2024 (3) TMI 1144 - HC - Companies Law

Government-nominated directors mismanaged company for four decades despite selling 300 plots, shareholders lack credibility for control return

Delhi HC addressed oppression and mismanagement in a company where Central Government-nominated directors failed to develop infrastructure despite selling ... Oppression and Mismanagement - Appointment of Whole Time Director to the Company for a period of three years under Section 408 of the Companies Act, 1956 - control and interference by the Central Government appointees in the Board to cease consequent to the repeal of Section 408 of the Companies Act, 1956 or not - Advocates representing the appellants argued against the CLB's orders, focusing on the irregularities in the appointment of directors, the lack of effective management, and the adverse impact on the residents due to undeveloped infrastructure. HELD THAT:- It is a matter of record that the Government nominated Directors, over the last four decades, have been unable to undertake any appreciable measures so as to develop the site in question despite having sold over 300 plots of the company. Even the CLB in the impugned order dated 24.05.2011, had the occasion to comment that the Directors nominated by the Central Government had thoroughly mismanaged the affairs of the company and yet on account of inter se disputes amongst the appellant/shareholders that exhibited lack of interest in managing and running the affairs of the company, it was not possible to give them back the control of the company. It is pertinent to mention that although doubts have been orally raised on the status of the unsold inventory described vide Annexure- C, no one has filed any objections disputing it, except the Greenfields Plot Holders-cum-Residents Association, the appellant in CO. A (SB) NO. 37/2011, but apparently there are just levelled bald allegations in their reply to the affidavit dated 03.01.2024, without substantiating the same with any categorical averment and/or documents - It is also pertinent to mention that the entire mess has been created due to inter se disputes amongst the shareholder. There is no plea except for the mismanagement of the affairs of the company by the erstwhile shareholders and that none of the promoters and/or the directors have been proceeded with any kind of cheating, fraud or misappropriation in any criminal court or by the Serious Fraud Investigation Office (SFIO). In view of the dismal track record of the shareholders which demonstrates a history of lack of credibility on their part, the disposition agreed as per the MOU dated 18.04.23 with regard to the sale, alienation or disposal of the properties of the company, is quite understandably, not acceptable to the other stakeholders. All said and done, there is no gainsaying that the proposal put forth by the MCF is worth consideration. The crux of the problem is that there are too many stakeholders and each wants to have a say in the matter. While that is understandable as they have suffered insurmountable problems due to lack of basic amenities and facilities for a very long and difficult forty years, that were promised by the company - This Court finds that certain calculated and strategic measures can be initiated so to commence development work at the site and ameliorate the suffering of the stakeholders. In view of the aforesaid disposition laid down by this Court, all the pending applications shall stand answered with regard to the management and running of affairs of the company. However, it is provided that in case this disposition does not fructify and the desired results are not reached on being assessed objectively, the concerned applicants shall be at liberty to revive the applications in future, for hearing and disposal. Re-notify for compliance on 15.05.2024. Issues Involved:1. Appointment of Directors by the Central Government u/s 408 of the Companies Act, 1956.2. Allegations of financial irregularities and mismanagement.3. Sale of company property and objections to the same.4. Role of Resident Welfare Associations (RWAs) and their objections.5. Objections by Ministry of Corporate Affairs.6. Development work and responsibilities of the Municipal Corporation of Faridabad (MCF).7. Compliance with legal and statutory requirements.8. Final directions and supervision by the Court Commissioner.Summary:1. Appointment of Directors by the Central Government u/s 408 of the Companies Act, 1956:The appeals were filed u/s 10F of the Companies Act, 1956, challenging the order dated 24.05.2011 by the Company Law Board (CLB), which directed the appointment of two Additional Directors and a Whole Time Director by the Union of India (Ministry of Corporate Affairs) for a period of three years u/s 408 of the Companies Act, 1956.2. Allegations of Financial Irregularities and Mismanagement:The company, M/s. Urban Improvement Company Pvt. Ltd. (UICPL), faced allegations of large-scale financial irregularities by its promoters/directors since 1976, leading to the substitution of the board of Directors by the Central Government. The CLB observed that the Directors nominated by the Central Government had mismanaged the affairs of the company.3. Sale of Company Property and Objections to the Same:Between 1982 and 2008, substantial portions of the Company's land were sold by means other than public auction. The sale of plots advertised on 13.12.2008 and 24.01.2009 was challenged, and the CLB directed the company to maintain status quo. Applications were filed seeking various reliefs, including the removal of the Central Government-appointed Directors and cancellation of the sale/auction of plots.4. Role of Resident Welfare Associations (RWAs) and Their Objections:The RWAs intervened, lamenting the lack of development work and basic amenities. They objected to the appointment of Additional Directors, arguing that they were former directors ousted for financial irregularities. They also expressed doubts about the credibility and sincerity of the appellant/shareholders in managing the company's affairs.5. Objections by Ministry of Corporate Affairs:The Ministry raised objections to the affidavit dated 03.01.2024, stating that no details were provided regarding the township projects, and no worthwhile plan was put forth for the development of essential infrastructure. They also pointed out discrepancies in the unsold inventory and lack of a concrete plan for fund infusion.6. Development Work and Responsibilities of the Municipal Corporation of Faridabad (MCF):The MCF expressed willingness to take over the developmental work of Greenfields Colony, provided that DTCP, Haryana issues a completion certificate. The MCF estimated the total remaining developmental works would require a capital expenditure of Rs. 99,78,13,966/-. A detailed proposal for the development work was submitted, including the construction of roads, drainage, parks, and community centers.7. Compliance with Legal and Statutory Requirements:The company was directed to comply with all laws and bye-laws of statutory authorities, including payment of taxes and other liabilities. The Court Commissioner was appointed to supervise the development work and ensure compliance with the Court's directions.8. Final Directions and Supervision by the Court Commissioner:The Court directed that UICPL would be under the exclusive control of the appellant/shareholders, who would manage its affairs and appoint a Board of Directors. The shareholders were to infuse Rs. 50 crores for development work, deposited in an escrow account. The MCF would carry out development work with funds raised by the company. The Court Commissioner would supervise the development work and monitor the utilization of funds, ensuring transparency and accountability.The matter was scheduled for compliance review on 15.05.2024, with provisions for monthly progress reports and meetings to address any issues arising during the development process.