Upper India Steel Manufacturing And ... vs Gurlal Singh Grewal & Ors

(Arising out of Order dated 1st March, 2017 passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh in Company Petition No. 49 of 2007]

IN THE MATTER OF:

Upper India Steel Manufacturing and Engineering Co. Ltd. & Ors. .. .Appellants Vs Gurlal Singh Grewal & Ors. .. .Respondents

Present: For Appellants:- Shri Shanti Bhushan and Shri S.N. Mukherjee, Senior Advocates with Mr. Saurabh Kalia, Mr. Sameer Chaudhary and Mr. Palash, Advocates.

For Respondents: - Mr. Abhimanyu Mahajan, Mr. Sarad K. Sunny and Sanam Tripathi, Advocates for Respondents 1, 3, 5, 7, 8& 15.

Mr. Sandeep Das and Ms. Aayushi Sharma, Advocates for Respondent No. 10.

With Company Appeal (AT) No. 189 of 2017

IN THE MATTER OF:

Gurlal Singh Grewal & Ors. ...Appellants Vs Upper India Steel Manufacturing and Engineering Co. Ltd. & Ors. .. .Respondents

Company Appeals (AT) Nos. 150 and 189 of 2017 2

Present: For Appellants: - Mr. Abhimanyu Mahajan, Mr. Sarad K. Sunny and Mr. Sandeep Das, Advocates.

For Respondents: - Shri Shanti Bhushan and Shri S.N Mukherjee, Sr. Advocates with Mr. Saurabh Kalia and Mr. Sameer Chaudhary and Mr. Palash, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

As both the appeals have been preferred against common order dated

1st March, 2017 passed by National Company Law Tribunal (hereinafter

referred to as "Tribunal") Chandigarh Bench, Chandigarh in Company

Petition No. 49/2007, they were heard together and are being disposed of by

this common judgment.

2. The brief fact of the case is that the Respondent- Gurlal Singh Grewal

& Others (Appellants in Company Appeal (AT) No. 189 of 2017) -(hereinafter

referred to as "Petitioners") preferred a petition under Sections 397 and 398

of the Companies Act, 1956 alleging 'Oppression and Mismanagement'

against M/s. Upper India Steel Manufacturing & Engineering Company

Limited (Appellants in Company Appeal (AT) No. 150 of 2017) and others

(hereinafter referred to as "Respondents").

3. The Tribunal by impugned judgment dated 1t March, 2017 while held

that the Petitioners and Respondents cannot get along to decide the conduct

Company Appeals (AT) Nos. 150 and 189 012017 3

of the business, disposed of the Company Petition with following orders and

directions: -

"A. As discussed in Para 1.2 above of the judgment, 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 Grewa)

(R-10) and Mrs.Harsimran Dutta (R-11) are required to

refund to the respondent company. the amount paid to

them in excess of the permissible limits u/s 314 along

,with interest payable at the bank rate enhanced by 2%

within 30 days of receipt of this order. For this purpose,

the bank rate applicable as on 31st March of each of the

financial year shall be taken.

B. MIS Ernst & Young, 6th floor, Wing & B, Woridmark-

1, Aero city, IGI airport Hospitality District, Opp. Holiday

Inn, Mahipalpur, New Delhi 110037 is appointed from out

of the list of valuers submitted by the petitioners and

agreed to by the respondents, as an independent valuer

for fair value of the shares held by the petitioners of the

company. The cut-off date for determining the value of the

shares will be 31.3.2007 i.e. the date nearest to the filing

of the petition. While computing the share value, the

Valuers shall also consider the asset based valuation as

the Respondent Company has a large asset base.

Company Appeals (AT) Nos. 150 and 189 012017 C. The date of filing of the petition is April 2007. Hence,

the said valuer will find out the fair value of the shares of

the company as on 31.3.2007 on the basis of going

concern by all recognised methods and applicable rules

and regulations as applicable on the said date in this

regard. The respondent company is being managed by

the respondents only since the filing of the petition and

thus, they are alone responsible for any increase or

decrease in both the profitability and liability of the

company. As the date of valuation is almost 10 years ago,

the fair price of the shares of the petitioners shall be

enhanced by Compound interest payable at the bank rate

enhanced by 2%. For this reason, the bank rate

applicable as on the 31st March of each of the financial

year shall be taken.

D. The parties are directed to extend every co-operation

to the said Valuer the Company shall submit all the

necessary documents and papers for the purpose of

Valuation as desired/ required by the said Valuer.

E. The valuation report shall be prepared within 90 days

from the date of receipt of copy of this order.

F. Copy of the report shall be supplied to the parties who

shall be entitled to file their respective Objections, 7zf any,

to the valuation of the shares. After receipt of the

Company Appeals (AT) Nos. 150 and 189 of 2017 5

objections the valuer shall dispose of the same within

four weeks and Shall prepare a comprehensive/

speaking supplementary report dealing with each and

every objection. Thereafter, the Valuer shall send final

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 the 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

valuation process and the second instalment shall be

Company Appeals (AT) Nos. 150 and 189 of 2017 6

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 after submission of

the final report together with objections and the

supplementary report.

I Other reliefs sought for by the petitioners are declined.

K Interim Order, if any, stands vacated. This order

disposes off all the pending company applications.

L. No order as to costs.

M. Let copy of this order be supplied to the parties and

another copy to the independent valuer named above.

N. In case of any difficulty in implementation of this order,

the parties are granted liberty to mention the matter."

4. The Respondents (Appellants in Company Appeal (AT) No. 150 of 2017)

have challenged the impugned judgment mainly on one of the grounds that

the findings that returns to the minority group have systematically whittled

due to non-payment of dividend and reduction in the number of directors

and salaried employees is contrary to record. 1st Petitioner has been getting

the same salary as 3rd Respondent (JMD), 1st Petitioner has continued to

receive his salary, perks and all other incidental benefits from 2007 till the

date of order without contributing or taking up any work in the Appellant

Company, 10th Respondent/ i 0th Petitioner continues to be on the board as a

Company Appeals (AT) Nos. 150 and 189 012017 7

non-executive Director, and Petitioners' group along with other shareholders

has received dividend till 2011.

5. With regard to number of Directors, it was submitted that the same is

also a wrong finding as the number of Directors of the Respondent Group

has always remained constant, whereas, the number of the directors of

Appellant Group reduced from 9 (nine) in 2007 to 6 (six) on the date of the

impugned order.

6. It was further submitted that no prayer was made by the petitioner for

payment of interest, nor ever raised during the proceedings. There is no

provision for interest much less for compound interest. The order is contrary

to the provisions of the Interest Act, 1978 and that no reason is shown much

less any special reason in the order for grant of interest or why interest has

been awarded at 2% above the bank rate and why compound interest has

been awarded.

7. It was also submitted that as a general Rule interest is not payable,

especially when valuation is ordered. There is no liability to buy out before

an order enabling buyout is passed, thus there can be no question of

payment of interest from a prior date.

8. It was further submitted that there is no finding recorded that the

Appellants were responsible for delay. In fact, the Hon'ble Tribunal did not

consider the adjournments taken by the Petitioners/ Respondents and made

the Appellants liable for payment of interest without any justification.

Company Appeals (AT) Nos. 150 and 189 012017 8

9. It was further submitted that the Tribunal failed to consider that

Appellant Company is on-going concern engaged in the Steel Industry, and

it is well known fact world over that the Steel Industry is highly volatile

industry and has been struggling for many years.

10. It was also submitted that there was no question of any payment of

interest till an order enabling purchase/buyout is made and thus, interest

cannot run prior to any period of order, but could have only been ordered

from the date of valuation till the date of payment.

11. The other ground taken is the date of valuation/ buyout should be the

date of filing of the petition i.e. 31st March, 2007, which according to the

Respondents/Appellants is perverse and cannot be sustained for the

following reasons: -

(a) Offer was made to the Respondents! Petitioners group for buyout

in 2008 itself, erstwhile Company Law Board order dated 25th

February, 2009 passed providing for exit of the

Respondents/ Petitioners. However, they opted to stay in the Company

and challenged the said order when exit on valuation was provided to

them before the Hon'ble High Court of Punjab and Haryana and the

same was set aside vide order dated 4th August, 2010. It was also

clarified that during the pendency of the appeal the proceedings were

stayed before the erstwhile Company Law Board.

Company Appeals (AT) Nos. 150 and 189 of 2017

(b) The Respondents/ Petitioners group during the pendency of the

present petition has all along participated in the management of the

Appellant Company for example:

(i) Respondents/ Petitioners group all along represented on the

Board of Directors through 1St Respondent and 10th Respondent.

(ii) 1St Respondent continued to hold the position as a whole time

director and received remuneration at par with members of the

Appellant Group.

(iii) 1St respondent and 10th Respondent regularly attended

Board's meetings. It is the case of 1st Respondent that he had

carefully examined and scrutinized all books and papers

pertaining to the functioning of the company while discharging

his duties as a working director.

(iv) The Respondents Group accepted dividends by virtue of their

shareholding till 2011.

(c) Respondents/ Petitioners from the date of filing of the petition

continue to be in management till the final disposal.

(d) There is no basis as to why interest was awarded as compound

interest or at 2% above bank rate.

(e) Direction to consider asset based valuation is not sustainable as

valuation and methodology is the sole prerogative of the valuer. More

so in a company like the Appellant which is a going concern the assets

and business are indivisible.

Company Appeals (AT) Nos. 150 and 189 of 2017 10

12. It was submitted that the judgment in "T. Ramesh Pai Vs. Canara

Land Investments Ltd. (2005) 123 CC 869 (CLB)" relied upon by Tribunal

being contrary to the basic principles of valuation, the said judgment of

erstwhile Company Law Board has already been set aside by Hon'ble

Karnataka High Court in "Canara Land Investments Ltd. Vs. T. Ashok Pai

& Ors. (2012) 169 CC 35 (Kar)" Normally, the valuation should be as on

the date of the order in facts and circumstances like in the instant case.

13. It was further submitted that the majority shareholder cannot be

compelled to sell their shares. In support of submission, reliance has been

placed on judgment of Hon'ble Supreme Court in "Dale and Carringtom

Invt. (P) Ltd. and Anr. V. P.K. Prathapan & Ors., AIR 2005 SC 1624

Paras 22-24)".

14. On the 'other hand, according to the Petitioners (Appellants in

Company Appeal (AT) No. 189 of 2017), the impugned judgment is bad as the

Tribunal failed to notice various facts.

15. It was submitted that there are materials in support of allegations

pertaining to two whole time directors being paid salary without discharging

any duty whatsoever.

16. In this connection, we are of the view., that mere allegations that two

whole time directors have been paid without discharging any duty ipso facto

will not amount to 'Oppression and Mismanagement', till it is shown by

Company Appeals (AT) Nos. 150 and 189 of 2017 11

placing evidence that such payment is detrimental to one or other member

or against the interest of the Company.

17. Next it was contended that Shri Ashok Singh Garcha's family holds the

largest shareholding i.e. 14.1% yet, the majority refused to appoint him as a

working Director and rejected the same by resolution moved by the minority

for his appointment in the EGM held on 10th January, 2007.

18. In this regard, we are of the view that non-appointment of Shri Ashok

Singh Garcha, ipso facto will not amount to 'Oppression and

Mismanagement', in absence of any specific evidence and allegations. If he

has not been appointed as Director in view of decision of the majority

shareholders by resolution dated 10th January, 2017, the same cannot be

held to be illegal.

19. Next, it was contended by the counsel for the Petitioners (Appellants in

Company Appeal (AT) No. 189 of 2017) that the appointment of Shri

Gursimran Singh Grewâl as Managing Director is illegal. However, such

allegation is not based on any evidence.

20. In this regard, it is desirable to notice the findings of the Tribunal which

is as follows.

21. The Tribunal held that no evidence has been produced by petitioners

to show that 9th Respondent did not perform any work and since she has

passed away and there is no cogent evidence to show that 9th respondent was

Company Appeals (AT) Nos. 150 and 189 of 2017 12

paid without performing any work and the petitioners never raised such issue

till the filing of the petition, such allegation cannot be accepted.

22. The Tribunal further held that 8th Respondent held relevant

educational qualification and had requisite experience and the Petitioners

have not pressed the allegation regarding payment and salary against him.

23. The Tribunal also held that there is no infirmity in the appointment of

2nd Respondent and 3rd Respondent as Managing Director.

24. Having heard learned counsel for the parties, we are of the view that

the Tribunal rightly held that rejection of appointment of Sardar Ashok Singh

Garcha(10th Respondent) as whole time Director cannot be interfered with

as it was well within the domain of the shareholders to reject the same.

25. We also agree with the finding of the Tribunal that the violation of

Section 314 does not constitute 'oppression and mismanagement'.

26. We also agree with the finding of the Tribunal that purchase of 22

Rolling Mill is a business decision taken by the management of Company and

cannot be adjudicated in the aforesaid proceedings.

27. We find no illegality in the findings of the Tribunal in holding that

cheque signing power is solely a business decision and cannot be interfered

with.

Company Appeals (AT) Nos. 150 and 189 of 2017 13

28. In view of the aforesaid specific findings of the Tribunal and for the

reasons mentioned in the preceding paragraphs, we reject the plea taken by

the Petitioners (Appellants in Company Appeal (AT) No. 189 of 2007).

In so far it relates to the relief granted by Tribunal, it is desirable to

refer some of the provisions of the Companies Act, 2013.

29. The Company Petition in question was filed by petitioners before the

erstwhile Company Law Board and was subsequently transferred under,

Clause (a) of sub-section (1) of Section 434 of the Companies Act, 2013, which

reads as follows: -

"434. Transfer of certain pending proceedings. -

(1) On such date as may be notified by the Central

Government in this behalf, -

(a) all matters, proceedings or cases pending before

the Board of Company Law Administration

(herein in this section referred to as the Company

Law Board) constituted under sub-section (1) of

section 1 OE of the Companies Act, 1956 (1 of

1956), immediately before such date shall stand

transferred to the Tribunal and the Tribunal shall

dispose of such matters, proceedings or cases in

accordance with the provisions of this Act"

30. From the aforesaid provisions, it is clear that on transfer of the case

the Tribunal was required to decide the case in accordance with the

Company Appeals (AT) Nos. 150 and 189 of 2017 14 Companies Act, 2013 i.e. Section 241 read with Section 242 of the

Companies Act, 2013.

31. From bare perusal of Section 242 of the Companies Act, 2013, it is

clear that the Tribunal if it comes to a definite conclusion that the

Company's affairs have been or are being conducted in a manner

prejudicial or oppressive to any member or members or prejudicial to

public interest or in a manner prejudicial to the interests of the company

and that to wind up the company would unfairly prejudice such member

or members, then only with a view to bring to an end the matters

complained of, may make such order as it thinks fit including the order

in terms of sub-section (2) of Section 242.

32. In the present case, the Tribunal has come to a definite conclusion

that the Petitioners (Appellants in Company Appeal (AT) No. 189 of 2017)

have failed to make out a case of 'Oppression and Mismanagement'. Having

given such findings, we are of the view that the Tribunal had no

jurisdiction to pass, any order in terms of sub-section (1) or (2) of Section

242 of the Companies Act, 2013.

33. Learned Counsel for the Respondents (Appellants in Company Appeal

(AT) No. 150 of 2007) has rightly contended that the Tribunal has failed to

notice that the 10th Respondent! Petitioner continued to be on the Board as

its non-executive Director, and the Petitioners' group along with other

shareholders have received dividend till 2011. In this regard, the finding of

Company Appeals (AT) Nos. 150 and 189 012017 15

Tribunal being not based on record; it was not, open to the Tribunal to pass

any direction under Section 242.

34. The Respondents (Appellants in Company Appeal (AT) No. 150 of 2007)

have also rightly pointed out that in absence of any prayer made by the

Petitioners and in absence of any provisions for compound interest the

Tribunal having held that no case of 'Oppression and Mismanagement' have

been made out, it was not open to the Tribunal to pass order regarding

interest, which is also against the provisions of the Interest Act, 1978.

35. Even if it is accepted that the parties have agreed to sell out their

shares, in absence of any power vested with Tribunal, after its specific finding

there was no 'Oppression and Mismanagement', the Tribunal had no

jurisdiction to direct any party to sell or buyout any share. Further finding

about, the date of valuation/ buyout as the date closest to the filing of the

petition i.e. 31st March, 2007 being perverse and contrary to the offer made

by parties in the year 2008, and the order dated 25th February 2009, passed

by Tribunal such order cannot be upheld.

36. For the reasons aforesaid, while we uphold the findings of the Tribunal

in so far as it relates to failure of petitioners to prove 'Oppression and

Mismanagement', the last part of the order and direction to the extent of sale

of shares, date of valuation/ buyout and the order regarding payment of

interest and the findings that the minority group have systematically whittled

Company Appeals (AT) Nos. 150 and 189 of 2017 16

due to non-payment of dividend, and reduction in the number of directors

being perverse, such portion of the impugned order are set aside.

37. In the result, the Company Appeal (AT) No. 150 of 2007 is allowed to

the extent indicated above and Company Appeal (AT) No. 189 of 2017 is

dismissed. However, in the facts and circumstances of the cases, there shall

be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) (Balvinder Singh) Member (Judicial) Member(Technical)

NEW DELHI 14th November, 2017

AR

Company Appeals (AT) Nos. 150 and 189 of 2017