TMI Blog2004 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... the above numbered company petitions under sections 397, 398, 399, 402 and 406 of the Companies Act, 1956, were filed by Sippy group. Company Petition No. 40 of 2002 was filed in respect of SSCO for the following substantive reliefs : "( a )The board of directors of the company be superseded; ( b )An administrator and/or special officer be appointed to take charge of the management and affairs of the company and its books, papers, records and documents; ( c )An inquiry be conducted into the accounts of the company and a special audit of its accounts be directed; ( d )A scheme be framed for the management, administration, control and affairs of respondent No. 1-company on such terms and conditions as to this hon ble Board may seem fit and proper; ( e )****** ( f )Perpetual injunction retraining respondent Nos. 2 and 3 acting as, representing themselves to be or holding themselves to be directors of respondent No. 1 company in any manner whatsoever; ( g )Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them from interfering and/or intermeddling with the management and affairs of respondent No. 1-company in any manner whatsoever; ( h )P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 1-company for the purpose of the instant litigation in any manner whatsoever; ( r ) Ad interim order in terms of prayers above; ( s )Costs of an incidental to this application be paid by the respondents; ( t )Such further and other order or orders be made and/or direction or directions given as to this Hon ble Board may seem fit and proper." Company petition No. 41 of 2002 was filed in respect of the SSTS for following substantive reliefs : "( a )The board of directors of the company be superseded; ( b )An administrator and/or special officer be appointed to take charge of the management and affairs of the company and its books, papers, records and documents; ( c )An inquiry be conducted into the accounts of the company and a special audit of its accounts be directed; ( d )A scheme be framed for the management, administration, control and affairs of respondent No. 1-company on such terms and conditions as to this Hon ble Board may seem fit and proper; ( e )Perpetual injunction restraining respondent Nos. 2 and 3 acting as, representing themselves to be or holding themselves to be directors of the company in any manner whatsoever; ( f )P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner whatsoever; ( o )Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them from dealing with, disposing, encumbering, alienating or transferring the assets and properties of respondent No. 1-company in any manner whatsoever; ( p )Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them from utilising the funds of respondent No. 1-company for the purpose of the instant litigation in any manner whatsoever; ( q )An independent person be appointed as financial controller of respondent No. 1-company on such terms and conditions as to this Hon ble Board may deem fit and proper with a further direction empowering such financial controller to countersign all cheques issued by respondent No. 1-company; ( r )An independent person be appointed as general manager of respondent No. 1-company to conduct its day-to-day affairs as to this Hon ble Board may deem fit and proper; ( s )Perpetual injunction restraining respondent Nos. 2 to 5 and each one of them from transferring out any funds outside the country with regard to the agency agreement entered into between respondent No. 5 and respondent No. 4 or Samrat Shipping and Logistics (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been seriously challenged before me. However, the finding recorded by the Board in relation to the affairs of SSTS at the instance of the Puri group is the main controversy that needs to be resolved in these appeals. That aspect has been considered by the Board in paragraphs 18 to 23 of the judgment under challenge. The Board proceeded to examine that aspect on the basis as to whether the Puri group had breached its fiduciary duties to SSTS in getting the contract to the fourth respondent (Seaworld Shipping and Logistics (P.) Ltd. - hereinafter referred to as the SSL ) and, the Puri group and SSL is accountable to SSTS for the benefits derived by the fourth respondent (SSL) from the contract with the Contship, which was initially impleaded as respondent No. 5. At this stage, it is relevant to note that Contship, respondent No. 5, was deleted from the array of the respondents by a speaking order passed by the Board accepting the plea of Contship that no allegation was made qua them in the petitions as filed. Be that as it may, the Board further examined whether the Puri group - second respondent and the third respondent in Company Petition No. 41 of 2002, being the managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opportunity for itself; that the company is either legally or technically not in a position to pursue that opportunity; that the third party refuses to deal with the company; and that the opportunity was offered to the director in his personal capacity. It has also observed in the said para that one of the main elements of fiduciary duties of a director is loyalty to the company. It has referred to the defences taken on behalf of the Puri group, which were that the agency with SSTS had come to an end, therefore, even if Puri continued as a director of SSTS, he could take away the agency to his own company; Puri had brought the agency of Contship to Samrat group; he was free to take it; that Contship did not want to have the agency with the company; that Contship desired to have the agency with Puri because of his expertise. The Board has straightway rejected the defence that since Puri had brought the agency to the company, he could have taken away the same, because such a plea could not be countenanced and would be anathema to the fiduciary duties of the director/managing director. Thereafter, by applying the principles deduced from the judicial precedents, referred to in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement with SSTS as is evident from the fact that Contship entered into a deed of agreement with the fourth respondent on December 1, 2001, and the fourth respondent commenced the agency assignments immediately as is evident from the Service schedule issued by the fourth respondent dated December 14, 2001. The agreement could not have been signed on December 1, 2001, without prior consultation with Contship. Therefore, it is obvious that he used the knowledge derived in his official capacity that Contship was terminating the agency with SSTS effective from December 1, 2001, to his own advantage. In other words, even when the agency was subsisting with SSTS, he was planning to take the same subsequently without disclosure to the board of SSTS. The Sippys have alleged that the fourth respondent was incorporated only with a view to take over the agency business. It appears to me that the sequence of events would support this allegation. One Shri Virah M. Barucha applied to the RoC, Goa, for incorporating a company in the name of Samrat Shipping Logistics (P.) Ltd. on December 22, 2000. In this application, it is stated that the proposed company would be a group company of SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing to do with them at any time. It then proceeded to hold that the unwillingness of the third party (contship in this case) to deal with the company (SSTS) cannot be permitted as a defence to corporate opportunity claim, sans disclosure. It was of the view that such defence, especially after the opportunity has been taken away, will have to be rejected mainly because it would present significant evidentiary problems, inasmuch as the fiduciary and the third party would not come forward to admit that the third party was also interested in working with the company. The Board then proceeded to express the view that if the third party shows unwillingness to deal with the company, the director should disclose this fact and should attempt to cure the problem. To buttress this view, reliance is placed on the decision in Industrial Development Consultants Ltd. s case ( supra ) and another decision of the Appeal Court of Massachusetts in Energy Resources Corpn. v. Porter 438 NE 2d 391. It found that since the Puris were aware that Contship did not want to deal with SSTS as fiduciary, they should have unmistakably disclosed the refusal to the company (SSTS) together with a fair state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the same para, yet proceeded to give relief to Sippys directing the Puri group to pay reasonable interest being simple interest of 12 per cent for the period beyond four years from October 15, 1992, till the refund of the amount. Only this direction has been challenged on behalf of the Puris by way of Company Appeal No. 2 of 2004. 7. In para 25, the Board considered the question of relief to be granted. It found that since there was complete deadlock in the affairs of both the companies and because of the loss of confidence between the two groups, it would warrant winding up of the company on just and equitable grounds. It, however, observed that instead of winding up, the best solu-tion was of parting of ways by the two groups, which would not only be in the interest of the concerned groups, but also of the companies in question. It took the view that in such a peculiar situation, the appropriate course would be to direct the Sippy group to take one company and the Puri group to take the other company. It recommended the Sippy group to take over the control and management of SSCO by purchasing the shares held by the Puri group in the company, and likewise, the Puri group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These appeals, having been filed under section 10F of the Companies Act, 1956, could be maintained only on questions of law arising out of the order passed by the Board. The questions of law formulated in the respective appeals are as follows. In Company Appeal No. 1 of 2004, following questions of law, filed by the Puri group, as amended, are formulated, namely : "(A)What is the correct law in India relating to the existence, effect, nature and extent of directors fiduciary duties? (B)Whether a Tribunal is bound to apply the law in this behalf as set out in a judgment of the Supreme Court and Full Bench of a State High Court in preference to judgments of foreign courts? (C)Whether, after independent termination by the third party principal of an agency agreement with the company, a director of the company had a fiduciary duty to the company qua that agency business/agreement? (D)Whether an agency business arrangement with a company, duly terminated by the third party principal, can ever represent a lost business or corporate opportunity capable of diversions from the company? (E)Whether in Indian law, third party unwillingness to deal with a company (and its willin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party who is neither a shareholder nor a director of the company?" 15. In Company appeal No. 5 of 2004, filed by the Sippy group, no specific question of law has been formulated in the memorandum of appeal as filed, but an attempt is made to articulate questions of law in the synopsis, accompanying the memorandum of appeal. The same reads thus : "A.The appeal raises the following questions of law, which in the respectful submission of the appellants require to be finally adjudicated upon and determined by this Hon ble Court : ( i )In a case where a director breaches his fiduciary duties to the company and diverts business to another company, how is the quantum of benefits/profits that the director has to derived, to be calculated and in what manner is the company to be reimbursed for such diversion of business? ( ii )Whether, having concluded that respondent Nos. 2 and 3 (by taking away the agency of Contship Containerlines to respondent No. 4) has breached his fiduciary duties to the company the CLB ought not to have directed respondent No. 4 to pay over all the benefits/profits that respondent No. 4 has derived and/or is to derive from the agency of Contship Container ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper to direct respondent No. 4 to account to the company for all the profits that respondent No. 4 has derived from the agency of Contship Containerlines, for a reasonable period between December 1, 2001, and March 31, 2003. J.The Hon ble CLB erred in concluding that the period between December 1, 2001, and March 31, 2003, was reasonable when admittedly the agency agreement between Contship Containerlines and respondent No. 4 did not stipulate any specific period. K.The Hon ble CLB after having directed respondent No. 4 to account for all the benefits/profits that it derived from the agency contract with Contship Containerlines, ought not to have limited such payment to fifteen months, i.e., the period from December 1, 2001, to March 31, 2002. L.The Hon ble CLB erred in concluding that the valuer will compute the amount of profit that respondent No. 4 has derived from the agency with Contship Containerlines from December 1, 2001, to March 31, 2003. M.The Hon ble CLB ought to have directed the valuer to compute the valuation of the company on the basis that the agency of Contship Containerlines is ongoing with the company. N.The Hon ble CLB has not exercised its disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that effect recoded by the Tribunal, particularly when the remedy of winding up of the company was available to the parties? Whether the Hon ble Company Law Board committed a jurisdictional error in purporting to make orders under section 397 without either considering or holding that to wind up the company would be prejudicial to the interests of the petitioners?" After hearing counsel for the parties, to my mind, broadly the following questions will have to be addressed in the present appeals: (1)What is the correct law as applicable in India relating to the existence/effect/nature and extent of director s fiduciary duties? (2)Is the case held as proved by the Company Law Board pleaded against the Puri group and SSL, which is newly formed and fully controlled by the Puri group? (3)Whether the Puri group has breached its fiduciary duties to SSTS in getting the contract to SSL and not to SSTS, of which they continue to be the managing director and director? (4)When the agency is not subsisting or, in fact, was terminated, can the company (SSTS) or any of its members, complain of breach of fiduciary duties by the managing director/director of the company, and more parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trusts Act, 1882, and discarded the decisions cited in respect of that provision, on the specious reasoning that those decisions were cases of partnership coming to an end and no fiduciary liability subsisted, and in one of the cases the facts were that the third party did not want to give business, as the company was dealing with the competitor; and in one case, the principal itself gave up particular business. This can be found from the observations in para 18 of the judgment under appeal. 18. Be that as it may, the appropriate course, to my mind, is to straightaway refer to section 88 of the Indian Trusts Act, 1882. The same reads thus: " Advantage gained by fiduciary. Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assert their rights; and it is immaterial whether the term of the partnership is definite or indefinite, or whether the lessors would have refused to renew to the partners who are not privy to the renewal. The representatives of a deceased partner may have a right to share in the profits derived from a renewal of the lease by the surviving partner." (p. 197) The apex court then went on to observe that as per the English law, there is no absolute rule of law or equity that a renewal of a lease by one partner must necessarily enure for the benefit of all the partners. It observed that there is a presumption of fact, as distinguished from a presumption of law, that there is an equity in favour of the renewal of the lease enuring for the benefit of all the partners. But such a presumption being one of fact, is rebuttable and must, therefore, depend upon the facts and circumstances of each case. Since I am dealing with this judgment, it is necessary to point out that the Puri group placed emphasis on the dictum in the later part of para 14 of this judgment, which reads thus: "...This is a business in which the personal factor of the persons in charge of managing the business, is mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character or by entering into any dealings under circumstances in which his interests are or may be adverse to those of such other person he gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained: see Trusts Act, section 88. But there is no rule which incapacitates a trustee from dealing with a cestui que trust. In Coles v. Trecothick [1804] 9 Ves Jun 234, (247) Lord Eldon said: A trustee may buy from the cestui que trust, provided there is a district and clear contract, ascertained to be such after a zealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended, the trustee should buy; and there is no fraud, no concealment, no advantage taken by the trustee of information acquired by him in the character of trustee. I admit, it is a difficult case to make out, whenever it is contended that the exception prevails. As stated in Kerr on fraud and Mistake, Sixth edition, page 192: Thus a trustee for sale may purchase the trust estate, if the cestui que trust fully and clearly understands with whom he is dealing and makes no objection to the transaction, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership deed, were for a definite period for the purpose of carrying on the specific business and were co-terminus with the agency business, which was also about to be terminated. In this decision, reference is made to the decision in the case of Benett v. Gaslight Coke Co. of London [1882] 48 LT 156 (Ch. D), wherein one W on becoming insolvent assigned all his estates to four creditors trustees, to carry on his business for the creditors benefit. W s principal asset was a valuable agency for the defendants, also creditors. As part of the arrangement, W s agency contract was cancelled, and a fresh one, for about thirteen months, was entered into with the trustees for the creditors benefit. Before the expiration of the fresh contract, and before the trust was wound up, B, one of the trustees, applied to the defendants to renew the agency to the trustees, and, on that being refused, obtained from the defendants a contract that his own firm should have the agency when that of himself and his co-trustees expired. B did not inform his co-trustees of this arrangement for his own benefit. Subsequently, another application was made to the defendants to renew the agency to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple stated in the said decision. My attention was also invited to the decision of the Appeals Court of Massachusetts in Energy Resources Corpn. s case ( supra ) which is relied by the Board, as referred to earlier. Reference was also made to para 1313 of the American Jurisprudence, second edition, volume 19, page 720, which deals with opportunities not available to, or rejected by, the corporation. The same reads thus : " A business opportunity ceases to be a corporate opportunity and becomes personal when the corporation is definitely no longer able to avail itself of the opportunity. The view is taken that the doctrine forbidding a corporate director or officer to appropriate a corporate opportunity for his own benefit is not applicable if the opportunity is one which the corporation is financially unable to undertake . At least this is so where the corporation is financially insolvent. In the case of a corporation which, by reason of insolvency, has ceased to prosecute its business, the directors and officers thereof are under no obligation to refrain from engaging in the same line of business, notwithstanding by doing so they appropriate to themselves the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to SSTS is articulated in Company Petition No. 41 of 2002. It will be useful to peruse paras 10 to 46 of the said petition. In para 10, reference is made to the fact that the Contship agency was the important source of revenue and profits initially for SSCO and later on for SSTS (upon its incorporation), which commenced in terms of the agreement dated February 1, 1991, which was valid till September 30, 1996, and thereafter continued from October 1, 1996. The turnover and net profit, after tax, to SSTS during 1996-97 up to March 30, 2001, is stated in the statement annexed to the petition as annexure P3. In para 11 of the petition, it is clearly averred that on or about December 7, 2001, for the first time , the Sippy group became aware of a company (SSL) having come into existence with the name Samrat Shipping and Logistics Pvt. Ltd. with the word Samrat as a dominant and significant part of its name and trading style. On enquiries, it is stated that, it was revealed that the shareholders and directors of SSL were none other than the Puri group. It is expressly stated in the same paragraph that the petitioners (Sippy group) verily believe that "if the Samrat Shipping and Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to several other events and clearly hinting at the breach of fiduciary obligations committed by the Puri group. The assertions made in para 26 onwards are again of some significance. It is clearly alleged that the Puri group had floated a company with the name Samrat for their personal benefit and at the cost of and causing loss and damage to SSCO and the company (SSTS). It is then averred that the Puri group are seeking to derive wrongful personal gain to themselves by their said wrongful acts, which are a fraud on SSCO and the company (SSTS) and its shareholders. It is then averred that in breach of the trust and confidence reposed by the Sippy group on the Puri group in relation to the management and affairs of the company, the Puri group are in breach of their obligations, which were fiduciary in character towards the company SSTS and its shareholders, including the Sippy group and have purported to conduct and manage the affairs of the company in a manner harsh, burdensome and oppressive to the petitioners (Sippy group) and in a manner prejudicial to the interests of the company (SSTS) and prejudicial to public interest. The foundation for these allegations as mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y supported by the pleadings of the Sippy group. The pleadings will have to be construed as a whole and in their proper perspective and, so understood, the decision of the Company Law Board cannot be faulted on the ground of lack of pleadings. 25. The principal question is whether the Puri group has breached its fiduciary duties to SSCO or SSTS in the manner concluded by the Company Law Board. The expression fiduciary duty or fiduciary character is not defined either in the Companies Act or the Indian Trusts Act. The meaning ascribed in the relevant provisions can, however, be discerned from the meaning provided to expression fiduciary in the Black s Law Dictionary, which reads thus : " Fiduciary. The term is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. A person having duty, created by his undertaking, to act primarily for another s benefit in matters connected with such undertaking. As an adjective it means of the nature of a trust; having the characteristic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is the highest standard of duty implied by law ( e.g. , trustee, guardian)." [Emphasis supplied] It is plain from the above that a fiduciary is obliged to act for someone else s benefit while subordinating his personal interest to that of the other person. From the events as have been discussed by the Company Law Board and, more particularly, in para 20 of its decision, as reproduced above, there can be no hesitation in taking the view that the Puri group have breached their fiduciary duties to SSCO and SSTS. 26. I find substance in the argument canvassed on behalf of the Sippy group that having regard to the nature of arrangement obtaining between the two groups in managing the affairs of both the companies, it is more than clear that even though they are registered as private companies, but, in substance, it was a glorified partnership. Once this position is reached, although the provisions or the requirements governing the principle of a partnership firm may not be directly applicable, the principles underlying the same can be pressed into service. While examining the case on hand, as rightly contended on behalf of the Sippy group, the court will be obliged to exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de facto control of the company have acted as they did in the conscious knowledge that this was unfair to the petitioner or that they were acting in bad faith; the test, I think, is whether a reasonable bystander observing the consequences of their conduct, would regard it as having unfairly prejudiced the petitioner s interests. This view was followed by Nourse J. in R.A. Noble Sons (Clothing) Ltd., In re [1983] BCLC 273. However, in that case the learned judge granted a winding up petition on the just and equitable ground to a petitioner who had been excluded from participation in its management, following Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL), but refused the petition under section 459 on the grounds that the respondents conduct had not been unfairly prejudicial to the petitioner. This was mainly on the grounds that the petitioner had shown a lack of interest in being involved in the running of the company. Whether the view that unfair prejudice connotes a narrower basis for granting a remedy than the just and equitable ground will be followed in future cases remains to be seen." [Emphasis supplied] 28. Reliance was then placed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a quasi-partnership ) and a minority shareholder ceases to act as a director or resigns his directorship as a result of personal differences or difficulties of temperament with the other directors, the minority shareholder is considered under the present statutory provision as being unfairly prejudiced if the controlling shareholders do not make an offer to acquire his shares at a reasonable price, or do not respond favourably to an offer by him to sell his shares to them at a reasonable price." And again, at page 897, which reads thus : "Likewise, where the company was formed by its shareholders, who were also its directors, as a quasi-partnership, and the success of the company was envisaged by them as depending on the mutual trust and confidence between them, the removal of the petitioner from his membership of the board, either by a board resolution or by a resolution of a general meeting, may amount to an act which is unfairly prejudicial to the petitioner as a member of the company, unless his removal is for a reason other than a wish to exclude him from the benefits of his shareholding and directorship and a fair offer is made to him for the purchase of his shares. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ample distributable profits have been made). This, of course, was how the courts interpreted section 210. In a small private company it is legalistic to segregate the separate capacities of the same individual as shareholder, director or employee. His dismissal from the board or from employment by the company will inevitably affect the real value of his interest in the company expressed by his shareholding. It is precisely this recognition which makes the restatement by the House of Lords of the grounds of a just and equitable winding up order under what is now section 517(1)( g ) so notable. The question of who may petition under section 459 is further examined below." As mentioned earlier, since the nature of arrangement between the two groups for conducting the affairs of the companies was one of a glorified partnership, which fact has been conceded by both parties and in particular the Puri group in the letters dated February 23, 2001 (para 7.3) as well as dated March 18, 2002, (para 2.4), counsel for the Sippy group was right in arguing that the principles underlying the general duties and fiduciary duties of a partner of a firm should govern the adjudication of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether or not they are of a partnership nature. 2. The obligation of partners not to benefit themselves at the expense of their co-partners. Although this obligation is, for present purposes, formulated separately from the general duty of good faith, it in truth represents no more than a particular branch of that duty. Lord Lindley explained it thus : Good faith requires that a partner shall not obtain a private advantage at the expense of the firm. He is bound in all transactions affecting the partnership, to do his best for the common body, and to share with his co-partners any benefit which he may have been able to obtain from other people, and in which the firm is in honour and conscience entitled to participate; Semper enim non id quod privatim interest unius ex sociis servari solet, sed quod societati expedit ." [Emphasis supplied] "Full disclosure If the duty to account is to be avoided in such a case, it is essential that the partner concerned makes full disclosure of his interest of his co-partners. However, nothing short of such full disclosure will suffice. It appears that, in Dunne v. English [1874] LR 18 Eq. 524, the plaintiff knew that the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after taking the Sippy group in full confidence. The Board has found as a fact that the letter of termination of agency by Contship was addressed to the Puris and not on the registered office address of SSTS. On receipt of the said letter, the Puri group did not disclose its intention to get engaged in the same business as that of SSTS or the intention of Contship to terminate agency at all. The argument that the Sippy group had knowledge is founded on statements appearing in the petition filed by that Sippy group. That is distorted meaning ascribed by the Puri group. The fact remains, as has been found by the Board, that neither the factum of incorporation of a new company by the Puri group ( i.e. , SSL), nor the termination of agency by Contship on September 1, 2001, nor the offer of Contship to give the agency to SSL, which was fully controlled by the Puri group, was disclosed by the Puri group to the Sippy group at any point of time. If it is so, applying the above standards applicable to the partners of any partnership firm, it will have to be held that the Puri group committed breach of its fiduciary duties to the SSCO and SSTS. So understood, some error here or there commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, perhaps with some ulterior object in view. They are certainly conducting the affairs of the company in breach of their duty as directors. In the present case I would go further, for I think that the production of rayon cloth at the mill was an affair of the company and that the society being majority shareholder in the company cannot claim that in diverting this production to itself and obstructing supplies to the company it was acting for itself and not conducting the affairs of the company in a manner unfair and oppressive to the minority shareholders. It was said that the company should have secured its rayon cloth from the mill by a contract. But that is beside the point, looking to the special relationship between the company and the society. A partner who starts a business in competition with the business of the partnership without the knowledge and consent of his partners is acting contrary to the doctrine of utmost good faith between partners. He is also acting in a manner which, I think, may be regarded as oppressive to his partners for he is doing them an injury in their business. In the same way, there was here, in my opinion, oppression by the society of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interests of the one company to those of the other. So I would hold that the affairs of the textile company were being conducted in a manner oppressive to Dr. Meyer and Mr. Lucas. The crucial date is, I think, the date on which the petition was lodged - July 14, 1953. If the Dr. Meyer and Mr. Lucas had at that time lodged a petition to wind up the company compulsorily, the petition would undoubtedly have been granted. The facts would plainly justify such an order on the ground that it was just and equitable that the company should be wound-up : see Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch 426 (CA)...." [Emphasis supplied] (p. 31) 34. Reliance has been rightly placed by the Sippy group on the decision of the Supreme Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 , at pages 365-366, wherein the expression oppressive has been considered. It is observed that the phrase "oppressive to some part of the members" would suggest that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fairplay on which every shareholder who entrusts hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup has rebutted the presumption of fact regarding its fiduciary duty. According to counsel for the Puri group, it had rebutted that presumption, as it is seen from the records that Contship had terminated the agency of SSTS, there was no corporate opportunity to SSTS; no attempt was made by SSTS to approach Contship, because both parties knew that there was no corporate opportunity to SSTS, whereas the only grievance in the petition was using domain and name "SAMRAT". There is no substance in this defence. The presumption of fact will have to be rebutted and could have been done so by the Puri group by adducing positive evidence that the business opportunity was not available to SSTS and that the agency was given to SSL, after disclosure to the Sippy group and SSTS and that there was refusal or waiver by the Sippy group or SSTS. The materials pressed into service on behalf of the Puri group would only indicate that Contship was keen to deal only with the Puris. That material, however, does not positively point out that Contship was unwilling to deal with SSTS with whom, admittedly, the Puri group continued to be the managing director and director of the companies (SSCO and SSTS). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such a direction is possible in the wake of finding recorded that the conduct of the Puri group resulted in oppression of the Sippy group and of the two companies within the meaning of section 397 of the Act and also mismanagement within the meaning of section 398, relating to the affairs of the companies, which was in a manner prejudicial to the interests of the company, proceedings such as the present one, there would be no limitation or restriction of power of the Board. Reliance has been rightly placed by counsel for the Sippy group on the Division Bench decision of our High Court in Shanti Prasad Jain v. Union of India [1973] 75 Bom. LR 778, which deals with the scope of power to be exercised by the court in the proceedings under sections 397 and 398 of the Act. Section 402 of the Act is a provision without prejudice to the generality of the powers of the Board under sections 397 and 398 to bring to an end or prevent the matters complained of or apprehended and make such orders, as it thinks fit. On a conjoint reading of sections 397, 398, 402 and 406 with sections 539 to 544 of the Act, it would appear from the legislative scheme that the Board has plenary powers to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect that needs to be considered is whether the Board could have issued the directions, as have been issued in the present case, having regard to the nature of proceedings under sections 397, 398 and 399 of the Act. Before we proceed to examine this aspect, it needs to be recalled that the direction issued by the Board is qua the SSL to account for the benefits derived by it from the Contship agency. I have already taken the view that such a relief could be legitimately granted if the facts of the case so warrant and has been rightly granted in the present case. 45. The other direction is against the Puri group to pay simple interest at the rate of 12 per cent per annum for the period beyond four years from October 15, 1992, till the refund of the amount of Rs. 49 lakhs. There is further direction issued by the Board directing both the groups to purchase the shares of the other group. In the first place, having regard to the expansive provisions contained in the Companies Act, no fault can be found with the Board for issuing such directions. The directions so issued are obviously for adjusting equities and for bringing to an end or preventing the matters complained of or app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the party as reflected not only in the proceedings before the company court, but also in parallel proceedings in civil courts and in any other civil litigation in other courts can be the basis for non-suiting the party. 48. I find substance in the submission canvassed on behalf of the Puri group that the court, having taken the view that the disclosures made in Company Petition No. 40 of 2002 filed by the Sippy group were false to their own knowledge, and on that reasoning, the entire petition ought to have been rejected. Indeed, the direction to pay simple interest qua the Puri group was to pass an equitable direction in favour of the company, SSCO. However, in the present case, it is a matter of record that SSCO is constituted only of two groups, namely, the Puri group and the Sippy group. If the shareholders of the company were to be different persons, obviously, the Puri group could have been directed to pay interest for the delayed payment so that the other shareholders would also have been benefited by such an order. Besides, in the present case, the finding as has been recorded by the Board is that the entire transaction was completed with the knowledge and consent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the two groups, but to ensure that the mischief was brought to an end or to prevent the matters complained of or apprehended and more so, to sustain the companies. Viewed in this perspective, the direction issued by the Board which would enable the Puri group to take over SSTS, which was doing the same business as SSL, the newly formed company fully controlled by the Puri group. On the other hand, the Sippy group would take over the control and manage- ment of SSCO of which M/s. Meridian was the subsidiary. It is in that context the Board has issued direction that the Puri group would purchase shares of the Sippy group in SSTS by paying the fair value; and Sippy group shall purchase shares of the Puri group in SSCO by paying fair value therefor. Such a course was the appropriate relief and direction to be passed in the fact situation of the present case. 50. It was however, contended on behalf of the Puri group that this arrangement clearly overlooks the allegations of the Puri group of diversion of business and funds of SSCO by the Sippy group. However, to my mind, the process of valuation of shares by an independent valuer would obviously reckon that aspect and that should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals in the following manner : (1) Company Appeal No. 1 of 2004 filed by the Puri group is dismissed. (2) Company Appeal No. 4 of 2004 filed by SSL is also dismissed. (3) Company Appeal No. 5 of 2004 filed by the Sippy group is allowed. The direction issued by the Board to account for the benefits derived from the Contship Agency from December 1, 2001, only till July 21, 2003, is set aside. Instead, direction is issued to SSL, as well as the Puri group, to account for the benefits derived by SSL from the contract of agency with Contship from December 1, 2001, till they purchase the shares of the Sippy group in SSTS, or, till the termination of agency of SSL by Contship, whichever is earlier. (4) Company Appeal No. 2 of 2004 filed by the Puri group is partly allowed to the extent that direction issued by the Board to the Puri group to pay simple interest at the rate of 12 per cent for the delayed payment of Rs. 49 lakhs to the company, SSCO, is set aside. (5) The common order passed by the Company Law Board in Company Petition Nos. 40 of 2002 and 41 of 2002 will stand modified to the above extent. (6) The Company Law Board shall proceed to take steps in terms of the obse ..... 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