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2004 (10) TMI 620

C.P. No. 27/2004 - Dated:- 20-10-2004 - K.K Balu For Appellant: Anita Sumanth, Adv. For Respondents: T.K. Bhaskar, Adv. for Respondents 1, 3 and 4 and Srinath Sridevan, Adv. for Respondent 2 K.K. Balu, 1. In the company petition filed by the petitioner under Sections 397 and 398 of the Companies Act, 1956 ("the Act") alleging acts of oppression and mismanagement in the affairs of M/s Mani Forgings Private Limited ("the Company") and seeking various reliefs against the Company .....

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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 .....

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partnership. • All the grievances of the petitioner, being personal in nature, cannot be agitated in a petition under Section 397 or 398 but shall invoke the common law for necessary redressal of her grievances. Shri T.K. Bhaskar, in support of his legal submissions relied on the following decisions: - • R. Ramanathan Chettiar v. A. & F. Harvey Ltd. - (1967) XXXVII CC 212, wherein the Companies Tribunal, while considering the preliminary issue whether the petition is maintainable u .....

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98. • Subhash Chand Agarwal v. Associated Limestone Ltd. - (1998) 92 CC 525 - to show that the petitioner 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 .....

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rder on the ground that it was just and equitable that the company should be wound up. • Hanuman Prasad Bagri v. Bagress Cereals Pvt. Ltd. - (2001) 105 CC 493 - to show that one of the conditions precedent for granting relief under Section 397 is that the petitioner should prove that winding up of the company would unfairly prejudice the petitioners who are complaining of oppression, that otherwise the facts would justify the making of a winding up order on just and equitable grounds. &bull .....

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ower Development Corporation Ltd. v. Dabhol Power Co. - 2003 (vol.117) CC 506 - to show that it is not always necessary that there should be a pre-existing family business or partnership for applying the principles of quasi-partnership to a company but, the pre-existence of a partnership or family business is certainly a factor which would be taken into consideration while considering the real nature of the company. • Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla -(1976) 46 CC 91 .....

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ition 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 amount of evidence can cure any defect in the pleadings. • Hari Shan .....

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ppropriate orders with a view to bring to an end the matters complained of provided that the CLB is of opinion (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and (b) that the facts would justify the making of a winding up order on the ground that it is just and equitable that the Company should be wound up, but the winding up order would unfairly prejudice the members. Section 397 does not speci .....

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f 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 alleg .....

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pondent, as borne out by the certificate issued by the Company's banker. The averments made in paragraph 25, viz. that "... the petitioner is constrained to approach this Hon'ble Bench for appropriate relief to secure and safeguard the interests of the company as well as the rights and interests of the petitioner. It is just and necessary in these circumstances that this Hon'ble Bench be pleased to admit this Company Petition and deal with the same in accordance with the law and .....

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cific pleadings to that effect. • Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. - (1997) 1 Comp LJ 268 - to show that in case of a family company equitable reliefs could be considered, if oppression is established. • The High Court of Bombay in Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. - (2003) 117 CC 506 held that the company in that case was not a family company in the nature of a quasi partnership and that no equitable considerations exist which would justif .....

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at 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 equal and there is a case of complete deadlock 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. • Shanti Prasad Jain v. Kalin .....

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equitable, but essential in the interests of both the parties that the company should be wound up. In the said case, the parties refused to meet on matters of business, continued quarrelling and there was no scope for reconciliation and friendly cooperation between the parties and there was lack of confidence between the parties justifying dissolution of the partnership. 4. Shri Bhaskar, learned Counsel, in his reply submitted: The applicability of the provisions of Order XIV Rule 2 of the CPC t .....

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ion 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 intere .....

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any. Such change may take place due to alteration in the Company's Board of Directors or manager or in ownership of its shares or membership or in any other manner whatsoever. At this juncture, the provisions of Section 83 of the Representation of the People Act, 1950, relied on by the respondents assumes importance which reads as under:- 83. Contents of petition. - (1) An election petition - (a) shall contain a concise statement of the material facts on which the petitioner relies; (b) shal .....

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d to have committed corrupt practices, the date and place of commission of such corrupt practice and an affidavit in 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. Th .....

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of ₹ 100/- each. The petitioner holds 32.5 per cent of the share capital of the Company. The petitioner and second respondent are the only directors and the petitioner has been the Managing Director of the Company. The Company has been operating two units, viz., Unit-1 and Unit-2, manufacturing forgings. • The respondents 3 & 4, who are brothers of the petitioner are employed as consultants of the Company. With a view to help them certain shares were allotted in their favour, con .....

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ever held for the purpose of convening the extraordinary general meeting on 16.03.2004. The directors neither received any request under Section 169 from any of the shareholders for convening any extraordinary general meeting and no extraordinary general meeting held either on 16.03.2004 or on any other date appointing the fourth respondent as director of the company. Form 32 filed with the Registrar of Companies containing the signature of the second petitioner is forged. • The respondents .....

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nit 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 of Section 397 and 398 are duly met by the .....

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uct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders. • It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders predominant voting power in the conduct of the company's affairs. • Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those fa .....

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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 he .....

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ansport Co. Ltd., it clearly held that where the court is of the opinion that the company's affairs are being conducted in the manner as envisaged in Section 397(2)(a) and (b), then the court can make appropriate orders on the application made by that aggrieved members. The decision in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla rendered in the context of winding up of a company will not be applicable to the present proceedings under Section 397 and 398. Similarly the decisions i .....

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to fulfill the requirements of Sections 397 and 398 as held in M. Moorthy v. Drivers and Conductors Bus Service P. Ltd. A careful perusal of the provisions of Sections 397 & 398 and the foregoing decisions reveal that neither Sections 397 and 398 nor the decisions mandate the requirement of averments that the facts would justify the making of a winding up order of the company on just and equitable grounds or that there is dead-lock in the affairs of the company, but in order to be successfu .....

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ovided 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 being personal in nature may not likely fall within the scope of Sections 397 and 398. It is for the CLB to form opinion as to whether the alleged acts of oppression would justify the making of a winding up order on just and equitable grounds. In these circumstances, unless the respondents file a detailed reply and the p .....

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