S. Balasubramanian, Vice-Chairman - (1.) CERTAIN employee shareholders of M/s. Phillips India Limited (the company) have filed this petition under Sections 397/309/402/403 of the Companies Act, 1956 (the Act) alleging acts of oppression and mismanagement in the affairs of the company. These petitioners together with those who have given consent to file this petition collectively hold 0.02 per cent. shares in the company. The petitioners allege that there were false statements in the annual report for 1998-99, discrepancies/material variation in the copies of the annual reports sent to the Indian shareholders and those sent to the foreign shareholders, concealment of vital information from shareholders in the explanatory statement to the resolutions concerning special business at the 69th annual general meeting which had a bearing on the shareholders interest as a profit making unit was proposed to be sold and that there were irregularities in the conduct of the 69th annual general meeting and that the minutes of the annual general meeting did not reflect the correct proceedings of the annual general meeting.
(2.) The facts leading to this petition could be summarised as follows : The company had a non-ceramic passive components manufacturing unit at Pune (component unit). The company entered into an agreement with one M/s. B. C. Components India Private Ltd., a subsidiary of M/s. B. C. Components International, B. V., the Netherlands, for sale of this unit. It also appointed M/s. KPMG India Ltd. to value the unit. M/s. KPMG India Ltd. valued the business value of the unit in the range of Rs. 24.3 crores and Rs. 28.4 crores. In the annual general meeting of the company held on May 28, 1999, the approval of the general body was sought in terms of Section 293(1) of the Act to sell this unit for a sum of Rs. 32.5 crores to M/s. B. C. Components of India Pvt. Ltd. This item of business was to be a special business and in terms of Section 175(2), an explanatory statement was annexed to the notice for the meeting. In the annual general meeting held on May 28, 1999, the resolution to sell the components unit to M/s. B. C. Components India Pvt. Ltd. was passed by a majority of over 99 per cent. Shri Bhatt, senior advocate, appearing for the petitioners, submitted that the action of the company in selling this unit is mala fide and against the interests of the company. He pointed out that the company had originally sought for the approval of the shareholders for sale of this unit in an extraordinary general meeting held on December 4, 1998. However, the company withdrew the resolution after the shareholders pointed out various infirmities in the explanatory statement annexed to the notice of that meeting. However, he submitted that, the company issued a notice on February 26, 1999 convening the 69th annual general meeting on May 28, 1999, in which as item No. 7 an ordinary resolution as a special business was proposed for sale of this component unit to B. C. Components India Pvt. Ltd. for an aggregate consideration of Rs. 32.5 crores. The explanatory note did not contain vital information relating to the method and manner of valuation of this unit and the company had also failed to place the valuation report before the general body for proper assessment. He also pointed out that the company omitted in the explanatory statement the fact that there was another valuation done by M/s S. B. Billimoria and Co. at the instance of Life Insurance Corporation of India. One of the shareholders of the company sought for a copy of the valuation report which the company failed to provide (annexures A-13 and 14). Thus, before deciding on the resolution, the shareholders did not have the opportunity of intelligently assessing the adequacy of the value for the components unit. He argued to state that non-supply of the valuation report is against the principles of natural justice. He further pointed out that the explanatory statement did not contain any details as to whether an open offer was called for before deciding on M/s. B. C. Components India Pvt. Ltd. If an open offer had been made for sale of this unit, there is every possibility that the company could have got a better offer. According to him, the entire exercise had been made in a clandestine style as is evident from the fact that even before the approval of the general body, certain consignments had been received in the name of M/s. B. C. Components India Pvt. Ltd. and has been admitted in the reply. He also pointed out that the directors of B. C. Components India Pvt. Ltd. are the employees of the company and the registered office of the company is the office of the valuer. Therefore, he expressed his apprehension that there could have been a nexus between the company, the valuer and M/s. B. C. Components India Pvt. Ltd. Going through the agreement, a copy of which was sent to the shareholders at annexure A-14, he pointed out that from this agreement it is very difficult to find out as to what are the assets of the components unit that were being sold to M/s. B. C. Components India Pvt. Ltd. According to him, the value of the land on which the unit is functioning would alone cost more than Rs. 100 crores. He also pointed out that from a reading of this agreement, one cannot ascertain as to whether the entire unit is being sold or only a part of it.
(3.) HE further argued to state that if all these aspects are taken into account, then, it will be clear that the explanatory statement did not conform to the requirements of Section 173(2) of the Act. In other words, according to him, the approval of the general body had been sought without furnishing full and complete details of the proposed sale and as such the same is invalid. HE pointed out that while the board of directors have the right to decide on sale of a unit, yet, the same should be done in a transparent manner and not in a clandestine way as it has happened in this case. Therefore, he urged that before any order is passed on the petition, the company should be directed to furnish a copy of the valuation report prepared both by M/s. KPMG and M/s. B. S. Billimoria so that the petitioners would be in a position to argue the matter further. In this connection, he pointed out that in an earlier case of sale of a unit at Salt Lake in Calcutta by the company, when the matter went before the High Court, the valuation report was placed before the High Court. As to the right of the shareholders to receive a copy of the valuation report, he relied on Subir Kumar Basu v. New Central Group Engineering P. Ltd. [1986] 59 Comp Cas 222 (Cal). Even otherwise, he submitted that even for the Company Law Board to decide about the adequacy or otherwise of the consideration, it should have the benefit of going through the valuation reports. HE submitted that the sale has been proposed only with the sole objective of benefiting the majority shareholders of the company, M/s. Koninklijke Phillips Electonics NV, the Netherlands which holds 51 per cent. shares in the company and at its instance. HE also pointed out that the component unit is one of the vital units of the company since many of the components manufactured by this unit are being used in the final products of the company. Once the sale is effected, then, the company will have to purchase its requirement at exorbitant prices which would not be in the interest of the company/shareholders and consumers. In fine he demanded that we should direct the company to furnish to the petitioners a copy of the valuation reports before passing a final order on the petition.;