TMI Blog2009 (5) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... d in favour of the appellants, the value of the shares shall also be offered for sale in the manner and in the order of preference mentioned above. The value of the shares shall be determined as on the date of filing of petition before the Company Law Board and the value so determined will carry interest from that date at 7.5 per cent till the date of payment. If neither respondent Nos. 2 to 5 nor the third party is willing to purchase the shares at the valuation so made, in the manner referred to above, having regard to the finding that there are just and equitable circumstances for winding up of the company, the company shall be ordered to be wound up. - C.A.P.P. NOS. 3 OF 2008, C.M.A. NO. 41 OF 2008 AND C.M.A. NO. 3 OF 2009 - - - Dated:- 8-5-2009 - K. KANNAN, J. R.K. Chibber and Atul V. Sood for the Appellant. Ashok Aggarwal and Ms. Radhika Suri for the Respondent. JUDGMENT I. Nature of lis : 1. The company appeal is against the order of the Company Law Board, Principal Bench, New Delhi dated 27-11-2007 passed in the Company Petition No. 109 of 2007 ( Surya Kant Gupta v. Rajaram Corn Products (Punjab) (P.) Ltd. [2008] 142 Comp. Cas. 416 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce by the respondents : 4. The respondents refute every one of the allegations except that there is no denial of the fact that the purpose for which the company was incorporated is no longer carried out. The justification brought out is that the factory in Bangalore was sold as early as in 2001 when the Pollution Control Board directed the cessation of its operations on the ground that the use of chemicals and the discharge of effluents signalled public hazard. The Mohali unit was also required to be closed by a similar direction by the Pollution Control Board. The company had itself filed a reference before the BIFR for registering it as a sick company but the reference was dismissed on the ground that it was not an industrial company and the Act itself was not applicable. All the plant and machinery were required to be sold, after directions for closure of the industrial operations had been made by the respective State Pollution Control Boards. Sale was the only option when the idea was to discharge the loans contracted for establishing the manufacturing units and the bona fides could not be doubted. 5. It is not as if the company was without any substantial assets. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners to protect the interest of the petitioners. IV. The principal grounds of challenge in appeal : 7. At the stage of appeal, the butt of attack of the reasoning of the Company Law Board by the appellants was that consistent with the admitted facts of systematic sale of the properties in Bangalore, disposal of the plant and machinery at Mohali and the non-declaration of dividend ever since the commencement of the operation, the Company Law Board ought to have found that the plea of oppression and mismanagement had been clearly established. The finding that there was no basis for the apprehension of sale of the assets of the company, but still providing that in the event of sale, the company of the respondent should be directed to purchase the shares at value at which the property was sold was inconsistent. According to the appellants, the decision raised several questions of law, namely : ( i ) the substratum of the company having been completely lost on account of systematic sale of the assets, any further sale was to be barred or independent committee shall be constituted to oversee any further sale of the assets to protect their interest; ( ii ) on clear proo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheer default by the market forces operating without any effort on the part of the directors of the company. The prodigious escalation of value of 6 acres of land at Mohali between the year 1974 till date could not obviously be by any effort of the company or its directors. Nothing has happened, except the intrinsic appreciation of value of land but every value addition that was sought to be made by construction and by installation of machineries has come to naught. There are more debts than when the company started and there are no source of productive income. There exists a complete lack of cohesion between the first petitioner and the second respondent, who were the promoters of the company. Their family feud has spilt to the public domain through complaints and counter complaints, arrests and releases and civil and criminal cases galore. If the second respondent or the persons who are the directors of the company could take any credit, the only thing that could be stated is that they have not disposed of the only valuable asset of the company, namely, the 6 acres of land at Mohali. VI. The company s failure and the respondents rationalisation : 10. For each one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which has taken place after the impugned order, it ought not to be taken as a subject-matter of appeal and it should be taken as flowing outside the scope of the appeal. The joint venture agreement itself, according to the respondents, was a prudent act where the company was in the process of implementing its mega projects over Rs. 100 crores and it was a common knowledge that the development of property by involving third parties, who were willing to fund the project could not be done without a trade-off, such as by giving rights of sale of some portion of the assets to the joint developer as consideration for the value additions, which were sought to be made by the execution of the mega projects. VII. Propositions of law paraphrased : 11. The respective counsel have relied on serveral decisions of the Hon ble Supreme Court and High Courts, which spell out the principles of law through the following decisions : (1) Haryana Financial Corporation v. Official Liquidator [2007] 139 Comp. Cas. 500 (Punj. Har.). (2) Haryana Financial Corporation v. Official Liquidator, passed in Company Appeal No. 31 of 2007 on 28-9-2007. (3) FCS Software Solutions Ltd. v. La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to take part in any decision relating to the sale of the assets or evolved any strategies to bring a cohesion in the management and afford confidence-building measures with the appellants, who have fallen out from them. It will be futile to imagine that the parties are going to bury the hatchet and come to make a profitable venture by a collaborative effort. The only possible method of dealing with the issue would be to invoke the provisions of section 402 and give appropriate directions, while upholding the contentions of the appellants that the respondents conduct have resulted in oppression and mismanagement. 14. Nothing remains for the company but fortunately it is still not the last straw. It is almost somewhat like a golden egg, that the property which remains for the company is a valuable land in Mohali. It is valuable not because of any worthy management of the respondent-company but in spite of all the squabbles that have festered the affairs of the company. But even the property is not being retained as such but it has been dealt with, as admitted even by the respondents, by joint venture agreement with M/s. Suncity Projects (P.) Ltd. It is said to be a mega projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of its assets which is the attractive feature. The only method by which the transaction could be gone through would be to allow the appellants to stand out of the bargain to which they are not interested and to whom the details of the joint venture agreement have not been disclosed, by allowing the sale of their shares to the respondents. A purchase by the company itself might involve reduction in capital, which may not be possible at a time when the company admittedly does not have adequate liquid resources and it shall be left to the other persons in management of the company to purchase their shares. The direction by the Company Law Board that at any point of time if the respondent disposes of the land, then the company shall purchase the shares of the petitioners at the value at which the land is sold does not appear to be either sound or adequate. In the face of the subsequent development and the admission that there has been a joint venture agreement, which could not be entered into without offering a stake in the company to the third party [M/s. Suncity Projects (P.) Ltd.], or allowing such party to exploit the asset of the company to their advantage, which though may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent expert, who may be appointed by the Company Law Board; ( ii )offer the shares so assessed to respondent Nos. 2 to 5 and if they decline, to the third party-joint developer; ( iii )issue notice to third party-joint developer for consideration of modification of the terms that could provide for an adjustment in the value of the shares that is offered to be purchased (that is in case if the third party-joint developer is interested in purchasing the shares) by increasing the percentage of stake that the third party developer would have in the company or increase the share of income such as to have due regard for value of shares of the appellants to be transmitted to them. 17. There still remains a disputed item with reference to 18,300 equity shares that had already stood allotted to M/s. Rajaram Maize Products in respect of which a suit is still pending before the Court of Additional District Judge, Rajnandgaon, M.P. If the decree is returned in favour of the appellants, the value of the shares shall also be offered for sale in the manner and in the order of preference mentioned above. The value of the shares shall be determined as on the date of filing of petition before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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