TMI Blog2024 (1) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the case of the Appellant that the Appellant's mother had claimed any such legitimate expectation during her lifetime. Be that as it may, a family held Company cannot be ipso facto be treated as a quasi-partnership. There was no pre-existing partnership prior to incorporation of the 1st Respondent Company nor was there any existence of promise to offer Directorship to any Appellant who had become a Shareholder only by inheritance and not by inducement. It is seen from the record that the 1st Respondent Company was incorporated as a Private Company on 22/12/1938 long before the Appellant had become a Shareholder. There is no claim of partnership by the Appellant or his mother or any other Shareholder subsequent to his becoming a Shareholder in 1974 - The contention of the Appellant that this Family Company be viewed as a 'quasi-partnership' concern cannot be sustained. Lifting of corporate Veil - HELD THAT:- It is a settled law that Holding Company and its Subsidiaries are incorporated Companies each having a separate Legal identity, and each, a separate Corporate Veil. The Corporate Veil between the Holding Company and the Subsidiary Companies remains in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt/Tribunal for relief in case of Oppression and Mismanagement; and in the case of winding up a share in the surplus - In the facts of the instant case, having regard to the fact that the lack of confidence of the Appellant is grounded on the personal conduct of the Directors rather than a lack of probity in the conduct of the Company's affairs, it is opined that the Appellant's proprietary rights as a 'Shareholder' are not affected in any manner. Restructuring of the boards - HELD THAT:- In the absence of any provision in the Articles of Association or any 'Agreement', the Appellant cannot be made a Director unless there is approval of the majority of the Shareholders, or the Articles provide for proportionate representation - also the Appellant does not have the Locus to seek restructuring of the Boards of the Subsidiaries where he is not a 'Shareholder'. Legitimate Expectation - HELD THAT:- The 'legitimate expectation' for any participation in the Board cannot arise under Corporate Law without the mutual consent of the Shareholders and can be inferred only if it is founded on the sanction of law or custom or a precedent followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. Venugopal, J. (Member (J)) and Shreesha Merla, Member (T) For the Appellant : Ravi, Senior Advocate and R. Murugan, Advocate For the Respondents : Krishna Srinivasan, Senior Advocate for Geethi Ara, Advocate, Dwarakesh Prabhakaran, Advocate and C. Aryama Sundaram, Senior Advocate for Thriyambak Kannan, Advocate JUDGMENT (VIRTUAL MODE) SHREESHA MERLA, MEMBER (T) 1. Challenge in these Appeals TA No. 18/2021 and TA No. 114/2021 in Company Appeal (AT) No. 325/2019, and in Company Appeal (AT) No. 328/2019 respectively under Section 421 of the Companies Act, 2013 (hereinafter referred to as the 'Act) is to the common Impugned Order dated 18/09/2019 in TCP No. 1/2016 (CP No. 94/1999) and TCP No. 88/2016 (CP No. 20/2012) passed by the National Company Law Tribunal, Chennai Bench, by which common Order, the NCLT has dismissed both the Company Petitions, as devoid of merit. 2. At the outset, a brief history of the various Orders and the reliefs prayed for are being detailed as hereunder for better understanding of the case. The reliefs prayed for in Company Petition TCP No. 1/2016 filed by Mr. Shankar Sundaram against 26 Respondents seeking to implea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Inspector or Inspectors in terms of Section 235 of the Act. j) For such further or other reliefs as this Hon'ble Company Law Board may deem fit in the facts and circumstances of the case. 3. The Interim reliefs sought for in TCP No. 1/2016 are as follows: a) Immediate direction to the first respondent to take steps to provide adequate working capital of Rs. 5 Crores to Addisons Paints and Chemicals Ltd.; b) To convene a Board Meeting of that Company to ensure Y2K compliance; finalise VRS Scheme and Foreign Collaboration with NOF Corporation, Japan; c) To direct the 5th respondent to obtain on job work/out-source such of those paint products wherein the cost of production exceeds the nett sales realisation. d) To direct TAFE (8th respondent) to purchase their requirements of paints from the 5th respondent as per the earlier prevailing practice of the Amalgamations Group. e) To appoint the petitioner as a Director on the Board of the 1st respondent and entrust him with an office of profit in one of the larger profit making subsidiary company of the 1st respondent commensurate with the educational qualifications and work experience on an equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Respondents herein without getting the prior sanction of this Hon'ble Board and in excess of what this Board might fix as reasonable pending disposal of the main C.P. B. Direct the Respondents to nominate the Petitioner to a post of profit in any one of the Profit making Subsidiaries among the Respondents 12 to 48, and fix a reasonable remuneration for such post matching those that are fixed for the other Respondents herein pending disposal of the main C.P. C. Pass such further or other orders as may be required and deemed fit and proper under the facts and circumstances of the case and thus render full justice. 6. The Company Law Board Principal Bench in the matter of 'Shankar Sundaram Vs. Amalgamations Limited' in CA No. 48/2000 in CP No. 94/1999, dated 18/10/2000 observed that the Company has 38 subsidiaries and some of the subsidiaries are in turn 'Holding Companies' of other 'Subsidiaries' and in that Company Petition the Petitioner had arrayed 17 subsidiaries as Respondents and had sought reliefs against some of the subsidiaries in terms of Section 402 of the Companies Act, 1956. It was observed that the Petitioner other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o costs of a sum of Rs. 10,000. Consequently, connected C.M.P. No. 19428 of 2000 is closed. 7. The Hon'ble High Court of Madras in 'Amalgamations Limited Vs. Shankar Sundaram' in LPA Nos. 129-131/2002 and CMP Nos. 8586, 8588, 8602, 8605/2002 and CMP Nos. 413, 414, 415 416/2011 has observed in Paras 39, 48, 49, 50, 51 as follows: 39. In fact, the Company Law Board relied upon the decision reported in Hungford case and rightly arrived at a conclusion that it will be improper and illegal to join subsidiaries in the Company application on facts and circumstance of the case. But the Company Law Board has held that the main Company Petition under Section 397 of the Act is not demurable or objectionable in the absence of subsidiary Companies and their directors and share holders and in appropriate case, they would come under the expression affairs of the Company meaning the affairs of the holding Company Further, it was also held that Therefore, when a person is not a member of a Company, his alleging oppression and invoking the provisions of Section 397 against that Company does not arise. Therefore, a shareholder of a holding Company cannot complaint of oppressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Petition, we are inclined to allow LPA Nos. 129 131 of 2002. 50. At the same time, in so far as LPA No. 130 of 2002 is concerned, which is filed by the holding Company challenging that portion of the order of the Company Law Board rejecting certain preliminary objections raised by the Appellant and against the order of the Company Law Board in not dealing with certain preliminary objections raised by the Appellant and against certain directions given by the Company Law Board, as rightly pointed out by the learned Single Judge, the Company Law Board has not made any error in recognising the statutory right of the Respondent herein under Law to file a Petition under Section 214(2) read with Section 235 of the Act. Further, in view of the fact that we have categorically held that the order of the Company Law Board ordering to delete the names of the subsidiary Companies from the array of parties in the Company Petition and permitting the holding Company to file objections relating to the objections made against them is valid, we do not find any reason to interfere with the order passed by the learned Single Judge in C.M.A. No. 2036 of 2002 and therefore, the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld insofar as it treats the Company Petition as being under Section 397/398 and not Section 235 of the Companies Act, 1956. We further make it clear that the National Company Law Tribunal shall deal with and decide the case independently and in accordance with law, without being influenced by any observation made by the High Court in the matter. The Appeals are disposed of in the afore- stated terms. (Emphasis Supplied) ISSUE OF REMUNERATION, DIVIDENDS QUASI-PARTNERSHIP 9. At the outset, the first issue raised by the Learned Senior Counsel for the Appellant is that equal rights were denied to equal inheritors, which is argued to be an act of oppression against the Appellant. It is submitted that Mr. Ananta Ramakrishnan was owning the entire 100 % shares in the first Respondent Company when he died intestate on 18/04/1964 and all his shares were devolved equally among his five legal heirs namely, his wife, his two sons and his two daughters, one of whom was the Appellant's mother. The Learned Senior Counsel drew our attention to the family tree for better understanding of the shareholding pattern. 10. It is the case of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group namely, Simson and Company Limited, TAFE and TMTL. It is stated that after adding the 20 % shares of the Appellant's grandmother, Mr. Sivasailam and Mr. Krishnamoorthy claimed majority power and control the affairs of the Company keeping the two sisters in the dark and appointing themselves to directorial positions in the subsidiary and fix their own remunerations for themselves, increasing the total remuneration and commission from Rs. 2,00,00,000/- in the year 1997-98 to Rs. 1830000000/- by 2012, which is around Rs. 16,00,00,000/- on an average. It is submitted that by 2018 the said amount escalated to Rs. 512.25 Crores which is an average of Rs. 52 Crores p.a. and that today it has crossed Rs. 850 Crores, the average being Rs. 100 Crores p.a. It is the case of the Appellant that Mr. Sivasailam and his two daughters namely Mallika Srinivasan and Jayshree Venkatraman and his granddaughter Lakshmi Venu along with Mr. Krishnamoorthy had appropriated Rs. 478.88 Cores; Seetha Venkatraman's husband and sons Rs. 26.33 Crores, while the Appellant's sister Lakshmi Narayanan got Rs. 7.04 Crores. During this entire period the Appellant was never given any position or remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was made that Elder had not received the notice of the Board meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present, no complaint of oppression could be entertained merely on the ground that the failure to give notice of the Board meeting was an act of illegality. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support 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 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 those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all appointments of Directors to the subsidiaries are made only by the Board of R1 Company which is dominated by the majority shareholders who have self- appointed themselves and fixed their own remuneration, excluding the Appellant, which is an act of disparity, discrimination and 'oppression'. 17. It is submitted that the Appellant in C.P. 20/2012, complained of several acts of 'oppression and mismanagement' mainly stating that Mr. A. Sivasailam and Mr. A. Krishnamurthy using the majority power usurped by them, placed themselves and their kith and kin in posts of profit in the subsidiaries and fixed unjustifiably exorbitant remuneration for such posts and in this process a major chunk of the profits earned by the subsidiaries was fritted away towards such high remuneration and only a meagre portion of the real profits earned by the subsidiaries were reflected in the books of the 1st Respondent Company as profits, dividends, interests etc. It is argued that the dividends were declared to the members of the 1st Respondent Company and paid only on such meagre profits. It is submitted that had the management acted fairly and not siphoned off a major portion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts. . . with reference to Section 397 . (p. 737) At pp. 734-35 of the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of V.S. Krishnan Vs. Westfort high-tech Hospital reported in 2008 3 SCC , in which Judgment the Hon'ble Apex Court has observed as follows: In a number of judgments, this Court considered in extenso the scope of Sections 397 and 398. The following judgments could be usefully referred to: (a) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [ (1981) 3 SCC 333] (b) M.S. Madhusoodhanan v. Kerala Kaumudi (P) Ltd. [(2004) 9 SCC 204] (c) Dale and Carrington Investment (P) Ltd. v. P.K. Prathapan [(2005) 1 SCC 212] (d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [(2005) 11 SCC 314] (e) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [(2006) 7 SCC 613] From the above decisions, it is clear that oppression would be made out: (a) Where the conduct is harsh, burdensome and wrong. (b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis- -vis the others. (c) The action is against probity and good conduct. (d) The oppressive act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court judgment. 23. It is the further case of the Appellant that the principle laid down in 'Vasudev P. Hanji Vs. Ashok Ironworks' reported in (2008) 145 Company Cases 797 is applicable to the facts of this case. It is a Company Law Board Case and though not binding, this Tribunal, on a brief perusal of the matter observed that it was a case of conversion of partnership to a Company; that the profits of the business were being shared in the ratio of 25:75 in a family arrangement; that there was no dividend payable at all. It is distinguishable as Simpson, TAFE and TMPL are all Public Companies and no remuneration can be drawn beyond 11 % of the net profits in accordance with Law. In the instant Case, the Appellant has been receiving dividend but it is his grievance that the dividend is not at par with the other Shareholders. 24. At this juncture, to ascertain whether the Appellant was being paid dividend and whether he had approved the same while attending the Annual General Meetings, the said statement showing the proposals of the various Annual General Meetings of the first Respondent Company is reproduced as hereunder: 25. It is seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and Mr. A. Krishnamurthy as it was done in the Register of Members of R1 Company, as null and void. Mallika had filed CS 618/2013 to declare that half of Mrs. Valli's 20 % shares belonged to AS and after his demise to his legal heirs. It is admitted by Mrs. Mallika in her Petition that Mr. A. Sivasailam and Mr. A. Krishnamurthy were exercising voting rights and all other rights in respect of Mrs. Valli's shares and on such basis held managerial control over R1 Company, with the intention of vesting controlling interest of the Amalgamations group, in the hands of the two sons and the family members and thus quell the impending conflict in the management thereof. The transfer of Valli's 20 % shares was to avoid a possible deadlock and to vest in her two sons so that they could control R1 Company and through it, the other Companies of the group. The Learned Counsel for the Appellant submitted that Mrs. Mallika's statement in Paras 34 and 35 in her Petition clinches the issue 'The Plaintiffs reliably understand from the records available that initially for the first few years, the Defendant No. 2 Company (R1 Company) paid the dividends to the owners, namely, Mr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional language, reflecting in the word conscience the ecclesiastical origins of the long-departed Court of Chancery. As I have said, I have no difficulty with this formulation. But I think that one useful cross- check in a case like this is to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged? In Blisset v. Daniel the limits were found in the general meaning of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law. 'Hind Overseas Private Limited Vs. Raghunath Prasad Jhunjhunwalla and Anr.' reported in (197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of relief the principles of partnership have been applied even in a public limited company. (See Loch v. John Blackwood Ltd. [1924 AC 783 : 1924 All ER Rep 200] and Ebrahimi v. Westbourne Galleries Ltd. [(1972) 2 All ER 492 : 1973 AC 360 : (1972) 2 WLR 1289 (HL)] ) 228. The principles applicable to the winding up of a company contained in Section 44(g) of the Partnership Act were applied in a winding-up petition under Section 433(f) of the Companies Act by a three-Judge Bench of this Court in Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla [(1976) 3 SCC 259 : AIR 1976 SC 565] following Ebrahimi [(1972) 2 All ER 492 : 1973 AC 360 : (1972) 2 WLR 1289 (HL)]. However, it was observed that when more than one family or several friends and relatives together form a company and there is no right as such agreed upon for active participation of members who were sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. 229. In Kilpest (P) Ltd. v. Shekhar Mehra [(1996) 10 SCC 696] it was stated: (SCC p. 701, paras 11- 12) 11. The promoters of a company, whether or not they were hitherto partners, elect to avail o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the concept of quasi-partnership. (Emphasis Supplied) 29. It is the common contention of all the Respondents that the appointments of Directors are in accordance with Law and the remuneration and commissions paid to the Directors are within the limits specified under Law, i.e., the limit of 11% of net profits. The remuneration fixed for the Directors is entirely justified considering the financial performance of these Companies. The balance sheets of the Subsidiaries are also placed for adoption in the AGMs of the Holding Companies. The Appellant is therefore estopped from questioning the appointments and remuneration after having approved the consolidated Annual accounts of the entire group for years together. 30. It is submitted that the 1st Respondent Company or its Subsidiaries cannot be treated as a quasi-partnership. It is the common case of the Respondents that the observations made in 'Ebrahimi Vs. Westbourne' (Supra) are not applicable to this case and that the principles for applying equitable considerations i.e. the principles of quasi-partnership have been dealt exclusively in 'Hind Overseas Pvt. Ltd. Vs. Raghunath Prasad Jhunjhunwala' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the remuneration and commission is within the limit of 11% profits, it is oppressive to him and argued that as per the ratio of 'Needle Industries Limited' (Supra), though the Act may be legal, it could still be oppressive. We find force in the contention of the common argument of the Respondents that mere unfairness does not constitute oppression and that whether conduct is oppressive or not is a question of fact to be determined in each case. The facts of the attendant case do not show that there is any 'lack of probity' or 'fair dealing' relating to the exercise of proprietary rights as a Shareholder to constitute oppression. Admittedly, the remuneration paid to the Directors of the Subsidiaries is within the limits prescribed under the Companies Act, 1956 and also the Companies Act, 2013. It is also significant to mention that none of the Shareholders of the respective Subsidiaries have complained with regard to the remuneration paid to the Directors of the respective Companies, neither have they challenged their appointment. It is the case of the Appellant there is a 'legitimate expectation' of being appointed as Director with remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an event, the principles of quasi-partnership in a given case may be invoked'. It is held that 'it is however one thing to say that for the purpose of dealing with an Application under Section 397 of the Companies Act, 1956, the Court would not easily accept the plea of quasi-partnership but as has been held in 'Needle Industries' (Supra), the true character of the Company and other relevant factors shall be considered for the purpose of grant of relief having regard to the concept of quasi-partnership. 'Sangramshinh' has reiterated the principle in 'Shanti Prasad Jain' referring to 'Elder Vs. Elder and Watson Ltd.' 1952 SCC 49 in which it was categorically held that the conduct complained of must relate to the manner of management of the affairs of the Company and must be such so as to oppress the minority of the Members including the Petitioners qua-shareholders. The Court also opined that Law, however, has not defined what oppression is for the purpose of the said Section and it was left to the Court to decide depending upon the facts of each case, whether there was any oppression. From the aforenoted Table (Para 33), it is crystal clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of parties as, if the corporate veil is lifted, the holding and subsidiaries companies will be -2- regarded as one and the same for the purpose of granting relief in the said Petition. The High Court Judgment is upheld insofar as it treats the Company Petition as being under Section 397/398 and not Section 235 of the Companies Act, 1956.... (Emphasis Supplied) 37. The decisions relied upon by the Appellant to support his case that 'Corporate Veil' need not be lifted in all cases are as follows:- State of UP and Ors. Vs. Renusagar Power Company and Ors. [1978 4 SCC 59] 66. It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the members of family, their nominees and relations has to be considered in the backdrop of events and it cannot be said that even if fact exists, the veil of the company cannot be lifted. Exercise of right under Sections 397 and 398 of the Companies Act comes within the purview of the equitable jurisdiction of the company Court. There can hardly be any dispute that in view of the structures of share the respondent Nos. 2 to 5 in truth and substance and subsidiary companies of Akshay Nidhi Ltd. which is thus, a holding Company and thus in such a situation, the Court cannot be a helpless spectator in looking behind the corporate veil so as to disentitle itself from considering as to whether in fact there had been mismanagement of oppression by one group or the other. There is another aspect of the matter. Provisions of Section 397 and 398 are taken recourse to in a piquant situation where two groups running the company are at logger heads so that it is impossible for them to join hands together and run the affairs of the company. The Court in such a situation would exercise its equitable jurisdiction and may grant appropriate reliefs. 23-24. In Life Insurance Corporation of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the Hon'ble Apex Court has held in Para 99, 100 101 that even if a Corporate Group functions as a single economic unit for accounting or tax purposes, a Holding Company and Subsidiary Companies are considered as separate legal entities. 96. At the outset, we need to reiterate that in this case we are concerned with the sale of shares and not with the sale of assets, itemwise. The facts of this case show sale of the entire investment made by HTIL, through a top company viz. CGP, in the Hutchison structure. In this case we need to apply the look at test. In the impugned judgment, the High Court has rightly observed that the arguments advanced on behalf of the Department vacillated. The reason for such vacillation was adoption of dissecting approach by the Department in the course of its arguments. Ramsay [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)] enunciated the look at test. According to that test, the task of the Revenue is to ascertain the legal nature of the transaction and, while doing so, it has to look at the entire transaction holistically and not to adopt a dissecting approach. 97. One more aspect needs to be reiterated. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by a legal process. The question is what is the nature of the control that a parent company has over its subsidiary. It is not suggested that a parent company never has control over the subsidiary. For example, in a proper case of lifting of corporate veil , it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. No multinational company can operate in a foreign jurisdiction save by operating independently as a good local citizen . 101. A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar had in reality no separate and independent existence apart from and independent of Hindalco. 70. In the aforesaid view of the matter we are of the opinion that consumption of energy by Hindalco is clearly consumption by Hindalco from its own source of generation. Therefore, the rates of duty applicable to own source of generation have to be applied to such consumption, that is to say, 1 paisa per unit for the first two generating sets and nil rate in respect of third and fourth generating sets. It is appropriate to refer that having regard to the conduct of the State the power cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar's energy by Hindalco as anything other than (sic or) different from consumption of energy by Hindalco from its own source of generation. We are, therefore, of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation. 40. In the aforenoted matter it was held that both & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon Co. Ltd. [1897 AC 22 : (1895-99) All ER Rep 33 (HL)] Lord Halsbury LC, negating the applicability of this doctrine to the facts of the case, stated that : (AC pp. 30 31) [a company] must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself ... whatever may have been the ideas or schemes of those who brought it into existence. Most of the cases subsequent to Salomon case [1897 AC 22 : (1895-99) All ER Rep 33 (HL)], attributed the doctrine of piercing the veil to the fact that the company was a sham or a facade . However, there was yet to be any clarity on applicability of the said doctrine. 71. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)]. The six principles, as found at paras 159-64 of the case are as follows: (i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) The court cannot pierce the corporate veil, even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eil, held that : (SCC pp. 335-36, para 90) 90. ... Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc. 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham delib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -substance partnerships is also confusing for the reason that though the parties may have been partners in their 'Purvashrama', they had become co-members of a company accepting new obligations in law. Therefore, a company, however small, however domestic, is a company and not a partnership or even a quasi-partnership . 139. That, for superimposing an equitable fetter on the exercise of the rights conferred by the articles of association, there must be something in the history of the company or the relationship between the shareholders , is fairly well settled [Saul D. Harrison Sons Plc., In re, 1994 BCC 475]. 140. In Lau v. Chu [Lau v. Chu, (2020) 1 WLR 4656 (PC)], the House of Lords indicated: (WLR p. 4662, para 14) that a just and equitable winding up may be ordered where the company's members have fallen out in two related but distinct situations, which may or may not overlap. The first of these is labelled as, functional deadlock , where the inability of members to cooperate in the management of the company's affairs leads to an inability of the company to function at Board or shareholder level. The House of Lords pointed out that functional d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoke just and equitable clause. Drawing our attention to the landmark decision in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [Needle Industries (India) Ltd. v. Needle Industries], it was contended that even the profitability of the Company has no bearing if just and equitable standard is fulfilled and that the test is not whether an act is lawful or not but whether it is oppressive or not. (Emphasis Supplied) 44. It is held by the Hon'ble Supreme Court that for invoking the 'just and equitable standard', the underlying principle is that the Court should be satisfied that the partners cannot carry on together or that one of them cannot certainly carry on without the other and there is a 'functional deadlock'. It was observed that 'SP Group had boarded the train half way through the journey of Tata Sons' in the instant case, there is a lack of confidence and trust between the Appellants and the Respondents and this lack of confidence alone would not be sufficient, as pointed out in 'SP Jain Vs. Kalinga Tubes' (Supra). There should also be lack of probity in the conduct of Directors to invoke this just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to decide the true factor of 'quasi-partnership'. In the matter of 'Vijayam Rajes and Anr. Vs. MSP Plantations Private Limited (1999) 95 CC 482 (CLB), it was held that family company cannot be assumed to be a quasi-partnership. In matter of 'V.M. Rao and Ors. Vs. Rajeswari Ramakrishnan Ors.' reported in (1987) 61 Comp Case 20 (Mad) (Para 60-61 and 107), it was specifically held that the principles of quasi-partnership can be invoked only in a case where originally the business was a partnership concern which was later on converted into a private limited company or where if the Corporate Veil or Corporate character of a Company is lifted, it could be found that in reality it was a partnership. The Appellant has not entered into any partnership argument or understanding with the other shareholders of the first Respondent Company or any other Company in the Group. The 'Amalgamation' group of Companies cannot be considered as a 'Partnership' in the light of the complex Shareholding pattern, independent management of each Company, Management participation from domestic / foreign investors and specifically in the absence of any kind of understan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company and are entitled, as provided by the Articles of Association to declare that dividends should be distributed out of the profits of the company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn.), p. 894 where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the Question 1s to concentrate on the plain words of the definition of agricult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up. The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles, and are not of the nature of real estate. (Emphasis Supplied) 47. It is specifically clear that the declaration of dividend is certainly not the source of the profit and any right to participate in the profit exists independently of any declaration by the Company. It is a settled proposition that a Shareholder cannot compel the Company by any process of Law to declare a dividend. Therefore, the contention of the Learned Senior Counsel for the Appellant that excess remuneration was eating into the profit of the Company thereby leading to a lower dividend, which he alleges is an act of Oppression, cannot be sustained, specifically keeping in view that a Shareholder of a Holding Company, cannot, as a matter of 'Right' seek to be appointed as a 'Director' in a Subsidiary Company, in which he may not be a Shareholder, but instead the Appellant seeks the position of a 'Director', by virtue of his being a member of the Family. The exercise of the inherent right of the Shareholders in such circumstances, to elect their Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the lack of confidence of the Appellant is grounded on the personal conduct of the Directors rather than a lack of probity in the conduct of the Company's affairs, we are of the considered opinion that the Appellant's proprietary rights as a 'Shareholder' are not affected in any manner. Other Contentions of the Appellant: 49. The Learned Senior Counsel for the Appellant vociferously contended that the Appellant's genuine grievance is that the majority Shareholders of the first Respondent Company who controlled the Subsidiary made themselves as Directors, earning huge remuneration, thereby oppressing the Appellant who is a minority and that being majority Shareholders, the decision as to who would be the Directors of the Subsidiary Companies is decided only by them and hence, it is a clear case of self-appointment; that even if there is no agreement to the effect that the Appellant has an equal right of participation, such a right of participation ought to be the natural consequence of equal inheritance of the entire shares in the Company; that this disparity in terms of getting themselves appointed in the Subsidiary Companies leaving the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with respect to Rs. 16 Crores transferred from TAFE to Amco with respect to land, is a subject matter of the Subsidiary Companies and secondly, the registered Sale Deed dated 07/04/1997 is part of the record which substantiates the investment of Rs. 16 Crores by TAFE Limited. It is the Respondent's case that the Appellant is neither a Shareholder in TAFE nor in Amco Batteries and that TAFE was a Shareholder in Amco Batteries and entered into a sale transaction for the land on Mysore Road for Rs. 15.24 Crores which was the market value and TAFE had paid the entire sum of Rs. 15.24 Crores including stamp and Registration charges, on account of which transaction Amco had recorded a profit of Rs. 15.18 Crores in his Books which consideration was used to reduce the VRS commitments. We find force in the submission keeping in view the Sale Deed which is part of the record. Further, this Tribunal does not find it a fit case to adjudicate this allegation as we are of the considered view that the Holding and the Subsidiary Companies cannot be treated as a single economic unit and that the Corporate Veil which was required to be lifted keeping in view the nature of the Companies and spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Mr. Sivasailam and his family had stacked several hundreds of crores of Rupees in a Shell Company called Stanbridge Company Limited in a Tax haven Island. It is submitted that the NCLT shall not frame any such issues and that there was no discussion about these allegations. It is submitted by the Counsel for the Respondents that the required details were submitted to the concerned authorities. This Tribunal does not have any express jurisdiction to conduct any such investigation to enquire into these kinds of allegations. The Appellant may approach the concerned authorities, if so advised. As regarding the contention of the Appellant that two flats and one bungalow in Kotturpuram, Chennai, owned by one of the Subsidiaries of the first Respondent, were transferred in favour of the second Respondent at a price much below the market value, is not substantiated by any documentary evidence and is also in respect of a transaction in the year 2005, and in the absence of any specific material on record cannot be construed to be an act of oppression and mismanagement as defined under the Act. 55. At this juncture, we find it relevant to reproduce Sections 241 and 242 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both. 56. The Hon'ble Supreme Court in a catena of Judgments has observed that though Law has not defined what is oppression for purposes of this Section, it is left to the Courts to decide on the facts of each case whether there is such oppression which calls for action under this Section. The Hon'ble Apex Court in 'S.P Jain Vs. Kalinga Tools Ltd.' reported in [(1965) (35 CompCases 351)] has while discussing what constitutes oppression and Section 210 of the English Act noted as follows: 14. We may in this connection refer to four cases where the new Section 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson [(1952) SC 49] (2) George Meyer v. Scottish Cooperative Wholesale Society Ltd. [(1954) SC 181] (3) Scottish Cooperative Wholesale Society Ltd. v. Meyer [(1958) 3 All ER 66] whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, in such a way as to deal fairly with the subsidiary; (2) that, if the parent company deliberately pursues a course calculated to destroy its subsidiary, with resulting loss to the minority shareholders, this may amount to oppression within the meaning of Section 210; (3) that the conduct of a majority shareholder may amount to oppression notwithstanding the fact that his own shares depreciate in value pro rata with those of the minority; and (4) that, even if the majority shareholder has virtually destroyed the substratum of the company by his oppressive conduct and it is conceded by all parties to be just and equitable that the company be wound up, the oppressed minority may nevertheless be entitled to a remedy under Section 210. .................................................................... 18. These observations from the four cases referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive story. There must be continuous acts on the part of the majority Shareholders continuing upto the date of Petition, which is absent here. In the instant case, the Appellant had approved and signed the Minutes of AGMs with respect to Dividends, the Appointment of Directors upto the date of signing of the Petition. Any excessive remuneration cannot amount to an act of mismanagement. If a director of a Company were to draw remuneration to which he was not legally entitled or in excess of the remuneration to which he was legally entitled, this would not by itself amount to oppression, as held in 're Jermyn Street Turkish Baths Limited' (1971) 1 WLR 1042. It is further held in 'Smith and Ors. v. Croft and Ors.' (1986) BCLC 207 that any excessive salary paid by the Company to its Directors would not constitute an act of oppression. 58. The Learned Senior Counsel Mr. Aryaman Sundaram appearing for R24 to R26 submitted that the Appellant has shares only in R1 Company but his allegations are against the Subsidiary Companies for which the Corporate Veil has not been lifted and the Petition is maintainable only against the Holding Company and moreover, merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te expectation that he would be able to participate in the management or withdraw from the company. It was probably a mistake to use this term, as it usually is when one introduces a new label to describe a concept which is already sufficiently defined in other terms. In saying that it was correlative to the equitable restraint, I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the articles. It is a consequence, not a cause, of the equitable restraint. The concept of a legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which the traditional equitable principles have no application. That is what seems to have happened in this case. 60. In the case on hand, the Shareholders have not entered into any 'Association upon understating' that each of them who has ventured his capital will also participate in the management of the Company. It is only upon the existence of such an 'Association upon understanding', that the aggrieved member could be said to have an 'legitimate ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctation', being a Member of the family. But at the same time, the Appellant is a Shareholder of only the first Respondent Company and hence, the Claim for such an 'Office of Profit' in the other Subsidiary Companies, does not arise as the appointments in the Subsidiary Companies are controlled by the respective Board of Directors in accordance with their respective Articles of Association and any inheritance of Shares does not automatically entitle any of the family members to automatic post of Directorship and therefore any 'Legitimate Expectation' by the Appellant, in the facts of this situation, whether he is not a 'Shareholder' in the Subsidiary Companies, cannot be justified. BUYOUT OF SHARES 63. It is the main case of the Appellant that the powers of the Tribunal to grant relief under Sections dealing with Oppression and Mismanagement is very wide and can be granted even when Oppression is not made out. It is submitted that at the stage of granting relief in an Application under these provisions, the final question that the Court should ask itself is as to whether the Order to be passed will bring to an end the matters complained of. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t effect would be necessary to be arrived at. But, the jurisdiction of the Company Law Board to pass any other or further order in the interest of the company, if it is of the opinion, that the same would protect the interest of the company, it would not be powerless. The jurisdiction of the Company Law Board in that regard must be held to be existing having regard to the aforementioned provisions. 16. The deadlock in regard to the conduct of the business of the Company has been noticed by the Company Law Board as also the High Court. Keeping in view the fact that there are only two shareholders and two Directors and bitterness having crept in their personal relationship, the same, in our opinion, will have a direct impact in the matter of conduct of the affairs of the Company. 17. When there are two Directors, non- cooperation by one of them would result in a stalemate and in that view of the matter the Company Law Board and the High Court have rightly exercised their jurisdiction. .................................................................... 23. Sections 397 and 398 of the Act empower the Company Law Board to remove oppression and mismanagement. If the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant herein with respect to buy out of shares, would be in the interest of the Company and whether the interest of the Shareholders would also be safeguarded. 65. In the facts of the instant case, the Appellant is a minority Shareholder and the Company is not in a deadlock situation and having come to such a conclusion we are of the considered view that there is no case made out by the Appellant that there was any Oppression or Mismanagement as defined under Sections 241 and 242 of the Act and no direction can be given compelling the Respondents to purchase the Shares of the Appellant or for any buyout of shares. We are also conscious of the fact that the reliefs sought relates to shares that are subject matter of the Suits filed by the 24th Respondent and the Appellant before the Hon'ble Madras High Court in which the rights of the Parties are yet to be determined. The Appellant has filed C.S. 745/1999 seeking partition of the estate of his grandparents, which is subjudice. Though the powers of this Tribunal under the Sections 241 and 242 of the Act is wide, the over-all objective of these Sections must be kept strictly in view and the marginal note of the said Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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