TMI Blog1977 (12) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... Cosmosteels P. Ltd. (for short the company ) and three others who would be referred to in this judgment as Jain group . By an order made by the company judge on 21st April, 1977, the board of directors of the company was superseded and one Mr. Sachin Sinha, advocate, was appointed as administrator to discharge various functions set out in the order. The court also appointed Mr. N. Chakraborty, a chartered accountant and auditor, to investigate into the accounts of the company and one Mr. A.K. Dey, engineer and surveyor, for valuation of the assets of the company and further the auditor and the surveyor after investigation of the accounts and evaluation of the assets of the company were to determine the break-up value of the shares as on the date of the petition and on the determination of such break-up value the administrator was to call upon the Jain group to purchase the shares belonging to the Gupta group within a period of three months from the date of service of notice failing which the administrator was directed to purchase the shares of the Gupta group for the company at the break-up value determined as hereinabove mentioned. A further direction was given that if the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 1347(N) of 1977. The parties settled the dispute as per the consent terms and requested this court to make an order in terms of the consent terms. The court accordingly made an order on 31st May, 1977, disposing of the appeal in terms of the consent terms. The only term relevant for the present purpose is the one by which the company was directed to purchase 1,300 shares held by the Gupta group. The price of the shares was to be determined by Messrs. Price Water House and Peat, Chartered Accountants and Auditors, as on the date of the filing of the petition under sections 397 and 398 on the basis of the existing as also contingent and anticipated debts, liabilities, claims, payments and receipts of the company. The chartered accountants were to determine the value of the shares after examining accounts and calling for necessary explanations and after giving opportunity to both the groups to be heard in the matter and the determination of the value by the chartered accountants was to be final and binding and not open to any challenge by either side on any ground whatsoever. On the value being so determined the company had to purchase the shares and, on such purchase, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent we will proceed on the assumption that they are creditors of the company. But even on this assumption, can it be said that the order of this court dated 31st May, 1977, directing the company to purchase the shares of the Gupta group and providing that, consequent upon this purchase, the share capital of the company would pro tanto be reduced, is bad for want of notice to the interveners and other creditors of the company ? Section 77 prohibits the company from buying its own shares unless the consequent reduction of capital is effected and sanctioned in pursuance of sections 100 to 104 or section 402. This section places an embargo on the company purchasing its own shares so as to become its own member but the embargo is lifted if the company reduces its share capital pro tanto. It is clear that this section envisages that on purchase by a company of its own shares, reduction of its share capital may be effected and sanctioned in either of two different modes : ( i ) according to the procedure prescribed in sections 100 to 104; or ( ii ) under section 402, depending upon the circumstances in which reduction becomes necessary. Sections 100 to 104 specifically prescribe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors to be settled and a notice to be published which will enable the creditors whose names are included in the list to object to the reduction and a provision has to be made in respect of dissenting creditors. Sections 397 and 398 enable the minority shareholders to move the court for relief against oppression by majority shareholders. In a petition under sections 397 and 398, section 402 confers power upon the court to grant relief against oppression, inter alia , by providing for the purchase of shares of any of the members of the company by other members thereof or by the company and in the case of purchase of its shares by the company, the consequent reduction of the share capital of the company. Rule 90 of the Companies (Court) Rules, 1959, provides that where an order under sections 397 and 398 involves reduction of capital, the provisions of the Act and the Rules relating to such matter shall apply as the court may direct. The question is : whether, when on a direction given by the court, while granting relief against oppression to the minority shareholders of the company, to the company to purchase the shares of some of its members which would ipso facto bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by resorting to the procedure prescribed in sections 100 to 104. Additionally, it would cause inordinate delay and the very purpose of granting relief against oppression would stand self-defeated. Viewed from a slightly different angle, it would be impossible to carry out the directions given under section 402 for reduction of share capital if the procedure under sections 100 to 104 is required to be followed. Under sections 100 to 104 the company has to first adopt a special resolution for reduction of share capital if its articles so permit. After such a resolution is adopted which, of necessity, must be passed by majority, and it being a special resolution, by a statutory majority, it will have to be submitted for confirmation to the court. Now, when minority shareholders complain of oppression by majority and seek relief against oppression from the court under sections 397 and 398 and the court, in a petition of this nature, considers it fair and just to direct the company to purchase the shares of the minority shareholders to relieve oppression, if the procedure prescribed by sections 100 to 104 is required to be followed, the resolution will have to be first adopted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the creditors is that the members of the company may not unilaterally act to the detriment of the creditors behind their back. If such a procedure were not prescribed, the court might, unaware of all the facts, be persuaded by the members to confirm the resolution and that might cause serious prejudice to the creditors. But such a situation would not be likely to arise in a petition under sections 397 and 398. In such a petition the court would be better in a position to have all the relevant facts and circumstances before it and it would be the court which would decide whether to direct purchase of shares of the members by the company. Before giving such a direction the court would certainly keep in view all the relevant facts and circumstances, including the interest of the creditors. Even if the petition is being disposed of on a compromise between the parties, yet the court, before sanctioning the compromise, would certainly satisfy itself that the direction proposed to be given by it pursuant to the consent terms, would not adversely affect or jeopardise the interest of the creditors. Therefore, it cannot be said that merely because section 402 does not envisage consent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, the company would have to part with some of its funds jeopardising the security of the creditors. Such not being the position, there is no scope for apprehension on behalf of the interveners that the reduction of share capital to be effected under the court's direction without reference or notice to creditors would adversely affect their interests. We may also point out that a right to notice by reason of any rule of natural justice, which a party has to establish, must depend for its existence upon proof of an interest which is bound to be injured by not hearing the party claiming to be entitled to a notice and to be heard before an order is passed. If the duty to give notice and to hear a party is not mandatory, the actual order passed on a matter must be shown to have injuriously affected the interest of the party which was given no notice of the matter. The facts discussed above by us show that no interest of the interveners, on whose behalf we have heard Mr. De at length, has been injured by not hearing them before the order was passed. They have not shown us how the order could be different if they had been heard by issuing notices to them under the inherent powe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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