TMI Blog1982 (6) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri B. C. Mittal had five sons, namely, Mohanlal Mittal, I. S. Mittal, D. L. Mittal, C. L. Mittal and R. K. Mittal. The wife of Sree B. C. Mittal had died some time back. Different members of the Mittal family held substantial blocks of shares in the said company. M. L. Mittal and his sons and daughters hold substantial shares but altogether they are in minority. On or about May 13, 1977, M. L. Mittal had made an application under sections 397 and 398 of the Companies Act, 1956, being Company Petition No. 221 of 1977 complaining about alleged mismanagement of the affairs of the company by his four brothers. Sri B. C. Mittal was an old man and had died recently. He was bedridden after an attack of paralysis for a long time. It is the case of M. L. Mittal and his sons in the present applicants/appellants that he was also mentally infirm and was undergoing shock treatment. In the application made by M. L. Mittal under sections 397 and 398 of the Companies Act, 1956, in order to make up 10% shareholding, the present appellants being sons and daughters of M. L. Mittal supported M. L. Mittal and their supporting affidavit was annexed to the main section 397 and section 398 application. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S. Mittal." The present appeal arises out of an application made by Pramod Kumar Mittal, a shareholder of Andhra Steel Corporation Ltd. and a son of Mohanlal Mittal, for restraining the Committee of Management of the company from acting on the basis of or in furtherance of or giving any effect to the terms of settlement which were proposed to be filed in Suit No. 295 of 1977 in any manner whatsoever. There was a further prayer for Pramod Kumar Mittal to be added as a party to the Company Petition No. 221 of 1977 ( Mohanlal Mittal v. Andhra Steel Corporation Ltd. ) This application was made by Pramod Kumar Mittal and also by his two brothers, Laxmi Niwas Mittal and Vinod and Kumar Mittal, and the married sister, Smt. Saroj Mittal (Rataria). The applicants together with their father, Mohanlal Mittal, held 10% of the share capital of the Andhra Steel Corporation Ltd. As mentioned hereinbefore, Mohanlal Mittal had made an application under sections 397 and 398 of the Companies Act, 1956, and that application was made with the consent of the present applicants. The company had three units for production of steel, one at Dankuni, one at Vizagapatnam and one at Bangalore. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long been acting at the instance of Sri I. S. Mittal. It is further the allegation of the appellants that M.V. Mani and B.C. Narayan, although nominees of Karnataka Financial Corporation, had all throughout been acting in support of Indrasen Mittal and his group. It is further alleged that the Karnataka State Financial Corporation and the Karnataka Industrial Development Corporation had been appearing through the partner of M/s. Mukherjee and Biswas, advocates on record of I.S. Mittal and his group, and had been openly supporting I. S. Mittal and his group. The allegations of the appellant/applicant is, therefore, that the Committee of Management is really a one-man show and I. S. Mittal does whatever he likes in relation to the said company. It is the allegation of the appellant that while the Dankuni factory which was near Howrah in West Bengal had remained closed since December, 1976, at that time there was a boom in the steel industry from 1978 which continued, according to the appellants, till about 1980. On this aspect, the appellant had relied on certain statements made by Indrasen Mittal in the affidavit-in-opposition. It is further the case of the appellant that Sri K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o function and after reiterating that the said Committee of Management had functioned with ability, diligence and bona fide , it has been stated by the same deponent that though he admitted that the condition of the steel industries had improved in the country between 1978-79 and 1979-80, there were many companies producing steel in this country which were running at loss. It has been further stated that the Dankuni unit had remained closed since December, 1976. It is further the averment that with the effort of the Committee of Management and through the untiring efforts of the deponent and his younger brothers, Damodarlal Mittal and Chhagan Lal Mittal, the company's units at Bangalore and Vizagapatnam had picked up production and were doing well. It has also been urged that in spite of the hostile attitude of the company's bankers, the company had been able to generate its own fund and run its factories at Bangalore and Vizag. He has alleged that since the Committee of Management took over charge, it was unable to obtain possession of the books and records of the company which were in Calcutta at the Dankuni unit and in particular the statutory books and records of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that it could not be said that he was in any way aggrieved by the decree passed or the settlements made. It is not necessary to refer to the details of the proceedings to which reference has been made in the affidavit in support of the application. It has been alleged on behalf of respondents, the Committee of Management, that the Andhra Steel Corporation Ltd. started negotiation with the Bank of India and Dana Bank for settlement of the disputes and arrived at a settlement which has given rise to the present litigation. It has been further alleged by the Committee of Management that the company was incurring a loss of Rs. 3 lakhs per month for maintaining the Dankuni plant which was a closed unit since 1976 and the company after due deliberations decided to sell the said unit to cut down loss and also to pay off the loans taken by the company. On or about January 16, 1976, the company's plants at Dankuni, Vizagapatnam and Bangalore were valued by a valuer. In that valuation, the Dankuni plant was valued at Rs. 2.15 crores by the valuer. On February 5, 1979, an advertisement was published in two newspapers, the Business Standard and the Economic Times, inviting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said suit and to be added as a party thereto and for leave to oppose the filing of the terms of settlement in the said suit. Pramod Kumar Mittal on behalf of himself and on behalf of Vinod Kumar and Lakshmi Niwas Mittal and Smt. Saroj Ratoria made an application in the proceedings under sections 397 and 398 of the Companies Act, 1956, then pending for, inter alia, an order of injunction restraining the Committee of Management of the Andhra Steel Corporation Ltd. from compromising the said suits and filing the said terms of settlement. A prayer was also made in the said application for removal of the Committee of Management. An order was made restraining the Committee of Management from filing the terms of settlement in the said suit until disposal of the application. The application made by the Bank of India for putting in terms of settlement as well as the company petition came up for hearing before Salil K. Roy Chowdhury J. After hearing the matters for several days, judgment was reserved and on August 21, 1981, Salil K. Roy Chowdhury J. was pleased to dismiss the application made by Pramod Kumar Mittal for being added as a party in Company Petition No. 221 of 1977 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... willing to purchase the plant at Dankuni for Rs. 2,45,00,000 and as a token of the bona fide intention had produced certain cheques and certain letters of guarantee from the bank. In support of this appeal, it was contended, firstly, that the contract, that is to say, the terms of settlement by which the agreement was entered into, was beyond the competence of the Committee of Management and, therefore, there could not have been any valid agreement between the parties and, as such, there could not have been any terms of settlement. In order to appreciate this contention, it would be necessary to refer to the argument advanced before us. It was contended that the Committee of Management was appointed to discharge the function of and was in place and stead of the board of directors of the company. Therefore, it was submitted that the Committee of Management had to function under the same restriction as the board of directors of a company had. In this connection, reference was made to the provisions of section 293 of the Companies Act, 1956, the relevant portion of which is set out as under : "293. Restrictions on powers of board. (1) The board of directors of a public compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that, in the alternative, if it was contended that the Committee of Management was like a special officer or a receiver of the assets of the company, then such a receiver could not sell off the undertakings of the company unless in the order appointing the Committee of Management there was such specified and enumerated power, which, it was submitted, was absent in the instant case. Arguments were made which we shall presently note as to whether such a Committee of Management could be treated as a receiver and whether such leave was necessary in the instant case, A question was canvassed before us that a particular unit of a company could not be considered to be an undertaking, of the company in terms of section 293(1)( a ) of the Act. A closed unit, it was submitted, could not be treated as an undertaking as it is understood, We have mentioned hereinbefore that it was the common case that no specific leave had been obtained from the court entertaining the company's petition under sections 397 and 398 of the Companies Act in the instant case. It was further urged that though the learned judge who was exercising and disposing of the several matters under the Companies Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary in view of the fact that the Committee of Management appointed by the court was in the position of a receiver which required the leave of the court or sanction of the court before entering into the compromise. We have set out section 293 of the Companies Act. We have also set out the terms of the order dated July 26, 1977, whereby the court had empowered the Committee of Management to function. The question, therefore, is, are the transactions entered into by the Committee of Management, transactions entered into by the board of directors or receiver or officers of the court ? It is quite clear in view of the terms used in section 293 that section 293 in terms cannot have any application to the facts and circumstances of this case. The Committee of Management was not the board of directors of the company. The board of directors of the company had to perform several functions ; it cannot be envisaged that the Committee of Management was functioning as the board of directors. The board of directors had to perform several other functions which could not be expected to be performed by the Committee of Management appointed by the court. In this connection, reference was made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt functioning as the company court; such leave, it was urged, could not be inferred by the permission of the suit court to file the terms of settlement and passing a decree there upon. It was stressed that the fact that by a fortuitous combination of circumstances, the same learned judge was exercising company jurisdiction and suit jurisdiction could not obviate the necessity of such leave. It was further stressed that in this case as there had been no direction or sanction obtained from the court prior to entering into the transactions or agreeing to the terms of settlement, the subsequent commission of the court to file the terms of settlement, would not cure the defect because it was urged that the act of the Committee of Management was ultra vires and beyond its competence. In this connection, certain observations: of the House of Lords in England in the case of Alexander Ward and Co. Ltd. v. Samyang Navigation Co. Ltd. [1975] 2 All ER 424; [1975] 1WLR 67.3 (HL) were referred to. There the pursuer was a company registered in Hong Kong and they had a claim against the defenders, a Korean company, for over 1,60,000. The pursuer company had no directors and did not hold an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned editors of that book in the chapter dealing with "Managers", namely, Chapter 9, where, at page 228, the character of a manager has been described. There, it was observed that where a receiver was required for the purpose not only of receiving rents and profits or of getting in outstanding property, but of carrying on or superintending a trade, business or undertaking, he was called a manager or more usually a receiver and manager. The appointment of manager implied that he had power to deal with the property over which he was appointed manager and to appropriate the proceeds in a proper manner. It was, therefore, submitted that a Committee of Management was in the place of manager or a receiver appointed by the court in ordinary cases and must act under the superintendence and direction of the court and there being no specific power given by the order appointing the Committee of Management to sell any unit or any undertaking without the leave or power properly sanctioned from the court, the Committee of Management was not competent to sell or enter into agreement for sale of any undertaking. In this connection, reliance was also placed on certain observations in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a certain manner that the court directs certain functions to be performed by the Committee of Management in a particular manner. Therefore, a Committee of Management has not an unchartered licence to do whatever it likes. In an appropriate case, the court can direct the Committee of Management before any action is taken by it to comply with certain rules and regulations or to direct the Committee of Management to act in a particular manner. If the court so directs, then the Committee of Management must act in accordance with the direction given by the court. If any proposed action of the Committee of Management is brought to the notice of the court and the court considers such proposed action improper or unlawful, then the court can stop the Committee of Management from taking that action. The court can also direct the Committee of Management to act in a particular manner which it thinks just and proper. Equally, after an action has been taken, if such action is prejudicial to the conduct and affairs of the company, then the court in the interest of proper management of the affairs of the company, in exercise of jurisdiction under sections 397 and 398 of the Companies Act, can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs of the company from each other. The learned Lord Justice observed at pages 216 and 217 as follows : "The object and intention of Parliament, however, in the case of each of these various undertakings, was clearly to create a railway which was to be made and maintained, by which tolls and profits were to be earned, which was to be worked and managed by a company, according to certain rules of management and under a certain responsibility. The whole of this,: when in operation, is the work contemplated by the Legislature, and it is to this that, in my opinion, the name of 'undertaking' is given. Moneys are provided for, and various ingredients go to make up the under takings, but the term ' undertaking ' is the proper style, not for the in gredients, but for the completed work, and it is from the completed work that any return of moneys or earnings can arise. It is in this sense, in my opinion, that the 'undertaking' is made the subject of a mortgage. What ever may be the liability to which any of the property or effects connect ed with it may be subjected through the legal operation and consequences of a judgment recovered against it, the undertaking, so far as these con tract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 from interfering and intermeddling in the affairs of the company, ( c ) removal of respondent No. 6 (the general manager) from the employment of the company and injunction restraining him from functioning or intermeddling with the affairs of the company, and ( d ) appointing a special officer to manage and conduct the affairs of the company. The hearing before the Companies Tribunal went on for a number of days till June 5, 1967, when the Tribunal was abolished. The petition was then transferred to the High Court and was numbered No. 114 of 1967. The hearing in the High Court went on from March 20, 1969, till August 28, 1969, during which only one witness had been examined in part. At that stage, the petitioner and all the respondents agreed to submit to the orders of the court, subject to certain stated reservations. The learned judge thought that, in the circumstances, the best thing would be to pass such orders as he thought fit on the assumption that the allegations made by the petitioner against the respondents were correct and that the conditions prescribed under section 398 of the Act giving him, jurisdiction to pass appropriate orders under section 402 had arisen and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 397, 398 and 402, deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of the company. In the context of this scheme having regard to the object that is sought to be achieved by sections 397 and 398 read with section .402, the powers of the court thereunder cannot be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company. Further, an analysis of the sections contained in Chapter VI of the Act will also indicate that the powers of the court under section 397 or section 398 read with section 402 cannot be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. The topic or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Without prejudice to the generality of the powers conferred on the court un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction and very wide powers to pass such orders and give such directions as it thinks fit to achieve the object and there would be no limitation or restriction on such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in accordance with such provisions of the Act. Once it is held that on a true construction that the court has the widest possible jurisdiction and ample powers to bring about the desired result, there would be no question of the court not being able to reframe or insert a new article which would be in conflict with some provisions of the Act. Sections 397, 398 and 402, by their very nature and contents, indicate that they are intended to operate as express provisions to the contrary and would be covered by the phrase "save as otherwise expressly provided in the Act". In any case, the two sets of situations in which the provisions of section 255 and the provisions of sections 397 and 398 read with section 402 would respectively operate are entirely different and mutually exclusive and, as such, there will be no repugnancy between any article that may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om.). By reason of what has been stated hereinabove, it appears to us that the court had power to make the order in regard to convening and holding of the meeting, filing of proxies or nominations or any other matter for the purpose of conducting the affairs of a company which might be contrary to the provisions of the articles of the company or the Companies Act, by virtue of the provisions of sections 397 and 398 read with section 402 of the said Act." (pp.78e4-785) The Supreme Court in the case of Cosmosteels (P.) Ltd. v. Jairam Das Gupta [1978] 48 Comp. Cas. 312 , also examined the scope of sections 397 and 398 of the Companies Act and observed at page 318 as follows : "The scheme of sections 397 and 402 appears to constitute a code by itself for granting relief to oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia , lifting the ban on a company purchasing its shares under court's direction, is conferred on the court. When the court exercises this power by directing a purchase of its shares by the company, it would necessarily involve reduction of the capital of the company. Is such power of the court subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing regard to the facts of the case before us, we are of the view that it was not beyond the competence of the Committee of Management to enter into the impugned contract with the creditor banks in this case in the manner that it did. It cannot be said that the provisions of section 293 had to be strictly complied with before entering into this contract as argued on behalf of the appellants. We 'are, however, unable to accept the contention that the decree passed in the instant case by the learned trial judge has been acted upon in some respects and, therefore, it cannot be set aside by the appeal court. It was argued that the decree has become final and cannot be set aside in the proceeding under section 397. It has been argued that on September 16, 1981, the court of appeal dismissed an application made by Mohanlal Mittal for leave to file memorandum of appeal from the judgment and order dated August 21, 1981, whereby a claim against Mohanlal Mittal as a guarantor had stood dismissed. That application, however, was dismissed on the ground that Mohanlal Mittal as a guarantor could not feel aggrieved by the order of the learned trial judge and, therefore, he had no locus stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 582; and Act No. 5 of 1908, section 107(2). The very words of O. 58, rule 5 of the Rules of the Supreme Court, on which Bowen L.J. laid stress in Quilter v. Mapleson [1882] 9 QBD 672 at p. 678 and Lord Gorell in Attorney-General v. Birmingham, Tame and Rea District Drainage Board [1912] AC 788, at p. 801, namely, that the Court of Appeal has power to make such further or other orders as the case may require, have been reproduced in O. 41, rule 33, Civil Procedure Code of 1908 ; and even before the enactment of that Code, the position was explained by Bhashyam Iyengar J. in Krishnamachariar v. Mangammal [1901] ILR 26 Mad. 91 at pp. 95, 96 in language which makes it clear that the hearing of an appeal is under the processual law of this country in the nature of a rehearing. The Indian Codes have from 1859 conferred upon a Court of Appeal the power given by O. 58, rule 4. Supreme Court Rules, to allow further evidence to be adduced ; and though the English rule does not in terms impose the same limitations on this power as the Indian Codes do, these limitations are implied in the reference to ' special grounds ' in the English rule and have in effect been insisted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted personally against persons who were not "co nomine" parties. Hence, a decree for injunction could not be extended so as to render those who were not "co nomine" defendants liable for disobedience of the decree. To entitle the decree-holder to proceed against such persons who were not parties on record, the injunction must be revived against them, which must be by a separate suit. Without a revival, therefore, of the decree for injunction against these other persons, no proceedings in pursuance of the decree could be started against them. It was, therefore, submitted that as the application in the instant case was filed with the consent of the present appellants in order to make up the 10% of the shareholders who should be entitled to sustain an application, it was urged that the present appellants were parties to the section 397 application and, therefore, they are entitled to maintain this appeal in the absence of the main applicant. Whether the sale of the Dunkuni plant was the subject-matter of the application under section 397 and, as such, could be made a subject-matter of an application independently in respect of which this appeal has been preferred, our attention wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be of much assistance in our opinion. On the question that the report of the valuation which was not disclosed but which was only mentioned in the proceedings before the learned trial judge, reliance was placed on the observations of this court appearing in pp. 51 and 52 in the case of Daddy S. Mazda v. K. R. Irani, [1977] 47 Comp. Cas. 39. In that case, it was held that no adverse inference could be drawn from the failure to do something which a party was not bound in law to do. The provisions in O. 11 of the CPC regarding discovery, production and inspection of documents were not required to be followed in a summary proceeding under section 155 of the Act. It was certainly open to the court to direct the appellant to produce the documents and if order was made, and not complied with, it would have been open to the court to draw an adverse inference. In the case before us, the Dunkuni unit of the company has been sold at a price which is not less than the price mentioned in the valuation report. There is no allegation that the valuation report is false or fabricated. The allegation is lack of bona fides in making the sale by the Committee of Management. The Committee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... focussed in two decisions of the Supreme Court, the first one being the decision in the case of Ratan Lal Sharma v. Purshottam Harit, AIR 1974 SC 1066, where it was held that where the terms of the arbitration award did not transfer the share of a partner, A, in the assets of a firm to the other partner, B, either expressly or by necessary intendment but, on the other hand, expressly made an allotment of the partnership assets and liabilities to B making him absolutely entitled to the same in consideration of a sum of money to be paid by him to. the other partner, A, thereby expressly purporting to create rights in immovable property of the firm worth above Rs. 100, the award was compulsorily registrable under section 17 of the Registration Act and, if unregistered, could not be looked into and the court could not pronounce judgment in terms of award under section 17 of the Arbitration Act, 1940, which presupposes the existence of an award which could be validly looked into by the court. The award being an inseparable tangle of several clauses could not be forced as to separate that part not dealing with immovable property. In the case of Sidhwa T. P. v. S. B. Sons (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smuch as Mohanlal Mittal was no longer prosecuting the section 397 application or opposing a particular transaction during the pendency of section 397 application of the Companies Act, we are of the opinion that the present appellants were entititled to be added as parties and not acceding to that prayer, the learned judge was in error. (4) In this case, though the other group of Mittal, namely, Indrasen Mittal, was exercising a very dominant and controlling interest, it appears that the transaction relating to the sale of the Dunkuni Steel Plant had been considered by the Board of Management which was appointed by the court and which consisted of other independent persons including representatives of the financial institutions. One of the most important factors in this matter is the role of the Bank of India. The Bank of India because of its own reason and because of its own investigation and enquiry was willing to give certain credit to the Grand Steel Alloys Ltd., the purchaser, and was not willing to grant this kind of facility to others and this agreement being a composite agreement which on the whole would enure to the benefit of the company as a whole, in our opinion, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, we are unable to sustain the same and that portion of the order of the learned trial judge is set aside. So far as the learned trial judge refused the prayer for injunction restraining the Committee of Management from filing the terms of settlement, we find no reason to interfere with that portion of the order of the learned trial judge and that portion of the order of the learned trial judge is, therefore, upheld. So far as the learned trial judge dismissed the application of Purna Investment Ltd., for being added as a party, we are in agreement with the same and the appeal by Purna Investment Ltd. on that ground is dismissed. The order made for consolidation of Suit No. 295 of 1977 (Bank of India v. Andhra Steel Corpn. Ltd. AIR 1982 Cal. 57) and Extraordinary Suit No. 1 of 1980 ( Dena Bank v. Andhra Steel Corpn. Ltd. ) and the leave granted to file the said terms of settlement and compromise embodied in the terms of settlement which were recorded should also be upheld. We also uphold the order of the learned trial judge in so far as the learned trial judge dismissed the suit as against the defendants who were not parties to the said terms of settlement. We also uphold th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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