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2017 (7) TMI 460 - MADRAS HIGH COURT

2017 (7) TMI 460 - MADRAS HIGH COURT - TMI - Dispute between the controlling group and the Natarajan block - directions to the effect that 18.98% of shares owned by the Natarajan block should be purchased either by the controlling group or, by SVG itself - Held that:- First, Natarajan was part of the promoter group and not a mere adviser, which is exemplified by the fact that throughout, that is, since 1987, he has been retained as a Director till the conclusion of the AGM of 26.09.2014, irrespe .....

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tor entrusted to him, first on behalf of Binny Limited and, thereafter, on behalf of SVG as well. Over the years, it appears from the record, an understanding was reached between the persons referred to above, that they would have a representative each on the BOD of the concerned company/companies, as the case may be. - Fourth, though there was clearly no written agreement in place an understanding built on trust had been forged, which required each side to ensure the appointment of the nomi .....

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le, in isolation, one cannot, but agree, that corporate democracy and shareholders will must prevail these principles need to be tested in the context of facts and circumstances obtaining in each case. Bereft of context, a grievance regarding failure to obtain renomination to the BOD may seem like a Directorial Complaint. - Sixth, the appellants, cannot use the "Directorial Complaint" argument or even the argument that it is a limited company having public shareholders to deny the Natarajan .....

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e measure, a property worth ₹ 300 Crores, for personal use of Shanmugam, its Managing Director, despite poor financials, or that, a ballot resolution dated 02.05.2015 could be passed giving powers to the Board of SVG to, inter alia, make investments or grant loans to the extent of ₹ 500 Crores, with the potentiality of these facilities being extended to associate entities/companies. - As has already been alluded to herein above, while, extension of financial facilities to associa .....

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f, one were to assume, for the sake of argument, that findings of oppression are not called for, in the instant case, would I, then, reverse the direction issued by the CLB on that score, which, in its own wisdom, has tried to do substantial justice between the contesting parties, by compelling the controlling group to purchase the shares of the Natarajan block. This power, as held hereinabove by me, was rightly exercised by the CLB, save and except to the extent it directed SVG to purchase the .....

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ngredient of 397 and 398 action. It is only one of the circumstances in which, such an action can be brought to Court. Besides, the concept of deadlock need not to be looked at in absolute terms. In my view, any issue, which creates an impediment or a possibility of a logjam in the smooth functioning of the company in the foreseeable future, is an aspect, which ought to be factored in, while examining the tenability of an action instituted under Section 397 and 398 of the 1956 Act. The majority .....

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orporate jurisprudence or governance is involved. - Therefore, in substance, find no difficulty in CLB coming to the conclusion that there would be impediments in running the affairs of SVG, as indicated above, and therefore, perhaps, as against the use of the expression "practical deadlock", some other expression, which would describe the situation more accurately could have been used. Perhaps, "gridlock" would better describe such like situations. - Based on the foregoing discussion, t .....

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e, albeit, without prejudice to the rights and contentions of the parties via Brahmayya & Co., Chartered Accountants. The valuation report was received and opened. It appears that the contesting parties did not have an opportunity to comment on the valuation report. - Therefore, for this purpose, I intend to remand the matter to the National Company Law Tribunal, Chennai Branch (in short, NCLT) (in view of the changed statutory position). The parties would appear before the NCLT on 14.07.201 .....

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interest has already created by the controlling group, vis-a-vis their equity stake in SVG, the protem charge so created by this direction will stand subordinated to any such prior charge or interest. SVG is also injuncted from registering or recording any request for transfer of shares which are owned or controlled by Ethiraj and Shanmugam and/or its constituents except with the prior permission of NCLT. - Furthermore, pending the completion of the aforesaid exercise, SVG will not transfer .....

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. For the Appellants : Mr.P.S.Raman, Senior Counsel, Mr.T.K.Bhaskar Mr.Arvind P.Datar, For the Cross Objectors in Cros. : Mr.K.G.Raghavan, Senior Counsel Mr.Anirudh Krishnan For the Respondents : Mr.T.K.Seshadri, Senior Counsel for M/s.Adithya Reddy, Mr.R.Murari, M/s.Preeeti Mohan JUDGMENT 1. The captioned appeals and one set of Cross Objections, have been placed before me, for adjudication. 1.1. The appeals filed being, Company Appeal Nos. 3 and 4 of 2016, assail the judgment and order of the C .....

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n of facts and events. 2. Before I proceed further, let me indicate as to who are the main protagonists in the battle, which has ensued, with regard to the affairs of SVG. 2.1. The appellants, in Company Appeal No.3 of 2016 are, one, Mr.M.Ethiraj (Ethiraj) and his son Mr.E.Shanmugam (Shanmugam). For the sake of convenience, they would be referred to, collectively, as the "controlling group" and, individually, by their respective names, unless the context requires otherwise. For example .....

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.S.Natarajan. For the sake of convenience, respondent Nos.11 and 12 would be referred to as "Natarajan". 2.3. Natarajan, via his wife, respondent No.6/Ms.N.Rajalakshmi and respondent Nos.1 to 5 holds 18.98% of the equity share capital of SVG. Therefore, as would be evident, there are two major blocks, in which, shares of SVG are divided. The first block comprises of the controlling group, which holds 55% of the share. The second block comprises of respondent Nos.1 to 6, which includes .....

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is distributed amongst public shareholders. The record shows that the numerical strength of the public shareholders is 9014. 2.5. Therefore, the dispute in the present proceedings is really between the controlling group and the Natarajan block. The controlling group is aggrieved by the impugned judgment and order of the CLB, broadly, on the ground that even though the CLB returned findings of fact that there was no quasi-partnership in existence, and that, there was no deadlock in running and m .....

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ntment of an independent valuer, in the manner, indicated in the impugned judgment. In addition thereto, there were two supplemental directions issued: First, that SVG would not extend loans or, make investments, in associate or related companies, till the report of the independent valuer was submitted. Second, that SVG will obtain ratification from the shareholders, qua the decision taken at the Annual General Meeting ("AGM") held on 29.09.2012, with respect to the use of SVG's pr .....

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ed as: Company Appeal No.4 of 2016. 4. To be noted, the appeals were listed before Court, for the first time, on 18.04.2016, at which point in time, Cross Objections had not been filed. The Cross Objections were presented in the Registry, only on 01.06.2016. Therefore, on 18.04.2016, what was before the Court, in so far as the Natarajan block was concerned, was the caveat filed on its behalf, bearing No.1301 of 2016. 4.1. Thus, on the said date, after hearing counsel for the contesting parties, .....

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ed in terms of directions (a) and (b) contained in paragraph 10.8 of the impugned order of the CLB, with due intimation to the respondents 1 to 6, within a period of two weeks from the date of receipt of a copy of this order. (iii). The fee of the Valuer shall, however, be paid for the time being by the respondents 1 to 6, as arrayed in the captioned appeal. The appellant will, however, not extend any loan or make any investment to any associate or related third party, without leave or permissio .....

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uities and be without prejudice to the rights of the appellant challenging the directions for valuation of shares contained in the order of the Company Law Board dt.10.03.2014 and thus render justice. Prayer in CMP No.7564 of 2016 : ..... to direct that the Report of the Valuer appointed pursuant to the pro-term (sic) arrangement dt.18.04.2016, be submitted in a sealed cover to this Hon'ble Court and direct that the sealed cover not to be opened pending disposal of the Company Appeal 3 of 20 .....

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the profit earning method to value the worth of the shares. This direction was issued, as Mr.Arvind P.Datar, learned senior Advocate, who appeared on behalf of the controlling group, took an objection to the fact that the break-up value method was being employed by the aforementioned valuer, contrary to the principles set forth by the Supreme Court in the following judgments: a) Commissioner of Wealth Tax, Assam Vs. Mahadeo Jalan, AIR 1973 S.C. 1023; and b) Commissioner of Gift Tax, Bombay Vs. .....

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red the matter, at that stage, I deemed it fit to direct that this aspect of the matter would be adverted to, after pleadings were completed in the case. 5.3. The third aspect, which came to fore and got resolved by virtue of the stand taken by Mr.P.S.Raman, learned senior Advocate, who also appeared for the appellants was that, pendency of litigation in this Court, if not already disclosed, shall be disclosed to the Bombay Stock Exchange (in short, "BSE"). 6. Thereafter, on 01.08.2016 .....

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account by the valuer. 7. On 15.09.2016, Brahmayya & Co., Chartered Accountants, submitted their valuation report, albeit, in a sealed cover. A decision was taken by me, on that date, to defer opening of the sealed cover. It was indicated that this aspect of the matter would be examined, once arguments in the appeal would commence. 7.1. Thereafter, the matter was heard from time to time and finally, the judgment in the matter was reserved on 10.02.2017. 7.2. Furthermore, on that date, witho .....

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accordingly, submitted by the designated Chartered Accountant, who, in turn, was appointed, with the consent of the counsels for parties. PREFATORY FACTS: 9. In order to adjudicate upon the disputes, which have arisen in the instant matters, one would have to notice the following, broad facts, which have led to the institution of the instant proceedings. 9.1. In this behalf, one would have to, necessarily, allude to the genesis of the birth of SVG. The birth of SVG is rooted in the company, by .....

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oth dates). Upon the death of Ramasamy, Mr.V.R.Venkatachalam (Venkatachalam), his son, stepped into his shoes. 9.2. Though, exact details have not been provided, the record is indicative of the fact that Natarajan purchased a stake in Binny Limited via respondent Nos.1 to 5. 9.3. In this context, it is to be noted that the stand of the controlling group is that, as a matter of fact, monies for investment were advanced in the form of loan to respondent Nos.1 to 5 via a company, by the name, Swade .....

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ings Pvt. Ltd., - Rs.42.50 lakhs (iii) Rajat Chankra Credit and Holdings Ltd., - Rs.42.00 lakhs (iv) Calcom Credit and Holdings Pvt. Ltd., - Rs.42.00 lakhs 9.5. The stand of the controlling group appears to be that Natarajan was required to return the shares, upon receipt of an aggregate sum along with an indemnity that recovery of the sums loaned to respondent Nos.1 to 5 would not be triggered. The controlling group takes the stand that while, indemnity bonds were received from Natarajan, he we .....

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litation, so formulated, required, inter alia, infusion of a sum of ₹ 60.00 Crores by the promoters. Lack of funds, led to the existing promoters introducing two new co-promoters in Binny Limited. The introduction of new co-promoters took place, in and about 1993. These new co-promoters, it appears, injected a sum of ₹ 60.00 Crores, in the form of equity and unsecured interest free loan, albeit, in equal half. In other words, ₹ 30.00 Crores was infused by way of equity, while, .....

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of assets and control of associated incorporated companies as well. The details with respect to which, perhaps, are not relevant for the adjudication of the instant case. 9.8. Suffice it to say, that Binny Limited came out of the purview of SICA in 2007. Furthermore, in 2007, SVG was incorporated. 9.9. Natarajan, however, continued to remain as the Director of Binny Limited, despite, the demerger. 10. Within three (3) years, that is, in 2010, once again, a split took place, which resulted in th .....

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of the demerger was that the controlling group, which was led by Ethiraj, retained 55% of shares in SVG. Similarly, Nandagopal and Venkatachalam and their constituents retained 55% shares in the other two companies. Natarajan and his constituents, on the other hand, held approximately, 19% equity stake in each of the three companies, i.e., Binny Limited, Binny Mills Limited and SVG. 10.3. In so far as the cross holdings of Ethiraj, Nandagopal and Venkatachalam and their constituents in the afore .....

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shares in all three companies, for a total sum of ₹ 50.00 Crores. 10.5. As indicated above, this attempt was, once again, made in December, 2013, at which point in time, the controlling group, via Ethiraj, seems to have indicated that he would purchase Natarajan's interest in SVG for a sum of ₹ 16.66 Crores, which was 1/3rd of ₹ 50.00 Crores, offered in 2007, for purchase of his interest, in all three companies, i.e., Binny Limited, Binny Mills Limited and SVG. 11. Be that .....

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ubject to approval of the shareholders: .... 1. Salary : Subject to a ceiling of ₹ 5 lakhs per annum 2. Perquisites: As detailed in the explanatory statement. RESOLVED FURTHER THAT the Board of Directors be and is hereby authorised to increase vary or amend the remuneration and other terms of the appointment from time to time provided that such revised remuneration shall also be in conformity with and within the ceiling of Part II under Section 2 of Schedule XIII to the Companies Act, 1956 .....

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Tax Rules, 1962. 2. XXXXX 3. XXXXX 4. XXXXX 5. XXXXX 6. XXXXX 7. XXXXX 8. XXXXX 9. XXXXX 11.2. Importantly, Natarajan, along with Mr.R.Narayanan (Narayanan), i.e., respondent No.10, who had been appointed as independent Director, were not present at the said meeting. 11.3. To be noted, at some point in time, Narayanan, who was Ex-Chairman of LIC, appears to have resigned from SVG. Since, no relief, in the instant appeals, is sought against him, he has been given up as a party in Company Appeal N .....

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Director, the board of directors at their meeting held on 01.09.2012. It was decided to appoint Mr.E.Shanmugam as Managing Director of the Company, subject to the consent at the general meeting of shareholders, for a period of 5 years with effect from 02.04.2012. The term of office/remuneration payable to the Managing Director by way of salary and perquisites (as given in annexure) are within the specified limits land down in Schedule XIII of the Companies Act, 1956. This may be treated as an ab .....

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ouse Rent allowance subject to a celling of 70% of his salary. The expenditure incurred by the Company on Water, Gas, Electricity and Furnishings will be evaluated as per Income Tax Rules, 1962. ...." 11.5. At the following BOD, held on 02.11.2012, the minutes of the previous meeting, convened on 01.09.2012, were approved. 12. As indicated herein above, it appears, that, since, the relationship between Natarajan and the controlling group was not on an even keel, in 2013, an attempt, accordi .....

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as a matter of fact, one of the independent directors, who is arrayed as a respondent in both the company appeals, i.e., Mr.Satyajit Prasad, was also to retire on the same date. I have mentioned this aspect, as a submission has been advanced on behalf of Natarajan that the principle of seniority ought to have been followed in deciding, who, out of the two (2), would retire from the BOD. 12.3. The record shows that two days before the AGM, vide letter dated 24.09.2014, Natarajan wrote a letter t .....

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to be crystallised into a written agreement. This, according to Natarajan, was necessary to remove any impediments that may be caused qua the generation, which was to follow him and Ethiraj. Thus, Natarajan suggested putting in place various measures, which would, according to him, concretise the understanding, which had obtained uptill then. 12.4. As to when Natarajan's letter reached Ethiraj is not discernible from the record - what did happen, though, was that the AGM convened for 26.09.2 .....

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llots, instead of through electronic means. Consequently, Natarajan ceased to remain the Director of SVG. 12.5. This action of the controlling group propelled Natarajan to institute Company Petition No.62 of 2014 in the CLB, albeit, via respondent Nos.1 to 6. The petition was filed on 18.10.2014. Though, interim orders were sought, the CLB declined to grant any interim orders and instead, called upon the appellants to file their reply to the Company Petition. 12.6. Respondent Nos.1 to 6, being a .....

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titions were preferred by respondent Nos.1 to 6, as well as, Natarajan. The Review Petitions met the same fate. The Review Petitions, were dismissed, on 18.12.2015. In the interregnum, respondent Nos.1 to 6 and Natarajan had preferred Special Leave Petitions (SLPs), against the order dated 27.04.2015, passed in Company Appeal Nos.13 and 14 of 2014. The SLPs were filed on 10.08.2015. Apparently, on 24.08.2015, when, the SLPs came up for hearing, the same were not pressed and instead, a direction .....

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this background, the impugned judgment and order dated 10.03.2016 came to be passed in C.P.No.62 of 2014, which has given rise to the instant Company Appeals and Cross Objection, to which I have made a reference at the very outset. SUBMISSIONS ADVANCED BY COUNSELS: 14. The arguments, on behalf of the controlling group, were advanced by Mr.P.S.Raman, Senior Advocate, assisted by Mr.T.K.Bhaskar, while on behalf of SVG, submissions were advanced by Mr.Arvind P.Datar, Senior Advocate, assisted by M .....

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15. Broadly, on behalf of both the appellants, the following was contended. (i) That the CLB had directed purchase of shares of respondent Nos.1 to 6, by the controlling group, even when it had found that there was no oppression of the minority shareholders or mismanagement in running the affairs of SVG. (ii) The grievance of Natarajan was, in substance, in the nature of a "directorial complaint", which was dressed up as an action for "oppression and mismanagement". Therefore .....

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e was in existence an S.N.group (i.e., S.Natarajan group), which was a co-promoter group along with the Venkatachalam group, the Nandagopal group and the controlling group. A perusal of the Scheme of demerger of 2010 would show that there was no S.N.group in existence. Furthermore, there is no reference to the S.N.group, even in the Articles of Association of SVG or, in any inter-se agreement executed between the contesting parties. The argument was that, there was, as a matter of fact, no such .....

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g parties regarding representation on the Board of SVG by a nominee of respondent Nos.1 to 6; that no fraud or malafides had been found in the controlling group casting their vote, albeit, against the resolution seeking reappointment of Natarajan, as the Director of SVG; that no findings of oppression of the minority shareholders had been returned and lastly, that no finding was returned as regards the allegation of diversion of funds. (vi) The CLB, contrary to the record, had found: that there .....

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; on BOD of SVG for his "advisory skills" and not on account of his abilities to manage the affairs of the said company. (viii) The CLB ought to have noted that neither did Natarajan hold any executive position nor was he part of any Committee of the Board, either, when, he became Director of Binny Limited or, later, when, he got on to the Board of SVG. (ix) The CLB ought to have ruled one way or the other qua the issue as to whether the votes cast by the controlling group, albeit via .....

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ee as a Director on the Board of SVG by applying proportional representation principle, having regard to their minority shareholding. The CLB erred in holding that respondent Nos.1 to 5 were entitled to representation on the Board of SVG, when, there was no pleading of legitimate expectation. (xi) The CLB erred in holding that there was an expectation of expression of mutual good faith and confidence between the contesting parties, merely because Natarajan was shown as a promoter at a point in t .....

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Affairs (in short "MCA"), clarifies how voting by electronic means has to take place. The said circular, which sets out, clearly, that provisions of Section 108 of Companies Act, 2013 (in short 2013 Act) read with Rule 20 of the Company (Management and Administration) Rules, 2014, (in short CMA Rules) are to be followed, seek to ensure wider shareholder participation in the decision making process, concerning the affairs of the companies. Therefore, voting, which is an inalienable rig .....

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idence of Shanmugam, Managing Director of SVG, was approved at the BOD Meeting held on 01.09.2012. The minutes of the BOD Meeting held on 01.09.2012 were approved at the subsequent meeting of the Board held on 02.11.2012, at which, Natarajan was present. The allegation of lack of transparency in dealing with the Boat Club Property is therefore, baseless. (xiii)(a) It was further contended that there was nothing on record to show that the use of the Boat Club Property by the Managing Director, pu .....

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Section 372A of the 1956 Act for advancement of loan and/or investment in associate entities/ companies was untenable. The allegation was tenuous, for the reason that not only is SVG a widely held, public listed company, but also that it has on its Board, at any given point in time, two or more independent Directors, who act as a watch dogs with regard to its affairs. (xiv)(a) There is, in fact, no prohibition in carrying out related- party transactions, albeit, after complying with the requisi .....

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3 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [in short SEBI (LODR)]. (xv) The CLB had erred in holding that there were disputes among the promoters and, hence, Binny Limited had to be demerged. There were no complaints lodged by respondent Nos.1 to 6 (except for pre-litigation correspondence), which could be said to be suggestive of the fact that there was oppression, or that, it was practically difficult to manage the affairs of SVG. The controlling group had ma .....

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re provided by Nandagopal, Ethiraj and Venkatachalam. Therefore, the claim of Natarajan that he had partnered the aforementioned persons in running the affairs of Binny Limited or other entities is false. Natarajan, neither exposed himself to any financial risk, nor, was he involved in the day-to-day management of SVG. 15.1. In support of the submissions advanced, reliance was placed on the following judgments: (i).In re : Godrej Industries Ltd., (2014) 184 Comp. Cas 441 (Bom); (ii).In cable Net .....

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V. Anugraha Jewellers Limited, 2004 (3) CTC 348 ; (viii).Suresh Kumar Sanghi V. Supreme Motors Ltd and Others, 1983 Comp. Cas 54 235 ; (ix).Public Prosecutor V. T.P.Khaitan and Others, AIR 1957 Mad, 4; (x).Shailesh Harilal Shah and Others V. Matushree Textiles Limited and Others, AIR 1944 Bom 20; (xi).Vardhman Dye-Stuff Industries Private Limited V. M.R.Shah, 2009 (149) Comp Cas 345 (Bom.); (xii).In Re. Astec (BSR) Plc., (1999) B.C.C. 59 ; (xiii).In Re. Blue Arrow Plc., (1987) 3 B.C.C. 618; (xiv .....

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de on behalf of the appellants. 16.1. In sum, Mr.Seshadri, submitted that no case for oppression and mismanagement was made out and, therefore, there was no cause for the CLB to grant the reliefs, which it did in Company Petition No.62 of 2014. 16.2. In particular, Mr.Seshadri, submitted that, the decision taken by the Board of SVG, to permit Shanmugam, to use the Boat Club Property as his residence, was in order. Furthermore, Mr.Seshadri submitted that the resolution passed, in consonance with .....

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his submissions, reliance was placed on the following judgments: (i).Sangramsinh P.Gaekwad and Others V. Shantadevi P.Gaekwad (Dead) thr. LRs and Others, AIR 2005 SC 809; (ii).Haraballay Sarma and Others V. Mohodar Sharma, AIR 1975 Gau 76 ; 17. Mr.Raghavan, senior Advocate, assisted by Mr.Anirudh Krishnan, on behalf of those who had filed Cross-Objections and respondent Nos.1 to 6 in Company Appeal Nos.3 and 4 of 2016, broadly, made the following submissions. 17.1. Learned senior counsel submit .....

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y Limited. These persons were always shown as promoters in all statutory filings, which included filings made with the Stock Exchange. 17.2. In so far as Natarajan was concerned, shares were held in Binny Limited via respondent Nos.1 to 6, and, accordingly, he was chosen as their nominee on the Board of Binny Limited. According to the learned counsel, the settlement/partition amongst those holding controlling interest in Binny Limited, after its demerger in 2004, took place with the sanction of .....

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ned three companies, albeit, separately, while Natarajan, via respondent Nos.1 to 6 held 19% shares, in each of the three companies. It was, thus, emphasised that the controlling group, on account of the 2010 demerger, acquired, approximately, 19% shares in SVG. Therefore, as per the Scheme, the properties of Binny Limited were split and segregated and, thereafter, vested in the aforementioned three companies, i.e., Binny Limited, SVG and Binny Mills Limited. It was further stressed that such sp .....

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ter demerger, Natarajan continued to be nominated on the BOD of SVG, as the representative of respondent Nos.1 to 6. 17.4. Thus, in sum, learned counsel contended that it is these facts, which the CLB took into account that persuaded it to come to a conclusion that there existed a relationship of probity, good faith and mutual confidence between the controlling group and Natarajan. 17.5. In so far as the failure of Natarajan to get reappointed at the AGM, held on 29.12.2016, was concerned, learn .....

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ntment of Natarajan, as the Director of SVG, had been successfully carried. 17.7. Learned counsel submitted that it is, only if, one were to take into account that part of the scrutiniser's report, which refers to paper ballot, would the resolution seeking reappointment of Natarajan, as the Director of SVG, be shown as having been failed. 17.8. Furthermore, learned counsel submitted that the evidence of mismanagement of the affairs of SVG was evident from two clear instances: First, the inst .....

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9. Both instances, according to the learned counsel, showed the propensity of the controlling group to run the affairs of SVG, contrary to its interest. 18. Learned counsel also emphasised the fact that the claim of the appellants that SVG was a widely held company was false to their own knowledge. For this purpose, reliance was placed upon the contents of the communication dated 22.03.2016 addressed by SVG to BSE. Notably, this communication was sent by SVG to BSE much after the passing of the .....

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sed, unless 75% of the shareholders voted in favour of the resolution. For appellants to cobble up 75% votes in favour of a special resolution would be a tough-ask, given the fact that there was a remote possibility of the controlling group, and Natarajan, who hold together, 74% of the shares in SVG, coming together on any issue. Moreover, what complicates matters is the fact that the balance 26% of the equity stake, which is in public domain, is dispersed amongst nearly 9,000 shareholders, maki .....

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ke in SVG, albeit, at a fair value, as in any case, the controlling group in the past had shown interest in purchasing their shares in SVG. As to how infrequently traded shares could be valued, reliance was placed by Mr.Raghavan, on Regulation 8(2)(e) of the Take over Regulations. To emphasize this point, the learned counsel submitted that during the previous 12 months, only 1.25% of the total value of the shares had been traded. 18.4. Learned counsel concluded by submitting that the impugned ju .....

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sdale, 1925 S.C. 311 AIR 197 (v). Ebrahimi v. Westbourne Galleries, 1973 AC 360 (vi). Hind Overseas Pvt. Ltd., v. Raghunath Prasad Juhunjhunwala and Anr., AIR 1976 SC 91 (vii). Needle Industries and Anr., v. Needle Industries Newey, AIR 1981 SC 743 (viii). Re Saul D Harrison & Sons plc. [1995] 1 BCLC 14 (ix). Kilpest Pvt., Ltd., & Ors v. Shekhar Mehra, [1996] 10 SCC 696 (x). ONeill v. Phillips, (1999) UKHL 24 (xi). Sangram Singh Gaekwad and ors. v. Shanta Devi P Gaekwad (Dead) an .....

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iii). Subash Hostimal Lodha v. Manikchand Promoters, (2007) 140 Comp Cas 512 (xix). Naginder Singh v. RS Infrastructure, (2007) 139 Comp Cas 246 (xx). K Muthusamy P DUrai v. S. Balasubramaniam & Ors., (2011) 167 Comp Cas (167) (Mad) (xxi). Maharastra Power Development Corporation v. Dabhol Power & Ors., (2003) 117 Comp Cas 506 (Bom) (xxii). PIK Securities (P) Ltd v. Union Western Bank Ltd., (2001) 4 Com LJ 81 (xxiii). Micromeritcs Engineers Pvt. Ltd., v. S. Munusamy, MANU/TN/0844 .....

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ivir Chand (1989) 1 SCC 264 (xxxi).Taylor v. Taylor (1875) 1 CH.D 426 (xxxii).Babu Verghese & Ors v. Bar Council of Kerala and Ors. (1999) 3 SCC 462 (xxxiii).MP Wakf Board v. Subhasa (2006) 10 SCC 696 19. Mr.Murari, Senior Advocate, who appeared for Natarajan, largely, supported the submissions advanced by Mr.Raghavan. It was Mr.Murari's endeavour to demonstrate that Natarajan was in fact, a promoter - Director of Binny Limited and, therefore, continued to get appointed to the Board of t .....

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the submissions of Mr.P.S.Raman, made the following arguments: (i) The direction issued by the CLB to purchase the shares of respondents No.1 to 6 was not called for, in view of the findings rendered in the impugned judgment that this was not a case of quasi-partnership. (ii) In the absence of any real and substantial deadlock, the CLB could not have directed either the controlling group or, SVG to purchase the subject shares. Furthermore, Mr.Datar, as indicated in my narration above, laid grea .....

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to have granted, inter alia, the relief of purchase of shares of respondent Nos.1 to 6. 22.1. While respondent Nos.1 to 6 in their Cross Objections, have defended most of the findings and the conclusion reached by the CLB, they have by way of abundant caution, assailed some findings of the CLB, to which, a reference is made hereafter : 22.2. The Cross Objections, broadly, assails the following aspects of the impugned judgment: (i) The CLB has wrongly concluded that SVG was not a quasi-partnersh .....

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the right to make use of the Boat Club Property as his residence, it ought to have invalidated the actions taken pursuant thereto, in consonance with the provisions of Section 299 and 300 of the 1956 Act. (iv) The CLB erred in treating the defect as curable by directing the appellants to have the defect removed by having a resolution passed by the shareholders to ratify the transaction. Since, the resolution was fundamentally flawed, the CLB could not have permitted the appellants to cure the s .....

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st by the controlling group, in the resolution, granting Shanmugam, the right to use the Boat Club Property as his residence. (c) Deliberate misstatement to the public shareholders that the BOD had approved appointment of Shanmugam as the Managing Director. (d) Deliberate suppression in the notice convening the AGM of 29.09.2012, wherein, particulars of the Boat Club Property were not provided. The public shareholders were, thus, according to the objectors, kept completely in the dark. 22.3. Acc .....

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effect from 01.09.2012, as stipulated in Section 283(1)(i) of the Companies Act, 1956. (iv) Direct that Respondent No.11 be reinstated as a Director of the 7th Respondent Company till such time as the shares of these Respondents are purchased in the manner set out in the order....." 23. In the background of the aforesaid broad facts and submissions made by the counsels and upon perusal of the records, several issues arise for consideration. I intend to deal with each these issues separately .....

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have decided to discuss the more significant judgments, where, the principles of law have been enunciated and those which have been followed by Courts repeatedly, only to avoid an overload of case law. 24.2. Significantly, the law on the subject involving use of a just and equitable principle has received the attention of Courts, both in Indian and other jurisdictions over a span of 100 years or more. 25. In India, more often than not, the judgments of the English Courts are cited, while dealin .....

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(f) of Section 433 of the 1956 Act as well as in clause (b), sub-section (2) of Section 397 of 1956 Act is the judgment in In Re Yenidje Tobacco Company Ltd. - [1916] 2 Ch 426. 25.1. This was a case, where two (2) persons decided to amalgamate their business to form a private limited company; they were the only shareholders and Directors in the Private Limited Company. Under the Articles of Association, each person had equal voting powers and, one, Director could form a quorum. Importantly, the .....

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of fact, the argument of the defendant was that, since, the Articles of Association provided for arbitration, there was, in fact, no deadlock in the running of the company. 25.3. A careful reading of the judgment would demonstrate that the Court ordered winding up of the company on account of the fact that the business of the company, which was being run in the guise of a Private Limited Company, was in fact, a partnership and, since, the two Directors/shareholders were constantly quarreling, w .....

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hich ought to go directly from one to the other. ........ Certainly, having regard to the fact that the only two directors will not speak to each other, and no business which deserves the name of business in the affairs of the company can be carried on, I think the company should not be allowed to continue. I have treated it as a partnership, and under the Partnership Act of course the application for a dissolution would take the form of an action; but this is not a partnership strictly, it is n .....

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apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed and which ought to be terminated as soon as possible. We are told that we ought not to do it because the company is prosperous, making large profits, rather larger profits than before the disputes became so acute. I think one's knowledge of what one sees in the streets is sufficient to account for that, having .....

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ch, dealt with this principle, albeit, in the context of a Public Limited Company is : Loch V. John Blackwoods Ltd. [1924] AC 783. 26.1. In this case, the concerned company was registered in Barbados. It appears, one Mr.John Blackwood established an engineering business in Barbados and carried on the same until his death in January, 1904. Under the provisions of his will, his estate was to be divided amongst the beneficiaries named therein. Furthermore, authority was given to the trustees to str .....

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] 2 Ch 426 and treated the Public Company as one, which was practically a family concern. The principles of quasi-partnership were applied to the company, and accordingly, the just and equitable clause was used to order its winding up. 27. This principle was also applied in the case of : Thomson v. Drysdale 1925 S.C. 311. 27.1. This was a case , where a private company was formed to run a motor transport services by two (2) persons with a nominal capital of 2,000 pounds divided into shares of on .....

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tion, which was consummated with allocation of 1500 shares. Differences arose between the two (2) shareholders. The shareholder, who was the Secretary and Managing Director, decided to terminate his relationship with the other shareholder. The other shareholder treated this statement as a formal resignation and, accordingly, took control of the company. The holder of the single share moved the Court for winding up, which was defended by the holder of 1501 shares. The Court granted the prayer, ma .....

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old a preponderating interest in a company make it manifest that they intend to set at naught the security provided by company procedure, and to treat the company and its affairs as if they were their own property, it is impossible that the minority should retain any confidence in the impartiality or probity of the company's administration, and - according to the circumstances of each particular case - it becomes a question whether the minority are not entitled, as a matter of "justice .....

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ents made in the directors' minutes I assume he could but also to acquire for himself the petitioner's touring business (for which the company had never paid a single penny) is a very different matter. In any case, he never attempted to use his voting power in the only legitimate way. The principles governing the application of the just and equitable remedy provided by Section 129 have recently been illustrated by the case of Baird V. Less, 1924 S.C. 83, in this Court, and by the case of .....

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that it is his duty to use his voting power in the interests of the company as a whole, and that he must not ignore the interests of the other shareholder or treat the company and its asset as if they were his own private property. Further, he must avoid acting in such a way as might reasonably be held to make it impossible for the other shareholder to co-operate with him in the management of the company. Upon the admitted facts I think that it appears that the respondent has abused his positio .....

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t the company should be wound up. (emphasis is mine) 28. The other most frequently cited case is, the judgment of the House of Lords rendered in : Ebrahimi V. Westbourne Galleries Limited and others, 1973 A.C. 360. 28.1. This was a case, where, one Mr.Nazar, who carried on the business of dealing in Persian and other carpets, formed a private limited company with a person by the name : Mr.Ebrahimi. Consequently, Mr.Nazar and Mr.Ebrahimi were the first Directors of the company, with equal shareho .....

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rom the office of the Director. Though the resolution was effective and valid in law, a petition was filed by Mr.Ebrahimi, seeking the following reliefs : that his shares be purchased by the senior Mr.Nazar and his son, or, in the alternative, the company be wound up under the just and equitable clause. The Plowman, J. allowed the alternative relief, which was, to wind up the company. 28.3. The Court of Appeal, however, reversed the judgment, by holding, inter alia, that, if the majority shareho .....

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onable man could think that the removal was in the interest of the company. 28.4. Being aggrieved, Mr.Ebrahimi approached the House of Lords. The House of Lords allowed his appeal. While doing so, the House of Lords, made several seminal observations. The observations made, being apposite to the facts arising in the instant case, are extracted hereafter, as one cannot encapsulate the law better than that, which is enunciated in the opinion of the Lord Wilberforce : "..... My Lords, in my op .....

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in company law for recognition of the fact that behind it or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable&quo .....

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impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or .....

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t in the company - so that if confidence is lost, or one members is removed from management, he cannot take out his stake and go elsewhere. It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to "quasi-partnerships" or "in substance partnerships" may be convenient but may also be confusing. It may be convenient because it is the la .....

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the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in. My Lords, this is an expulsion case, and I must briefly justify the application in such cases of .....

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(compare In re Wondoflex Textiles Pty. Ltd. [1951] V.L.R. 458). And quite apart from removal powers, there are normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways a particular director-member may find himself no longer a director through removal, or non-re-election: this situation he must normally accept, unless he undertakes the burden of proving fraud or mala fides. The ju .....

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ion from management (see Const V. Harris [1824] Tur. & Rus. 496, 525) even where under the partnership agreement there is a power of expulsion (see Blisset V. Daniel [1853] 10 Hare 493; Lindley on Partnership, 13th ed. (1971), pp. 331, 595). ....." (emphasis is mine) 29. The next case, to which, one would like to make a reference, is the judgment of the Supreme Court in Hind Overseas Private Limited V. Raghunath Prasad Jhunjhunwalla and Another, [1976] 46 Comp Cases 91 (SC). 29.1. This .....

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alia, considered the judgements of the English Court in Yenidje Tobacco Co. Ltd. (1916) 2 Ch 426, and Ebrahimi V. Westbourne Galleries Ltd., 1973 A.C. 360, whereupon, the Court, broadly, observed that the Indian Courts should fashion the law in a manner, which suits the conditions and circumstances prevailing in the Indian society and one of these being : that the general interest of the shareholders should not be readily sacrificed at the alter of squabbles of the Directors connected with powe .....

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lock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there 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 if 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. On the alleg .....

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inflexible formula. 34. In an application of this type allegations in the petition are of primary importance. A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders o .....

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ion, the Court noted that one person, who was an outsider (as in an employee of the one of the persons involved in the dispute), was inducted into the company. This, according to the Court, railed against the idea of a partnership, which gives preeminence to equal status amongst partners. Furthermore, the Court also noted that the person, who had filed the winding up petition served as an employee on a monthly salary, and therefore, was not enjoying a equal partner's freedom and prestige. Th .....

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thers V. Shekhar Mehra, (1996) 10 SCC 696, but was also relied upon by the appellants to advance their submissions that no case of quasi-partnership was made out in the instant matter. 30. The judgment rendered by the Supreme Court in Hind Overseas Private Limited (cited supra), which was delivered by a Three-Judge Bench, was followed by another significant judgment of the Supreme Court in Needle Industries and another V. Needle Industries Newey (India) Holdings Limited, AIR 1981 SC 743. Interes .....

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h is unfair to him and had caused prejudice to him in the exercise of his legal and proprietary rights as a shareholder. The Court noted the observations of the Gujarat High Court in Sheth Mohanlal Ganpatram V. Shri Sayaji Jubilee Cotton & Jute Mills Co., [1964] 34 Comp Cas 777, and that of English Court in Elder V. Elder and Watson [1952] SC 49, and made the following observations : "...... The question sometimes arises as to whether an action in contravention of law is per se oppressi .....

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son [1952] SC 49 : "The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances .....

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llegality of an action does not bear upon its oppressiveness. ...." (emphasis is mine) 30.2. It may be relevant to note that the Three-Judge Bench in Needle Industries case (cited supra), even while it sustained the decision to dismiss the company petition, which had been taken by the Single Judge, directed the Indian shareholders to buy out the shares held by the holding company in the Indian company, at a fair value, in order to do substantial justice between the parties. 31. The next jud .....

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The Articles of Association of the company, which provided for the management of its business by Dubey and Mehra for life with equal remuneration, were altered and the post of Joint Managing Director was abolished. In the interregnum, one, Mr.Mishra was inducted as an Additional Director. At a Board meeting convened by the company, it was resolved that Mehra ceased to be a Director. Mehra, being aggrieved by the fact that the : Articles of Association, had been altered, additional shares had be .....

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d the matter was remanded for fresh consideration. 31.3. On remand, the learned Company Judge dismissed the petition, whereupon, once again, Mehra filed an appeal with the Division Bench. The Division Bench came to the conclusion that no ground for winding up was made out under the 'just and equitable' clause. Furthermore, the Court, having regard to the powers vested upon it under Section 402 of the 1956 Act, directed Mehra be appointed as the Director of the company. In addition theret .....

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were made by the Court in paragraphs 11 and 12 : "..... 11. 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 bid 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. Having regard to the wide powers under Section 402, very rarely would it be necessary to wi .....

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substance; and we may say immediately that we have perused the report filed by the Registrar of Companies which shows that no substance was, ultimately, found therein. We agree with the Division Bench that this was no case for winding up the company and must dismiss the appeal filed by Mehra. ....." (emphasis is mine) 31.5. The point to be noted is that, while relief of winding up was denied on the ground that it was not a quasi-partnership, the powers available under Section 402 of the 19 .....

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ffairs of the company have been conducted in a manner, which is unfairly prejudicial to the interests of its members generally, or some of its members. Based on the action, if, the Court is satisfied with regard to its merits, it is empowered to grant such orders as it thinks fit under Section 461(1) of the very same Act, for giving relief in respect of the matters complained of. One of the powers, that is available to the Court is, to direct purchase of the petitioner's shares by other memb .....

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dicated to Neill that he would be allowed to draw 50% of the profits. At some stage, during the course of business, it was further indicated by Mr.Phillips, that Mr.Neill would be allotted additional shares. It appears that Mr.Phillips, at some point in time, decided to retire from the day-to-day affairs of the company, leaving Mr.Neill, in effect, as its sole Director. In effect, Mr.Neill was the Managing Director of the company. 32.3. While, the business environment was good, Mr.Neill appeared .....

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him on his 25% shareholding in the company. 32.4. This propelled Mr.Neill to file a petition under Section 459. The petition was dismissed; a decision, which was reversed by the Court of Appeal. The House of Lords, in turn, reversed the same. 32.5. It must be noticed that at some stage, prior to the filing of the petition, Mr.Phillips had offered to purchase the shares of Mr.O'Neill; an offer, which he rejected. One of the reasons that the offer was rejected by Mr.O'Neill was that it mad .....

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s upon the exercise of powers under the articles. They were (1) an association formed or continued on the basis of a personal relationship involving mutual confidence, (2) an understanding that all, or some, of the shareholders shall participate in the conduct of the business and (3) restrictions on the transfer of shares, so that a member cannot take out his stake and go elsewhere. I agree. It follows that it would have been unfair of Mr. Phillips to use his voting powers under the articles to .....

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which otherwise is used more frequently, in the domain of public law, in the following manner : ".... 6. Legitimate expectations. In In re Saul D. Harrison & Sons Plc. [1995] 1 B.C.L.C. 14, 19, I used the term "legitimate expectation," borrowed from public law, as a label for the "correlative right" to which a relationship between company members may give rise in a case when, on equitable principles, it would be regarded as unfair for a majority to exercise a power c .....

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emove his capital upon reasonable terms. The aggrieved member could be said to have had a "legitimate expectation" that he would be able to participate in the management or withdraw from the company. It was probably a mistake to use this term, as it usually is when one introduces a new label to describe a concept which is already sufficiently defined in other terms. In saying that it was "correlative" to the equitable restraint, I meant that it could exist only when equitable .....

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rt in the more recent judgment rendered in Sangram Singh Gaekwad and Others V. Shanta Devi P. Gaekwad (dead) and Others, [2005] 123 Comp. Cases 566 (SC), after examining the length and breadth of the law on the subject, reiterated the view taken by the Court in Needle Industries. The Court, in so far as the decision in Kilpest case was concerned, made the following observations : ..... 242. Kilpest Pvt. Ltd. And Ors V. Shekhar Mehra, (1996) 10 SCC 696, whereupon Mr.Desai placed strong reliance, .....

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t be held to be correct as a bare proposition of law, as was urged by Mr.Desai, being contrary to a larger Bench judgements of this Court and in particular Needle industries (supra). It is, however, one thing to say that for the purpose of dealing with an application under Section 397 of the Companies Act, the court would not easily accept the plea of quasi-partnership but as has been held in Needle Industries (supra), the true character of the company and other relevant factors shall be conside .....

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97 and 398 of the 1956 Act. Even though, CLB, held that no case of mala fide or oppression is made out, it opined that there existed deadlock in the affairs of the company, and therefore, the appellant should purchase the shares of the respondent No.1 at a value to be determined by a chartered valuer. An appeal made to the Division Bench of this Court did not succeed. Consequently, the appellant approached the Supreme Court for reversal of the judgment of the Division Bench, which sustained the .....

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ng parties, and thus, if, the situation so demands order purchase of shares of the minority group. 34.2. Furthermore, the Court, as indicated above, reiterated its view that the decision in Kilpest Private Limited (cited supra), ran counter to Needle Industries. (See paragraphs 15 and 16 of the Judgment). ISSUE NO.1: 35. The first and foremost issue, which arises for consideration is: Was Natarajan a mere adviser, as contended by the appellants. 35.1. For this purpose, one would have to bear in .....

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es in Binny Limited, which, at that point in time, was, in the true sense, a widely held Public Limited Company. As a matter of fact, representatives of banks and financial institution had their nominees on its Board. 35.2. Admittedly, in June 1987/January, 1988, Natarajan was, for the first time, appointed as the Director of Binny Limited. In 1993, the net worth of Binny Limited got eroded. Consequently, in and about 1994, a rehabilitation scheme was sanctioned with the help of new co-promoters .....

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hat to the world at large, Natarajan along with other main protagonist was represented as the promoter-Director of Binny Limited is evident from the extract of its own document put in public domain: "DETAILS OF DIRECTORS RETIRING BY ROTATION AND SEEKING REAPPOINTMENT (In pursuance of clause 49 of the Listing Agreement) Name of the Director : i) Mr.V.R.Venkataachalam is one of the Promoter Directors of the company with effect from 11.01.1988, aged 44 years. A graduate in Arts and possess vas .....

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.V.R.Venkatachalam is not a Member of any Committee of the Company. ii) Mr.S.Natarajan is one of the Promoter Directors of the Company with effect from 11.01.1988, aged 57 years and is a graduate in Commerce and a Practicing Chartered Accountant since 1975 and also Director in many leading Companies with the industrial experience in the field of financial restructuring, accounts, etc. Name of the Company Position held XXXXX XXXXX Mr.S.Natarajan is a Member of Audit committee and Share Transfer C .....

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60.00 Crores via its promoters, in order to have a rehabilitation Scheme sanctioned by the said authority. The said sum of ₹ 60.00 Crores was found and was sourced to the new promoters. The said funds were provided in the form of equity and loan in equal measure. Consequently, Binny Limited, with truncated assets, came under the sway/control of Messrs.Ethiraj, Venkatachalam (S/o.Late Ramasamy), Nandagopal and Natarajan. The re-structured board continued with Natarajan as one of its Directo .....

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sulting Company No.2). Pertinently, Binny Limited came under the control of the Nandagopal group, SVG came under the sway of Ethiraj group and Binny Mills Limited came to be controlled by the Venkatachalam group. Natarajan, however, enjoyed a unique portion; he, via his constituents, not only held shares in all three companies, but also, had representation on their Board. Natarajan was co-opted on the Board of all three companies, including SVG. 36.3. In so far as the three groups described abov .....

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y, was appointed as a Director in SVG. The facts are not denied by the appellants. 36.4. As a matter of fact, in the information memorandum published by SVG, the following particulars of the Board were reflected INFORMATION MEMORANDUM S V GLOBAL MILL LIMITED Board : The Board of Directors of the Company constitutes of 1. Mr.M.Ethurajan Promoter Non-Executive Director 2. Mr.M.E.Shanmugam Promoter Non-Executive Director 3. Mr.R.Narayanan Independent, Non-Executive Director 4. Justice Mr.S.Jagadesa .....

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ts of March, 2011, March, 2012 and March, 2013 and March, 2014. 37. The question, therefore, is, as to whether the stand taken by the controlling group, that Natarajan was a mere adviser, is correct. The material placed before me, substantiates the fact that the preponderant probability, is that, Natarajan was not a mere adviser. Natarajan, right from 1987, seems to have played a role in the acquisition of controlling interest in Binny Limited and, thereafter, participated in the process, whereb .....

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hiraj and Shanmugam as "Promoters-cum-Non-Executive Directors", as well. This holds true even for the independent Directors, i.e., Narayanan and Satyajit Prasad. 38.1. Therefore, if, Natarajan was only an adviser and, by this, I gather that he was a Chartered Accountant, who was engaged only to give professional advice, in the ordinary and the usual course of events, he would have normally asked and be paid professional fee and nothing more. In this case, Natarajan continued to hold an .....

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ector" or, "Non-Executive Director" has not been defined, either in the 1956 Act or in the 2013 Act. However, under the Companies (Specification of definitions, details) Rules, 2014, the Executive Director has been defined; to mean, a Whole time Director, as defined in the Act. The Act herein would be the 2013 Act. 38.3. Section 2(94) of the 2013 Act provides that a Whole time Director includes a Director in whole time employment of the company. Therefore, an Executive Director wo .....

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lved in the policy formulation of the company, which also enabled him to protect his investment in SVG, which was routed via respondents No.1 to 6. Furthermore, the record also depicts contrary to what was argued by the appellants that Natarajan was a member of two crucial Committees, i.e., The Audit Committee and Share Transfer Committee. 38.5. Therefore, the argument advanced on behalf of the appellants that, since, Natarajan was a Non-Executive Director and hence, by necessary implication, an .....

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his reappointment was nixed by the controlling group, at an AGM held on that day, would show his deep and pervasive involvement with the affairs of SVG. 38.7. Ordinarily, a business "partnership" would involve a venture concerning two or more persons who decide to participate in its working, to share its benefits and risks. The fact that in the instant case, the co-venture involved acquiring a corporate entity (i.e., Binny Limited) and running the same, would give to it a colour of a .....

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tanding arrived at amongst co-venturers. The fact that one person/or block has taken less risk as against the other does not necessarily work against the concept of partnership or quasi-partnership. Therefore, the argument of the appellants that Natarajan take any exposure in the form of financial liability does not, in the facts of this case, advance the cause of the appellants. 38.8. I must indicate herein that during the course of arguments, it was sought to be suggested that Natarajan was sh .....

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ace amongst persons, who were not part of the promoter group, the Take Over Code of SEBI would kick in, compelling the acquirer of Natarajan's interest to make a public offer. In my view, this submission is completely untenable for the reason that right from the time, i.e., 1987-1988, when, Natarajan came on to the Board of Binny Limited, the equity stake held by him, via respondents No.1 to 6, was shown under the head "Promoters". Even according to the appellants, the attempts at .....

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to be made, with which, I do not think that the appellants would want to quarrel, then, it cannot be argued, at this stage, by the appellants that Natarajan was never the part of the promoter group. The controlling group, I would assume, did not wish to violate any provisions of law, and, therefore, if, shares of Natarajan were intended to be acquired in 2007 or 2013, they were well and truly shares, which qualified to be classified as promoter shares. This state of affairs appears to be in lin .....

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udian slip. Issue No.2: 40. Is SVG a widely held company, to which, the principle of quasi-partnership cannot apply? 40.1. In respect of this issue, let me deal with the factual aspects, having touched upon the law in the earlier part of my discussion. 40.2. First and foremost, there is no denial that SVG has public shareholding of 26%, comprising of approximately 9014 shareholders. It has been contended by respondent Nos.1 to 6, that the shares held by public at large, are not concentrated in o .....

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mpany incorporated under the Companies Act, 1956, as a result of the demerger sanctioned by the Madras High Court of the erstwhile M/s.Binny Mills Limited. The Company is a closely held Company, with the Promoters holding 74.79% and resident Individuals holding approximately 15.18%. (Emphasis is mine) 40.3. As is evident, despite public shareholding, SVG itself has taken a stand that it is a closely held company. In so far as the trading of its shares on Stock Exchange is concerned, the Nataraja .....

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llants that the said principle could never apply to a public limited company. While, I will be dealing with other aspects of the relationship subsisting between contesting parties as well, to demonstrate as to why I am of the view that the principle of quasi-partnership would apply in this case, suffice it to say, to my mind, there is no limitation in law that the principle of quasi-partnership cannot apply to a listed company, if, the facts and circumstances so demand. There are several compani .....

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enefit of perusing the communication dated 26.03.2016, which was placed before this Court, to which, I have made a reference above. The appellants, i.e., controlling group has not disputed, either the existence or the contents of the said communication. Issue No.3: 41. This brings me to the other issue, as to whether the existence of a deadlock is a necessary ingredient for triggering the principle of quasi-partnership. 41.1. The CLB, in the impugned judgment, has described the circumstances obt .....

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ple of quasi-partnership comes into play in an action preferred under Section 397 and 398 of the 1956 Act, via the provisions contained in clause (b) of sub-section (2) of the very same Section. Sub-section (1) of Section 397 vests a right in any member of a company, who carries a grievance with regard to the manner in which, the affairs of the company are conducted to institute an action. The grievance, in this behalf, could be that the affairs of the company, are run, either in the manner prej .....

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, in fact, being conducted in a manner prejudicial to public interest or in a manner oppressive to any of its member or members. Clause (b) of sub-Section (2) of Section 397 further requires the CLB to make a determination, to the effect, that the facts and circumstances justify passing a winding up order qua the company, on the ground that it is just and equitable to do so, and that, the only reason it would not do so, would be, that, it could unfairly prejudice such member or members, who woul .....

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t, a shareholder is unable to liquidate his stake in the company. (See : Ebrahimi V. Westbourne Galleries Ltd.). 41.6. These are situations, which give rise equitable considerations, and would, thus, require legal rights to align with equity. Thus, the principle of "quasi-partnership", or "in substance partnership" comes into play via the "just and equitable" clause found in Section 397(2)(b) of the 1956 Act, as the concepts of probity, good faith and mutual confide .....

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not, as if, where, there is no deadlock in the shareholding or management, the concerned forum cannot come to the conclusion that it would be just and equitable to wind up the company, for other good, sound and justiciable reasons, and that, the said course of winding up is not adopted only for the reason that it would unfairly prejudice the member or members, who have instituted an action under Section 397 of the Act. 41.8. Furthermore, as rightly submitted on behalf of the Natarajan block tha .....

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al deadlock' one would tend to agree with the CLB that given the relationship between the contesting blocks of shareholders, there could arise situations, where impediments may emerge, which may ultimately impact the smooth functioning of SVG. Issue No.4: 42. Whether the casting of paper ballots by the controlling group at the AGM held on 26.09.2014, was proper and valid in the eyes of law ? 42.1. In this context, one would have to bear in mind that prior to the convening of AGM of 26.09.201 .....

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g to be conducted at the said AGM. Accordingly, the Board appointed one Mr.R.Kannan, Company Secretary, as the scrutiniser for the purpose of conducting e-voting. 42.2. The notice, which was sent to the members, in respect of the AGM to be held on 26.09.2014, amongst other business, placed for consideration of the members, two (2) crucial resolutions : first to appoint a Director, in the place of Ethiraj, who retired by rotation and being eligible, had offered himself for re-appointment; and, se .....

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h Rule 20 of the Companies (Management and Administration) Rules, 2014, the Company is offering e-voting facility to its members in respect of the business to be transacted at the AGM scheduled to be held on Friday, September 26, 2014 at 10.00 a.m. with a request to follow the instructions for voting electronically as under :- The voting period begins on 20th September, 2014 at 9 a.m. and ends on 22nd September, 2014 at 6.00 p.m. During this period the shareholders of the Company, holding shares .....

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nt Nos.1 to 6 voted via electronic means, the controlling group cast paper ballots. Accordingly, the Scrutiniser rendered a report, which revealed that the resolutions, concerning reappointment of Ethiraj and Natarajan as Directors of SVG qua which votes had been cast via electronic means had been carried. However, the report further indicated that the result of the paper balloting was to the contrary, in respect of the resolution concerning reappointment of Natarajan, as the Director. There is .....

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s of law could not be read in a manner, which would result in taking away, what is termed as an inalienable right of the member/shareholder to cast his or her vote at the General Meeting. 43. I may only indicate that CLB has not categorically ruled on the issue. Therefore, it may be important to note, in this connection, certain provisions of law. 43.1. Section 107 of the 2013 Act, inter alia, provides that, at any General Meeting, resolution put to vote shall be decided by show of hands, unless .....

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declaration of the result of voting, on a resolution by show of hands. 43.2. As a matter of fact, in exercise of powers, so conferred and in consonance with the provisions of Section 108, the Central Government has notified the CMA Rules. Sub-rule (1) of Rule 20 of CMA Rules compels every listed company, having not less than 1000 shareholders, to provide to its members facility to exercise their right to vote at the general meetings via electronic means. It appears that by notification dated 19. .....

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hat even SEBI, via circular dated 17.04.2014, had revised Clause 35B and 49 of the Equity Listing Agreement (in short 'the Listing Agreement'). This step was a precursor to Regulation 44 of SEBI (LODR) Regulations, which were notified on 02.09.2015. 43.4. The amended Clause 35B, mandated provisioning of e-voting facilities by all listed companies, to its shareholders, in respect of all shareholders' resolutions, which were to be passed at general meetings or via postal ballot. Given .....

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4. The said Circular also carried certain clarifications associated with e-voting. For purpose of the instant matter, the relevant clarifications contained in clauses (1), (2), (6) and (7) are set out hereafter : "(i) Show of hands not to be allowed in case of e-voting:- In view of clear provisions of section 107, voting by show of hands would not be allowable in cases where rule 20 of Companies (Management and Administration) Rules, 2014 is applicable. (ii) Participation in the general mee .....

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reholders (of a company covered under rule 20) who are present in the general meeting. It is hereby clarified that since voting through e-means would be on the basis of proportion of share in the paid-up capital or 'one-share one-vote', the Chairperson of the meeting shall regulate the meeting accordingly. (vii) Applying rule 20 voluntarily :- Stakeholders have referred to words 'A company which opts to' appearing in rule 20(3) and have raised a query whether rule 20 is applicabl .....

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uot; (emphasis is mine) 43.6. A perusal of the said clarifications, extracted above, would show that a person, who had voted via e-voting mechanism, could not vote again, after having cast his vote by such means even while, there is no bar to his physical participation in the general meeting. Furthermore, a company, though, not obliged to, voluntarily opts for e-voting, under Rule 20 of the CMA Rules, it would have to follow to the 'T' the entire procedure prescribed therein. This was co .....

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ement, that it is the Company's obligation to ensure that shareholders have the opportunity to participate effectively and, vote in general shareholder meetings. In other words, as indicated above, it is submitted on behalf of the appellants that, voting being an inalienable part of the shareholder's rights, it could not be emasculated by preventing paper ballot voting at the AGM, held on 26.09.2014, when, admittedly, they formed the controlling group and had not cast their vote electron .....

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via a notice that in respect of the business to be transacted at the AGM held on 26.09.2014, it offered voting by electronic means. This offer had been made, as indicated above, based on the provisions of Section 108 of the 2013 Act read with Rule 20 of the CMA Rules, because of which, SEBI had amended clause 35B of its Listing Agreement. 44.1. The General Circular No.20/201 dated 17.06.2014, issued by MCA, merely indicated that the provisions of Section 108 of the 2013 Act read with Rule 20 of .....

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ered at the AGM convened on 26.09.2016, would be vested upon via electronic means. Therefore, once that intimation had been given by SVG upon exercising the option of electronic voting, in my view, no shareholder could, thereafter, have acted in a manner contrary to what had been indicated in the notice convening the AGM. 44.3. What makes it more disconcerting is the fact that the deviation in the manner of voting was brought about by none other than the Chairman and the Managing Director of SVG .....

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The controlling group chose to break the regime set forth for casting votes; a regime, which was put in place after a decision in that behalf was taken at the BOD meeting held on 04.08.2014, of which, they were a part, and hence, could blame no one else, but themselves. 44.4. As to the argument, which is that, the result would be no different, if, the controlling group were to cast their vote electronically, is, to my mind, not an argument, which has its foundation in law, but is one, which reek .....

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realities and strategic pursuits, control and corporate goals. Suffice it to say that in so far as this aspect of the matter is concerned, the controlling group was, clearly, in the wrong in casting their vote in the manner, which was contrary to the procedure prescribed by SVG qua one and all. ISSUE NO.:5 45. This brings me to the other aspect, which is whether the decision taken to permit Mr.Shanmugam to use Boat Club Property as his residence was right. 45.1. In this behalf, one notices that .....

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mendment to or enactment thereof) and consent of the members of the Company be and is hereby accorded to the appointment of Mr.E.Shanmugam, as Managing Director for a period of five years with effect from 02.04.2012 upon the terms and conditions as set out below : 1. Salary : Subject to a ceiling of ₹ 5 lakhs per annum 2. Perquisites: As detailed in the explanatory statement. RESOLVED FURTHER THAT the Board of Directors be and is hereby authorised to increase vary or amend the remuneration .....

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capital of our company, subsequent to demerger and relevant provisions of Section 269 of the Companies Act, 1956, requiring appointment of a Managing Director, the board of directors at their meeting held on 01.09.2012. It was decided to appoint Mr.E.Shanmugam as Managing Director of the Company, subject to the consent at the general meeting of shareholders, for a period of 5 years with effect from 02.04.2012. The term of office/remuneration payable to the Managing Director by way of salary and .....

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the company with amenities including Water, Gas, Electricity and Furnishings. If no accommodation is provided, the Managing Director is entitled to House Rent allowance subject to a celling of 70% of his salary. The expenditure incurred by the Company on Water, Gas, Electricity and Furnishings will be evaluated as per Income Tax Rules, 1962. ....." (emphasis is mine) 45.3. It is pertinent to note that the said BOD Meeting was attended by both Ethiraj and Shanmugam and, Satyajit Prasad, one .....

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am, should be given use of furnished accommodation, "owned" or, "leased" by SVG with attendant facilities, such as, water, gas, electricity and furnishings. The BOD, further indicated that, if no accommodation was provided, then, Mr.Shanmugam, would be entitled to a house rent allowance, subject to a ceiling of 70% of the salary. At the very same meeting, the BOD also took a decision to convene an AGM on 29.09.2012. 45.5. The draft notice for convening the said AGM was approv .....

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n the terms indicated above, was carried at the AGM, held on 29.09.2012. This is, clearly, discernible from the BOD Meeting held on 02.11.2012. At this meeting, Natarajan was present. Apart from Ethiraj and Shanmugam, Satyajit Prasad, one of the independent Directors, was also present. 45.6. The BOD, at this meeting, confirmed the minutes of its earlier meeting dated 01.09.2012 as well as took on record, the minutes of AGM held on 29.09.2012. 45.7. The aforesaid facts bring out the following: (i .....

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and the minutes of the AGM held on 29.09.2012, were taken on record. 45.8. The appellants, however, argue that there was no infraction of law as what was placed before the members/shareholders for approval was the proposal that the company, i.e., SVG would provide, by way of perk, a fully furnished house to its Managing Director, which could be a property owned or leased by it. Furthermore, if, no such accommodation was provided, then, the Managing Director would be entitled to a house rent allo .....

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d on 01.09.2012, failed to make a complete disclosure as to the property, which SVG, intended to give for use to its Managing Director. To that extent, the independent Director on the Board, i.e., Satyajit Prasad, to say the least, failed to ask the relevant questions or carry out a due diligence; an expectation, which is, in consonance with the provisions of clause 49(d)(1)(b) of the Listing Agreement. Clause 49(d)(1)(b) requires the BODs', i.e., the top management, to conduct themselves wi .....

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espondent Nos.1 to 6, however, are aggrieved by the directions contained in the impugned judgment, whereby, the CLB has directed the SVG to seek a ratification from its shareholders qua the BOD resolution passed vis-a-vis the Boat Club Property, so as to ensure that the business transacted was brought within the bounds of law and adhered to the norms of transparency. 46.2. As a matter of fact, respondent Nos.1 to 6 have filed cross objections in that behalf, to which, I have made a reference abo .....

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ed, as already indicated above, while the disclosure with regard to the property, which was to be given for use to Shanmugam, as his residence did not meet the standards of corporate governance, as fixed by SEBI - there was disclosure, nevertheless, that a property owned or leased by SVG was to be given for such use to Shanmugam. Therefore, what was complied with was literally the letter of the resolution and not its spirit. This conclusion can, however, be only partially correct, as the resolut .....

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the shareholders vis-a-vis the Boat Club Property. Inherent in the direction is the acceptance of fact that what was presented at the time, when, the resolution, was passed at the AGM held on 29.09.2012, was based on inchoate facts. The CLB, in fact, in this behalf, in paragraph 10.7 of its judgment, makes the following observations. "10.7. ..... However, the fact of allowing the use of the property at New No.5, Old No.3, III Avenue, Boat Club Road, Chennai-600 208 was not disclosed in the .....

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ith the shareholders in the matter of allowing the aforesaid high value property to the Managing Director for his residential purpose by passing a resolution in the meeting of the Board of Directors where proper quorum was also not present. (emphasis is mine) 47.3. It would seen that CLB disapproved of the resolution passed at the AGM dated 29.09.2012, on the ground of lack of transparency and lack of proper quorum. The reason, perhaps, was that at the BOD of 01.09.2012, Shanmugam was present, w .....

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perty as his residence, would relate back to the date when the decision, in that behalf, was taken in the first instance. This, however, may be plausible, if, the only defect in resolution so passed pertained to the factum of disclosure of the particulars of the property, which was to be given for use of Shanmugam. As indicated above, it appears, that no exercise was carried out to value the subject perquisite by the Board of SVG. Therefore, the direction issued to SVG to obtain ratification of .....

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law, if any, formulated in that regard. ISSUE NO.6: 48. This brings me to the other aspect of the matter, which relates to the special resolution, passed by the shareholders, albeit, via a postal ballot, under Section 372A of the 1956 Act, to enable the BOD of SVG to extend loan, furnish guarantees or provide securities to its associate entities/companies, subject to the outer limit of ₹ 500 Crores. 48.1. This resolution, albeit, via postal ballot was passed, in the background of the deci .....

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tension of corporate guarantees, or securities to associate entities/companies shall be finally decided, on terms and conditions, as may be stipulated by the BOD of SVG. 48.2. The controlling group, as also SVG, contend that this instance brought forth in the Company Petition, as an act of mismanagement, was completely unsustainable, as it was based on a mere apprehension. Furthermore, it was submitted that it is not, as if, under law, companies are barred from entering into transactions with re .....

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atarajan could safeguard their interest was not sustainable, as the shareholders had not approved the resolution seeking his reappointment on the Board of SVG. 48.4. I may only indicate that, in this connection, respondent Nos.1 to 6 have also averred that SVG, upon a compulsory acquisition of the land, located at Bengaluru, ad-measuring 3 acres and 30 guntas, had received a sum of ₹ 70.13 Crores from the Government of Karnataka, which had also approved a further payment of ₹ 88.11 C .....

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u property, to its related entities/concerns, and that, such acts could only be prevented, if, Natarajan, remained as its representative on the Board, as was the case for the past four (4) years. 48.6. In my opinion, the submission of the appellants that apprehension, by itself, can never form the basis of an act of mismanagement, seems too wide a proposition. A distinction has to be drawn between what is in the realm of possibility as against that in respect of which some incipient steps have a .....

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ng dated 28.03.2014 and the resolution via postal ballot was passed on 02.05.2014. Since then, Natarajan no longer sits on the Board of SVG. The appellants are, however, right in their contention, there is neither any agreement nor any provision in the Articles of Association or, a mandate of law that Natarajan would remain virtually a permanent representative on the Board of SVG. In isolation, one cannot quibble with this contention advanced on behalf of the appellants. 48.8. What is, though, r .....

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ore, while, it would be difficult to conclude that the appellants had acted contrary to law in merely passing the resolution under Section 372A of the 1956 Act, this could lend weight to the charge levelled by the minority shareholders that this resolution has the portents of an unfair and prejudicial act. ISSUE NO.:7 49. Which brings me to the last aspect of the matter, as to whether the charge of oppression is made out. 49.1. This, in one sense, is the essence of the Company Petition, which wa .....

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int of time. (ii) Natarajan rendered, it appears, advice on financial and taxation matters to the Udayar group. This brought about his proximity with the other two (2) members of Udayar group, apart from Late Ramasamy, that is, Ethiraj and his brother, Nandagopal. (iii) Apparently, an opportunity for investment of funds and acquiring a company arose, in and about, 1987, in the form of Binny Limited. It appears, according to Natarajan, Binny Limited, at that time, as indicated above, was widely h .....

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nvestment and Consultancy Private Limited, for acquisition of equity stake in the said company. (iv) It is also the stand of Natarajan that it was because he had funded monies to the Udayar group at various times, in 1993, shares were allotted to respondent Nos.1 to 6 at his instance. (v) Furthermore, Natarajan claims that it was, at his instance, that respondent Nos.1 to 6 directly acquired shares in Binny Limited from State Bank of India, when, the Bank took a decision to divest its holdings i .....

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dicate herein that the Annual Report of June, 1987 also shows Natarajan as one of the Directors on the Board of Binny Limited; this fact would, if at all, improve the case of Natarajan. on this score. 49.3. The appellants, on the other hand, contest this position. Their submission is, to which I have made a reference above, that Natarajan was only an adviser, and in fact, funds had been provided to him via two (2) entities, associated with Ethiraj. These entities being: Swadesimitran Limited and .....

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ants have not dilated upon the fact as to how the aforementioned entities, which provided funds to Natarajan were related to Ethiraj. Furthermore, it is not made clear as to why no recovery of the funds said to have been furnished by way of loan was initiated. 49.5. Furthermore, the appellants submit that the opportunity to take over Binny Limited was identified by Ethiraj and Late Ramasamy, and that, this aspect was discussed with one Mr.Venkitaraman, former RBI Governor. It is further averred .....

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ere identified by Natarajan. Consequently, an MOU dated 21.12.1993 was executed between the existing promoters, which included Natarajan and the newly inducted co-promoters. As a result of which, according to respondents No.1 to 6, funds to the tune of ₹ 60.00 Crores in the form of equity and loan were invested in Binny Limited. 49.7. It is also the stand of respondent Nos.1 to 6 that the new co-promoters decided to opt out of Binny Limited and, accordingly, an MOU was executed on 08.05.19 .....

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the stand of respondent Nos.1 to 6 that the demerged Binny Limited reverted to the original promoters, i.e., Venkatachalam, Ethiraj and Nandagopal and Natarajan. It is averred that, once again, each one of the four (4) persons, which included Natarajan held directly or indirectly an equal stake in Binny Limited. 50. Respondents No.1 to 6 take the stand that the second demerger, which took place in 2010, which was sanctioned by this Court on 22.04.2010, resulted in the demerger of Binny Limited a .....

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es. The other persons, i.e., Venkatachalam, son of Late Ramasamy, M.Nandagopal and Ethiraj owned and/or controlled nearly 55% of equity stake in each of the three companies, referred to above, without the handicap of cross holding by any other group. The only exception to this was, Natarajan, who, as indicated above, was given a stake in each of the three companies. 50.1. Natarajan says and a fact, which is evident from the record that upon the sanction of demerger in 2010, he was appointed as D .....

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s been shown as a Promoter. Therefore, Natarajan submits that, when, a decision was taken at the BOD Meeting held on 04.08.2014 to seek reappointment, it was a given that the controlling group would vote in his favour at the AGM to be convened on 26.09.2014. 50.2. Natarajan, thus, takes the stand that it is, in this background, that respondent Nos.1 to 6 cast a favourable vote on a similar resolution concerning, Ethiraj's reappointment, albeit, via electronic means. Natarajan says that, give .....

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hat he had offered, first to Binny Limited and, then to SVG. 50.3. Having regard to the material on record, I am of the view that the appellants' stand that Natarajan, was mere an adviser, is not correct. I have already discussed this aspect of the matter. In the ordinary course, one cannot, but agree that the appellants have a right to vote in any manner that they think fit, which, necessarily, need not have attributes of morality. The appellants are entitled to vote, as shareholders, based .....

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e considerations would have me conclude otherwise. Therefore, the fact that respondent Nos.1 to 6 are not represented on the Board of SVG, on account of the appellants voting against Natarajan's reappointment, would be, in the given circumstances, prejudicial to their interest, and hence, constitute an act of oppression. DIRECTIONS ISSUED BY THE CLB TO PURCHASE SHARES: 51. The directions issued by CLB with respect to purchase of shares of respondent Nos.1 to 6, has two aspects to it, which n .....

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he relationship between them, i.e., controlling group and Natarajan was not in the nature of a quasi-partnership. This objection, I have already dealt with and, therefore, I do not wish to go over this aspect again. Suffice it to say, courts have, time and again, reiterated that even where an action under Sections 397 and 398 fails, a Court can, in order to do substantial justice between contesting parties, direct purchase of shares of the aggrieved party (Needle Industries and another V. Needle .....

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which is that, the CLB may grant any other relief that it may deem necessary. It is not unknown to law that where litigants ask for reliefs, which have a wide ambit, the Tribunal/Courts modulate the reliefs, depending on the jurisdiction, in which, they operate and the power vested upon them in law. To cite an example, while in a Writ Petition and, in an action of a present kind, where Courts/statutory authorities employ equitable jurisdiction, there is latitude available, within the realm of l .....

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had the widest powers available to it to grant such reliefs, it deemed fit having regard to the facts and circumstances of the case. This is clearly evident from the language of Section 402, which opens with the words "without prejudice to the generality of the powers". The CLB, under Section 397 and/or 398, is empowered to pass a wide array of possible orders/directions in the interests of members; an aspect which clearly emerges upon a perusal of clauses (a) to (g) of Section 402 of .....

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. 51.3. Quite clearly, the direction issued by the CLB to purchase shares of the Natarajan block was not outside its purview and/or contrary to law, as has been suggested by the appellants. As a matter of fact, the narration of events, as set forth hereinabove, would show that it is the appellants' case, both in correspondence exchanged between the contesting parties and in the pleadings filed before the CLB that Natarajan had, according to them, agreed to sell in 2007, his equity stake, hel .....

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ng group to purchase Natarajan's shares. In this behalf, one may have to go, no further than, peruse the contents of Ethiraj's letter dated 01.10.2014, addressed to Natarajan. The extract of the same, has already been set forth, in my discussion above. 51.5. Having said so, one needs to closely examine as to whether CLB ought to have directed SVG to purchase the shares of Natarajan, in the facts and circumstances of the case, if the controlling group failed to do so. 51.6. In my view, th .....

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rol of SVG, so that, they could have a further "play in the joints", both at the Board level and in the shareholders forum, i.e., meetings, the CLB should have called only upon them to buy the interest of some one like Natarajan to the exclusion of all others including SVG. The public shareholding in the SVG is a reality, which the controlling group have had to live with, since the time they first acquired interest in Binny Limited, in 1987. Therefore, unless the appellants were willin .....

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ase shares would lead to a depletion in the worth of the shares held by the Public shareholders, without having them have their say in the matter. This is, especially so, as SVG's worth stems from the immovable assets it holds and not from its business operations. CONCLUSION: 52. In my view, therefore, the following emerges, upon perusal of documents and submissions of counsels and my appreciation of the legal position. (i) First, Natarajan was part of the promoter group and not a mere advis .....

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masamy amongst his son Venkatachalam and the other three gentlemen. (iii) Third, Natarajan, admittedly, did not receive any professional fee. He clearly discharged functions as Director entrusted to him, first on behalf of Binny Limited and, thereafter, on behalf of SVG as well. Over the years, it appears from the record, an understanding was reached between the persons referred to above, that they would have a representative each on the BOD of the concerned company/companies, as the case may be .....

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Board of SVG. (v) Fifth, the nature of the relationship between Natarajan and the controlling group cannot be given a short shrift by labelling it as "Directorial complaint". While, in isolation, one cannot, but agree, that corporate democracy and shareholders will must prevail these principles need to be tested in the context of facts and circumstances obtaining in each case. Bereft of context, a grievance regarding failure to obtain renomination to the BOD may seem like a Directoria .....

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ny by the Controlling group, who hold 55% of the equity stake. It is because of this reason that the Board of SVG could take a decision to allow for use of the Boat Club Property, which is even by a conservative measure, a property worth ₹ 300 Crores, for personal use of Shanmugam, its Managing Director, despite poor financials, or that, a ballot resolution dated 02.05.2015 could be passed giving powers to the Board of SVG to, inter alia, make investments or grant loans to the extent of &# .....

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the oppression could only be on the minority, which includes the Natarajan-block. The failure to reappoint Natarajan on the Board of Directors of SVG is only the beginning of the oppression. (vii) Seventh, even if, one were to assume, for the sake of argument, that findings of oppression are not called for, in the instant case, would I, then, reverse the direction issued by the CLB on that score, which, in its own wisdom, has tried to do substantial justice between the contesting parties, by com .....

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the course along with other co-venturers for nearly three decades, in the given facts and circumstances, does not call for interference, as it is both fair and equitable. (viii). Eighth, the deadlock, as indicated above, need not necessarily be an ingredient of 397 and 398 action. It is only one of the circumstances in which, such an action can be brought to Court. Besides, the concept of deadlock need not to be looked at in absolute terms. In my view, any issue, which creates an impediment or a .....

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urt would then give legal credence to the submission that they could run rough shod over the minority. Running of the company requires inclusiveness, which is intrinsic part of any democratic process and cannot, to my mind, be any different, where corporate jurisprudence or governance is involved. 52.1. Therefore, in substance, I find no difficulty in CLB coming to the conclusion that there would be impediments in running the affairs of SVG, as indicated above, and therefore, perhaps, as against .....

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er direction of the CLB, which requires the controlling group to purchase the shares of respondent Nos.1 to 6 is sustained. 54. As indicated right at the outset, since, CLB had called upon the parties to appoint an independent valuer, pending the disposition of the aforementioned matter, valuation was got done, albeit, without prejudice to the rights and contentions of the parties via Brahmayya & Co., Chartered Accountants. The valuation report was received and opened. It appears that the co .....

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lled upon to purchase the shares of respondent Nos.1 to 6. 56. I must note herein that arguments were advanced on behalf of SVG by Mr.Arvind P.Datar, learned Senior Advocate that net asset method would not be the appropriate method to value the shares of SVG; an objection, which, in a sense, has been taken care of, as the subject shares, have now been valued by Brahmayya & Co., by taking recourse to every known and recognised method involving valuation of shares. 57. To ensure that there is .....

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