signatory to the Balance Sheets of the company and cannot question the salary paid to R-9. The Petitioners in their rebuttal have stated that only P-1 out of the 36 petitioners has signed the Balance Sheets. It is also stated that on the reappointment of R-9 as JMD in 2006 in the Board Meeting of 27th May, 2006. the Petitioners present in that meeting had objected, but the matter was deferred to the next meeting and during the AGM of 25.9.2006, no voting took place and R9 was appointed as JMD. The Petitioners have averred that as R-9 did not work at all, the salary paid to her should be refunded to the company. They have also stated that "there cannot be any waiver, estoppel or acquiescence towards any act forbidden by law". In this regard, they have referred to Section 269 of the Companies Act, 1956. Petitioners have stated that Respondents have nowhere pleaded that R-9 could be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was being paid without any work performed by her. 14.2.4 R-8, namely, Ms. Kushal Grewal was appointed as a whole-time director on 15.12.2006 at a salary of ₹ 45,000/- per month plus perks. The Petitioners have stated that they voted in her favour as she was being appointed in place of her father, and they were given to understand that she would shift to Ludhiana and would be working whole-time for the company. The Petitioners have stated that their TA /DA bills for the month of January, 2007 show that she was in New Delhi from 01.1.2007 till 23.1.2007 and subsequently, from 23.1.2007 till 26.1.2007. But, her attendance was marked for 17 days from 11.1.2007 (the date of her appointment) onwards. The Respondents have stated that as the Petitioners group had also voted for her appointment as a whole-time-director and payment of salary, they cannot question the same. 14.2.5 The respondents have stated that R-8 who is the daughter of R-7 was appointed as Whole-Time-Director after the resignation of R-7 as a Whole-Time-Director and Director w.e.f. 1.1.2007. Upon such resignation by R-7, his daughter R-8 who is stated to be well qualified and holds an MBA from USA was appointed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .9.2001 where he was appointed as Chairman and Managing Director w.e.f. 6.09.2001 for a period of five years. It is stated that the averment of petitioner that R-2 was not a member of the Board is factually incorrect as R-2 was a member of the Board and was due to retire by rotation. P-1 was present in this meeting and did not raise any objection. (vii) P-1 and his wife P-2 trusted and relied on the experience of R-2 as in 2006 when a position of a trustee became vacant in Sardar Joginder Singh Charitable Trust (a public charitable trust), the remaining two trustees namely P-1 and P-2 chose to appoint R-2 as a trustee of the said trust. (viii) It is stated that at that time P-1 and P2 had no issue with R-2 and subsequently made baseless allegations of financial bungling and fuzzing of record while filing the instant petition. (ix) The respondents in their written statements have averred that there is no tradition of the senior most being appointed as CMD in the company or any understanding that proportionate representation is to be given to any particular group of shareholders. 14.4 Appointment of R-3 as Managing Director. The respondents have stated that the petitioners' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a MD or that his appointment would be prejudicial to the interest of the company. The respondents have also stated that security had not been called in order to pressurize the petitioner group on 10.01.2007 to support the appointment of R-3 Though the petitioners sent detailed objections to the proceedings in that meeting but they did not file any police complaint against the alleged misbehaviour of security grounds or coercion against them. (xii) Petitioners have also raised the grievance that the appointment of R-3 as M D. was clandestinely carried out under the miscellaneous head and was deliberately not included in the Agenda circulated for the Board meeting of 15.12.2006. The respondents have said that such a plea cannot be raised in a closely held company especially as the petitioners had attended the meeting and voted in favour of the resolution. (xiii) The respondents have questioned the stand of petitioner that the minutes of the meetings of the Board as well as general meetings were recorded incorrectly. It is also stated that the petitioner group would agree to the discussion in the Board meeting and later start sending letters of objections to the recording of minute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make any provision in this regard. 14.4.2 We have considered the averments of both the Petitioners and Respondents, There is no such condition in the Memorandum and Articles of Association of the company that the most experienced person is to be appointed as MD. As per section 269 of the Companies Act, 1956, the MD is to be appointed by the majority of the shareholders. As the majority has appointed R-3 as MD in an EOGM and there is nothing on record to show that such EOGM was held illegally, his appointment cannot be challenged. 14.5.1 Appointment of relative of a director in violation of section 314 of the Companies Act, 1956: This allegation against five persons namely, Gursimran Singh Grewal (R-3), S/o Sardar Pritpal Singh Grewal, then MD, Saminder Singh Grewal (R-6), S/o Dr.S.Grewal who was then a director, Sh.Parambir Singh Grewal (R4), S/o Sardar Pritpal Singh Grewal, then MD, Ms. Harsimran Dutta (R-11). D/o Sardar Inder Mohan Singh Grewal, founder MD and sister of Mrs. Jitender Punia, then a working director and Sardar Mandeep Singh Grewal (R-10), S/oGurlal Singh Grewal, then JMD and P-1 have been discussed in detail earlier. These persons were drawing salary above ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the appointment which was carried unanimously. 14.5.5 The Respondents in their reply of allegation have stated that P-1 has signed all the Balance sheets and as such, has accepted the payment of salary given in violation of section 314. They have further stated that a complaint under section 314 can only be filed by a shareholder who was not a party to it. 14.5.6 The Petitioners in their rebuttal have stated that P-1 who was the signatory of the Balance Sheet is only one among the Petitioners and holds only 2,70% shareholding out of the total 26.74% shareholding of the petitioners. It is also stated that there cannot be any question of waiver / acquiescence of a statutory requirements u/s 314. 14.5.7 The Petitioners, in their written statement have also stated that though P-1 was signing the Balance Sheets, he was in-charge of the technical side while R-2 was jn-charge of the administration as per the letter dated 14.9.1999 of the then founder MD. A copy of the same has been attached. 14.6 Debt of ₹ 7.22 crores written off for the period 2004-05. This issue has not been raised by the petitioners either in their written statements or oral arguments before the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2005 is alleged to have been ante-dated as it has been signed by Mr. D.D. Kapoor who was actually employed with M/s R. Singh and Associates till 15.2.2005. 14.7.2 The Respondents in their reply have argued that the Petitioners have acquiesced to the act of purchase of this mill as both P-1 and P-10 were present during the Board of Directors meeting held on 30.6.2005 and 28.3.2006 and these two meetings qualify for compliance to section 292. It is also stated that P-1's signature on the Balance Sheet for 31.3.2006 results in waiving of all objections regarding purchase of the second hand mill. The Petitioners have vociferously contended the statements of the Respondents and have reiterated that the mill was purchased contrary to the provisions of section 292 of the Companies Act, 1956 which states as follows: Section 292 certain powers to be exercised by board only at meeting. (1)...(d) the power to invest the funds of the company; and ... 14.7.3 In their written submission, the respondents have stated that the petitioners case is that the 22" rolling mill was not needed by the company is liable to be rejected for the following reasons:- (a) P-1 has not disclosed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- to ₹ 1,15,000/- per month during the meeting of Board of Directors on 6.3.2007, allegedly to provide additional income to the majority side. It is stated that P-1 had objected to the increase as the dividends of the company had been reduced in the same year from 20% in the previous year to 10%. The Petitioners have stated that the cheque signing power of P-1 was diluted thereby leading to his virtual exclusion from the business. It is stated that as JMD the P-1 had power to individually sign all the cheques of the company, but as per the resolution passed under the miscellaneous head during the Board of Directors meeting on 24.1.2007, only the MD was authorised to sign individually or any two of the working directors had to sign individually. The Petitioners have stated that as all the other working directors apart from P-1 were from the majority group, his cheque signing power was virtually annulled. P-1 has denied that by giving his specimen signatures on 25.1.2007, he had consented to the above arrangement. 15.2.1 In the written submission, the Petitioners have stated that they were denied access by the majority group into the works area of the factory premises. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited judgment Jasdev Singh v. U.T.I. [2011] (ILR 4 Delhi 185) in which it was held that we have gone through the judgment and the contention of the respondent that this case is not relevant as it relates to misfeasance proceedings against a Director. In the instant company petition there is no such specfic contention except a broad reference in the written submission complaining about fraud and misfeasance. The respondents have cited several judgments in this regard but these relate to either misfeasance proceeding against a director or criminal breach of trust. The instant company petition is a complaint against oppression and mismanagement u/s 397 and 398. 16. COMPANY APPLICATIONS During pendency of the Company Petition for almost 10 years, both the Petitioners and the respondents have filed several CAs.Some of them have been adjudicated by the CLB & High Court, few of them which were pending, are discussed herewith and are being disposed off along with the company petition. These are detailed below and are discussed in brief. CA 272/2008 - was filed by the petitioners on 7.5.08 praying that the respondents be directed to allow free access to the applicant petitioner as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 634-A of CA, 1956 filed by the respondents as well as on the affidavit dated 27.8.2008 filed by the petitioners to await the outcome of the inquiry into fabrication of record by the company. CA 648/2008 - was filed by the petitioner on 8.12.08 praying that right of the respondents to file reply to CA 562 of 2008 be foreclosed. This CA is pending. CA 309/2009 - was filed by the respondents on 23.6.09 seeking modification of the order dated 8.5.07 in relation to status quo of the fixed assets as the applicant company was seeking enhancement of the borrowing limits of the working capital loan. Order dated 25.6.09 was modified to the extent that R-1 company may avail a loan of ₹ 65.50 crores by mortgaging fixed assets of the company to Canara Bank. ' CA 434/2009 - was filed by the Petitioners under sec. 340 of Code of Criminal Procedures, 1973 read with section 10-E(4A) of the Companies Act, 1956 for initiating proceedings against the respondent Nos. 1,2,3,4,5,6,7,8,9 & 11 Applicant Petitioner alleged that it is evidently clear that the respondents have accepted valuation of land and building of the company at only ₹ 32 crores while offering fair price for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. CA 75/2014 - was filed by the Petitioners on 02.4.2014. This CA mainly deals with subsequent events. It is stated that after filing of the petition, despite interim orders having been issued by the CLB, the Respondents have committed further acts of oppression and mismanagement. The petitioners have stated that while invoking powers under ss 397 & 398 of the Companies Act, 1956, the CLB (Tribunal) has the requisite jurisdiction to look into subsequent events. These events are listed in brief here and are discussed in detail later. (i) Siphoning of funds while purchasing of scrap for the company and thereafter falsification of records to cover up the act of siphoning. (ii) Diversion of funds / siphoning of money while making investments in the fixed assets of the company without following due procedure. (iii) Siphoning of funds by inflating labour bills. Violation of section 209 of the Act i.e. managing the company with no transparency. (iv) Denial of access to the directors of the petitioners group to the works area and not permitting them to interact with any staff member. (v) Acts of perjury committed by the respondents to withhold information and provide incorrect inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of scrap was confidential and business sensitive information and could not be disclosed. Subsequently in response to Hon'ble High Court's order the Respondents sent a covering letter along with some record of the company. The Petitioners have alleged that the records pertaining to the purchase of scrap was fabricated. Later on, the Respondents stated that these quotations were re-generated quotations. On 26.9.2008, the High Court passed directions directing the CLB to conduct an enquiry into fabrication of records. It is stated that the fabricated documents in original have been handed over to CLB vide CA 139/2010. 17.1 The Petitioners have stated that several acts of oppression were committed by Respondents after filing of the petition. These subsequent events were brought on record by way of various applications and compiled by the Petitioners in CA 75/2014. In this CA, a prayer had been made to take cognizance of subsequent events along with prayer to exercise power under section 406 to direct the Respondents to refund the entire loss caused and to initiate the prosecution against the delinquent / respondents and to re-constitute the Board of Directors by excluding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngmalon Equipment (P.) Ltd. [2005] 62 SCL 332 (Bom.) (discussed infra). 17.2.5 Prasanta Kumar Mitra v. India Steam Laundry (P.) Ltd. [CA No. 755 of 2011, dated 6-2-2014] (discussed infra). 17.2.6 Birla Corpn. Ltd. v. Birla Education Trust and Harshvardhan Lodha 2013 SCC Online 17094. CP No.1 of 2010; In this case the Calcutta High Court held that "it is permissible for the court to allow introduction of subsequent events in a pending proceeding if such subsequent events are consequential to the main lis, but an absolute inconsistent case or a new case all together cannot be permitted to be raised by way of amendment of the pleadings. in the case of Sangramsingh Gaekwad (supra) the ratio is that case for relief in petitions of similar nature must be made out in the petition itsetf and the defects in the petition coutd not be cured or lacuna filled up by other oral or documentary evidence"--in the application out of which case appeal arises, the petitioners have alleged certain acts on the part of the present management which according to the petitioners were committed subsequent to institution of the petition Case of the petitioners is that such acts would lead to furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that miscellaneous items are for items of emergent nature. Thus this judgment has no applicability. 17.3.1 The Petitioners have stated that even after filing of the petition the Respondents have continued to invest in fixed assets without seeking any approval of Board of Directors or even mentioning such investments in the meetings of Board of Directors in violation of Section 292. 17.3.2 It is stated that in violation of CLB status quo order dated 8.5.2007, the Respondents have allegedly invested a sum of ₹ 62.47 crores in fixed assets as per the schedules attached to Balance Sheets from 2006-07 till 2013-14. It is stated in the written submission that this investment of 62.47 crores has not brought any benefit to the company. The sale in terms of tonnage has dropped down trom 50602 MT on 31.3.2005 to 44094 MT in 2012. ft is further stated that the profits in 2005 was ₹ 14.20 crores and in 2013, the company suffered a loss of ₹ 17 crores and in 2014, the loss was ₹ 22 crores. The dividends paid in 2005 were ₹ 20.16 crores and reduced to ₹ 48 lacs in 2008. While no dividend was paid in 2009, in 2010-11, dividends of ₹ 48 lacs were decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally verified by the management. It is further stated that the Respondents have refused to share data with M/s CRISIL The Petitioners have alleged that the fact that the Respondents have maintained so much secrecy about these alleged fixed assets is indicative that these entries are bogus and these assets do not exist. The Petitioners have also referred to the report of Chartered Accountant Mr. Pankaj Jindal whose services were engaged by P-1, wherein it is mentioned that despite substantial additions to fixed assets, the expenditure on power and fuel calculated on net sale has remained the same. It is stated that the Chartered Accountant had pointed out that it is for the management to find out whether the machines installed were put to use or not particularly when sales have not increased. 19. The Petitioners have also referred to two applications filed by them before the CLB namely 208/2013 filed on 25.5.2013 for production of records and inspection of relevant documents pertaining to fixed assets and enhanced labour costs. The second application is CA 76/2014 for appointment of a Local Commissioner to carry out physical inspection of the fixed assets along with the relevant r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand that the machinery is old. They have also questioned the stand that the company is a labour welfare oriented company as it is stated that 20 old staff members have been removed. It is also stated that the company had not paid any increment to its employees since FY 2012-13. It is also stated that the company's PF return indicates that the employees' strength has come down from 1500 to 400. 21.4 The respondents have stated that the above allegations regarding inflated labour bills are baseless on the following grounds: (a) That the technology deployed in the company is nearly 30- 40 years old and requires a lot of human skill to operate it. (b) That the R-1 company is registered for both PF and ESI and is filing regular returns for the same. (c) The comparison of PF contributions and total employee cost is not justified as here can be no direct relationship between the same. Some senior persons who have been retained on superannuation do not fall under the PF regime. (d) Selective comparison of labour cost with that of competitors cannot be made as at least one of them has a fully automatic plant and thus reduced labour costs. (e) More than 90% of labour is paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating that it was not required. The decisions to sell the machinery was taken in various Board of Directors meetings despite the status quo order of CLB dated 8.5.2007. The Petitioners have stated that in Dec 2013, they noticed that the Respondents had started dismantling the shed covering the 12 inch rolling mill and the said mill was not seen in the factory premises. It is stated that the 12 inch mill was a running mill as per the production figures given in CA 75/2014. They were also informed that the motor of the 20-inch mill had been removed by the Respondents thereby destroying that mill as well. Petitioners have stated that they have filed a contempt petition in this regard before the Hon'ble High Court. 27. The Petitioners have stated that during the pendency of the petition, the Respondents have restructured the debt of the company in violation of CLB's status quo orders dated 8.5.2007. It is stated that the debt restructuring agreement with M/s Canara Bank for converting an amount of ₹ 40 crores from the working capital limit into a working capital term loan repayable over 6 years. It is stated that an additional charge has been created for securing the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 50 crores to ₹ 65 crores, the valuation of land and building was given at ₹ 138.57 crores as per Canara Bank's letter dated 03.4.2009. It Is stated that the Respondents have been giving variable valuations in different forums / authorities. f. The Petitioners have questioned the conduct of R-3 and have stated that he has time and again filed fabricated / false documents before the CLB. It is also stated that R-3 is already facing an enquiry before the CLB for having filed fabricated documents before the Hon'ble High Court of Punjab and Haryana. g. The Petitioners have rebutted the argument raised by the Respondents that P-1 has his own business and is therefore acting as a spoke in the Respondent's livelihood. While admitting that the P-1 has his own businesses, it is stated that P-1 has opened two restaurants in his house with a total turnover of ₹ 3 crores and his floriculture business is closed and his third business i.e. Upper India Special Casting Unit has a turnover of ₹ 13 crores with a profit of ₹ 6 lakhs. P-1 has stated that his businesses are nothing compared to the turnover of the respondent company which was ₹ 250 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the shareholding group of the Petitioners and the majority. In this regard, they have placed reliance on the following judgment: 1. K.N. Bhargava v. Track Parts of India Ltd. [2000] 23 SCL 320 (CLB - New Delhi) paras 19 and 20 (infra) and 2. T. Ramesh V. Pai v. Canara Land Investments Ltd. [2004] 55 SCL 616 (CLB). The Petitioners in their written submission have stated that the respondents had themselves given a project report for relocating the factory from the existing premises so that a land bank could be created. It is also stated that the financial figures of the company namely reduction of turnover of ₹ 250 crores to ₹ 150 crores show that the company is on verge of closure. This and the fact that employee's strength has been reduced 1500 to 400 shows that the company is not a going concern and the Respondents are only interested in encashing the land bank. It is also stated that the company has 37 acres of land and certain areas are lying absolutely vacant and with minor relocation of the machinery within the premises, vacant land commensurate to the shareholding of the Petitioners can be created for the purpose of demerger. 29. The Respondents in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h so as to oppress a minority of the members including the petitioners vis-a-vis the shareholders which a fortiori must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members. 187. The interest of the company vis-a-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956. 188. Mala fide, improper motive and similar other allegations, it is trite, must be pleaded and proved as envisaged in the Code of Civil Procedure. Acls of mala fide are required to be pleaded with full particulars so as to obtain an appropriate relief , 189. The remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, thus, necessary to be proved. The acts complained of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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, (as His Lordship then was) in Mohanlal Garpatram v. Shri Sayall Jubilee Cotton and Jute Mills Company Ltd. MANU/GJ/0003/1964: (1964) glr 804 at 103 stated the law; 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 taw, and yet it may be oppressive to the minority shareholders or prejudicial to the interests of the Company, Such a resolution can certainly be struck down by the Court under section 397 or 398 Equally a converse case can happen. A resolution may be passed by the Board of directors which may in the passing contravene a provision of taw, but it may be very much in the interests of the Company and of the shareholders " 213. The said decision has been referred to with approval in Needle Industries (supra), (Para 49). The conduct which is technically legal and correct, thus, may justify grant of relief on the application of the just and equitable jurisdiction and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daraj (supra) cannot support a petition under Section 397. The petitioner has not made out as to how the appointment of additional director has caused prejudice to the interest of the Company and its shareholders." b. P-1 and P-10 are directors of R-1 company from 1974 and 2001 respectively. They have attended various BM and GM and also voted in favour of resolutions being challenged now. c. No single contemporaneous complaint was raised regarding functioning of the BoD or R-1 company till the filing of the present petition. d. The Petitioners have challenged the appointment of R2 in 2001 as MD after having participated in such an appointment and acted upon it. e. P-1 as working director has signed all the Balance Sheets and annual accounts from 2001 till 2006. These annual accounts were signed by all working directors in 2001 but from 2002 to 2006, only R2 and P1 were signing them. f. Petitioners have not come with clean hands g. Petitioners' conduct disentitles them to approach an equitable forum like CLB/NCLT as their conduct is isolative of the principle of one who seeks equity must do equity as: - (i) Petitioners group have withdrawn all the deposits from R-1 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents have cited Supreme Court decision in Sangam Singh Gaekwad (supra) and S.P. Jain v. Kalinga Tubes [2008] 3 SCC 363 to state that only the allegations as set out in the petition can be looked into. The respondents have stated that Petitioners have chosen not to amend the petition but to agitate alleged subsequent action by way of filing CAs and that subsequent actions can only be challenged without amending the main petition where the same are in continuation of the act complained in the petition. They have cited Ashoka Betelnut Co. (P.) Ltd. v. M.K. Chandra Kauth [1997] 14 SCL 33 (Mad.) para 18/23 in this regard. (Discussed later at para 30.5 (D) infra.) 29.3.1 The specific response of the Respondents to the allegations are detailed below: 29.3.2 Remuneration violation of section 314 - There is no violation upto 1995-96 and thereafter P1 was party to all the decisions. P1's son R-10 has also drawn salary above the limits prescribed in section 314. It was not the case of the petitioners that neither such employees worked for the company or such positions were required in the company and that such employees were not qualified or eligible for employment by R-1 or the salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act, cannot be complained of in the present proceedings under s. 397 or 398 of the Act." 29.3.3 The Respondents have also stated in their written submission that conduct involving illegality and contravention of the act will not by itself suffice to warrant the remedy of winding up especially where alternative remedies are available. 29.3.4 APPOINTMENT OF DIRECTORS. The petitioner has challenged the appointment of R-9, R-7, R-8 and R-6 as directors of the company alleging that this was to get the support of their group of shareholders. The respondents have averred that these appointments were made in accordance with law and in duly convened Board meetings and general meetings and cannot be challenged now for the following reasons: - (a) P-1 was aware of the appointment of R-9 and was a party to the decision. (b) In a family company members of the family are entitled to participate in the working of a company particularly where remuneration is part of livelihood. (c) The petitioner group had voted in favour of these appointments. (d) The petitioner has not raised any contemporaneous complaint ever against the manner and method of appointment of remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout amending the underlying petition, where the same are in continuation of the acts complained of in the petition and additional facts and reliefs agitated by filing subsequent applications cannot be adjudicated. 29.3.6 SIPHONING OF FUNDS. P-1 signed all Balance Sheets as JMD of R-1. They have also referred to the statement made by P-1 in the Civil Suit titled "Gurlal Singh Grewal v. Mata Gurmail Kaur Charitable Trust" in a Ludhiana court during cross examination on 4.6.2012 stated on oath that "Assignment as Director given to me earlier to 2007 had been performed by me with full responsibility. I used to look after production figures. As and when any customer of Upper India Company faced any dealing problem then I used to take care of marketing affairs also." Though the auditors of both R-1 company and P-Vs company'1 namely Upper India Steel Castings Ltd. are the same. It is stated that the petitioners have referred to a qualification in the audit report that the fixed assets have not been verified. The respondents have argued that this is not a qualification, but a mere recording in the audit report where the same paragraph states "that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions regarding the loading of a truck bearing 0.065 M.T in the godown of M/s. Raghav Industries and the same truck being off-loaded within 25 minutes of leaving R-1 company and the same truck came back and loaded 10.265 M.T. in R-1 company. It is stated that this allegation is baseless as two 'lots of goods having different assessable values cannot be billed together. Therefore, the usual practice is inat when dealing with two lots of different assessable values that need to be despatched together, then the first lot is loaded on to the truck and billed as the truck goes out and subsequently, the truck is loaded with the second lot and billed again. It is stated that P-1 is well aware of this trade practice. 29.3.8 WITHHOLDING INFORMATION - CA 135/2012. The respondents have stated in their written submission that the allegations pertaining to withholding of information and consequent perjury by the respondents are repetitive in nature and relate to averments made in CA-135/2012 and have already been adjudicated by CLB's Order dated 19.03.2013 and have been confirmed by the Hon'ble High Court. The project modernization and expansion was conceived in 2011 and the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in quantity terms. It is also stated that this being part of the management decision and regular working of the company, cannot be subjected to any allegations of oppression and mismanagement. 29.3.10 ALLEGED DESTRUCTION OF ASSETS OF R-1 COMPANY. The respondents have stated that in terms of the status quo order of CLB dated 8.5.2007 disposal of assets such as old vehicles or old equipment lying unused was duly approved by the CLB and money realized has come to the bank account of the R-1 company. Fortnightly statements of receipts and payments are also being given to the petitioners in accordance with the CLB's order and the petitioners have not challenged or objected to the same. It is stated that a number of assets have been disposed of by way of sale by the Board of Directors and the petitioner-directors were present in the meeting and did not object. 29.3.11.1 LAND OF RESPONDENT NO. 1 COMPANY BEING ANCESTRAL LAND AND BEING CONTRIBUTED BY THE PROMOTERS. The respondents have stated that this allegation is without any basis and no such case was set up in the petition, but was made out in the subsequent pleadings in rejoinder as well as subsequent applications in particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh Sherpur Small Scale Iindustrial Bidg. Society Ltd. 30,000/- 1263 15.3.61 17.12.62 S Surjit Singh -do- 30,000/- 1548 30.3.61 17.12.62 S.Gurqbal Singh -do- 30,000/- 1267 15.3.61 17.12.62 S.Gurparshad Sinigh -do- 30,000/- 1271 15.3.61 S.Gurmohan Singh 30,000/- 1272 17.12 62 S.Pritpal Singh -do- 30,000/- 1273 15.3.61 17.12.62 S.Gurlal Singh -do- 30,000/- 1274 15.3.61 17.12.62 S.Sant Parshad Singh -do- 30,000/- 1275 15 3.61 17.8.63 Shorpur Small Scale Industrial H/B Society M/s Upper India Steel 3,10,000/- 2308 14.8.62 29.3.11.3 The respondents have questioned this and have stated that the consideration for purchase of shares by Grewal family was paid in cash to S/Shh Dina Nath, Sohan Lal, Jagdish Chandra, Mohan Lal, Tara Chand and Suresh Chand. Subsequently, 29 acres and 2 Kanals of land was also bought from M/s Sherpur small Scale Industrialists Co-op House Bldg. Society Ltd. on payment of full amount of ₹ 310000/- as per Board Minutes on 7.5.62. The respondents have stated that at the time of purchase of land, it was the company having 117 shareholders that bought the land after raising ₹ 683000/- vide cumulative prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 25. Tea Brokers v. Hamendra Prasad Barooah [1998] 5 Comp Lj 463 (CAL) Para 178. Caparo India Ltd. v. Caparo Maruti Ltd. [2007] 75 SCL 287 (Delhi) Paras 36 to 40. (D) The date of valuation should be the date of the order as the petitioners' have claimed to be a partner in a family company Pro-finance trust SA v. Glad Stone (2001) EWCA Civ 1031 at Page 264 Para 60-61. (E) Valuation by independent valuer cannot be on asset basis as R-1 company is a manufacturing company and such valuation is for the purpose of winding up. The same has to be valued as a going concern and the interest of the company is paramount (Sangram Singh P Gaekawad Supra Para 187) (F) A shareholder acquires a right to participate in the profits of the company, but not in the assets of the company (Bacha F Guzdar v. CIT AIR 1955 SC 74) (G) No Division, of land is sought by the petitioner if the land is to be used in the interest of the company and shareholders (M/s. Najma M Saiyed v. Mehboob Productions (P.) Ltd. [2005] 62 SCL 468 (CLB - New Delhi) (H) it is not a sale in winding up of the company and the company is a going concern. Even if the petitioner go out, the company will continue to function wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Law Board stated "in proceedings u/s 397 398, even if the allegations are not established, more so in a family company, we have always taken the view that to protect the interest of the shareholders and the company, appropriate directions should be given especially when there are irreconcilable differences between major group of shareholders. In the present case, notwithstanding the fact that the conduct of the parties during the proceedings before us amply indicated that they could not any on together, we also find that after the amendment to the articles consequent on the family settlement in 1991, article 69 provides for passing of special resolutions in respect of certain matters end Article 109 provides for affirmative vote from both the groups on various matters coming before the board. With such serious differences and disputes between the parties, the probability of stalemate in the proceedings of the board and the general body meetings in future is very high. Thus, parting of ways between the parties is the only solution which would ensure protection of the interest of the shareholders as well as the company including the financial institutions. As a matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. It has been brought to our notice that there are no other suppliers who could cater to the needs of the track components division, in case the respondents do not want to enter in to a supply agreement on the terms and conditions applicable to other customers, in view of this, we are of the firm view that the division of the company is the only appropriate solution to bring to an end the disputes between the parties." Accordingly, in exercise of our powers under Section 402 of the Act, we direct as follows; Presently, the petitioners are managing the forge division and the respondents the other two divisions in Kanpur end this arrangement came into existence sometime in January, 1999. We formalise this division of the assets of the company with the cut-off date as January 1, 1999. Each group will manage their divisions independently without any interference from the other group. A balance- sheet as on December 31, 1998, will be prepared after preparing a profit and loss account for the period ending on that date including the accounts of the plastic division. Since the financial institutions have high stake in the company, we consider it expedient that they should be asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y different groups. Or that the running business of the company is divisible. (B) T.Ramesh U. Pai (supra) 'In this case the counsel for the petitioners had urged the CLB the exercise the powers u/s 402 and direct them the company to purchase the petitioner's shares and reduce the share capital by the extent of the petitioner's shareholding. As it was held "that petitioners have lost trust and confidence in the respondents and it is impossible for both of them to continue to carry on the business together." The CLB held that it would be appropriate to direct the petitioners to go out of the company on receipt of proper consideration. It was noted that the company was not having any business except running a hotel, but in possession of vast real estate. Hence the CLB held that instead of cash consideration being paid to the petitioners for their shares, the assets and properties of the company could be divided and properties to the extent of 44% given to the petitioners, it also held that determination of the value of the company as a whole and the value of the shares held by the petitioners could be done by an independent valuer. On the basis of valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assets by allotting different units to the petitioners and different respondents. It is noted that the respondent company has different units and thus such division of units/businesses was feasible. 30.4 CASE LAW ON SECTION 292: Ambala Bus Syndicate (P.) Ltd. v. Roopnagar Credit and Invest Co. Pvt. Ltd. [1997] 88 Comp. Cas. 821 (Punj.& Har.): In this case the Punjab and Haryana High Court held that the powers of a company are to be rcised by its Board of Directors. "The Board of Directors may exercise all powers of a company and can do all such acts and things that the company can do. A director as an individual has no power to act on behalf of the company except where the Board has delegated powers to him. The company must have the benefit of collective wisdom of the directors acting as a Board. But the exercise of such powers of the Board shall be in conformity with the provisions of the Company's Act or any other Act or memorandum, articles, regulations and resolutions of the company-in case of dispute the burden is on the company to prove delegation. The respondents have stated that this case is not applicable as the same relates to winding up. We are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f oppression. This observation has been emphasized by Mr. De'Vitre. The Apex Court disapproved the reliance by the High Court on the pleadings made in some other proceedings and ignoring the assertions made by the respondent therein in the proceedings The decision of the Apex Court in the case of Sangram Singh (supra) therefore does not state that in spite of the fact the parties knew the case and all pleadings were on record, the petition ought to have been dismissed because the cause of action could not have been made out in the rejoinder.'(Emphasis supplied). Furthermore, there are more reasons why reliance cannot be placed on the decision of Sangram Singh Gaekwad (supra), in the present case, the cause of action has been sufficiently pleaded in the petition for the relief that is sought. The decision of the Apex Court in Sangram Singh (supra) after taking review of the powers of the Board, has in fact emphasised that, looking at the nature of the proceedings, the Board will have to take into consideration the entire material on record. The other decisions cited by Mr. Dwarkadas, arise from either Civil Suit, Election Petition or a Writ Petition. The nature of jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to alt the provisions dealing with corporate management, it will all depend on the facts and circumstances of each case as to how, in what manner and to what extent the court should allow the voice of the shareholders' directors on the board of directors to prevail over that of the other directors and the court's power in that behalf could not be in any manner be curbed. Therefore, the position is clear that while acting under section 398 read with section 402 of the Companies Act, the court has ample jurisdiction and very wide powers to pass such orders and give such directions as it thinks fit to achieve the object and there would no limitation or restriction on such power that the same should be exercised subject to other provisions of the Act dealing with normal corporate management or that such orders and directions should be in accordance with such provisions of the Act. Once it is held that on a true construction that the court has the widest possible jurisdiction and ample powers to bring about the desired result, there would be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 397/398 or u/s 408 should stand on its own footing and the petition cannot be strengthened by subsequent affidavits as held by Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp case 351 "no material or a new allegation can be added unless otherwise they relate to events taking place after the petition is filed", it is further stated that "there are a catena of judgments to the effect that judicial forum cannot sit in judgement on business/commercial decisions which are within the ambit of the powers of board of directors unless the power has been used for an ulterior motive or with an intent to defraud the company or to bestow an undue advantage to an outsider or in breach of the fiduciary duties of the directors." it is further stated in this judgement that "it has been held that commercial misjudgements will not amount to oppression even if they have adverse effect on the price of the shares of the company. (Rutherford, in re (1994) BCC 876.) The Supreme Court has observed in the celebrated Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1991] 51 Comp case 743 (SC) that, inefficient or careless conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.397 of the Companies Act. It has been held in Hungerford Investment Trust Ltd. v. Turner Morrison & Company Ltd., 2nd (1972) Cal 1 that if an action of the directors is illegal or invalid then the company or the shareholders may take appropriate action in a court of law by challenging the validity of such an action but a petition under s.397 or 398 of the Act is not appropriate remedy for the purpose. In this very case, it has been observed that negligence and inefficiency do not amount to mismanagement or oppression under ss.397 and 398 of the Companies Act. Reliance, in this connection, was placed on the case of Sheth Mohanlal Ganpatram v. Shri Sayaji Bhagwati J. (as his Lordship then was), white dealing with the applicability of ss.397 and 398, observed at page 813 as follows ....the power of the court under both the sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the court cannot make an order setting aside or interfering with past and concluded transactions which are no longer continuing wrongs or giving compensation to the company or the aggrieved shareholders in respect of such transactions. 15. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of challenging the same in other appropriate proceedings, but such an allegedly illegal meeting did not, to my mind, result in any oppressive act being committed on the petitioner. The decisions which have been referred to by Mr. Ved Vyas, namely, Loch v. John Blackwood Ltd. (1924) AC 783, Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492, Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwals [1976] 46 Comp Cas 91 (SC), C.P. No. 39 of 1973 decided by this court on 30th April 1975 and C.P.No. 8 of 1972 decided on 18th March, 1977, by this court are relevant for deciding as to whether it is just and equitable to wind up the company or not. For the purposes of this petition, I am assuming that the principles laid down in Ebrahimi's case (1972) 2 All ER 492 apply and that it may be just and equitable to wind up the company. It might here be stated that this contention is controverted by the learned counsel for the respondents Nevertheless, merely because grounds or circumstances may justify a winding-up order being passed, that is not enough to entitle the petitioner to obtain relief under s 397 of the Companies Act". (D) Asoka Betelnut Co. Ltd. (supra) In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the CP filed by them in April 2007 as well as the several CAs filed later on, particularly CA 75/2014 which deals with subsequent events. These allegations and the respondent's response along with the rejoinder, if any have been discussed in detail above. However, each of the issues raised are again mentioned along with the decision thereon. 1.2 Violation of sec 314 of the Companies Act, 1956 by appointing certain persons who are relatives of the directors of the company and paying them salaries above the amounts prescribed in sec 314: The defence of the respondents in this regard is that the petitioner No.1 was present in the meeting of the board of directors where such persons were appointed and P-1 had also signed the balance sheets of the company tiff FY 2005-06. It is also stated that P-1 himself was a beneficiary of such violation as his son S. Mandeep Singh Grewal (R-10) was also drawing salary above the prescribed limits as per section 314 We have carefully examined the allegations in this regard and the response of the respondents. At the outset, it may be stated that section 314 is statutory, and its violation cannot be permitted on the basis that P- 1 had wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent company may apply for permission to Central Govt. to waive the same as per Law. 1.3 Improper appointment of Directors: a. Smt Jitender Kaur Punia (R-9). The petitioners have alleged that R-9 was appointed as working director from September, 2001 onwards and subsequently made Joint Managing Director. The petitioner's main grievance is that she was paid salary without performing any duties/work for the company The respondents have denied this and have stated that she was performing the work of bill verification and labour welfare. The respondents have produced the attendance sheet of Ludhiana unit for the month of January 2007 where she has been shown to be present while her TA/DA bill show that she was in Delhi from 01.01.2007 to 23.01.2007 and then again from 23.1 2007 to 26.1.2007. In this regard, the respondents have stated that it was the practice of the company to mark the presence of working directors in the Ludhiana unit regardless of the fact as to where or in which branch/office they were actually working. The respondents have also said that P-1 was present in both the meetings of September 2001 and December 2006 when the resolution for her appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though as per the respondent's argument that there was no such stipulation under the Memorandum and Articles of Association. S. Gursimran Singh Grewal (R-3) was appointed in 2006 as Additional Director in board meeting held on 15.12.2006 under sec.260 of the Act. Subsequently, he was confirmed as working director and elected as Managing Director in 2007, The petitioners have challenged his appointment as MD on the ground that he was neither the senior most person and also not qualified The respondents have stated that there is no such practice in the company or stipulation regarding appointment of only the senior most person as managing director. Directors and managing directors are appointed by the shareholders/members of the company. R-3 was appointed first as additional director and then as a managing director in the meeting of board of directors and the resolution for his appointment was approved in the EOGM/AGM dated 15.12.2006 and 11.01.2007 respectively. Accordingly, we hold that there is no infirmity In the appointment of R-2 and R-3 as managing director and the allegation regarding the same is dismissed. 1.5 Rejection of appointment of S.Ashok Singh Garcha (P10) as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgements to say that the purchase of the rolling mill was a business decision taken by the management of the company and cannot be adjudicated upon by the CLB/Tribunal. We have gone through these judgements which were discussed earlier. Respectfully following them, this allegation is dismissed. 1.8 Writing off of debt of ₹ 7.22 crores for the period 2004-05: This allegation has been raised in the CP but was not argued orally. However, as the same is mentioned in detail in the written submissions, it is being discussed. The petitioners have alleged that the debt of ₹ 7.22 crores was written off to get the benefit from the Income-tax Department. The respondents have stated that P-1 was in the management of the company when these debts were written off and had signed the balance sheets as Joint Managing Director. It is also stated that P-1 had recommended writing off the same and was also negotiating for recovery of the same. Though the writing off of these debts was accepted by the Income-tax Department, some recovery has since been made. Again, the argument that this is a business decision has been raised. The respondents have argued that in view of the fact that P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of the petition can only be considered if they are related to the allegations made in the petition. The respondents have cited the judgment in the case of Shanti Parsad Jain v. Kalinga Tubes Ltd.1965 (35) Comp. Cas. 351 at page 366 it has been said "there must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members." Justice Sujata Manohar in the case of Khimji M Shah v. Rattilal Damardardas Modi 1987 (3) Bom. CR 236 did not agree with the contention that the words "up to the date of petition" suggested that the only conduct up to the date of the petition can be looked at in such a petition. The Bombay High Court held that the judgments in re Shanti Prasad Jain (supra) pointed out that there should be a course of conduct which could be considered as oppressive to some of the members, burdensome, harsh and wrongful and such conduct should continue till the date of the petition and the judgement does not deal with any subsequent conduct after (he date of filing of the petition. "The judgement does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed made grievance only in respect of a single act viz., meeting of the directors held on June 4, 2002. The petition was subsequently amended and further actions were also challenged as oppressive acts. Them counsel for the respondents in that case relied on the observations of the Supreme Court in re Shanti Prasad Jain (supra) that "in this connection reliance is placed in certain matters which transpired after the application was filed on September 14, 1960. These matters were however cannot be taken into account for the application has to be decided on the basis of the facts as they were when, the application was made." The Hon'ble Bombay High Court did not agree with the submission of the respondent's counsel as the Division Bench of High Court had permitted the appellant to amend the petition before the CLB. "The appellant was thus allowed to include events subsequent to the filing of the petition. The Hon'ble Bombay High Court held that "it is possible for the Court to avoid multiplicity of proceedings by holding that the proceedings (i.e. the petition u/s 397) on the amended grounds of oppression instituted on the date on which the amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the main relief becomes inappropriate because of the subsequent events which the parties cannot foresee at the time of initiating the proceedings. In the context of the present case, it must bear in mind that the genesis of the initiation lies on an allegation of oppression and mismanagement by the majority members of the Company or the Board of Directors and any further act which amounts to oppression and mismanagement is connected to the original cause of action and not the fresh cause of action, As discussed above, the courts have held that subsequent events can be considered provided the same are further acts that amount to oppression and mismanagement and are connected to the original cause of action and not the fresh cause of action. As observed by the Bombay High Court in re Jer Rutton (supra) there is no need of amendment of petition. We have gone through the list of subsequent events filed with CA 75/2014 and find that most of the so called subsequent events are connected With the allegations made in the original petition. The caveat filed by the respondents in this regard has been discussed in detail for each of the subsequent events alleged in CA 75 above. This discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectorial complaints and thus, cannot be said to come under the purview of sections 397 and 398. Even the violation u/s 314 is a statutory violation and the procedure for remedy of the same is provided in that section itself. Thus, the violation of sec.314 does not come under the definition of oppression and mismanagement u/s 397 and 398. 3.-3.1 The instant case is that of a family company, where the shareholders who represent different branches of the same family have legitimate expectations of return by way of monetary benefit from the respondent company. This return may be by way of dividends and/or remuneration and perquisites paid to members of the company who may be employed as Directors and/or as salaried employees In the instant case we observe that the returns to the minority group have been systematically whittled away by subsequent non-payment of dividends. The number of Directors and salaried employees from the minority group have also been reduced. Hence while the Directors and the salaried employees from the majority group are getting increasing salary income as well as perquisites, the same for the minority group have been reduced. This shows that there is some truth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that once the petitioners take an exit on the fair valuation of their shares, the respondents should be free to run their business without interference or fetters. Hence, no order is being passed regarding the workmen employed presently or earlier. It may also be mentioned that no cogent proof of malafide removal of workmen has been given by the petitioners. We also tend to agree that the decision of Bombay High Court in the case of Maharashtra Power Development Corporation Ltd. (supra) that business decisions do not come under the purview of the Tribunal while adjudicating applications under sections 397 and 398. 3.3 The petitioners have also argued that the reliefs sought for pertaining to refund of money into the coffers of the company, and initiation of prosecution of the directors and reconstitution of the Board are granted to them. We have already held in para 1 above that emoluments paid in violation of sec.314 till the date of waiver obtained by the company should be recovered from the delinquent directors/employees, The other alleged acts of siphoning of funds have not been proved by the petitioners. The decision to purchase the second hand 22-inch rolling mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld their lands to the Sherpur Small Scale Industrial House Bldg. Society Ltd. for ₹ 30000/- each. These 7 persons are members of the Grewal family. Subsequently, on 17.8.63, the Sherpur Small Scale Industrial House Bldg Society Ltd. sold the land to M/s Upper India Steel (R-1 company) for Rs,310000/-. The Sherpur Small Scale Industrial House Bldg. Society Ltd. belongs to the Garcha family and the daughter of S.Joginder Singh Grewal, father of P-1 and R-2 was married into the Garcha family. We are of the opinion that the ancestral land was contributed to the R-1 company, though indirectly via sale to Sherpur Small Scale Industrial House Bldg. Society Ltd, which transferred the same to the R-1 company. 3.7 The petitioner company has requested the Tribunal to direct demerger of assets between the shareholding group of petitioners and the majority. They have cited case laws in their favour namely, K.N.Bhargava (supra) and T. Ramesh Pai (supra). The petitioners have stated that they question the averments of the respondents that the company is a going concern as they themselves had given a project report for relocating the factory from the existing premises so that a land bank co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewal (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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
