2024 (1) TMI 189
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....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 implead another 21 Respondents, are detailed as hereunder: a) "Appointment of an independent Administrator to take charge of the affairs of the first respondent, Amalgamations Ltd. This will be necessary to regulate the conduct of the first respondent and affairs in future as stipulated under Section 402 (a); b) To terminate the appointment of the second respondent as Chairman/Director of the first respondent and also the Chairman and Managing Director of TAFE Ltd. c) To terminate the appointment of Mr. S. Balasubramaniam and Mr. P.V. Sundaram as Directors of Addisons Paints and Chemicals Ltd; and to appoint an independent Chairman and two nominee Directors including Sri K.S. Sundaram (the peti....
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....on. 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 footing with the other members currently working in the AL Group. f) Appointment of Chartered Accountant to investigate accounts of Amalgamations Ltd., India Pistons, Bimetal Bearings, TAFE etc. where serious discrepancies as mentioned in para 6.5 above have been pointed out. g) To restrain the statutory auditor of the first and fourth respondents (M/s R.G.N. Price & Co.) from functioning as the Auditors of the aforesaid companies. h) For such or other reliefs that this Hon'ble Company Law Board may deem fit in the facts and circumstances of the case." 4. The reliefs sought for in TCP No. 88/2016 filed by Mr. Shankar Sundaram against 48 Respondent Companies are hereunder: A. "Direct the 1st Respondents and its Board of Directo....
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...., 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 holding 10% shares in the Company does not hold any shares in any of the subsidiaries except in one. In that background, the first Respondent Company as well as some of the Respondent subsidiaries have questioned the maintainability of the Petition against the subsidiaries in as much as the Petitioner does not fulfil the requirements of Section 399 of the Act as far as these subsidiaries are concerned. The Respondents had sought for deciding the issue as a preliminary issue before considering the Petition on merits. The Company Law Board (CLB) while deciding the preliminary issue had deleted the names of all the subsidiaries and their Directors from the array of Parties. The CLB directed the first Respondent Company which had reserved its Rights to file a detailed Reply to file its....
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....s 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 oppression by a subsidiary in which he is not a member as there is no legal relation between him and the subsidiary Company." ....... 48. The Company Law Board has rightly concluded that the Company Petition is essentially a Petition against the holding Company. Therefore the Company Law Board found that without even going into the merits of the case and ordering investigation into the affairs of the holding Company, the Court cannot definitely order for investigation into the affairs of the subsidiary Companies. In fact, if it is found, after hearing the Petition that the order of investigation can be made into the affairs of the holding Company, then the provisions of Section 239, would come into play and it is for the inspectors, to be appointed by the Central Government, to decide as to whethe....
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....r 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 sought for in LPA No. 130 of 2002 cannot be granted. 51. In the result, we allow LPA Nos. 129 & 131 of 2002 by setting aside the order dated 3.6.2002 passed by the learned Single Judge in C.M.A. No. 2018 of 2000 and restore the order passed by the Company Law Board deleting the names of the subsidiary Companies from the array of parties from the Company Petition No. 48 of 2000. Consequently, we dismiss the LPA No. 130 of 2002 by confirming the order dated 3.6.2002 passed by the learned Single Judge in C.M.A. No. 2036 of 2000. However, there shall be no order as to costs. Connected miscellaneous Petitions are closed. 8. On an Appeal, before the Hon'ble Apex Court by Mr. Shankar Sundaram, the Hon'ble Supreme Court in Civil Appeal Nos. 4574-4575/2017, disposed of the Appeals observing as hereunde....
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....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 Appellant that having equally inherited all the shares, the legal heirs had become equal partners of the first Respondent Company with equal rights and in the absence of any specific component in the Articles of the Company or any other Agreement contrary to this position, the Appellant ought to have been given equal rights. After the demise of the Appellant's grandfather, the sons were inducted into the Board and started managing the Company while Auditors were kept out of the Board. It is submitted that the Appellant's grandmother Mrs. Valli Ananthakrishnan expired on 31/05/1977 and her 20 % shares were transferred to the joint names of the two sons who claimed that their mother had gifted her shares to certain family trust and that both of them were Joint Trustees. It is submitted that gifting shares to Trust is not permissible in view of the restrictions in A....
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....is 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 remuneration / Commission exhibiting disparity and discrimination. 13. It is submitted that the contention of the Respondents that all such remuneration and commission are well within the maximum limits permitted under the Companies Act, 1956 is no justification for such discrimination and that such an act is an oppressive one. 14. The Learned Counsel for the Appellant also placed reliance on para 49 of the Judgment of the Hon'ble Apex Court in the matter of 'Needle Industries (India) Limited and Ors. Vs. Needle Newey (India) Holding Limited and Ors.' Reported in [(1981) 3 SCC 333] wherein a three Judge Bench of the Hon'ble Supreme Court has observed as follows: "49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by one of us, Bhagwati, J., in a decision of the Gujarat High Court in Seth Mohan....
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....ar 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 are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands." (Emphasis Supplied) 15. In support of his submissions regarding such acts of oppression, Learned Senior Counsel placed reliance on the Judgment in the matter of 'JM Housing Limited & Ors. Vs. Mr. Surender Kumar Gupta & Ors.' in Company Appeal (AT) No. 182/2020, in which it is held as follows: "55. It is to be pointed out that the Tribunal as per Section 241 of the Companies Act, 2013 has wide powers to grant relief in cases of oppression etc. It can pass interim orders pertaining to the functioning of the Company in case of oppression and mismanagement. Apart from that, the Tribunal has discretion in moulding the relief even when the concerned petitioner fails to make out a case of an oppression and mismanagement. ....
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....its, 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 profit the dividends would have been much more and this is a clear fraud on the majority. There is no reason given for not giving an equal opportunity to the Appellant in the group Companies under the control of the 1st Respondent to earn remuneration and commission on par with the others. It is submitted that even after the death of AS in the year 2011, his daughter Mallika Srinivasan continued to act in the same style and manner, appointing her daughter as the Director of the Subsidiary and fixing here remuneration and commission as high as Rs. 6,00,00,000/-. 18. The Learned Senior Counsel for the Respondents submitted that the remuneration fixed for the Directors is entirely justified considering the financial performance of these Companies and drew our attention to the summary of the financial position of the preceding three financial years of the following companies: 19. Drawing our attention to the figures not only of Sim....
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.... 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 judgment in Kalinga Tubes [(1965) 2 SCR 720, 737 : AIR 1965 SC 1535. Wanchoo, J. has reproduced from the judgment in Meyer [1959 AC 324 : (1958) 3 All ER 66 (HL)] the five points which were stressed in Elder [1952 SC 49]. The fifth point reads thus: The power conferred on the court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding-up order. 52. It is clear from these various decisions that on a true construction of Section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and propr....
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....pany, the immediate purpose would result in an advantage for some shareholders vis-Ã -vis the others. (c) The action is against probity and good conduct. (d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398. (e) Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide. (f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact." 22. It is the case of the Respondents that their action is not against probity and that the oppressive act complained of is fully permissible under the Law an....
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....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 aforenoted statement that the AGMs were conducted periodically and they were all attended by the Appellant right from 1984 to 1999 and the Appellant had approved the 'proposed' dividend. There was no objection raised in any of those Meetings as per Documentary evidence on record regarding the quantum of dividend. Even on 30/09/1999, which is one month prior to the filing of Company Petition, the Appellant had attended the Meeting and approved the dividend proposed. The Learned Senior Counsel for the Appellant submitted that the Appellant had abstained from voting on any Resolution in any Meeting of the 1st Respondent Company, subsequent to the filing of the Company Petition in the year 1999 and that when a few persons inherit all the shares equally in a Company, it is the legitimate expectation of every inheritor/Shareholder that the profits of the Company would get distributed equally among the Shareholders. Moreover, it is the case of the Appellant that it was only from the year 1997-98 that the remuneration and commis....
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....rom 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. Sivasilam and Defendant No. 1 (AK)..." ... "Accordingly, from the year 1993 onwards the Plaintiffs understand that the dividends which have been declared by Defendant No. 2 (R1) Company have been paid by drawing cheques in favour of the respective Trusts...". Hence, it is the case of the Appellant that these statements made by Mrs. Mallika establish that the control of the Subsidiaries vested with the Holding Company and that the associated Companies are inextricably connected, as to be in reality, part of one concern. 27. The Learned Senior Counsel for the Appellant also contended that the NCLT has opined that the principles of partnership cannot be made applicable to R1 Company since it was not a pre-existing partnership. It is argued that pre- existing partnership is not a necessary condition for applying partnership principles to a Company and in support of this submission the Learned Counsel placed reliance on the following Judgments: - * 'Ebrahami Vs. Westbourne Galleries Limited and Ors.' (Supra) "It is these, and an....
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....uld not be enforceable in law." * 'Hind Overseas Private Limited Vs. Raghunath Prasad Jhunjhunwalla and Anr.' reported in (1976) 3 SCC 259 "33. When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding-up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company. 34. The principle of 'just and equitable'....
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....ras 11- 12) "11. The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under Section 402, very rarely would it be necessary to wind up any company in a petition filed under Sections 397 and 398. 12. The present was a petition under Sections 397 and 398. The Division Bench exercised power under Section 402 to appoint Mehra as a Director to protect his interests and guard against mismanagement. It required Dubey to return to the company the sum of Rs. 52,875 which he had wrongly appropriated to himself. It directed the Registrar of Companies to enquire into other allegations of misconduct in which it found, prima facie, substance; and we may say immediately that we have perused the report filed by the Registrar of Companies which shows that no substance was, ultimately, found therein. We agree with the Division Bench that this was no case for winding up the compa....
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.... exclusively in 'Hind Overseas Pvt. Ltd. Vs. Raghunath Prasad Jhunjhunwala' reported in [1976 3 SCC 259] and in the matter of 'Tata Consultancy Services Ltd. Vs. Cyrus Investments Pvt. Ltd.' [(2021) 9 SCC 449]. 31. At this juncture, we find it appropriate to address the issue as to whether any excessive remuneration and commission paid to the Directors of the Subsidiaries and consequent reduction of dividends, if any, would constitute an act of Oppression and Mismanagement. It is the case of the Appellant that the remuneration paid is 'exorbitant', and that the 'major chunk' of the profits earned by the Subsidiaries was fritted away towards such remuneration. The Learned Counsel for the Respondents have drawn our attention to the financial performance of these Companies and to the fact that the Appellant had proposed / seconded the Resolutions in favour of adopting the accounts of the entire R1 Group at every AGM until filing of the Company Petition. It is seen from the record that the first Company Petition was filed in the year 1998 and there is no dispute that the Appellant had approved the Resolutions till the year 1999. Section 212 of the Companies Act....
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....'legitimate expectation' of being appointed as Director with remuneration so as to enjoy the profits of the Subsidiaries in addition to the dividends by virtue of inheritance of shares from his late mother who in turn inherited the shares from her father. It is the Appellant's case that pre-existing partnership is not a necessary condition for applying partnership principles to a Company, though it might be a sufficient condition. We are of the view that the principles of quasi-partnership and legitimate expectation, if at all applicable, can be invoked only when there is an agreement or an understanding for a Joint management or a specific promise for Board representation at the time of incorporation or inducement for investment in the Company, which in the present facts, admittedly do not arise. It 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 Directorsh....
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....sion. From the aforenoted Table (Para 33), it is crystal clear that different subsidiaries under the Holding Company, i.e. Amalgamations Pvt. Ltd. have different dates of incorporation and comprise of several listed Companies having foreign Shareholders. It is not in dispute that Agco Holding BV, U.S.A has 23.75% of the Shareholding with a foreign Director in TAFE; T. Stanes and Company Ltd. is a listed Company with 32 % Public Shareholding; L.M.Van Moppes Diamond Tools India Pvt. Ltd. has a foreign Director with Saint Gobain Abrasives owning 49 % of the shares. There are several other Subsidiaries being listed Companies with outside Shareholding. Therefore, keeping in view the aforenoted facts and the complex nature of the Company, viewed from any angle, the contention of the Appellant that this Family Company be viewed as a 'quasi-partnership' concern cannot be sustained. LIFTING OF 'THE CORPORATE VEIL' 35. It is vehemently argued by the Learned Counsel for the Appellant that the observation made by the NCLT that the Appellant had given up the issue relating to Corporate Veil, is totally perverse. It is submitted that the Respondents themselves have admitted tha....
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....oduction of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly owned subsidiary of Hindalco and is completely controlled by Hindalco. Even the day-to-day affairs of Renusagar are controlled by Hindalco. Renusagar has at no point of time indicated any independent volition. Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. In the impugned order the profits of Renusagar have been treated as the profits of Hindalco." (Emphasis Supplied) * Vodafone International Holdings BV v. Union of India, MANU/SC/0051/2012MANU/SC/0051/2012 : (2012) 6 SCC 613 : (2012) 3 SCC (Civ) 867 "258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director....
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....e Corporation of India v. Escorts Ltd., reported in AIR 1986 SC 1370 : (1986 Tax LR 1370) the Apex Court after taking into consideration various decisions and treatises held that for certain purposes corporate veil can be lifted. It was stated (at page 1418 (of AIR):- "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, they 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." 25. Reference in this connection may also be made to 1972 (2) All ER 492 at page 496 to 500, Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjhunwalla reported in AIR 1976 SC 565 (Paragraph 20, 31, 32 and 33) a....
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....tual difference between a preordained transaction which is created for tax avoidance purposes, on the one hand, and a transaction which evidences investment to participate in India. In order to find out whether a given transaction evidences a preordained transaction in the sense indicated above or investment to participate, one has to take into account the factors enumerated hereinabove, namely, duration of time during which the holding structure existed, the period of business operations in India, generation of taxable revenue in India during the period of business operations in India, the timing of the exit, the continuity of business on such exit, etc. 98. Applying these tests to the facts of the present case, we find that the Hutchison structure has been in place since 1994. It operated during the period 1994 to 11-2-2007. It has paid income tax ranging from Rs. 3 crores to Rs. 250 crores per annum during the period 2002-2003 to 2006-2007. Even after 11-2-2007, taxes are being paid by VIH ranging from Rs. 394 crores to Rs. 962 crores per annum during the period 2007-2008 to 2010-2011 (these figures are apart from indirect taxes which also run in crores). Moreover, the SPA ind....
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....e difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded." (Emphasis Supplied) 39. This Tribunal finds it apt to refer to the ratio of the Judgment of the Hon'ble Apex Court in the matter of 'State of U.P. and Ors. Vs. Renusagar Power Company and Ors.' reported in [(1988) 4 SCC 59] in which it is observed as follows: 67. In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall under Section 3(1)(c) of the Act. The learned Additional Advocate-General for the State relied on several decisions, some of which have been noted. 68. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The gho....
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....eated as one concern and that the Corporate Veil should be lifted. In this matter, it was observed that the consumption of energy by 'Hindalco' is clearly the consumption from its own source of generation and therefore, based on the facts of the matter the Corporate Veil was sought to be lifted. In the aforenoted case, the persons generating and consuming the energy were the same and hence, Corporate Veil was directed to be lifted. It was observed by the Hon'ble Apex Court that 'Hindalco' and 'Renusagar' were inextricably linked up together and 'Renusagar' had in reality no separate and independent existence, apart from and independent of 'Hindalco'. In this case, it is crystal clear that the Subsidiary Companies and the Holding Company do not have any 'inextricably linked up businesses' and therefore, the contention of the Appellant that based on the ratio of this Judgment, the Respondent Companies should all be treated as a 'Single Economic Unit', fails. Hence, what is required to be examined to necessitate the lifting of the Corporate Veil 'is the character and nature of the Company', the Shareholding pattern, i....
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.... is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; (iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) The company may be a "facade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done. 72. The principles laid down by Ben Hashem case [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)] have been reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd. [2013) 2 AC 415 : (2013) 3 WLR 1 : 2013 UKSC 34], UKSC at para 64. Lord Sumption, in Prest case [(2013) 2 AC 415 : (2013) ....
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....of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case." 42. 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 absence of which they would all be construed as one Company and one Corporate Personality, which within the framework of law, they cannot be so. It is the case of the Respondent that the Appellant had given up the issue of lifting of the Corporate Veil and therefore, the NCLT had not dealt with the specific issue. It is seen from the aforenoted Judgment of the Hon'ble Apex Court in Civil Appeal Nos. 4574-4575/2017 dated 27/03/2017 that there is a specific direction that the Subsidiary Companies could be included or arrayed as Parties, if the Corporate Veil is lifted. In the instant case, the contention of the Learned Senior Counsel for the Appellant that the Holding Company and the Subsid....
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....Sailing Ship Kentmere Co., In re [Sailing Ship Kentmere Co., In re, 1897 WN 58]. The second of these is where a company is a corporate quasi-partnership and an irretrievable breakdown in trust and confidence between the participating members has taken place. In the first type of these cases, where there is a complete functional deadlock, winding up may be ordered regardless whether the company is a quasi-partnership or not. But in the second type of cases, a breakdown of trust and confidence is enough even if there is not a complete functional deadlock. 141. Therefore, for invoking the just and equitable standard, the underlying principle is that the court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other [ The advantage that the English courts have is that irretrievable breakdown of relationship is recognised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India.]. 142. In the case in hand there was never and there could never have been a relationship in the nature of quasi-partnership between the Tata Group and SP Group. SP Group....
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....the Company i.e. that the Subsidiaries of the Holding Company include Limited Companies, Foreign Directors and Foreign Shareholders with different dates of incorporation; that the Appellant had become a Shareholder in 1974 after the Company was incorporated in 1938 and had boarded the train halfway through; that there was no claim of quasi-partnership for a period of 25 years thereafter; that the Articles of Association of the R1 Company do not support the Appellant's contention; there is no functional deadlock, or impediment in the functioning of the Companies; this Tribunal is not sufficiently satisfied to invoke the just and equitable clause. As held by the Hon'ble Apex Court that Oppression involves an element of lack of probity or fair dealing to a member in matters of his proprietary right as a Shareholder and not any harsh or unfair treatment in any other capacity. In the instant case, the proprietary rights of the Appellant as a Shareholder are in no way affected. The lack of confidence must be grounded on the manner and mode in which the Company is being run and on the conduct of the Directors but not in respect to their private lives. The Hon'ble Apex Court in....
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.... if the Company had originally been started as a Partnership concern or if there was an Agreement or understanding that all or some of the Shareholders should participate in the conduct of the business. In the facts of the attendant case, there is neither any agreement nor understanding of any such nature and therefore, we are of the earnest view that the question of the Respondent Company being viewed as a Partnership Concern, does not arise. APPELLANT'S RIGHTS AS A SHAREHOLDER OF R1 COMPANY 46. Regarding the 'Rights of a Shareholder', it is apt to refer to the observations made by 'Lord Anderson in 'Commissioners of Inland Revenue v. Forrest' [8 Taxcases P 704] specified in 'Bacha F. Guzdar v. CIT', reported in AIR 1955 SC 74, which read as hereunder: - 7. It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest [8 Tax Cases, p 704 at 710] that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future....
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....ch has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it. 8. The High Court expressed the view that until a dividend is declared there is no right in a shareholder to participate in the profits and according to them the declaration of dividend by the company is the effective source of the dividend which is subject to tax. This statement of the law we are unable to accept. Indeed the learned Attorney-General conceded that he w....
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....ement of lack of probity or fair dealing in the matter of his proprietary rights as a Shareholder. The Rights of a Shareholder include voting on Resolutions at Meetings of the Company; electing Directors and participating in the management of the Company; enjoying the profits of the Company in the shape of dividends as and when declared by the Company; applying to the Court/Tribunal for relief in case of Oppression and Mismanagement; and in the case of winding up a share in the surplus. The Company was incorporated as a private limited Company on 22/12/1938 much prior to the Appellant having become a Shareholder. In this family-owned Company, it is seen that R2 and R3 of TA No. 18/2021 alone were the Directors till 2011 when R2 had passed away and R3 had become a Director from 25/09/1970, six years after he had inherited 20 % shares from his father in 1964. Even in cases arising under Section 210 of the Companies Act, 1948, it was provided that 'to make out a case for winding up under Section 238, the Petitioner has to show that the affairs of the Company were being conducted in a manner oppressive to him as a Member of the Company, which means, as a Shareholder of the Company&....
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....r the death of A.Sivsailam in the year 2011 and also after filing C.P. 20/2012, his daughter Mrs. Mallika Srinivasan, continued to act in the same style and manner by appointing her daughter as the Director of the Subsidiary and fixing her remuneration at Rs. 6 Crores. It is not denied that Mrs. Lakshmivenu, the daughter of Mrs. S. Mallika is a graduate from Yale University and a Doctorate from Warwick University with 13 years of experience in the automotive industry holding Directorship in various listed Companies. It is not the case of the Appellant that her appointment as a Director in the Subsidiary Companies or the quantum of remuneration is against the provisions of Law. It is only their case that the Respondent self- appointed their own family Members and benefitted thereby causing disparity as far as the Appellant is concerned. There is no documentary evidence on record to establish that the remuneration is beyond the permissible limits of the Companies Act, 2013 or that the said remuneration was paid without the approval of the Board or the Shareholders of TAFE. Be that as it may, it is an admitted fact that the Appellant is not a Shareholder of TAFE and has also not chose....
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.... had always sponsored the studies of the family members and that the Appellant had also benefitted from study abroad programme, the only requirement being the family member has to come back and work with the Group again. It was part of the education and investment programme of the first Respondent. The contention of the Appellant that the first Respondent paid for the stay of the late Sister of the 24th Respondent herein, while she was studying in New Delhi, is denied. We are of the considered view that merely because the R1 Company has paid for the study and expenses of R2's daughter, this act does not per se come within the definition of an act of oppression and mismanagement as defined under Sections 241 and 242 of the Act. Moreover, the Appellant has adopted accounts from 1984 till the filing of the Company Petition and therefore, raising this issue after several years, appears to be more of a family dispute, rather than an act of oppression. We are also conscious of the fact that the Respondent whose education and stay were sponsored by the Company, has, since expired. 53. As regarding the allegation that the weddings of the children of Mrs. Mallika Srinivasan were conduc....
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....re being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members. may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. 242. (1) If, on any application made und....
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....otection Fund or repayment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable. (5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Ac....
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....952) SC 49] as summarised at p. 394 in Meyer case [(1954) SC 181] : "(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders. (2) It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3) Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those facts must be relevant-to disclose also that the making of a winding up order would unfairly prejudice the minority members qua shareholders. (4) Although the word 'oppressive' is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are 'treating the company and its affairs as if they were their own property' to the prejudice of the minority shareholders....
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....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 in this case with reference to Section 397." (Emphasis Supplied) 57. Likewise, the Hon'ble Apex Court has considered the scope and extent of Sections 397 and 398 of the Companies Act, 1956 in 'Needle Industries India Ltd' (Supra); 'Sangramsinh P Gaekwad' (Supra); 'V.S. Krishnan and Westfort Hi-tec....
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.... the Bench that the Appellant had filed a Civil Suit against his uncles for distribution of the property rights, which was dismissed. Ancestral property cannot be treated as coparcenary property and any rights emanating from the same cannot be a subject matter of Sections 241 and 242 of the Act. Section 152 of the Companies Act, 2013 deals with the Appointment of Directors. Save as otherwise expressly provided in the Act every Director is appointed by the Company in the General Meeting. At the cost of repetition, we are of the considered view 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. We are also of the view that the Appellant does not have the Locus to seek restructuring of the Boards of the Subsidiaries where he is not a 'Shareholder'. LEGITIMATE EXPECTATION 59. Lord Hoffmann in the matter of 'O' Neill & Anr. Vs. Philipps & Ors.', (1999) 2 WLR 1092 has explained the term 'Legitimate Expectations' as hereunder:- "6. Legitimate Expectations ....
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....f the Appellant does not find place in corporate jurisprudence specifically in the absence of any agreement or understanding for joint management or a specific promise for any representation in the Board at the time of incorporation or investment into the Company. The Apex Court in the matter of 'Navjyoti Co-operative Group Housing Society V. Union of India', reported in (1992) 4 SCC 477, after considering the House of Lords decision in the matter of 'Council of Civil Service Unions v. Minister for the Civil Service', [1984] 3 All ER 935, held as follows : "It may be indicated here that the doctrine of 'legitimate expectation' imposes in essence a duty on public authority to act fairly by taking into consideration all relevant factors relating to such 'legitimate expectation'. Within the conspectus of fair dealing in case of 'legitimate expectation', the reasonable opportunities to make representation by the parties likely to be affected by any change of consistent past policy, come in." 62. We are of the earnest view that 'legitimate expectation' for any participation in the Board cannot arise under Corporate Law without the mutua....
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.... Appellant is being kept under the thumb of the majority without being given an entry into the main business of the group or an exit therefrom. It is also contended by the Learned Senior Counsel that even when oppression is not made of, Orders can be passed in the interest of the Company. Whereas, it is the case of the Learned Senior Counsel Mr. Krishna Srinivasan, that a buyout cannot be directed for the reasons that the Company cannot be treated as a quasi-partnership; there is no deadlock or stalemate in the functioning of the Company; this 'buyout' prayer is sought for 13 years later in the second Petition and not initially. The Learned Senior Counsel Mr. Aryaman Sundaram vehemently contended that buyout of the Appellant's shares cannot be permitted as it must be established that the first Respondent and its Subsidiaries constitute a single economic unit and there should be a specific finding of Oppression and Mismanagement. It is submitted that even if the Articles of Association provide for a restriction on the transfer of Shares, the same cannot be used as ground for seeking the buyout of shares as a precondition for the same is proving that the Shareholder was s....
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....diction of the Company Law Board having been couched in wide terms and as diverse reliefs can be granted by it to keep the company functioning, is it not desirable to pass an order which for all intent and purport would be beneficial to the company itself and the majority of the members? A court of law can hardly satisfy all the litigants before it. This, however, by itself would not mean that the Company Law Board would refuse to exercise its jurisdiction, although the statute confers such a power on it. .................................................................... 26. In a case of this nature, where there are two shareholders and two Directors, any animosity between them not only would have come in the way of proper functioning of the Company but it would also affect the smooth management of the affairs of the Company. The parties admittedly are at loggerheads. A suit is pending regarding title of the shares of the Company. A contention had been raised by the appellant before the Company Law Board that the first respondent having filed a wealth tax return as karta of Hindu Undivided Family, he not only has 50 % shares in the Company but also 50 % shares in the HUF; wher....
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....incurred towards the 24th Respondent regarding the 'stay' or 'education', or the investment of Rs. 16 Crores by TAFE in Amco Batteries or the sale of the Properties at Kotturpuram to the second Respondent, to be defined as an act of Oppression, detrimental to the affairs of the Company, the substratum for passing any Order under Sections 241 and 242, is not available. Hence, this Tribunal, in this factual matrix, is of the earnest view that directing for buyout of the shares would not be justified or legally permissible. Only when there is a case of complete deadlock in the Company on account of lack of probity in the management of the Company and there is no scope of efficiently running the Company as a commercial concern, there would arise a case for winding up on just and equitable ground. In the instant case, undisputedly the Respondent Companies, both the Holding and the Subsidiary Companies are not in a position of complete deadlock, but instead are running smoothly and profitably (table @ Para 18 herein). The material on record establishes that the Holding Company is a solvent Company and there is no documentary evidence on record to substantiate the plea of ....