TMI Blog2009 (8) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent-company. All further acts of the petitioners pursuant to the order of the Company Law Board dated 27-5-2009 are directed to be kept in abeyance, except those vital acts which require the petitioners to act for the purpose of retaining the Subarnarekha Port Project with the Government of Orissa, till the formalities in respect of fixing the consideration for exit of the second respondent is fixed by the Company Law Board, as stated above, and the entire amount is paid to the second respondent and the petitioners who have disclosed the affairs of the Subarnarekha Port Project as on 25-6-2009, shall continue to disclose any further developments and communications by sending copies to the second respondent periodically once in a month commencing from the end of August, 2009 till the formalities for exit of the second respondent are completed in full and till such formalities are completed respondent Nos. 2 to 5 shall be deemed to continue as the directors of the first respondent-Company. - C.A. NOS. 11 TO 15 OF 2009 - - - Dated:- 28-8-2009 - P. JYOTHIMANI, J. P.S. Raman, A.L. Somayajee, P. Arvind Datar, S.N. Mookherji and Anil Choudry for the Appellant. Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent-company in its articles of association. The said fourth respondent is a nominee of the second respondent-investor and is also stated to be a journalist and a fellow member of the Institute of Cost and Works Accountants of India and its past secretary and vice chairman. 7. The third respondent - Mr. Naveen Bansal, appellant in C.A. No. 12 of 2009, who was subsequently made a nominee director of the first respondent-company, nominated by the second respondent-investor, is having experience relating to infrastructure projects. 8. The fifth respondent, who is the appellant in C.A. No. 13 of 2009, was also made a nominee director of the first respondent-company by the second respondent-investor and he was the chairman of Haldia Port Trust and a retired civil services officer of I.A.S. cadre of 1969 batch. 9. It is stated that in January, 2007, two projects were secured for the first respondent-company, one from the Government of Andhra Pradesh for Machilipatnam Port Project and another from the Government of Orissa for Subarnarekha Port Project. In respect of the Machilipatnam Port Project awarded by the Government of Andhra Pradesh, the same was awarded in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile, as stated above, it has been the case of respondent Nos. 2 to 6 that the first respondent-company, which was jointly promoted by the petitioners and the second respondent-group has no stake or interest in the Machilipatnam Port Project. 12. While the petitioners have challenged the conduct of the second respondent (SREI) as oppression, the same was defended by the second respondent-investor and others stating that the second respondent is neither a shareholder nor a director of the company and, therefore, the petition for oppression in respect of Machilipatnam Port Project is not maintainable. 13. In respect of the second project, namely, Subarnarekha Port Project of the first respondent-company, it has been again the case of the petitioners that there was no proper funding by the second respondent and ultimately, it has resulted in a memorandum of understanding by which the second respondent has agreed to go out of the company for a price of Rs. 52.50 crores. On the other hand, it has been the case of the second respondent that it has always been ready and willing to extend financial assistance as provided under the investment agreement and, therefore, they cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners that the memorandum of understanding entered between the petitioners and the second respondent dated 14-11-2007 is binding on the second respondent since under the said agreement, the second respondent has agreed to exit from the company, the Company Law Board directed the second respondent to transfer all its shares in the first respondent-company in favour of the petitioners on the price as fixed, namely Rs. 52.50 crores. 16. While the above appeals came up for admission before this Court on 24-6-2009, learned counsel for the petitioners, who are respondent Nos. 1 and 2 in the appeals, has, in fact, submitted that pursuant to the Company Law Board order which is impugned in these appeals, the board of directors have been reconstituted, however, he has undertaken that till 9-7-2009, the newly constituted board of directors will not convene any meeting. The said undertaking was continued by order dated 9-7-2009 and in addition to that it was made clear that if the time granted by the Company Law Board in the impugned order under paragraph 9( i ) for filing an affidavit expires, the same shall not be put against respondent Nos. 2 to 6, who are the appellants. The ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows : "10F. Appeals against the order of the Company Law Board. Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order : Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 22. The Andhra Pradesh High Court in D. Ramkishore v. Vijayawada Share Brokers Ltd. [2008] 144 Comp. Cas. 326 1 , by referring to a series of judgments of the Apex Court regarding the scope of section 10F of the Act has held as under : "Under section 10F of the Companies Act, 1956, any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court on any question of law arising out of such order. It is only on a question of law, and not of fact, that an appeal would lie against the order of the Company Law Board to the High Court. There is no jurisdiction to entertain an appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [1957] 31 ITR 28 (SC): AIR 1957 SC 49)." (p. 333) 23. The scope of section 10F of the Act, which provides for an appeal against the order of the Company Law Board, has been enunciated by the Apex Court in V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 142 Comp. Cas. 235 1 as under: "It is clear that section 10F permits an appeal to the High Court from an order of the Company Law Board only on a question of law, i.e., the Company Law Board is the final authority on facts unless such findings are perverse based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate court under section 10F is restricted to the question as to whether on the facts as noticed by the Company Law Board and has placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate court would interfere under section 10F was if such conclusion was ( a ) against law or ( b ) arose from consideration of irrelevant material or ( c ) omission to construe relevant materials." (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking for the benefit of the first respondent-company has chosen to transfer its shares in the said project in favour of third parties, namely, Maytas and NCC, thereby taking away the said project granted by the Government of Andhra Pradesh, which is prejudicial to the interest of the company; ( ii )the second respondent, being an investor bound under the investment agreement dated 26-5-2006, who has to fund the various projects has failed to do the same which is detrimental to the interest of the members as well as the company; ( iii )the second respondent, having agreed under a memorandum of understanding dated 14-11-2007 to exit from the first respondent-company, has chosen to go back on the agreement which is detrimental to the interest of the company and its members; ( iv )the second respondent, being the majority shareholder of the first respondent-company holding 70 per cent of the shares, has frozen the bank accounts which is prejudicial to the interest of the company; ( v )the second respondent, in whose premises the registered office of the first respondent-company was situated, has deliberately locked the premises thereby closing the registered office of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andum of understanding with Signature Group International Limited, Cayman Islands of U.A.E. on 4-6-2009 to the extent of Rs. 6,000 million equivalent to US$ 125 million and, therefore, the very purpose of filing the petition under section 397 of the Act before the Company Law Board is with an ulterior desire that respondent Nos. 2 to 6 should exit from the first respondent-company so that by virtue of the new memorandum of understanding stated above, the petitioners can earn enormous profit and that cannot be the reason for approaching the Company Law Board for relief under sections 397 and 398 of the Act, and further, the memorandum of understanding dated 14-11-2007 attempts to purchase the shares of the majority shareholders, namely, respondent Nos. 2 to 6 and such conduct of the minority cannot be a ground to complain about oppression and mismanagement; ( iv )there was absolutely no business of the company except in respect of the two projects. While in respect of Machilipatnam Port Project the same is not connected with the first respondent-company, the only remaining project, viz., Subarnarekha Port Project, is at a preliminary stage and even lands have not been allotted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be served in retaining the second respondent and it was based on the said concept the Company Law Board has passed the abovesaid order directing the second respondent to transfer its shares in favour of the petitioners for consideration. 28. The Company Law Board has further found that the second respondent has committed breach of its obligation in funding and that locking of premises and closing of the accounts is prejudicial to the interest of the first respondent-company. That apart, the Company Law Board in the impugned order has found that the Machilipatnam Port Project is the project of the first respondent-company and by the conduct of the second respondent the project has been thwarted and taking advantage of the project it found that the second respondent has earned certain profits and, therefore, directed the second respondent to transfer 30 per cent of the profit to the petitioners who are 30 per cent shareholders in the first respondent-company. 29. The first respondent - Creative Port Development Private Limited was incorporated as a company under the Act on 6-2-2006. It is true that in the memorandum and articles of association of the first respondent-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts formation, while it is the case of the second respondent that Machilipatnam Port Project is not forming part of the first respondent-company. 33. Even before the first respondent-company was floated there were discussions and exchange of views on the Port Project of the Government of Orissa between the petitioners and the authorised representative of the second respondent (SREI). In the communication of the first petitioner dated 14-12-2005, writing as a partner of Creative Infrastructure, it was made clear that as per the wish of the Government of Orissa which want a person from Creative Infrastructure, the second respondent was made as a lead member of the consortium by replacing JV. The discussion in respect of the Machilipatnam Port Development Project also appeared to be in existence between the petitioners and the second respondent- investor even before the incorporation of the first respondent-company, which is evident from the e-mail communication dated 5-2-2006. In the said communication of the authorised representative of the second respondent addressed to the managing director of the second respondent-Hemant Kanoria, it is stated that in respect of the Machilipatn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,675 crores and similarly Dhamra Port was estimated to cost Rs. 1,300 crores but has costed less. When referred these things to him, Mr. Ramani Ramaswamy assures that the Machilipatnam Port Development Project cost will also be far less than the Government estimated Rs. 1,100 crores. However, he has not confirmed any approximate figure at least with a range of about Rs. 50 crores plus or minus to have an understanding on the fund requirement for the project. Although the studies conducted for this bid submission and the experience gained will help us tremendously in taking part in the bids to develop other minor ports that are in the pipeline for development, I request to get clarifications from Mr. Ramani Ramaswamy on the above aspects exempting those on which you are convinced and/or have the required clarification/information." 37. It was during the pendency of such discussions in respect of the said two projects between the petitioners and the representatives of the second respondent and its managing director, the first respondent-company came to be incorporated on 6-2-2006. 38. The argument advanced on behalf of the petitioners is that they are the only promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement to get the company registered, preparing prospectus, memorandum and articles of association, etc., which are very crucial for the company to come into existence. In fact, they perform vital functions to bring out a corporate person and are made liable to the company as well as the third parties in respect of their conduct and contracts entered by them during pre-incorporation stage including the statement in prospectus, either treating them as the agents or trustees of the company to be incorporated, but still they are not recognised in order to focus the legal fiction of corporate personality. Law is clear that while the company which has come into existence is not bound by the conduct of the promoter, at the same time, it is entitled to make claim against such promoter in case it was subsequently found that the conduct of the promoter was detrimental to the interest of the company incorporated on the basis of principles of breach of trust. 41. As per section 62(1)( c ) of the Act, "for any mis-statement in the prospectus every person who is a promoter of the company" could be made liable for any loss or damages. Section 62(1) of the Act is as follows: "62. Civil li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in fact, participated in framing the objects of the company, in the sense created basis for the two projects of the company to be incorporated, namely, Machilipatnam Port Project of Andhra Pradesh and Subarnarekha Port Project of Orissa. 45. Whether Machilipatnam Port Project has formed part of the first respondent-company after its incorporation is an issue to be decided, while it is not in dispute that the Subarnarekha Port Project of Orissa, which has been in discussion between the petitioners and the representatives of the second respondent before the incorporation of the first respondent-company has formed part of the first respondent-company s project. Considering the same along with the undisputed fact of making the nominee of the second respondent, viz., the fourth respondent, the first and permanent director of the first respondent-company, makes it clear that the second respondent has been a promoter of the company, of course along with the petitioners who are, no doubt, the principal architects and the brain behind the formulation of the project, which cannot be put into action but for the financial assistance of the investor, namely, the second respondent. Inas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered between Maytas and NCC on the one hand and the second respondent and the first respondent-company on the other hand. In the said agreement, the following clause is relevant : "Whereas, Maytas Nagarjuna Combine approached Creative Infrastructure, a BOT port development firm operating from Chennai for assistance/joint participation in the bid process and whereas, Creative Port Development (P.) Ltd., is the project development company jointly floated by Creative Infrastructure and Infrastructure Project Development Fund (IPDF), a fund promoted by SREI Infrastructure Finance Limited, Kolkata." 49. Inasmuch as it is specifically admitted that the second respondent has jointly floated the first respondent-company along with the petitioners, there is nothing more required to show that the second respondent was a promoter jointly with the petitioners. 50. My above view is fortified by the following decisions. In Lydney Wigpool Iron Ore Co. v. Bird [1886] 33 Ch. D. 85, Lindley L.J., while speaking about the term "promoter" observed as under: ". . . for the word promoter is ambiguous, and it is necessary to ascertain in each case what the so-called promoter re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 109. After referring to a number of the more prominent cases the learned author observes at page 106 : It is obvious, therefore, that a person who originates the scheme for the formation of the company, has the memorandum and articles prepared, executed and registered, and finds the first directors, settles the terms (if any), and makes arrangements for advertising and circulating the prospectus and placing the capital, is emphatically a promoter in the fullest sense. He controls the formation and future of the company, and it is this control which lies at the root of the fiduciary relation of the promoter to the company. Nor is he the less a promoter if all or most of these activities are performed nominally by a company which he controls. But a person who has done much less than this - takes a much less prominent part - may bring himself within the meaning of the term and may be held liable as a promoter. 4. Each case must be decided according to the evidence. If it is clear that the persons charged were merely servants or agents of the promoters or servants or agents of the company they cannot be classified as promoters, and in this connection, the learned author makes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, within a reasonable time, of the business, for the carrying on of which the company is formed. He makes purchase of movable and immovable assets, enters into contracts involving rights and obligations and applies to authorities for a variety of things, all on behalf of the company to be formed ." 55. At this juncture, it is also relevant to point out that the concept of promoter as enunciated in the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 See [2000] 99 Comp. Cas. (St.) 328, is mostly from the disclosure perspective. Some of the basic duties which the promoter has towards the company are : ( i ) he must not make any secret profit out of the promotion of the company; and ( ii ) he must make full disclosure to the company of all relevant facts material to any transaction made by him with the company and thereby use his position fairly and reasonably and in the interest of the company and must abstain from exercising undue influence and fraud. 56. The Company Law Board under the impugned order dated 27-5-2009, has chosen to rely upon the contents of the investment agreement dated 26-5-2006 to conclude that the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Board the list of the persons who constitute the promoters group and their individual shareholding. 5.3-6.2 The issuer company shall submit to the stock exchanges on which securities are proposed to be listed, the Permanent Account Number, Bank Account Number and Passport Number of the promoters at the time of filing the draft offer document to them." 58. In fact, it is based on the said Guidelines, in the investment agreement clause 11.7 contains an indemnity clause by the petitioners in favour of the second respondent by treating the petitioners as promoters and the second respondent as VC Investor, which is as follows : "11.7. Indemnification. The promoters and the company hereby agree jointly and severally to indemnify and keep indemnified the VC Investor and each of its affiliates and agree to hold each of them harmless from and against any and all damage (including any claim, charge, action, depletion or diminution in value of the assets of the company or the ordinary shares), loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys fees and expenses in connection with any action, suit or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrates about various protections which are conferred to the venture capital investor under various clauses of the investment agreement, but has chosen to state that the letter and spirit of the investment agreement does not support the plea that the second respondent is a joint promoter of the company. This is certainly an erroneous finding. The further finding by the Company Law Board that the fourth respondent was made a permanent director of the first respondent-company pursuant to the investment agreement and not at the time of formation of the company is also factually incorrect, since, on record, it is shown in the memorandum and articles of association of the first respondent-company that the fourth respondent is the first and permanent director of the first respondent-company even at the time of its inception, namely, on 6-2-2006. The manifest error committed by the Company Law Board in this regard by not distinguishing the status of a person as a promoter in the incorporation of the company and the term "promoter" for the purpose of SEBI Guide- lines is a patent error and is a total mis-appreciation of the terms of the investment agreement in relation to the term "promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-company on the other hand, wherein the first two parties are termed as Maytas-Nagarjuna Combine, while the second parties, viz., SREI Infrastructure Finance Limited and Creative Port Development (P.) Ltd., are jointly called SICP makes it clear that Maytas-Nagarjuna Combine were already qualified in the development of Machilipatnam Port Project of the Government of Andhra Pradesh and they approached Creative Infrastructure, the partnership of the petitioners, for assistance and joint participation in the bid process and it was in those circumstances, the second party, as stated above, was considered to supplement the already qualified Maytas-Nagarjuna Combine for submitting a proposal for deve-lopment of Machilipatnam Port Project on BOOT basis (Build, Own, Operate and Transfer basis) and in that agreement, there was a consensus to share the equity between Maytas-Nagarjuna Combine and SICP at the rate of 51:49 agreeing thereby that the said percentage will be adopted after the successful award of the project based on which a Special Purpose Vehicle (SPV) was agreed to be constituted. Out of the 49 per cent allotted to SICP, SICP has to identify the port operator to whom 11 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment, etc., sought support from Creative Infrastructure in the bidding process and subsequently, on the development of the port upon success. 70. In that memorandum of understanding also it is stated that the Creative Infrastructure, the partnership of the petitioners, shall undertake the traffic study for the proposed port at Machilipatnam and develop a phased market plan and the said Creative shall associate with the consortium till the award of the project and upon successful award till commencement of commercial operations of the port on the terms to be mutually agreed. 71. It was in accordance with the combined effect of the said two memorandums of understanding dated 8-2-2006, a consortium agreement came to be entered on 25-3-2006 among M/s. Maytas Infra Private Limited as a first party, M/s. Nagarjuna Construction Company Limited as a second party, M/s. SREI Infrastructure Finance Limited, the second and sixth respondent, as a third party and M/s. Sarat Chatterjee and Co. (VSP) Private Ltd., as a fourth party. 72. In the consortium agreement dated 25-3-2006, neither the petitioners nor the first respondent-company are parties, while the second and sixth responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the implementation of the project". There is also an arbitration clause under the consortium agreement, further stating that the consortium agreement shall be terminated on the happening of following two events : "( a )Rejection of the bid submitted by the consortium. ( b )Upon formation of the SPC and subscribing to the equity in the SPC in the proportion mentioned in clause No. 4 above." 77. Under clause 4 of the consortium agreement, the shareholding and roles and responsibilities of each member in the SPC after the same is incorporated on award of contract by the Government of Andhra Pradesh was stated as follows : Maytas 40 per cent (forty) Lead Member/Developer/Contractor NCC 11 per cent (eleven) Member/Co-Developer/Contractor SREI 38 per cent (thirty eight) Member/Co-Developer/Terminal Marketing SCC 11 per cent (eleven) Member- cum -O M operator. 78. Admittedly, this consortium agreement does not contain either the petitioners as partners or the first respondent-company as parties. While it is the contention of the petitioners that the Machilipatnam Port Proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82. The e-mail of the first respondent-company dated 12-4-2006 addressed to Mr. Farooque refers to the consortium agreement to be signed among the consortium members and it also refers to various financial particulars about the members of the consortium signed by the company secretary or auditor or chartered accountant, etc. But, by the time the said e-mail was sent by the first respondent-company, the consortium agreement has already been signed in respect of Machilipatnam Port Project on 25-3-2006 itself, in which neither the first respondent nor the petitioners were made as parties. It shows that without the knowledge of the consortium agreement, the first respondent has chosen to send the said e-mail on 12-4-2006. 83. The e-mail of Bajrang Chowdhary, Vice President, SREI Infrastructure Finance Limited, dated 3-5-2006 addressed to the first respondent shows that there has been some exchange of views between the petitioners on behalf of the first respondent-company and the second and sixth respondents and during the course of the discussion the contents of the investment agreement have been considered, while, on fact, the investment agreement has not come into existence on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the owners M/s. Ramani Ramaswamy and R. Rangarajan of M/s. Creative Infrastructure would have a direct commitment in the development of Machilipatnam Port. This is further to the already signed MoU between Creative Infrastructure and the consortium for the development and operation of the port. This we hope would clarify the commitment and binding nature of Creative Infrastructure s role in the development of the port for the Consortium." 87. No doubt, it is true that in this letter dated May 19, 2006, the said respondents have referred to the first respondent-company stating that it would undertake the project as a special purpose port development vehicle and that the petitioners are holding substantial stake as prime promoters of the said company. The said letter, however, states that the petitioners, as partners of Creative Infrastructure, would have commit- ment in the development of the Machilipatnam Port Project, thereby referring to the memorandum of understanding already entered between the consortium and Creative Infrastructure dated 8-2-2006, referred supra . 88. In the reply dated 24-5-2006 to the clarification as sought for by the Government of And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as promoters as a party of the second part and the first respondent-company as a party of the third part. 93. As per the said investment agreement, in addition to the present paid-up equity share capital of the first respondent-company which was Rs. 3 lakhs comprising 30,000 ordinary shares which were subscribed to by the petitioners as its promoters each 15,000 shares, the VC investor has agreed to subscribe to 70,000 equity shares as fresh shares of face value of Rs. 10 each aggregating to the fresh share capital of Rs. 7 lakhs, thereby making the VC investor, represented by the second respondent-company as its investment manager, as 70 per cent shareholder in the first respondent-company, while the shareholding of the petitioners as promoters remained as 30 per cent. 94. The said investment agreement also defines Creative Infrastructure as partnership firm consisting of the petitioners and refers to the second respondent-company as an investment manager of the Infrastructure Project Development Fund. The term "project development expenses" is defined as : "1.1-33. Project Development Expenses , means the expenses incurred by the company to operate, identify, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision or resolution of the board which may affect the borrowing, amalgamation, etc., shall be with the concurrence of the VC investor s director voting in favour of such resolution, which includes any change in the corporate name, address of the company or any of its divisions, branches, works or offices, etc., as it is seen in clause 13.1-9. 99. Clause 16 of the investment agreement relates to the undertakings of the VC investor in providing of financial support to the company and the undertakings of the key promoters to the VC investors that they would devote their full time for the business of the company and the petitioners are to concentrate on the project of the first respondent, except three projects, viz., ( i ) M/s. Marg Constructions Limited; ( ii ) M/s. Rajakkamangalam Thurai Development Trust; and ( iii ) M/s. Thengapattinam Fishing Harbour Development Trust, in respect of which the Creative Infrastructure, partnership of the petitioners, has already entered agreements. 100. As per clause 17 of the investment agreement, in the event the petitioners, being promoters, want to sell their shares, the pre-emption right has been given to the VC investor. 101. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhra Pradesh, the second respondent has reiterated that the 38 per cent obligation of the consortium member, viz., SREI will be through the first respondent-company, which is based on the Investment Agreement dated 26-5-2006 entered between the second respondent and the petitioners along with the first respondent-company. 106. By letter dated 10-7-2007, Maytas, viz., the lead member of the consortium to whom the contract has been awarded by the Government of Andhra Pradesh in respect of Machilipatnam Port Project, have only forwarded the abovesaid letter of the second respondent informing that the equity portion of 38 per cent of SREI for Machilipatnam Port Project will be through the Creative Port Development Company as an associate of the second respondent. 107. The Government of Andhra Pradesh in its letter dated 15-6-2007, addressed to Maytas, obviously referring to the letter of the second respondent through Bajrang Chowdhary, Vice President, SREI Infrastructure Finance Limited dated 19-5-2006 straightaway addressed to the Government of Andhra Pradesh and the subsequent letter dated 15-3-2007 has informed, by referring to clause 4.4 of the request for proposal (RF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest held in Machilipatnam Port Project to the extent of Rs. 35 crores. In fact, the pleadings in this regard show that the petitioners have specifically pleaded that the conduct of the second respondent regarding Machilipatnam Port Project in not providing bank guarantee to the Government of Andhra Pradesh is only in breach of the investment agreement. 111. It is relevant to point out that the petitioners and the first respondent-company issued legal notice to Maytas-NCC stating that they are interested in the Machilipatnam Port Project and without their consent the same should not be executed, marking copies of the said notice to various officers of the Government of Andhra Pradesh, including the Chief Secretary, Special Secretary to Government, Principal Secretary to the Chief Minister and Principal Secretary, Finance Department, Government of Andhra Pradesh. In the reply issued to the said legal notice on behalf of Maytas on 5-3-2008, it has been made clear that neither the petitioners nor the first respondent-company have any right or interest over the Machilipatnam Port Project and are the parties to consortium agreement dated 25-3-2006 and that a reference to the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government of Andhra Pradesh due to reason that Maytas, the lead member of consortium agreement has enclosed its letter of assurance to the first petitioner and the second respondent in the e-mail dated 17-5-2007, sent to the first respondent-company and informed that SREI portion of equity would be contributed by the first respondent and, therefore, it should be presumed that the Machilipatnam Port Project is that of the first respondent-company. There is absolutely no reason for arriving at such a conclusion. Even assuming that the second respondent has taken a stand that as a member of the consortium for which contract was granted its portion of contribution to the Machilipatnam Port Project will be contributed through the first respondent, the non-funding by the second respondent towards the project cannot at all be deemed as either a conduct oppressive to the first respondent-company or against the interest of its members. 115. The further finding that the letter of intent dated 20-1-2007 issued by the Government of Andhra Pradesh in favour of Maytas, Lead Member of consortium shall form part of the concession agreement dated 21-4-2008 between the Government of Andhr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject. Merely because there is a private agreement between the second respondent and the petitioners and the first respondent-company for the purpose of financing under the investment agreement, in the absence of any proof to show that the Machilipatnam Port Project has been awarded to the first respondent- company, it cannot be held by any stretch of imagination that even in the absence of any contribution by the second respondent towards its share under the concession agreement to the Government of Andhra Pradesh, by sharing with Maytas, the lead member, the same can be taken as an oppression on the part of the second respondent towards the first respondent-company based on the investment agreement dated 26-5-2006. In such circumstances, the withdrawal of an earlier letter by the second respondent addressed to the Government of Andhra Pradesh dated 6-11-2007 is in no way connected with the first respondent-company and its objects and functions. 118. If that be so, the second respondent s letter of withdrawal cannot be taken as a failure of fiduciary responsibility or suppression of any material fact made either by the second respondent or by the other respondents, who are the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh has granted the contract, the mere failure of the second respondent as one of the members of the consortium in fulfilling its obligation towards the Government of Andhra Pradesh is only harmful to the lead member-Maytas to whom the contract was granted and if in their process of negotiation the second respondent is asked to go out of the project for a consideration, it cannot be said that the second respondent should disclose his interest in the said project to the first respondent-company or the petitioners, being its directors. There is absolutely no question of fiduciary relationship in this regard and the application of section 88 of the Indian Trusts Act is totally misconceived. 123. It is relevant to point out that it is not even in the pleadings of the petitioners that in respect of Machilipatnam Port Project, the second respondent and other respondents stood in fiduciary relationship. There is nothing to show that the Machilipatnam Port Project has been granted to Maytas based on the obligation of the second respondent towards the first respondent-company under the investment agreement dated 26-5-2006. 124. Section 88 of the Indian Trusts Act reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited, the petitioners or the first respondent-company is not a party and there is no reference about them anywhere in the said agreement, it is patently improper for the Company Law Board to consequently direct respondent Nos. 2 to 6 to reimburse in favour of the first respondent-company 30 per cent of all benefits enjoyed by the second respondent from and out of the Machilipatnam Port Project as on March 30, 2008. 127. A reference to the pleadings, especially relating to the finding of the Company Law Board and if there is a breach of fiduciary duty on the part of respondent Nos. 2 to 6, shows that there is nothing in the company petition filed by the petitioners in that regard. What is stated in the pleading in respect of Machilipatnam Port Project is that the second respondent pursuant to the obligation under the consortium agreement with Maytas, NCC and Sarat has failed to contribute the amount of 38 per cent to the Government of Andhra Pradesh, by which the benefit of the project could not be enjoyed by the first respondent-company. That is merely based on the memorandum of understanding dated 8-2-2006. Consequently, that has resulted in the petitioners, who in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petition under section 397 of the Act, the powers of the Court to investigate under section 402 of the Act are wider. But that does not mean that in the absence of specific plea of breach of fiduciary relationship, the Court can enter into the same to hold that there is a breach of fiduciary relationship. In any event, as held by the Supreme Court, as stated above, even for a grant of relief under section 397 of the Act, a case must be made out in the petition which cannot be cured at a later stage, even if lacuna is found out by evidence which is oral or documentary. On the factual matrix which has been discussed above, in this case there is absolutely nothing for any one to presume that there has been any breach of fiduciary relationship. 131. The next submission relating to improper funding is actually connected with Subarnarekha Port Project of the Government of Orissa predominantly. 132. The said complaint relating to funding by the second respondent and its obligation thereof emanates from the investment agreement dated 26-5-2006. As already elicited above, the funding obligation of the VC investor on behalf of the second respondent is as per clause 3.1 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said clause 3.1 of the investment agreement, there has been any decision of the board of the first respondent-company regarding the expenses to be funded by the second respondent as the VC investor. It is only in the e-mail of the first petitioner dated 20-2-2007, being a director of the first respondent-company, addressed to the second respondent, by which based on the terms and spirit of the investment agreement, the first petitioner has referred for the first time about the requirement of Rs. 50 crores towards strategic expenses and bank guarantee margin. In the said letter, he has also chosen to refer about Rs. 25 to 30 lakhs as strategic expenses for Subarnarekha Port Project complaining about the second respondent in not forwarding the same. 135. The Company Law Board in the impugned order, while dealing about the said strategic expenses and other allegation of non-funding of the second respondent, decided that the second respondent has not performed its obligation of funding as per the investment agreement and having found that there was no approval from the board of the company for such request for funding has concluded that such approval from the board has been waive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a separate agreement dated March 8, 2002, with the WBIDC. The agreement dated March 8, 2002, was not an agreement between shareholders of the HPL, the CP(I)PL that was deemed to have pledged the deemed transferred and delivered shares was not a shareholder of the HPL. Simply because the HPL subsequently wrote letters seeking confirmation from the WBIDC whether it had transferred those shares, and seeking the IDBI s decision regarding approval of the transfer, I do not think it can be said that the matter became an affair of the HPL. To my mind, the Board committed an error of law by holding that the question of transfer of the said 155 million shares was an affair of the HPL . . . . I, therefore, do not see how the question of transfer of the said 155 million shares could be considered an affair of the HPL. Hence, I hold that the board was not competent to decide anything connected with that question while considering the company petition under section 397." (pp. 873 and 874) 137. The Division Bench of the Madras High Court in Shoe Specialities (P.) Ltd. v. Standard Distilleries Breweries (P.) Ltd. [1997] 90 Comp. Cas. 1 , while considering about the term "affair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . While recognising that the Court could not be expected in every case to find and impose a solution it was thought that its discretion must be unfettered for it is impossible to lay down a general guide in the solution of what are essentially individual cases". Referring to the decision in Antigen Laboratories Ltd., In re [1951] 1 All ER 110 (Ch. D), the learned author says "that it has been held that the petitioner cannot just ask the Court to exercise its discretion but must indicate the nature of the relief wanted. This decision though perhaps inevitable seems regrettable and inconsistent with the intention that the Court should have power to find and impose a solution". The decision of the English Court was, as pointed out by the learned author, the result of the procedure of the English High Courts "which was ill adapted for the exercise of the inquisitorial and constructive role, thus, imposed upon the Court". We are not hampered by such rigid technicalities of procedure and if the minority in a company complains of an oppression and discloses certain grounds of complaint in the petition which are made the basis follow the relief, we would hold that the Court should ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to say, in a manner burdensome, harsh and wrongful . The learned Law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the first hearing of the case to the effect that section 210 warrants the Court in looking at the business realities of the situation and does not confine them to a narrow legalistic view. Dealing with the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination, one result followed from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members . Finally, it was held that the Court ought not to allow technical pleas to defeat the beneficent provisions of section 210 (page 344, per Lord Keith ; pp. 368-69, per Lord Denning)." (p. 777) 140. After analysing the various decisions and construction of section 397 of the Act, the Supreme Court has held as follows : "54. It is clear from these various decisions that on a true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with law ." (p. 29) 142. In Sangramsinh P. Gaekwad s case ( supra ), while deciding about section 397, read with section 402, of the Act and the jurisdiction of the Court, it was observed that there are wide powers to the Court while exercising jurisdiction under section 402 of the Act, but it is not in all cases relief can be given and the same must be depending upon the exigencies of the situation and a decision can be arrived at only on analyzing the materials. The observations are as follows : "The jurisdiction of the Court to grant appropriate relief under section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the Court while exercising its discretion is not bound by the terms contained in section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the Court may seem fit and proper, is warranted, ( see Bennet Coleman and Co. v. Union of India [1977] 47 Comp. Cas. 92 (Bom.) and Syed Mahomed Ali v. R. Sundaramurthy [1958] 28 Comp. Cas. 554 : AIR 1958 Mad. 587). But the same would not mean that section 397 provides for a remedy for every act of omission or commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted to render substantial justice, as under : "199. 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 the parties." (p. 635) 145. These legal principles which have been crystallized by hierarchy of judgments are not in dispute. But, the question is, on the facts and circumstances of the case, when the allegation made by the petitioners is that there was improper funding by the second respondent as per the investment agreement, while the second respondent being a party to the investment agreement had the obligation of funding in respect of Machilipatnam Port Project towards the lead member, Maytas, as per the consortium agreement dated 25-3-2006, there is absolutely no reason to conclude that in respect of the affairs of the first respondent-company there is an extraordinary situation to grant relief which is far-reaching in its nature by holding as if the affairs of the first respondent-company have been prejudicially conducted by the second respondent being the majo-rity shareholder particularly with reference to the Machilipatnam Port Project. 146. In respect of Subarna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogation, the new body corporate (SPC) shall be recognised by the Government for all legal and operational purposes. It is further agreed that the CPDP shall cause to provide suitable required letter from the new body corporate (SPC) consenting to the above arrangement and for the smooth implementation and the SPC shall be the successor to the rights, duties and obligations under this agreement of CPDP." 148. The term "port premises" as referred to in clause 2.1, is defined in clause 2.20 as follows : "2.20. Port Premises. Port premises means and include (1) land (including submerged land) and water area as notified by the Government as port limit given on lease to the CPDP; (2) all structures and facilities constructed or provided by the Government on premises sub-component (1) above; (3) land reclaimed by the CPDP during the pendency of this agreement; (4) additional tenanted land acquired or to be acquired by the Government for providing of port service during the pendency of this agreement; (5) all structures and facilities including modifications constructed or provided by the CPDP or its sub-contractors or any other assignees on port premises sub-components (1) to (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect is a project of the first respondent-company and the funding obligation of the second respondent is in relation to the affairs of the company as per section 397 of the Act, inasmuch as the entire project itself is in preliminary stage and no damage has been caused to the project, one cannot come to a conclusion that due to the said isolated incident an extraordinary circumstance is in existence to warrant interference by this Court normally to wind up the company and in order to avoid the same to invoke the powers under section 397, read with section 402, of the Act. 151. It is apposite to point out at this stage that the resolution of the board of directors of the first respondent-company dated 7-11-2007 authorizing to avail of bank guarantee from Axis Bank, R.K. Salai to the extent of Rs. 10 millions (rupees ten million) in favour of the Government of Orissa. The said resolution is as under : "Resolved that the consent of board of directors of the company be and hereby given for applying for and availing of bank guarantee from Axis Bank, R.K. Salai Branch, Chennai (hereinafter referred to as bank ), to the extent of Rs. 10 millions (rupees ten millions only) in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al dated 15-11-2007 addressed to the petitioners. Therefore, it is clear that in respect of Subarnarekha Port Project, the petitioners have taken up the personal responsibility at their own risk on the mortgage of the flats owned by them and, accordingly, a concession agreement was obtained from the Government of Orissa on 11-1-2008. This is also factually found by the Company Law Board in its impugned order. While so, it cannot be said that there has been any oppression on the part of the second respondent, since the petitioners have consciously taken a decision to involve themselves in the Subarnarekha Port Project by excluding the second respondent probably based on the memorandum of understanding dated 14-11-2007, as stated above, along with the subsequent letter of the third respondent dated 15-11-2007. 154. In such view of the matter, there is no question of any detriment suffered by the petitioners as the members or promoters of the first respondent-company in whatever name they are called. But, that is not the issue. The real issue lies in the memorandum of understanding dated 14-11-2007 stated to have been entered between the petitioners on the one hand and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners to get the concession agreement signed with the Government of Orissa. Admittedly, immediately thereafter the concession agreement has been signed with the Government of Orissa on 11-1-2008, during the time when the memorandum of understanding was kept valid, which was up to 28-2-2008. 156. From the above, it is clear that the petitioners have acted upon the memorandum of understanding signed by the third respondent on behalf of the Infrastructure Project Development Fund and that the negotiations between the parties have fructified into a concrete term of consideration to be paid to the second respondent for the exit of the second respondent from the first respondent-company, as it is seen from the e-mail of the third respondent sent on behalf of the second respondent-company addressed to the petitioners dated 15-11-2007, in which it is stated as follows : "This has reference to the MoU that we signed on November 14, 2007 between us for the takeover of IPDF portion of the investments. In this regard please note that the total consideration for this stake sale inclusive of all equity, preference shares, convertible bonds issued and funding/work undertaken by SREI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third respondent on behalf of the second respondent by e-mail dated 15-11-2007 has agreed to receive the amount of Rs. 52.50 crores in full and final claim towards all the rights in the first respondent-company at least in respect of Subarnarekha Port Project. Therefore, it cannot be said that the Company Law Board has directed the parties to enforce the memorandum of understanding dated 14-11-2007. The memorandum of understanding is not an enforceable one, but the subsequent conduct of the third respondent makes it clear that the second respondent has agreed to exit from the first respondent-company and it is only the undertaking of the second respondent which has been directed to be performed by the second respondent in the impugned order of the Company Law Board which is well within its jurisdiction. The relief granted by the Company Law Board in paragraph 9( i ) of the impugned order is only as per the undertaking of the second respondent and cannot be said to be a decision that there has been any oppression committed by the second respondent and, therefore, the second respondent has been directed to go out of the company as a matter of penalty for such oppression. 160. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity shareholder. It is no doubt true that the shares were issued in haste. But, as we have already indicated, the company was in need of money for expansion and its getting the loan from the Industrial Finance Corporation also depended upon the increase of subscribed share capital. Therefore, the haste with which the shares were allotted on July 30, 1958, cannot really be said to be a part of a design to oppress the minority. The haste became necessary because the interim injunction was vacated on that day and it was felt that if immediate action was not taken and the new shares allotted, there might be further injunction which would further delay the issue of shares and getting the loan from the Industrial Finance Corporation. The haste, therefore, appears to have occurred because of the action taken by the appellant in bringing a suit and getting a temporary injunction. It was feared that even after the vacation of the temporary injunction the appellant would go in appeal and get another injunction from the appeal court. This fear was justified because the subordinate judge s court two hours later withheld the operation of its order vacating the temporary injunction. The haste in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of which, as they appear at pages 1036-37, bear, according to him, great resemblance to the facts before us. The following observations in that case are of striking relevance (at page 1040 of 68 ER: 536 of 10 Hare) : As has been well observed during the course of the argument, the view taken by this Court with regard to morality of conduct amongst all parties-most especially amongst those who are bound by the ties of partnership is one of the highest degree. The standard by which parties are tried here, either as trustees or as co-partners, or in various other relations which may be suggested, is a standard, I am thankful to say so, far higher than the standard of the world; and, tried by that standard, I hold it to be impossible to sanction the removal of this gentleman under these circumstances. Not only is the law on the side of Devagnanam but his conduct cannot be characterised as lacking in probity, considering the extremely rigid attitude adopted by Coats. They drove him into a tight corner from which the only escape was to allow the law to have its full play. 175. Even though, the company petition fails and the appeals succeed on the finding that the Holding Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it transpires in the present context is, we have to examine whether the acts of the company were oppressive to any member or members justifying the winding up as just and equitable. It is not necessary that in every case, the relief of winding up should be made. It is an option with the Tribunal if it considers that in order to bring to an end the matters complained of, it can pass orders for winding up if it is just and equitable or it can pass such order as it thinks fit. It does not necessarily mean that in every case such winding up order need be passed. Similarly, under section 398 also, if the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change not being a change brought about by, or in the interests of any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company whether by an alteration in its board of directors, or manager or in the ownership of the company s shares, or if it has no share capital, in its membership, or in any other manner whatsoever and that by reason of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra ) with approval. 169. The Supreme Court in M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja [2008] 143 Comp. Cas. 97 1 held that while dealing with a case of oppression under section 397 of the Act, there should be a finding of fact to the effect that there has been oppression, but the jurisdiction of the Company Law Board to pass any further order in the interest of the company is still available. S.B. Sinha, J., in the said judgment, has reiterated the legal position once again in the following words : "13. 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 out. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affairs of the company, that the consideration of Rs. 52.50 crores has not crystallised in the memorandum of understanding, that the memorandum of understanding was not supported by consideration, that the memorandum of understanding has not been approved by the board of directors of the first respondent-company and that it suffers from various other legal infirmities, but still came to a conclusion that they are not relevant for granting relief under section 397 of the Act, holding that by virtue of the said memorandum of understanding dated 14-11-2007 and the subsequent e-mail dated 15-11-2007, the second respondent has clearly made out its intention to go out of the first respondent-company, especially relating to Subarnarekha Port Project and that the petitioners have acted upon the memorandum of understanding by furnishing the bank guarantee by themselves to the extent of Rs. 1 crore in favour of the Government of Orissa and ultimately, the concession agreement came to be entered with the Government of Orissa on 11-1-2008 based on the memorandum of understanding dated 14-11-2007. 172. As crystallised by the established judicial precedents, as referred to above, to the ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Company Law Board is of opinion ( a )that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and ( b )that to wind up the company would unfairly prejudice such member or members, but 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, the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Company Law Board for relief in cases of mismanagement. (1) Any members of a company who complain ( a )that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or ( b )that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modified except after obtaining the consent of the party concerned; ( f )the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; ( g )any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made." 175. Sections 397 and 398 of the Act, which relate to oppression and mismanagement, respectively, ultimately enable the Company Law Board to pass orders with a view to bring to an end the matters complained of or to prevent the apprehended conduct, of course subject to the procedural restrictions under section 399 of the Act. In addition to the inherent and general powers which are conferred on the Company Law Board while deciding the issue of oppression and mismanagement under sections 397 and 398 of the Act, express powers are given to the Company Law Board under section 402 of the Act. A combined reading of it makes it very clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention is that when the second respondent is holding 70 per cent of the shares with utmost control over the affairs of the first respondent-company and the petitioners are holding only 30 per cent of the shares, having not invested monetarily to a large extent and claiming stake only based on their merit and ability in the port project, the direction of the Company Law Board in paragraph 9( i ) is really against the basic principles of corporate law that the majority rule will prevail. 179. At the outset, as elicited above, the relevant provisions of the Act dealing with the concept of oppression, mismanagement and powers of the Company Law Board, nowhere restrict the Company Law Board in appropriate cases to direct the majority shareholders to submit to the minority shareholders. It is of utmost importance to understand that the concept of oppression and mismanagement itself is an exception to the general rule that the majority shall rule the company, which is acceptable in normal circumstances. Therefore, under sections 397 and 398 of the Act, the minority who feel oppressed in the hands of the majority, of course subject to the requirement under section 399 of the Act, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein the Division Bench presided over by P.V. Rajamannar, C.J. has held as under : "We are not hampered by such rigid technicalities of procedure and if the minority in a company complains of an oppression and disclosed certain grounds of complaint in the petition which are made the basis for the relief, we would hold that the Court should ordinarily investigate the charges. Such investigations may in certain cases be necessary even to regulate the future conduct of the company for providing against recurrence of such abuses of power by the majority." (p. 562) 184. A propose the said issue it is also apt to refer to the decision in Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal. 512, wherein a Division Bench of the Calcutta High Court held that there is no lower limit of qualification of any shareholder or group of shareholders for complaining of oppression and mismanagement and further observed that even the majority shareholders can apply under the said provisions, in the following words : "56. Relying on the English cases and Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 : [1965] 1 SCA 556: AIR 1965 SC 1535, before the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at Jogendra Mukherjee Road. There would be complete chaos and confusion if any meeting was to be summoned." (p. 530) 185. It was further held that if a Court arrives at an equitable conclusion based on evidence even if certain facts are lacking justice will not suffer, as under : "64. It must be admitted that a strong case was not made out in the petition and what view the Court would have taken if a point of demurrer had been argued it is difficult to say. But once all the evidence is before the Court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. In Firm Sriniwas Ram Kumar v. Mahabir Prasad AIR 1951 SC 177, the Court observed that there would be nothing improper in giving the plaintiff a decree upon the case which the defendant himself makes . Again in Kedar Lal v. Hari Lal AIR 1952 SC 47, it was observed by Bose J. (paragraph 51) I would be slow to throw out a claim on a mere technicality of pleading when the substance of the thing is there and no prejudice is caused to the other side, however, clumsily or inartistically the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es at the same price. The price is to be arrived at on the basis of the break-up value of the shares. The respondents should be given three months time after the submission of the report of the special auditor and the ascertainment of the value of the shares to buy out the petitioners. In default the petitioners will have the right to buy up the respondents shares within a further period of three months from that date. Except for this modification the order made by the learned Trial Judge will stand." (p. 531) 187. As far as the last submission complained about oppression and mismanagement which relates to the alleged locking of the premises of the registered office of the first respondent-company by the second respondent-company and others and freezing of the accounts of the first respondent-company, it is no doubt true that there was actually no transactions conducted on behalf of the first respondent-company. I have already found that there are only two projects of the first respondent-company and the Machilipatnam Port Project cannot be termed as the project of the first respondent-company, while in respect of Subarnarekha Port Project even though it is the project of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the first respondent-company s affairs and there is a loss of mutual trust and lack of probity. Such incident itself is not sufficient, in my view, to constitute oppression which should be tested in the light of the powers of the Court under section 433( f ) of the Act to take the extreme step of winding up of the company under just and equitable ground, as such extreme step would be more prejudicial to the affairs of the company and also the interest of its members and, therefore, remedial measures are given under sections 397 and 402 of the Act and, hence, the relief given in that regard in paragraph 9( i ) of the impugned order is quite within the jurisdiction of the Company Law Board for rendering substantial justice between the parties. In fact, the Company Law Board has given a proper reason for arriving at such conclusion, which is as follows : "The only board meeting, which was held on May 21, 2008 in the course of the present proceedings admist the controversies raised by the petitioners could not serve any purpose in view of non-implementation of any of the resolutions passed at the aforesaid board meeting. These mutual steep differences do pave the way for the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd is certainly bound to consider the interest of all the parties concerned before giving such far-reaching directions. When once the second respondent and its nominees are directed to go out of the first respondent-company on receipt of the consideration which is well within the powers of the Company Law Board under section 397 or 402 of the Act, the Company Law Board ought to have secured the interest of the second respondent and its nominee directors at least insofar as it relates to the relief granted under paragraph 9( i ) of the impugned order. 194. As rightly submitted by learned senior counsel for the appellants, the exercise of such power by the Company Law Board in a far-reaching manner has certainly resulted in causing detriment to respondent Nos. 2 to 6 even in implementing the relief granted under paragraph 9( i ) of the impugned order. In that view of the matter, the relief under paragraph 9( iii ) of the impugned order ought to have been granted only after securing the interest of the second respondent, which has been directed to go out of the first respondent-company. 195. It is under such circumstances, that the subsequent conduct of the petitioners is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Subarnarekha Port Private Limited on 23-9-2008 as subscribers to the memorandum and articles of association and the company was incorporated on 1-10-2008, constituting it as a special purpose vehicle of the first respondent-company and the petitioners have signed as signatories to the memorandum and articles of association, each having been allotted 5,000 equity shares as it is also evidenced from Form No. 32 filed before the authorities under the Act. In Form 1 filed by the newly constituted company Subarnarekha Port Private Limited on 1-10-2008, the authorised capital of the company is stated as Rs. 10 lakhs with number of equity shares as one lakh of Rs. 10 face value. 200. In Form No. 18 filed by the newly constituted company as per section 146 of the Act on the same day, viz., on 1-10-2008, the registered office of Subarnarekha Port Private Limited has been stated as at Bhubaneswar, Orissa. On fact it is true that these factual things, which were in existence at the time when the proceedings before the Company Law Board were pending, were not brought to the notice of the Company Law Board nor were informed to this Court at the time when the appeals came up for admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Orissa, the first petitioner as a Joint Managing Director of the first respondent-company has informed the Government about the order of the Company Law Board and requested for an appointment to meet the Government officials in person. On the same day, by another letter addressed to the Commissioner- cum -Secretary, Department of Commerce and Transport, Government of Orissa, the first respondent has enclosed a copy of the order of the Company Law Board and requested the said official to confirm the appointment on 3-6-2009 at 2.30 pm. On the very same day, a similar letter was addressed to the Principal Secretary to the Hon ble Chief Minister, Government of Orissa. 205. On the same day, viz., on 29-5-2009, the petitioners have passed a resolution on behalf of the first respondent-company without notice to the second respondent, who is the majority shareholder, and inducted ( i ) Ilangumaran Matchendran, ( ii ) Prabhakar Ram Tripathi, and ( iii ) Ashok Bhatnagar as additional directors and further resolved that respondent Nos. 3 to 5 cease to be directors of the first respondent-company by virtue of the order of the Company Law Board dated 27-5-2009 and that the registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visaged in the Concession agreement. This letter is for your information as per clause 2.4 of the concession agreement". The said letter was signed by the first petitioner as joint managing director of the first respondent-company. 209. On the same day, viz., 31-5-2009, the first petitioner, as director of Subarnarekha Port Private Limited, has intimated the Commissioner- cum -Secretary, Department of Commerce and Transport, Government of Orissa consenting to all the terms of the subrogation. The contents of the said letter are as follows : "This has reference to the clause 2.4 of the signed concession agreement for the Subarnarekha Port Project. We wish to introduce ourselves as the special purpose company incorporated for this project. Our company has already entered into a deed of subrogation on 31-5-2009 with M/s. Creative Port Development Pvt. Ltd. In this regard we confirm and consent to all the terms of the subrogation as in the deed mentioned above with Creative Port Development Pvt. Ltd. We also confirm and consent to being the successors to the rights, duties and obligations of M/s. Creative Port Development Pvt. Ltd. as per the terms of the signed concession ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Orissa. 213. All these acts are, no doubt, well within the powers of the petitioners since they are empowered by the impugned order of the Company Law Board. But, they are relevant for the purpose of deciding the correctness of the direction given by the Company Law Board in the context of the magnitude of implications caused by the conduct of the petitioners. 214. By virtue of the subrogation of the concession agreement in respect of Subarnarekha Port Project, all the rights have been transferred to the newly constituted Subarnarekha Port Private Limited consisting of the petitioners alone, who in their turn have completely made it over to the Signature Group International Limited, Cayman Islands of U.A.E., thereby leaving nothing to be recovered by the second respondent even in respect of the relief given by the Company Law Board under the impugned order under paragraph 9( i ) from the first respondent-company. This is not an ordinary situation to be lightly taken by any judicial forum. This can only be treated as one of the apt instance as to how the consequence of a judicial order can be disastrous if the same is passed without any sense of anticipation, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company Law Board which states that the petitioners shall inform the second respondent about the major developments in the Subarnarekha Port Project every month, by virtue of the additional documents which are stated to have been received by the second respondent as well as the documents filed on behalf of the petitioners, all material facts required from the date of passing of the order by the Company Law Board till 25-6-2009 are available before this Court either by way of information obtained under the Right to Information Act, 2005, by the second respondent or otherwise. It is also relevant to point out that in compliance with the directions of this Court dated 10-7-2009 extracted above, Mr. T.V. Ramanujun, learned senior counsel appearing for the petitioners, has also produced copies of the documents in the form of typeset relating to the subsequent events starting from 1-8-2008 till 25-6-2009. 218. After perusal of the said documents filed in the form of typeset of papers by Mr. T.V. Ramanujun, learned senior counsel copies were directed to be given to learned counsel for the second respondent, which has been complied with and based on the information and documents obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond respondent-investor (SREI) on the said project cannot be treated as oppressive or against public interest in the light of memorandum of understanding dated 14-11-2007 and the consequent conduct of the petitioners who have chosen to contribute an amount of Rs. 1 crore towards the Government of Orissa and the third respondent who has agreed to receive Rs. 52.50 crores as a consideration for leaving from the first respondent-company in respect of the said project respectively; ( vii )by virtue of the memorandum of understanding dated 14-11-2007 read with the categoric letter of the third respondent dated 15-11-2007, by which the second respondent has agreed to receive a sum of Rs. 52.50 crores to leave the first respondent-company relating to Subarnarekha Port Project is binding on the second respondent and by applying the principle of estoppel, it is not open to the second respondent to go back on such letter, especially when the same has been acted upon by the petitioners; and the impugned order of the Company Law Board is not in effect enforcing the memorandum of understanding dated 14-11-2007, since the order of the Company Law Board in that regard is only to give effect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent-company (Creative Port Development Private Limited) to the petitioners either at an agreed consolidated price of Rs. 52.50 crores or any fair value to be arrived at by an independent expert valuer as at 31-3-2009, whichever is higher. The Company Law Board shall appoint, on an application by the second respondent within a period of thirty days from the date of receipt of a copy of this order, an independent Expert Valuer and decide about all other formalities in that regard; ( ii )the relief granted by the Company Law Board under paragraph 9( ii ) stands set aside, holding that the second respondent shall not have any obligation to reimburse any benefit accrued by it under Machilipatnam Port Project either to the petitioners or the first respondent-company; ( iii )all further acts of the petitioners pursuant to the order of the Company Law Board dated 27-5-2009 are directed to be kept in abeyance, except those vital acts which require the petitioners to act for the purpose of retaining the Subarnarekha Port Project with the Government of Orissa, till the formalities in respect of fixing the consideration for exit of the second respondent is fixed by the Company Law Board, ..... 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