TMI Blog2005 (12) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... p this contention and, therefore, it is not necessary to deal with the same. Suffice is to state that the Board s decision on this aspect is free from any flaw. It is true that no clear three days notice was given but there was no question of any prejudice to Mr. Jindal as he had replied to the notice with certain suggestions that interest should be between 13 per cent or 13.5 per cent. He did not complaint for short notice or postponement of the meeting, although it appears that notice had been issued by Company Secretary when he was fully aware that Mr. Jindal was not in town. However, this being an isolated instance in which Mr. Jindal had participated by making some suggestions. No prejudice seems to have been done to Mr. Jindal by this single and isolated instance. I am, therefore not inclined to accept the arguments of the petitioner that on this ground itself the Board Meeting of 18-1-2002 be declared null and void. It is misconceived to say, on the reading of the aforesaid para, that the findings are not supported by any reasons. No doubt the Board has recorded the Caparo group s reply to the Jindal group s arguments. But tenor of the language clearly suggests that the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by this Court in Chander Krishan Gupta [ 1981 (11) TMI 156 - HIGH COURT OF DELHI] , I am of the view that direction of the CLB to the effect that shares of Jindal group be purchased by the Caparo group should not be interfered with. The judgments cited by learned senior counsel for the Caparo group on the scope of section 10F of the Act opposing the appeal of Jindal group would be equally applicable while considering this appeal of Caparo group. Once it is found that the CLB, in the given circumstances, was within its power to exercise equitable jurisdiction and it so exercised, it would not be proper to interfere with the said equitable discretion in an appeal u/s 10F of the Act. Therefore, without going into the maintainability of the appeal filed by Caparo group, the same is dismissed on merits. The argument of Jindal group is that direction of the CLB that the valuation of the shares will be based on the balance sheet as on 31-3-2002 after which date he was removed from the Chairmanship on 7-2-2003 is not proper. However, I find that the CLB has fixed the date of 31-3-2002 because after this date Mr. M.D. Jindal was removed from the Chairmanship on 7-2-2003. Therefore, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achino group and Machino Finance Private Limited (shareholders of the company) filed, as joint petitioners, CP No. 17/2003 before the Company Law Board (for short the Board ), Principal Bench, New Delhi under sections 397, 398 and 399 read with sections 402 and 403 of the Companies Act. 1956. ( the Act ) alleging oppression and mismanagement on the part of the Caparo group. The company was arrayed as the respondent No. 1 and Caparo group as the respondent No. 2 and the Directors as the respondent Nos.3 to 6. Various acts of oppression and mismanagement were attributed to the Caparo group. 3. The matter culminated in the impugned judgment dated 19-8-2004. The Board rejected most of the contentions/allegations of the Jindal group and thus did not find it to be a case of mismanagement and oppression. However, even while dismissing the petition, the Board still observed that Mr. M. D. Jindal who was founder, promoter and chairman for number of years, feels oppressed and thus gave the direction that in case, he is willing to part with his shares, then the company/respondent should purchase the shares on valuation to be made by an independent valuer. Jindal group is dissatisfied with tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngad Paul although he was the founder chairman and continued as the chairman till that date. He perceived this removal as illegal and unlawful. This was the starting point of disputes insofar as the Company in question is concerned. Jindal group also felt that the Caparo group was mismanaging the company siphoning off the company s funds by granting loans to sister concern and starting parallel business. This led the Jindal group to file the aforesaid company petition primarily with three allegations, as already indicated above which may be noted specifically now : ( i ) Removal of Mr. Jindal from the post of chairman of the company on the ground that there was an unwritten understanding between the groups that he would remain chairman of the company throughout his life and for this reason he was appointed as the chairman since inception and was managing the affairs of the company in that capacity till his illegal removal on 7-2- 2003. ( ii ) Siphoning off the company s funds by granting loans to sister concern of the Caparo group. M/s. Caparo India Limited was given an inter-corporate loan to the tune of Rs. 2.07 lakhs and another loan of Rs. 450 lakhs was given to Caparo India De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and running parallel business by the same group which has financial and other interest in the company as well amounts to breach of fiduciary relationship between Caparo group and the company. Therefore, this would be an act of oppression and mismanagement and would also constitute grave offence of criminal nature as it contravenes sections 283, 295 and 372(A) of the Act. 5. It may be noted at this stage that on receiving the notice of this petition Caparo group had filed an application under section 8 of the Arbitration and Conciliation Act, 1996 submitting that in case of disputes between the parties the same were required to be adjudicated through arbitration as provided in the joint venture agreement dated 7-1-1994. This application of the Caparo group was dismissed by the Board vide order dated 10-11-2003. Caparo group filed appeal against that order under section 10F of the Act before this Court. During the pendency of this appeal the Board decided the main petition itself by passing the impugned judgment dated 19-8-2004. In view thereof, the Caparo group withdrew the said appeal on 3-9-2004. The necessity to note this fact has arisen as the maintainability of the appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a subsidiary of a public company, may appoint or employ a person and its Managing Director or Manager of one, other company provided that such an appointment or employment is made or approved by a resolution passed by the Board of Directors. The Board also opined that by the appointment of Mr. Asthana rights of the Jindal group as shareholders were not affected in any manner, more so, when MUL had also no objection to either grant of loans or to appointment of Mr. Asthana. On the basis of aforesaid discussion, the Board dismissed the petition but gave certain directions, as noted above, in the last para of the judgment. These directions read as under : 24. Accordingly, the petition is dismissed. However, the petitioner having invested a substantial amount in the company and having remained as Chairman for number of years, feels oppressed. I am of the view that the petitioner should be given an option, in case he desires, to go out of the company on return of his investment in shares of the company. In case the petitioner is willing to part with his shares, then the company/respondent should purchase the shares on valuation to be made by an independent valuer. The valuation will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the money invested by Caparo group in the respondent-company to the tune of Rs. 71,52,030 as equity participation has already been diverted to its sister concerns M/s. Caparo India Ltd. was given an inter-corporate loan to the tune of Rs. 207 lakhs and another loan of Rs. 450 lakhs was given to Caparo India Development Pvt. Ltd. without fixing any terms and conditions of the loan. A further loan of Rs. 295 lakhs was granted only for a period of six months but no principal has come back to the company till date and the total funds siphoned off are Rs. 952 lakhs to the companies owned and controlled by Non-resident directors. Mr. Jindal had started asking for the details of the loan granted along with details of investment in the Board Meeting of 14-12-2002 and these facts came to the petitioner s knowledge. In reply, the respondents have stated that the allegation of sanction of loan to Caparo India Pvt. Ltd. and Caparo India Development Pvt. Ltd. are completed wrong and un- founded. In any event, the alleged allegations do not constitute any oppression. The loans were granted to Caparo India Ltd. for its business by following the proper procedure and with the consent of Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be between 13 per cent or 13.5 per cent. He did not complaint for short notice or postponement of the meeting, although it appears that notice had been issued by Company Secretary when he was fully aware that Mr. Jindal was not in town. However, this being an isolated instance in which Mr. Jindal had participated by making some suggestions. No prejudice seems to have been done to Mr. Jindal by this single and isolated instance. I am, therefore not inclined to accept the arguments of the petitioner that on this ground itself the Board Meeting of 18-1-2002 be declared null and void. 10. It is misconceived to say, on the reading of the aforesaid para, that the findings are not supported by any reasons. No doubt the Board has recorded the Caparo group s reply to the Jindal group s arguments. But tenor of the language clearly suggests that the Board has found merit with the arguments of the Caparo group on this aspect and while accepting the same, it did not feel it necessary to repeat the same extensively as its own reasons. There may not be anything wrong with this approach. It is clear that the following factors weighed with the Board : ( a ) The company had surplus funds and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be the group companies of the Caparo group). The Jindal group, thus, had clear knowledge that loan is to be given to these companies of the Caparo group. With open eyes they agreed, without any objection, that such a loan be granted. Even when decision was taken in the Board meeting dated 18-1-2002 when Mr. Jindal was not present, he had sent a letter in which he did not at all stated that loan to these companies be not given. In fact, he had given tacit consent to the grant of loan to those companies if interest rate was going to be 13 per cent or 13.5 per cent. In the wake of these facts, it is clearly impermissible on the part of the Jindal group to turn around and raise a plea that grant of loan to those companies was not in the company s interest or was given to the companies doing competing business. The Board has rightly observed that there are no details of the allegations of fraud, siphoning off funds etc. which cannot be looked into for want of these details and on mere suspicion in view of the law laid down in the case of Karedla Suryanarayan ( supra ). It is, therefore, an afterthought plea raised, when the relation between the parties became sore. In view of this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been vested with the general and specific powers to grant loans etc. from the funds of CML. ( ii ) Maruti Udyog Limited who is also a 20 per cent shareholder in CML and party to the JVA is an active participant in the affairs of CML. In the Board meeting dated 18-1-2002 the representative of Maruti Udyog was present and he has not objected to the grant of loans in the ( sic ). According to the appellants the dominant policy maker is Maruti Udyog Ltd. and that being the case, if the affairs of CML were being conducted contrary to the interests of its members, clearly Maruti Udyog having 20 per cent stake in CML would have certainly raised their voice. This has never happened and on the contrary Maruti Udyog has been always supportive of the management and the affairs of CML and the contributions of the Respondent No. 2. ( iii ) All the loans to CIPL and CIDPL are also duly disclosed in the audited annual accounts of CML throughout which has been approved by all the members of CML including the appellants. ( iv ) There has not been any default by the borrowing companies, either in the payment of interest or otherwise during the entire tenure of the loans. ( v ) In any event, the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of action under section 397/398 of the Act, more particularly when there is no allegation of lack of probity or fair play. In Power Tools Appliances Co. (P.) Ltd. s case ( supra ) the Calcutta High Court had observed : Secondly the respondents have stated that the deposit was necessary in order to obtain Bank guarantees and security deposits to enable the company to participate in tenders and contracts and also to provide margin money for issuance of letters of credit for the purpose of import of machinery from the foreign principal for a stock and sale. It is further stated that the management thought that utilisation of money from the cash credit or overdraft account of the company for the purpose of furnishing cash security would be unsound business practice as interest would nave been payable on the same at the rate of 17 per cent p.a. It cannot be stated without more than the mere keeping of the moneys of the company in a term Deposit is bad business practice or in any event such mismanagement as would warrant interference under section 398 of the Act. 16. At this stage, I may point out that in this judgment, the High Court also laid down four considerations which are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. It has to be satisfied that the affairs of the company are being conducted in a manner oppressive to any member or members of the company. The acts of oppression, therefore, have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the Court. (p. 128) Para 23 : The third principle that has to be kept in mind that the acts of oppression or mismanagement must be continuing ones. As stated in Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton Jute Mills Co. Ltd. AIR 1965 Guj. 96 Para 35. ...The general principal manifest from the language of sections 397 and 398 is that the power of the Court under both the sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the Court cannot make an order setting aside or interfering with past and concluding transactions which are no longer continuing wrongs.... (p. 103) Para 24 : The fourth aspect of the matter both under sections 397 and 398 is that there must be evidence that on the facts stated the company was otherwise liable to be wound up. 17. Once the matter is considered in the aforesaid perspective, various judgments reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled by the Jindal group cannot be faulted with. 20. In this appeal which is filed under section 10F of the Act, against the order of the Board, the appeal is only on substantial question of law. It is a statutory remedy provided to the aggrieved party and such a remedy is circumscribed by the limitations imposed in the provision. The jurisdiction of this Court under section 10F of the Act is limited. In Gorden Woodroffe Co. Ltd. v. Gordon Woodroffe Ltd. [1999] 20 SCL 429 , the Madras High Court explained the scope of the jurisdiction of High Courts under section10F of the Act in the following manner : The jurisdiction of this Court under section 10F of the Act is limited. It can go into the question of law arising out of such an order. When the Board has not discussed the issue in detail and given a decision on the transfer, this Court acting as an appellate authority under section 10F of the Act, having limited jurisdiction with reference to law, cannot as a Court of law embark upon the consideration of evidence with reference to the transfer of shares. 21. Law is also expounded by our own High Court in the case of Mohd. Jafar v. Nahar Industrial Enterprises Ltd. [1997] 4 Comp. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the matters complained of only if it is of the opinion that : ( a ) The company s affairs are being conducted, in a manner prejudicial to public interest or in a manner oppressive to any member or members; and ( b ) To wind up would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding order on the ground that it was just and equitable that the company should be wound up. 25. Submission was that only when the Court is of the opinion that aforesaid two conditions are established that it gets jurisdiction to pass such order as it thinks fit with the purpose of bringing to an end the matters complained of . Thus, there was no power to make such an order in case the Court did not record the opinion about the company s affairs being in a manner prejudical to public interest or in oppressive manner and when the case of winding up was not made out on just and equitable grounds. It was submitted that as in the present case the Board had, on the contrary, recorded that the company s affairs were not conducted in a manner prejudicial to public interest or oppressive to Jindal group, there was no question of making such an order and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Bagri v. Bagress Cereals (P.) Ltd. [2001] 33 SCL 78 (SC) Para 3 : Section 397(2) of the Act provides that an order could be made on an application made under sub-section (1) if the Court is of the opinion (1) that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; (2) that 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; and (3) that the winding up order would unfairly prejudice the applicants. No case appears to have been made out that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the company would unfairly prejudice the members of the company who have a grievance and are the applicants before the Court and 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. In order to be successful on this ground, the petitioners have to make out a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were made by the Caparo group to oust Jindal group from managing the affairs of the company or from having any say in the management of the company, such a judgment was perfectly valid. It was submitted that such a power of the Board is recognised by the judiciary and can be found in the judgment of the Supreme Court in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 wherein the Supreme Court specifically approved such course of action which could be adopted by the Board even when charge of oppression was rejected. 28. Learned senior counsel also relied upon the following two judgments where Needle Industries was following adopting same course of action : ( i ) Chander Krishan Gupta v. Pannalal Girdhari Lal (P.) Ltd. [1984] 55 Comp. Cas. 702 (Delhi). ( ii ) Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp. Cas. 60 (Delhi) 29. He also submitted that subsequent to the filing of these appeals, the company which is controlled by Caparo group had taken the decision to cancel the shares of Jindal group and make payment which would clearly demonstrate that as far as Caparo group is concerned, it did not want Jindal grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company petitions are filed joining the provision of sections 397 and 398, it is to be borne in mind that section 397 seeks to prevent oppression and section 398 seeks to prevent mismanagement. The Court demonstrated this distinction by taking the allegation, in that case, of shifting of registered office from Posta to Chatterjee Polk and back to Posta and remarked that : Be that as it may, the shift of registered office itself might be, where there are materials, a complaint primarily under section 397 or a complaint primarily under section 398. If the company suffered not much loss because of the shifting and the shifting back, but it was undertaken to put oppressive pressure and pain upon the petitioner, the complaint would sound in a section 397 grievance. If on the other hand the shifting and the loss to the company by way of wasted expenditure and loss of business, then and in that event the complaint would sound more in the nature of a section 398 grievance. We make it clear that in company matters it is not always easy to maintain a strict distinction and categories complaints either under section 397 or under section 398; very often the same complaint has both the aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were offered to it, which it could neither take nor renounce and which were taken by the Indian shareholders in the enforced absence of the Holding Company. The willingness of the Indian shareholders to pay a premium on the excess holding or the rights shares is a factor which, to some extent, has gone in their favour on the question of oppression. Having had the benefit of that stance, they must now make it good. Besides, it is only meet and just that the Indian shareholders, who took the rights shares at par when the value of those shares was much above par, should be asked to pay the difference in order to nullify their unjust and unjustifiable enrichment at the cost of the Holding Company. We must make it clear that we are not asking the Indian shareholders to pay the premium as a price of oppression. We have rejected the plea of oppression and the course which we are now adopting is intended primarily to set right the course of justice, insofar as we may.... (p. 1360) 34. In this context, judgment of our own High Court in the case of Krishan Lal Ahuja ( supra ) becomes relevant. That was a case decided by this Court before the decision of Needle Industries (India) Ltd. s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and it was their duty to ensure that the records of the company are available whenever they are required. The management of the company has miserably failed in protecting the company s records and this failure results in prejudice being caused to the company. Moreover, the constant fight amongst the directors who were also the shareholders of the company had certainly an adverse effect on the conduct of the company s business with the result that the company started incurring losses. To my mind, therefore, this by itself would justify appropriate orders being passed under section 398 of the Companies Act. Another factor which gives the Court jurisdiction to pass an order under section 398 is that, at least on paper, the management and control of the company was required to be with the Managing Director of the company. It is an admitted fact that the Managing Director had, during the pendency of these proceedings, purported to sell his shares to respondent No. 3 and he also authorised him to look after the affairs of the company. The result of this was that the control of the company changed hands from the Managing Director to respondent No. 3. This change has seriously ant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the petitioner and, therefore, recourse to section 397 of the Act. If case of this nature is not made out then directions under section 397 cannot be issued. ( b ) Normally, the petitions are filed invoking provisions of section 397/398 of the Act and in such petitions duty of the Court is to see the distinction between the two provisions and examine the position i.e . to see as to whether a particular allegation is oppression under section 397 or of the mismanagement under section 398. ( c ) Even if case under section 398 is not made out and the allegations are such as would bring the case under section 398, appropriate directions under section 398 read with section 402 can be issued. ( d ) Even if case of oppression is not made out, in exercise of its equitable jurisdiction, the Court can grant relief and pass the necessary orders. This would normally be in those cases where two sets of shareholders cannot do business together and have been fighting litigation for years and there is lack of probity amongst the parties and the Court is of the opinion that a permanent solution has to be found. 37. Applying these tests in the present case, I now proceed to examine whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in fact mentioned that there is a non-compliance of Articles 146 and 149 of the Articles of Association. In these circumstances and particularly going by the relation-ship between the two parties, exercise of equitable jurisdiction by the CLB appears to be justified. It is not possible for the two groups to remain together because of worsening acrimony. Subsequent events as high- lighted by the Jindal Group also justify this course of action. Therefore, keeping in view the principles laid down in Needle Industries (India) Ltd. s case ( supra ) and the manner in which they were followed by this Court in Chander Krishan Gupta ( supra ), I am of the view that direction of the CLB to the effect that shares of Jindal group be purchased by the Caparo group should not be interfered with. The judgments cited by learned senior counsel for the Caparo group on the scope of section 10F of the Act opposing the appeal of Jindal group would be equally applicable while considering this appeal of Caparo group. Once it is found that the CLB, in the given circumstances, was within its power to exercise equitable jurisdiction and it so exercised, it would not be proper to interfere with the said eq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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