1993 (2) TMI 267 - HC - Companies Law

Summary

Issues Involved:
1. Winding up of companies on just and equitable grounds under section 433(f) of the Companies Act, 1956.
2. Relief under sections 397 and 398 of the Companies Act, 1956.
3. Validity of the transfer of shares and rectification of the register of members.
4. Implementation of the decision given by the designated person, M.L. Bhakta.
5. Compliance with principles of natural justice.
6. Judicial review of the decision given by M.L. Bhakta.

Detailed Analysis:

1. Winding up of Companies on Just and Equitable Grounds Under Section 433(f):
The petitioners filed Company Petition No. 663 of 1986 for winding up Nandlal Kilachand Investment Pvt. Ltd. (NKIPL), Dodsal Pvt. Ltd., and Indmag Pvt. Ltd. on just and equitable grounds under section 433(f) of the Companies Act, 1956. They alleged that Rajen Arvindkumar Kilachand, the second respondent, sought to divert and appropriate the profits and benefits of NKIPL and harassed the petitioners to coerce them into surrendering their shareholdings. The petitioners contended that the continuation of NKIPL would benefit only Rajen, perpetuating his acts of misfeasance.

2. Relief Under Sections 397 and 398 of the Companies Act, 1956:
In the alternative, the petitioners sought relief under sections 397 and 398 of the Companies Act, claiming oppression and mismanagement by Rajen. The petitioners alleged that Rajen illegally misappropriated Rs. 12 lakhs from Dodsal Pvt. Ltd. and fraudulently used it to acquire shares belonging to Ramesh Nandlal Kilachand's family. The court, in its order dated September 7, 1989, suggested that the petitioners get a fair value for their holdings in NKIPL, Dodsal Pvt. Ltd., and Indmag Pvt. Ltd., which was agreed upon by the parties.

3. Validity of the Transfer of Shares and Rectification of the Register of Members:
The petitioners filed Company Petition No. 664 of 1986 against NKIPL, Rajen, and Puthucode Subramaniam, seeking a declaration that the transfer of 1,936 shares of NKIPL held by Lilavati Nandlal Kilachand to Rajen was void and unauthorized. They sought rectification of the register of members to reflect the shares in the names of the executors of Nalinikant Nandlal Kilachand's estate or, alternatively, in the names of the petitioners. The court designated M.L. Bhakta to decide all questions referred to him, and Bhakta's decision on August 28, 1991, declared the petitioners entitled to 3,800 equity shares of NKIPL, including 484 shares from Lilavati's estate.

4. Implementation of the Decision Given by M.L. Bhakta:
The petitioners sought implementation of Bhakta's decision, which valued their 3,800 shares at Rs. 4 crores. Bhakta directed the petitioners to sell their shares to Rajen or his nominees for Rs. 4 crores, with specific payment schedules and interest terms. Rajen failed to comply with the payment schedule, leading the petitioners to seek court intervention for enforcement of Bhakta's decision. The court held that Bhakta's decision was valid, legal, and binding, and directed its implementation.

5. Compliance with Principles of Natural Justice:
Respondents Nos. 4, 5, and 6 contended that Bhakta's decision was null and void as they were not heard during the proceedings. The court found that respondents were aware of the proceedings and had the opportunity to participate. The court held that Bhakta was not required to follow principles of natural justice as he was not acting as an arbitrator but as a person designated by the court. The court rejected the respondents' claims of bias and violation of natural justice.

6. Judicial Review of the Decision Given by M.L. Bhakta:
The respondents argued that Bhakta's decision was beyond the scope of the court's order and was arbitrary and void. The court held that Bhakta acted within the scope of the order, and his decision was not subject to judicial review. The court emphasized that Bhakta's valuation of shares was binding and not open to challenge, as it was agreed upon by the parties. The court found no error of law or jurisdictional excess in Bhakta's decision and directed its enforcement.

Conclusion:
The court validated the decision of M.L. Bhakta, who was designated to value the shares and resolve disputes among the parties. The court found that Bhakta acted within his authority, and his decision was binding and enforceable. The respondents' objections regarding natural justice and judicial review were dismissed, and the court directed the implementation of Bhakta's decision, including the payment of Rs. 4 crores with interest to the petitioners.