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1994 (5) TMI 276

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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s. In an extraordinary general body meeting held on 25-11-1975 decision was taken to restructure the company at corporate level and question of removal of appellant from office of Managing Director was also discussed. Notice was issued for holding an extraordinary general body meeting of the company on 26-12-1975 to transact the business of restructuring the company by removing its Managing Director. A group of share-holders led by one Mr. N. R. Murty (hereinafter referred to as 'Murty') .....

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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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ter transfer of all his shares in favour of IDC and after receiving the full share values, appellant submitted his resignation on 22-3-1983 and requested for its immediate acceptance. Eventually the resignation was accepted. Appellant's stand, however, is that there was an understanding between him and IDC that he would be given a suitable assignment and he would be paid benefits like the gratuity and other benefits allowed in his favour by the Central Government under sections 269/198 and 3 .....

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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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said shares devolved upon four persons, namely, Kabita. Mohapatra, S. K. Mohapatra, L. K. Mohapatra and B. K. Mohapatra, who relinquished all their rights in favour of the appellant. Learned Company Judge found that there was no mention as to when the mother of the appellant died and in what circumstances four others, besides the appellant succeeded to the shares held by his mother. It was observed that the petitioner does not ipso facto become a share-holder without going through formalities pr .....

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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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order is passed in a Company Act Case filed under Section 397/398 of the Act, Court does not become functus officio and can in an appropriate case grant relief. In such a case an affected party even after the amendment brought in by Companies (Amendment) Act, 1988 (in short, the 'Amendment Act') can seek enforcement of his reliefs before the High Court. In Cosmostees Private Ltd. v. Jairam Das Gupta, AIR 1978 SC 375, it was observed by apex Court that scheme of Sections 397 and 406 of th .....

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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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tains its powers and jurisdiction to make further orders and to give such directions as may be necessary from time to time, even after it had passed orders, formally disposing of the proceeding under Sections 397 and 398 of the Act to enforce and implement and to give effect to such orders. An order made under Section 402 of the Act is not a decree and the same is not in the nature of a decree passed in a suit in all respects. The provisions of Section 634 of the Act are clear and unambiguous wh .....

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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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r as the appellant is concerned on the question of locus standi. We find that existence of such a document was not indicated earlier; nor even in the original affidavit, or the rejoinder affidavit filed on 28-9-1992. Significantly in para 6.1 it was stated as follows : "Further the petitioner still holds shares as successors of Suit. R. Mohapatra (deceased mother of the petitioner)." Neither deatils of share-holding nor the exist-ence of the purported document dated 2-9-1982 were indic .....

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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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als were placed to show that the claimants had come into the shoes of the original share-holder. In the case at hand, in the original petition itself appellant accepted that he had no shares in the company after transfer of the shares held by him (as stated in para 8.4 of the application). We also find that appellant submitted his resignation on 22-3-1983, and requested for its immediate acceptance. By that time, the relinquishment arrangement as put forth now is stated to have come into existen .....

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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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e claim for another in the original plaint or change of subject-matter of or controversy in the proceeding is not permissible. The amendment sought for in present case precisely intends to do so. We, therefore, reject the prayer for amendment, 13. Coming to the prayer for impleading Murthy as co-appellant (by making him co-petitioner in original application), we find that though Murty had filed a separate Company Act Case and had also filed A.H.O. No. 57 of 1993 before this Court, he withdrew th .....

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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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nt classes or by division of shares into shares of different classes or, by both these methods. 'Compromise' is an expression which implies existence of a dispute' which it seeks to settle. The term 'arrangement' is of a very wide import and its meaning is not limited to something analogous to a compromise. In order to attract Section 391, it is necessary that a compromise or arrangement between a company and its creditors or any class of them or between the company or its me .....

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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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at the case did not come within the ambit of Section 391 of the Act. Conclusions of learned Company Judge which were assailed in AHO No. 57 of 1993 by Murty have become final because of withdrawal of said appeal. 16. Coming to applicability of Section 397 of the Act, it is relevant to note what Apex Court observed in Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 35 Com Cas 351 : AIR 1965 SC 1535. As was observed in that case, it is not enough to show that there is just and equitable cause for .....

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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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ny act exercised in a manner burdensome, harsh and wrongful. It is not lack of confidence between shareholders per se that brings Section 397 into play; but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as shareholders. Oppression occurs when shareholders, having a dominant power in a company .....

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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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was able, despite Foss's case (supra), to bring an action to recover company's property from those who had taken it and who, by their voting power, prevented the company itself from suing. Again, an alteration of articles must not be in fraud of the minority. Chapter VI of the Act deals with prevention of oppression and mismanagement. Sections 397 and 398 deal with the procedure for getting relief in cases of oppression and mismanagement respectively. 18. The words 'in a manner prej .....

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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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nquisitive interest as well as a material interest. One feature of the public interest is that justice should always be done and should be seen to be done : per Morris, L.J. ( Ellis v. Home Office (1953J 2 All ER 149). A matter of public or general interest does not mean that which is interesting as gratifying curiosity or a love of information or amusement; but that in which a class of the community have a peculiar interest, or some interest by which their legal rights or liabilities are affect .....

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