Ashok Kumar Tripathi, Member (J) - (1.) THE above captioned company petition has been filed by the petitioner invoking the provisions contained in sections 397 and 398 of the Companies Act, 1956 ('the Act') alleging therein certain acts of oppression and mismanagement in the affairs of R1 -company purportedly committed by the R2 to R16. The petitioner has sought various reliefs as contained in the petition which are as follow : "(a) To grant appropriate reliefs and pass appropriate orders and directions, inter alia, under the provisions of sections 397, 398, 402 and 403 of the Act to bring an end to the aforesaid acts of oppression and mismanagement perpetrated by the respondents including but not limited to the reliefs prayed for herein. (b) To appoint a fit and proper person as the administrator of respondent No. 1 to manage and control the affairs of respondent No. 1. (c) To appoint a fit and proper person as an independent director on the Board of respondent No. 1. (d) To pass an order of permanent injunction thereby restraining the respondents from alienating, encumbering, selling, disposing of, and/or creating any third party rights of any nature whatsoever in respect of the undertaking of respondent No. 1 at Plot No. 2, Nandesari Industrial Estate, PO Nandesari, District Vadodara, Gujarat -391 340. (e) To pass an order of injunction thereby restraining the respondents from increasing the remuneration of respondent Nos. 3 and 4, in the manner as proposed by the notice dated 3rd September, 2013." In order to crystallise the points in dispute for determination, it may be useful to refer relevant facts as set out in the petition are herein as under : 1.1 That the R1 -company was incorporated on or about is 21st May, 1960. The father of the petitioner was the chairman of R1 -company. However, during the lifetime of the father of the petitioner, in and around the year 1998, R3 and R4 were appointed as the managing directors of R1 -company. R3 and R4 along with R5 to R8 have been in management and control of R1 -company. R3 and R4 are the brothers of the late father of the petitioner. 1.2 That the R1 -company has been carrying on the business of manufacturing various chemicals and in particular plasticisers. The assets of R1 -company include a plant, factory building and land at Plot No. 2, Nandesari Industrial Estate, PO Nandesari, District Vadodara, Gujarat -391 340. 1.3 That in the year 2002, the R1 -company was declared a sick industrial company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA'). During that period, Industrial Development Bank of India ('IDBI') was appointed as the operating agency under the provisions of section 17(3) of SICA to examine the viability of the company and to submit a report. Since the R1 -company failed to come up with a viable proposal for its reconstruction, by an order dated 27th June, 2003, the hon'ble "Board of Industrial and Financial Reconstruction" ('BIFR') directed the IDBI to invite offers for takeover/lease/amalgamation/merger of R1 -company. Accordingly, an advertisement was released in the Economic Times on 18th July, 2003 requesting interested parties to submit a concrete proposal in this regard. The petitioner was one of the bidders who responded to the advertisement dated 18th July, 2003. In Appeal No. 176 of 2004, filed by the petitioner herein, the hon'ble Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'), vide an order dated 6th December, 2005, directed the hon'ble BIFR to consider the revival proposal of the petitioner. 1.4 However, on account of subsequent events, including the fact that IDBI, which was a secured lender, had invoked the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act'), the hon'ble BIFR vide an order dated 29th August, 2006, abated the reference to BIFR in accordance with the provisions of section 15 of SICA read with section 40 of SARFAESI Act. Being aggrieved by the said order, the petitioner filed an appeal before the hon'ble AAIFR against the said order dated 29th August, 2006 which was dismissed by an order dated 1st August, 2007. However, the R1 -company has disposed of the land at Haribhatki in Vadodara and cleared the dues of the IDBI, which was the only significant secured lender. 1.5 That, for the last 5 years, R1 -company was consistently making profits and the sale turnover of R1 -company increased from approximately Rs. 31 crore in the year ended 31st March, 2008 to Rs. 53 crore in the year ended 31st March, 2013. R1 -company was, thus, making substantial profits from the year ended 31st March, 2009 to the year ended 31st March, 2012. 1.6 That, in the year ended 31st March, 2013, R1 -company claims to have incurred a loss of Rs. 43.55 lakh. A comparison of the figures of profits/losses from 2009 to 2013 would show that the year ended 31st March, 2013 is the first and only year in which R1 -company has incurred any loss from its operations. A significant portion of the loss incurred by R1 -company is in fact on account of depreciation and amortisation of expenses and the R1 -company has admittedly not incurred any cash loss even in the year ended 31st March, 2013. In fact, the carried forward losses in the books or the R1 -company have been reduced from approximately Rs. 16 crore in the year ended 31st March, 2008 to approximately Rs. 5.44 crore in the year ended 31st March, 2013. 1.7 That on or about 4/09/2013, the petitioner, as a shareholder of R1 -company received a notice for the 52nd annual general meeting of R1 -company to be held on 28th September, 2013 at 10.30 AM at the registered office of the company. To the shock and surprise of the petitioner, the petitioner found that R1 -company was proposing to dispose of the company's undertaking and manufacturing plant situated at Plot No. 2, Nandesari Industrial Estate, District : Vadodara, Gujarat -391 340. It is pertinent to note that the only reason stated by the management of R1 -company is that "due to increase in costs, competition from unorganised sector and cheap imports the operation at the plant are incurring continuous losses". It is further contended that on account of continuous losses, the company is facing shortage of funds for investing in its profitable operations. It is on this basis that approval is sought from the shareholders under the provisions of section 293(1)(a) of the Act. 1.8 That as per the provisions of the Act the director's report is required to be signed by two directors of a company but in this case the R3 alone had signed the director's report. It is further pertinent to note that whilst R3, as the managing director of R1 -company, in the explanatory statement annexed to the notice dated 3th September, 2013, contends that the R1 -company is incurring substantial losses. It is proposed in the resolution at serial Nos. 5 and 6 of the Notice read with the explanatory statement, that the gross remuneration of the R2 and R3 be substantially increased from approximately Rs. 4.5 lakh per year in the case of R3 and Rs. 7.70 lakh in the case of R4. 1.9 That R3 to R4 and R9 to R16, being in control and management of the company, may at the annual general meeting ('AGM'), use and exercise their voting rights in the manner, so as to oppress the petitioner and other minority shareholders of R1 -company. 1.10 That, despite the petitioner having a substantial interest in the R2, the R3 to R4 and R14 may exercise voting rights on behalf of the R2, in such a manner, as would prejudice the interest of the petitioner and other minority shareholder of R1 -company. 1.11 That, the proposed disposal of the undertaking of the company at Nandesari is not only prejudicial to the interest of the R1 -company, but also prejudicial to the interest of the minority shareholders of the R1 -company. 1.12 That, the reasons purported to be given by R3 in the notice dated 3th September, 2013 and the explanatory statement thereto, are contrary to the facts on record and the annual accounts of R1 -company, which had been prepared under the supervision and guidance of the R3 to R8. In fact, it is clear from the Annual Accounts for the year ended 31st March, 2013, as well as the earlier years that there is no reason for disposal of the company's undertaking. 1.13 That, the acts of oppression and mismanagement of R1 -company are so serious that they would justify the making of and an order of winding up against R1 -cornpany. The petitioner states that to wind up R1 -company would unfairly prejudice the interest of the members of R1 -company and hence this petition.
(2.) RESPONDENT No. 1 appeared and filed its reply. The R1 -company has stated that the petitioner has wrongfully sought to approach this Board based on 25per cent of his shareholding in R2 which in turn holds 44per cent on R1 -company. It is further stated that the share of Mr. Bhuva has been transferred to the name of the petitioner. 2.1 At the outset, the R1 in its reply has raised a preliminary objection thereby challenging the maintainability of the petition and seeking its dismissal, inter alia, on the ground that the petitioner has not approached the Board with the clean hands and has deliberately refrained from making true and full disclosure of the facts relevant to the circumstances of the present case. It is further alleged that the petitioner has filed the present petition with an ulterior, dishonest and mala fide motives. It is next alleged that the petitioner merely with a view to harass, coerce and pressurise the respondents has approached this Board for collateral purpose and, hence, the petition is liable to be dismissed as the threshold stage being not maintainable. 2.2 On merits, the R1 -company has stated that the present proceedings have been initiated by the petitioner who holds only 3.869 per cent of the total shareholding of the R1, to cause harm to the respondent No. 1. Giving the details of various litigations filed by the petitioner from time to time against the respondent. It has been alleged that the present petition purporting to be under section 397/398 of the Act alleging oppression and mismanagement is nothing but a continuation of the personal vendetta of the petitioner against respondent No. 11 and other shareholders. 2.3 The R1 -company has then tried to justify the sale of the undertaking and submitted that the resolution under challenge is an enabling resolution which seeks to a give sanction to the Board to negotiate and proceed for the sale of the said unit. It is further stated that the necessary details justifying such a sale were furnished in the explanatory statement and all further doubts and queries and explanation of the shareholders could have been raised and answered at the meeting. It is alleged that the petitioner did not raise any query at the meeting and directly approached the Board seeking permission by way of filing the instant petition and this fact itself demonstrates that the only intention of the petitioner is only to stall the functioning of the company and to cause harm to it. respondent has categorically denied that the resolution under challenge and the explanatory note is defective and contrary to law and the same amounts to an act of oppression and mismanagement as alleged by the petitioner. Based on the above, the respondents have sought dismissal of the petition. R2 to R4 and R9 to R12 have filed their respective reply(ies) in which they have reiterated the same pleas taken by the R1 -company in its reply referred to above.
(3.) THE petitioner has filed rejoinder to the reply reiterating the pleas taken in the original petition.;