1989 (4) TMI 268 - HC - Companies Law

Equitable relief under ss. 397, 398, 402 enables settlement-linked orders after s. 20 exemption and rule 9 powers

HC, exercising its equitable jurisdiction under ss. 397, 398 and 402 of the Companies Act, declined to either dismiss the oppression and mismanagement ... Oppression and mismanagement - illegally constituted the board of directors by increasing the strength from 11 to 18 - absolute loss of confidence and faith amongst the parties - unlawful assumption of the management and trying to coerce and pressurise the manager - Power of Tribunal on application under sections 397 and 398, Circumstances in which a company may be wound up - mutual rights and obligations between the parties - validity of the board meeting - parties to obtain an order u/s 402​​​​​​​ - whether the petitioner has filed this petition in good faith in order to work out his rights within the framework of the Act. - The legal contentions taken are that the substantial reliefs claimed in the petitions are dependent on the enforcement of the agreement dated January 29, 1982, and this agreement cannot be specifically enforced under sections 397 and 398 of the Act; that the reliefs claimed are the subject matter of suits pending in the civil courts and, therefore, this court, in exercise of its equity jurisdiction, should not grant the same reliefs which are the subject-matter of the pending civil suits; that the petitioner's conduct and the lack of bona fides in these petitions disentitle him to claim the equitable relief which could be granted under the provisions of sections 397 and 398 of the Act; that, in any event, the acts of oppression and mismanagement as alleged do not come under the purview of sections 397 and 398 of the Act, that the agreement dated January 29, 1982, is a contingent contract and, therefore, the parties having not complied with the obligations on their part, this court should stay its hand and desist from making a declaration as prayed for as the agreement in question is a void agreement as on this date and does not admit of any declaration as sought for ; that all the parties to the agreement are not before this court and, therefore, no declaration could be made by this court so as to bind the persons who are parties to the agreement but have not been impleaded as parties to these petitions. HELD THAT:- It is well-settled that the relief under sections 397 and 398 of the Act is an equitable relief which is entirely left to the discretion of the company court. The respondents have unequivocally stated in one of their letters to which I have already adverted that they will not take a square inch more than 45 acres of land to which they are entitled under the agreement of January 29, 1982. The petitioner has admitted in the agreement of 1978 the entire liability of his father in a sum of Rs. 28,45,000 inclusive of interest at 12 per cent, from the dates of the advances made to him and they are reflected in the agreement in 1982. There are also money decrees for those amounts against the petitioner on the basis of the admission made by him. If I were to simply dismiss the petitions, I would be denying justice to both the parties by taking a legalistic view of the matter. The provisions of section 402(d ) of the Act also indicate that, without prejudice to the general powers of the court under sections 397 and 398, any order under either section may provide for the termination, setting aside or modification of any agreement, however arrived at, between the company on the one hand, and any of the following persons, on the other namely :—(i) the managing director, (ii) any other director, (iii) the managing agent, (iv) the secretaries and treasurers and (v) the manager, upon such terms and conditions as may, in the opinion of the court, be just and equitable in all the circumstances of the case, provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned and further the section provides for termination, setting aside or modification of any other matter for which, in the opinion of the court, it is just and equitable that a provision should be made. The court should first make an order under sections 394, 397 and 398 and, in that order, it has to provide for matters more particularly stipulated in section 402 of the Act. This section read with rule 9 of the Companies (Court) Rules, 1959, which deals with the inherent powers of the court to give such direction to meet the ends of justice was the basis of the decision of the Supreme Court in Needle Industries' case [1981 (5) TMI 89 - SUPREME COURT]. In my view, that power of the company court is wide enough on the facts and circumstances of these cases and, on the basis of the memos of compromise filed by the parties to make suitable provisions under section 402 of the Act read with rule 9 of the Companies (Court) Rules, 1959, to bring about an amicable settlement to the longstanding dispute between the parties. It is seen that the petitioner is prepared to convey 45 acres of land, more particularly, of the memo dated April 19, 1989, and is prepared to obtain exemption under section 20 of the Ceiling Act in respect of the said 45 acres of land and Chamundi had agreed to take 45 acres of land or on the failure of the petitioner to get exemption in respect of 45 acres of land, to receive Rs. 1,54,41,400. On the basis of these assurances of either side, the terms of the order to be made under section 402 of the Act were dictated and copies of those terms were handed over to learned counsel for the respective parties on April 19, 1989, for their approval. Those terms are appended to this order with a view to enable the parties to arrive at a suitable compromise since all these terms are dependent primarily on the exemption to be obtained by the petitioner under section 20 of the Ceiling Act or on his failure to get exemption, payment., as agreed to by the petitioner. In the circumstances, the proper course for me is to leave open the chances of future agreement between the parties after the petitioner gets exemption for this 45 acres of the land from the ceiling authorities and after obtaining such exemption, the parties may obtain an order from this court under section 402 of the Act. In the circumstances, the proper course for me is to leave open the chances of future agreement between the parties after the petitioner gets exemption for this 45 acres of the land from the ceiling authorities and after obtaining such exemption, the parties may obtain an order from this court under section 402 of the Act. Issues Involved:1. Maintainability of Company Petitions Nos. 32 and 67 of 1987.2. Allegations of oppression and mismanagement under sections 397 and 398 of the Companies Act, 1956.3. Enforcement of the agreement dated January 29, 1982.4. Good faith and bona fides of the petitioner.5. Contingent nature of the agreement under sections 31 and 32 of the Contract Act.6. Relief under sections 397 and 398 of the Companies Act.7. Winding up petitions under section 433(f) of the Companies Act.8. Future course of action under section 402 of the Companies Act.Detailed Analysis:1. Maintainability of Company Petitions Nos. 32 and 67 of 1987:The court overruled the preliminary objection regarding the maintainability of the petitions and proceeded to hear the arguments on the admission and interim relief. The absence of a stay order from the Division Bench allowed the court to hear the petitions.2. Allegations of Oppression and Mismanagement:The petitioner alleged various acts of oppression and mismanagement by the Chamaraju group, including:- Failure to serve notices for meetings.- Non-transfer of share certificates.- Illegal constitution of the board of directors.- Usurpation of management.- Mismanagement of company affairs.The court noted that these allegations were serious and required a detailed examination, but the petitioner's conduct and the lack of good faith were significant factors in deciding the case.3. Enforcement of the Agreement Dated January 29, 1982:The petitioner sought a declaration that the agreement dated January 29, 1982, was binding on all parties. However, the court observed that the agreement was contingent on obtaining exemptions under the Urban Land (Ceiling and Regulation) Act, 1976, which had not been secured. The court found that the petitioner's actions, including his petition to withdraw the exemption application, indicated a lack of intent to fulfill his obligations under the agreement.4. Good Faith and Bona Fides of the Petitioner:The court emphasized the importance of good faith in petitions under sections 397 and 398 of the Companies Act. The petitioner's history of litigation, including reckless allegations against his father and the Chamaraju group, demonstrated a lack of good faith. The court concluded that the petitioner was not entitled to equitable relief due to his conduct.5. Contingent Nature of the Agreement:The court analyzed the agreement dated January 29, 1982, as a contingent contract under sections 31 and 32 of the Contract Act. The agreement depended on obtaining exemptions from the ceiling authorities, which had not been achieved. The court held that the agreement was void for the purposes of the petitions, as the petitioner had not demonstrated the ability to fulfill the conditions precedent.6. Relief Under Sections 397 and 398 of the Companies Act:The court noted that even if the allegations of oppression and mismanagement were proved, the petitioner would not be entitled to relief due to his lack of good faith. The court emphasized that equitable relief under sections 397 and 398 required the petitioner to come with clean hands, which was not the case here.7. Winding Up Petitions Under Section 433(f) of the Companies Act:The reasons for dismissing the petitions under sections 397 and 398 were equally applicable to the winding-up petitions. The court found no grounds to grant the relief sought in the winding-up petitions.8. Future Course of Action Under Section 402 of the Companies Act:The court suggested that the parties could still resolve their disputes amicably if the petitioner obtained the necessary exemptions under the Ceiling Act. The court left open the possibility for the parties to seek an order under section 402 of the Act after obtaining the exemptions. The court dismissed the petitions but allowed the petitioner to pursue other pending civil suits against the respondents.Conclusion:The court dismissed the petitions due to the petitioner's lack of good faith and the contingent nature of the agreement. The court suggested that the parties could still resolve their disputes if the petitioner fulfilled his obligations under the agreement and obtained the necessary exemptions. The court left open the possibility for future relief under section 402 of the Companies Act.