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TMI Blog2010 (2) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... urther shares/transfers, the appellants' group happen to hold 6,900 shares as against the respondent's holding of 5,500 shares. The first appellant was a director in-charge of marketing while the third respondent had been the chairman and managing director of the company. In the Board meeting held on 11th May, 1997, the Board allotted 2,600 shares to two respondent-directors by which, the appellants' group was reduced from majority into minority. The said allotment, according to the appellants, was done with mala fide intention to reduce the appellants' group from majority to minority. Hence, they approached the CLB by filing CP No. 96 of 1997 alleging that the allotment is in total disregard to the agreement as entered in the minutes book in the month of April 1996, wherein it was agreed upon that in case, further shares were to be allotted, that would be done so only in pro-rata basis. The so-called resolution of the Board meeting on 11th May, 1997 by allotting 2,600 shares to the respondents 2 and 3 is without notice to the appellants and this was done with a view to gain majority position in the company by the respondents' group and to oppress the appellants. The respondents fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not been sent to all directors are invalid, it has to be held that the decision taken in the meeting to allot the shares has to be declared as invalid. Further the CLB observed that the allotment made was not on account of any need for the funds of the company as it transpired that the shares were allotted in adjustment of certain loans given by these respondents to the company. After considering the minutes of the meeting relating to the matter, the Board came to the conclusion that the allotment of 2,600 shares was made only with a view to gain majority position in the company by the respondents, may be on the ground that the appellant's group gained the majority by alleged unlawful means. But, if the reason for the allotment were to be what the respondents have alleged, then, the proper course of action for them should have been to initiate necessary proceedings to get the acquisition by the appellants invalid and not to allot shares to themselves as a counter action. Therefore, though the Board was of the view to declare the allotment of shares as invalid, but did not do so for the reason that there was no possibility for the parties to continue the business together, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding the issues arising under sections 397"and 398 of the Companies Act, the body entrusted with the responsibility of the resolution of the dispute, a court or a body like the CLB, is not only concerned with the immediate legal rights of the parties before it, but also the community at large. The CLB being the body is entrusted with the responsibility for resolving the disputes falling within the scope of sections 397 and 398 of the Companies Act. On an overall consideration of the facts and circumstances, it cannot totally be branded as "perverse", for the reason, that the company was being run for quite some time by the respondents herein successfully, which is evident from the fact that the shares of the company which are the face value of Rs. 100 each are valued around Rs. 300 though there is some variation between the assessment of variation in the views of the contesting parties and the independent valuer about the agreed valuation. I, therefore, do not wish to substitute my wisdom for the wisdom of the CLB in an appeal. The appeal is, therefore, dismissed.' 5. Sri S Ravi, learned senior counsel appearing for the appellants would contend that once the CLB found the allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Venkateswara Real Estate (P.) Ltd. [1991] 72 Comp Cas 211; P Ramkumar v. TV Chandran [1994] 1 Comp LJ 469 (Ker.) and MSDC Radharamanan v. MSD Chandrasekara Raja [2008] 84 CLA 361/[2008] 143 Comp. Cas. 97 (SC)/AIR 2008 SC 1738/2008 CLC 1530. 7. In the light of the above submissions, the issue which cropped up for consideration in this appeal is, once the acquisition of 2,600 shares by the respondents' group has been declared invalid, whether the CLB is justified in directing the appellants to sell their shares to the respondents after valuation of shares by the valuer ? 8. Indisputably, the Board of directors in the meeting held on 8th April, 1996 under the chairmanship of third respondent, took a decision at the suggestion of the first appellant to the effect that undistributed shares would be kept till distributed equally among all the shareholders in proportion to the shares held by them. But, subsequently, contrary to the said decision and without notice to the first appellant, in the Board meeting held on 11th May, 1997 the undistributed shares numbering 2,600 were allotted to the respondents 2 and 3 at 1,000 and 1,600 shares, respectively, by increasing the shareholding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. Pursuant to the same, the valuer submitted his report determining the value of the each share as Rs. 285.50ps. as appropriate value under net asset method. 9. A Division Bench of Calcutta High Court in Tea Brokers (P.) Ltd. (supra) was called upon to decide an identical issue wherein the learned trial Judge directed one group of the company to sell the shares to other group. The Division Bench at para 57 held : "....The order of the learned trial Judge directing Barooah, and his group to sell the shares to Khaund and his group undoubtedly enables Khaund and Mitra to achieve their purpose. For achieving their purpose, the allotment of 1,000 shares to Khaund had become necessary and Khaund had to pay a sum of Rs. 1,00,000 to the company. The learned trial Judge has rightly set aside the allotment of the said 1,000 shares to Khaund and has consequently, directed refund of the said sum of Rs. 1,00,000 paid to the company by Khaund for the said 1,000 shares. By virtue of the said order of the learned trial Judge Khaund will, therefore, be entitled to a refund of the said one lakh of rupees. He will, however, succeed, by virtue of the further order made by the learned trial Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differences and will continue to work together to serve the best interest of the company. It is, however, indeed a matter for them. If, however, they are not in a position to compose their differences and work together, the members of the company have necessarily to decide as to how the affairs of the company are to be managed...." Observing so, the order of the trial Judge setting aside the allotment of 1,000 shares and also upholding the superseding of the Board of directors appointing a Special Officer and directing him to appoint a competent valuer for valuing the shares of the company and that after such valuation, Khaund and his group will have to be the option to purchase the shares of Barooah and his group at such valuation and in the event of Khaund and his group is not willing to buy the shares, Barooah and his group would have the option to purchase the shares has been set aside. 10. The Karnataka High Court in the decision rendered in S D N Wadiyar (supra) while referring to a paragraph in the 5th edn. of Pennigton's Company Law in p. 750 : "A petition for relief from oppression under the original statutory provision would be dismissed if it was not presented in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the court will always incline to wade through precedents to find out and to assign the correct meaning of these two words "oppression" and "mismanagement" in the context in which they are used. Certainly, the courts have to decide on the facts of each case as to whether there is a real cause of action under section 397 or 398 of the Act.' Further the Division Bench after referring to the judgment of the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 1 Comp LJ 193 (SC)/[1965] 35 Comp. Cas. 351 (SC)/AIR 1965 SC 1535, held that isolated acts of the controlling shareholders cannot be used as a ground for taking action under section 397 of the Act, and that one of the conditions essential for seeking relief under section 397 of the Act is that there should be continued oppression over a period of time, and accordingly, allowed the appeal setting aside the judgment of the company court granting certain reliefs under sections 397 and 398 of the Act. 12. The facts in the case of MSDC Radharamanan (supra) are that the CLB directed the appellant therein to purchase 2,84,000 shares held by the first respondent at a value to be determined by the chartered valuer in an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price payable by the respondents to the appellants and accordingly appointed Sri Shanti Lal Daga, Chartered Accountants & Co., Hyderabad to determine the value of the shares of the company as on 31st March, 1998, the proximate date of petition with a further observation that the fair value to be determined by the valuer shall be final and binding on the parties. The Calcutta High Court in the case of Tea Brokers (P.) Ltd. (supra) held that directing the shareholders of a group to sell their shares to the other shareholders' group who were found to be guilty of wrongful, improper and mala fide conduct cannot be considered to be a just order and accordingly set aside the same. It was further ordered that : "The order of learned trial Judge directing the special officer to appoint a competent valuer for valuing the shares of the company and further order that after such valuation Khaund and his group will have the option to purchase the shares of Barooah and his group at such valuation and in the event of Khaund and his group not being able or willing to buy the shares, Barooah and his group will have the option to purchase the shares is hereby set aside. There will be no order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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