Company Law Board
Shri Ved Kapoor And Shri K.P. Sethi vs Kalima Plastics (P) Ltd., Shri B.N. ... on 15 March, 2007
Equivalent citations: [2008]81SCL244(CLB)
ORDER
S. Balasubramanian, Chairman
1. The petitioners claiming to collectively hold 20% shares in M/S Kalima Plastics Limited have filed this petition alleging that the 2nd respondent being the MD of the company is guilty of leasing out various portions of the land belonging to the company without any authority and at terms unfavourable to the company and that he has parted with the plant and machinery of the company to a firm owned by his wife viz. the 3rd respondent and that he is guilty of siphoning of funds of the company and that he has not been maintaining proper books of accounts; of the company and has committed various acts in breach of his fiduciary duties. Thereafter, by further applications, they have also alleged that a part of the land of the company had been sold on terms unfavourable to the company and in breach of the interim orders by this Board. Consequently, they have sought for a declaration that the 2nd respondent is guilty of breach of his fiduciary duties in the company and as such he is not fit to hold the office of MD; for cancellation of the lease agreement entered into with lessees; for directions to the 2nd respondent to compensate the company for the loss caused due to his acts etc. They have also sought for cancellation of the sale of the property.
2. Shri U.K. Choudhary appearing for the petitioners submitted: The 2nd respondent is guilty of not only mismanagement of the affairs of the company but is also guilty of acting against the interests of the company. With the main object of grabbing the valuable land owned by the company, he had taken various steps. On 31.8.2005, without any authority, the 2nd respondent had entered into 4 lease agreements each with M/s Kalima Shoes, Terra Films, Hitkari Potteries and Hitkari Industries. M/s Kalima Shoes is owned by the 3rd respondent, the wife of the 2nd respondent. Earlier Kalima Shoes was doing job work for the company and therefore, it was allowed to use the land free of consideration. However, by the lease agreement, a tenanted status has been accorded on Kalima Shoes, that too by fixing the rental at Re 1 pear sft for an area of 8240 sq. yds as against the prevailing market rate of around Rs. 10.75 per sq. ft. The lease deed has been signed by the 2nd respondent and his wife for a period of 10 years on 31.8.2005. Thus, he has bestowed enormous benefit on his wife without proper consideration to the detriment of the company. On the same date, he also executed another lease deed in respect of a portion of the land admeasuring 411 sq. yds to M/S Terra Films (P) Ltd. at Rs. 27260 per month working out to approximately Rs. 7.50 per sq. ft. A third lease was entered into the same day with M/S Hitkari Potteries for a piece of land admeasuring 1287 sq. yds at the rate of Rs. 25286 per month working out to roughly Rs. 2/- per sq.ft. On the same day, he entered into fourth lease with Hitkari Industries Ltd. relating to 477 sq. yds at Rs. 4000/- per month working out to less than Re. 1/-per sq. ft. There is absolutely no explanation as to why different lease rental had been agreed to on the same day with different parties of portions of the same land. Further, the 2nd respondent had no authority to enter into such leases without the approval of the board. The 2nd respondent has claimed that by a board resolution dated 19.7.2002, the 2nd respondent had been authorized to execute and register lease deeds in respect of the property of the company. (Annexure -G). No such board meeting took place on 19.7.2002 as is evident from the fact that two out of the three directors have intimated that no board meeting took place on 19.7.2002 (Annexure -F). Therefore, not only the 2nd respondent had no authority to enter into the lease agreements, he also could not have leased out the lands at less than the market rates. Therefore, all the lease agreement should be cancelled.
3. The learned Counsel further submitted: The only business of the company was to manufacture shoes. Kalima Shoes owned by the 3rd respondent was only a job worker for the company. However, over a period of time, the 2nd respondent had transferred the entire business to Kalima Shoes as is evident from the fact that while the turnover of the company was about Rs. 7.5 lacs in 2001-2002, it came down to Rs. 5.1 lacs in 2002-2003 and became nil in the year 2003-2004. Hiving of the entire business of the company to his own wife is not only oppressive to the petitioners but also against the fiduciary responsibilities of the 2nd respondent. Out of the rental income of the company, notwithstanding the fact that during 2003-2004, the company had no business, yet, by inflating expenses on salary, postage etc. the 2nd respondent has shown a loss of Rs. 2.41 lacs as against the rental income of Rs. 5.2 lacs in 2003-2004.
4. The learned Counsel further submitted: The 2nd respondent is also guilty of manipulating the shareholding in the company. As per the annual return as on 29.6.1977 (Annexure S-1), the 2nd respondent held only 600 shares. However, by showing certain shares from other shareholders, the annual return as on 30.9.1997, he has shown his shareholding as 690 shares. There is no explanation as to how his shareholding increased by 90 shares as none of the shareholders had executed any transfer instrument transferring the shares.
5. Dealing with the sale of land, the learned Counsel submitted: When the petition was mentioned, apprehending that the respondents were likely dispose of the land of the company, the petitioners sought for protection. Accordingly, this Board had passed an order that neither of the parties would enter into any lease relating to any portion of the land of the company. Thereafter, when the petitioners came to know of the intention of the company to sell 6000 sq. yds of land, they filed CA 67 of 2006 seeking for restraining the company from alienating any portion of the land. On mentioning of this application, this Board passed an order on 27.2.2006 "Heard on the application. Any decision to dispose of the land shall be through a board resolution in a meeting to which notice by registered post to the petitioners should be given. Any decision to dispose of the land should be placed before this Bench". Thereafter, the petitioners filed an application CA 139 of 2006 alleging that in a board meeting held on 23.4.2006, the company had decided to sell a part of the land of the company without notice to the petitioners and as such a restraint order should be passed against the company/directors. On mentioning of this application, this Board passed an order on 9.5.2006 "Application mentioned. The company will try to get the best price for the land and will comply with the directions in the order dated 27.2.06". By a letter dated 17.5.2006, the 2nd respondent informed the petitioners that an advertisement approved by the board in its meeting held on 23.4.2006 for sale of the land was published in Tribune, Chandigarh Edition on 2.5.2006 However, no copy of the advertisement was enclosed with the letter even though so mentioned. On 19.5.2006, the 1st petitioner received a letter from the 2nd respondent convening a meeting on 25.5.2006 to consider offers received by the company for sale of the land. Since this letter did not contain any details, by a letter dated 19.5.2006, the 1st petitioner requested the 2nd respondent to furnish the full details of the offers received. In the same letter, he had also asked for a new date for the board meeting. However, on 25.5.2006 at 2.00PM, the 1st petitioner received a letter dated 23.5.2006 from the 2nd respondent stating that the offer would be opened before the board and that if the petitioner had any offer, he should come with a draft for Rs. 25 lacs. Since the board meeting was at 1.00 PM on 25.5.2006, by the time the letter was received by the petitioner at 2.00 PM, the board meeting had been concluded. In the process, the petitioners were not in a position to participate in the meeting with a higher offer. In the meanwhile, against the orders of this Board dated 27.2.2006 and 9.5.2006 the petitioners filed an appeal before the High Court. The High Court disposed of the appeal on 26.5.2006 in the following terms "Learned Counsel for the respondent company admits that any decision taken by the board to dispose of land, in terms of the said order, will be placed before the Company Law Board. It is open to the petitioner to give offer before the Company Law Board. The Company Law Board will decide whether the offer given by the appellant should be considered or accepted". Since the High Court had given the liberty to the petitioners to make an offer before this Board, by an application dated 13.6.2006, the petitioners offered to purchase the land at Rs. 5300/- per sq. yd. However, inadvertently instead of 'yards' it had been typed as 'meter'. By an application dated 21.7.2006, the mistake was corrected. In reply to the application, the respondents had stated that the land had already been sold and a sum of Rs. 1 crore has been received and paid to the bank. From the reply to the application, it is seen that only 3 offers had been received -one for Rs. 4600 per sq. yd , another one for Rs. 4450 per sq. yd and the third one for Rs. 5000 per sq. yd. The company accepted the offer for Rs. 5000/- and concluded the transaction on the same day notwithstanding the fact that in terms of the order of the High Court, the decision of the board should have been placed before this Bench to enable the petitioner to make a higher offer. As a matter of fact, the petitioner offered Rs. 5300/-per sq. mtr. which was increased to Rs. 5800/- per sq. yds thereafter. M/S Royal Estate whose offer was accepted by the company is a bogus one as letters sent by the petitioners to the address given in the offer have been returned and even on personal visit it was seen that no such addressee was available. The entire sale suffers from non compliance of the order of the CLB as well as the High Court and also a sham transaction. Two of the three bidders, by not enclosing drafts for Rs. 25 lacs as stipulated in the advertisement, disqualified themselves and the sale has been effected in favour of a non existent entity. This would show that the buyer is none other than a benami of the 2nd respondent. The justification given by the company for the sale is that to fulfill the obligation in terms of the OTS, the property had to be sold. From the correspondence of the bank, it is clear that the company had time up to January, 2007 to clear the bank liability to avail the OTS but the sale was effected hurriedly only to favour the benami of the 2nd respondent that too at a rate much lower than what was offered by the petitioners. Therefore, the sale should be cancelled and either the petitioner should be allowed to purchase the property at Rs. 5800/- per sq. yds or the sale should be effected through a public notice.
6. Shri Katpalia, Advocate, appearing for the respondents submitted: In the sale of land, neither the company nor the respondents have violated the order of this Board dated 27.2.2006. In terms of that order, no prior approval of this Bench was necessary as is evident from the fact that even though in the order originally it was written "should be placed before this Bench for approval", the Bench itself had struck of the words "for approval" as the respondents had submitted that the bank loans had to be cleared quickly to get the benefit under the OTS and getting approval etc would take time. Since this Bench had directed that the company should try to get the best price for the land by its order dated 9.5.2006, an advertisement was released in the Tribune, Chandigarh and offers were invited and the company has chosen the best offer. The contention of the petitioners that before accepting the offer, the matter should have been placed before this Bench in terms of order dated 27.2.2006 is not correct. In the appeal filed by the petitioners against the order of this Bench dated 9.5.2006, the ground taken by the petitioners was that in view of the order dated 27.2.2006, the respondents would be at liberty to take decision for disposing of the land as per their sweet will and choice. This averment itself would indicate that even the petitioners were aware that once the company accepted the best price, it has to only inform the Board of its decision and did not require prior approval of this Board. It is not a case wherein the company had kept the petitioners in dark about the sale nor it is a case wherein the company was not in need of funds. The company had a debt of over Rs. 9 crores and the property had been mortgaged with State Bank of Patiala which had initiated recovery proceedings before DRT. SBP had also initiated proceedings under Securitization Act for sale of the immovable property of the company. In terms of the one time settlement scheme of RBI, the company could save a lot of money by payment of Rs. 1.04 crores as against outstanding liability of Rs. 9 crores. By a letter dated 11.10.2005 (Annexure -L), the bank had indicated that under OTS scheme, the company could avail of the concessions up to 31.3.2006. By a letter dated 25.10.2005 while informing all the shareholders of the huge liability of the company of Rs. 8.89 crores to the bank which could be reduced to Rs. 1.1 crores under OTS scheme, they were also requested to make prorata contribution for making this payment of Rs. 1.1 crores. But there was no response from the shareholders. By a letter dated 7.3.2006 (Annexure R), the bank had advised the company that if the amount as per the OTS was not paid by 30.6.2006, the OTS would stand cancelled. Again by another letter dated 31st March, 2006, the bank reiterated the same position. Since this Bench had directed the company to accept the best offer, a board meeting was convened on 23.4.2006 to consider the sale of land to clear the bank liability. The 1st petitioner did not attend this meeting in spite of notice. Instead, he sent a letter making various allegations and suggesting that 2000 sq. yds of unencumbered land could be sold for Rs. 2 crores to pay of all the liabilities of the company. To ensure that the company could get the best price, an advertisement was issued in Tribune, Chandigarh which has largest circulation in Himachal Pradesh, Punjab and Haryana on 2.5.2006. On 17.5.2006, a notice for board meeting on 25.5.2006 was given to the petitioner along with agenda. The petitioner wanted postponement of the said meeting but on 24.5.2006, but at the same time he filed the appeal against the order of this Bench dated 9.5.2006 on 23.5.2006. However, the company had already accepted the offer of M/S Royal Estate on 25.5:2006 itself. Rs. 5000/- per sq. yd is the highest in the area even as of date. In CA 200 of 2006 filed by the petitioners on 13.6.2006, the petitioners offered Rs. 5300/- per sq. mtr which works out to only Rs. 4700/- per sq. yd. that too with certain conditions. This offer should have been made in the board meeting on 25.5.2006 and the offer made in the application did not meet with the requirements of depositing a draft for Rs. 25 lacs along with the offer. Since time was of essence, the petitioner should have given the offer on time. Even though the petitioners had subsequently modified the offer to Rs. 5300/- per sq. yd, yet, the same cannot be accepted as the sale had already been effected. Even assuming thatRs.5300/- per sq. yd. is the right price, the total amount of difference is only Rs. 18 lacs. Now that equities have changed, the question of considering the offer of the petitioners does not arise.
7. In so far as the allegation relating to transfer of shares is concerned, the learned Counsel submitted: It is to be noted that there is no allegation regarding transfer of shares in the petition. Only in the rejoinder, this allegation has been raised. All these transfers took place in the years 1977, 1985 and 1997 and none of the shares of the petitioners is involved in these transfers. The transferors of these shares have not complained. Further, the 1st petitioner has signed the annual return as on 30.9.1999 disclosing the shareholding after the impugned transfers. Further, the parties had entered into an MOU on 16.8.2005 (Annexure -J) wherein the existing shareholdings have been indicated. Thus, the entire allegation regarding the transfer of shares is baseless and is an after thought.
8. In regard to the allegations made in the petition, the learned Counsel submitted: The petition is a motivated one with false and baseless allegations. Whatever has been alleged in the petition took place during| the period when the 1st petitioner was in the management of the affairs of the company. He had been on the board of the company right from 1968 and even though the 2nd respondent has been designated as the MD, everything was done at the behest of the 1st petitioner. There are two main allegations in the petition -one relating to siphoning of funds and transfer of business of the company to Kalima Shoes and the second is in relation to leasing of land of the company. In so far as the allegation relating to transfer of business of the company to Kalima Shoes is concerned, it is a bald allegation. Kalima Shoes was operating from the premises given to it right from 1998-1999 with the consent and knowledge of the 1st petitioner and as such he was fully aware of the activities and business of M/S Kalima Shoes. As a matter of fact, since M/S Hitkari Industries in which the 1st petitioner was in the management, M/S Kalima Shoes was asked to share the security expenses. Hitkari Industries and Kalima Shoes have been having a common auditor. As a matter of fact, the 1st petitioner was also in the knowledge that M/S Kalima Shoes has leased out the land free of any rental.
9. In so far as the allegation that the business of the company has been transferred to Kalima Shoes is concerned, the same is an unfounded allegation. Over a period of time, the business of the company has come down and had actually become a defunct company. It is important to note that till the filing of the petition, the petitioners never complained that the 2nd respondent had diverted the business of the company to Kalima Shoes either orally or in writing. The only income of the company has for a long period been the rental income. The petitioners have alleged that even though there was no business in the company, 2nd respondent has been siphoning of funds of the company by showing fictitious expenses. The expenses incurred were mainly towards cost of litigation pending before DERT, to look after and manage immovable assets of the company and other incidental expenses. Therefore, the allegations of the petitioners that the business of the company has been diverted to Kalima Shoes or that the 2nd respondent has siphoned of the funds of the company are baseless.
10.In regard to leasing out of portions of land of the company, the learned Counsel submitted: The allegation in this regard are two fold that the 2nd respondent had no authority to lease the land of the company and that low lease rentals have been fixed. As far as the authority is concerned, authority to the 2nd respondent was given in a board resolution dated 19-7-2002. The petitioners have alleged that no such resolution was passed and they have relied on the letter of Shri B.K. Soni who was a director to state that he could not recollect passing of such a resolution. It is to be noted that at no point of time the petitioners had questioned the authority of the 2nd respondent to execute the lease deed on behalf of the company. Even otherwise, in a board meeting held on 24.3.2006, the Board had unanimously ratified the action of the 2nd respondent in leasing out the portions of the land of the company. Shri B.K. Soni was also present in that meeting. Therefore, the petitioners cannot challenge the authority of the 2nd respondent in executing the lease deeds on behalf the company.
11. The petitioners have challenged the leases entered into with M/S Kalima Shoes, Terrif Films, Hitkari Potteries and Hitkari Industries. The lease deeds were entered into 31.8.2005. The leases in favour of the last three entities were not new leases. When the 1st petitioner was in control of affairs of Hitkari Group of companies and also the respondent company, he had created leases in favour of these entities. On expiry of the existing leases, the 2nd respondent entered into further leases on 31.8.2005, on the rentals fixed exactly as had been done by the petitioners a few months earlier during their tenure of management. Therefore the petitioners could have no objection in respect of these leases. In so far as the lease in favour of Kalima Shoes is concerned, from 1998 till 2005, without any written agreement, Kalima Shoes was in occupation of certain portion of the land without payment of any rent. This was in the knowledge of the 1st petitioner. By entering into lease on 31.8.2005, the company had protected its interests. The petitioners have alleged that a very low rent of Rs. 1/- per sq. ft. has been fixed in respect of the lease with Kalima Shoes. The rent fixed for Kalima Shoes cannot be equated with that of Terra Films as the rent for Kalima Shoes is in respect of the land only wherein it has constructed a shed, while for Terra Films, the rent is in respect of a newly built building also. In other words, the premises are not similar and secondly the petitioners themselves had fixed differential rentals in the past.
12. The learned Counsel relied on the following cases in support of his arguments: Kishan Khariwal v. Ganganagar Industries Ltd. 118 CC 626 wherein the sale of a land had been impugned, the CLB held that when the majority of the shareholders had approved the sale, the petitioner could not complain. In the present case, in the board meeting held on 25.5.2006 wherein the sale of the land was approved, the directors present in that meeting represented shareholders holding 80% shares in the company. Dr. V. Sebastian v. City Hospital Private Limited 57 CC 453 Ker.) The affairs of the company should ordinarily be allowed to be carried in accordance with the wishes of the majority of its members. In the present case, the directors representing shareholders holding 80% shares approved the sale of the land. Jaladhar Chakraborty and Ors. v. Power Tools and Appliances Co. Ltd. and Ors. 79 CC 505 Cal: A single act cannot constitute oppression. In the present case, the only substantive allegation relates to sale of land which has the approval of majority shareholders.
13. In the rejoinder, Shri Choudhary submitted: The entire process of sale of land is bogus. Even though the advertisement in the Tribune was given in Chandigarh Edition, there was not a single offer from any one either from Punjab or from Himachal Pradesh where the land is located Two bids had been received from Delhi and one from Haryana. ONE bid is dated 12.5.2006 and another 13.5.2006- both are obviously procured ones. M/S Royal Estates, the offer of which was accepted, did not have its own address. The respondents have produced a letter from the lawyer stating that for correspondence purposes, M/S Royal Estates has been using his address. It is inconceivable that an entity which is prepared to pay a sum of Rs. 3 crores for the land, does not have its own address. This would clearly show that M/S Royal Estates is nothing but a benami of the respondents. The hurried manner in which the transaction has been included in the guise of availing the OTS is not justified. By a letter dated 30.1.2006, the bank has given one year time to pay the amount as sought for by the company. By another letter dated 7th March, 2006, the bank had advised the company to make at least a part payment before 30.6.2006. Therefore, there was no need for the respondents to have finalized the deal on 25.5.2006 without placing the matter before this Board. Further, if at all the company needed funds, the respondents should have identified and sold unencumbered land and not the present land which is an encumbered one, due to which the company could not get the best price. In so far as leasing of land to Kalima Shoes is concerned, it is true that no rent was being charged earlier because it was only a job worker for the company. Now that Kalima Shoes is doing business on its own, market rent should have been charged instead of leasing out at the rate of Rs. 1 per sq. ft. This has been done only because it is owned by the wife of the 2nd respondent. In so far as non attendance of the 1st petitioner in the board meeting on 25.5.2006 is concerned, he could not attend the meeting as the appeal filed by the petitioner was coming up for hearing in High Court on 24.5.2006.
14. I have considered the pleadings and arguments of the counsel. The main allegations of the petitioners in the petition are that the business of the company has been diverted to Kalima Shoes, a portion of the land has been leased to Kalima Shoes at an extremely low rental, the 2nd respondent is guilty of siphoning of funds etc. In the rejoinder, the petitioners have alleged that the 2nd respondent has illegally transferred 90 shares to himself. In subsequent applications, they have made various allegations regarding to the sale of 6000 sq. yds. of the land of the company. In so far as the allegations relating to transfer of the business of the company to Kalima Shoes is concerned, I find that there are contradictions in the stand of the petitioners. From the petition it appears that the allegation of the petitioners related to recent transfer of business. However, in the rejoinder, they have admitted that the company had ceased to be doing any business and the transfer of business of the company took place before the year 2000. If it is so, the petitioners cannot make any allegation in this regard after expiry of over 5 years. Therefore, I do not find any merit in the allegation of diversion of business of the company to Kalima Shoes. Similar is the position in regard to the allegation against the 2nd respondent that he has siphoned of the funds of the company as the nature of expenditure incurred have been explained by the 2nd respondent in his reply.
15.In so far as leasing out of a portion of the land to Kalima shoes is concerned, there appears to be some justification in the allegation of the petitioners that a low rental of Rs. l /- per sq. ft. has been fixed only because the Kalima Shoes belongs to the wife of the 2nd respondent. Even though the respondents have contended that earlier Kalima Shoes was occupying the land without payment of any rent and by charging some rent now, they have protected the interest of the company, I find that on the same day i.e. on 31.8.2005, 4 lease agreements were entered into with differential rates of rent. While the rentals could be different, in view of the structure of the building, location etc., yet, when they are charging over Rs. 10 per sft for Terra Films, charging of such a low rent of Rs. 1/- per sq. ft. for Kalima, Shoes is not justified at all. Likewise the rental charged for Hitkari Industries also appears to be too low. Therefore, I direct the board of directors of the company to fix the rentals for all these leases on a realistic basis, after getting the same assessed by an independent valuer. It was contended by the learned Counsel for the respondents that without these entities being parties to the proceedings, no order can be passed against them. I find that all these entities are in one way or the other connected with the directors of the company and therefore, non impleadment of these entities is of no consequence. Proper rent should be fixed within a period of 3 months with prospective effect. The petitioners have further alleged that the 2nd respondent had no authority to enter into any lease agreement and the board resolution relied on by him authorizing him to enter into lease agreements is a fabricated one. Considering the fact that in a board meeting held on 24.3.2005 the board has unanimously rectified the action of the 2nd respondent entering into the lease agreement on 31.8.2005, the issue whether the resolution dated 19.7.2002 is fabricated or not becomes irrelevant.
16. In so far as the transfer of 90 shares is concerned, it is not the case of the petitioners that any of the shares held by them had been transferred. Since none of the transferors of the impugned shares has questioned the factum of transfer and since the percentage holding of the petitioners of 20% as claimed by them in the petition has not in any way been affected, the petitioners cannot impugn the transfers that too when the transfers had taken place way back in 1977,1985 and 1997.
17. The substantive allegation is relates to the sale of 6000 sq. yds of land. It is on record and the petitioners were aware that there was a loan outstanding of about Rs. 9 crores and the bank had initiated proceedings before DRT as well as under the Securitization Act. It is also on record that by availing the OTS, the company could save substantial amount. Further, it is also on record that the respondents had taken up with all the shareholders asking them to contribute towards payment to the bank. Thus, the need for funds to the company has been fully established. Even the petitioners concede that a portion of the land had to be sold but according them instead of selling a part of the land which has encumbrance, a portion of the land without encumbrance could have been sold so that the company could get a higher consideration. Once the need for the sale a portion of the land is established, it is for the board of directors to decide which portion of the land is to be sold. I find from the minutes of the Board meeting on 23.4.2006, that the matter had been discussed extensively and the Board decided to sell the impugned portion of the land.
18. Right from the beginning, the petitioners have been expressing their apprehension that the land might be sold at a lower rate to one of the respondents either directly or indirectly. Therefore, to ensure that there was transparency in sale of the land, I passed an order on 27.2.2006 that any decision to dispose of the land shall be through a board resolution in a meeting to which notice by registered post to the petitioners should be given. For considering the sale of the impugned land in a board meeting convened on 23.4.2006, the company issued a notice to the 1st petitioner, who, while seeking leave of absence, raised various objections on the agenda items including the one relating to sale of land. From the minutes of the meeting held on 23.4.2006, I find that the board decided to sell the impugned land after considering the various objections raised by the 1st petitioner in his letter dated 21.4.2006. On 1.5.2006, the petitioners filed CA 139 of 2006 seeking for restraining the company from selling the land. On mentioning of the application on 5.2.2006, I directed the company to try to get the best price for the land. The company had published an advertisement in the Tribune, Chandigarh on 2.5.2006 inviting offers. For the meeting convened on 25.5.2006, the company sent a notice to the 1st petitioner who sought for adjournment of the meeting. The company also issued a fax on 23rd May, 2006 expressing its inability to defer the board meeting and advising the 1st petitioner to bring offer, if any, for the land with a draft for Rs. 25 lacs. Instead of attending and making an offer in the meeting as suggested by the company, he filed an appeal before the High Court. From the sequence of events, it is clear that in regard to the sale of land, every thing had been done in a transparent manner including giving an opportunity to the 1st petitioner to place his offer before the board.
19. The petitioners have alleged that the sale of land has been made to a non entity meaning thereby that the land has been sold to a benami of the respondents. They have also alleged that no offer has been received from anyone in Punjab and Himachal Pradesh. As long as the factum of release of the advertisement is established, no one can complain that enough offers had not been received. It is to be noted that the apprehension of the petitioners has been that the land was likely to be sold at a low price. When the 1st petitioner has offer to purchase the land for himself at Rs. 5300/- per sq. mtr.(yards), he cannot demand/contend that the respondents should not purchase the land for themselves, as long as the right price is paid. Now Any way, I note and record the submissions of the learned Counsel for the respondents, that none of the respondents is connected with M/S Royal Estates.
20. The petitioners have alleged that when the Bank had given time of one year, there was no urgency in selling the land hurriedly. I find that even though the bank had given time for one year, it had also stipulated in the same letter that if the full amount was not paid before 30th June 2006, the balance amount would attract interest. When there was an admitted liability which could be reduced substantially by availing of the OTS, it is for the Board of the company to decide the timing of availing of the same and no shareholder can claim that the company should have waited till the last date.
21. The next issue is relating to the interpretation of the order of this Board dated 27.2.2006 and the claim of the petitioners that in view of the order of the High Court, their offer being higher, the company should accept the same. The order dated 27.2.2006 reads "Any decision to dispose of the land shall be through a board resolution in a meeting to which notice by registered post to the petitioners should be given. Any decision to dispose of the land should be placed before this Bench ". The contention of the petitioners is that without placing the decision and get the approval of this Board, the respondents could not have sold the land. It is on record as is seen from the order sheet as on 27.2.2006, even though the words "for approval" had been originally written, the same was struck of by me. It is to be noted that originally I had recorded "Any proposal to dispose of the land should be placed before this Board for approval." The word "proposal" was struck off and the word "decision" was written and likewise, the words " for approval" were struck off. The substitution of the word "decision" for "proposal" and deletion of the words " for approval" would indicate that the decision has been left to the board of directors but the decision taken should be placed before this Board. As a matter of fact, in the appeal before the High Court, the petitioners themselves had construed this order as one which had given the full liberty to the board of directors to take a decision without any approval by this Board. Under the circumstances, the only issue that I have to consider is whether in view of the High Court order giving the liberty to the petitioners to place their offer before this Board, their offer should be considered. Neither of the sides has clarified whether, the fact that the company had already accepted the offer of M/S Royal Estates on 25.5.2006 itself, was informed to the High Court when it passed the order on 26.5.2006. If the High Court had been informed, it would not have given the liberty to the petitioners to make an offer before this Board. If this fact had been suppressed before the High Court, the proper course of action for the petitioners was to have approached the High Court. Further, even though the High Court had given the liberty to the petitioners on 26.5.2006, the petitioners made an offer before this Board only on 27.6.2006, by which time, the company which had accepted the offer of Royal Estate on 25.5.2006, had also received 1/3rd of the consideration and cleared the bank loan and thus had availed the OTS. The petitioners have not explained the delay, in making the offer before this Board. Further, in their application offering to purchase the land, they had, quoted Rs. 5300 per sq.mtr, working out to only Rs. 4800 per sq.yd, which was less that the price offered by Royal Estate. Even if the rectified offer of Rs. 5300 per Sq. yd were to be taken into consideration, the total difference works out to Rs. 18 lakhs only, thus belying the contention of the petitioners, that the respondents were attempting to sell the land at a low price. My orders were not with the view to facilitate either the petitioners or the respondents to benefit from the sale of the land, but with the view to ensure transparency and to ensure that the company got the best price. Therefore, if at all the petitioners have any grievance, it could be that the company had accepted an offer which was lower by Rs. 18 lakhs and nothing more, especially in view of the fact that the petitioners have not produced any evidence that the land could have fetched more than even the price quoted by them. Additionally, while seeking for cancellation of the sale, the petitioners have not impleaded M/s Royal Estate. Thus in respect of the sale of the impugned sale also, the petitioners have not made any case to grant the relief sought for.
22. Thus, on an over all appreciation of the case, I find that the petitioners have failed to establish any of the allegations. However, I note that the petitioners have a long association with the company and therefore, it is essential that in case of all future sale of land or leasing of properties of the company, every such proposal is placed before the general body for approval after giving due notices to all the shareholders giving full details of the proposals so that there is complete transparency.
23. Conscious of the fact that there is complete loss of mutual trust and confidence among the parties and that their relationship cannot continue for long, I also give option to the petitioners, if they so desire, to go out of the company on receipt of consideration for their shares on a fair value determined by an independent valuer. In case, they desire to choose this option, they may file an application seeking for appointment of an independent valuer.
24. The petition is disposed of in the above terms.