TMI Blog2007 (7) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board. I propose to dispose of both these appeals along with the cross-objections as also the application, being TA/301/07 by a common judgment, as they arise out of one order only, and there are overlapping factual and legal issues involved in both these appeals. There are three major shareholding groups in these companies, two of them originally belonging to one Dalmia family, whom I shall describe as G.G. Dalmia group and B.L. Dalmia group respectively, and the other one being the Saraff group. The G.G. Dalmia group are the appellants in those two appeals. There appears to be four branches within the Saraff group, but before the Board no conflicting stand was taken by any of these Saraff branches, who have been impleaded as respondents in both these petitions, and they were treated collectively by the Board. Main contest in these proceedings appear to be between G.G. Dalmia group and the Saraff group, the B.L. Dalmia group aligning with the latter. 2. By this order, the Board granted liberty to the B.L. Dalmia branch to purchase the shares in Belgachi Tea Company Limited whereas similar liberty was given to the Saraff group in the New Terai Tea Association Ltd. (The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.7.2007. In the meantime, we request the High Court to hear and dispose of A.C.O. No. 86/2006 and A.C.O. No. 87/2006 on or before 1st July, 2007. Pending hearing and final disposal of the present Special Leave Petition, we direct that the composition and the management of the three companies shall remain unchanged during the aforestated period. During the aforestated period, there shall be no sale or purchase of tea except through public auction. This direction will also apply to all the three companies. There shall be no transfer of funds by the said three companies to the sister companies or inter se. Subject to the above, the order of the High Court dated 16.4.2007 (reproduced at page 92 of the SLP Paperbook) shall continue. Needless to add that none of the parties on either side will seek adjournment of this matter in the High Court. 4. Both Belgachi and New Terai are engaged in the business of cultivation and sale of tea, each company owning a tea estate, known as Belgachi and Panighatta respectively. Originally, Belgachi was jointly acquired by one M.L. Dalmia and one Mathura Prasad Saraff, the patriarchs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Such issuance of shares, it has been alleged, is contrary to SEBI regulations and guidelines. 7. The appellants in their application being T.A. No 301 of 2007 have alleged that after passing of the impugned order, they have come to learn that the main respondents in New Terai have abandoned the tea garden altogether, and have handed over the same to another set of individuals. Leave has been prayed for in this application for placing reliance on certain documents in this regard in course of hearing of this appeal. 8. These allegations were denied by the appearing respondents by filing Reply. A common reply was filed on behalf of respondent Nos. 1,2,3,4,6 7 and an independent reply had been filed by respondent No. 5, who appears to belong to one of the Saraff sub-branches so far as Belgachi is concerned. It has been submitted by the learned Counsel that before the Board, none had appeared on behalf of the respondent No. 5. In the case of New Terai, learned Counsels have appeared for respondent Nos. 1 to 7, whereas none appeared on behalf of the respondent Nos. 8 to 17. It has been submitted on behalf of the appellants that service had been effected on all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the petitioners, the most equitable way of putting to an end of the disputes would be to direct the group in control of a company to purchase the shares held by the others in that company on a fair value to be determined by an independent valuer. 11. In the impugned order reference was made submission of the appellants to a family arrangement between two branches of Dalmia group arrived at in April, 2004, under which the appellants were to manage Bateli and B.L. Dalmia group to manage Belgachi through inter se transfer of shares to give each group more shares in the respective gardens. But this aspect was not stressed in course of hearing before me by the learned Counsels of either of the parties. 12. This order has been assailed by the appellants on various grounds, but the main thrust of their argument has been that order for compulsory purchase of shares should have been passed in the case of both Belgachi and New Terai giving appellants option to purchase the shares of the respondents in the event there was default in such purchase by the respective groups having majority holding in these two companies. In both the cases, the Board had not placed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute between the contesting groups reach a deadlock, direction ought to be issued for compulsory purchase to put an end to the dispute. On the aspect of closely-held family companies assuming the character of quasi-partnership, the authority relied on was the case of Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Holdings Ltd. and Ors. , and the case of Ramshankar v. S.I. Foundry . An english authority, (House of Lords) Ebrahimi v. West Bourne Galleries Ltd. and Ors. 1972(2) ALL E R 492, which was referred to by the Hon'ble Supreme Court in the case of Needle Industry has also been relied upon by the appellants. The authorities cited in support of the appellants' prayer for compulsory purchase in view of breakdown of relationship arc an unreported decision of this Court in Company Petition No. 85 of 1975 delivered on 21th April, 1977 in the case of Cosmos Steel Pvt. Ltd., four judgments of the Hon'ble High Court of Delhi in the cases of Kriahan Lal Ahuja and Ors v. Suresh Kumar Ahuja and Ors. 53 CC 60, Suresh Kumar Sanghi v. Supreme Motors Ltd. 54 CC 235, Chander Kishen Gupta v. Pannalal Girdhari Lal (P) Ltd. 55 CC 702 and Caparo India Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cause prejudice to the company and expose the company itself to criminal prosecution, some authorities have been relied upon, but I do not consider it necessary to refer to such decisions as it is a well-established principle of law that a company can be prosecuted under a penal provision. 16. In respect of New Terai, the additional allegation is as regards issue and allotment of 42000 shares in favour of the respondent Nos. 2 and 8 to 17, which the appellants claim are contrary to the provisions of the Companies Act, 1956 as also the SEBI Guidelines. The substance of the appellant's grievance made out in the petition on this Count is that the respondent Nos. 2 to 7 have shown issuance and allotment of such shares in the month of June, 2004, of which appellants had no knowledge until the time little before filing of the petition. The charge is that no general meeting was convened or held for this purpose, and no notice of any General Meeting was issued or received by any of the appellants. Such allotment has been made to persons close to and/or nominees of the Saraff family. The companies to which such shares have been allotted are owned and/or controlled by the nom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both these companies of the appellants, who constitute minority group. The foundation of this appeal is that the finding of the Board is perverse, and such finding can be challenged in an appeal under Section 10F of the Act. The authority relied upon in support of this proposition is the decision of the Hon'ble Supreme Court of India in the case of Dale and Carrington Invt. (P). Ltd. v. P.K. Prathapan . Argument on behalf of the appellants was advanced to the effect that acts of mismanagement and oppression need not be proved with precision, but such acts of oppression can be gathered from indirect evidence. The authorities referred to by the appellants in this respect are the cases of Cosmostecl (supra). In re: Albert David Ltd. 68 CWN 163 and S. Sen v. Brahmaputra Fertilisers 81 CWN 82, all being decisions of this Court. 20. Even if no case is made out establishing oppression and mismanagement, it was also submitted on behalf of the appellants, the Board has power to pass such order it finds just and equitable. My attention has been drawn to a large body of authorities in support of the proposition, being the case of Needle Industries (supra), Sangramsingh P. Gaekwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made out in the cross-objection. 23. Contesting the claim of the appellants, the main argument of Mr. Mitra is that these two appeals are not maintainable, as no question of law is involved and no appeal lies against an order of the Board on their finding of facts. He submitted that the questions of law do not arise out of the order of the Board, and hence these appeals ought to be dismissed. Moreover, the relief for compulsory purchase was not claimed before the Board, and this prayer cannot be pressed at the appellate stage, lie has taken me through the grounds taken in the Memorandum of Appeal, and submitted that there is no grievance to the effect that the Board erred in not granting reliefs as claimed in the petition. 24. As regards allegations of mismanagement and oppression on the count of statutory violations, mainly being default in payment of gratuity and provident fund dues, Mr. Mitra has advanced a three-fold defence for his clients. Firstly, he has submitted that in New Terai, the two of the appellants were directors admittedly till February, 2005, and were part of the management. Substantial part of the dues pre-date their admitted date of resignatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom these acts are directed.... 26. As regards issue and allotment of shares in New Terai, he justified the same on the ground that the shares were issued to strategic investors for the benefit of the company, which was admittedly in need of funds. These shares, sold at a premium of ₹ 90/- in a loss making tea company was itself a testimony to the fact that the company benefited from such acts, Mr. Mitra argued. Rebutting the charge of not giving prior notice or holding of General Meeting, he replied that notice to the appellants was sent under Certificate of Posting, and an Extraordinary General Meeting was held for this purpose. He denied any violation of the 1997 SEBI Takeover Code or the 2000 Guidelines. His submission is that the allotment took place in the year 2004, and the appellants were well aware o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der which the Board has passed is a discretionary order and hearing appeal solely on point of law, this Court ought not to re-assess the evidence and test the manner in which such discretion has been exercised, and substitute its own discretion. Two judgments have been cited on this proposition, being Wander Ltd. v. Antox India P. Ltd. 1990 (Supp) SCC 727 and Pratima Dutta v. Nilima Seal 1997(2) CLJ 409. 30. The first point which falls for determination in these two appeals is as to whether the appeals are maintainable. Large part of the arguments on behalf of the appellants was directed on non-consideration or misappreciation of evidence and pleadings by the Board. For this purpose, certain facts have indeed been brought to my notice. While hearing an appeal under Section 10F of the Companies Act, law does not totally prohibit this Court from looking at facts. In the case of Dale and Carrington Invt. (P) Ltd. (supra), the Hon'ble Supreme Court, examining the scope of power of High Court in appeal under Section 10F of the Companies Act, held: It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory violation could constitute acts of mismanagement and oppression. But in none of these authorities has been held that any violation of statute or violation of any statute by the management would constitute acts of mismanagement and oppression. This position of law has been explained in the case of Needle Industry (supra). The passage from this judgment dealing with this issue has been referred to in the earlier part of this judgment. It has been further held by the Hon'ble Supreme Court in the case of Needle Industries: But a series of illegal acts following upon one another can in the context, lead justifiably to the conclusion that they are a part of the same transaction of which the object is to cause or commit oppression the oppression of persons against whom those acts are directed. 35. In the case of Albert David (supra), the allegation was mainly of misfeasance. The allegation in the case of Bhajirao G. Ghatke (supra) related to various breaches of the Companies Act. In Loch v. John Blackwoood Ltd. (supra) also, the grievance of breach of the provisions of he Companies Act. Thus, there was a direct nexus between the acts complained against and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be issued containing various informations, including the identity of the proposed allottees. Allotment pursuant to the resolution taken in a general meeting is required to be made within fifteen days from the date of passing of the resolution. Under the SEBI Regulations, 1997, if there is acquisition shares empowering the acquirer with 15% or more voting rights of a company, public announcement is required to be made. It has been alleged that the respondent Nos. 8 to 17 are acting in concert and has acquired more than the stipulated voting rights in New Terai without making any public announcement. A case of violation of SEBI (Disclosure and Investor Protection) Guidelines has been made out in that more than fifteen days have lapsed between the dates of passing of resolution at the purported meeting of shareholders granting consent for such issue, and the actual date of allotment. The case of the appellants is in the absence of a fresh consent of the shareholders, as per Clause 13.4.3 of this Guidelines. 37. In the impugned order, the argument of the appellants for setting aside the allotment has been recorded in paragraph 9. Substance of the allegations have als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are sustained, the act complained against would be void, a subsequent offer to make the complainant a party to the same wrong cannot cure it of its initial defect and ligitimise a void act. Even if by such act, the appellants do not suffer loss from any special status in the company, their voting rights get considerably reduced. 41. It is true that before the Board, the respondents have denied these allegations. But this aspect, in my opinion, ought to have been examined. The allegations in this respect touches upon the rights of the appellants as shareholders and might constitute oppression if established. The Board should have examined these allegations. 42. The failure on the part of the Board to examine this aspect of the controversy and coming to a finding that such allegation of oppression has become infructuous cannot be sustained. The Board failed to consider relevant materials in testing the appellants' case of oppression and mismanagement on this head. 43. There is another aspect of the finding of the Board in the case of New Terai which needs to be examined. In the impugned order, Saraff group has been given the liberty to purchase th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also passed mainly in case where shares are allotted to alter the majority holding. This position of law emerges from the decision of Hon'ble Supreme Court in the case of Kamal Kumar Dutta and Anr. v. Rubi General Hospital Ltd. and Ors. 2006(5) Comp.LJ (SC) 511. An Hon'ble Division Bench of this Court in the case of Tea Brokers (P) Ltd. v. Hemendra Prasad Barooah 1998(5) Comp LJ 463, quoted with approval by the Hon'ble Supreme Court in the case of Dale and Carrington Invt. (P) Ltd. (supra), held: A majority shareholder should not ordinarily be directed to sell his shares to the minority group of shareholders, if per chance through fortuitous circumstances or otherwise, the minority group of shareholders comes into power and management of the Company.... 47. The power to direct compulsory purchase of shares to one of the contesting group thus is within the discretionary power of the Board, though such power ought to be sparingly used. In the cases involved in the present appeal, in exercise of the discretionary power, the Board has prescribed certain solutions for the two companies. The question that arises in this context is that in an appeal under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute between the parties and his clients offered a buyout to completely end the dispute. While in the pleading before the Board there is no overt manifestation of insoluble dispute through series of conflict situations between the parties before the present proceeding was started, there is a specific finding by the Board that the relationship between the parties was strained, and such finding was not confined to Bateli Tea Co. Ltd. In petitions of this nature, the rights of the parties ought not to be measured solely in terms of the assertions made in the petition, as has been held in the case of Ramasankar v. S.L Foundry . The Board could have arrived at such a finding from the position of the parties taken during the proceeding also. The Board also concluded that the appellants were entitled to relief in Belgachi and New Terai. But the relief granted in my opinion was illusory, in that only liberty was given to the respondents to buy the shares of the appellants in these two companies, without prescribing a time-frame and without a stipulation as to what would happen if they do not exercise such liberty. 52. A case was made out by the respondents that the appellants were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which factual issues would have to be considered and it is--the Board which has been vested with the discretion to decide the form of relief to be granted on just and equitable ground. This is the course which has been prescribed by the Hon'ble Division Bench of the Andhra Pradesh High Court in the Case of Sri Ramdas Motor Transport Ltd. v. D.S. Rao reported in 127 CC 336 (AP), with which I respectfully agree. 56. So far as the appellant's application being TA/301/07 is concerned, I do not think there is any scope of introducing new facts at this stage, and the same is dismissed. 57. Both the appeals under the circumstances stand allowed with the above observation, and the impugned order, so far the same relate to Belgachi and New Terai are set aside. Both the cross-objections stand dismissed, and the Company Law Board is hence directed to decide the two Company Petitions afresh in the light of observations made in this judgment. Parties to bear their owe cost. Later: Let an urgent xerox certified copy of this order, if applied for, be supplied to the parties forthwith, subject to compliance with all requisite formalities. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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