CP No. 59/ND/2011. Case: R.S. Reddi and Another Vs Himalaya Hydro (P.) Ltd. and Others. Company Law Board

Case Number:CP No. 59/ND/2011
Party Name:R.S. Reddi and Another Vs Himalaya Hydro (P.) Ltd. and Others
Counsel:For Appellant: UK Chaudhary, senior advocate (Hemant Sharma, Ms. Purti Marwaha and Ms. Srishti Jai Singh with him) and For Respondents: A.N. Haksar, senior advocate (Ms. Ranjana Roy Gawai, Abhishek K Rao, Ms. Vasudha Sen, Varun Singh, Ravi Nanda and S Chidambaram)
Judges:Vimla Yadav, Member
Issue:Companies Act, 1956 - Sections 193, 194, 210, 211, 260, 286, 383A, 397, 398, 399, 402, 403, 433(f), 81; Indian Contract Act, 1872 - Sections 23, 24
Citation:2012 (108) CLA 426
Judgement Date:November 14, 2011
Court:Company Law Board


1. In this order I am considering CP No. 59/ND/2011 filed by the petitioners Sh. R S Reddi and another. Against Himalaya Hydro (P.) Ltd. and others, the respondents alleging oppression and mismanagement under sections 397 and 398 read with sections 402 and 403 of the Companies Act, 1956 ('the Act') seeking removal of R4 to 6 from the Board of directors of the respondent-company; directions to maintain equity in the shareholding of the company thereby allowing petitioners to infuse funds for fresh allotment of shares; direction of the status quo of the directorship of the respondent-company before the alleged Board meeting of 29th April, 2011; restraining R2 and 3 from allotting any further shares of the respondent-company; restraining R2 and 3 from increasing the equity shares capital of the respondent-company; restraining the respondents from holding any Board meeting without giving a 7 days notice by registered post to the petitioners accompanied with all the agenda and detailed notes papers; to declare the resolution pursuant to the allotment of 9,55,000 and 20,00,000 No. of shares on 29th June, 2009 in favour of R2 and 3 respectively, 5,63,400 No. of shares on 22nd December, 2009 in favour of R2 and 7,40,000 and 3,70,000 No. of shares on 26th June, 2010 in favour of R2 and 7 respectively null and void and to declare Form 2 filed before Registrar of Companies ('RoC'), Kanpur pursuant to above allotment of shares as null and void; to split up respondent-company into two independent companies project-wise, namely, Tanga and Motighat, in case the deadlock between the petitioners group and the respondent No. 2 group doesn't get resolved. The R1-company was incorporated on 16th January, 1995 and is having its registered office at 76, Eldeco Greens, Gomti Nagar, Lucknow, Uttar Pradesh-226001. The authorised share capital of the company is Rs. 37,00,00,000 divided into 2,20,00,000 equity shares of Rs. 10 each. The issued and paid-up share capital of the company is Rs. 21,50,31,000 divided into 2,15,03,100 equity shares of Rs. 10 each. The company was incorporated to operate power plants to produce electricity by any mode of conventional or non-conventional and to be in the business as suppliers, distributors, converters of electricity light, heat and to deal in hydroelectric, wind, ocean, cogeneration, gas based, sun rays based or any other method for producing electricity.

2. In CP No. 59 (ND)/2011, the petitioners' case is that the company [Himalaya Hydro (P.) Ltd.] was incorporated on 16th January, 1995 by the erstwhile promoters, namely, Mr. Aditya K Jhunjhunwala and Mr. P C Jhunjhunwala who, thereafter, obtained licences for implementing two 3 MW capacity Hydro Power Projects, namely, Tanga SHP and Motighat SHP (Small Hydro Project). In the year 2003, the petitioners who were looking for establishing Hydro Power Projects identified this company and organised for its takeover. The petitioners invited the respondent No, 2 to invest in one project of the company, namely, Motighat SHP with a confirmed understanding that both the groups will independently manage and control their respective projects and their ultimate shareholding in the respondent No. 1-company will remain equal, i.e., 50 per cent each and the Board will also remain equal by having equal number of representatives. In terms of this understanding, since March 2004, the Board was represented by two directors each from respondent No. 2, namely, respondent Nos. 2 and 3 and petitioners were represented by petitioner Nos. 1 and 2. After induction of two directors each on part of petitioners and respondents, Jhunjhunwala's rarely attended any Board meeting and there was no change in the constitution of the Board till 28th April, 2011, except that in 2007, IREDA, the lender, exercised its right to appoint its nominee on the Board of respondent No.1-company. It was contended that for over 7 years, the petitioners and the respondents had equal representation on the Board of the R1-company. My attention was drawn to the shareholding to contend that till 28th June, 2009 the petitioners group though was having an edge in shareholding over the respondents group, yet the petitioners maintained the parity of equity and continued to assure the respondents that as and when they will bring funds, share will be allotted to respondent group.

3. It is the case of the petitioners that from the inception, the company had two projects, namely, Tanga SHP and Motighat SHP. In respect of the said two projects, licences from Government, are separate, implementation agreement thereof is separate, Power Purifies Agreement with UPCL is separate, loans obtained from IREDA are separate, namely, A/c No. 1714 (Tanga) and 1715 (Motighat), corporate offices of both the projects are separate and bank accounts of both the projects are separate, namely, account Nos. 09790210000113 (Tanga) and 09790210000076 (Motighat). The correspondences in respect of both the projects are being separately carried on by petitioners for Tanga SHP and by respondents for Motighat SHP. It was contended that all the correspondence, instructions, decisions were signed and executed in respect of Tanga SHP under the authority of the petitioners and for Motighat SHP by respondent Nos. 2 and 3, respectively.

4. The counsel for the petitioners contended that the two projects are still separate and distinct and are only connected with certain common facilities such as approach road to Motighat Power House constructed by Tanga SHP with its own funds, and a water discharge Gate from Tail Race Channel of Motighat which is opened to let water flow into Tanga infrastructure when Tanga Power House is running and closed when Tanga Power House is not running. When this gate is closed, water is discharge directly into the river. These are the only measures taken to connect the two separate projects as they both belonged to the same Company and to the common promoters. It was pointed out that even if the gate is not opened by Motighat SHP for whatever reasons then the water has to be discharged into the river and the Tanga can take the water from the river channel by building their own weir (Dam). The only misunderstanding which is being spread by the respondents is that in 2008 the projects were merged as respondent No. 2 was made in-charge of both the projects at site. It was contended that the projects were neither merged nor the projects could have merged with their separate licenses, separate loans and its documentation, separate bank accounts, separate reporting, separate revenue generation and expenditure, separate auditing and preparation of balance sheets for the entire life of its licence for 40 years, etc. The projects were never merged nor integrated and the projects are still separate and distinct and will remain separate in the eyes of Government, and its Departments like Environmental Clearance, Forest Department and undertakings like UPCL, lending institution, subsidity, duty drawback, etc. No such integration/merger decision of these projects was taken by the respective promoters nor such an issue was ever raised, discussed or agreed to in any meeting of the Board of directors since 2004 until it was raised for the first time by the respondent No. 2 for the Board meeting dated 10th September, 2011, with a mala fide intention of usurping the management of Tanga project. The petitioners in good faith had bona fide belief that respondent No. 2 with his youthful energy will be able to devote time to implement both the projects for which petitioners even agreed to pay him salary of Rs. 3 lakh per month. But R2 is interpreting this request as merger of two projects for his ill designed motive of controlling both the projects in view of his latest oppressive acts as became evident by his oppressive conduct on 29th April, 2011 and 21st May, 2011 Board meetings. It is clarified that respondent No. 2 was only made in-charge of day-to-day operations of projects at site and not the affairs of the company. It was clarified that between 2008 and 2010, when R2 was in-charge of the two projects at site, no decision was taken by the Board and this arrangement was only a request from the petitioners. The petitioners even tried to compensate him for his efforts and proposal to this effect was placed in the meeting of the Board of directors on 9th February, 2011/20th February, 2011 but he did not accept the offer and it was, therefore, deferred for consideration to subsequent Board meeting. The petitioners case, that the Tanga SHP was controlled and managed by the petitioners, whereas Motighat SHP was controlled and managed by respondent Nos. 2 and 3. All liabilities and responsibilities were divided, shared and acknowledged equally between the petitioners and the respondents. Accordingly, the entire funds for Tanga project were arranged and brought in by equity, by the petitioners and for Motighat SHP by respondents in the same manner. In last over 7 years, petitioners had never claimed any control and management over Motighat, even when funds of Rs. 1,81,94,094 from Tanga project were transferred for execution of Motighat SHP. It was contended that a sum of Rs. 16 crore brought in by the respondents has all been invested/used for completing Motighat SHP only, the respondents have not invested/brought in any funds in Tanga SHP. Motighat SHP has been completed and commissioned. In 2008 respondent No.2 was requested to look after and implement Tanga SHP also at project site.

5. The counsel for the petitioners has contended that the respondent breached the understanding when efforts were made by respondent No. 2 to make further allotment to himself, his wife and his father at a meeting of the Board of directors held on 22nd April, 2011 when the allotment was objected to by the petitioners. When the respondents failed to make allotment on 22nd April, 2011, he changed the constitution of the Board on 29th...

To continue reading