9911796707
TMI Blog1981 (5) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the averments made in the petition Amrit group has been acting to benefit itself at the cost of Suresh group. It has been alleged that the company was in the nature of a partnership between the members of the two groups and that Amrit group is conducting the affairs of the company in a manner which is unlawful and highly prejudicial to the petitioner and his family. Instances of illegal and arbitrary acts have been set out in the petition. It is contended that there is a lack of probity in the conduct of the affairs by the Amrit group and that there is a state of complete deadlock which has been created in the business. The reliefs which have been prayed for include the relief of the appointment of a committee of management, removal of respondent No. 2 from the board of directors or restraining him from acting as managing director, appointing the petitioner as managing director in place of respondent No. 2 or directing that the board of directors should not implement any decision without the concurrence of the petitioner and some other ancilliary reliefs. On behalf of the respondents the allegations set out in the petition have been denied. It is contended by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. This rejoinder was filed after the petitioner had, with the help of a court order, inspected the records of the company. After the petition was admitted and the pleadings were completed, by order dated 2nd December, 1980, it was directed that the parties may file affidavits by way of evidence and documents within four weeks. Admission and denial of documents was to take place before the Deputy Registrar. The Central Government was given liberty to file a representation and parties were given an opportunity of filing affidavits in reply to the representation, if filed. By the said order liberty was also given to the parties to summon oral evidence, if necessary. The parties were also entitled by the said order to take steps to cut short the trial by service of interrogatories, notice to admit and deny documents, notice to produce documents, etc . It was further directed that if the said steps were not taken by the parties, the case would be notified by the Deputy Registrar and listed for hearing. Reference has been made by me to the aforesaid order for the reason that though some documents were filed by the parties no affidavits by way of evidence have been filed nor did the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the Act. One thing is clear, however, that no orders under section 402 can be issued or relief granted under sections 397 or 398 unless and until the case can be brought by the petitioner within the ambit of sections 397 or 398 of the Act. The aforesaid three contentions of Mr. Ved Vyas were urged with a view to establish that in the present case the provisions of sections 397 to 398 are attracted. He has sought to argue that there has been an oppression on the petitioner and members of his group and, further, the respondents have acted in a manner which is prejudicial to the interests of the company. The respondents, of course, have denied the aforesaid allegations of the petitioners. The specific instances which were pointed out by Mr. Ved Vyas with regard to the alleged contravention of the provisions of the Company Law by the respondents were as follows : ( a )It is alleged that no notices for meetings of the board of directors of the company which are alleged to have been held on 28th December, 1979, and 28th February, 1980, were received by the petitioner. Similarly no notice with regard to the holding of the annual general meeting on 28th March, 1980, was received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 397 are attracted or not. The provisions of section 397, which is similar to the provisions of section 210 of the English Companies Act, have been interpreted by the Supreme Court in the case of Shanti Prasad Jaiti v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351. After referring to the cases decided in England with regard to section 210 of the English Act, the Supreme Court observed as follows p. (366): "These observations from the four cases referred to above apply to section 397 also which is almost in the same words as section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Turner Morrison Co Ltd., ILR [1972](1)Cal. 286 that if an action of the directors is illegal or invalid then the company or the shareholders may take appropriate action in a court of law by challenging the validity of such an action but a petition under section 397 or section 398 of the Act is not an appropriate remedy for the purpose. In this very case, it has been observed that negligence and inefficiency do not amount to mismanagement or oppression under sections 397 and 398 of the Companies Act. Reliance, in this connection, was placed on the case of Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd.[ 1964] 34 Comp. Cas. 777 (Guj.). In that case, P. N. Bhagwati J. (as his Lordship then was), while dealing with the applicability of sections 397 and 398, observed at page 813 as follows : " the power of the court under both the sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the court cannot make an order setting aside or interfering with past and concluded transactions which are no longer continuing wrongs or giving condensation to the company or the aggrieved sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat annual general meeting. If the meeting was illegally held it may be that the petitioner may have a cause of action for challenging the same in other appropriate proceedings, but such an allegedly illegal meeting did not, to my mind, result in any oppressive act being committed on the petitioner. The decisions which have been referred to by Mr. Ved Vyas, namely, Loch v. John Blackwood Ltd. [1924] AC 783 (PC), Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL), Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjkunwala [1976] 46 Comp. Cas. 91 (SC), C.P.No. 39 of 1973 decided by this court on 30th April 1975 and C.P. No. 8 of 1975 decided on 18th March, 1977, by this court, are relevant for deciding as to whether it is just and equitable to wind up the company or not. For the purposes of this petition, I am assuming that the principles laid down in Ebrahimi's case [1972] 2 All ER 492 apply and that it may be just and equitable to wind up the company. It might here be stated that this contention is controverted by the learned counsel for the respondents. Nevertheless, merely because grounds or circumstances may justify a winding-up order being passed, that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were disputes between the two groups. It was stated in the said letters that the banks should not honour any cheques issued by any of the directors of the company including respondent No. 2 himself. It was alleged in the said letters that this step was being taken by respondent No. 2 as one of the two groups of shareholders was acquiring the management of the company in its hands forcibly and illegally and was hampering the day to day conduct and running of the company's business. This allegation made in the petition has not been denied by respondent No. 2. It has, however, been stated that the petitioner had been abusing his position as managing partner of the firm, Sanghi Motors, and had started to quarrel and interfere with the working of respondent No. 2 in the affairs of the company and thereby trying to create a deadlock. According to the said respondent, he was left with no alternative but to write a letter to the banks to stop the operation of the account of the company as well as of the partnership firm, M/s. Sanghi Motors. It is also admitted by respondent No. 2 that letters were written to M/s. Mahindra Mahindra Ltd., from whom Sanghi Motors had obtained agency t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r agreement that the First Party will have the option to buy both the premises as per details given below. The premises at Chandigarh belong with the fittings and fixtures will be transferred at its book value as on 30-9-79. As regards the property at Jhandewalan it comprises 2 plots 7E and 8E. It shall be the responsibility of the Second Party to secure title to the 2 plots in their names and transfer the same along with the buildings to the First Party. The value of the premises with the land will be determined as per the cost of the plots after securing the titles thereto and the book value of the building as on 30-9-79. The Second Party will take suitable action in this regard expeditiously. ( d )The premises at Nizamuddin, New Delhi, which is presently under lease of Supreme Motors Ltd. at a monthly rental of Rs. 700/- (Rupees seven hundred only) will be transferred to the First Party along with all the constructions at their book value as on 30-9-79 and vacant possession given to them immediately. It is understood that there is a dispute between the owners of the aforesaid premises and the matter is before the court and consequently the rent for the premises is being cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bankers to the effect that the letters written earlier for suspension of the operation of the accounts should be treated as cancelled and that the banking operations should be permitted to be resumed. These letters were apparently written and the banking operation resumed. Letters were apparently written to the principals, namely, Telco also, and the dealership was not cancelled. It appears that the petitioner approached Telco for transfer of the dealership of Supreme Motors to him. Whether the petitioner approached Telco before or after the filing of the petition on 4th August, 1980, is not clear. A letter dated 15th September, 1980, written by Shri D. S. Narayanan of Telco to the petitioner has, however, been placed on record. The relevant portion of the said letter reads as follows : "During your last visit to Bombay, I had made it clear to you that it would not be possible for Telco to transfer the dealership of Supreme Motors Ltd. in your favour. The dispute between you and Mr. A. K. Sanghi and others has not yet been settled, in spite of the terms of settlement having been finalised long back. I would appreciate you taking necessary action for resolving this matter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived the said letter. As already noticed, it is an admitted case of the parties that the only business of the company is the dealership of Telco. That business of the company is now under notice of termination, as is evident from the aforesaid letter dated 9th April, 1981. The only business of the company has been jeopardised and closure is threatened because of the disputes amongst the shareholders and the management. Earlier when the disputes were not settled there was termination of dealership in 1979. After the settlement of the disputes by the drawing up of the agreement dated 21st September, 1979, the dealership was restored. This restoration was done by Telco's letter dated 3th October, 1979. This letter reads as follows: "We have received your letter No. 7357 dated the 25th September, 1979, informing us that the differences amongst the directors of Supreme Motors have since been resolved. We have also seen the photocopy of the agreement dated 21st September, 1979, which, inter alia , provides for the transfer of 500 shares of Supreme Motors from Messrs. Suresh Kumar Sanghi, Satish Chandra Sanghi and Sharad Kumar Sanghi of the first part to Messrs. Narendra Kumar San ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfighting amongst the directors of the company has resulted in serious prejudice being caused to the company. To my mind, on this ground alone, the provisions of section 398 of the Companies Act are attracted. With a view to bring an end to the disputes amongst the shareholders and the management, which disputes are to the prejudice of the company, it is necessary that appropriate orders be passed by this court. The petitioner has contended that Amrit Group should be directed to sell the shares to his group. Numerous attempts were made by me during the course of these proceedings to try and have the disputes between the parties amicably settled. It is most unfortunate that no settlement could be arrived at. I have to see as to whether it is just, fair and equitable to direct the sale of shares to the Suresh Group or to direct sale of shares to the Amrit Group. I cannot think of any third alternative, which can possibly resolve the disputes between the parties or result in saving the franchise of Telco. It is evident that the two groups of shareholders lack complete confidence and trust in each other. The two groups cannot run the company together. In an effort to destroy each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducting of the affairs prejudicial to the interests of the company by the persons who are in control of the management gives the court jurisdiction to pass appropriate orders to bring to an end the matters complained of. Neither section 398 nor section 402 provides that only such orders can be passed which will result in handing over the management of the company to the aggrieved persons. In granting relief under sections 398 and 402 not only is the interest of the company to be kept in view but other equitable considerations have to be taken into account. The managing director of the respondent-company has always been respondent No. 2. Presumably it is he who has been having dealings with Telco. It is evident that Telco has rejected the proposal of transfer of dealership from the respondent-company to the petitioner. Earlier when after the agreement dated 21st September, 1979, Telco had been informed that Amrit Group has become the full owners of the respondent-company, they, namely, Telco took note of this fact and by their letter dated 5th October, 1979, withdrew the termination letter which had been issued by them. This shows that they had no complaint against Amrit Group and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties. I think the latter course which has been suggested by Mr. Ved Vyas for the purpose of valuing the shares, namely, the valuation of the shares by a retired Judge would be more fair. For the aforesaid reasons I dispose of the petition by giving the following directions ( a )The shares of the respondent-company shall be valued by Shri S. N. Andley, retired Chief Justice of this court. For the purpose of valuation of the shares the parties shall be at liberty to file before Shri Andley valuation reports prepared by each party. In order to enable the petitioner to prepare the valuation report, the company shall give the petitioner full access to all the account books. ( b )The valuation reports shall be filed by the respective groups before Shri Andley within four weeks from today or within such further time as Shri Andley may allow. ( c )Shri Andley may endeavour to value the shares within eight weeks from the receipt of the copy of the judgment, after giving opportunity to bath the parties to make their representations. No reasons need be recorded or the basis indicated by Shri Andley while working out the value of the shares. The valuation report shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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