TMI Blog1996 (11) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... r held that the allegations of mismanagement made against the appellants 'have not been established' and even though it also held that the conduct of the respondent herein towards the abovesaid company is 'far from being praiseworthy' (he having 'admittedly' failed to pay to the company the value realised from the sales of stocks of the company and 'diverted the funds to his own unsuccessful business') and even though it also observed that while according to the respondent herein about Rs. 13 lakhs is due from him to the abovesaid company, according to the appellants, the dues exceed Rs. 40 lakhs; the said order held that, despite the actions of the appellants being 'not illegal', the effect of those actions is 'oppressive' of the rights of the respondent herein. In view of this finding regarding oppression, it appears, the impugned order has given the above referred to direction under section 397, after relying on the decision in Needle Industries ( India ) Ltd. v. Needle Industries Newey ( India ) Holding Ltd. [1981] 51 Comp. Cas. 743 (SC), which dealt with the concept of oppression under-lying in the said section 397 (while section 398 requires 'mismanagement' for its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filing of the company petition. In other words, the exclusion of the respondent herein by his being removed from the directorship of the first appellant- company was only on 7-12-1987, while the company petition was filed in June 1987. Likewise, the increase in share capital spoken to therein was only on 30-10-1990, and the move for such increase itself was made only very much subsequent to the said C.P. and even though the respondent herein sought for stay of the said move by filing C.A. No. 1147 of 1990 in the company petition, it only got dismissed on 29-10-1990, and even the appeal filed by him thereon in O.S.A. No. 196 of 1990 was dismissed as infructuous and even though the Division Bench observed finally in the said original side appeal that in the abovesaid company petition, the company judge may consider whether the abovesaid increase was a bona fide one, etc., "in the light of the attacks if made in that regard by the appellant (respondent herein)" [Emphsised supplied], the respondent herein did not choose to amend his pleas in the company petition to include the said attack in relation to the said increase in capital. Even regarding the abovesaid 'continuous loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is also no proof that there is no possibility of smooth and efficient continuance of the company as a commercial concern. In this connec- tion, he also points out that as on 16-4-1977, the total shares allotted by the company were about 4,003, in which only 1,000 shares were held by the respondent, while the second appellant had another 1,000 shares and there were 15 others holding different number of shares. 6. While section 398 has no application at all to the present case, since the learned trial judge himself has held that there is no mismanagement, even section 397 is not applicable since, inter alia, there is neither plea nor proof that section 397(2)( b) is satisfied. [The said provision says, "if, on any application under sub-section (1), the Company Law Board is of opin- ion that to wind up the company would unfairly prejudice such mem- ber 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"]. 7. The next submission of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions. It is quite clear to us that the arguments advanced by the learned counsel for the appellants are weighty arguments and we are not satisfied with the submissions made by the learned counsel for the respondent. One very important factor to be noted is that despite several serious allegations in the company petition, for many of them, there is no evidence at all. First of all, it must be noted that despite those allegations, which have been denied in the counter (the impugned order itself says thus "the respondents have denied all allegations made against them") the petitioner in the compa- ny petition, has not chosen to enter into the witness box at all, nor any other witness or any document speaks about many of the abovesaid allegations made in the petition. Just to illustrate, for the following allegations made in the petition, even according to the learned counsel for the respondent herein, there is no evidence: ( i ) Appellant Nos. 2 and 3 started to carry on business in their own way without consulting the petitioner and ignoring his rights to partici- pate in the affairs of the company, ( vide paragraph 10 of the petition); (ii) The second and third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no application to the present facts. No doubt in that case in a petition under section 397, the Karnataka High Court observed that the Court might make an appropriate order providing for the exit of one of the groups to enable the company to run smoothly, if such an order is just and equitable in the circumstances of the case. No doubt, that was also a case of a private company. No doubt further, the principle of special relation- ship, as in the case of partnership converted into private limited compa- nies, was held to be attracted to the facts of the said case, but on the facts, the Karnataka High Court found in that case that if the company could continue to function smoothly only by exit of one group of shareholders, the Court might order accordingly. But, in the present case, there is no such finding, nor is there even a plea or proof to that effect. Further, in that Karnataka High Court case, it was also found that if the affairs of the company therein were left to be controlled by two of the groups involved therein alone, deadlock in its affairs was bound to result. There is no such finding of deadlock in the present case. 12. It is also clear to us that there is neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this connection, initially, the learned counsel for the respondent represented that there was only oral protest. But, even regarding each oral protest, there is no evidence. Subsequently, no doubt at a later stage, the learned counsel for the respondent sought to rely on a letter by the respondent addressed to the first appellant-company on 17-1-1987, to contend that it was a written protest regarding one of the said irregulari- ties. But, on going through the said letter, we are unable to make out any such irregularity being alleged therein. If at all it only says that the appellants are answerable to the respondents "towards expenditures from the company towards your personal and family affairs, apart from the company's expenditure". 13. No doubt the company has suffered continuous losses, which has also been admitted by the appellants. But that by itself cannot lead to oppression spoken to under section 397, particularly in the light of the above referred to explanation offered by the appellants, which was adverted to in the impugned order in para (2) above. It has also been held that failure to declare dividends does not amount to oppression and mere dissatisfaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the abovesaid increase in the share capital, it is said that the object of issuing additional share capital is not bona fide and is only with the sole object of reducing the respondent's position in the company for the personal aggrandisement of appellant Nos. 2 and 3 to the detriment of the company. But, there is no proof for these allegations. Unless there is proof for these allegations as per Needle Industries (India) Ltd. s case ( supra ) , increase in capital cannot be considered as oppression. 14. Once it is clear that section 397 or 398 cannot be invoked, the direction given by the learned trial judge cannot stand. Even otherwise, the said direction is in more than one respect not a lawful one as pointed out by the learned counsel for the appellant in para 4( g ) above. It is also vague as pointed out by the same learned counsel. 15. In the view we have taken, there is no necessity to deal with the contention relating to mala fides. 16. In the result, this original side appeal is allowed, the impugned order is set aside and the company petition shall stand dismissed. However, in the circumstances of the case, there will be no order as to costs. C.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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