C.P.No.47 of 2000

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

2. Shri S.Balasubramanian, Vice Chairman

In the matter of Companies Act 1956-Section 408

AND

In the mater of Central Government

Versus

M/S Urban Improvement Company Private Limited

Present on behalf of parties:

1. Shri Jagdish Singh .. Vice Pres. Green Field Plot Holders Assn.

2. Shri T.R. SalujA .. –do-

3. Sh.Parveen Kumar .. Fin.Controller of Urban Improvement

4. Sh.Desh Raj , Advocate .. Green Field Plot Holders Assn.

5. Ms. Ramni Taneja, Adv. .. for Mrs.Aruna Jagtiani and

6. Shri A.K. Agarwal,Adv. .. Mrs. Nirmala Patwardhan

& Sh.Saket Bawgona,Adv

7. Sh.S.P. Dixit, Jt.Director .. from Deptt.of Co.Affairs

8. Mrs. Usha Nigam, Dir. .. –do-

9. Ms. Ruby Singh, Adv. .. for Prakash Dialdas

O R D E R

(Date of final hearing: 4.5.2001)

S. BALASUBRAMANIAN:

1. The Central Government has filed this Reference in terms of Section 408 of the Companies Act, 1956 (the Act) for appointment of 5 Government Directors on the Board of M/S Urban Improvement Company Private Limited ( the company).

2. Originally the company was incorporated in the year 1953 with the primary object of developing residential colonies. Presently it is only the Green Fields Colony which is under promotion by this company. The paid up capital of the company is Rs.5 lacs comprising of 500 shares of Rs.1000/- each. There were 9 shareholders out of which 3 shareholders holding nearly 95% of the shares are no longer alive and the entitlement to the shares of these deceased is in litigation. Sometime in the year 1976, due to various acts of financial mismanagement and alleged siphoning of funds, the then Board of Directors of the company was superceded and the erstwhile Company Law Board had appointed Government Directors for a period of 3 years. From that time onwards, both the erstwhile Company Law Board and the present Company Law Board has been appointing Government Directors on successive references received from the Central Government in terms of Section 408 of the Act. The currency of the period of appointment of the last Board appointed by the Central Government in terms of the order of this Bench expired on 21.6.2000.

3. In the order of this Bench dated 4.12.1997, this Bench had observed “We had on an earlier reference from the Central Government in respect of this company under Section 408 of the Act passed an order on 9^th March, 1995, directing the Central Government to appoint 5 directors on the Board of the company for various reasons stated in that order. Since there has been no change in the ground on which the said order was passed, we do not propose to repeat the same in this order. One additional fact that has come before us now, which is extremely relevant for us to consider in passing this order, is that out of the 9 shareholders, 3 shareholders holding 486 shares out of 500 shares issued by the company, are no longer alive and that certain inheritance proceedings have been initiated in respect of the property of these persons including the shares in the company. In other words, there is none to represent, at this point of time, the shareholders who hold more than 95% shares in the company. This additional ground that there is none to represent majority shareholders has also been taken by us into consideration while passing this order”. This position still continues except that during the hearings, 2 of the shareholders, namely, Ms. Nirmla Patwardhan holding 2 shares and Shri Prakash Dialdas holding 2 shares were represented. The counsel appearing for these shareholders also confirmed that certain proceedings are going on in relation to the inheritance of shares held by the deceased shareholders. They have expressed their willingness to the continuation of Government directors except that Shri Prakash Dialdas expressed his desire to be inducted as a director on the Board of the company to represent the shareholders of the company.

4. The Green Field Plot Holder Association has pointed out that even though two of its representatives were on the Board earlier, now, the Central Government has not appointed any one from the Association and as such has sought for proper representation for the Association in the Board.

5. In the order dated 4^th December, 1997, this Bench had suggested that the Board of Directors and the Central Government should examine the feasibility of broad basing the shareholding in the company. It appears from the report of the erstwhile Chairman of the company that as per the legal opinion obtained by the company, various legal steps have to be taken to broad base the shareholding and as such it has not been possible to do so.

6. Considering the fact that the shareholders have no objection in the appointment of Government Directors and that it is essential to have a functional Board to carry on the affairs of the company with a view to implement the project without any hindrance, in exercise of our powers under Section 408 of the Act, we direct the Central Government to appoint 5 directors on the Board of the company for a period of 3 years effective from 22.6.2000 ( By interim orders we have already directed the company to appoint Government directors up to 21.6.2001 ). Of the 5 directors, two shall be the representatives of the Plot Holders of which at least one shall be a nominee of the Green Field Plot Holders Association. However, even though one of the shareholders had desired to be appointed as a director, for the time being we are not considering his request except that the Board of Directors are at liberty to invite Shri Prakash Dialdas, a shareholder to the Board Meetings of the company. However, he will not have any voting rights. We also stipulate that the Board of Directors should make efforts to broad base the shareholding of the company in terms of the legal opinion already obtained by the company.

7. Before we part with this order, we would like to record that when this Reference was mentioned by the Central Government on 2.6.2000, considering the fact that the period of the earlier order of this Bench dated 4^th December, 1997 was expiring on 21.6.2000, this Bench passed an order on 2.6.2000 directing the Central Government to appoint 5 directors effective from 21.6.2000 as an interim measure and the Reference was posted for hearing on 4.9.2000. On that date, it came to light that in spite of having obtained an interim order, the Central Government had not appointed any director till that date and that the company had no Board of Directors. Therefore, in the order dated 5.9.2000, we had directed the Central Government to comply with the earlier directions and appoint 5 directors on the Board of the company at the earliest as a company cannot carry on the business without a Board of Directors. Since the matter could not be finally disposed of for want of completion of pleadings, by an order dated 6.12.2000, the earlier order of 2^nd June, 2000 was extended by another 6 months. Even though, in terms of our order dated 2.6.2000, the Central Government was to appoint 5 directors, even in the hearing held on 4.5.2001 i.e. nearly 11 months after the date of the order of 2.6.2000, the Government had not appointed 5 directors and had appointed only 3 directors. Therefore, we urge the Central Government, in the interest of the company and the plot holders, to comply with the directions of this Bench contained in the earlier paragraph at the earliest.

(S. Balasubramanian) (A.K. Banerji )