TMI Blog2007 (9) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... Amar Gupta For the Fifth to Eighth Respondents in A. P. O. No. 45 of 2007 : Sudipto Sarkar , Siddartha Mitra and Ms. Moushmi Bhattacharya , for Chatterjee Petrochem (Mauritius) Co. and Chatterjee Petrochem (India) P. Ltd., S. B. Mukherjee and S. N. Mukherjee , Ms. Moushmi Bhattacharya , for Winstar. Shakti Nath Mukherjee and S. N. Mukherjee , Chandra Nath Mukherjee for India Trade (Mauritius) Ltd. Anindya Kumar Mitra and Ms. Moushmi Bhattacharya For the Tenth And Twenty-Second Respondents in A. P. O. No. 45 of 2007. S. K. Kapur , S. N. Mitra , S. N. Pyne and Ravi Kapur , for the eleventh and thirteenth respondents in A. P. O. No. 45 of 2007 : Bimal Kumar Chatterjee , Prasanta Kumar Dutta , Soumen Sen and Rupak Ghosh for Haldia Petrochemicals Ltd., Anil B. Divan and Jayanta Kumar Mitra , Tilak Kumar Bose and Susanta Kumar Dutt For the Twentieth And Twenty-First Respondents in A. P. O. No. 45 of 2007 : Pratap Chatterjee , Samit Talukdar , Amit Meheria , Arindam Guho and Sandip Dasgupta , for Indian Oil Corporation Ltd. and IDBI. Soume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icles of association of the HPL were altered incorporating the relevant terms and conditions of the joint venture agreement. The equity share capital was to be paid for and held so as to maintain the following voting power : WBIDC 25 per cent., the CP(M)C and its nominees 25 per cent., the Tatas 8.33 per cent., and others including the public, financial institutions and banks, etc. balance 41.67 per cent. In article 33(a) it was provided that should WBIDC decide to sell its HPL shares, it would give the CP(M)C first refusal on them and then to the Tatas ; and that WBIDC would enjoy similar first refusal on all HPL shares held by the CP(M)C and the Tatas. 4. In 1997 the project, setting up of a petrochemical complex, was started. Loans were taken from a large number of financial institutions. In the course of time the question of debt restructuring assumed great importance. By a letter to the Chief Minister dated April 23, 2000, PC, while threatened to quit with his dues paid up unless the CP(M)C, going to invest Rs. 150 crores for acquiring the majority position, was given management control, suggested for the IOC participation in HPL that, however, was on the verge of being dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the CP(I)PL, which did not either make any actual payment (except Rs. 7,75,50,000) for them, and they were never lodged with the HPL for registration in the name of the CP(I)PL. 6. Within March 31, 2002, the CP(M)C did not bring in any equity or equity like instruments, and financial crisis continued to plague the HPL. But in view of the agreement dated January 12, 2002 and PC s objection to giving management control to the IOC, the GoWB was compelled to close the question of inducting the IOC in HPL. The lenders were demanding steps for immediate debt restructuring, and induction of a strategic investor in the HPL. On January 13, 2003, the IDBI, the lead lender, made a reference to the corporate debt restructuring cell for restructuring debts of HPL. On January 22, 2004, the debt restructuring package was approved. In terms of the package Gas Authority of India Ltd. (in short the GAIL ) was to be inducted in HPL as the strategic investor, and it was to invest Rs. 332 crores within 90 days of package sanction ; and within 180 days of sanction the CP(M)C was to arrange Rs. 268 crores. It was also to replace the HSBC loan amounting to Rs. 107 crores by subscribing to the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DC informed the IOC about the CP(M)C s first refusal on all the HPL shares held by it. It said that for enabling the IOC to acquire additional HPL shares, after the IPO it would first offer to the CP(M)C, at the appropriate price decided by it, the HPL shares acquired by it from the Tatas, and that should the CP(M)C decline to purchase them, they would be offered to the IOC at the same price, and that thereafter it would offer its balance HPL shares first to the CP(M)C, and, if possible, then to the IOC ; and further that failing the process, it would buy out the IOC s HPL holding, should the IOC want that. By a letter dated October 18, 2004, the IOC wanted the GoWB and the WBIDC to obtain waiver from the CP(M)C of its first refusal on all the HPL shares held by the WBIDC . By a reply dated October 19, 2004, the WBIDC informed the IOC that it was not possible to obtain waiver from the CP(M)C. By a letter dated October 21, 2004, the IOC informed the WBIDC that its board would consider the whole matter. On October 23, 2004, the IOC board decided to invest Rs. 150 crore towards the HPL equity at par. Then by a letter dated October 25, 2004, the IOC proposed to the WBIDC that it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 17, 2004, to the HPL chairman, with a copy to PC, the GoWB recorded its disappointment that for no valid reason the CP(M)C was withholding consent for convening the general meeting, when the IOC induction was badly needed by December 31, 2004, for meeting the debt restructuring package conditions and also in the interests of the HPL. It was mentioned that the GoWB had committed to transfer the HPL shares to the CP(M)C as would appear from the agreements dated January 12, 2002, March 8, 2002 and July 30, 2004. Under the circumstances on December 21, 2004, the chairman gave notice fixing the extraordinary general meeting for January 14, 2005. PC was not willing to vote in favour of the proposed special resolution. By a letter dated January 11, 2005, he wanted the WBIDC to sell its entire HPL shareholding to the CP(M)C. In the circumstances on January 14, 2005, he and Dr. Sabyasachi Sen, as representatives of the CP(M)C and the GoWB respectively, signed a document stating that entire HPL shareholding of the WBIDC would be sold by the GoWB to the CP(M)C at a price to be determined by an independent valuer. On the same day the proposed special resolution was passed in the extraord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on were again thwarted by the GoWB and the WBIDC . They objected to allotment of shares to the IOC at par and also raised the issue of keeping the HPL s private company status ; they wanted postponement of the extraordinary general meeting. By a letter dated January 11, 2005, they called upon the WBIDC to sell 60 per cent. of its HPL shareholding to the CP(M)C at the agreed price of Rs. 14 per share, since the agreement had been recorded in a letter dated September 30, 1994. On receipt of the demand, the representatives of the GoWB and the WBIDC called on their representatives and represented that their ultimate right to obtain entire HPL shareholding from the WBIDC would be honoured. In furtherance of such representations those representatives invited PC to an immediate meeting. Those representatives also represented that the GoWB and the WBIDC were agreeable to give in writing a commitment that entire HPL shareholding of the GoWB and the WBIDC would be sold to them. In view of such representation PC met the representatives of the GoWB and the WBIDC . 13. On January 14, 2005, an agreement was reached between Dr. Sabyasachi Sen and PC, in the presence of Mr. Tarun Das, and in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed with them. The agreement dated January 14, 2005, had been entered just for inducing them to consent to the extraordinary general meeting. On July 22, 2005, they were surprised at the request of the GoWB to conclude the share transaction deal preferably by July 25, 2005. They, however, responded by submitting necessary papers indicating how the deal should be concluded. On July 27, 2005, PC was surprised and shocked to receive a letter from the GoWB that it had decided to defer the disinvestment proposal. 15. Then, without any valid reason, the GoWB and the chairman of the HPL started taking steps in undue haste. In violation of section 289 of the Companies Act, 1956 the chairman issued a circular resolution dated July 28, 2005, without disclosing material information that had formed part of agenda circulated for board meeting dated July 29, 2005, when that meeting had been cancelled. In terms of the share subscription agreement dated July 30, 2004, ten days notice of the circular resolution was not given to Winstar. Though the HPL was not in need of fund and allotment of shares to the IOC was totally uncalled for and unwarranted, and when they were ready and willing to subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deal with these shares in any manner. (2) Likewise, the transfer of 155 million shares by the WBIDC to the petitioners at Rs. 10 per share is confirmed. (3) The WBIDC/ GoWB shall transfer 520 million shares held by them in the HPL to the petitioners . . . (5) The petitioners shall purchase the 271 million preference shares held by the GoWB/WBIDC at par. (6) The fourth petitioner shall pay a sum of Rs. 125 crores to the WBIDC towards the balance consideration for the 155 million shares on or before February 28, 2007. (7) On payment of the said amount, without any further deed or act or approval from anyone or production of any instrument of transfer, these shares shall be deemed to have been dematerialised and transferred in the name of the fourth petitioner and the share certificates shall be deemed to have been cancelled. The company shall initiate and complete other legal formalities in this regard immediately thereafter . . . (17) The petitioners are at liberty, as soon as they pay the consideration for the 155 million shares to take control of the day-to-day management of the company, (as they would be holding majority equity shares of 52 per cent.) with the stipulation that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the allegation of oppression in the conduct of the affair of allotment of 150 million HPL equity shares to the IOC it held against the petitioners in the company petition, made the impugned order granting relief to them under section 397. 20. The relevant findings on the basis whereof the Board granted relief are these. The petitioners in the company petition claimed that at the date of filing the petition, having held over 53 per cent., the HPL shares, they collectively held the majority of the HPL shares, and that that position was confirmed by the GoWB and the WBIDC through their counsel, Sri. Shanti Bhusan, whose submissions were recorded in the order dated August 4, 2005. At the final stage of the proceedings the GoWB, the WBIDC and the HPL took the stand to challenge transfer of the said 155 million shares to the petitioners, and thus the question of transfer of the said 155 million shares, though was not a matter in issue in the company petition, automatically became a matter for decision. The GoWB and the WBIDC in their affidavit against the company petition challenged the ownership of those shares by the Chatterjee group. Consent of the petitioners in the company pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L itself considered that the proposed transfer was an affair of the HPL. In agreement dated January 12, 2002, the HPL was a party. In the supplementary agreement dated July 30, 2004, also the HPL was a party. The chairman of the HPL by his letter dated June 30, 2005, informed PC that the IOC allotment was pending resolution of the promoters issue. It was therefore evident that the question of transfer of the balance shares by the WBIDC to the Chatterjee group was also an affair of the HPL. 23. Though in terms of the agreement dated January 14, 2005, that revived the legitimate expectation of the petitioners in the company petition to get all the HPL shares held by the WBIDC, the GoWB took all necessary steps appropriately, it was not clear why after the petitioners in the company petition indicated availability of the requisite fund to purchase the shares, the GoWB issued the letter dated July 27, 2005, deciding to defer the proposed disinvestment. There was nothing to show that the decision was taken in public interest. It was rather taken for the reason that the Chatterjee group was insisting that no shares should be allotted to the IOC. The decision to defer disinvestment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was just and equitable that the company should be wound up, the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 26. In support of his contention that the Board was under a statutory obligation to form and record opinions about the three things mentioned in section 397(2), besides relying on the provisions themselves. Mr. Sen has relied on Maharani Lalita Rajya Lakshmi v. Indian Motor Co., (Hazaribagh) Ltd. [1962] 32 Comp Cas 207 ; AIR 1962 Cal 127 ; Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535 ; Westbourne Galleries Ltd., In re [1970] 3 All ER 374 (Ch D) ; World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor [1990] 67 Comp Cas 607 (SC) ; Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC) ; Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal) ; and Vaishnav Shorilal Puri v. Kishor Kundan Sippy [2006] 131 Comp Cas 690 (Bom). 27. In response, Mr. Sudipto Sarkar, counsel for the CP(M)C and the CP(I)PL, has submitted that it is incorrect to say that the Board made the order without forming any opinion on the condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for Winstar, has apparently adopted Mr. Sarkar s submissions, Mr. Aninda Mitra, counsel for PC, in addition to adopting Mr. Sarkar s submissions has said that the proposition that even in the absence of a case of oppression relief under section 397 can be given is supported also by Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp Cas 60 (Delhi). His further submission is that it is unheard of that there can be any statutory requirement that a judgment must aver a particular thing. He has contended that in any case the absence of formal recording of the opinions, though may make the order of the Board vulnerable in appeal, cannot destroy it altogether, and for this he has relied on NEPC Micon Ltd. v. Magma Leasing Ltd. [1999] 1 CHN 617. 29. I find that the provisions in section 397 do not say that the Board must form and record any opinion regarding the things mentioned in sub-section (2) of the section. What they say is that the Board may make order granting relief if it is of the opinion : (i) that 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 (ii) that to wind up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the three things I have noticed in section 397(2). On the contrary, as will appear from it (paragraph 46), a decision given noticing specifically what had been said in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535, that satisfaction regarding fulfilment of the conditions mentioned in section 397(2)(b) is a condition precedent to exercise of power to make order granting relief. It is important to note that in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 the company petition was dismissed on the ground that no case of oppression was made out. That satisfaction regarding fulfilment of the conditions mentioned in section 397(2)(b) is a must for making order under section 397, is also apparent from what the apex court said in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor [1990] 67 Comp Cas 607 (SC) (page 620) and Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC) (page 498). From Sangramsinh [2005] 123 Comp Cas 566 (SC) (paragraphs 181, 183 and 185) it is apparent that order under section 397 can be made only when the three conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is apparent from Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333, paragraph 172, that the directions were given in exercise of power conferred by article 142 of the Constitution. Having dismissed the company petition and allowing the appeals on the ground that no case of oppression was made out, their Lordships said that the court (in my understanding the apex court), however, was not powerless to do substantial justice between the parties. Then their Lordships gave certain directions. Hence, in my reading and understanding, Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 ratio rather is that unless the allegation of oppression is established, no order granting relief under section 397 can be made. Krishan Lal Ahuja [1983] 53 Comp Cas 60 (Delhi), given without considering any of the existing authorities, in my opinion, cannot be considered an authority for holding that order granting relief under section 397 can be made even when no case of oppression is made out. In that order it was made on the peculiar facts of the case. In Shoe Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... And this has been strongly relied on to say that today there is no condition precedent for making an order granting relief under section 397. I do not think that is what their Lordships said the law is. In my view, what was said in that paragraph 199 should not be read out of context. Once the whole judgment is read, to my mind, no doubt can remain that the observations were made keeping in view what had been said in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 regarding power of the supreme court available under article 142 of the constitution, and not regarding any power of any other court of the country. I am unable to accept that in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 any uch law as is visualized by counsel for the Chatterjee group was declared. It is therefore not correct to say that today there is no condition precedent for making an order granting relief under section 397. The law has remained the same that was seen in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. [1962] 32 Comp Cas 207 ; AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, or can automatically follow from the opinion formed on oppression. 36. In Rajya Lakshmi [1962] 32 Comp Cas 207 (Cal) it was held that in the absence of satisfaction of all the conditions mentioned in section 397(2), no question of making order granting relief under section 397 would arise. As was held in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535 it must be shown as preliminary to an application under section 397 that there is just and equitable cause for winding up of the company. From Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 also it is apparent that order granting relief under section 397 can be made only when the conditions in section 397(2)(b) are fulfilled. The same thing was said in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor [1990] 67 Comp Cas 607 (SC) and Hanuman Prasad Bagri v. Bagree Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC). From Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 ; [2005] 11 SCC 314 and Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 ; [2006] 5 Comp LJ 511, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l under section 10F of the Companies Act, 1956, lies only on a question of law arising out of the order of the Board ; that findings of fact, unless they are perverse, cannot be disturbed ; that evidence is not to be reappraised ; and that the High Court can provide additional grounds to sustain the order, Mr. Mukherjee has relied on Hooghly Jute Mills v. Their Employees AIR 1957 SC 376 ; Shree Anupar Chemical (India) P. Ltd. v. Dipak G. Mehta [1999] 4 Comp LJ 474 (Bom) ; Navaneethammal v. Arjuna Chetty [1996] 6 SCC 166 ; Hari Singh v. Kanhaiya Lal AIR 1999 SC 3325 ; and Dale and Carrington Invt. P. Ltd. v. P. K. Prathapan [2004] 122 Comp Cas 161 (SC) ; [2005] 1 SCC 212. While explaining what the expression any question of law arising out of such order used in section 10F should mean, Mr. Mitra has referred me to CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 ; AIR 1961 SC 1633. 39. In that, while deciding the question whether in a reference under section 66 of the Income-tax Act, 1922, the High Court could consider a question which had not been raised before the Tribunal or dealt with by the Tribunal in its order, even though it would be one of law, their Lordship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a petitioner in the company petition, Mr. Sarkar, its counsel, has argued that since in terms of the agreement dated January 12, 2002, the said 155 million shares were meant for the Chatterjee group that through its other companies took out the company petition, the CP(I)PL, though not a shareholder of the HPL, was entitled to join the others for initiating the proceedings. I am unable to accept his submission. An application under section 397 can be filed only by a member of the company who has reason to complain about the manner in which the affairs of the company are being conducted. Besides, the member is entitled to file the application only if he has a right so to apply by virtue of section 399. It is, therefore, clear that the CP(I)PL was not entitled to take out or join the petitioners in an application under section 397. This being the position nothing connected with the said 155 million shares to which only the CP(I)PL could, if at all, lay a claim, could be decided by the Board. But the whole foundation of its order under appeal is the question of transfer of the said 155 million shares. In my view, this jurisdictional error also vitiated the order of the Board incurab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach of the terms and conditions of the agreement dated January 12, 2002, in compliance wherewith the WBIDC executed the agreement dated March 8, 2002, for transfer of the said 155 million shares to the CP(I)PL. In their rejoinder the petitioners in the company petition said that by falsely maintaining a title to the said 155 million shares, title to which had in fact been transferred by the WBIDC to the CP(I)PL on March 8, 2002, the GoWB and the WBIDC claimed to be the majority in the HPL. They further said that the statutory records of the WBIDC themselves did not claim after March 8, 2002, that title to the said 155 million shares was held by the WBIDC whose balancesheet did not claim those shares as part of its holding in the HPL, and that they owned and controlled those shares. 45. The Board was therefore right in saying that the question of transfer of the said 155 million shares was not a matter in issue in the company petition. It is only in course of arguments that the issue was raised. Mr. Sarkar and Mr. Mitra are wrong in saying that the Board did not make the order on the basis of a case not made out in the company petition ; this is contrary to the findings recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the face of such clear proposition of law laid down by the apex court, I am unable to accept Mr. Sarkar s contention that after considering all materials on record and submissions of counsel for the parties, the Board was competent to give decision regarding the Chatterjee group s entitlement to get the said 155 million shares. 47. The contention that in section 397 proceedings what is to be considered is the case made out in the pleadings taken together, and not a case made out only in the petition, has been clarified by him by saying that the requisite opinions with supporting findings and relief can be given even on the basis of a case made out in the counter or in the rejoinder. The counter cannot make out a case for the petitioner, it denies or disputes or admits his case made out in his petition, and can make out a counter case of the respondent. A rejoinder explains, clarifies, and strengthens the case made out in the petition, it cannot be used to make out a case not made out in the petition. So, when it is said that the case made out by the pleadings is to be considered, it is meant that the case made out in the petition, dealt with in the counter, and explained, clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e HPL was a party to the agreement dated January 12, 2002, that was followed up by agreement dated March 8, 2002, between the CP(I)PL, the WBIDC and the CP(M)C, but it had also written letter to the lenders regarding approval for registration of those shares. According to counsel for the GoWB and the WBIDC the Board was totally wrong in holding that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL was an affair of the HPL. Relying on V. B. Rangaraj v. V. B. Gopalakrishnan [1992] 73 Comp Cas 201; AIR 1992 SC 453, Mr. S. Pal, counsel for the GoWB, has submitted that disputes arising out of an agreement for transfer of shares between shareholders do not relate to the conduct of the affairs of a company. He has said that the agreement dated January 12, 2002, interfering with the directors fiduciary duties and obligations was ultra vires the provisions of the Companies Act, 1956, and for this he has relied on Rolta India Ltd. v. Venire Industries Ltd. [2000] 100 Comp Cas 19 ; [2000] 2 Bom CR 241. 50. Mr. Bimal Chatterjee, counsel for the HPL, has said that simply because the HPL was a party to the agreement dated January 12, 2002, things connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w by holding that the question of transfer of the said 155 million shares was an affair of the HPL. 52. The question of registration of those shares, if lodged by the CP(I)PL, would have no doubt been an affair of the HPL, because in that case it would have been under a duty to decide whether the shares were to be registered in the CP(I)PL s name. Here that is not the case, since the shares had not actually been delivered with duly executed share transfer forms to the CP(I)PL, and the CP(I)PL had never lodged, rather could never lodge, them with the HPL for registration. The board of directors or the shareholders of the HPL were not competent to direct the WBIDC to transfer those shares to the CP(I)PL, though they were free to take note of the developments regarding the question of their transfer. Simply because the board of the HPL was free to take note of or took note of the developments, it cannot be said that the matter became an affair of the HPL. For the purpose of making an application for an order under section 397 the question of transfer of the said 155 million shares by the WBIDC in terms of the agreements dated January 12, 2002 and March 8, 2002, would have been an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority into a minority. 54. In my opinion, counsel for the GoWB and the WBIDC are absolutely right in saying that the findings and conclusions of the Board are perverse. In reality the Chatterjee group never held the majority of the HPL shares. Though the intention behind transfer of the said 155 million shares was to make the group the holder of the majority of the HPL shares, they having not been registered in the CP(I)PL s name, for all lawful purposes, the WBIDC remained the holder of the majority of the HPL shares. On the facts, at best it can be said that the GoWB and the WBIDC permitted the Chatterjee group to manage the day-to-day affairs and control the management of the HPL in such manner as it could, if it were the majority shareholders in the HPL. It is therefore clear that the findings of the Board that with 150 million shares allotted to the IOC, the group was to stand converted from the majority into a minority are absolutely perverse. It is not that in the absence of the IOC allotment the group was to remain the majority. For acquiring that status it needed the said 155 million shares from the WBIDC. These shares had nothing to do with the majority/minority stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 57. In my opinion, it is not permissible to substitute submissions of counsel for a party or defence of a party pleaded in the affidavit, for any statutory requirement. When the act of oppression was to be pleaded in the company petition by the petitioners therein and the Board was to decide that complaint, it was not permissible for it to substitute submissions of counsel for the GoWB and the WBIDC and their defence pleaded by them in their counter for the absentee pleadings in the company petition. When there was no case of oppression pleaded in the company petition that unless the said 155 million shares were actually transferred by the WBIDC, with the IOC allotment the petitioners therein would stand converted from the majority into a minority, it was not permissible for the Board to hold that because of counsel s submissions and defence taken in the counter and the possibility of WBIDC not transferring the said 155 million shares of its own accord, a case of oppression stood established. The petitioners in the company petition were required to plead and prove the act or acts of oppressions, and an act or case of oppression was not to be searched out somehow by the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by making more investment and getting equity shares issued for that. It rather wanted that WBIDC should become a minority by transferring just the requisite number of shares to it. In terms of agreement dated January 12, 2002, the CP(M)C was free to call upon WBIDC to sell its entire HPL shareholding. It never did that, and instead gave up that right on July 30, 2004. It therefore appears that what the CP(M)C actually wanted was to acquire the majority shareholder status by making the minimum investment and not to permit any strategic investor to come in with funds for the HPL. I wonder how on the facts of the case a person of reasonable prudence can say that the Chatterjee group was entitled to get benefit of the doctrine of legitimate expectation and the GoWB and the WBIDC were not entitled to raise any question regarding compliance with and due performance of the terms of the agreement dated January 12, 2002, by the CP(M)C. 60. In my view, counsel for the GoWB and the WBIDC are right in saying that the Board should not have made the order directing the GoWB and the WBIDC to sell all shares held by WBIDC in the HPL to the Chatterjee group. The order was not made on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no right or duty or obligation to take any decision regarding that question. It was an absolutely private affair between two shareholders of the HPL. 62. It is not understood how on the sale taking place the joint sector company was to become a private sector company. Decision had already been taken to allot shares to the IOC, another public sector company, and even if WBIDC was to exit, the IOC was to remain in the HPL with at least 150 million shares. The Board was also wrong in holding the matter to be an affair of the HPL on the ground that the HPL Board withheld the actual allotment of shares to the IOC pending resolution of the proposed transfer. The HPL was a party to the supplementary agreement dated July 30, 2004, and this fact was also noticed by the Board for reaching the conclusion that the question of transfer of all shares by WBIDC to the CP(M)C was an affair of the HPL. For the same reasons for which I have already said that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL in terms of the agreements dated January 12, 2002 and March 8, 2002, could not be an affair of the HPL, I say that the question of transfer of all the HPL sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a quasi partnership between the Chatterjee group and the GoWB and the WBIDC, and therefore the doctrine of legitimate expectation, consistently applied by the Board to cases involving closely held companies, family companies and companies in the nature of quasi partnership, would apply to the HPL. 65. The question is whether the Board was right in holding that the HPL was in the nature of a quasi partnership between the GoWB and the WBIDC and the Chatterjee group, and hence the doctrine of legitimate expectation was to apply. I think Mr. Sen and Mr. Pal are right in saying that in the absence of any pleading in the company petition that the HPL being in the nature of a quasi partnership the petitioners therein were entitled to seek application of the doctrine of legitimate expectation in the context of oppressive act or acts of the GoWB and the WBIDC leading to frustration of assurances and commitments given by the agreements for giving management control of the HPL to the Chatterjee group, the Board should not have accepted the arguments made at the bar. Mr. Sundaram s contention is that what the Board could not do directly, it actually did that indirectly in the sense tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is alleged no question of legitimate expectation arises. To show the indispensability of pleading he has cited to me U. P. Gram Panchayat Adhikari Sangh v. Daya Ram Saroj [2007] 2 SCC 138. 68. On the contrary relying on Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333, Mr. Sarkar has contended that what is to be seen is the business realities, and that the concept of partnership should be applied in line with Blisset and Daniel (68 ER 1024). His submission is that in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333, the apex court, while saying that a narrow legalistic view should not be taken and technical pleas should not be permitted to defeat an action under section 397, recognised rights, expectations and obligations outside the company structure and approved Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL) that as an authority to say that the concept of legitimate expectation is not limited to contract and that rights, expectations and obligations outside the corporate structure are also enforceable. He has cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in the nature of a partnership engaged in the joints undertaking of a particular transaction for mutual profit wherein all contribute assets and share risks. In support of his submissions that a company, though fully owned by the State, has its own identity and cannot be considered a Department of the Government, and that identity of a Government company remains distinct from the Government, he has relied on Steel Authority of India Ltd. v. Shri Ambica Mills Ltd. [1998] 92 Comp Cas 120 (SC) and A. K. Bindal v. UOI [2003] 114 Comp Cas 590 (SC) ; [2003] 5 SCC 163. 70. It seems to me that while examining the question whether the HPL was actually a quasi-partnership between WBIDC and the Chatterjee group, the Board proceeded on the basis of a wrong premise. It proceeded on the basis that a personal relationship between PC and the Chief Minister and officials of the GoWB brought the WBIDC and the Chatterjee group in association for working as promoters of the HPL. There is absolutely no evidence to show that there was a personal relationship between the Chief Minister of the State and PC or that the Chief Minister was personally interested in promoting the HPL. It was no doubt a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of a quasi partnership between WBIDC and the CP(M)C that actually became the Chatterjee group after shares were allotted to Winstar in July 2004. Then shares were allotted to IT(M)L, which also, as will appear from the CP(M)C s letter dated March 31, 2004, disagreed to accept the terms, covenants and conditions on which the CP(M)C had participated in the project with WBIDC and the Tatas. Although quite a number of authorities have been cited to me to show when and why a limited company should be considered in the nature of a quasi-partnership between its shareholders, I think the position of law is what was said in Kilpest [1996] 87 Comp Cas 615 (SC) (paragraph 11) (page 622) : The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi partnership should, therefore, not be easily accepted . 73. In my view, it is always to be decided on the facts of the case concerned. It may be easy to apply the concept of quasi partnership to a closely held famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the company petition, if there was any, could be considered relevant only for the purpose of making order after the threshold jurisdictional questions were decided in their favour, i.e. only after forming and recording affirmative opinions regarding oppression, unfair prejudice for winding up, and facts justifying a winding up order on just and equitable ground, all required by section 397(2), the Board could consider the question of existence of legitimate expectations, if any, of the petitioners in the company petition for making an appropriate order in their favour. It was not empowered to permit the unfair prejudice proposition and the legitimate expectation doctrine to eclipse the provisions in section 397(2), i.e., those two things could not be substituted for the three statutory conditions mentioned in section 397(2). In none of the authorities given to me it was held that only on the basis of legitimate expectation an order granting relief can be made under section 397 of the Companies Act, 1956. 76. Besides, there was no reason for the Board to ignore the fact that in the face of article 33(a) of the articles of association and the agreements dated January 12, 2002, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmediately for making HPL acquire a position of global eminence through acquisition of Basell, a joint venture between SHELL and BASF, He further said that on the Chief Minister s assurance and the agreement for divestment of the HPL shares by WBIDC, despite reservations and financial loss, his group facilitated the IOC s participation in the HPL. 78. Then by a letter dated April 1, 2005, he wanted GoWB to come up with a fair price of its shares in the HPL, keeping in view its commitment made in 1994 that 60 per cent. of its shareholding would be sold to the CP(M)C at the rate of Rs. 14 per share, and that when 150 million shares had been allotted to the IOC at par, there was no reason why its balance 40 per cent. shares should not be transferred to the Chatterjee group at a fair price which was bound to be less than Rs. 10 per share. In the circumstances the principal secretary, commerce and industries Department of GoWB, the managing director of WBIDC, an adviser from L. B. Jha and Co., the accounting firm engaged by GoWB, and PC held a meeting in order to determine the terms and conditions for transfer of the shares held by WBIDC in the HPL to the Chatterjee group. They decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited the requisite amount through a cheque as back as February 17, 2005. The IOC requested GoWB to intervene in the matter. The IOC also lodged a complaint with the Registrar of Companies, West Bengal. By a letter dated May 27, 2005, IDBI informed GoWB that it had no objection to the proposed transfer of the HPL shares by WBIDC to GoWB and then by GoWB to the CP(M)C and Essex, subject to the conditions mentioned in the letter. The directors of the HPL in a board meeting held on May 28, 2005, took note of the several letters and legal notices received from the IOC and observed that the issue needed expeditious resolution. The Board also noticed the approvals accorded by IDBI to transfer of the said 155 million shares by WBIDC to the CP(I)PL, and also to transfer of all its HPL shares by WBIDC to GoWB, and then by GoWB to the Chatterjee group. The Board approved the appointment of the existing managing director (Swapan Bhowmik) as the managing director of the HPL. From the office of the Registrar of Companies, notice dated May 30, 2005, was served on the HPL asking it to give its comments on the IOC complaints. By a letter dated May 31, 2005, the managing director of the HPL sent co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lth. She is making slow progress. I have been thinking about issues relating to the HPL and, in particular, the HPL s credibility and reputation in regard to compliance with legal requirements as well as doing what is required. Let me refer here to the IOC issue. The sequence of events are known to all of us, especially to you. Till now, pending resolution of inter se promoter issues, the IOC cheque for Rs. 150 crores has not been encashed. Shares to the IOC not allotted. Meanwhile, legal action notices have been received from the IOC and their solicitors. The Ministry of Company Affairs have also asked for explanations from the HPL. My informal consultations with legal luminaries indicate that our lack of action is untenable. Meanwhile, there is no conclusion to the promoter issues In these circumstances, and to avoid embarrassment to, and legal action against, the HPL, we need to encash the IOC cheque and issue the shares. I am sure you will agree with this approach because you, most of all, care for the HPL s credibility and image. The HPL management need to be advised to conclude the IOC transaction and I am writing to them accordingly. It was, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to completion of documentation in a form and substance acceptable to the bank, the offer would remain valid till July 22, 2005. The IOC sent a legal notice dated July 19, 2005, to GoWB. It said that if the 150 million shares were not allotted to it within ten days of receipt of that letter, it would be constrained to take legal action against all concerned. On July 22, 2005, GoWB informed PC that the share transfer transaction should be concluded immediately and preferably by July 25, 2005. In response PC wrote a letter dated July 25, 2005, asking GoWB to take action on the basis of Deutsche Bank s letter dated July 25, 2005, the draft share purchase agreement, and his advocates (Amarchand Mangaldas) observations made in their letter dated July 25, 2005. He further said that he had substantially completed his steps and was awaiting the RBI approval. 86. In the circumstances, the Principal Secretary, commerce and industries Department of GoWB wrote to PC the letter dated July 27, 2005, which is : We acknowledge receipt of your letter, and enclosures, of Monday, July 25. The State Government has been continuously committed to the HPL s success and, over the years, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed resolution by circulation on the ground that in terms of agreement dated July 30, 2004, it was entitled to get at least ten days notice. Under the circumstances the company petition was filed. 88. On these facts, I do not see how an order asking the GoWB and the WBIDC to exit from the HPL could be made in the section 397 application. The Board did not hold that the deal fell through for fault of GoWB. When the facts noted hereinbefore clearly indicate why GoWB took the decision, the Board held that it was not clear why GoWB took the decision to defer disinvestment. It is more than clear that PC was nowhere near a position to complete the deal. He was, as a matter of fact, asking, as conditions precedent to the deal, for transfer of the said 155 million shares and the IOC s unconditional withdrawal from the HPL. On the facts, GoWB was absolutely justified in taking the decision. The Board was not right in making the order, when there was nothing wrong with the decision, only because it was upholding the IOC allotment. 89. The IOC aspect has been argued at length by counsel for the Chatterjee group while pressing the eight cross-objections and one appeal filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their rights, then it is a just and equitable ground to wind up the company, he has relied on Loch v. John Blackwood Ltd. [1924] All ER 200. 91. On the basis of Maharani Lalita Rajya Lakshmi v. Indian Motor Co., (Hazaribagh) Ltd. [1962] 32 Comp Cas 207 ; AIR 1962 Cal 127 (DB), Mr. Sen has said that a complaint of lack of particulars in a notice, is not open to a shareholder who is aware of the fact. Placing reliance on Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535, he has said that whether an act is oppressive is to be determined on the facts of the case, and that continuous act of oppression of the minority by the majority shareholders is required for getting relief under section 397. He has relied on Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC), in support of his submission that a single isolated act is insufficient to sustain an allegation of oppression. On the basis of Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal (DB)) he has said that the law of oppression and mismanagement is widely different in India and in England, and that in England it is not necessary to prove oppre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, 2000, the HPL was on the verge of becoming a non-performing asset, and this was informed to the persons concerned by the managing director of the HPL by his letter dated October 26, 2001. By a letter dated November 29, 2001, IDBI communicated its positive views on the IOC s proposal. In view of PC s objection to giving management control to the IOC, by letter dated November 30, 2001, the GoWB informed him that although it was unlikely that the IOC would invest Rs. 535 crores only for 26 per cent. equity of the HPL without management control, it was continuing negotiations with the IOC. 94. At such stage by a letter dated January 7, 2002, IDBI gave an ultimatum to the GoWB that things should be settled by January 14, 2002. This situation brought into existence the agreement dated January 12, 2002, in terms whereof the CP(M)C was to get management control, and it was to ensure investment in the HPL of a minimum of Rs. 500 crores by March 31, 2002. By a letter dated January 17, 2002, IDBI informed GoWB that the lenders who had committed large exposure because of the Government s association and active role in the HPL would like the Government to remain associated, since the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of guidelines issued by the Reserve Bank of India. By letter dated April 16, 2003, it requested GoWB to revive the IOC s proposal for equity participation in the HPL, since the GAIL s terms of equity investment had been found unacceptable by the financial institutions. The GAIL had started due diligence in view of initiatives taken by PC for its induction in the HPL as a strategic investor. By a letter dated April 25, 2003, IDBI alleged that the CP(M)C was unable to instill confidence at all, and that the sponsors of the HPL were not taking necessary steps for induction of the IOC as the strategic investor, though as back as November 2001, the lenders had agreed to extend reliefs and concessions to the HPL with induction of the IOC. It called upon the HPL and its sponsors to act in tandem with the lenders who viewed the IOC s induction as an important matter for the HPL s long-term viability. It gave an ultimatum by saying that unless concrete action was taken immediately, the lenders would be constrained to explore other options for safeguarding their interests. By a letter dated June 26, 2003, IDBI expressed the lenders apprehensions about the CP(M)C s capability to meet its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter that the IOC, in addition to equity for Rs. 150 crores, had asked for the HPL shares held by the Tatas that WBIDC was in the process of acquiring. By a letter dated September 20, 2004, PC informed GoWB that he was in agreement with the decision to induct the IOC. On September 24, 2004, the IOC entered into a confidentiality agreement with the HPL. By a letter dated September 29, 2004, the IOC told GoWB that the meeting dated September 13, 2004, had ended with the proposal that it would invest Rs. 150 crores in the HPL provided the HPL shares held by the Tatas were given to it, the financial institutions would vote with it on all matters, and, in due course, GoWB would divest in its favour all its HPL shares. The IOC s that letter triggered off a negotiation that kept it in correspondence with the GoWB and the WBIDC till October 25, 2004, when it wrote the last letter. In the process while the IOC wrote further letters dated October 18, 2004, to GoWB and October 21 and 25, 2004, to WBIDC, WBIDC wrote letters dated October 12, 19, and 29, 2004, to the IOC. By its letters the IOC wanted the GoWB and the WBIDC to give it all the HPL shares held by WBIDC after obtaining waiver of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 150 crores by the IOC in Equity Shares of the HPL. Kindly refer to our letter dated 5 November, 2004 and your letter No. BDPC/65.1, dated 10 November, 2004, on the above subject. In part modification of our abovementioned letter we confirm the following : The entire present shareholding of WBIDC in the HPL will be offered for transfer to the designated company of the Chatterjee group within 30 days from close of IPO. In case the shares are not accepted by the Chatterjee group within a reasonable time frame at the price at which it has been offered, these shares would be offered to the IOC at the same price. The price for the transfer of the shares for the purpose of above two offers would be ascertained in the following manner : The IOC would carry out the valuation of the entire block of equity holding of WBIDC by an internationally reputed independent accounting firm to be selected based on mutual agreement between WBIDC and the IOC. The draft valuation report would be discussed with WBIDC and the views of WBIDC would be given due consideration. The IPO price as well as the prevalent market price at the time of valuation would be given due weightage fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, the document dated January 14, 2005, was signed by Dr. Sabyasachi Sen as representative of GoWB and PC as representative of the CP(M)C. They agreed as follows : (1) The Government of West Bengal shall sell its entire shareholding in the HPL to the CP(M)C. (2) The price of the shares shall be determined by an independent valuer selected by GoWB from amongst a Panel of Firms prepared by the CP(M)C. (3) The recommendation of the valuer shall be binding on the GoWB and the CP(M)C. (4) Both parties shall endeavour to complete the process expeditiously. The extraordinary general meeting was held on January 14, 2005, and the special resolution was adopted approving the board resolution dated November 2, 2004. 103. The allotment of shares to the IOC was questioned on the ground that a clandestine agreement to permit the IOC to participate in the management of the HPL had been concealed. The admitted position is that the petitioners in the company petition failed to produce any such agreement. To be precise, there is no clandestine agreement, and none has seen the light of day till date. In their counters GoWB, WBIDC and the IOC, of their own accord, disclosed all the let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. By a coeval letter the IOC had already accepted the terms of invitation to invest Rs. 150 crores in the HPL as an equity participant. The letter of WBIDC dated November 10, 2004, never received the slightest attention of the IOC that chose not to respond. These were the facts disclosed by the GoWB and the WBIDC of their own accord. Facing with the situation that no clandestine agreement as alleged in the company petition was in existence, the petitioners therein took the plea, though not pleaded, that in the explanatory statement to the notice for extraordinary general meeting dated December 21, 2004, the chairman of the HPL did not disclose the letters written by GoWB, WBIDC and the IOC, though he had full knowledge of them, and hence the notice, vitiated by suppression of material information, being bad in law, the special resolution dated January 14, 2005, was liable to be cancelled. 106. It has been argued that had the Chatterjee group had knowledge of those letters, it would not have voted in favour of the special resolution. Thus, lack of probity and loss of confidence aspects have been introduced in the case. Mr. Sarkar has argued that when the non-disclosure of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition that for insistence of GoWB they agreed to induct the IOC in the HPL as a portfolio investor cannot be accepted. GoWB took the steps in terms of the supplementary agreement dated July 30, 2004, whereby responsibility of inducting an investor with Rs. 150 crores was given by the CP(M)C to GoWB. The investment was needed for complying with the terms and conditions of the corporate debt restructuring package. In terms thereof and also in terms of agreement dated January 12, 2002, the CP(M)C was under an obligation to bring in a strategic investor. The idea of bringing in the IOC in the HPL was introduced by PC himself at a point of time when the HPL was collapsing for want of fund. From September 2000 till July 30, 2004, the CP(M)C did not bring in its share of Rs. 107 crores against the rights issue, WBIDC and the Tatas duly subscribed their shares. The lenders were making repeated requests for infusion of fund and bringing in a strategic investor. When the IOC was willing to come in a big way, the CP(M)C brought into existence the agreement dated January 12, 2002, and that brought the ongoing negotiations for bringing in the IOC to an end. There was nothing wrong in PC s tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not react, because he was not bothered at all when the IOC was going out and the balance HPL shares of WBIDC were almost in his pocket. I am unable to say that Mr. Pal was unjustified in saying that such a mind boggling story of fraud should be rejected outright. The foundation of the case in the company petition is that if the terms and conditions mentioned in the letter of WBIDC dated November 10, 2004, were enforced, existing special rights of the petitioners therein would stand defeated. This immediately raises the question what was the special right, if any, existing ? In fact there was none. The right given by article 33(a) was not special in any sense, because that was the general right given to both WBIDC and the CP(M)C. The special right of the CP(M)C was, however, created by agreement dated January 12, 2002, in terms whereof it enjoyed the right to call upon WBIDC to sell all its HPL shares to it. That right the CP(M)C never exercised, because it wanted only to get the bare majority by making the minimum investment only for getting the requisite number of shares from WBIDC. That special right was abandoned by it while entering into the supplementary agreement dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of filing the company petition, and particularly till January 14, 2005, they ever said that the fund likely to be invested by the IOC would be brought in by them. But then the IOC was not to be brought in only for the funds. In the board resolution dated October 11, 2004, the reasons for bringing in the IOC were noted ; they were connected with the HPL s overall interests. In terms of conditions of the debt restructuring package loans given by a number of companies owned by GoWB were converted into redeemable preference shares, and as a result, with effect from October 14, 2004, the HPL became a section 619B company ; it was deemed to be a Government company for limited purposes. There was absolutely no reason to say that the HPL, on induction of the IOC, only a wholly owned central Government company, was to become a Government company within the meaning of section 617 of the Companies Act, 1956. Thus, the objection raised by PC that on induction of the IOC, the HPL would become a Government company, and that that would adversely affect the initial public offer, it seems to me, he himself knew, was of no substance at all. 113. From his conduct and activities it is apparent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter dated July 6, 2005, putting the conditions precedent, inter alia, that balance shares of WBIDC would be purchased by the CP(M)C, only if GoWB obtained written commitment from the IOC that it would withdraw unconditionally from the HPL. He also wanted that before entering into the deal GoWB must ensure transfer of the said 155 million shares by WBIDC to the CP(I)PL. This situation led to the decision of GoWB dated July 27, 2005, to defer the disinvestment, though by then it had obtained approvals from the lenders to transfer the shares to the company nominated by the CP(M)C. Steps taken by PC were nowhere near conclusion of the transaction, he rather very calculatedly created a very complicated situation. On these facts, I have been invited by counsel for the Chatterjee group to hold that it was GoWB, WBIDC, the chairman of the HPL, the financial institutions, and all other persons who had knowledge of the letters exchanged between WBIDC and the IOC, that collectively committed a fraud. I agree with counsel for the parties who are contesting the crossobjections and the appeal of the petitioners in the company petition that such a case of fraud as has been pressed into se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding good corporate governance. They have said that it was apparent on the face of the resolutions dated November 2, 2004 and January 14, 2005, that not only the HPL decided to allot 150 million shares to the IOC, but the persons named in the resolutions were also duly authorized to allot the shares and issue the certificates. Their contention is that when accepting the offer letter dated January 28, 2005, the IOC submitted the requisite application and papers accompanied by a cheque for Rs. 150 crores, the only thing that was to be done was to encash the cheque and issue the share certificates. 117. I do not find any reason to say that the circular resolution amounted to an act of oppression. It has been rightly said that the resolution, strictly speaking, was not necessary. Once the board decision dated November 2, 2004, was approved by the special resolution dated January 14, 2005, and the offer made by letter dated January 28, 2005, was accepted by the IOC, the only thing that was to be done was to issue the share certificates. PC was obstructing that, and for no valid reason. Although his activities exposed all concerned to threatened civil and criminal actions, he remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners in the company petition holding that the appointment of the managing director was liable to be set aside, since decision to appoint him was taken in the meeting held on March 29, 2005, when not only there was no vacancy for a director, but there was also no item on the agenda proposing to appoint him. By referring me to the provisions in section 291 of the Companies Act, 1956, Mr. Sarkar has contended that in view of the illegality in the exercise of power by the board of directors of the HPL, the managing director was not entitled to function. I do not find any reason to say that the Board was wrong in its opinion on the question of validity of appointment of the managing director. I agree with Mr. Bimal Chatterjee that having participated in the meeting dated March 29, 2005 and voted in favour of appointment of the managing director, the petitioners concerned in the company petition were not entitled to question the appointment. As rightly said by Mr. Chatterjee, the concept of ultra vires, legality or illegality does not apply to interpretation of articles of association which are mere terms of contract and to which law of estoppel applies with full force, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 155 millions and all other HPL shares held by WBIDC to the CP(I)PL, the CP(M)C or its nominee. To my mind, there was no valid reason for the Board to proceed on the basis of a presumption. Hence I agree with Mr. Chatterjee that the Board made the order in clear contravention of the provisions in section 402(e). The order of the Board is liable to be set aside on this ground as well. But then there is no reason to remit the matter, since I have found that the company petition itself is liable to be dismissed on the ground that the petitioners therein failed to make out and establish any case of oppression, a must for getting relief under section 397 of the Companies Act, 1956. 122. Mr. Pal has argued a point that the Board adopted an unfair and impermissible procedure in that numerous documents which never formed part of any pleading, but produced by the parties in the course of arguments, were taken on the record and considered by the Board. He has said that with the voluminous written arguments the parties produced a large number of documents. I only say that that was an improper procedure followed by the Board. In view of the rules governing the proceedings, the Board was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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