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N.K. Mohapatra Versus State Of Orissa And Ors.

1994 (5) TMI 276 - ORISSA HIGH COURT

A.H.O. No. 56 of 1993 - Dated:- 3-5-1994 - A Pasayat And R Patra, JJ. For Appellant: S.B. Mukherjee, Bijan Ray and K. Patnaik, Advs. For Respondents: Adv. General, G. Rath, R.K. Rath, B.K. Nayak, B.R. Sarangi, B.P. Das, B.Pr. Das and S. Das, Advs JUDGMENT Payasat, 1. This is a Letters Patent Appeal against the order of the learned company Judge by which the application filed by the appellant styled as one under sections 391 and 395 read with section 634 of the Companies Act, 1956 (in brief, the .....

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y appellant and his associates to some extent. The other major share-holders are Industrial Development Corporation Limited (in short, 'IDC') and the State Government, Private parties held equity shares to the tune of ₹ 5 lakhs, Appellant with his own effects approached different financial institutions for advancement of loans to the company for carrying on its smooth business. He was appointed as Managing Director of the company with effect from 15-9-1974 for a period of five year .....

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filed Company Act Case No. 5 of 1975 under Sections 397 and 398 of the Ac! on 15-12-1975 for a direction to the company to conclude the formal agreement and give necessary undertaking to Industrial Development Bank of India (in short, 'IDBI'), to quash the resolutions purported to have been passed at the 40th and 41st meetings of Board of Directors in connection with removal of the Managing Director and withdrawal of his powers to restrain the company and its Directors from holding the .....

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without its leave. Finally by judgment dated 7-1-1977, application filed was disposed of. Certain directions were given with many of which we are not concerned. However, the direction which is relevant for our purpose is that appellant was to continue to function as Managing Director. Appellant claims that though the company started production of Beer at Paradip in the year 1979, and earned a good reputation, IDC did not co-operate in management and refused to furnish required guarantee to fina .....

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ssion was sought for in that behalf. There was negotiation between appellant and Additional Secretary to State Government in Industries Department, and Chairman, IDC and it was resolved that appellant and his associates would transfer their shares in the company at face value of ₹ 7.5 lakhs in favour of IDC, and unsecured loan of ₹ 0.35 lakhs given by appellant shall also be repaid to him. Aforesaid arrangement was agreed to be implemented, subject to approval of State Government. Af .....

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09 of the Act. Appellant was relieved of his post of Managing Director on 23-3-1983 after executing an agreement of rehabilitation and amalgamation wherein there was no stipulation for selling the industry. In the aforesaid premises, appellant filed an application purported to be one under Sections 391 and 395 of the Act on 29-7-1992 before the learned Company Judge praying for implementation of the direction of this Court dated 7-1-1977 passed in Company Act Case No. 5 of 1977 and for a directi .....

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t filed took a stand that judgment of learned Company Judge dated 7-1-1977 has been fully implemented and appellant has no locus standi to file the application. Since the question of maintainability of application was urged, the parties agreed that the said question should be decided at the threshold. Learned Company Judge by impugned order has rejected the application which is subject-matter of challenge in this appeal. 4. During hearing of this appeal, learned counsel for parties fairly conced .....

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before learned Company Judge that he had transferred shares and handed over the unit to IDC on payment of the shares at par value. After counter-affidavit was filed, appellant filed an affidavit alleging that he continues to be a share-holder in respect of the shares held by his mother (since dead). In support of this plea a document was filed as Annexure-7. His claim was that his mother Rukmani Mohapatra held 50 numbers of shares each of ₹ 10/- value in the company and on her death, the .....

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escribed in the Act, without which the company shall not register a transfer of share, and the application at the instance of the appellant was not maintainable. It was additionally urged by the opposite parties that prayers made in the application were not otherwise maintainable, as nothing had been disclosed in the application for invoking jurisdiction of the Court under Section 391 of the Act. 5. Learned Company Judge held that in the connected case (Company Act Case No. 14 of 1992), where Mu .....

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ld Wide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desoi, AIR 1990 SC 737 for the purpose. An application for amendment has been filed to bring in some factual aspects, to implead Murty as a co-appellant, and to amend the prayer. Learned counsel for appellant fairly conceded that application styled one under Sections 391 and 395 of the Act was really not the proper application. He, however, submitted that substance and not form and nomenclature should have been considered. Application was also made .....

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er Sections 397, 398 402 read with Section 634 of the Act. In other words, the application which was originally styled as one under Sections 391/395 read with Section 634 of the Act is now intended to be read as one under Sections 397/398/402 read with Section 634 of the Act. An application under Sections 397, 398 and 402 of the Act is not entertainable by High Court, and proper forum is Company Law Board, This position is accepted by learned counsel for appellant. But according to him, once an .....

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e Act appears to constitute a code by itself for granting relief to oppressed minority share-holders and for granting appropriate relief, a power of widest amplitude, inter alia, lifting the ban on company purchasing shares under Court's direction is conferred on the Court. Sections 397 and 398 of the Act are intended to avoid winding up of the company if possible, and keep it going, while at the same time relieving the minority share-holders from acts of oppression and mismanagement, or pre .....

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ourt to give directions and instructions from time to time so as to resolve the problems and difficulties of the Board of Management; The group of sections in Chapter VI of the Act comparising of Sections 397 to 407 confers upon the Court wide and extensive powers to prevent oppression by one group of share-holders over the other, or mismanagement of affairs of the company in a manner prejudicial to public interest or to interests of the company. 8. To constitute a code by themselves and in gran .....

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es. 1959 or under the ordinary procedure for execution laid down in the Code of Civil Procedure, 1908. The object and purpose of the provisions contained in the group of sections comprising of Chapter VI of the Act would be frustrated if the Court becomes functus officio and loses all powers merely by passing orders and thereby disposing of the proceedings before it. Oppression and mismanagement are not eradicated merely by passing orders, but by enforcing and implementing the same. The Court re .....

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ich clearly provide that such order may be enforced in the same manner as a decree made by the Court in a suit pending therein, 9. It is emphasised by the learned counsel for the appellant that the approach of the learned Company Judge was erroneous because he should have looked into the substance of the petitioner's grievance instead of being too much obsessed with nomenclature and technicalities. On a bare perusal of the order passed by the learned Company Judge, it is clear that the parti .....

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details were indicated in the application the amendments are necessary for the purpose of clarification. With reference to the findings in the impugned order that the appellant was not a share-holder, it is submitted that approach of the learned Company Judge is not in accordance with law because a legal representative of a share-holder can maintain an application and has locus standi to do so, as held by the apex Court in World Wide Agencies case (AIR 1990 SC 737) (supra). It is urged that thou .....

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nd that for the first time in an affidavit filed on 22-10-1992 (counter affidavit to the application for vacation of stay) it was stated that the appellant still holds shares as successor of his deceased mother Rukmani Mohapatra. In the said counter affidavit filed to the application for vacation of stay, copy of a document dated 2-9-1992 purported to have been executed by Kavita Mohapatra, S. K. Mohapatra, L. K. Mohapatra and B. K. Mohapatra was annexed. This document forms the trump-card so fa .....

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ated. The stand that he was a share-holder as a successor was an entirely new one. In the 'original petition at para 8.4 the appellant has accepted that he had transferred all his shares. The transfer was made pursuant to his request for transfer in 1983. By that time, document dated 2-9-1982 relating to his claimed succession to the shares is supposed to have come into existence. When he intended to transfer all his shares, it is mysterious how he did not mention about the shares he suppose .....

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in favour of Sri N.K. Mohapatra. I accept. 1. Sd. Kavita Mohapatra 2. Sd. S.K. Mohapatra Sd. N.K. MOhapatra 3. Sd. L.K. Mohapartra." (Underlining by us for emphasis) There is nothing in the document to show that appellant was one of the legal heirs. On the contrary the underlined portion shows that the signatories succeeded to the said shares as the 'sole legal heirs'. Learned Company Judge was not justified in making reference to the document for taking note of the assertion in the .....

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main application. Position is worse here. There was no amendment, and even the new point lacked details. An assertion divorced from the original pleadings was taken in the counter affidavit to the application for vacation of stay. Learned Company Judge should have ignored it. As held by apex Court in World Wide Agencies case (AIR 1990 SC 737) (supra), a successor can maintain an application. But it has to be established that such right was acquired, as claimed. Before apex Court abundant materi .....

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ce. No explanation has, however, been offered as to why no steps were taken by appellant, who was Managing Director to regularise the matter of getting shares recorded in terms of the relinquishment arrangement dated 2-9-1982. In World Wide Agencies Case (supra) the legal representatives were more than anxious to get their names put on the register of members in place of deceased member. This aspect was noticed by apex Court in para 26 of the judgment. Therefore, no importance was attached to ab .....

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re-A to the document, and list of transfer of equity shares since May, 1983 up to 1989) show that there was no transfer recorded so far as shares held by Smt. Rukmani Mohapatra is concerned, even though some other transfer of shares were recorded. Those documents instead of furthering appellant's case go a great way to show that the document purportedly dated 2-9-1982 is not genuine. It is crystal clear that on the appellant's own showing no action was taken to get his name put in the re .....

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and may at any stage be appropriately exercised in the interest of justice, the law of limitation notwithstanding. I But exercise of such far-reaching discretionary power is governed by judicial considerations, and wider the discretion, greater ought to be the care and circumspection on the part of the Court. All amendments will be generally permissible when they are necessary for determination of real controversy in the suit. All the same, substitution of one cause of action or the nature of th .....

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e same. Murty has not filed any application in this appeal for being impleaded as a co-petitioner in the original application of co-appellant. It is stated that Murty had filed an application (Misc. Case No. 122 of 1992) for being impleaded as an intervener. He having abandoned his appeal, prayer for impleading Murty cannot be accepted. From records of connected company case No. 10 of 1992, we find that there is no order passed in regard to the application for impletion. Since the original petit .....

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y substance. 14. Coming to the prayer relating to action under Section 634 of the Act, learned Company Judge also dealt with this aspect in the other application filed by Murty, and since the points were same he did not report the same, in the application filed by appellant. 15. After having held that the petition was not maintainable, the merits of the contentions 'were not considered by learned Company Judge because of the elaborate discussion in Company Act Case No. 14 of 1992 filed by Mu .....

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t was, however, submitted by State and IDC that relief in case of oppression or mismanagement can only be considered by the Company Law Board instead of by this Court by virtue of the Amendment Act. With reference to Section 391, learned Company Judge observed that said section uses the expression 'compromise' and 'arrangement'. The expression 'arrangement' in terms of Section 390 includes re-assessment of share-capital of the company by consolidation of shares of differe .....

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mbers or any class of them should be proposed. An arrangement or scheme under Section 391 when proposed can be sanctioned by the Court where it is for benefit of the company. Learned Company Judge did not think it necessary to examine the question whether there was any allegation of oppression to the minority group and what would be effect thereof in view of the Amendment Act. Correctness of this conclusion is no more available to be examined by us in view of withdrawal of the appeal by Murty in .....

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cturing the company. It was also held that there was no justification for removal of Managing Director, with the observation that IDC must co-operate in management of the company. In the concluding para of the order, it was held that it was open to the company to unload its shares cither in the open market or in favour of the Managing Director and his group, if at any point of time IDC was not interested in continuing the company. The fact that the Managing Director had tendered resignation and .....

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been authorised to call for offers by way of advertisement. Learned Company Judge observed that if that decision was considered to be an act intended to oppress the minority group, affected party has liberty to move Company Law Board for appropriate relief. Considering the fact that the appellant and the group to which he belonged, only represent 0.449% of the share capital, and any meeting of the members would prove futile as appellant and his group shall be outvoted, it was further observed th .....

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winding up the company, though that must he shown as a preliminary to the application of Section 397. It must further be shown that the conduct of majority shareholders was oppressive to minority as members and this requires that events have to be considered not in isolation, but as part of a consecutive story. There must he continuous acts on the part of majority shareholders, continuing up to the date of petition, showing that affairs of the company were being conducted in a manner oppressive .....

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on confer discretion of a very very wide nature on the Court and should be exercised with care, otherwise any person disgruntled with the management of the company can put the whole business of the company into jeopardy by bringing proceedings under this section. The Court has to very carefully exercise power under Sections 397 and 398 and not so as to substitute management by Court for the existing management for every difference of opinion between the shareholders. It is necessary to show not .....

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he date of the petition. (See Re : Fildes Bros. Ltd. (1970) 1 All ER 923 (Ch. D.). The application must give particulars as regards the oppressive manner. Delay in seeking relief under Section 397 and Section 398 will not by itself bar the remedy, but if the delay is evidence of acquiescence or condonation of a wronful act. Court may not exercise its dispretion in granting relief. In determining whether there is oppression or not. Court has to look at the substance of the matter. Oppression is a .....

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, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs, or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs; and when such conduct is unfair or, to use the expression adopted by Viscount Simonds in Scottish Co-operative Wholesale Society Ltd. v. Mayer (1958) 3 All ER 66 (HL) "burdensome, harsh and wrongful," to the other mem .....

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#39;s memorandum and articles are not to be equated with mismanagement, even if they turn out to be wrong in the circumstances or they cause temporary losses. 17. Minority shareholders are protected (a) by the common law, (b) by the provisions of the Act. Even though rule of majority prevails, it cannot be so in certain cases. A proper balance of rights of majority and minority shareholders is essential for smooth functioning of the company. Attempt is to be made to maintain that balance by admi .....

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heir grievance would never reach the Court because the wrong-doers themselves being in control would not allow the company to sue. (See Edwards v. Halliwell (1950) 2 All ER 1064 at page 1067, per Jenkins, L.J.). Various rights are given to minority shareholders under the Act. Under the general law, doctrine that the majority of members must not commit a fraud on minority but must act bona fide for benefit of the company as a whole. Thus, in Cook v. Decks (916) 1 AC 554, an individual shareholder .....

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udicial to public interest' were introduced in Sections 397, 398 and 408, by the Companies (Amendment) Act (53 of 1963), in order that the Court or the Central Government may have jurisdiction to interfere in cases where even though there may be no prejudice to any shareholders, the oppression or mismanagement complained of is prejudicial to the public interest. The expression 'public interest' is an elusive abstraction meaning general social welfare or regard for social good and pre .....

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e understood and applied to policy decisions. It indicates a standard of goodness for judging private acts and conduct in the social context. As observed by Mahajan, C.J. in State of Bihar v. Kameshwar Singh, AIR 1952 SC 252, the expression 'public interest' is not capable of precise definition and has not a rigid meaning, and is elastic and takes its colours from the statute in which it occurs, the concept varying with the time and state of society and its needs. In the case of a compan .....

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