TMI Blog2004 (10) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... cause of action falling under the provisions of Sections 397 and 398, entitling the petitioners for any relief. There are no pleadings to the effect that the facts of the present case would justify the making of a winding up order on just and equitable grounds, but such winding up of the Company would unfairly prejudice the petitioner, as stipulated in Section 397(2)(b) or that it is likely that the affairs of the Company are conducted in a manner prejudicial to public interest or prejudicial to the interest of the Company, due to a material change that has taken place in the management or control of the Company on account of any alteration in the Company's Board of directors or manager or in ownership of its shares or membership or in any other manner whatsoever, satisfying the requirements of Section 398(1)(b). There is no averment on loss of substratum due to the acts of mismanagement in the affairs of the Company at the instance of the respondents. The petitioner holding 32.5 per cent of the paid-up capital and claiming to be the Managing Director has substantial powers of management and therefore cannot have any grievance on account of the alleged acts of oppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner shall fulfill the preliminary condition under Section 397(2), namely, justification for winding up of the company on just and equitable grounds and that such winding up will be prejudicial failing which the court would ignore the allegations of oppression mentioned in the petition. Non-existence of such averment is fatal to the petition. This lacuna cannot be rectified by incorporating the averments in the amended petition. Ashoka Betelnut Company P. Ltd. v. M.K. Chandrakanth --1997-1-L.W. 616- to show that both conditions in Clause (a) or Clause (b) of Sub-section (2) of Section 397 must exist before the court can entertain an application under that section. Where there are no allegations followed by proof thereof to support a winding-up, such a petition cannot be entertained. It must further be proved that an act of winding up should not be made as it would unfairly prejudice the petitioner and other members. Rattan Singh v. Managing Director, Moga Transport Co. Ltd. --1958-(CC2)-GJX-0030-P H - to show that relief can be given under Section 397 in cases of oppression where the court is of the opinion that the company's affairs are being conducted in a mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake any action in the matter. There must be material to show that when just and equitable clause is invoked, it is just and equitable not only to the persons applying for the winding up but also to the company and to all its shareholders. 2. Shri Srinath Sridevan, learned Counsel appearing for the second respondent contended that the pleadings made in the company petition are inconsistent and vague without making out any case under the provisions of Sections 397 and 398. The petitioner failed to establish the fulfillment of the ingredients of the provisions of Section 397 or 398. The grievances of the petitioner are on account of the family feud among the members and the petitioner cannot resort to any remedy for such personal grievances before the CLB. The petition must, therefore, be rejected without resorting to completion of the pleadings and considering the company petition on merits wasting the time and incurring huge costs by both the parties in support of which learned Counsel relied on the following decisions:- Ravinder Singh v. Janmeja Singh - (2000) 8 Supreme Court Cases 191 - to show that no evidence can be led on a plea not raised in the pleadings and that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Saurashtra Cement And Chemicals Industries Ltd. v. Esma Industries P. Ltd. -[1990] 69 CC 372 categorically held that the provisions of Order XIV Rule 2 of the Code would apply in their entirety to proceedings under Sections 397 and 398 of the Act. Whether the facts alleged in the company petition would make out a case or cause of action falling under Sections 397 and 398, being a question of fact cannot be adjudicated as a preliminary issue by the CLB. The company petition containing the allegations of oppression and mismanagement must be read as a whole, which must be construed in accordance with its substance and not its form. The allegations set out in the company petition elaborately deals with the various acts of oppression and mismanagement indulged by the respondents in the affairs of the Company, which are oppressive to the petitioner. There are specific pleadings to the effect that the petitioner has been removed from the office of Managing Director and further that the units could not be operated on account of the interference and removal of the machinery by the respondents and also large scale misappropriation of the funds of the Company by the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uitable considerations exist which would justify making an order of winding up of the company. Whereas, in the present case the Company is a family company and there are equitable considerations which would justify making of a winding up order on just and equitable grounds. S. Palaniappan v. Tirupur Cotton Spinning and Weaving Mills Ltd. - (2003) 114 CC 288 - to show that if the CLB is pursued properly and effectively, many of the misdeeds of an erring or dishonest management could be checked and remedied under Sections 397 and 398. Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. - (2001) 106 CC 25 - to show that a petition under Section 397 can be thrown out only if the case put forward is unarguable and the petition can be held demurrable only if the claim put forward cannot be established even if all the allegations made in the petition are accepted to be true. Eastern Linkers Pvt. Ltd. v. Dina Nath Sodhi - (1984) 55 CC 462 - to show that a petitioner must establish to sustain a petition under Section 397 that the grounds exist which would justify the making up of a winding up order on just and equitable grounds and further that when shareholding is more or less e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice, but only rule of procedure and hence inapplicable to the proceedings before the CLB. 5. I have considered the elaborate arguments of learned Counsel. The short question that arises for my consideration is whether the company petition is demurrable and liable to be dismissed in limini. Before answering the issue, I think it fit, that certain material provisions of the Act must be borne in view. A plain reading of Section 397 reveals that on an application made by any members of a company having the right under Section 399, complaining that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, the Company Law Board may with a view to bringing to an end the matters complained of, make appropriate order, if the CLB is of opinion -- (i) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; (ii) that the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; and (iii) that the winding up order would unfairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prescribed form in support of the allegations of such corrupt practice and the requisite particulars. The requirements of Section 83 are mandatory, non-fulfillment of which is fatal to a petition under that Section. The language of these two sections, viz., Section 83 of The Representation of the People Act and Section 397 of the Act is distinctly different from each other. There is no mandate in Section 397 stipulating that the petitioners must plead that the facts would justify the making of a winding up order of the company on just and equitable grounds. By virtue of Section 397, it is for the CLB to form opinion on the facts alleged in the petition that the company's affairs are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts should justify the making up of a winding up order on just and equitable grounds, as enunciated by a number of decisions discussed hereabove. Against this legal position, the main allegations alleged in the company petition must be considered, which are summarized as under: The Company was incorporated in April, 1994 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner. The respondents have in the process unlawfully enriched by themselves to the tune of ₹ 60 lakhs, at the cost of the petitioner and the Company. They have also removed a large volumes of materials comprising of dye and blocks and other materials lying in the units valued at ₹ 15 lakhs. The respondents 3 4 have diverted the business of the Company to the family business known as Forge Tools, run by the fourth respondent as his proprietary business. The respondents 3 4 have been preventing the petitioner from entering the factory premises and obstructing the petitioner from operating the manufacturing units and they have been operating Unit No. 1. When the petitioner attempted to restart the operations in Unit 2, the respondents 2 3 unlawfully entered the premises, assaulted the Managing Director and threatened workers of the Company leading to suspension of the work and the police complaint lodged by the petitioner against respondents 3 4. I shall now consider a plethora of decisions cited by the learned Counsel in the light of the alleged acts of oppression and mismanagement in the affairs of the company, to consider whether the requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., after considering the provisions of Section 397 held that the petitioners have to make out a case for winding up of the company on just and equitable grounds. If the facts fall short of the case set out for winding up on just and equitable grounds, no relief can be granted to the petitioners. A careful consideration of the findings of the Supreme Court, suggests that in order to be successful on the ground specified in Section 397(2)(b), the petitioners have to make out a case (emphasis supplied) for winding up of the company on just and equitable grounds. In R. Ramanathan Chettiar v. A. F. Harvey Ltd., it is held that it is necessary for a petitioner under Section 397 and 398 to make all the essential allegations in the petition itself so as to bring his case within the ambit of these sections. In Subhash Chand Agarwal v. Associated Limestone Ltd., it is categorically held that a petitioner shall establish the justification for winding up of the company on just and equitable grounds and that such winding up will be prejudicial to the interest of the members of the company in order to maintain a petition under Section 397. In Ashoka Betelnut Company P. Ltd. v. M.K. Chandraka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to be successful on the ground specified in Section 397(2)(b), the petitioner must make out a case for winding up of the Company on just and equitable grounds. The main grievances of the petitioner as seen from the allegations made in the company petition are that the petitioner and the second respondent alone are directors of the Company. The fourth respondent falsely claims to be a director pursuant to the resolution passed at the extraordinary general meeting said to have been held on 16.03.2004. The petitioner being the Managing Director, is not allowed to carry on day-to-day affairs of the Company. The respondents 3 4 are further charged with siphoning of funds and diversion of business of the Company and removing the raw-materials and machinery belonging to the Company, thereby the Company is made to suffer to the tune of over ₹ 75 lakhs. These disputes are no doubt in relation to the management of the Company. If these acts do not constitute acts of oppression and mismanagement, provided established by the petitioner, I do not understand as to any other act, which would be oppressive to the interests of the petitioner and the Company. The other grievances b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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