TMI Blog2013 (4) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... re, as requested by the respondents, when the veil is pierced and seen, the undisputed facts of instant case, this is what emerges. Therefore, the said legal principles which are well settled has no application to the facts of instant case. Regarding Allotment of Preference Shares - Held that:- From sections 85 and 86, it is clear that a person who acquires preference share capital would not acquire any voting rights. By such allotment the voting pattern has not been altered to any extent to the detriment of the respondents. As the allotment of the said preferential shares has in no way altered the voting rights of the shareholders and it was done to prevent the company being a defunct company and now that the company has come forward to allot equal number of preferential shares to the petitioners also, if they wish to have it, the said ground does not constitute a just and sufficient cause for winding up of the company. It does not constitute an act of oppression and mis-management. Exclusion from Management - Held that:- In a corporate democracy if a shareholder wants to hold a post of director he must secure the requisite votes in the general body meeting and become a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny wrongful gain. If provision is not made for periodical enhancement of rent, the blame squarely falls on the members of both groups. Obviously, it was not done because it was beneficial to the members of both the groups. Unfortunately, the CLB has not properly applied its mind, has not taken into consideration the point at which the lease deed came into existence, who were the persons in management of the company and who were the directors of the company on the date of those lease deeds. Non-Sending of Notice - Held that:- It is not in dispute that the company is declaring dividends for the last 10 years. The dividend certificates have been handed over to the petitioners without any acknowledgement, which they have encashed. It is only in respect of this particular General Body Meeting, it is contended, they had no notice. If the notice is served and no acknowledgement is taken as of the practice, it is not possible for the respondents to show by any documentary evidence whether notice is served. But in the facts of this case, we are satisfied that, the plea is taken is only an after thought to show that the respondents in a bad position, before the Company Law Board. None ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts inception Dr. T.M.A. Pai, was not one among them. Obviously, he has acquired shares after the Company was incorporated and he held majority of shares. Dr. T.M.A. Pai had sons by name Mohandas Pai, Ramdas M Pai and Ashok Pai. Mohandas Pai was in control of the Company as General Manager. Tonse Upendra Pai died in the year 1956. Dr. T.M.A. Pai died in the year 1979. After his death T. Ashok Pai T. Ramesh Pai and T. Satish Pai, sons of T. Upendnra Pai managed the Company for about two years, till the death of T. Ashok Pai, in the year 1981. Originally, Ramesh U Pai and his other family members held 19% of the shares in the Company. After the demise of T.A. Pai, Ramesh U Pai who was a Director of the Company, acquired shares of the Company and thus he and his other family members acquired shares to the extent of 41.72%. However, the total shareholding of Ramesh U Pai and his family members and the Companies in which he has substantial interest as on today stands at 44%. 3. The ease of the petitioners before the Company Law Board was that the Company had purchased vast extent of land in Manipal apart from the various buildings it had constructed. In all the Company owned 88 acres o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased by one group from the other group. Similarly, the directors have also resigned from the Companies controlled by the other group and the Board was reconstituted. Thus the award passed by Mr. Ambani on 03.11.1993 settled most of the issues between the two groups. So far as the dispute pertaining to the Company is concerned, the same could not be finalized because of time constraints as well as lack of information. It was agreed that the matter will be sorted out in consultation with Sri. M.L. Bhakta (Solicitor) and Sri T.N. Chaturvedi (Chartered Accountant) shortly, failing which Sri Dhirubhai Ambani will advise, as to whose advise will be final and binding on both the groups. The petitioners submitted that the said Ambani Award was not implemented, since none of the parties agreed to implement the award for lack of particulars and time as set out earlier to resolve the dispute with regard to Canara Land Investment Limited. Thereafter, parties have referred the entire matter once again to Sri C. Subramaniam, former Finance Minister of India to resolve the disputes. So far as the educational institutions are concerned, C. Subramaniam has given a detailed award on 27.05.1997. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a direction was issued to the Company to transfer the shares. The appeal preferred against the said order before this Court was also dismissed on 23.11.1999. Even after the order of this Court, the Company had not effected transfers 6th and 7th petitioners again purchased 496 and 60 shares respectively and lodged with the Company for transfer in 1995. Transfer was not effected. A complaint is lodged with SEBI in this regard. After correspondence, the Company has agreed to transfer the shares. Even though all the formalities are complied with, the shares are not transferred. 6. The Company shares were listed earlier in Stock Exchanges and the same were delisted according to the Company as per the balance sheet for the year ending 31.03.2002. The Company has not complied with the rules and regulations made by SEBI for delisting the shares. Hence steps taken by the Company for delisting are not valid. In view of the delisting, the petitioners if they wanted to sell the shares none would come forward to buy the same since the shares were not traded in the market. Majority of the shares were held by the second respondent and his associates. The only object of delisting the shares wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the balance sheet, the salary of the Managing Director is Rs. 4,81,169-00. Rs. 5,23,640-00 and Rs. 5,63,347-00 for the year 2000, 2001 and 2002 respectively. The personal expenses incurred by the Managing Director with regard to postage, telex and telephone are debited to the Company's account and particulars are furnished. Similarly, the travelling expenses of the Managing Director which was purely personal to him are also set out. The amount spent towards repair and maintenance of the properties are also set out and according to the petitioners it was not necessary. The administrative expenses incurred by the Company is exorbitant and as against the gross receipt. From the above facts it is asserted that the Company's income is being diverted by way of expenditure and the persons who are benefited by debiting their personal expenses to the Company are the respondents-2 to 7. There is no necessity for the Company to incur such vast expenditure when it is not carrying on any manufacturing activity. Most of the income of the Company is rental income. 8. The petitioners are not aware about the functioning of the Company even though they hold more than 40% share in the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of the Company. Lands of the Company were given by the petitioner on lease to various bodies during the period he was in the management of the affairs of the Company. While such is the case, he cannot complain about the old lease of lands now with the respondents. The rental income for the leased lands and buildings were periodically revised and rental income received by the first respondent during the last 15 years are set out in the statement of objections. The said particulars show that the rental income has been periodically revised and gone up steadily from year to year. Estimated value of the lands was Rs. 83 crore which is highly imaginary and baseless. At the 64th Annual General Meeting held on 29th September, 1997 it was unanimously decided not to reappoint the first petitioner as Director and not to fill that vacancy. It is for the shareholders to elect/re-elect the Director. They have denied the allegations that they have not sent the notices and minutes of the meetings to the first petitioner. When the respondent discovered that that the first petitioner was quietly trying to corner the shares and institutions for himself and his son by furnishing/providing wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecree. The situation has continued peacefully for almost 10 years and now the first petitioner seeks to unnecessarily raise disputes with regard to these awards. 11. There is no delay in transferring the shares. As soon as the legal formalities are complied with it will implement the transfer. The first respondent explained to the Bangalore Stock Exchange the number of shares held by the persons other than the petitioners and respondents herein and the small paid up capital of Rs. 3 lakhs and there had been no trading in Company's shares through the Exchange for years. There had been no SEBI Regulations governing delisting of shares in force at that time. The Bangalore Stock Exchange considered the first respondent's request and agreed for delisting its shares. It is false to state that delisting was done so that the petitioner would suffer. Hundreds of companies having small capital have delisted themselves. But there is virtually no trading in the shares of the first respondent company and no purpose is served by keeping the shares in the market. They denied the allegation that the second respondent and his associates have fabricated the proceedings of Extra Ordinary General Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board by induction of new Directors. Out of six directors, two are the husbands of younger sisters of the first petitioner and third is the own younger brother. It shows that though the petitioner and his close relatives have about 40% equity shares, but they have nearly 50% representation on the Board. This shows that the first petitioner's allegation that he does not have adequate representation on the Board is false. He is trying to mislead the Company Law Board by invoking Sections 397 and 398. The Company's articles do not have any provisions for proportional representation. They have not infringed any of the rights of the petitioners nor have oppressed them. They have not mismanaged the affairs of the Company. Therefore the petitioners have not made out a case of oppression or mismanagement. The first respondent is a profit making company declaring dividend. The accounts have been audited and there are no adverse comments on the annual accounts. Therefore no case for invoking Sections 397 and 398 is made out and therefore they sought for dismissal of the Company Petition. Findings of the Company Law Board 13. Both the parties in support of their respective contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16th April 2004 the respondents have preferred this appeal. 14. One of the shareholders who did not belong to either of these groups has also preferred the connected appeal challenging the aforesaid directions issued by the Company Law Board. That is how both the Company Petitions are taken up together for consideration. Rival Contentions 15. Sri Udaya Holla, learned senior counsel appearing for the respondents/appellants in this appeal contended as under:- (a) The condition precedent for the Company Law Board to exercise its powers under Section 397(2) is the existence of a ground for winding up of the Company on just and equitable grounds. The petitioners have not made out a case for winding up on just and equitable grounds. Therefore on the ground of oppression and mismanagement the Company Law Board is not justified in issuing the directions in substitution of such winding up order and therefore he submits that the impugned order is ex-facie illegal and liable to be set aside. (b) Secondly, he contended that one of the grounds held against the respondents is that they allotted the preferential shares to the extent of value of Rs. 2,00,000/- to respondents 8 9 the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond petitioner was present and he is a party to the same. In fact he did not participate in the resolutions leasing the property to Companies where he had substantial interest and those deeds are in their favour which fact has been completely missed by the Company Law Board. Therefore he submits that seen from any angle there is absolutely no material on record to support the impugned order. He also submitted that, from inception, because all of them were living in Manipal, a small town, all of them were duly intimated about the meeting of the Board as well as the General Body Meeting. There was no practice of taking acknowledgement. Now that the relationship is strained and it is contended that the affairs of the Company is conducted without sending notices, hereinafter all such notices would be sent to the petitioners by registered post acknowledgement due at the cost of the Company. He also submitted that for the last 8 years the Company has declared 50% divided and the petitioners have been paid the dividend punctually and therefore he submits that seen from any angle, no case for interference with the affairs of the Company is made out and the impugned order passed is illegal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, therefore, no action could he taken under Section 153C. We agree with the appellant that before taking action under Section 153-C, the Court must be satisfied that circumstances exist on which an order for winding up could he made under Section 162. The true scope of Section 153C is that, whereas prior to its enactment the Court had no option but to pass an order for winding up when the conditions mentioned in Section 162 were satisfied, it could now in exercise of the powers conferred by that section make an order for its management by the Court with a view to its being ultimately salvaged. Where, therefore, the facts proved do not make out a case for winding up under Section 162, no order could be passed under Section 153-C. The question, therefore, to be determined is whether the facts found make out a case for passing a winding up order under Section 162. In his application the first respondent relied on Section 162, clauses (v) and (vi) for an order for winding up. Under Section 162(v), such an order could be made if the company is unable to pay its debts. It was alleged in the application that the arrears due to the Government on 25.6.1955 by way of charges for ener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to be decided on the facts of each case. Where nothing more is established than that of the directors having misappropriated the funds of the Company, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the shareholders. But if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the Company should be wound up, there is nothing in Section 162(vi) which bars the jurisdiction of the Court to make such an order. (1924) Assistant Commissioner 783 (G) was itself a case in which the order for winding up was asked for on the ground of mismanagement by the directors, and the law was thus stated at page 788: "It is undoubtedly true that at the foundation of applications for winding up on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the Company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under Section 397 read with Section 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law however, has not defined what is oppression for purposes of this section, and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this section." Further, at para 19, it was observed as under: "19. These observations from the four cases referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority share-holder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion given by the Court, while granting relief against oppression to the minority shareholders of the Company, to the Company to purchase the shares of some of its members which would ipso facto bring about reduction of the share capital because a Company cannot be its own member, is it obligatory to serve a notice upon all the creditors of the Company ? It was conceded that the procedure prescribed in Sections 100 to 104 is not required to be followed where reduction of share capital is necessitated by the direction given by the Court in a petition under Ss.397 and 398. Section 77 leaves no room for doubt that reduction of a share capital may have to be brought about in two different situations by two different modes. Undoubtedly, where the Company has passed a resolution for reduction of its share capital and has submitted it to the Court for confirmation of the procedure prescribed by Ss.100 to 104 will have to be followed, if they are attracted. On the other hand, where the Court, while disposing of a petition under Ss.397 and 398, gives a direction to the Company to purchase shares of its own members a consequent reduction of the share capital is bound to ensue, but before gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, if the procedure prescribed by Ss.100 to 104 is required to be followed, the resolution will have to be first adopted by the members of the Company but that would be well nigh impossible because the very majority against whom relief is sought would be able to veto it at the threshold and the power conferred on the Court could be frustrated. That could never have been the intention of the Legislature. Therefore, it is not conceivable that when a direction for purchase of shares is given by the Court under S.402 and consequent reduction in share capital is to be effected, the procedure prescribed for reduction of share capital in Ss. 100 to 104 should be required to be followed in order to make the direction effective." 19. Again the Supreme Court in the case of Manish Mohan Sharma v. Ram Bahadur Thakur Ltd. AIR 2006 SC 1690 dealing with the powers conferred under Section 402 of the Companies Act held as under: "20. The powers under Section 402 are residuary in nature and in addition to the powers available to the Company Law Board under Section 397(2) and Section 398(2) which permit the Company Law Board to make such order as it thinks fit with a view to bringing to an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up order on the ground that it is just and equitable. Then only the power is vested under Section 397(2) to pass an order under the said provision. If a ground exists for winding up and if such an order for winding up is passed, the Court is of the opinion that such an order of winding up would unfairly prejudice such member or members, then the Court gets jurisdiction to exercise its powers under the said provision, to pass such an order as it thinks fit, with a view to bringing to an end the matters complained of. Therefore a reading of the aforesaid provision makes it very clear before an order is passed under Section 397(2) the following conditions must exist:- (1) The facts of the case should justify making up of winding up order on the ground that it is just and equitable. (2) The Companies affairs are being concluded in a manner prejudicial to the public interest or in a manner oppressive to any member or members (3) In the event of winding up order is passed for the aforesaid reasons, it would unfairly prejudice such member or such members. Then in substitution of an order of winding up, the Court/Tribunal may pass such order as it thinks fit with a view to brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere may arise a case for winding up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely in the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership." Similar to the effect is the judgment of the Madras High Court in the case of V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp. Cas. 20 where it was held as under : "The principle of the special relationship between the parties forming the substratum of the company could be invoked only in a case where originally the business was a partnership concern which was later on converted into a private limited company or where, if the veil of corporate character of the company was lifted, it could be found that, in reality, it was a partnership. The petitioner had not established the family arrangement. Therefore, the argument that the substratum of the company was gone or that it was a case for winding up the company on the just and equitable ground could not be entertained." In the case of Kilpes (P.) Ltd. v. Shekhar Mehra [1996] 10 SCC 696 explaining the difference between the partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 1945. Mr. Thonse Upendra Pai was not a shareholder of the Company. Mr. Thonse Pai died in 1956 and Dr. T.M.A. Pai was in control of the Company till 1979, i.e. till his death. Thonse Upendra Pai died leaving behind him 3 sons, Mr. T.A. Pai, Mr. Ramesh U. Pai and T. Sathish Pal. After the death of Dr. T.M.A. Pai, the eldest son T.A. Pai, the elder brother of Ramesh Pai and the 5th appellant, who was a former Union Minister was managing the Company for about two years till his death in 1981. Ramesh U. Pai was an ordinary Director of the Company at that point of time. It is after the death of T.A. Pai in the year 1981 Sri Ramesh U. Pai and his family members and the Companies in which they have substantial interest acquired shares in the Company. The share holding of the Companies is clearly set out in para-3 of the Petition and it discloses that together they hold 41.72% shares. 25. The aforesaid acquisition of shareholding discloses that Ramesh U Pai, who was the eldest, member of the family, after the death of his elder brother acquired the share of himself, his wife and two sons and not for the benefit, of the joint family. It is because, the 5th respondent, though he is a ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said legal principles which are well settled has no application to the facts of this case. 27. Now let us see what are the grounds which arc made out in the petition and whether it constitutes a just and sufficient cause for winding up of the company. The grounds which are made out in the petition are as under: (i) Non-registration of Shares. (ii) De-listing of Shares. (iii) Exhorbitant expenses, personal expenses created to company's account. (iv) Allotment of Preference Shares. (v) Exclusion of petitioners from management. (vi) Non-sending of notices and balance sheet. (vii) Leasing of lands. 28. The Company Law Board acting on the submissions made on behalf of the counsel for the petitioners herein to the effect that the registration of the shares would be made expeditiously on fulfilment of the legal requirements, it was of the view that the said ground does not survive for consideration. It is now not disputed that the shares have been transferred in the name of the petitioners and the said grievance no more exists. 29. Insofar as exorbitant expenditure and personal expenses remitted to the companies account is concerned, the Company Law Board held that, va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents have contended that, the allotment of Preferential shares were made only to comply with the requirements of Section 3(5) of the Companies Act, 1956. This requires public companies to have a minimum Paid Up Capital of Rs. 5.00 lakhs. The shares were allotted to the 8th and 9th respondents, so that they will have no alteration in the voting power among the shareholders. Secondly, the educational institution would get tax free income from dividends. It may be seen that the dividend is now tax free and higher than the bank rate. Therefore, the entire transaction is bona fide which would achieve the dual purpose of satisfying the legal requirements and also benefit the educational institution. It is further stated that all the necessary formalities in connection with this allotment have been complied with. It is most unfortunate that the 1st petitioner should seek to challenge the Preference Shares given to an educational institution. 33. It is not in dispute that the company had a share capital of Rs.3.00 lakhs. The Companies Act, 1956 was amended by Act. No. 53/2000 with effect from 13.12.2000. The definition of a "Public Company" as amended, means a company whose minimum Pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the following amounts, namely:- (i) any money remaining unpaid, in respect of the amounts specified in clause (a) up to the date of the winding up or repayment of capital; and (ii) any fixed premium on any fixed scale, as specified in the memorandum or articles of the company. Explanation : Capital shall be deemed to be preference capital, notwithstanding that it is entitled, to either or both of the following rights, namely: (i) that, as respects dividends, in addition to the preferential right to the amount specified in clause (a), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid. (ii) That, as receipts capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified in clause (b), it has a right to participate, whether fully or to a limited extent, with capital, not entitled, to that, preferential right in any surplus which may remain after the entire capital has been repair." 36. Section 86 of the Act deals with new issues of Share Capital which reads as under: "86. The share capital of a company limited by shares fanned after the commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders. 37. The Supreme Court in the case of Needle Industries (India) (P.) Ltd. v. Needle Industries Newey (India) Holding Ltd. AIR 1981 SC 1298 dealing with the powers of the Company Court held as under :- "Neither the judgment of Bhagawati J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated, with a mala fide intention or that such violation, was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. 52. It is clear from these various decisions that on a true construction of Section 397, an unwise, inefficient or careless conduct, of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y rotation. However, lie was not re-elected as a Director of the company. When the 1st petitioner gave notice under Section 257 signifying his candidature for the office of Director at the Annual General Meeting held on 30.9.2003, the same was rejected by the company on the ground that he had incurred disqualification under Section 274(1)(g) of the Act. Similarly, the notice given by the third petitioner under Section 257 for his appointment to the office of Director was defeated at the Annual General Meeting held on 30.9.2003. These events subsequent to the filing of the company petition, according to the petitioners, reveal the conduct of the respondents' group in excluding the petitioners holding 44% from the management of the company. At present, there is none from the petitioners' group on the Board of the company. The respondents having thin majority are in entire control of the Board by inducting their own relatives and ignoring the interest of the petitioners. The petitioners holding substantial interests, must have equal representation on the Board in the interest of justice and fair play. Thus, the petitioners have lost trust and confidence in the respondents, whose condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce his individual rights singly but corporate rights have to be enforced by the majority. It is only improper or illegal removal from directorship that may affect the right of a shareholder but not the removal by a general metting of the company in accordance with the provisions of the Companies Act." 44. The Madras High Court in the case of V.M. Rao (supra) has set out the conditions to be satisfied for maintaining a petition under Sections 397 398 of the Companies Act, as under: "For maintaining a petition under Sections 397 and 398 of the Commissioner for Workmen's Companies Act, 1956, (a) it must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh and unfair treatment in any other capacity such as a director or a creditor is outside the purview of the section; (b) there, must be continuos acts constituting oppression up to the date of the petition; (c) the events have to be considered not in isolation but as part of a continuous story; (d) it must be shown as a preliminary to the application of Section 397 that there are just and equitable grounds for winding up the company; (e) the conduct c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of mud-slinging no orders under Section 397 and Section 398 will be passed. The court must have strong grounds before it to order winding up. An order under Section 397 or Section 398 can be supported only if such grounds are present. The fact that the complaining parties were themselves participants in the alleged activities will he one of the factors to dissuade the court from exercising its power under the Section. Delay and acquiescence in the acts complained of will also be circumstances against the grant of reliefs. The powers of the court under Section 402 are wide. But the courts have always exercised restraint in interfering with the affairs of the company, for the affairs of the company are normally its own concern and the concern of its shareholders. It is only when the facts and evidence before the court are such as to persuade it to hold that interference until the affairs of the company is necessary, that it would exercise its powers. The interest of public good will always be kept by the court in mind. But the concept of public interest will preponderable over the autonomy of a company and the management under the articles of association and within the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will exercise as much, control over the Parliament as that exercises over them. Though it would be constitutionally possible for the company in general meeting to exercise all the powers of the company, it clearly would not be practicable for day-to-day administration to be undertaken by such a cumbersome piece of machinery. So the modern practice is to confer on the Directors the right to exercise all the company's powers except such as the general law expressly provides must be exercised in general meeting. 48. Therefore, in a corporate democracy if a shareholder wants to hold a post of Director he must secure the requisite, votes in the General Body Meeting and become a Director. If the members in a General Body Meeting do not vote and he is not elected, he cannot, complain against the company. If the majority shareholders in such corporate democracy do not vote for a shareholder in whom they have no confidence and thereby see to it he is defeated, they are exercising their just lawful rights in such corporate democracy based on their rights which are vested in them by virtue of the share which they hold. The said act cannot, be construed as an act which justifies an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the leases are advantageous to the company. The entire resources of the company are its landed property at Manipal. Therefore, it was contended the said act of leasing the landed property of the company for nominal rent is disadvantageous to the company. The respondents are the beneficiaries of such leases. This act amounts to an act of oppression and mismanagement of the company. 50. Meeting these allegations, the respondents in. their counter have stated that, these leases are for long periods varying between 20 and 99 years. It is false to state that respondents 2 to 7 are directly or indirectly beneficiaries of the lease transactions. The company's income is only from the hotel and leased rental. Such income is used for the expenses related to the hotel and the property maintenance. There is no scope for diversion of funds from the aforesaid income. 51. On consideration of the aforesaid pleas and the documents produced, the Company Law Board held that, it is on record that the second respondent had executed a number of lease deeds in respect of the properties of the company in favour of the lessees represented by the 5th respondent. These registered lease deeds are for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a ease where any lease is created without the knowledge of the Director of the company in a clandestine manner and given to the respondents to make any wrongful gain. If the rentals mentioned in the lease deed is nominal, it is so in respect of all the lessees as the beneficiaries of the leases in real terms are the parties to the proceedings. Admittedly, the leases are for periods between 20 to 99 years. There is no question of renewal. If provision is not made for periodical enhancement of rent, the blame squarely falls on the members of both groups. Obviously it was not done because it was beneficial to the members of both the groups. Unfortunately, the Company Law Board has not properly applied its mind, has not taken into consideration the point at which the lease deed came into existence, who were the persons in management of the company and who were the Directors of the company on the date of those lease deeds. If there was no complaint against these lease deeds for nearly more than two decades, this complaint is made for the first time while filing this company petition. Therefore, it is clear that there is absolutely no bona fides in these allegations. It is made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r winding up. An order under Section 397 or Section 398 can be supported only if such grounds are present. The person complaining of oppression must show that lie has been constrained to submit to a conduct which lacks in probity and conduct, which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. 56. It is not enough to show that, there is just, and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members. This requires that, events have to be considered not in isolation but as a part of a consecutive story. Stray cases of mismanagement or even a few cases of mismanagement without sufficient proof is not a ground for interference by the Court. The true position is that an isolated act, which is contrary to law may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders however, relevant to a winding up seems to have no direct relevance to the remedy granted by Section 210. It is oppression of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not balance between share-holders per se that brings from oppression of a minority by a majority in the management of the company's affairs, and oppression involved at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a share holder." 57. The averments in the objection statement as well as the documents produced in the case clearly discloses that the company is a profit making company. They have declared 50% dividend for the last 8 years. The dividend warrants have been promptly sent to the petitioners who have encashed them. In those circumstances there is absolutely no case either for winding up of the company or for exercise of power under Section 397(2) is made out. Once they hold 44% shares and the company is running under profit and proportionate to, their share holding they are paid dividend to the extent of 50% their reque ..... 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