2011 (6) TMI 678 - Board - Companies Law

Issues:
1. Whether the affairs of the G. K. Alloys Steel P. Ltd. (respondent No. 1) are being conducted in a manner oppressive to the petitioner and prejudicial to the interest of the company?
2. Whether the sale of 6.63 acres of the company's land is liable to be set aside?
3. Whether the joint development agreement dated May 23, 2008, is liable to be set aside?
4. Whether respondents Nos. 2 to 4 are liable to be surcharged?

Issue-wise Detailed Analysis:

Issue 1: Whether the affairs of the G. K. Alloys Steel P. Ltd. (respondent No. 1) are being conducted in a manner oppressive to the petitioner and prejudicial to the interest of the company?
The petitioner alleged that the respondents managed the company as a sole proprietary concern, excluding him from the management, and conducted affairs in a manner amounting to oppression and mismanagement. The petitioner claimed that the shares of their deceased parents had not been transmitted to the legal heirs, and there were irregularities in the composition of the board. The respondents countered that the petitioner was aware of the family arrangement and had not taken steps for proper transmission of shares. The court found that the petitioner's grievances were raised belatedly and without bona fides, noting that the petitioner had not shown interest in the company's affairs for over a decade. The court concluded that the petitioner's intent was to challenge the land sales rather than address genuine grievances, and thus, did not find oppression or mismanagement.

Issue 2: Whether the sale of 6.63 acres of the company's land is liable to be set aside?
The petitioner contended that the sale of 6.63 acres of land to respondents Nos. 5 and 6 was for a remarkably low price and was conducted without proper notice or approval. The respondents argued that the sale was necessary to discharge the company's liabilities and was conducted with the board's approval. The court found that the sale was a bona fide decision to salvage the company from financial distress and was in the best interest of the company. The court noted that the petitioner had not provided any alternative proposals or evidence of higher offers. The court concluded that the sale was genuine and not liable to be set aside.

Issue 3: Whether the joint development agreement dated May 23, 2008, is liable to be set aside?
The petitioner argued that the joint development agreement (JDA) was not in the company's interest and was entered into without proper notice. The respondents claimed that the JDA was necessary for the company's revival and was executed with the board's approval. The court found that the JDA was a strategic decision to generate cash flow and revive the company. The court noted that the petitioner had not challenged the JDA's benefits to the company and concluded that the JDA was genuine and not liable to be set aside.

Issue 4: Whether respondents Nos. 2 to 4 are liable to be surcharged?
The court found that there was a minor undervaluation in the sale of 3.29 acres of land in 2007, resulting in a loss to the company. The court held that respondents Nos. 2 to 4 were liable to be surcharged for the loss caused to the company. The court directed respondents Nos. 2 to 4 to deposit Rs. 20 lakhs into the company's account within six months, failing which they would be liable for simple interest at the rate of 6% per annum from the date of the order till the amount is deposited.

Conclusion:
The court declined to set aside the impugned sale deeds and the joint development agreement, finding no acts of oppression or mismanagement. The court surcharged respondents Nos. 2 to 4 for the undervaluation in the land sale and directed them to remit Rs. 20 lakhs to the company. The company petition was allowed to the limited extent of surcharging respondents Nos. 2 to 4 and dismissed in all other aspects.

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