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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 ..... 1 has been given Powers of Attorney and authorisation by each of the other petitioners namely, P-2 to P-36. Respondents R-2 to R-13 are also shareholders of R-1 company, while R-14 and R-15 are proforma respondents, namely the Regional Director of Companies, Noida and the Registrar of Companies, Punjab. R- 1 to R-3 are the only contesting respondents. 3. The National Company Law Tribunal was notified on 01.6.2016. As the Registered office of R1 company is situated at Ludhiana, Punjab, the instant CP was transferred to National Company Law Tribunal, Chandigarh. 4. The brief facts of the case are discussed hereinafter. R-1 company was incorporated as a private limited company on 17.08.1961 and registered with the Registrar of Companies, Jalandhar. Initially, its business of setting up of steel furnace for steel melting and rolling steel was initiated by way of constituting a partnership concern styled as "The National Steel Manufacturing Company, Ludhiana". This partnership was taken over by the R-1 company. The shareholders of R-1 company are the Grewal family whose patriarch Shri Waryam Singh Grewal had three sons namely, Sardar Joginder Singh Grewal, Sardar Chetan Singh Grewal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% 32. Ms. Gurdeep Kaur (P32) 1.60% 33. Ms. Gurmit Kaur (P33) 1.92% 34. Ms. Kanwal Lehl (P34) 0.12% 35. Lt. Col. Charanjiv Singh Lehl (P35) 0.12% 36. S. Sarabmeet Singh Lehl (P36) 0.12% 37. S. Pritpal Singh Grewal (R2) 3% 1970 38. S. Gursimran Singh (R3) 1.2% 7 March 2007 39. S. Parambir Singh Grewal (R4) 1.2% 40. Dr. Surjit Singh Grewal (R5) 0.9% 1976 4 Oct 2006 41. S. Saminder Singh Grewal (R6) 3.6% 7 March 2007 42. S. Gurparshad Singh Grewal (R7) 3.1% 43. Ms. Kushal Grewal (R8) 2.25% 44. Ms. Jitinder G. Punia (R9) 1.59% 2001 (since deceased) 45. S. Mandeep Singh Grewal (R10) 1.7% 46. Ms. Harsimran Dutta (R11) 1.6% 47. S. Guriqbal Singh Grewal (R12) 6.8% 2002 (since deceased) 48. S. Sant Prasad Singh Grewal (R13) 2.9% 2002 5. Directors of the company; The petition includes year-wise list of directors of the company. It is seen that the R-1 company had Public 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 6.1.3 The petitioners have pointed out that R-3 was appointed as Production Coordinator in 1987 at a monthly remuneration of Rs. 2610/-In 1995-96 he had earned promotion and the annual salary payable became Rs. 1,26,874.50, meaning thereby, he was earning more than Rs. 10,000/- per month. As no special resolution for this appointment was passed, and permission of Central Government as required was not taken and thus, R- 3's appointment was violating the provisions of section 314. Subsequently also, in 2001-02, when his salary was revised beyond Rs. 20,000/- per month and again, no special resolution was passed, nor the permission from Central Government was obtained. This violation was also not addressed. It is also stated that the appointment of R-3 as the CMD as per EOGM of 10.1.2007 is not sustainable under law as he was a violator u/s 314 and is an act of oppression and mismanagement on the part of the majority. 6.1.4 Appointment of Sardar Saminder Singh Grewal as Assistant Manager Marketing in 1997 at Rs. 6,475/- per month and subsequently by earning promotion, his monthly remuneration became above Rs,10,000/- per month in 1998-99 and above Rs. 20,000/- in 2003-04 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous item in the notice calling for Board Meeting on 06 09,2001. In this meeting, he was appointed as Chairman-cum-Managing Director, It is stated that when he was appointed as CMD on 06.9.2001, he was not even a director as his appointment as Joint Managing Director (JMD) was to expire on June, 2001. 6.4.2 In the Board of Directors Meeting held on 15.12.2006 when Sardar Pritpal Singh had already reached the age of 75 years, he informed the Board of Directors that "the family had decided to appoint Sardar Gursimran Singh Grewal (son) as the new Chairman-cum-Director". In the meeting of Board of Directors held on 15.12 2006, it was resolved as per majority that R-3 be appointed as CMD. It is stated in the petition that the objection raised by P-1 that, he (P-1) was a fully qualified person and had looked after the company for the last 43 years, is the right person to be appointed as MD and was also one of the senior persons among the family members who constituted the closely held company, was not recorded. In this 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hly pension of Rs. 45,000/- for life and / or lifetime of his or her spouse. It was further resolved that the said retirement policy shall come into effect from the date of retirement of R-2 Managing Director of the company and he was authorised to take due steps to give full effect of the policy. 6.6.2 The petitioners have alleged that this resolution was in violation of section 318 of the Companies Act, 1956 and there is no such provision under the Articles of Association of R-1 company. It is stated that such benefits were granted to Dr. S.S. Grewal who had not retired but had tendered his resignation which was accepted at the AGM held on 25.9.2006. Also, the proposal to make similar payments to Sardar G.P.S. Grewal who had tendered resignation for the benefit of his daughter to be inducted as director be also paid benefit under the retirement plan is in violation of section 318 of Companies Act, 1956. The proposal to pay similar retirement benefits to R-2 who had resigned as MD allegedly with effect from 10/11.01.2007 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 Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resignation from the office of MD by communication dated 10th January. 2007 but the said communication is not indicative as to whether he would continue as a director of the company. It is stated that this resignation was accepted in Board of Directors meeting held on 24.1.2007, but in the draft minutes it was stated that R-2 shall continue as a non-working director of the company and shall act as a Chairman accordingly. Such act is stated to be oppressive. 6.13 The Petitioners have questioned the monetary gain to an individual by an increase of monthly rent of a guest house from Rs. 5000/- per month to Rs. 20,000/- per month as per Board of Directors meeting resolution dated 15.12.2006. It is stated that this rent is paid to one group of shareholders headed by Shri Gurdarshan Singh Tur ostensibly to retain their support as they hold one and a half per cent of the shareholding of the company. 7. The Petitioners have stated that though the facts disclosed by them in the petition justified the winding up of the R-1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the pendency of the petition, several Company Applications (CAs) have been filed by both the petitioners and the respondents. Some of these CAs have been disposed of by the erstwhile Company Law Board (CLB) and final orders passed. Some of these orders of CLB have also been agitated before the Hon'ble Punjab and Haryana High Court and decisions obtained in some. However, in other cases, the Hon'ble High Court has declined to interfere and have directed the applicants to await the orders of CLB. 9. After filing the instant company petition, the CLB had issued status quo orders on 8.5.2007 in CA No. 163/2007 and 164/2007 filed in CP No.49/2007. This order is reproduced below for ready reference: "UPPER INDIA STEEL MFG. & ENGG. COMPANY LTD. ORDER Company Petition 49 of 2007 in the matter of M/s Upper India Steel Manufacturing & Engineering Company Limited (the company) and CA 163 of 2007 thereof seeking interim reliefs were mentioned. Heard the arguments of the 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 boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster 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 per the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 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-1 company is located, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elfare 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 produced only the details of TA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Shareholders chose R-2 as Joint Managing Director while P-1 was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petition. (ix) The appointment of R-3 as Director and vice-CMD was approved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 conduct of P-1 is self-contradictory. (xv) The respondents have stated that the allegations challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken 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 along with recovery of the remuneration given to them as a relative employee in violation of section 314. 14.5.4 The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts as well from the creditors by initiating appropriate legal proceedings. 14.7.1 The Petitioners have alleged that the act of purchase of a second-hand 22 inches rolling mill without the approval of Board of Directors as required under section 292 of the Companies Act, 1956 and without obtaining any detailed project report has caused a loss of Rs. 10 crores to the company. On going through the details submitted by the Petitioners in this regard, it appears that in the meeting of Board of Directors on 30.6.2005, various expansion plans were discussed and it was decided that the project may be discussed with the consultants to assess its viability. It is stated that this item was taken up under the miscellaneous head and the minority group directors namely P-1 was taken unaware. Subsequently a second-hand rolling mill was purchased for Rs. 5.22 crores in July-August, 2005 without any approval of the Board of Directors. It is further stated that on 28.3.2006, the Board of Directors was informed that the mill had been purchased and the total cost would be Rs. 10 crores out of which Rs. 7 crores have already been spent. The Petitioners have alleged that the expenditure carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition. (e) The petitioners' averment that a new Plant would have cost Rs. 15 crores in based on pure conjecture as cost of sheds rolls, allied equipment, electrical and sub station equipment has not been considered. (f) The petitioners' contention that similar objective could have been achieved by making minor adjustments to the existing 20" rolling mills is not accepted by the respondents. It is stated that the 22" mill is capable of better quality production and lower wastage. The respondents have also averred that if this was so, P-1 who was actively involved in the management and was in charge of production affairs, would have done so before the purchase. (g) The respondents have also given technical details with regard to the petitioners' contention regarding the competitors. The respondents have stated that all the competitors named by the petitioners also have 22" rolling mills and their machinery is modern as compared to the old machinery of R-1 company. (h) Finally the respondents have stated that the purchase of 22" rolling mill was a business decision taken in the normal course of business and cannot be a ground for oppression and mismanagement. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal times that P-1 continues to draw salary since filing the petition though he has not done any work for the company. However, this statement is not made in any pleading or written statement filed by the Respondents and is hence liable not to be considered. 15.3.1 The Petitioners have alleged that the majority group have siphoned off funds from the company while purchasing raw material i.e. scrap from the vendor M/s Raghav Industries. They have stated that these purchases were at higher prices when compared to quotations of other sellers namely, Mittal Merchants and Shiva International. It is stated that a loss of approx Rs. 57,32,000/- was caused to the company from 01.3.2007 to 20.4 2007 Detailed chart of calculations has been given in CA 75/2014 to compute the above loss and also to show that M/s Raghav Industries was earning profit @ more than 30% which is unheard off The Petitioners subsequently stated that the photocopies of the documents regarding the above transactions supplied by the Respondents on CLS's directions were fabricated. Another CA 562/2008 was filed by the Petitioners for the purposes of inquiry. 15.3.2 The Respondents have questioned the allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered a sum of Rs. 12 crores for the shares of the petitioner Sr. Counsel for the petitioner is not agreeable to this amount and seeks time to indicate his price for the shares. For doing so he desires to have some information on the affairs of the company. He may write to the company as to what information he desires and the company will furnish the same within 10 days from the date of receiving the request to report on 21.7.2008 at.4.00 p.m." Following reliefs were sought a. Direct that the orders dated 13.5.08 & 21.5.08 shall be enforced in same manner as a decree of Civil Court and direct petitioners to disclose their demand of fair price to exit. b. Direct that if petitioners disclose unfair price, the shares of the company be valued by an independent chartered Accountant, and c. Pass such order and further orders as this Hon'ble Board may deem fit and proper. Held vide order dated 25 2 2009 - (i) Board held that petitipners are bound by the submission of their senior counsel that they would go out of the company and therefore, the question of their purchasing the shares of respondent do not arise, (ii) the term order u/s 634A includes interim order, the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocument and same deserves to be struck off from the record. This CA is pending. CA.27/2012-was filed by the petitioners on 16.112011 for filing an additional affidavit along with Annexures PA-1 to PA-9 which are TA/DA bill, attendance registers, salary register, invoice etc. Respondents by order dated 19.1.12 were allowed to file reply to same. CA 136/2012 - was filed by P.No.31 for withdrawal from the present petition. This CA is pending. CA 159/2012 - was filed by the petitioners on 27.3.12 for extension of time for filing the replies to the application filed by respondents dated 16.3.12. On 29.3,12. CA 159/2012 was heard. This CA is pending. CA 396/2012 - was filed by the petitioners under Regulation 44 for modifying the order dated 24.8.11 and for transposing petitioner Nos. 29, 30 and 31 as respondents on 6.8.12. It was stated that Gurmohan Singh Grewal and his wife P. Nos. 29 & 30 have been permitted to withdraw from the company petition vide order dated 24.8.11 passed in CA No. 348 and 352 of 2011. Prayer: (i) modify order dated 24.8.11 passed in CA No.348 and 352 of 2011 to the extent that P.Nos. 29 & 30 be transposed as R Nos. 10 & 17 and (ii) P.No.31 be transposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in labour strength. (xiv) Re-employment of employees removed under section 314. (xv) In this CA, the petitioners have prayed for the following reliefs: a. To take cognizance of the additional facts pleaded in this application and grant additional reliefs. b. Under section 406, direct the delinquent respondent / director / chairman to jointly and severally refund the loss caused to the respondent company. c. Under section 406, initiate prosecution against the delinquent respondent / director / chairman for their acts of misfeasance. d. U/s 406 attach the personal properties of the delinquent respondent / director / chairman. e. Reconstitute the board of directors of the respondent company by excluding the delinquent respondent / director / chairman. This CA is pending. CA No. 562/2008 - The Petitioners have given chronologically the events related to inquiry ordered by the Hon'ble High Court regarding fabrication of documents and their application for the same in CA No.562/2008. It is stated that as per the CLB order dated 28.8.2007 the Petitioners were granted liberty to inspect the records of the company by indicating the documents to the company secretary and they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the respondents had brought on record subsequent events to show that the petition was infructuous whereas in the present case the alleged events have been referred to by the petitioners which cannot be looked into as the petition itself did not make a case. 17.2.3 Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2000] 23 SCL 71 (Bom.) The Bombay High Court in this case has held that in a petition for relief u/s 397 of the Companies Act 1956, it is permissible to bring on record by amendment not only the facts pertaining to the events up to the filing of the petition but also subsequent events. Once the court comes to the conclusion that the petition is maintainable then subsequent events can also be considered in order to do complete justice between the parties and to make appropriate orders for removing the oppression. 17.2.3.1 The respondents have stated in the written statement that the subsequent actions have to be incorporated in the petition by way of an amendment which is not the case here. We have gone through the judgment. Though the Hon'ble Judge in this above cited case has stated that "there is no bar to an amendment which incorporates subsequent events if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted with the main allegations." The petitioners have referred to the following case regarding not mentioning of important items of agenda such as appointment of director but including them under the miscellaneous head: 17.3 Netball Association of Chandigarh v. Union of India CWP 12808 of 2013, dated 05.3.2016]. The Punjab and Haryana High Court in this case noted that the respondents did not include the item of removal of the petitioners from the membership in the agenda though it was an important agenda item which should have been specifically mentioned and circulated to the members so that they could have come prepared for deliberations and voting on the said agenda item and it could not have been taken up under the miscellaneous head because the miscellaneous head is only meant for those items which are emergent in nature and are not known at the time of preparation of the agenda - the respondents have also violated the principle of natural justice as no opportunity of hearing much less show-cause notice was "given before its removal from the membership. The respondents have stated that this judgment is not applicable for the following reasons: - Firstly it is a case of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. (2) 2001 to 2007 = 34.91 crores. (3) 2007 to 2013 = 36.27 crores. Thus the respondents have contended that there has been no major change in the quantum of capital investments made between the six years from 2001 to 2007 and six years from 2007 to 2013. It is also stated that during the period 2007 to 2013 the rolls used in the rolling mills have been capitalized as per the tax authorities, store stock items like spare parts used by the company to maintain old equipment have also been capitalized as per accounting practices and the new assets and equipment have also been capitalized. Thus it is stated that the contention of the petitioner that investments in fixed assets have not lead to increase of profitability is without any basis. It is stated that each and every addition has been duly accounted for in the audit books of account. It is also stated that the allegations of the petitioners comparing investments to profits is a clever ploy by the petitioners taking advantage of the fact that the entire steel industry is going through the trying times as a result of the state of economy. 18. It is stated in the written statement that the Respondents have filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.1 The Petitioners vide their written submission have also referred to the allegedly unprecedented and unexplained increase in labour cost in F.Ys 2010-11 and 2011-12. It is stated that despite the reduction of sale in tonnage, the employees cost increased by 5 crores each in FYs 2010-11 and 2011-12 whereby in the earlier years, it would show an annual increase of only 1 crore. As a percentage of turnover the expenditure on employees has increased from 4.16% in 2005 to 12.06% in 2013 It is stated that similar expenditure on employees for competitors is much less at a higher turnover. 21.2 The Petitioners have also alleged that as per the EPF records, the number of employees was reduced from 1519 in 2012 to 1248 in 2013, but the employee's expenditure increased from 27.78 crores in 2011-12 to 28 85 crores in 2012-13 even though no increment was given in 2012-13. The Petitioners have also alleged that the documents regarding annual salary paid, PF paid, ESI paid, total amount paid to contractors, salary paid to contractor's employees by the contractor, PF and ESI deposited on behalf of the contractor have not been supplied by the respondents and CA 208/2013 is pending in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to increase the working capital limits from Rs. 50 to Rs. 65.50 crores. At that time, Canara Bank imposed certain conditions one of them being that the company would close all other facilities. However, it is stated that the company has not closed the factoring limits with M/s SBI Factors and Commercial Services, as the CRISIL study carried out on 13.1.2014 indicate that still the factoring services to the tune of Rs. 30 crores are still being availed. 25. The Petitioners have alleged in the written submission that the Respondents have raised unsecured loans from the majority group of shareholders without following due procedure. They have specifically mentioned the deposit of Rs. 10.89 crores Sardar Gurmohan Singh Grewal (P-29 who has since withdrawn) at 13% interest and deposit of the same in a bank FD earning only 9% interest. It is stated that while accepting the above deposit, compliance of Section 292 has not been made as the same could have been borrowed only by way of resolution passed during a meeting of Board of Directors. 26. The Petitioners have alleged that despite status quo orders on Fixed Assets, the Respondents have destroyed certain Fixed Assets during the pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an act of oppression on the minority. b. The Petitioners have stated that several acts of perjury were committed by Respondents. c. The Petitioners have further stated that from the averments made by the Respondents in CA 135/2012 it is evident that an area of 4 acres of land at Ludhiana has been released from the charge of Canara Bank, but that is falsified as Canara Bank has actually released approx. 20 acres on 5.12.2011. The Petitioners have stated that this information has been withheld from the CLB. d. The Petitioners have detailed that in response to their submission that they would be willing to go out of the company at a fair value of their shares, the Respondents had offered them Rs. 12 crores. Considering that at that time the Petitioners constituted approx. 37% of the shareholding the R-1 company was valued at approx. 36 crores. This offer was rejected by the Petitioners and also challenged in appeal. The order directing evaluation of shares was set aside by the Hon'ble Punjab and Haryana High Court and the petition was ordered to be heard on merits. e. The Petitioners have stated that in the project report submitted on 26.10.12, the Respondents have evaluated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of crores, thereby making a profitable company into loss making and debt ridden. (ii) The Petitioners have also referred to the judgment of Hon'ble Supreme Court in the case of National Textile Workers' Union v. P.R.Ramakrishnan [1983] 53 Comp. Case 184 in which it has been stated that the interest of workmen must be protected. (iii) The Petitioners have further stated that the Respondents would be estopped from making the prayer that the Petitioners be made to exit the company on being given a fair value of their shares as substantial assets of the company i,e. the 12-inch mill and its shed as well as the 20-inch mill have been destroyed. (iv) The Petitioners have stated that granting share value would not be viable as the petition was filed in 2007 and the land prices were much lower then. It is also stated that in 2012 the value of only the land at Ludhiana was given at Rs. 260 crores by the Respondents. It is also stated that the Respondents have purposely burdened the company with the loan liability of Rs. 100 crores whereas in 2007, the liability was only about 14.2 crores but the inventories were Rs. 24.57 crores. (v) The Petitioners have stated that all the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs. 185. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation, a further relief or reliefs, as the court may deem fit and proper, is warranted. (See Bennet Coleman & Company v. Union of India MANU/MH/0054/1977 and Syed Mahomed Ali v. R. Sundaramurrthy MANU/TN/0089/1958: (1958) 2ML1259. 186. But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of Directors. Reliefs must be granted having regard to the exigencies of the situation and the court must arrive at a conclusion upon analysing the materials brought on records that the affairs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (See Re London School of Electronics, (1986) Ch.211). 205. Furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Nobie & Sons (Clothing) Ltd, (1983) BCLC 273) 206. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties.' 207. It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Companies Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. (See in Re Bengal Luxmi Cotton Mills Ltd. MANUA/WB/0110/1964 : 69CWN137). 211 When a decision is taken on a business consideration, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted on the basis of the pleadings made in other proceedings and totally ignoring the admissions made by the Respondent No.1 herein in the proceedings initiated by PLEADINGS -AND PROOF - LEGAL REQUIRMENTS." 29.2 The respondents have stated that the petition is liable to be dismissed as:- a. Matters complained off in the petition are primarily those where P-1 himself was a party and had given an unequivocal consent, waiver and acquiescence on the part of the petitioner group. The judgment in the case of B.V. Reddy v. Legend Technologies (India) Pvt.Ltd (2009) 147 comp, cases 81 (CLB) has been referred to the CLB stated "...The Petitioner and the second respondent are parties to the decision regarding The appointment of additional directors. At the annual general meeting held on 21.8.2004, admittedly attended by among others the petitioner, the additional directors mentioned here above, were appointed as directors of the Company. The petitioner, being a party to the resolutions passed at the aforesaid meetings is estopped from challenging any of the decisions taken at such meetings, notwithstanding the discrepancies now pointed out by the petitioner that the notice dated 11.8.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tirupati unit was sold off in 1999 and the P1 shifted to Ludhiana and started participating in the management of R1 company at Ludhiana. (vi) P1 has set up independent businesses using the resources of R1 company and is not dependent on the R1 company and its business for his livelihood. h. Intention of petitioner group was to go out of R1 company. They have taken benefit of technicalities to prolong the litigation with a view to harass the Respondents so as to extract an unrealistic high value for their shareholding in the R1 company. i. Support of Petitioners group is dwindling withdrawal by P-29 and P- 30 vide order dated 24.8.2011 and withdrawal by P-17 and P-28 vide order dated 14.12.2011. Petitioners did not raise a whisper when the above petitioners moved CAs seeking permission to withdraw. P31's (2%) CA 136/2012 for withdrawal was contested by Petitioners and the CA is still pending. We have noted that Petitioners still have 26.74 % which is more than 10% required u/s 399. j. Petitioners claimed a proportionate representation to various branches of family and the tradition of eldest member of the family being appointed as MD are not well founded and are contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led any pleadings in the matter. Stand of the Petitioners itself is contradictory and self-defeating as investments in the business of P-1 including by way of shareholding have been made by vendors and customers of R-1 company. Some of the creditors of R-1 company whose debts were written off as per instructions of P-1 are investors in his individual business. The conduct of Petitioners in voting against ratification and future employment of the family members is in effect oppressive and unfair in a family company. It is stated that R-4 and R-11 are working without remuneration or perquisites and mere violation of section 314 is not a ground of O&M The Respondents have stated that on demurrer, a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of law may be in the interest of shareholders and the company. They have cited Needle Industries (supra) para 49 and Suresh Kumar Sanghi v. Supreme Motors Ltd. [1984] 54 Comp. Cas. 235 (Delhi) "(1) past acts which have come to end cannot be challenged under s. 397or 398, (2) (he relief under ss. 397 and 398 would be available only if there are continuous acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no grievance in this regard can be made out by the petitioners as P-10 who is the grandson of Jate Sardar Shamsher Singh Garcha {one of the initial investors in 1961 who was related to the Grewals by way of marriage of his son with one of the daughters of Sardar Joginder Singh Grewal) cannot be clubbed with the Sardar Joginder Singh Grewal family. It is also stated that neither Sardar Shamsher Singh Garcha nor any of his descendants have ever been working in the R-1 company and also P-10 has his own business and is not dependent on R-1 company on his livelihood. It is also stated that there is no written shareholding agreement or arrangement between the shareholders whereby representation must be given in the Board of Director and in a working capacity to any so called family group particularly when he or she is involved in another business. The respondents have also denied that any objection was raised by the petitioner in relation to the rejection of the proposal to appoint P-10 in the EOGM dated 10.01.2007. CAVEAT AS PER RESPONDENTS' WRITTEN SUBMISSION. (CA 75/2014) The respondents have stated that as per the judgement of Sangram Singh P Gaekwad and others (supra), only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial has no predetermined bearing on its price. The respondents have given detailed reasons for their decision to purchase scrap only from a direct importer after inspection of scrap and not from the traders or agents. They have also questioned the quotation relied upon by the petitioner as the said firm is listed as a conveyer belt dealer and exporter. (2) The respondents have countered the allegation that M/s. Raghav Industries had been verbally black-listed as no documentary evidence has been adduced to support the same. The respondents have countered the petitioners' arguments that if better quality scrap was being procured then why burning losses have not come down, by stating that the company has continued to procure good quality scrap all through. So there is no major change in burning losses. (3) The respondents have stated that the regenerated quotations were regenerated not by R-1 company, but the vendor M/s. Raghav Industries. (4) They have also stated that it is incorrect to infer that higher cost has been incurred as additional customs duty has been charged on purchase of imported scrap. They have stated that no excise duty is charged on imported scrap, addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is stated that letter of credit limits provided by the bank were also secured by creating a lien on the fixed assets of the respondents. In 2005 apart from loan limits of 10.91 crores, there were also 37 crores of secured LC limits. As the charge on these LC limits had already been closed and the P-1 did not provide the Chartered Accountant with the ID No., the same could not be reported. Thus, there is no abnormal increase in total debt as a percentage of total income of R-1 company. (B) RAISING LOANS WITHOUT FOLLOWING DUE PROCESS. The respondents have stated that the interest pay outs in the deposits is 12.5% and not the figures alleged by the petitioners. Apparently the respondents are referring to the alleged 13% interest paid to P-29 and P-30 on their deposit of Rs. 10.89 crores though the same has not been mentioned. The respondents have stated that since the petitioners have withdrawn all their guarantees and deposits, the respondents group have invested by way of deposits to help out the company as there is a status quo on the shareholding of the company. (C) DECREASE IN DIVIDEND PAYMENT. The respondents have stated that non-payment of dividends is pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- as per Board minutes of 7th May, 1962. Subsequently in a meeting on 5.9.1962, the cumulative preferential shares were converted to ordinary equity shares. The respondents have thus averred that the company having 11.7 shareholders had bought the land after raising Rs. 6,83,000/- vide cumulative preferential shares and no ancestral land was given to the company in lieu of equity shares as alleged by the petitioners. 29.3.11.2 The Petitioners have stated that all the shareholders including the Petitioners have contributed their ancestral land for setting up the factory. It is stated that the Grewal family had sold land to M/s Sherpur Small Scale Industrial Cooperative House Building Society (which was managed by the Garcha family) and this corpus money was invested in the company, later, the Sherpur Small Scale Industrial Cooperative House Building Society sold the same land to the R-1 company along with the land of Garcha family being pooled in worth Rs. 70,000/- at that time. Thus the total land was reflected as Rs. 3,10,000/- i.e. Rs. 2.40,000/- + 70,000/-. The list of sale transaction of the company's land has been given in tabular form and the same is reproduced her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated. 29.3.15 ALLEGATION OF PERJURY AGAINST RESPONDENTS IN PROCEEDINGS OF CA 135/2012. This issue has been dealt with by the CLB in their order dated 19.03.2013 which was confirmed by the Hon'ble High Court of Punjab and Haryana on 9.5.2013 wherein it was observed that CLB had adequately safeguarded the interest of the petitioner while disposing of the appeal. 29.3.16 RELIEFS. The respondents have stated that the present petition is liable to be dismissed as it is nothing but personal grievance and vendetta of P-1 against the respondents. It is alleged that the petitioners used delaying tactics and it is a fit case to be dismissed with exemplary costs to be paid by the petitioners to the respondents. (Hanuman Prasad Bagri v. Bagree Cereals (P.) Ltd. [2001] 33 SCL 78 (SC) (CAL Paras 22 and 25 confirmed by Supreme Court Hanuman Prasad Bagri. 29.4 The respondents while praying for dismissal of the petition with exemplary costs have stated that to bring an end to the dispute, they are praying for the following relief under Section 402 of the Act:- (A) Petitioners being minority shareholders should be directed to go out of the company on fair valuation. (B) Fair valuation by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that which competent enactments have declared shall not be valid, nor is obedience to such an enactment a thing from which court, can be dispensed by the consent of the parties or by a failure to plead or to argue the point at the outset." The respondents have stated that this case is not relevant as no statutory right of petitioners has been taken away from them and therefore, estoppel against a statute will not arise. It is stated that this proposition is applicable only where the provision is in public interest and not to benefit a particular shareholder or director (B) M/s Motilal Padampat Sugar Mills Co. Ltd. v. The State of LLP. AIR 1979 SC 621. In this case the Supreme Court had observed that "waiver means abandonment of a right and it may be expressed or implied from conduct but its basic requirement is that it must be an intentional act with knowledge - There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it" The respondents have stated that this case is not applicable as in the present case all the matters are of fact and thus adjudication will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard, being a court of equity, has to keep these aspects in mind while moulding appropriate relief. It is on record that both the groups agreed for the division of assets and as a matter of fact, there has been a de facto division by which the petitioners are managing the forge division and the respondents other two divisions for nearly a year. It is at the last minute that the respondent resiled from this stand. According to us, the most appropriate direction that we could give, with a view to put an end to the disputes between the parties is that there should be division of assets of the company by which the petitioners will continue to control and manage the forge division and the respondents the other two divisions. This would be in line with our decision in Jaidka Motor's case (1997) 1 Comp LJ 268 (CLB) wherein also, even though the company was a public company, in view of the family nature of the company, we directed the division of the assets, Shri Sarkar pointed out that in the present case, the divisions are interdependent as such division of the company is not possible. We find that the forge division supplies certain raw materials to the (rack components division but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Board need not follow the provisions of sections 100 to 104 of the Act in a proceeding under Section 397/398. The ICICI with nominate a suitable person as the chairman of the company latest by December 15, 1999, who will ensure that the final division of the assets is completed by June 30, 2000. The function of this board will be restricted to working out the modalities of carrying out the above directions. Expenses connected with these tasks will be borne by the company. During this period the company's bank accounts which stand frozen now, will be operated only as per the directions/authority of the chairman. However, the petitioners and the respondents are at liberty to open and operate new accounts in the names of the forge division and track components divisions respectively. If there are any outstanding from any customers on the supplies made prior to January 1, 1999, then realisation of the same will be credited to the accounts standing in the name of the company. Till the partition is effected, no general body meetings of the company will be convened or held either by the company or by any shareholder.' The respondents have stated that this judgement has no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "the special auditor should be directed to find out the fair value of shares as was directed by Lord Denning in Scottish Cooperative Wholesale Society Ltd. case 1059 AC 324-we also order the respondents to the petition to buy the shares of the petitioners, in case respondents are unable or unwilling to buy the shares, the petitioners should have an option to buy the respondents' shares at the same price. The price is to be arrived at on the basis of the breakup value of the shares. The respondents should he given three months' time after the submission of the report of the special auditor and the ascertainment of the value of the shares to buy out by the petitioners in default the petitioners wilt have the right to buy up the respondents' shares within a further period of three months from that date." (D) Bharat Hari Singhania v. CWT AIR 1994 SC 1355. In this case the issue of valuation of shares under rule 1(D) of the Wealth Tax Act was discussed. The conclusions of the Supreme Court in this case are applicable to valuation of shares under the Wealth Tax Act. (E) Saraswati Devi Sharma v. Sharma Ayurved (P.) Ltd. Manu/CL/0123/2011 CLB Kolkata - In this case by decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in paragraph 205 observed as under: 'The burden to prove oppression or mismanagement is upon the petitioner. The Court, however, will have to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se be oppressive. Bhagwati. J.(as His Lordship then was) in Mohanlal Ganapatram v. Shri Sayaji Jubilee Cotton and Jute Mills Company Ltd. MANU/GJ/0003/1964: (1964) GLR 804 at 103 stated the Jaw, thus "-it may be that a resolution may be passed by the Directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interests of the Company. Such a resolution 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 law, but it may be very much in the interests of the Company and of the shareholders...". (Emphasis supplied). The Apex Court specifically stated that the Court will have to consider the entire material on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power, with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. Further, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority shareholders from acts of oppression and mismanagement or presenting its affairs being conducted in a manner prejudicial to public interest and, if that be the objective, the court must have power to interfere with the normal corporate management of the company, and to supplant the entire corporate management, or rather mismanagement, by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers, etc., who would be in charge of the affairs o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by that section are applicable when the Central Government exercised the power conferred on it thereunder, whereas in the instant case powers have been exercised by the court under section 398 read with section 402 of the Act. The decision to reconstitute the board with three directors being the representatives of the shareholders, three directors being the representatives of the Central Government and five directors being appointed by the court was taken by the learned judge himself and after taking this decision, he invited suggestions as to who should be the representatives of the respective parties and it was in this manner that the learned judge came to appoint the three members of the Central Government on the reconstituted board. Nothing had been pointed out which would indicate that discretion had been exercised by the learned judge on any wrong principle or on considerations which were not warranted. The board as reconstituted by him will have to be regarded as the proper board in the circumstances of the case. The appeals were dismissed.' (C) The respondents have cited the case of Central Government v. Kopran Ltd. [2004] 56 SCL 428 (CLB - New Delhi) wherein it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h oppression to the minority shareholders, whether there is prejudice to the company or not. 13. From a reading of the aforesaid passages it is clear that s 397 would be applicable only in the case of oppression by the majority shareholders of the minority shareholders. Section 397 does not come into play in the case of wrongful acts being done by the management. That may be a ground for winding up. One of the pre-requisites of the applicability of s 397 is that the complaint of oppression has to be by the minority shareholders, in the present case, it is an admitted fact that the shareholding amongst the two groups is equal. The shareholding being equal, no group can be said to be ether belonging to the majority or the minority group of shareholder. The allegations referred to above, if true, may be a ground for the winding up of the company but are not relevant for the purpose of invoking the provisions of s. 397 because the petitioner and members of his group are not minority shareholders. 14. Even if it be assumed that the aforesaid instances are correct, to my mind, they would not form acts of oppression or show tack of probity, which can entitle the grating of relief under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity shareholders, cannot be challenged in a petition under s.397 of the Act. The instances of violation of the provisions of the Companies act, which were referred to by the learned counsel for the petitioner, cannot be complained of in the present proceedings under s.397 or 398 of the Act. Whether the provisions of s.292 or s.314 have been violated or not is not a matter which is to be gone into in these proceedings (emphasis supplied). What has to be seen is whether there has been any action taken, legal or illegal, which has resulted in the oppression of the minority shareholders. It wilt be seen that respondent No. 2 has been the managing director of the company since its very inception. If there was any illegality or irregularity in the convening of the meeting in March, 1980, wherein respondent No.2 reappointed as a managing director, that cannot amount to an act of oppression. By the said resolution the existing state of management of the company was permitted to continue. No change was brought about by any resolution which was purported to be passed in that annual general meeting. If the meeting was illegally held it may be 'that the petitioner may have a cause of acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions taken shall be deemed to be valid." "...Section 195 deals with the presumptions available in respect of the minutes duly drawn. Nowhere do these provisions require confirmation of the proceedings of the earlier meeting in subsequent meeting. On page 83 in Shackleton on the Law and Practice of Meeting, 7th Edition, by fan Shearman, it is noted as under. "Decision once arrived at do not need confirmation - At a vestry meeting it was the usual procedure to read over at the next meeting the resolutions of the preceding one. At the second of two meetings there was considerable diversity of opinion as to the votes admitted at the first meeting, but judgment was to the effect that there was no necessity for the confirmation by the second vestry of what was legally done at the first. If the first was a legal vestry the election thereat was legal." 32. Apart from filing CAs, the petitioners and respondents have also filed several appeals contempt petitions before the Hon'ble High Court of Punjab and Haryana. These cases were adjudicated upon by the High Court and suitable orders passed. JUDGMENT 1. The petitioners have made a number of allegations in the CP filed by them in Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides that any such emoluments paid in violation of section 314 and not refunded to the company shall be treated as a loan given to the director. U/s 314(2), the same is to be treated as a loan to a director within the meaning of section 295(1) of the Companies Act, 1956 Further, section 283(1)(h) provides that if any loan is given to a director in violation of section 295, the director shall be deemed to have vacated. It is clear that there have been violations u/s 314 by five persons Proposals/ resolutions for rectifying the same were raised in the board meeting in December 2006 in respect of three of the said violators. The petitioners voted against the said resolution as they were opposing the omission of two violators. Thus the violation is still continuing and has not been redressed by the respondent company even after filing of the petition. It is noted that the Respondent company is continuing in the violation of sec 314. Accordingly, the answering respondents are directed to recover' the emoluments paid in excess of amounts prescribed under sec.314 from the violators till the date their appointment is regularised u/s 314. Alternatively, the respondent company may apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents have replied that R-8 holds an MBA degree from USA and has the requisite experience. As the petitioners have not pressed these allegations in the written submissions, the same are dismissed. c. S.Saminder Singh Grewal (R-6) The petitioners have objected to the appointment of R-6 as director on the ground that his appointment is in violation of sec. 314 of Companies Act, 1956. This has been discussed above in para 1 of this section. As we have directed that the excess remuneration paid to violators, of section 314 may be recovered, this allegation does not need any further adjudication. 1.4 Appointment of S.Pritpal Singh Grewal (R-2) and thereafter S.Gursimran Singh Grewal (R-3) as managing directors: This appears to be the chief grievance of the petitioners. The petitioners have argued that the senior most person in terms of experience should have been appointed as MD. Admittedly, R-2 is the senior most person in terms of experience as he had been appointed as director from 1970 onwards while P-1, S. Gurlal Singh Grewal was appointed as director from 1974 onwards. Thus, the appointment of R-2 as MD cannot be questioned on this ground, though as per the respondent's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten submission, this allegation is dismissed. 1.7 Purchase of second hand 22-inch rolling mill: The petitioners have questioned the expenditure on purchase of second hand 22-inch rolling mill and its installation. The resolution to purchase mill for expansion of the manufacturing capacity of R-1 company was taken in 2005 when P-1 as working director and Joint MD was very much involved in the management of the company. The petitioners have questioned the purchase of this mill on the ground that no detailed feasibility report for the same was obtained from the experts. He has further questioned the purported feasibility report given by M/s Korus stating that the same was only of two-page report and appears to be ante- dated as the person who has signed it was on that date working for another company. The respondents, in their argument have stated that P-1 had - attended the board meeting where the decision for purchase of second hand 22-inch rolling mill was taken and he had himself inspected the said rolling mill and had also signed the balance sheet as Joint MD when the rolling mill was purchased and installed. The respondents have cited many judgements to say that the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g powers is solely a business decision and does not require any interference from the CLB/Tribunal. The same is therefore dismissed. 1.9 Resignation of R-2 as MD: This allegation is connected to the allegation above at Sl.No.3. The same is dismissed. 1.10 Mismanagement on account of increase in rent paid for guest house: This allegation pertains to increase in monthly rent from Rs. 5000/- per month to Rs. 20,000/- per month regarding a guest house rented for the past 10 years. The same was not pressed by the petitioners either during the oral arguments and also written submissions. As such we find little merit in this allegation as the rent has been increased after more than 10 years. The allegation is accordingly dismissed. 1.11 Subsequent events. The petitioner has raised several allegations in CA 75/2014 which relate to events that occur after the filing of the company petition in 2007. The respondents have vehemently opposed consideration of the same on the ground that events subsequent to the filing of the petition cannot be considered without amending the petition. They have stated that events occurring subsequent to the filing of the petition can only be considered if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the resolutions passed by majority shareholders and directors present therein are at) relevant. In the case of Inder Kumar Jain v. Osra Bottling Company (P) Ltd. [1977] 47 Comp. Cas. 194 the Delhi High Court has held that "on an analogy of Order VI Rule 17 of the Code of Civil Procedure, the High Court has power to grant leave to amend a pleading in a petition under section 397 and 398 of the Companies Act, 1956 for relief against mismanagement or oppression in the affairs of a company. In the case of the Court has held that the provisions of the Code of civil Procedure, so far as applicable, would govern proceedings under the Companies Act also. There is thus no provision under the companies Act which prohibits a Court from looking at subsequent events in a petition under sections 397 and 398 Companies Act" (emphasis supplied) The Hon'ble High Court of Bombay in the case of Maharashtra Power Development Corpn. Ltd. v. Dabhol Power Co. [2003] 117 Comp. Case. 506 considered the question as to whether subsequent events could be considered. In that case, the petition as originally filed made grievance only in respect of a single act viz., meeting of the directors held on Jun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances as they exist today in accordance with law. In the case of Prasanta Kumar Mitra v. India Steam Laundry (P.) Ltd. Cal HC 06.02.2014, the Calcutta High Court observed that the subsequent events intrinsically connected with the original cause of action and have the material bearing on the principle issue involved therein, the Court should take note of the same to render complete, effective and appropriate remedies to the litigant. The Court should take note of the subsequent events to minimize the litigation and to render complete and effective adjudication of a dispute between the parties. It must be interconnected and intertwined with the original cause of action not capable of being divorced. The subsequent event which stands alone independently and have no relevance to the context of original disputes constitutes a fresh cause of action. The Court is not obliged to take note of all events subsequently arisen unless it has a material bearing on the original cause of action. In a time consuming adversarial litigation, sometimes the main relief becomes inappropriate because of the subsequent events which the parties cannot foresee at the time of initiating the proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e September, 2006 when R-3 was inducted as additional director and subsequently made Managing Director of the company. Most of the allegations made in the petition relate to the period when P-1 was a Joint Managing Director of the company and was actively involved in the management of the company and had voted in favour of the resolutions/decision of the meeting of the Board of Directors/AGM/EOGM. These decisions are now being questioned by him and other petitioners who together hold 26.74% shareholding of the company. It is true that P-1 who was actively participating in the management as JMD and was part of all the decisions now being alleged as being oppressive and indicative of mismanagement by the majority holds only 2.71% of the shareholding and hence the remaining petitioners having 23 to 24% of shareholding cannot be said to have taken part in these decisions and have acquiesced in the same. However, apart from the allegation of violation u/s 314, the other allegations relate to either business decisions or are in the nature of directorial 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 violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... names of the independent valuers (as below) to whom they are agreeable. 1. Ernst & Young, Mahipalpur. New Delhi 2. Pricewaterhouse Coopers India LLP, Gurgaon, Haryana 3. Deloitte, Gurgaon, Haryana. Now the dispute between the petitioners and respondents is regarding the method of valuation adopted for calculation of the fair price of the shares. The petitioners in their written submission have stated that the relief of the petitioners being given a fair valuation of their shares and they being made to exit the company would not be sufficient as it is stated that the respondents have committed serious acts of fraud and siphoning of crores due to which a profit making company has been turned into a debt ridden unit. They have also mentioned that the Board would be required to protect the interests of workmen as well, as several workmen have been removed. They have cited Supreme Court's decision in the case of National Textiles Workers case wherein it was held that workmen is an important factor of any manufacturing concern. We are of 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners have stated that the respondents have burdened the company of Rs. 100 crores while in 2007 the liability was only about Rs. 14.2 crores but the inventories were Rs. 24.57 crores. The petitioners have stated in their written submission that all the shareholders including the petitioners have contributed their ancestral land for setting up the factory. This issue, has been discussed in detail at para (F) on page 81 to 83 above. 3.6.1 We have gone through the averments made by the both the petitioners and the respondents in this regard. The Petitioners have given details of sale transactions of land to M/s Sherpur Small Scale Industrial House Bldg. Society and subsequent sale of the same by this society to M/s Upper India Steel. The table appended on page 82-83 (supra) shows that on 17.12.62. the present shareholders of the R-1 company namely, S.lnder Mohan Singh, S.Surjit Singh, S.Guriqbal Singh, S.Gur Parshad Singh and S.Gurmohan Singh, S.Pritpal Singh, S.Gurial Singh and S.Sant Parshad Singh had sold their lands to the Sherpur Small Scale Industrial House Bldg. Society Ltd. for Rs. 30000/- each. These 7 persons are members of the Grewal family. Subsequently, on 17.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the interest of the company to order division of assets However, it would be appropriate for the valuer to consider the immovable assets while determining the fair value of shares. 3.8 After considering and weighing all the facts, arguments made by the petitioners and respondents, and the judgments cited by them, we are convinced that the petitioners and respondents cannot get along and conduct business of the company. Both the parties have agreed to the parting of the ways by giving exit to the petitioners. We hold that it would be just and proper that the respondent group namely, R-2 to R-13 and particularly R-2 and R-3, who are admittedly in the control of the affairs of the company be directed to buy out the shares held by the petitioners in the company at a fair price to be determined by an independent valuer. The instant petition therefore stands disposed of with the following orders: A. As discussed in para 1.2 above of the judgement, 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 responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal report to the parties. G. After determination of the value of the shares, the respondents 2 to 13 shall pay the amount to the petitioners, other than those who have withdrawn from the petition and whose application for withdrawal is pending (as per (he petitioners' shareholding proportions) within 30 days thereof and upon receipt of the amount, the petitioners shall execute all the documents/deeds necessary for the transfer of the shares held by the petitioners of the company in favour of the respondents and/or their nominees within two weeks. H. In case, the respondents decline to purchase the shares of the petitioners as aforesaid at the determined share value, the petitioners shall have the right to purchase the same from the respondents. The procedure and the time line as detailed above shall be followed. I. The remuneration of the Valuer shall be negotiated and paid by the company in three equal instalments. First instalment shall be paid on the commencement of the valuation process and the second instalment shall be paid after submission of the valuation report by the Valuer within the stipulated period. The third and final instalment shall be paid to the valuer a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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