TaxTMI 
TaxTMI 
2013 (5) TMI 1072
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....traction plant and is located in Bombay. GFMCL had two vanaspati manufacturing units, one in Delhi and the other in Kanpur, GFMCL has also one electrical plant and food products plant in Delhi. GFMCL was employing about 1000 employees in its factories and plants. It is stated that the affairs of the company were not being managed properly. GFMCL was managed by a Board of Directors (BoD) comprising the following persons: "1. Shri Satya Narain Gupta Chairman 2. Shri Bal Raj Director 3. Shri Om Prakash -do- 4. Shri S.N. Andley -do- 5. Shri Nur-ud-din Ahmed -do- 6. Shri Shiv Shankar Lal -do- 7. Shri Kirpa Narain Secretary-cum-General Manager" 3. Early in 1969 the Government of India ('GOI') carried out an inspection of the books of accounts and other papers of GFMCL under Section 209(A) of the Act. It was noted that GFMCL had started losing heavily on account of mismanagement and was compelled to borrow money at high rates of interest. The amount so borrowed was not used for the business of the company. It is alleged that Mr. Kirpa Narain, Secretary-cum-General Manager was allowed to maintain a perso....
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....ments by 24th March 1970. 6. On 20th October 1969 GFMCL rescinded the resolution of 12th April 1969 and appointed Armstrong Smith Limited ('ASL') and Shakti Trading Company Private Limited ('STCPL') as sales and purchase agents respectively and agreed to pay commission at the rate of 3/4% on all sales and purchase of its unit at Kanpur. The commission payable to WHBCL was restricted to purchase and sales of the vegetable ghee plant of GFMCL at Delhi. It is contended that all the agreements were approved at the Annual General Meeting ('AGM') of GFMCL held on 19th January 1970 but in violation of Section 173 of the Act since the explanatory memorandum did not disclose the financial effect and duration of the agreement. 7. With a view to paying of its debts, GFMCL proposed to issue second debentures of Rs. 95 lakhs and for that purpose made an application to the Controller of Capital Issues ('CCI') on 27th June 1969. Pursuant to an application made for that purpose, the permission to issue debentures to the value of Rs. 95 lakhs was granted by CCI stipulating that the proceeds of the issue shall not without the permission of the GOI be used for an object of expenditure other tha....
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....loan. It is stated that the financial position of GFMCL was very bad and it had not been depositing the contribution either of the employer or of the employee towards provident fund as well as the Employees State Insurance Corporation. The wages to the workers had also not been paid by GFMCL and there was an outstanding liability of Rs. 1,01,600 as on 31st December 1970. It was stated that GFMCL was not in a position to revive its operations. It was contended that the affairs of GFMCL were conducted in a manner oppressive to the members of the company and prejudicial to the public interest. The CLB prayed that it would be equitable for GFMCL to be wound up. The prayers in Co. Petition 45 of 1971 filed on 16th June 1971 were as follows: "(a) remove the present Board of Directors Respondents No.2 to 9 from the office of directors; (b) appoint Administrator or Administrators or persons on the Board of Directors or to pass appropriate order for the regulation of the conduct of the company's affairs in future; (c) termination of the agreements entered into between the company and respondents 10, 11 and 14 appointing them as purchase and selling agents on payme....
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.... Act, 1951 has directed the Industrial Reconstruction Corporation of India Limited to take over the industrial undertaking of the company. The learned counsel pray for time to study the implication and take whatever steps may be necessary in the matter. At the request of the counsel, to come up on 5th January, 1973." 14. The Central Government on 23rd November 1972 took the action under Section 18AA of the Industries (Development & Regulation), Act, 1951 ('IDRA') and appointed an authorized person to take over the management of GFMCL. For about ten years thereafter nothing much happened in the present petition. In 1981 WHBC and three other debenture holders moved to the Company Court contending that the petition had become infructuous. It was submitted by them that prayers (a) and (b), which were the only reliefs that could be granted under Sections 397 and 398 of the Act did not survive since the BoD had been superseded by the central government's notification dated 23rd November 1972. It was submitted that since prayers (c) to (f) could be granted under Section 402 of the Act only consequential upon prayers (a) and (b) being granted, those prayers did not survive either. 15....
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.... on 8th November 1971 and the cause for the eviction suit arose on 1st January 1972. 18. In its written statement in the suit, HOM stated that it was ready and willing to pay the arrears of rent and that it had remitted the cheque for payment of arrears of rent to the landlady but it was not accepted by her. The allegation of subletting was denied. The contention of the CLB is that the said written statement was filed without the instructions from the authorized person since by the order dated 3rd November 1972 the central government had taken over the management of GFMCL. In the said suit, WHBCL filed an application seeking impleadment. WHBCL also filed a reply in which it is stated that by an agreement dated 11th February 1970, HOM gave it on leave and licence basis, the right of use and occupation of the said premises on a monthly sum of Rs. 3,000 for a period of 33 months and that after the expiry of period it continued to pay a monthly compensation of Rs. 3,000. It was contended by WHBCL that the extended/exclusive occupation by WHBCL was confirmed by GFMCL by another agreement dated 24th May 1972, which was for a period of 22 months commencing from 1st April 1972. The said....
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....hed in the Official Gazette." 20. Section 3 of GFMCL Act, 1984 stated that on the appointed day, the Ganesh Flour Mills and the right, title and interest of the GFMCL in relation to Ganesh Flour Mills, shall stand transferred to, and shall vest in, the central government. Section 4 spoke of the general effect of vesting and to the extent relevant for the present purpose, Section 4 reads as under: "4. General effect of vesting - (1) The Ganesh Flour Mills shall be deemed to include all assets, rights, leaseholds, powers authorities and privileges, and all property moveable and immovable, including lands, buildings, workshops, stores, instruments machinery and equipment, cash balances, cash on hand, reserve funds, investments and book debts pertaining to the Ganesh Flour Mills and all other rights and interest in, or arising out of, such property as were immediately before the appointed day in the ownership, possession, power or control of the company in relation to the Ganesh Flour Mills, whether within or outside India, and all books of account registers and other documents of whatever nature relating thereto. (2) All properties as aforesaid which have vested i....
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....shall not abate, be discontinued or be, in any way, prejudicially affected by reason of the transfer of the Ganesh Flour Mills or of anything contained in this Act, but the suit, appeal or other proceeding may be continued, prosecuted or enforced by or against the Central Government or, where the Ganesh Flour Mills vest in a Government company under section 5, by or against the Government company." 21. Section 8(1) stated that on the appointed day, the general superintendence, direction, control and management of the affairs and business of the Ganesh Flour Mills shall vest in the government company specified in such direction by the central government under Section 5(1) and one or more custodians appointed by the central government under Section 5(2) of GFMCL Act, 1984. Section 14 related to the appointment of Commissioner of Payments for disbursing the amounts payable as per Section 7 to the company. Section 24 thereof stated that the provisions of the Act shall have overriding effect over any other enactment for the time being in force. 22. The government company referred to Section 5(1) was the Hindustan Vegetable Oil Corporation Limited ('HVOCL') which was formed on 23rd....
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.... Thereafter CA. No. 459 of 1984 was filed by the CLB seeking amendment of the petition. It sought to add the following prayers to the main petition: "(e) To restore to the Company the property situated at Reay Road, Mazagaon Dock, Bombay and any other properties diverted by the Morarka Group to themselves, and in the event the property is not returned or the Respondent company is deprived of the same for any reason whatsoever, to give such compensation to the company as this Hon'ble Court may determine, and to reimburse the Respondent company for a sum of Rs. 12 lakhs for its use and occupation. (f) Declare Debenture Trust Deed dated 20th May 1970 to be terminated on the ground that the same is void as no debentures were issued under the same." 26. CA No. 166 of 1987 was filed by WHBCL and Respondents 11, 12, 14 and 15 praying that the Company Petition No. 45 of 1971 had become infructuous and was liable to be dismissed as a result of GFMCL 1984 Act. 27. Disposing of the three applications the Company Court by a detailed order dated 19th September 1990 held that there cannot be any doubt that reliefs (a) and (b) of the petition had become infructuous by virt....
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.... Morarka Group was controlling the respondent No.1 company and is so, its effect?" 30. Affidavits by way of evidence were filed by the CLB as well as WHBCL. The record of the suit in Bombay was summoned by the Court. There have been numerous adjournments granted from time to time for nearly seventeen years thereafter with no effective hearings taking place. The effect of the pendency of the petition for nearly forty two years has rendered pointless the reliefs sought as will be discussed hereafter. 31. Ms. Maneesha Dhir, learned counsel for the CLB urged that the issues arising in the present petition particularly those concerning the property at Mazgaon Docks in Bombay survive for decision. According to her, the said property which belonged to GFMCL was worth several hundreds of crores and had been given away arbitrarily to WHBCL. That constituted an act of oppression and mismanagement and the Court should order the property to be restored to GFMCL. The said submission of Ms. Dhir was supported by Ms. Sonia Arora, learned counsel for the Administrator of HVOCL, Respondent No.16, to whom all the assets of GFMCL stood transferred. She submitted that in the event it was found t....
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....eements entered into by GFMCL with Respondents 10, 11 and 14. Here again Mr. Tikku has categorically stated that none of the said respondents have made or will hereafter make any claim against GFMCL under the said agreements. In any event after the coming into effect of the GFMCL Act, all such claims would have to be filed before the Commissioner of Payments. None has been filed till date. The fact that the agreements in question were approved at the general body meetings of GFMCL is not denied. For the purposes of Sections 397 and 398 of the Act, even if there is a finding that the said agreements are invalid and therefore constitute acts of oppression, the possible consequential reliefs under Section 402 of the Act would be the termination of the agreements, removal of the BoD and the appointment of a new management. The agreements have not been given effect to in the past forty-two years and will not hereafter be given effect to. No relief of refund of the monies paid under the agreements has been sought. The removal of the BoD and their replacement by the central government nominees has already happened way back in November 1972. From that date it is the central government whic....
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....o proceed. 36. To rectify the above position the CLB sought to incorporate by way of amendment to the narration of facts in the petition the an allegation that Morarka Group after capturing the control of GFMCL had manoeuvred to hand over the premises in Bombay to WHBCL and that the said transfer was unwarranted, illegal, fraudulent, coercive and ineffective. It was contended that the findings in that regard would take away the basis of the suit filed by the landlady and on that basis the CLB sought re-casting of prayers (e) and (f). Even while the Company Court, allowed the above amendments to the petition by its order dated 19th September 1990, it did not modify the earlier order passed on 18th May 1984. On the other hand it stated that "this Court is not concerned with the merits of the allegations sought to be added by amendment and thus the amendment sought cannot be rejected on that score." As a result the order dated 18th May 1984 to the extent it held that since the landlady had not sought eviction exclusively on the ground of subletting and that the suit in Bombay should be allowed to proceed has not been varied. 37. There are other factors that weigh with the Court ....