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S.B. SINHA, J. – 2. M/s Shree Bhaarathi Cotton Mills Private Limited is a company
registered and incorporated under the Companies Act, 1956 (“the Act”). Out of 2,84,000
equity shares in the Company of Rs. 10 each, 2,83,999 shares are held by the first respondent
and his son (the appellant herein). The remaining one share is held by M/s Visva Bharathi
Textiles Private Limited, shares in which again are held equally by the first respondent and
the appellant. Thus, for all intent and purport, all shares of the Company are held by the
appellant and the first respondent.
- Whereas the first respondent is the Managing Director of the Company, the appellant is
the Director thereof. Indisputably, the parties are not on good terms. - Respondent 1 filed an application purported to be under Sections 397 and 398 of the
Act alleging several acts of oppression on the part of the appellant herein before the Company
Law Board, Additional Principal Bench, Chennai. The said application was registered as CP
No. 2 of 2004. By reason of an order dated 16-8-2004 the Company Law Board while holding
that there was no act of mala fide or oppression on the part of the appellant, opined that there
exists a deadlock in the affairs of the Company. It directed the appellant to purchase 2,84,000
(sic) shares held by the first respondent at a value to be determined by a chartered valuer. - An appeal was filed thereagainst by the appellant before the High Court of Judicature
at Madras under Section 10-F of the Act which was registered as CMA No. 174 of 2004. - By reason of the impugned judgment dated 11-10-2006 a Division Bench of the High
Court dismissed the same opining that the Company Law Board could very well look into the
justifiability of the situation and was, thus, right in arriving at its conclusion that there existed
a deadlock situation. It was opined that in such a situation it would be impossible for both of
them to pull on together as there was incompatibility between them. The High Court noticed
that the appellant herein even intended to file a criminal complaint against his father, the first
respondent for alleged misappropriation of a sum of Rs 8,15,000. A suit for partition, it was
furthermore noticed, was pending. It was directed:
“77. … However, if there is any dispute regarding the method of valuation of the
shares and the ultimate valuation arrived at by the valuer, it is open for either parties
to approach the Company Law Board for getting the valuation finalised. Thereupon,
at the first instance, the second respondent shall purchase the shares of the
petitioners, within six months from the date of finalisation of such valuation and on
his failure to do so, the petitioner in CP, shall purchase the shares of the second
respondent, within six months thereafter. In the event of both the alternatives failing,
the purchase of shares of either the petitioner or the second respondent could be
transferred to third parties depending upon the exigency. The Company Law Board is
at liberty to pass such further orders under Section 402 of the Companies Act,
commensurate with the views expressed by this Court, for the smooth running of the
Company
- In view of the reasons given for deciding the aforesaid point this civil
miscellaneous appeal is partly allowed by modifying the order passed by the
Company Law Board. The submission made by learned counsel for the petitioner is
recorded as aforesaid.”
Mr C.A. Sundaram, learned Senior Counsel appearing on behalf of the appellant, in
support of the appeal, submitted:
The Company Law Board was not justified in issuing the impugned direction in
purported exercise of its jurisdiction under Section 402 of the Act directing him to
purchase the shares of the respondent despite arriving at a finding of fact that no act of
oppression has been committed by the appellant.
The condition precedent for exercise of such power being oppression on the part of
a Director of a company being not satisfied, the impugned judgment is wholly
unsustainable.
The High Court committed a manifest error in passing the impugned judgment in
reversing the findings of fact arrived at by the Company Law Board; although no appeal
therefrom had been preferred by the first respondent so as to hold that the acts of
omission and commission on the part of the appellant constituted such an oppression.
Both the High Court as also the Company Law Board committed a serious error in
granting the relief in favour of the first respondent without taking into consideration that
the grant of relief shall not only be in the interest of the Company but also must have a
direct nexus with the affairs of the Company and conduct of its business.
In any view of the matter, having regard to the prayers made by the first respondent
in his application before the Company Law Board, appointment of an Additional Director
would have served the purpose.
As the appellant does not have the necessary fund to purchase the shares of the first
respondent, he could not be forced to sell his shares.
8.Mr K. Parasaran, learned Senior Counsel, appearing for the respondents, on the other
hand, would contend:
1.The appellant did not raise any ground in the special leave petition that he is not in
a position to purchase the shares of Respondent 1.
2.The Company being a private limited company, which is in the nature of a quasipartnership concern, the Court should take a holistic view of the matter and so viewed the
judgments of the Company Law Board as also the High Court are unassailable.
3.The appellant having not acceded to the proposal of Respondent 1 in regard to the
appointment of the Additional Director, it does not lie in his mouth to say that
appointment of the Additional Director would serve the purpose.
4.The Company Law Board, in exercise of its jurisdiction under Sections 397 and
398 read with Section 402 of the Companies Act has the requisite jurisdiction to direct a
shareholder to sell his shares to the other, although no case for winding up of the
Company has been made out or no actual oppression on the part of the Director has been
proved.
- A shareholder of a company or a Director has several remedies under the Act. Section
433 of the Act envisages filing of an application for winding up thereof, inter alia, in a case
where the Company Law Board may form an opinion that it is just and equitable that the
company should be wound up. - Section 443 of the Act provides for the powers of Company Law Board in a windingup proceeding. Sub-section (2) thereof provides that a company may be directed to be wound
up when a petition is presented for winding up on the ground that it is just and equitable. The
Company Law Board may refuse to do so, if in its opinion some other remedy is available to
the petitioners and that they are acting unreasonably. The applicant, thus, in a given case,
when it would not be in the interest of the company to be wound up, may take recourse to
other remedies available in law. Making out a case of oppression is one of them. - An application under Section 397 of the Act may be filed in the following
circumstances:
(1) Where the affairs of the company are being conducted in the manner prejudicial to
public interest; or
(2) In a manner oppressive to any member or members. - Sub-section (2) of Section 397 of the Act, however, provides that in the event the
court is of the opinion that the company’s affairs are being conducted in a manner oppressive
to any member or members or furthermore held that directing winding up the company would
unfairly prejudice such member or members, but the same otherwise justifies the making of a
winding-up order on the ground that it is just and equitable that the company should be
wound up, it may make such other or further order as may think fit and proper with a view to
bringing to an end to the matters complained of. - Interpretation of Section 397(2) of the Act came up for consideration before a
Division Bench of this Court in Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd. [(2001)
4 SCC 420]. This Court while examining the conditions laid down in the section, opined that:
“3. … No case appears to have been made out that the Company’s affairs are
being conducted in a manner prejudicial to public interest or in a manner oppressive
of any member or members. Therefore, we have to pay our attention only to the
aspect that the winding up of the Company would unfairly prejudice the members of
the Company who have grievance and are the applicants before the court and that
otherwise the facts would justify the making of a winding-up order on the ground that
it was just and equitable that the Company should be wound up. In order to be
successful on this ground, the petitioners have to make out a case for winding up of
the Company on just and equitable grounds. If the facts fall short of the case set out
for winding up on just and equitable grounds no relief can be granted to the
petitioners. On the other hand the party resisting the winding up can demonstrate that
there are neither just nor equitable grounds for winding up and an order for winding
up would be unjust and unfair to them.”
After reviewing the decision of the High Court on the above test, this Court held that no
reasons prevailed for interference with the order and thus dismissed the appeal.
- Section 398 of the Act provides for filing of an application for the reliefs in cases of
mismanagement. Section 402 provides for the powers of the Company Law Board on an
application made under Section 397 or 398 of the Act which includes the power to pass any
order providing for the purchase of the shares or interests of any member of the company by
other member(s) thereof or by the company. - Ordinarily, therefore, in a case where a case of oppression has been made a ground for
the purpose of invoking the jurisdiction of the Board in terms of Sections 397 and 398 of the
Act, a finding of fact to that effect would be necessary to be arrived at. But, the jurisdiction of
the Company Law Board to pass any other or further order in the interest of the company, if it
is of the opinion, that the same would protect the interest of the company, it would not be
powerless. The jurisdiction of the Company Law Board in that regard must be held to be
existing having regard to the aforementioned provisions. - The deadlock in regard to the conduct of the business of the Company has been
noticed by the Company Law Board as also the High Court. Keeping in view the fact that
there are only two shareholders and two Directors and bitterness having crept in their personal
relationship, the same, in our opinion, will have a direct impact in the matter of conduct of the
affairs of the Company. - When there are two Directors, non-cooperation by one of them would result in a
stalemate and in that view of the matter the Company Law Board and the High Court have
rightly exercised their jurisdiction. - Before us, learned counsel for the parties, have referred to a large number of decisions
operating in the field. We may notice the legal principle emerging from some of them. - In Shanti Prasad Jain v. Kalinga Tubes Ltd. [AIR 1965 SC 1535], this Court
compared the provisions of Section 397 with Section 210 of the English Act to hold:
“13. … The law always provided for winding up, in case it was just and equitable
to wind up a company. However, it was being felt for some time that though it might
be just and equitable in view of the manner in which the affairs of a company were
conducted to wind it up, it was not fair that the company should always be wound up
for that reason, particularly when it was otherwise solvent. That is why Section 210
was introduced in the English Act to provide an alternative remedy where it was felt
that, though a case had been made out on the ground of just and equitable cause to
wind up a company, it was not in the interest of the shareholders that the company
should be wound up and that it would be better if the company was allowed to
continue under such directions as the court may consider proper to give.”
The Court analysed the decision in H.R. Harmer Ltd., In re [(1958) 3 All ER 689 (CA)]
in the following terms: (Shanti Prasad case, AIR p. 1543, para 18)
“18. In Harmer case, it was held that ‘the word “oppressive” meant burdensome,
harsh and wrongful’. It was also held that ‘the section does not purport to apply to
every case in which the facts would justify the making of a winding-up order under
the “just and equitable” rule, but only to those cases of that character which have in
them the requisite element of oppression’. It was also held that ‘the result of
applications under Section 210 in different cases must depend on the particular facts
of each case, the circumstances in which oppression may arise being so infinitely
various that it is impossible to define them with precision’. The circumstances must
be such as to warrant the inference that ‘there had been, at least, an unfair abuse of
powers and an impairment of confidence in the probity with which the company’s
affairs are being conducted, as distinguished from mere resentment on the part of a
minority at being outvoted on some issue of domestic policy’. The phrase ‘oppressive
to some part of the members’ suggests that the conduct complained of ‘should at the
lowest involve a visible departure from the standards of fair dealing, and a violation
of the conditions of fair play on which every shareholder who entrusts his money to a
company is entitled to rely…. But, apart from this, the question of absence of mutual
confidence per se between partners, or between two sets of shareholders, however,
relevant to a winding up, seems to have no direct relevance to the remedy granted by
Section 210. It is oppression of some part of the shareholders by the manner in which
the affairs of the company are being conducted that must be averred and proved.
Mere loss of confidence or pure deadlock does not come within Section 210. It is not
lack of confidence between shareholders per se that brings Section 210 into play, but
lack of confidence springing from oppression of a minority by a majority in the
management of the company’s affairs and oppression involved at least an element of
lack of probity or fair dealing to a member in the matter of his proprietary right as a
shareholder.”
- It is true that observations in Harmer case were held to be applicable in a case falling
within the purview of Section 397 of the Act but the statement of law that it was not enough
that only a just and equitable case for winding up of the company should be made out but it
must also be found that conduct of the majority shareholders was oppressive to the minority
members, cannot be said to be exhaustive. - The question came up for consideration yet again before a three-Judge Bench of this
Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd
[(1981) 3 SCC 333] wherein Chandrachud, C.J. upon considering a large number of decisions
of this Court as also the English Courts including S.P. Jain and Harmer Ltd. categorically
held:
“172. Even though the company petition fails and the appeals succeed on the
finding that the holding Company has failed to make out a case of oppression, the
court is not powerless to do substantial justice between the parties and place them, as
nearly as it may, in the same position in which they would have been, if the meeting
of May 2 were held in accordance with law.” - The provisions of the Act vis-à-vis the jurisdiction of the Company Law Board must
be considered having regard to the complex situation(s) which may arise in the cases before it.
No hard-and-fast rule can be laid down. There cannot be any doubt whatsoever that the acts of
omission and commission on the part of a member of a company should be qua the
management of the company, but it is difficult to accept the proposition that the just and
equitable test, which should be held to be applicable in a case for winding up of a company, is
totally outside the purview of Section 397 of the Act. The function of a Company Law Board
in such matters is first to see as to how the interest of the company vis-à-vis its shareholders
can be safeguarded. The Company Law Board must also make an endeavour to find out as to
whether an order of winding up will serve the interest of the company or subvert the same.
Further, if an application is filed under Section 433 of the Act or Section 397 and/or Section
398 thereof, an order of winding up may be passed, but as noticed hereinbefore, the Company
Law Board in a winding-up application may refuse to do so, if any other remedy is available.
The Company Law Board may not shut its doors only on sheer technicality even if it is found
as of fact that unless the jurisdiction under Section 402 of the Act is exercised, there will be a
complete mismanagement in regard to the affairs of the company.
- Sections 397 and 398 of the Act empower the Company Law Board to remove
oppression and mismanagement. If the consequences of refusal to exercise jurisdiction would
lead to a total chaos or mismanagement of the company, would still the Company Law Board
be powerless to pass appropriate orders is the question. If a literal interpretation to the
provisions of Section 397 or 398 is taken recourse to, may be that would be the consequence.
But jurisdiction of the Company Law Board having been couched in wide terms and as
diverse reliefs can be granted by it to keep the company functioning, is it not desirable to pass
an order which for all intent and purport would be beneficial to the company itself and the
majority of the members? A court of law can hardly satisfy all the litigants before it. This,
however, by itself would not mean that the Company Law Board would refuse to exercise its
jurisdiction, although the statute confers such a power on it. - It is now a well-settled principle of law that the courts should lean in favour of such
construction of statute whereby its jurisdiction is retained enabling it to mould the relief,
subject of course, to the applicability of law in the fact situation obtaining in each case. - In Pearson Education Inc. v. Prentice Hall India (P) Ltd. [(2007) 136 Comp Cas
294 : (2006) 134 DLT 450] as regards the jurisdiction of the Company Law Board and the
High Court under Sections 397/398 and 402, a learned Single Judge of the Delhi High Court
held:
“27. … Jurisdiction of the CLB (and ultimately of this Court in appeal) under
Sections 397/398 and 402 is much wider and direction can be given even contrary to
the provisions of the articles of association. It has even right to terminate, set aside or
modify the contractual arrangement between the company and any person [see
Sections 402(d) and (e)]. Section 397 specifically provides that once the oppression is
established, the Court may, with a view to bringing to an end the matters complained
of, make an order as it thinks fit. Thus, the Court has ample power to pass such orders
as it thinks fit to render justice and such an order has to be reasonable. It is also an
accepted principle that ‘just and equitable’ provision in Section 402(g) is an equitable
supplement to the common law of the company to be found in its memorandum and
articles of association.” - In a case of this nature, where there are two shareholders and two Directors, any
animosity between them not only would have come in the way of proper functioning of the
Company but it would also affect the smooth management of the affairs of the Company. The
parties admittedly are at loggerheads. A suit is pending regarding title of the shares of the
Company. A contention had been raised by the appellant before the Company Law Board that
the first respondent having filed a wealth tax return as karta of Hindu Undivided Family, he
not only has 50% shares in the Company but also 50% shares in the HUF; whereas the
contention of the first respondent in that behalf is that the appellant had already taken his halfshare in the joint family property and the HUF mentioned in the wealth tax return pertains to
the smaller HUF which consists of himself and his daughters.
- The first respondent is about 80 years old. Because of his old age, he is not in a
position to look after the affairs of the Company. Even in the grounds of appeal before us, a
contention has been raised that it was the first respondent, who is the oppressor. We have
noticed hereinbefore that, rightly or wrongly, the appellant also intended to file a criminal
case against the first respondent alleging that he had misappropriated a huge amount as a
Director of the Company. - Before the Company Law Board, several grounds to establish a case of oppression
had been made out:
(1) Non coopting of a third Director on the Board;
(2) Non-clearance of accumulated stocks;
(3) Surrender of the surplus power in favour of T.N. EB;
(4) Non-issue of duplicate share certificates;
(5) Non-redemption of preference shares;
(6) Non-sanctioning of increment to the staff members;
(7) Deadlock in the affairs of the Company. - In regard to the first ground, admittedly, A. Jayakumar, son-in-law of the first
respondent being the brother-in-law of the appellant was nominated as a Director of the
Company. The appellant indisputably did not agree in that behalf. However, the first
respondent left it to the discretion of the Company Law Board to appoint a third Director, but
we are informed at the Bar that even the same was objected to by the appellant. - It is in the aforementioned situation the Company Law Board has opined that such an
impasse could have been removed by resorting to appointment of an additional Director.
What the Board failed to notice was that when the appellant himself intended to become the
Managing Director, he would like to have his own man in the Board which was not acceded
to by the first respondent. - Surrender of surplus power in favour of T.N. EB may be a business decision but such
a decision will have a direct impact on the conduct of the business. It at least shows that the
parties were at loggerheads. It is in the aforementioned situation, the High Court opined:
“The Company Law Board should have categorically held that such surrender
was beneficial to the Company and the second respondent unjustifiably objected to it.
Admittedly, the second respondent was not in favour of such surrender on the ground
that it was required for future expansion of the factory activities. Such a plea of the
second respondent is based on mere conjectures and surmises and not borne out by
any proposed project for future expansion. As such the Company Law Board very
well could have held that the second respondent was oppressive.”
- In relation to the non-issue of duplicate share certificates the Company Law Board
opined:
“That is why the petitioner took up the very same issue again at the Board
meeting convened on 20-3-2004, after filing of the company petition. It is on record
that the second respondent did not attend the Board meeting on 20-3-2004 on the
ground that the subject-matter is sub judice before CLB. Thus, there is no ultimate
denial of the issue of duplicate share certificates by the second respondent in favour
of the petitioner.” - The High Court, however, in this regard opined “recording this, the Company Law
Board could have very well held that the second respondent was not justified in causing
obstruction to the issuance of such share certificates”. - A ground has also been taken in the memo of appeal contending:
“The Division Bench entirely failed to appreciate that the petitioner being a
whole-time Director and also being a 50% shareholder the petitioner has a right to
refuse to give his consent to certain transactions if the petitioner is of the opinion that
the same is not good for the business of Respondent 2 Company or that the same is
against the interests of the Company. The petitioner has merely exercised his right as
a whole-time Director in not agreeing to certain resolutions and that by itself neither
amounts to a deadlock nor oppression.” - We have referred to the views taken by the Company Law Board as also the High
Court, not being oblivious of the objection of Mr Sundaram, that in relation to those findings,
the first respondent did not prefer any appeal. Without going into the legal issue, however, we
are of the opinion that the same is only evidence of the instances as to how a deadlock in the
affairs of the Company was viewed. Both the Company Law Board as well as the High Court
have arrived at a concurrent finding that as there was no mutual trust and confidence between
the parties and, thus, it would be impossible for the Company to run the same smoothly. - We are not again oblivious of the observations made by this Court in S.P. Jain case
that the same by itself would not be a ground for winding up; but the ground of lack of mutual
trust and confidence cannot be taken into consideration in isolation. The same has to be
considered having regard to large number of other factors, the cumulative effect thereof
would be extremely significant to arrive at one or the other conclusion. - We may take notice of the fact that the appellant had made the following allegations
against the first respondent in the list of dates:
“It is respectfully submitted that Respondent 1 did not maintain proper books of
minutes of meetings or attendance registers, did not allow the petitioner herein to use
the Company guest house in Chennai, Respondent 1 attempted to bring in a third
Director to marginalise the role of the petitioner, Respondent 1 siphoned off Rs.
8,15,000 of the Company money, Respondent 1 attempted to transfer by way of gifts
properties given as collateral security to financial institutions and so on. When the
petitioner herein either asserted his rights or attempted to thwart the wrongful acts of
Respondent 1, Respondent 1 became abusive.”
- We may also notice that in his reply statement before the Company Law Board it was
stated by the appellant:
“5.10. The petitioner Managing Director has become quite old. In fact under the
Companies Act, in case of public companies there exist sufficient safeguards to
restrict appointment of Managing Directors over the age of 70 without prior
permission of the Central Government. Such provisions have been thoughtfully
provided considering the inherent weaknesses that will emerge out of old age. In
order to continue the smooth functioning of the enterprise, it would be very much
conducive if the Managing Director gracefully retires from the post and lets a much
younger and still experienced person to take over the mantle of the Company. And
furthermore, so considering that the younger person is the only son of the present
Managing Director, it is quite natural that the takeover of the mantle that should be
mooted.”
It was further averred:
“6. There has been no oppression or mismanagement as averred by the petitioner.
It is a fact that the petitioner, who is the Managing Director of the Company is in a
more convenient position to oppress the second respondent but on the other hand, the
petitioner has been alleging the opposite, without any basis. The mere fact that one of
the two Directors/shareholders decides to exercise his proprietary right as a
shareholder/Director to vote for or against any resolution does not amount to
deadlock in management or oppression.” - In a case of this nature, it is necessary to take a holistic approach of the matter. What
might not be permissible for the affairs of a public limited company or even a private
company having large number of shareholders and Directors, may be permissible in a case of
this nature where a company for all intent and purport is a quasi-partnership concern.
Parliament, while enacting a statute, cannot think of all situations which may emerge in
giving effect to the statutory provision. The situation obtaining in the present case in that
sense is a pathetic one. Both the Company Law Board as also the High Court had no doubt
that the acrimony between the parties is resulting in mismanagement of the conduct of affairs
of the Company. Therefore, a conclusion as regards the deadlock in the affairs of the
Company cannot be faulted with. - In Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla [(1976) 3 SCC 259]
this Court upon noticing a large number of decisions opined:
“37. Section 433(f) under which this application has been made has to be read
with Section 443(2) of the Act. Under the latter provision where the petition is
presented on the ground that it is just and equitable that the Company should be
wound up, the court may refuse to make an order of winding up if it is of opinion that
some other remedy is available to the petitioners and that they are acting
unreasonably in seeking to have the Company wound up instead of pursuing that
other remedy. - Again under Sections 397 and 398 of the Act there are preventive provisions
in the Act as a safeguard against oppression in management. These provisions also
indicate that relief under Section 433(f) based on the just and equitable clause is in
the nature of a last resort when other remedies are not efficacious enough to protect
the general interests of the Company.”
- This Court noticed that although the Indian Companies Act is modelled on the
English Companies Act, the Indian law is developing on its own lines. It was opined that the
principle of “just and equitable clause” is essentially equitable consideration and may, in a
given case, be superimposed on law. The Court in arriving at the said conclusion considered
the decision of House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1973 AC 360 :
(1972) 2 All ER 492 (HL)] whereupon strong reliance has been placed by Mr Sundaram as
also in Yenidje Tobacco Co. Ltd., In re [(1916-17) All ER Rep 1050] amongst others. What
is important is not the interest of the applicant but the interest of the shareholders of the
company as a whole. If such a principle is applied in a case of winding up of a company, we
do not see any reason not to invoke the said principle in a case under Section 397 of the Act,
subject of course to the applicability of the well-knownjudicial safeguards. - A similar question came up for consideration in Sangramsinh P. Gaekwad v.
Shantadevi P. Gaekwad [(2005) 11 SCC 314] wherein this Court upon noticing a large
number of decisions including Needle Industries (India) Ltd. observed:
“191. In Shanti Prasad Jain referring to Elder case [Elder v. Elder and Watson
Ltd., 1952 SC 49 : 1952 SLT 112] it was categorically held that the conduct
complained of must relate to the manner of management of the affairs of the
company and must be such so as to oppress a minority of the members including the
petitioners qua shareholders. The Court, however, pointed out that that law, however,
has not defined what oppression is for the purpose of the said section and it is left to
the court to decide on the facts of each case whether there is such oppression.”
It was furthermore held:
“196. The court in an application under Sections 397 and 398 may also look to
the conduct of the parties. While enunciating the doctrine of prejudice and unfairness
borne in Section 459 of the English Companies Act, the court stressed the existence
of prejudice to the minority which is unfair and not just prejudice per se.
The court may also refuse to grant relief where the petitioner does not come
to court with clean hands which may lead to a conclusion that the harm inflicted upon
him was not unfair and that the relief granted should be restricted. (See London
School of Electronics Ltd., In re [(1985) 3 WLR 474: (1986) 1 Ch D 211])
Furthermore, when the petitioners have consented to and even benefited
from the company being run in a way which would normally be regarded as unfairly
prejudicial to their interests or they might have shown no interest in pursuing their
legitimate interest in being involved in the company. [See RA Noble & Sons
(Clothing) Ltd., In re, 1983 BCLC 273]
In a given case the court despite holding that no case of oppression has been
made out may grant such relief so as to do substantial justice between parties.
- In Shanti Prasad Jain v. Union of India [(1973) 75 Bom LR 778] it was
held that the power of the Company Court is very wide and not restricted by any
limitation contained in Section 402 thereof or otherwise.”
43.It was opined that the burden to prove oppression or mismanagement is upon the
applicant. The Court, however, will have to consider the entire materials on record and may
not insist upon the applicant to prove each act of oppression. It was furthermore observed that
an action in contravention of law may not per se be oppressive, whereas the conduct involving illegality and contravention of the Act may be suffice to warrant grant of any remedy.
44.Reliance has been placed by Mr Sundaram on Kilpest (P) Ltd. v. Shekhar Mehra
[(1996) 10 SCC 696] which has also been noticed in Sangramsinh P. Gaekwad opining:
“230. … The real character of the company, as noticed hereinbefore, for the
purpose of judging the dealings between the parties and the transactions which are
impugned may assume significance and in such an event, the principles of quasipartnership in a given case may be invoked.
231.The ratio of the said decision, with respect, cannot be held to be correct as a
bare proposition of law, as was urged by Mr Desai, being contrary to larger Bench
judgments of this Court and in particular Needle Industries. It is, however, one thing
to say that for the purpose of dealing with an application under Section 397 of the
Companies Act, the court would not easily accept the plea of quasi-partnership but as
has been held in Needle Industries the true character of the company and other
relevant factors shall be considered for the purpose of grant of relief having regard to
the concept of quasi-partnership.
45.Submission of Mr Sundaram that the appointment of an additional Director could be a
sufficient relief which the court may grant cannot be accepted. The appellant rejected such an
offer. At this stage bitterness and acrimonies between the parties have ensued.
46.In a recent decision of J.K. Paliwal v. Paliwal Steels Ltd. [(2007) 5 Comp LJ 279
(CLB)] on the role of the Directors in terms of Sections 397 and 398, the Company Law
Board held that the role of the Directors was well settled and they were the trustees of the
company. It was thus opined that the Directors were required to act on behalf of the company
in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the
company.
47.In Girdhar Gopal Dalmia v. Bateli Tea Co. Ltd. [(2007) 1 Comp LJ 450 : (2007) 136
Comp Cas 339 (CLB)] the Company Law Board held that once the Company Law Board
gives a finding that acts of oppression have been established, winding up of the company on
just and equitable grounds becomes automatic.
48.We, in the facts and circumstances of this case, are of the opinion that it is not a fit
case where we should interfere with the impugned judgment in exercise of our discretionary
jurisdiction under Article 136 of the Constitution of India. The appeal fails and is dismissed
with costs. Counsel’s fees assessed at Rs. 50,000.
