TaxTMI 
TaxTMI 
TaxTMI 
2009 (5) TMI 539
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....rs of the respondent-company consisted of the second respondent, his wife and daughter. The company was incorporated on 22-6-1974 and it was engaged principally in the manufacture of starch. The complaint was that the company had been systematically stripped off of its assets to tide over the losses occurring over 34 years. Dividend had not been declared even once. The factories, which were started in Bangalore and Mohali had both been closed. The property in Bangalore was sold first and the entire plant and machinery in Mohali have also been sold subse- quently. The only asset which is available is the land over which the business was being run at the Mohali and even that is sought to be sold by the second respondent by entering into a joint venture agreement with a third party for construction of a multiplex. 3. The audited annual statements track a downfall in the affairs of the company and the total assets of the company have been reduced by 94.27 per cent. There has been a complete lack of transparency in the approach of the second respondent and other respondents. The company having lost its substratum is being merely a shell company and liable to be wound up under section 4....
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....petition found no substance in the allegation that the second respondent was stripping off the assets of the company and found the action of the Pollution Control Board as sufficient justification for closure of the industrial operations. Even the sale of the land in Bangalore and the disposal of the plant and machinery done with the consent of the secured creditor, Punjab National Bank was found to be justified in view of the fact that the industrial operations could not have continued in the teeth of closure orders by the Pollution Control Board and especially when the proceeds of the sale had been utilised for discharge of loans. The Board found even the apprehension that the land at Mohali would be sold as baseless. The only protection, which the Company Law Board gave, under the circumstances, was to preserve the petitioners' right to secure full details of the joint venture agreement if the respondents finalised such an agreement by convening immediately the annual general meeting after the agreement was entered into. Noting that there had been irreconcilable differences amongst the members of the family, the Board directed the purchase of the minority interest either by the ....
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.... permission of the petitioner apart from other substantial groups of representatives of the company before any decision was made with regard to the joint venture agreement; (iv) the direction should have been issued under section 402(b) for purchase of shares of the petitioners at the market value than merely making it conditional upon a future contingency that in the event of sale, only the petitioners' share should be purchased; and (v) even if a direction of purchase of the shares was not feasible, the property itself ought to have been vivisected in proportion to which the petitioners held percentage of shares including the shares held by the proprietary firm of which the first petitioner was the proprietor. 8. Incidentally, it must be pointed out that the questions of law are sought to be raised with reference to 18,300 shares by the proprietary firm of which the first petitioner was alleged to be the owner. But, admittedly, there is a suit as regards the ownership of 18,300 equity shares before a civil court and hence, the point raised in that regard would not be required to be answered in this appeal. V. Uneventful performance of the company on all fronts : 9. Even at the....
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.... for closure by the Pollution Control Board. The need for sale of the plant and machinery at Mohali was the cessation of industrial activity and for discharge of debt to the Punjab National Bank by one-time settlement of Rs. 140 lakhs. The poor state of affairs in management is indeed conceded in one way or the other by the respondents by saying that there has been enough bad blood between the appellants and respondents by reference to several letters of complaints written by the petitioners to the Chairman, Punjab National Bank not to accept any one-time settlement proposals; the representation to the Secretary, Company Affairs and Chief Minister, Punjab, relating to the affairs of the company; representations to the President and RBI Governor to stop the company from availing of any one-time settlement facility and the attempt to stall the joint venture agreement, which the respondents had entered into for effective use of the land into another business. The decision through the annual general meeting had also been convened as per the directions of the Company Law Board and the collaboration agreement entered into by the company with M/s. Suncity Projects (P.) Ltd., New Delhi, wa....
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..... Cas. 5664 (SC). (10)Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743 (SC). (11)K. Muthuswami Gounder v. N. Palaniappa Gounder AIR 1998 SC 3118. 12. To paraphrase the points adverted to by the above decisions :- (i) the Company Court has power to take note of even subsequent events to give appropriate directions; (ii) the complete loss of substratum of the assets of the company could be sufficient ground for directing winding up of the company for just and reasonable cause as provided under section 433(f) of the Companies Act; (iii) where the company is run by the members of the family or between close friends and relatives, the partnership principles thereby applicable for dissolution of a partnership, shall equally apply for winding up of the affairs of the company; and (iv) the complete lack of transparency and systematic disposal of the assets of the company without involving the shareholders in the decision making would constitute oppression and mismanagement. VIII. JV agreement not transparent : 13. Having set out the legal propositions and finding that the affairs of the company have not been carried on to any pro....
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.... third party interest that has been created, the representation on behalf of the respondent was only that they did not wish to file any reply to the application. The document itself is not before the court. The respondents, on the other hand, have been evasive to disclose all the relevant details. Since the joint venture agreement has been entered into between the respondents and M/s. Suncity Projects on 3-12-2007, that is subsequent to the filing of the application before the Company Law Board, the respondents contend that the issue relating to the joint venture could not be taken up as a subject-matter of adjudication. This contention is without substance for the court has always the power to take into account all subsequent matters also and held to be so by judicial pronouncements, paraphrased supra. It means taking a decision with reference to the only vital asset of the company and involving the company in a large venture running into Rs. 100 crores, which is even beyond the value of its existing asset. IX. The viable options : 15. In the absence of the party before court who has entered into the joint venture agreement with the respondent-company, namely, M/s. Suncity Proje....
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....the shares of the appellants. Section 402(e) states that the power of the court under section 397 or 398 may provide for, inter alia, "the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned". Consequently, in view of the statutory mandate such modification in the joint venture agreement cannot be undertaken without notice to the third party-M/s. Suncity Projects (P.) Ltd., before finalising on the appropriate modification of terms, in the event of expression of their willingness to purchase the shares on due valuation made by an approved valuer. These processes cannot be undertaken by this Court in appeal. The prayer for appointment of an administrator would have meaning only if the petitioners were to be permitted to continue being members of the company and in view of the direction that their shares shall be sold in favour of either respondent Nos. 2 to 5 or the third ....