Tribunal Orders Recovery of Excess Remuneration, Dismisses Oppression Allegations, and Facilitates Fair Exit

Shri Gurulal Singh Grewal And Others Versus M/s Upper India Steel Manufacturing & Engineering Company Limited & Others

Shri Gurulal Singh Grewal And Others Versus M/s Upper India Steel Manufacturing & Engineering Company Limited & Others - TMI Issues Involved:
1. Violation of Section 314 of the Companies Act, 1956.
2. Improper appointment and remuneration of directors.
3. Allegations of oppression and mismanagement.
4. Purchase of a second-hand 22-inch rolling mill.
5. Writing off debt of Rs. 7.22 crores.
6. Dilution of cheque signing authority.
7. Mismanagement regarding increase in rent for the guest house.
8. Subsequent events post-filing of the petition.
9. Request for exit of petitioners from the company.

Detailed Analysis:

1. Violation of Section 314 of the Companies Act, 1956:
The petitioners alleged that certain relatives of directors were employed with salaries exceeding the limits prescribed under Section 314 without the required special resolution or Central Government sanction. The Tribunal found that these violations were statutory and could not be waived by the consent of the parties. The respondents were directed to recover the excess emoluments paid or seek permission from the Central Government to waive the recovery.

2. Improper Appointment and Remuneration of Directors:
- Smt. Jitender Kaur Punia (R-9): The petitioners alleged she was paid without performing any duties. The Tribunal dismissed this allegation due to lack of evidence and her subsequent death.
- S. Gurparshad Singh Grewal (R-7) and Ms. Kushal Grewal (R-8): These allegations were not pressed in the written submissions, leading to their dismissal.
- S. Saminder Singh Grewal (R-6): His appointment was challenged due to violation of Section 314. The Tribunal directed recovery of excess remuneration as discussed above.
- S. Pritpal Singh Grewal (R-2) and S. Gursimran Singh Grewal (R-3): The Tribunal found no infirmity in their appointments as managing directors, rejecting the petitioners' claims of seniority and qualification requirements.

3. Allegations of Oppression and Mismanagement:
The petitioners claimed various acts of oppression and mismanagement, including the systematic reduction of dividends and exclusion from management roles. The Tribunal found that most allegations were business decisions or directorial complaints, not meeting the threshold for oppression or mismanagement under Sections 397 and 398.

4. Purchase of a Second-hand 22-inch Rolling Mill:
The petitioners questioned the feasibility and necessity of purchasing the mill without a detailed report. The Tribunal, citing business judgment rule, dismissed this allegation, noting that such decisions fall within the domain of business management.

5. Writing Off Debt of Rs. 7.22 Crores:
The petitioners alleged this was done to benefit from tax deductions. The Tribunal dismissed this claim, noting that writing off debts is a common business practice and was accepted by the Income Tax Department.

6. Dilution of Cheque Signing Authority:
The petitioners argued that P-1's cheque signing authority was diluted, effectively excluding him from financial decisions. The Tribunal found this to be a business decision and dismissed the allegation.

7. Mismanagement Regarding Increase in Rent for the Guest House:
The petitioners claimed the rent was increased from Rs. 5,000 to Rs. 20,000 per month to favor certain shareholders. The Tribunal dismissed this, finding the increase reasonable after ten years.

8. Subsequent Events Post-filing of the Petition:
The Tribunal considered subsequent events connected to the original cause of action, despite the respondents' objections. These included allegations of further mismanagement and financial irregularities. However, the Tribunal found these to be business decisions and declined to interfere.

9. Request for Exit of Petitioners from the Company:
Both parties agreed to the petitioners' exit from the company upon payment of fair value for their shares. The Tribunal appointed Ernst & Young as an independent valuer to determine the fair value of shares as of 31.03.2007, with interest compounded at the bank rate plus 2%. The valuation report is to be prepared within 90 days, with objections to be addressed in a supplementary report. The respondents are directed to buy out the petitioners' shares at the determined value, failing which the petitioners may buy the respondents' shares.

Conclusion:
The Tribunal directed the recovery of excess remuneration paid in violation of Section 314, dismissed most allegations of oppression and mismanagement, and ordered the exit of petitioners from the company at a fair value determined by an independent valuer. The decision emphasizes the distinction between statutory violations and business decisions, providing a structured exit mechanism to resolve the family dispute within the company.