Tribunal rules on excessive director salaries, upholds managing director appointments

M/s Upper India Steel Manufacturing & Engineering Company Ltd. Versus M/s Upper India Steel Manufacturing

M/s Upper India Steel Manufacturing & Engineering Company Ltd. Versus M/s Upper India Steel Manufacturing - TMI Issues Involved:
1. Violation of Section 314 of the Companies Act, 1956.
2. Improper appointment of directors.
3. Appointment of S. Pritpal Singh Grewal (R-2) and S. Gursimran Singh Grewal (R-3) as managing directors.
4. Rejection of appointment of S. Ashok Singh Garcha (P-10) as whole-time director.
5. Retirement benefits for retiring directors.
6. Purchase of second-hand 22-inch rolling mill.
7. Writing off of debt of Rs. 7.22 crores for the period 2004-05.
8. Dilution of cheque signing power of P-1.
9. Resignation of R-2 as MD.
10. Mismanagement on account of increase in rent paid for a guest house.
11. Subsequent events and their consideration.

Detailed Analysis:

1. Violation of Section 314 of the Companies Act, 1956:
The petitioners alleged that certain relatives of the directors were employed at salaries exceeding the limits prescribed under Section 314 without proper resolutions. The respondents argued that P-1 was aware of and benefited from these appointments. The Tribunal held that statutory violations under Section 314 cannot be waived by acquiescence. The respondents were directed to recover excess payments made to the violators unless a waiver from the Central Government is obtained.

2. Improper Appointment of Directors:
a. Smt. Jitender Kaur Punia (R-9): The petitioners claimed she was paid without performing duties. The respondents countered that she was involved in bill verification and labor welfare. Given her death and lack of substantial evidence, the Tribunal dismissed this allegation.
b. S. Gurparshad Singh Grewal (R-7) and Ms. Kushal Grewal (R-8): The petitioners did not press these allegations in their arguments, leading to their dismissal.
c. S. Saminder Singh Grewal (R-6): The Tribunal noted the violation of Section 314 but did not find additional grounds for his removal.

3. Appointment of S. Pritpal Singh Grewal (R-2) and S. Gursimran Singh Grewal (R-3) as Managing Directors:
The petitioners argued that the senior-most person should have been appointed as MD. The Tribunal found R-2's appointment valid as he was the senior-most in terms of experience. R-3's appointment was also upheld as it was approved in board meetings and AGMs.

4. Rejection of Appointment of S. Ashok Singh Garcha (P-10) as Whole-Time Director:
The petitioners' argument that P-10 represented a significant shareholder group was noted, but the Tribunal declined to interfere, stating that director appointments are within the shareholders' domain.

5. Retirement Benefits for Retiring Directors:
This issue was not pursued by the petitioners in their arguments, leading to its dismissal.

6. Purchase of Second-Hand 22-Inch Rolling Mill:
The petitioners questioned the feasibility and necessity of the purchase. The respondents defended it as a business decision. The Tribunal, respecting the business judgment rule, dismissed this allegation.

7. Writing Off of Debt of Rs. 7.22 Crores for the Period 2004-05:
The petitioners alleged this was done to benefit from tax deductions. The respondents stated P-1 was part of this decision. The Tribunal dismissed the allegation, noting it was a business decision accepted by the tax authorities.

8. Dilution of Cheque Signing Power of P-1:
The Tribunal found this to be a business decision and dismissed the allegation.

9. Resignation of R-2 as MD:
This issue was connected to the appointment of R-3 and was dismissed.

10. Mismanagement on Account of Increase in Rent Paid for Guest House:
The Tribunal found the rent increase reasonable after ten years and dismissed the allegation.

11. Subsequent Events and Their Consideration:
The Tribunal considered subsequent events raised in CA 75/2014, noting that they were connected to the original allegations. However, these were also seen as business decisions, and the Tribunal declined to interfere.

Conclusion:
The Tribunal directed the respondents to buy out the petitioners' shares at a fair value determined by an independent valuer, considering asset-based valuation. The cut-off date for valuation was set as 31.03.2007, with the value enhanced by compound interest at the bank rate plus 2%. Other reliefs sought by the petitioners were declined, and the interim orders were vacated. The petition was disposed of with no order as to costs.