TMI Blog2008 (3) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... red and incorporated under the Companies Act, 1956 (For short the Act ). Out of the 2,84,000 equity shares in the company of Rs. 10 each, 2,83,999 shares are held by the first respondent and his son (appellant herein). The remaining one share is held by M/s. Visva Bharathi Textiles Private Limited, shares in which again is held equally by the first respondent and the appellant. Thus, for all intent and purport, all shares of the company are held by the appellant and the first respondent. 3. Whereas the first respondent is the Managing Director of the Company, the appellant is the Director thereof. Indisputably the parties are not on good terms. 4. Respondent No. 1 filed an application purported to be under sections 397 and 398 of the Act alleging several acts of oppression on the part of appellant hereinbefore the Company Law Board, Additional Principal Bench, Chennai. The said application was registered as C.P. No. 2 of 2004. By reason of an order dated 16-8-2004, the Company Law Board while opining holding there was no act of mala fide or oppression on the part of the appellant, opined that there exists a deadlock in the affairs of the company. It directed the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in purported exercise of its jurisdiction under section 402 of the Act directing him to purchase the shares of the respondent despite arriving at a finding of fact that no act of oppression has been committed by the appellant. 2.The condition precedent for exercise of such power being oppression on the part of a Director of a company being not satisfied, the impugned judgment is wholly unsustainable. 3.The High Court committed a manifest error in passing the impugned judgment in reversing the findings of fact arrived at by the Company Law Board; although no appeal therefrom had been preferred by the first respondent so as to hold that the acts of omission and commission on the part of the appellant constituted such an oppression. 4.Both the High Court as also the Company Law Board committed a serious error in granting the relief in favour of the first respondent without taking into consideration that the grant of relief shall not only be in the interest of the company but also must have a direct nexus with the affairs of the company and conduct of its business. 5.In any view of the matter, having regard to the prayers made by the first respondent in his application before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company are being conducted in the manner prejudicial to public interest; or (2)In a manner oppressive to any member or members. 11. Sub-section (2) of section 397 of the Act, however, provides that in the event the Court is of the opinion that the company s affairs are being conducted in a manner oppressive to any member or members or furthermore held that directing winding up the company would unfairly prejudice such member or members, but the same otherwise justifies the making of a winding up order on the ground that it is just and equitable that the company should be wound up. It may make such other or further order as may think fit and proper with a view to bringing to an end to the matters complained of. Interpretation of section 397(2) of the Act came up for consideration before a Division Bench of this court in Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 2 SCR 811. This court while examining the conditions laid down in the section, opined that : "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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. 15. When there are two Directors, non-cooperation by one of them would result in a stalemate and in that view of the matter the Company Law Board and the High Court have rightly exercised their jurisdiction. 16. Before us, learned counsel for the parties, have referred to a large number of decisions operating in the field. We may notice the legal principle emerging from some of them. 17. In S.P. Jain v. Kalinga Tubes Ltd. [1965] 2 SCR 720 this Court compared the provisions of section 397 with section 210 of the English Act to hold: "The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for some time that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why section 210 was introduced in the English Act to provide an alternative remedy where it was felt that, though a case had been made out on the ground of just and equitable cause to wind up a company, it was not in the interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proprietary right as a shareholder ." It is true that observations in H.R. Harmer Ltd. s case ( supra ) was held to be applicable in a case falling within the purview of section 397 of the Act but the statement of law that it was not enough that only a just and equitable case for winding up of the company should be made out but it must also be found that conduct of the majority shareholders was oppressive to the minority members, cannot be said to be exhaustive. 18. The question came up for consideration yet again before a three Judge Bench of this Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 3 SCC 333 wherein Chandrachud, CJ. upon considering a large number of decisions of this Court as also the English Courts including S.P. Jain s case ( supra ) and H.R. Harmer Ltd. s case ( supra ) categorically held : "172. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd would refuse to exercise its jurisdiction, although the statute confers such a power on it. 21. It is now a well settled principle of law that the Courts should lean in favour of such construction of statute whereby its jurisdiction is retained enabling it to mould the relief, subject of course, to the applicability of law in the fact situation obtaining in each case. In Pearson Education Inc. (formerly Prentice Hall Inc.) v. Prentice Hall India (P.) Ltd. 134 (2006) DLT 450, as regards the jurisdiction of the Company Law Board and the High Court under sections 397/398 and 402, a learned Single Judge of the Delhi High Court held : "Jurisdiction of the CLB (and ultimately of this Court in appeal) under sections 397/398 and 402 is much wider and direction can be given even contrary to the provisions of the Articles of Association. It has even right to terminate, set aside or modify the contractual arrangement between the company and any person [see section 402( d ) and ( e )]. Section 397 specifically provides that once the oppressions established, the Court may, with a view to bringing to an end the matters complained of, make an order as it thinks fit. Thus, the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eft it to the discretion of the Company Law Board to appoint a third Director, but we are informed at the bar that even the same was objected to by the appellant. 25. It is in the aforementioned situation the Company Law Board has opined that such an impasse could have been removed by resorting to appointment of an additional Director. What the Board failed to notice was that when the appellant himself intended to become the Managing Director, he would like to have his own man in the Board which was not acceded to by the 1st respondent. 26. Surrender of surplus power in favour of TNEB may be a business decision but such a decision will have a direct impact on the conduct of the business. It at least shows that the parties were at logger heads. It is in the aforementioned situation, the High Court opined : "The Company Law Board should have categorically held that such surrender was beneficial to the company and the second respondent unjustifiably objected to it. Admittedly, the second respondent was not in favour of such surrender on the ground that it was required for future expansion of the factory activities. Such a plea of the second respondent is based on mere conje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the ground of lack of mutual trust and confidence cannot be taken into consideration in isolation. The same has to be considered having regard to large number of other factors, the cumulative effect thereof would be extremely significant to arrive at one or the other conclusion. 31. We may take notice of the fact that the appellant had made the following allegations against the 1st respondent in the list of dates : "It is respectfully submitted that the respondent No. 1 did not maintain proper books of minutes of meetings or attendance registers, did not allow the petitioner herein to use the company guest house in Chennai, the respondent No. 1 attempted to bring in a third director to marginalize the role of the Petitioner, the respondent No. 1 siphoned off Rs. 8,15,000 of the company money, the respondent No. 1 attempted to transfer by way of gifts properties given as collateral security to financial institutions and so on. When the petitioner herein either asserted his rights or attempted to thwart the wrongful acts of the respondent No. 1, the respondent No. 1, became abusive." 32. We may also notice that in his reply statement before the Company Law Board it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns opined : "37. Section 433( f ) under which this application has been made has to be read with section 443(2) of the Act. Under the latter provision where the petition is presented on the ground that it is just and equitable that the Company should be wound up, the court may refuse to make an order of winding-up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the Company wound up instead of pursuing that other remedy. 38. Again under sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under section 433( f ) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the Company." 35. This Court noticed that although the Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its own lines. It was opined that the principle of just and equitable clause is essentially equitable consideration and may, in a given case, be superim-posed on law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee RA Noble Sons (Clothing) Ltd., In re. 1983 BCLC 273. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so. . . ** ** ** 162. In Shanti Prasad Jain v. Union of India 75 Bom. LR 778 it was held that the power of the Company Court is very wide, and not restricted by any limitation contained in section 402 thereof or otherwise." (p. 539) 36. It was opined that the burden to prove oppression or mismanagement is upon the applicant. The Court, however, will have to consider the entire materials on record and may not insist upon the applicant to prove each act of oppression. It was furthermore observed that an action in contravention of law may not per se be oppressive, whereas the conduct involving illegality and contravention of the Act may be suffice to warrant grant of any remedy. 37. Reliance has been placed by Mr. Sundaram on Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 10 SCC 696, which has also been noticed in Sangramsinh P. Gaekwad s case ( supra ) opining : ". . .The real character of the company, as noticed hereinbefore, for the purpose of judging the dealings b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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