TMI Blog2000 (8) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... of this appeal No. 3 of 2000 are family members/close relatives of the appellant Nos. 2 to 5 of Appeal No. 2 of 2000. In a sense, they are the alter ego of the appellants of appeal No. 2 of 2000. The two appeals are connected with each other and are being decided by this common judgment. The appellants in both the appeals are aggrieved of an order dated 30-11-1999 passed by the CLB in Company Petition aforesaid which was modified by subsequent order dated 12-1-2000. The grievance of the appellants is against the direction of the CLB providing for the division of the assets of the company, giving an option to the respondents of appeal No. 2 of 2000 to obtain Forge Division. 2. It is necessary to relate the previous background leading to this litigation. All the facts are detailed in the impugned order of CLB and those relevant for the decision of the instant appeals are being detailed here. Trackparts India Ltd. (hereinafter referred to as the Company) was incorporated as a private limited company in 1959 to take over the running business of a partnership firm, namely, Trackparts India in which the predecessors of the parties presently litigating were the partners. At that tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group of acquire shares of the other group in case the other group desired to sell its shares. The agreement also provided for amendment of the articles of association of the company. Articles of Association were amended to incorporate relevant clauses of the agreement. Five nominees of DB Group were inducted in the board of directors as per the agreement. Dilip Bhargava was also inducted as a Director and he was appointed whole time Director sometime in 1995. A new Division viz. Plastic Division was started in Maharashtra with an Investment of ₹ 20 crores. This Division did not function well and landed in losses which came to be the root cause for the making of a petition before the CLB by the petitioners/respondents here. 6. The petition under section 397/398 was primarily founded by the petitioners/respondents here before the CLB on these allegations. The DB Group has not complied with the terms of family settlement relating to equalization of shareholding though it had nominated five Directors on the Board including Dilip Bhargava (who heads DB Group). The result was that the petitioner group/respondents here held only 149948 shares compared to the holding of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only this, he caused a notice to be issued for convening an EOGM to remove two of the independent Directors and to appoint two Directors from his family in their place. The following reliefs were sought in the petition under section 397/398 moved by the petitioners before the CLB against the respondents/appellants here : ( a )Mr. Dilip Bhargava, Respondent No. 2 be removed from the office of Director and Vice-Chairman and Dy. Managing Director forthwith; ( b )The alleged resolutions passed by respondent Nos. 2 and 3 in the alleged Board meeting on 13-6-1998 be declared as null and void; ( c )The State Bank, IFB Branch and Bank of Baroda be directed to operate the bank account of the respondent company without giving effect to the alleged resolution dated 13-6-1998, with the existing already authorised signatories i.e., petitioner Nos. 1, 2 and 3 only; ( d )The purported requisition notice dated 15-6-1998 under section 169 of the Act, be declared as null and void and the respondents be restrained from holding any Extraordinary General Meeting of the company and from exercising any rights as shareholders that are detrimental to the interest of the company or for toppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting MNB and DB Group. Originally, MNB Group was on the side of the petitioners. All the Divisions were under the control of the petitioners. It was actually the group of the petitioners which had oppressed the majority of shareholders. 9. As regards the Plastic Division, because of capital market conditions public issue could not be resorted to and the Board decided to finance the project by resorting in intercorporated deposit. The entire project was executed and supervised by the fourth petitioners Mukesh Bhargava (son of KNB). It was only in January, 1996 that the respondent Dilip Bhargava (appellant here), sought for a role in the company and as the petitioners did not want him to be associated with Kanpur unit, he was made in-charge of ailing plastic division at Mumbai which was being looked after till then by Mukesh Bhargava (son of KNB). It was only in October, 1996 that the respondent Dilip Bhargava was made a whole time Director after a lot of pursuation. Kanpur Divisions were supporting the Plastic division at Mumbai till Mukesh Bhargava son of KNB was its in-charge but no financial support came forth after the respondent Dilip Bhargava took control of the Plastic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs of the company. One of the allegations of the respondents there was that without notice to their group of shareholders, the petitioners allegedly held the AGM for 1997-98 on 28-12-1998 whereat far reaching decisions were taken including shifting of the registered office of the company to the residence of KNB. From the side of petitioners one of the allegations was that DB had forcibly taken over the Kanpur Division of the company on 28-12-1998 and the petitioners were not allowed entry into the factory premises. 11. Certain interim orders were passed by the CLB. On 8-1-1999 it was directed that none of the resolutions of the AGM and of the Board meeting shall be given effect to. With a view to explore the possibility of amicable settlement between the warring groups, the parties agreed to have a working arrangement as an interim measure and accordingly, an order dated 10-2-1999 was passed to the effect that the Board shall be reconstituted with two directors from each side with Justice R.M. Sahai, former Judge of the Supreme Court as the Chairman. The petitioner Group was to manage day to day affairs of the Forge Division and the DB Group the other two Divisions at Kanpur. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions independently without any interference from the other group. A balance sheet as on 31-12-1998 will be prepared after preparing a profit and loss account for the period ending on that date including the accounts of the plastic division. Since the financial institutions have high stake in the Company, we consider it expedient that they should be associated with the exercise of partitioning the Company so that in the partition arrangement, their interests are also protected. Accordingly, we constitute a fresh Board of Directors for the Company which will consist of two directors from the petitioners group and two from the respondents group with an independent chairman to be nominated by ICICI. The ICICI will appoint a valuer to value the shares as on 31-12-1998. Both the sides will be at liberty to make both oral as well as written submissions before the valuer so appointed, which will be taken into account by the valuer in determining the value of shares. Once it is so determined, the Company will purchase the shares held by the petitioners group and effect reduction in the share capital of the company. The value will also determine the value of the Forge Division which will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above to carry out the division of assets of the company. ( 2 )ICICI will appoint a valuer to value the shares as also the Forge Division as per our earlier order. ( 3 )Since the respondents would take over the management of the company, they are at liberty to reconstitute the board of directors of the company and also operate the Bank accounts of the company. In case the petitioners require any resolution of the board of the company in respect of the management of the Forge Division, the Board will pass necessary resolution to that effect without any loss of time. The Board is at liberty to take decision regarding the sale or otherwise of the plastic division. ( 4 )The petitioners will furnish all accounts relating to the Forge Division from the time they took over the control of that division to the company to enable it to prepare accounts for the period ended 31-12-1999. In case, the petitioners have collected any money of the company, they will furnish full details of the same to the company. Likewise, they will hand over all the statutory records of the company, now in their custody to the company forthwith. In the same way of the respondents will also hand over al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p) is that the impugned orders passed by the CLB do not suffer from any error of law and as such, the appeals warrant dismissal. The argument advanced in support of the appeals have been repelled and it is urged that impugned orders passed by CLB are perfectly justified having regard to the fact situation and the applicable law. 18. It would be appropriate to first deal with the preliminary objection raised from the side of the respondents. To begin with, it may be pointed out that the two appeals are directed only against a part of the impugned orders passed by the CLB. As per the memo of appeal of Appeal No. 2 of 2000, it is directed against the order dated 30-11-1999 as amended by the order dated 12-1-2000 passed by the CLB to the extent they provide for the division of the assets of the company, giving option to the respondents to purchase Forge Division. Similarly, connected Appeal No. 3 of 2000 is also directed against the division of the assets of the Company directed by the CLB. It would be noted from the operative portion of the order dated 30-11-1999 passed by CLB contained in paragraph 20 of the said order extracted in the earlier part of the judgment that the CLB i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neesh Saxena 1995 Cri LJ 2785. The said decision of the Division Bench of this Court, in its turn, is based on a decision of the Supreme Court in the case of State of Maharashtra v. Ram Das Shrinivas Nayak AIR 1982 SC 1249. 20. To come to the point, the DB Group never made any protest before the CLB against the observations made by it in the opening part of its order dated 31-5-1999 which are to the following effect : The parties have generally agreed that the disputes could be amicably settled by which the assets of the Company will be divided in such a way that the Forge Division would go the petitioners group and the other two Divisions would go to the respondents group. 21. Instead of disputing the correctness of these observations made by the CLB, the respondents, after the passing of the final impugned order dated 30-11-1999, accepted this order, taking steps for its implementation. The DB Group made an application to the CLB on 31-12-1999 which is annexure 4 to the counter affidavit of Mukesh Bhargava dated 12-4-2000, seeking directions for implementation of the order dated 30-11-1999. It necessitated the passing of the subsequent order dated 12-1-2000 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... izes the validity of a judgment or order, or otherwise takes a position which is inconsistent with the right to appeal therefrom, thereby impliedly waives its right to appeal and is estopped from asserting its right to have such judgment or order reviewed by the appellate Court and this rule would apply where the acquiescence or ratification is either partial or in toto . The manner in which the DB Group has acted in implementing the orders dated 30-11-1999 and 12-1-2000 clearly and unerringly shows that it has acquiesced therein. The Supreme Court has laid down in the case of M. Ram Narain (P.) Ltd. v. STC AIR 1983 SC 786 that in appropriate cases a party may be held to have became disentitled from enforcing the right of appeal which it may otherwise have. In an appropriate case any party which derives any advantage under a decree or order may, depending on facts and circumstances of a case, disentitle himself to challenge the same and will be estopped from filing an appeal against the same. The said analogy would apply to the present case with full force. Here also, the DB Group accepted and acted upon the impugned orders dated 30-11-1999 and 12-1-2000 passed by CLB, derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppressed minority considers that to wind up the company would not relieve, but, on the contrary, they would be unfairly prejudiced by winding up, they may petition the CLB which may impose a solution on the disputants. 27. Obviously, the learned counsel for the appellants questions the jurisdiction of CLB to entertain the petition under section 397/398 culminating into the passing of the impugned orders which have been challenged in these appeals. It is well known that the objection to the jurisdiction should be taken at the earliest possible opportunity in the Court of first instance. Though the present appellants (DB Group) did raise an objection before the CLB that the petitioners had not been able to make out a case as per the requirement of section 397/398, but it is found that they themselves made counter allegations of oppression and mismanagement against the present respondents who were petitioners before the CLB. Their submission was that the petitioners being in minority should be directed to sell their shares to them who were in majority. Here also, they have appealed only against this direction of the CLB regarding division of assets of the company, Forge Division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a family Company, closely held by the two warring groups who controlled a little over 80 per cent of the shares. Both of them were on the board of directors and in real control and management of the company. While being directors, the petitioners (KNB Group) did not lose their character as shareholders. It cannot be said that any of them was asserting or seeking some personal relief by presenting petition to the CLB. The truth of the matter was that the petitioners formed a group of shareholders with actual involvement in the control and management of the company, being on the board of directors too. They were eligible, as per the requirements of section 399 of the Act, to present the petition before the CLB. 30. It also cannot be accepted that the petition was founded on isolated instance of the outcome of the meeting of the Board held on 13-6-1998. Really speaking, what took place in the meeting dated 13-6-1998 was the climax of the events boiling during the preceding period, the main cause of which was the dismal performance of Plastic Division at Mumbai which was in the charge of DB at the relevant time of the presenting of the petition by KNB Group before the CLB.The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the CLB for passing an order under section 402 to resolve the dispute between the two groups through workable formulae in the interest of the company and the shareholders. The two groups held nearly 80 per cent shares and were on warpath against each other. In such a situation, the CLB had jurisdiction to mediate on a petition having been presented to it under section 397/398. 32. The learned counsel for the appellants has also argued that the respondents having availed of the alternative remedy of filing civil suits concerning the resolutions passed by DB Group, they could not present the petition before the CLB under section 397/398. This argument is not tenable and is apparently built on straw. The Civil Court was not a Court of co-ordinate jurisdiction and could not have granted relief as CLB is empowered to do in a situation like the present one under the provisions of the Companies Act under sections 397/398 and 402. 33. The learned counsel for the appellants has relied on the case of Bengal Luxmi Cotton Mills Ltd. In re [1965] 35 Comp. Cas. 187 (Cal.), but I find that the same can have no application here. In that case application for various interim relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al profits is no obstacle to its being wound up if it is just and equitable to do so. This position was accepted in the decision of the Court of Appeal in Yenidje Tobacco Co., In re [1916] 2 Ch. 426 and of the Privy Council in Loch v. John Blackwood Ltd. [1924] AC 783. (p. 1319) 35. To cap all, the said decision in the Needle Industries (India) Ltd. s case ( supra ) is the complete answer to silence the argument of the learned counsel for the appellants that the CLB could assume jurisdiction to pass an order under section 397 of the Companies Act only if the circumstances existed that there was just and equitable cause for the winding up of the company. It may be stated as a passing reference that earlier to the passing of Companies (Amendment) Act, 1988 the powers under section 397 were exercised by Court viz. Company Court. In the case referred to above, it has also been held by the Apex Court that even if the case of oppression has failed, the Court is not powerless to do substantial justice between the parties. That means to say, even on the failure of plea of oppression, the Court (Now CLB) is empowered to pass appropriate order in a petition under section 397/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pari materia of section 222 of the (British) Companies Act, 1948 and section 517 of the (British) Companies Act, 1985. It would be found that section 44( g ) of the Indian Partnership Act, 1932 provides for dissolution of a firm by the Court on just and equitable ground. The important case on this aspect of the matter which has been taken note of by the Indian Courts is Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492. It was held in the said case that just and equitable clause for the winding up of a company could be invoked when the company in substance was a partnership and there was an understanding that the parties would participate in the management of the company and when there was provision in the articles of association for removal of directors and the petitioner was removed from, the board of directors and excluded from any part of the management of the company, it amounted to breach of good faith the parties owed to each other. 38. In the case of Bhaskar Stoneware Pipes (P.) Ltd. v. Rajinder Nath Bhaskar [1988] 63 Comp. Cas. 184 , the Delhi High Court applied just and equitable clause in relation to winding up of a company when the business star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each case has to be judged on its own facts and circumstances for invoking or otherwise the principle applicable to the dissolution of partnership and it cannot be said that the application of such principle in the winding up petition of a company is completely excluded. 40. The learned counsel for the appellants has relied on yet another case of Hind Overseas (P.) Ltd. v. R.P. Jhunjhunwala [1976] 46 Comp. Cas. 91 to articulate the point that the interest of the applicant alone is not of predominant consideration. The interest of the shareholders of the company as a whole apart from those of other interests has to be kept in mind. It was held in the said case that the relief under section 433( f ) based on just and equitable clause is in the nature of last resort when other remedies are not efficacious enough to protect the general interest of the company. It has been stressed that as held in the said case, it is only when shareholding is more or less equal and there is complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which probably necessitated transformation of partnership firm into a company. KNB group should not, therefore, be thrown on the streets and deprived of the source which has been the fountain of its sustenance over long years, on hypertechnical view that this group was in minority and the majority shares were held by DB Group. 42. There was a complete deadlock in the management and lack of confidence between the groups, though both of them had equal rights in management. Lack of probity was apparent. There was absence of fair dealings in the affairs of the company. There was continuous quarrelling with no reasonable hope of reconciliation. The two groups could not co-exist together. Parting of ways was the only way out. 43. The CLB being a Court of equity had to keep all the relevant aspects in mind while giving appropriate relief. Having regard to the history of the formation of the company and the involvement, participation and contribution of KNB Group throughout as also the equal rights of management given to both the groups by Articles of Association, no fault can be found in the decision of the CLB in ordering the division of assets, Forge Division going to KNB Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 397 or 398 read with section 402 cannot be read as being subject to the other provisions contained in sections dealing with corporate management of the company in normal circumstances. The topic or subjects dealt by these sections are such that it becomes impossible to read any such restriction or limitation on the powers of the Court. Without prejudice to the generality of the powers conferred on the Court under sections 397 and 398, section 402 proceeds to indicate what types of orders the Court could pass. Under clause ( g ) of section 402 the Court s order may provide for any other matter for which, in the opinion of the Court, it is just and equitable that provision should be made. The only limitation that can be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation, which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of Court s power. Further, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the winding up. 49. Examining the present case in the proper perspective the order of division of assets made by CLB cannot be flawed on any premise. The CLB has passed such order on equitable consideration in the interest of the company and shareholders. The company has not been wound up. It continues to survive. The company goes with the DB Group with its name. The decision of the CLB is not arbitrary. Rather it is guided by fact situation and has proceeded on sound and firm foundation. It goes without saying that justice is the end of law. It has to be administered in such a way as to achieve this end. Hairsplitting technicalities should not be allowed to defeat justice. Law is not a cold blooded weapon always bound by technical considerations. Rather it is a warm blooded remedial measure to impart substantial justice. By ordering division of assets, the KNB Group is completely ousted from the Company. CLB has passed just and equitable order hiving off Forge Division in favour of KNB Group. As indicated earlier, this group has long been associated with the company right from the time of its inception. It may also be stated at the risk of repetition that both the warring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CLB does not provide for equalisation of shares. The company survives and remains with DB Group. Only a division (Forge Division) has been hived off in favour of KNB Group on cumulative consideration of relevant factors. This argument, therefore, does not hold water and is rejected. 52. Yet another argument from the side of appellants is that that the divisions of the company are interdependent and TCD and TRD cannot survive without Forge Division. The argument may seem to be attractive at first blush but falls through on scrutiny. It would be recalled that a partnership business of the family was converted into private limited company in 1969 and later on into a public limited company in 1975. Annexure 1 to the counter affidavit of Sameer Bhargava filed in support of the application for interim relief is the copy of the petition made by the KNB Group before the CLB. It was stated in its paragraph 6 that the Forge Division was established in 1977-78. Annexure 2 of the said affidavit is the copy of the reply filed by DB Group. The above averment of the KNB Group has not been denied by the DB Group in the reply filed before the CLB. The fact was repeated by the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the creditors. This Court also finds that the CLB was anxious to protect the interest of creditors and has given proper directions. It is the ICICI which has to appoint a valuer to value the shares as also the Forge Division. After valuation is determined, the parties including the financial institutions have been given the liberty to approach the CLB for a formal order. Financial institutions have also been given liberty to apply the CLB in case of any necessity. Therefore, there is of likelihood of the suffering of the interest of the creditors by such division inasmuch as necessary safeguards have already been provided by the CLB. On this aspect of the matter the decision of the Supreme Court in the case of Cosmosteels (P.) Ltd. v. Jai Ram Das Gupta [1978] 48 Comp. Cas. 312 : may also be taken note of. That was a petition under section 397/398 of the Companies Act against oppression/mismanagement. Under section 402 of the Court gave directions to the company to purchase shares of some of its own members, resulting in reduction of share capital. It was held that before granting such direction it was not necessary to give notice of consequent reduction of share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issolution of partnership could be invoked under the facts and circumstances of the case. Stress has been laid on the following observation of the Supreme Court : Generally and broadly speaking, the corporate veil may be lifted where the statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded, or associated companies are so inextricably connected as to be, in reality, part of one concern. (p. 549). 59. I have considered this aspect of the matter. I do not think that the above decision of the Apex Court presented any hurdle in the way of the CLB to consider the previous background culminating into the formation of the company the relationship of the parties, their contribution and involvement in the business since inception onwards so as to modulate an opinion about just and equitable relief which the situation demanded on a holistic approach. 60. Assailing the division of assets ordered by the CLB, Sri Vajpayee has urged that the CLB completely give a go by to the corporate democracy by only protecting the interest of the petitioners, remaining unmindful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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