TMI Blog2001 (3) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... is order, we are considering all the above 9 petitions together, since the nature of allegations in all these petitions is similar and the relief sought is based on a common premise. A summary of the petitions is as follows: All the petitioners are under the control of one Shri S.K. Somany (SKS). He is one of the members of Somany family which controlled a large number of business entitles. Originally, the family consisted of 6 brothers of which 2 of them separated in 1983 and the other 4 brothers were managing the family businesses including 4 major companies. In 1994, these brothers entered into a family settlement by which two of the brothers were allotted certain companies, each one of the 4 major companies individually while SKS and his eldest brother H.L. Somany (HLS) decided to continue together to manage the companies including the 2 remaining major companies. The division of the business of the family and allocation of the major companies was done on the basis of a valuation done by Price Waterhouse and each brother was to take businesses worth 1/4th of the total value. Two major companies allotted to SKS and HLS were SPL Ltd. (SPL) and Soma Textile Ltd. (STL). It was agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managed by appointing those mutually agreeable to both as directors. All along, this mutual understanding has been honoured by both the groups and, as a matter of fact, when certain disputes arose in relation to the family settlement, both SKS and HLS have filed a joint Suit No. 35 of 1997 in the Calcutta High Court seeking for implementation of the family settlement. All the respondent-companies are parties to the suit. In the plaint itself, at paragraphs 7 and 8, it has been stated that the brothers had been carrying on the business in co-partnership with each other and that there had been equality in the shares held by the brothers. Therefore, between SKS and HLS, there has always been joint and equal co-partnership, which is now being disturbed by HLS. Even in paragraphs 10 and 11 of the plaint, the equality of shareholding has been highlighted. Further, in paragraph 15, it has also been averred that SPL and STL would be jointly controlled and managed by HLS and SKS. In Annexure-A to the plaint, all these respondent-companies have been shown as being under the control of HLS and SKS. At page number 17 of the rejoinder filed in that suit, an averment has been made by both HLS a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Advocate appearing for the respondents, submitted as follows: SPL and STL are not parties in these proceedings does not arise. Only the allegations made against the respondent companies could be considered and appropriate relief granted. SKS along with some of the petitioner companies have filed a suit in Calcutta High Court (TS No. 450 of 1998) wherein all the respondent companies are parties, seeking for a declaration that SKS and HLS have joint and equal rights in the management, control and participation in the affairs of SPL and all investment companies including the respondent companies. In those proceedings also, a declaration of 50% shareholding has been claimed. In those proceedings, certain directions have been issued by the High Court. That being the position, the question of the Company Law Board deciding the claim of SKS for a partition or otherwise on the basis of 50% shareholding does not arise and, as a matter of fact, there is no foundation to claim this percentage on any evidence. The Company Law Board has no jurisdiction to determine the issue relating to the claim of 50% ownership, the determination of which is a prayer in the Calcutta proceedings as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members. Continuing his arguments, Shri Sen pointed out that there are no record available to show that SKS and AKS each holds 50% shares in these respondent companies to decide about division of the assets of the company. Till such time, such a conclusion is arrived at, which cannot be done with the material placed on record, the question of division will not arise. Further, there is no deadlock in the management of the companies to necessitate division of assets nor application of partnership principles. He further contended that relief under Section 402 of the Act could be granted only if the allegations of oppression and mismanagement are established. Referring to Maharani Lalita Rajya Lakshmi v. Indian Motor Co. AIR 1962 Cal 127, he pointed out that before considering grant of any relief, the court has to form an affirmative opinion in terms of Section 397(2)(a) and (b), i.e., the affairs of the company are being conducted in a manner oppressive to the petitioners and that winding up of the company on just and equitable grounds is warranted. In the present case, the learned counsel pointed out that the relief sought are based on a family settlement to which none of the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He also pointed out that in none of these petitions, either the petitioner companies or SKS have shown that either individually or collectively, they hold 50% shares in the respondent companies. Further, none of the respondent companies are subsidiaries of either Soma Textiles or SPL Ltd. so as to rope in these two companies in these proceedings. He also pointed out that the petitioner companies being limited companies cannot advance the cause of SKS who is not a party to these proceedings to claim joint ownership. Referring to Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 1 Comp LJ 193 (SC): AIR 1965 SC 1535, he pointed out that in paragraphs 14, 19 and 32, the Supreme Court has held that there should be actual acts of oppression in terms of Section 397 and mismanagement or apprehended mismanagement in terms of Section 398 for grant of relief under Section 402 of the Act. Referring to Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. (1982) 1 Comp LJ 1 (SC): AIR 1981 SC 1298 wherein the apex court has held that the court is not powerless to grant relief even if no case of oppression is established, he pointed out that the Supreme Court considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not arise. Even in case of respondent companies, this principle cannot be applied as in none of these investment companies, there is equal shareholdings of SKS and HLS. He pointed out in Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. (1997) 1 Comp LJ 268 (CLB), there was equal participation in the Board and that the Board came to the conclusion that there was 45:55 shareholding and, therefore, it ordered for divisions of the assets of the company after a finding that the acts of oppression had been established. Reference to Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwala AIR 1976 SC 565, wherein the apex court has brought out the distinguishing features of Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL), he pointed out that none of these features are present in this case to come to the conclusion that circumstances exist for winding up of the company on just and equitable grounds. Insofar as K.N. Bhargava v. Trackparts of India Ltd. (2002) 2 Comp LJ 275 (CLB) is concerned, he pointed out that in that case, partnership business was taken over the company, that both the sides had equal participation in the company and that the articles had provided for affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company while the Company law Board has such power. According to the him the powers of Company Law Board under Section 402 is exclusive and cannot be exercised by any civil court. Even otherwise, in Stridewell Leathers (P) Ltd. v. Shoe Specialities (P) Ltd. (1996) 1 Comp LJ 426 (CLB), the Company Law Board has held that a suit is not a bar to proceed with a petition under Section 397/398 inasmuch as the powers of the Company Law Board in these proceedings are much wider than [those of] the civil court in a suit. Further, in the joint suit, what has been sought is the implementation of the family settlement and this settlement does not cover the nine respondent companies. Further, both SKS and HLS are plaintiffs and the suit cannot decide the disputes between two plaintiffs. Therefore, he contended that the pendency of the civil suit cannot be a ground to reject the prayers of the petitioners. 10. He pointed out that HLS is not denying the family settlement by which two of the brothers parted ways and HLS and SKS decided to continue together on the understanding that all the companies under their control would be jointly managed. Even one of the brothers in the Calcutta suit h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that it is wrong to say that by consolidating all the petitions, common reliefs are sought. These petitions taken together would reveal the totality of the circumstances in which the respondent companies are acting as investment companies to invest shares in SPL and Soma Textiles. Regarding the arguments of Shri Sen in respect of the observations of the Supreme Court in Needle Industries (India) Ltd.s case (1982) 1 Comp LJ 1 (SC), Shri Sarkar pointed out that since the appeals considered by the Supreme Court arose out of a Section 397 petition, the observations made therein are applicable to all proceedings under Section 397. Insofar as the decision of the Company Law Board in Lopchu Tea Co. Ltd.'s case, supra, is concerned, Shri Sarkar pointed out that, in that case, the petitioners approached the Company Law Board for relief after the High Court had already appointed an administrator and, therefore, the Company Law Board decided to stay the proceedings before it. But, in the present case, the suit pending in the Calcutta High Court relates only to a part of SPL. He also pointed out that if the investment companies had not invested in the shares of SPL and STL, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments exchanged during the efforts towards amicable settlement should not be used in any manner by the other side. 12. Before we deal with the allegations in the petition, we shall first deal with certain legal issued raised by Shri Sen. He pointed out that until and unless this Board is satisfied that the allegations of oppression are established and forms an opinion that the company is liable to be wound up on just and equitable grounds, no order under Section 402 could be passed. On this contention, he submitted that, even in case of a compromise, this Bench cannot approve the same without satisfying itself about the fulfilment of these two conditions. He also pointed out that the observation of the apex court in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), that even when the allegations of oppression are not established, the court is not powerless to do justice between the parties, was made in exercise of the powers of the Supreme Court in terms of Article 136/142 of the Constitution. To substantiate this contention he referred to Union Carbide Corporation's case (1991) 3 Comp LJ 213 (SC), supra, wherein in para 58, the apex court had observed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of this section in the judgment and made the above observation, we are of the view that the observation of the apex court that the court is not powerless to do substantial justice between the parties even when acts of oppression are not established, is a proposition made with reference to the powers of a court in dealing with Section 397 petition. This view gets strengthened from para 171, wherein, when it was argued that Coats and Newey who were two of the three main partners were not of one mind and that Newey never complained of oppression, the Supreme Court observed: They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act. Further, it is to be noted that the term used by the Supreme Court in para 172 is not 'this court' but 'the court', further indicating that the Supreme Court was not referring to its own power, but to the power of the court dealing with Section 397 petition. Further, we are also of the view, that if a liberal and beneficial interpretation of the observation of the Supreme Court could advance the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be given. We would not like to deviate from this general proposition applied in various case on the basis of the interpretation given by Shri Sen. Therefore, we are of the view that, depending on the facts of a case, even in cases where oppression is not established, with the view to protect the interest of the company and the shareholders, suitable order could be passed in exercise of the equitable jurisdiction conferred by Section 397. For instance, in Yashovardhan Saboo's case (1993) 1 Comp LJ 20 (CLB), supra, the dismissal of the petition on the ground that the acts of oppression had not been established would have only continued the deadlock in the management resulting in the winding up of the company. This was prevented by directing the petitioners to sell his shares to the respondents at a fair value. Likewise, in a number of cases, this Board has, irrespective of the fact whether acts of oppression have been established or not, either approved compromise proposals or impressed upon the parties to amicably settle the disputes, once it felt that such a course alone would be in the interest of the company and the shareholders. In the same way, purchase and sale of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in most of the companies, 3 additional directors and two directors in casual vacancies had been appointed in earlier Board meetings and in the AGMs held in 1998, they have been appointed as regular directors and most of these directors are common in these companies. Considering the fact that these companies are not doing any substantial business, we find some substance in the allegation of the petitioners that the changes in the Board had been effected only with a view to control the management of these companies by HLS as these directors are found to be either his family members or his associates. But at the same time, we also note that SKS, other than averring that these Boards had earlier had directors approved by both SKS and HLS, nothing to substantiate this has been produced. We also note that neither the petitioner companies nor SKS had any of their nominees on the Board earlier. Unless and until the petitioners and SKS are in a position to establish that if they had participated in the AGMs of the respondent-companies, the appointment of directors would not have been approved, we cannot consider that the appointment of directors in these AGMs is an act of oppression a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of cases which we have elaborated as a part of his argument to state that, in facts and circumstances of the case, taking into consideration the family settlement and to the fact that there have been joint management of SPL and STL, we should order division of assets of these 9 respondent companies between SKS and HLS. 16. While it is a fact the in cases of family companies, more so when equality in shareholdings and joint management have been established, this Board had ordered division of assets, it is to be noted that, in all these cases, the shareholdings of the parties in the companies were clear and undisputed. For instance in Trackparts of India Ltd.'s case (2000) 2 Comp LJ 275 (CLB), supra, and also in Vijay Krishan Jaidka's case (1997) 1 Comp LJ 268 (CLB), supra, the shareholdings by the parties were clear and definite as also their joint management. In the present case, we find that even though both SKS and HLS groups hold shares in the respondent companies, substantial percentage of the shares in these companies are held by various companies known as common companies. The shareholding pattern of these companies is also complicated. Thus, the cross holding of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
