BEFORE THE COMPANY LAW BOARD,

                                                            PRINCIPAL BENCH

                                                                  NEW DELHI

CP No. 50/2000

Present: 1.Justice A.K. Banerji,Chairman

              2.Shri S. Balasubramanian, Vice Chairman

In the matter of Companies Act,1956 Section 397/398

                             AND

In the matter of Punjab State Industrial Development Corpn.Ltd.

Versus

                                     M/s Noor Papers Limited .

 

PETITIONERS

Punjab State Industrial Development Corpn.Ltd

 

RESPONDENTS

1.     M/s Noor Papers Limited

2.     S. Puran Singh Aulakh

 

Present on behalf of parties

 

1.     Shri Anil K. Aggarwal, Practising Company Secretary for petitioner

2.  None for the respondents.

 

O R D E R

                                      (Date of hearing 4.2.2002)

A.K. BANERJI

1.                  PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.(the petitioner in short) has filed this petition under section 397 and 398 of the Companies Act 1956 (the Act) alleging acts of oppression and mismanagement against the respondents and has prayed  for appropriate reliefs.

2.       Briefly stated, the petitioners case is that it is a wholly  owned State Government Undertaking of the Govt. of Punjab set up with the objective of promoting medium and large scale industries in the State of Punjab.  In the year 1992 S. Puran Singh Aulakh (respondent no.2 ) approached the petitioner for assistance in setting up an industrial unit for manufacturing of Semicraft and Absorbent Craft Papers.  Accordingly  M/s Noor Papers Ltd (respondent no.1) which was incorporated as a Private Limited Company was latter converted in a public limited company. A Memorandum of Understanding dated 15.7.1992 was executed between the petitioner and the respondent no.2 and subsequently on fulfillment of certain conditions by respondent no.2 a Financial Collaboration Agreement (FCA) was executed between the petitioner and the respondent on 21.8.1995. The present authorised share capital of the company is Rs.1250 lacs and the  subscribed and paid up capital of the company is Rs.586 lacs. As per the said FCA the shareholding of the petitioner in the respondent no.1 company was to the extent of 26% and that of the respondent N0.2  25%, rest of the shares were to be held by the public   In terms of clause 13 of the FCA the petitioner invested an amount of Rs.286 lacs in the share capital of the respondent company.  As per the schedule of implementation, the commercial production of the respondent company was to commence in the year 1997 - 98 and the primary responsibility was of the second respondent as the Managing Director of the company to take all necessary steps for timely implementation of the project.  Further in terms of the agreement the petitioner appointed three officers on the Board of Directors of the respondent company as its nominee directors which office they still continue to hold.  According to the petitioner the respondent company did not start its commercial production neither did it hold any meetings of the shareholders or the Board of Directors after the year 1994 .  The petitioner being 48.8% equity shareholder of the respondent company was entitled to receive general meeting notices as well as the copies of the balance sheet and annual returns.  The nominee directors of the petitioner were also entitled to receive the notices of the board meetings but it appears no such meetings were being held .  On an inspection made of the records kept in the office of the Registrar of Companies, Jullundhar it was found that no balance sheet or annual returns have been filed after the year 1994.  The letters written by the nominee directors of the petitioner are not being acknowledged and the petitioners have been deliberately kept in dark regarding the financial position and the state of affairs of the respondent company.  Consequently the petitioner has stated that the action on the part of the respondent of non filing of the documents and not holding of the general meeting of the shareholders as well as the board of directors is a serious offence under the Act that apart also reflects the mismanagement of the affairs of the respondent company.  The deliberate non delivery of the balance sheet and other documents to the petitioner who is a co-promoter of the company having invested 286 lacs in the share capital of the respondent company and keeping the petitioner in dark about the financial and other affairs of the respondent company is a gross oppression which calls for appropriate orders by this Board.  In terms of the FCA the respondent no.2 had undertaken a legal obligation to buy back the shares of the petition in the respondent company on the expiry of 7 years from the date of the said agreement .  This period was to expire on 20.8.2002.  Hence it will not be in the interest of the petitioner to wind up the company  though on the grounds of the acts of oppression and mismanagement stated above it may be just and equitable to wind up the company.

3.       On 10.9.2001 we issued notice to the respondents for putting appearance.  The respondent, however, did not appear on the date fixed hence on 3.10.2001 the following order was passed:  

                             "Inspite of notice of the hearing, none present on behalf of the respondents. heard on interim prayers.  Considering the facts and circumstances of the case, we permit the petitioner to take inspection of all the statutory records and accounts of the company from 1.4.1996 onwards.  The company should produce all the records sought for by the petitioner for inspection.  The petitioner is also at liberty to take photocopies of the documents inspected. The second respondent will convene a Board meeting of the company within 15 days with notice to the nominee directors of the petitioner and in this Board meeting, he will furnish full details of the functioning of the company.  "Petitioner to serve a copy of this order on the respondents forthwith .Reply to the petition to be filed by 10.11.2001 and rejoinder by 31.12.2001.  Petition will be heard on 4.2.2002 at 4.00 p.m,.Liberty to apply."

4.     Despite the copy of the order being sent by Regd. Post as well as under certificate of posting the respondents have not complied with the above noted order.  Neither had they appeared before us on 4.2.2002 when the petition was taken up for hearing.  Consequently we have heard Shri Anil K. Agarwal, Learned Practicing Company Secretary for the petitioner and have perused the averments made in the petition.

5.     Learned counsel for the petitioner has contended that the petitioner held 48.8% of the equity shares of the respondent company and a joint promoter with three nominees on the Board of Directors of the respondent company. Being a shareholder the petitioner was entitled to receive the notices of the General Meeting as well as the notices for the Board Meetings .  The petitioner was also entitled to receive the copies of the balance sheet and the annual reports .  The respondents are not sending these documents to the petitioner for the last  about  three  years. The  inspection   in   the  office office of the Registrar of Companies also discloses that after the year 1994, the respondent company has not filed its annual returns. It has also kept the respondents in dark about the financial position and the state of affairs of the respondent company.  The letters written by the petitioner to the respondent no.2 to convene the Board Meetings have been ignored.  Even the order dated 3.10.2001passed by this Board while hearing the interim matter in this petition have not been complied with by the respondents.  All these actions on the part of the respondents amount to gross oppression and mismanagement of the affairs of  the respondent company which has even failed to start its business. 

6.     We   have   considered   the     submissions   made  on   behalf    of

the  petitioner.  As noticed above, no     reply has been filed to   the averments  made   in  the  petition  nor   has  any  one  appeared  on

     behalf of the  respondents at the time of the hearing.Consequently                the averments made in the petition remain uncontroverted. We have also noted  that our order dated 3.10.2001  directing the company  to

    produce all the records sought for by the petitioner for   inspection   and   calling   upon   the  second    respondent to convene a  Board Meeting of the company within 15 days with notice to the nominee directors   of   the   petitioner   and   to   furnish   full  details  of the functioning of the company to the petitioner has not been complied with .    It   was   held   in   the  case  of   Hindustan   Cooperative Insurance Society   Limited (1961) 31  Com. Case 193 (Cal) that   where the shareholders were left completely   in   the dark  because         no annual general meeting was called, with no information regarding the manner in which the affairs of the company were being conducted,  while those who purported to act as directors dealt with the companies money in any fashion they liked and to the prejudicial interest of the company, it amounted to oppression  by them of the minority shareholders in the conduct of the affairs of the company.  Similarly in the case of Bhaji Rao G. Ghatke Vs Bombay Docking Co. (P) Ltd. (1984) 56 Com. Case 428 (Bom) it was held that non maintenance of statutory records and not conducting the affairs of the company in accordance with the Companies Act and where no meetings of the Board of Directors were being held and the petitioners who were directors but kept out of management, amounted to mismanagement of the company.  In the facts of the present case it has not been controverted that the respondent no.2 was the Managing Director of the respondent company and has been managing the affairs of the company without caring to involve the nominee directors of the petitioner or without calling a meeting of the Board of Directors despite requests, for more than three years and not complying with the statutory requirements of the Act by calling the annual general meeting and filing the annual returns.  We are consequently of the view that a case has been made out for allowing this petition. 

7.     The  reliefs sought  for   by the  petitioner   in the  petition  are  that

     the respondents be directed to hold general body meetings of the company as per provisions of the Act with due notice to the petitioner since 1997-98, that the respondents be directed to deliver audited Balance Sheets and Profit and Loss Account since 1997-98, that the respondents be directed to hold Board Meetings in accordance with law with due notices to the nominee directors of the petitioner, that the respondents be directed to file all due returns with the Registrar of Companies and direct the 2^nd respondent to buy back the shares of the petitioner in terms of the FCA.

 

               Is is on record that in spite of the directions contained in our order dated 3.10.2001 that the respondents should convene a Board Meeting of the company within 15 days, no action has been taken by the respondents.  Therefore, even though we have allowed the petition, yet, the grant of the above prayers would not put an end to the acts complained of as there is no certainty that the respondents would carry out the directions given in terms of the prayers.  Therefore, considering the fact that the petitioner holds 48.8% shares in the company and that it has 3 nominees on the Board, we grant full powers to the nominees of the petitioner to take control of the company and appoint a Chief Executive Officer -a Managing Director or a Whole time Director and to carry out a complete investigation to the affairs of the company and take whatever steps needed in accordance with law.  The decision of the nominee directors on all matters concerning the affairs of the company will be final notwithstanding any objection that may  be raised by the 2^nd respondent.

 

      With the above directions the petition is disposed of.

 

 

 

 

       (S. BALASUBRAMANIAN)                                       (A.K. BANERJI)

 

      New Delhi,

     Dated        February, 2002