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TMI Blog2017 (5) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... within 30 days of receipt of this order. For this purpose, the bank rate applicable as on 31st March of each of the financial year shall be taken. B. M/s Ernst & Young, 6th floor, Wing A & B, Worldmark-1, Aero city, IG1 airport Hospitality District, Opp. Holiday Inn, Mahipalpur, New Delhi 110037 is appointed from out of the list of valuers submitted by the petitioners and agreed to by the respondents, as an independent valuer for fair value of the shares held by the petitioners of the company. The cut- off date for determining the value of the shares will be 31.3.2007 i.e, the date nearest to the filing of the petition. While computing the share value, the Valuers Shall also consider the asset based valuation as the Respondent Company has a large asset base. C. The date of filing of the petition is April 2007. Hence, the said valuer will find out the fair value of the shares of the company as on 31.3.2007 on the basis of going concern by all recognised methods and applicable rules and regulations as applicable on the said date in this regard. D. The parties are directed to extend every cooperation to the said Valuer. The company shall submit all the necessary documents an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Co. Ltd. and others (hereinafter referred to as R-1 company) under sections 397 and 398 of the Companies Act, 1956 before the Company Law Board, New Delhi in 2007. Along with the same, an application under section 403 of the Companies 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 0.17% 17. Ms. Harbhajan Kaur (P17) 0.57% 18. Ms. Tripinder Dhallawal (P18) 0.02% 19. Ms. Nettu Dhallwal (P19) 0.02% 20. Mr. Harpartap Singh Grewal (P20) 0.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 directors from 1970 to 1972 and thereafter, from 1983 to 2001. The petitioners contended that till 2001 when the founder MD of the company Sardar Inder Mohan Singh Grewal died, there was proportionate representation from each branch of the family as directors. It is also stated that the public directors were ousted from 2001 i.e. after the death of Sardar Inder Mohan S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motion and the annual salary payable became ₹ 1,26,874.50, meaning thereby, he was earning more than ₹ 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 ₹ 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 ₹ 6,475/- per month and subsequently by earning promotion, his monthly remuneration became above Rs,10,000/- per month in 1998-99 and above ₹ 20,000/- in 2003-04 and 2004-05. Sardar Saminder Singh Grewal is the son of Dr. Surjit Singh Grewal who is also a part of the respondent group and has a family holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 meeting, it was recorded that R-3 shall be the Vice-Chairman-cum-Managing Director and shall continue to report to R-2 who shall function as the CMD. The Petitioners have alleged that the existence of two managing directors was contrary to and in violation of the Articles of As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solved 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 10/11.01.2007 is also In violation of section 318. 6.7 It is stated that many items were taken up under the head miscellaneous (with the permission of the Chair) in the Board of Directors meeting for the past five years. 6.8 It is stated that the practices fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007 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 ₹ 5000/- per month to ₹ 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 company, however the order of winding up shall not be in the interest of the respondent company as well as the petitioners who are the members of the company and some of them have the berth in the Board of Directors as well. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral 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 counsel. Considering facts and circumstances of the case, I grant the following interim reliefs: (1) The company/respondents shall maintain status quo as of date of the fixed assets, the composition of the board and shareholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 barred otherwise, his or her appointment cannot be held to be illegal. 11.4 The Respondents have argued that directorial complaints cannot be a subject matter of oppression and mismanagement as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dency 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 TA and DA bills along with attendance register to show that both these respondents were not present in Ludhiana in January, 2007 where the registered office and the factory of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 payment of salary to R-9. It is seen that R-9 was a working director and being paid salary from September, 2001 till the filing of petition in 2007, but the petitioners have pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Director in 1986. (iii) P-1 was present in both the Board meetings held on 30.04.1985 and also in 2001 and did not object to the same. (iv) Shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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) Petitioners have not raised the issue that the appointment of R-3 is prejudicial to the interests of the company even in the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual 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 meeting with regard to the appointment of Shri Gursimran Singh Grewal as Managing Director . It is stated that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative 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. 14.5.2 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. 14.5.3 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 made a prayer for removal of R-3 as MD and member of the Board and R-6 as working director al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 ₹ 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 ₹ 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 Directors was informed that the mill had been purchased and the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 ₹ 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 company. (h) Finally the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven 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 ₹ 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 transactions su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of his 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the respondents for holding 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 withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid for the past two years. (x) Inflated stock / inventories. (xi) Destruction 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 555. (Calcutta High Court) In this case the High Court agreed with the 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 respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said petition and can be set to form part of a chain of events. I do not think in conflict pertaining 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot question them now. (b) capital expenditure has remained the same before and after filing the petition, despite the fact of change in 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 pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under sections 406, 539 to 544, read with schedule 11 to initiate proceedings of misfeasance and to order recovery of the losses caused to the company from the delinquent directors. Judgment which has been cited in this regard is referred earlier in para 15.3.3 at page No. 41. 20.2 The Respondents in this regard have stated that the accounts of the company are audited by the auditors who are also auditors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds of the company and turned a profit making and debt free company into a debt ridden company running into losses. In this regard, detailed comparison with competitor companies have been given. 23. The Petitioners have stated that even though negligible dividend has been paid to the shareholders, the four working directors from the majority group have purchased six luxury cars for themselves on 31.12.2010 by making a payment of ₹ 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 ₹ 50 to ₹ 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 ₹ 30 crores are still being availed. 25. The Petitioners have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the charge could not have been created. Also there is no consent of BoD for creating this charge. It is also stated that the working capital limit was earlier secured by the stock and inventories of trade receivable. While the term loan of ₹ 40 crores is only against the land measuring 5 acres. 28. The Petitioners have also sought to lead further arguments by way of written submissions: a. Preference Share redemption as per CA 605/2008 and CA 228/2011. It is stated 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 hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir own businesses. Sardar Saminder Singh Grewal (R-6) runs a school by the name of Little Kingdom School in Ludhiana, Late Dr. S.S Grewat was an Ophthalmologist in DMC Hospital and had been later managing Gurdev Hospital being run on family trust land; Gursimran Singh Grewal (R-3) started his own business of manufacturing auto cut-outs. The founder MD Late Shri Inder Mohan Singh Grewal also had his Cold Storage at Parwanoo. The Petitioners have rebutted the argument raised by the 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 Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petition filed only to settle personal scores and grievances of P-1 against the Respondent group. It is also stated that the present petition merely raises directorial complaints and other irregularities and there is no cause of action to make out a case of oppression mismanagement. R1 company is the only source of livelihood for the Respondents while P-1 has other independent businesses. P-1 failed, to bring out any case of oppression mismanagement. 29.1 Sangramsinh P.Gaekwad v. Shantadevi P.Gaekwad [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detriment of the oppressors or wrongful usurpation of authority. 191. It has to be borne in mind that when a complaint is made as regard 'Violation of statutory or contractual right, the shareholder may initiate a proceeding in a Civil Court but a proceeding under Section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view of the wide and far-reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legality and contravention of the Act may not suffice to warrant grant of any remedy. Isolated act of oppression may not be sufficient to grant any relief but there should be a continued oppression therefore. The test of lack of bona fide should be applied in both for the winding up petition while determining an application under section 397 of the Companies Act. (See Re-Guidezone Ltd., (2000) 2 BCLC 321). We may at this juncture notice that the Respondent No. 1 in her application under Section 397 of the Companies Act did not complain of any act of mismanagement Complaints of mismanagement 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was withdrawn in 2007 after filing a petition. The Petitioners have stated that all or some of the Respondents have also withdrawn their deposits. (ii) No personal guarantees from the Petitioners given since 2008 to secured creditors of R-1 company for repayment of dues. (iii) P-1 is admittedly a whole time director actively involved in the management of R-1 company from several years with access to all documents and records but has feigned ignorance. (iv) The grievances raised are merely directorial complaints. (v) P-1 was looking after R1 company unit in Tirupati while Ludhiana unit was running 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary paid to such employees was in excess of what was the market rate or not commensurate with their work. P-1 and P-10 having been parties and P-1 directly being a beneficiary as R-10 is his son cannot question the same now. On a demurrer it is at best a technical violation which is a compoundable offence and cannot be a ground for oppression mismanagement. 29.3.2.1 On 15.12,2006, a resolution was passed in Board of Directors meeting authorising the Board to take steps to ratify the defects in relation to the remuneration being paid to the employees being directors including R-10. It is stated that there was no 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of remuneration made up to the filing of the instant company petition. (e) Allowing the petitioner to challenge these acts without the same being challenged ever earlier would settle dangerous precedent and no finality will ever be attained with respect to duly approved resolutions passed in a Board or general meeting. (f) The petitioners have not been able to given any documentary evidence to establish that these Directors did not work for the company or were unqualified and ineligible for appointment or were employed gainfully elsewhere. (g) The respondents have stated that the allegation that independent Directors were forced to 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is a regular programme of verification which, in our opinion, is reasonable hiving regard to the size of the company and the nature of the assets. The respondents have stated that the entire allegation is baseless, devoid of any merits and is liable to the dismissed. 29.3.7 Despite the above averments, the respondents have discussed some of the allegations which were mentioned in the oral hearing:- (1 ) Purchase of scrap - The respondents have stated that the contentions that funds were misappropriated in purchase of scrap as imported scrap was purchased from domestic dealers at a higher rate and that imported scrap is cheaper than domestic scrap 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was conceived in 2011 and the process to get the land released undertaken. Thereafter 21 acres of land was released and an application to mortgage six acres of land of the total released land was filed before in CLB in March, 2012. CLB allowed this application in April, 2013 and the respondents began the process to upgrade the rolling mill within limitations. However, by then the property prices had fallen and the company could not get sanction of ₹ 55 crores, the estimated cost of the project against the permitted properties The project was hence shelved. The respondents have stated that fortnightly statements pursuant to CLB order dated 8.5.2007 have been provided to the petitioners 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leadings in rejoinder as well as subsequent applications in particular CA-75/2014. The respondents have stated that some changes took piace in the shareholding of the company in the year 1962 and the consideration for buying those shares was in cash and the transfer of shares took place on 21.02.1962. The original shareholders namely Shri Dina Nath, Sohan Lal, Jagdish Chander, Mohan Lal, Tara Chand and Suresh Chand had offered to sell all their shares and the existing shareholders were asked to purchase them. Some shareholders purchased only 17 shares and Shri Joginder Singh Grewal purchased the balance 15 shares. The total no. of shares remained 117 shares. 'Subsequently 373 cumulative preferential shares of ₹ 1000 each were allotted on 21.04.1962 and another 310 redeemable cumulative preferential shares of ₹ 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 ₹ 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 ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 preference shares and no ancestral land was given to the company in lieu of equity shares as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 with the remaining shareholders. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, 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 fact, this is what even counsel for the parties/and the parties themselves expressed, even though they had different perceptions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision, 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 associated with the exercise of partitioning the company so that in the partition arrangement, their interests are also protected. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 report the respondent could prepare two or three alternate packages of assets and properties to be given to the petitioners, and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exercised 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 view that the cited case may relate to winding up but the portion cited above relates to the powers of Board of Directors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt 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 jurisdiction exercised by the Board is very different from jurisdiction of the courts trying civil suit, election petition, and writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver 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 no question of the court not being able to reframe or insert a new article which would be in conflict with some provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 conduct of a director can give rise to a claim u/s 397 unless the conduct is one which lacks probity or a conduct which is unfair.' It is further stated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors 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 that very case, it was also observed that the action of the directors, if it illegal or invalid may be challenged in a court of law by an appropriate action. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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 this judgment it is stated that allegations in the petition must be specific along with proof. It is also stated that the respondent had made oral protests against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent'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 waived the same as he had knowledge of the same, or was also benefitted by the same violation. Violation of sec. 314 is a statutory violation and creates an illegality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unia (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 was passed unanimously. It is also noted that she has passed away during the pendency of petition. In view of the above facts and circumstances and the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 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 whole time director, This allegation was raised in the pleadings. P-10 is stated to be representing the group of shareholders namely Garcha famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicated 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-1 was a party to the decision to write off these debts, the same cannot be is challenged. P-1 has raised the argument t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition. 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 not deal with any subsequent conduct after the filing of the petition. It merely says that if there is no such conduct con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 amendments were allowed. So construed, the court would be entitled to take into consideration the oppressive actions up to the date of amendment and avoid multiplicity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discussion is not being reproduced for the sake of brevity. It is seen that these instances are connected to the cause of action detailed in the main lis, and they are in continuation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 in the allegation of oppression and mismanagement The CLB Mumbai Bench, in the case of Tushar Clothing (P.) Ltd. v. Ramesh D Shah[2016] 59 taxmann.com 300/132 SCL 646 had held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mill.-or purchase of scrap, taking of loans, purchase of fixed assets, etc. and alleged destruction of assets of the company have been cited by the petitioners as inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 could be created. They have stated that the company has 37 acres of land and certain areas are lying absolutely vacant. They have further stated that with minor reloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent company, the amount paid to them in excess of the permissible limits u/s 314 along with interest payable at the bank rate enhanced by 2% within 30 days of receipt of this order. For this purpose, the bank rate applicable as on 31st March of each of the financial year shall be taken. B. M/s Ernst Young, 6th floor, Wing A B, Worldmark-1, Aero city, IG1 airport Hospitality District, Opp. Holiday Inn, Mahipalpur, New Delhi 110037 is appointed from out of the list of valuers submitted by the petitioners and agreed to by the respondents, as an independent valuer for fair value of the shares held by the petitioners of the company. The cut- off date for determining the value of the shares will be 31.3.2007 i.e, the date nearest to the filing of the petition. While computing the share value, the Valuers Shall also consider the asset based valuation as the Respondent Company has a large asset base. C. The date of filing of the petition is April 2007. Hence, the said valuer will find out the fair value of the shares of the company as on 31.3.2007 on the basis of going concern by all recognised methods and applicable rules and regulations as applicable on the said dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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