TaxTMI 
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2004 (2) TMI 373
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.... Both the above numbered company petitions under sections 397, 398, 399, 402 and 406 of the Companies Act, 1956, were filed by Sippy group. Company Petition No. 40 of 2002 was filed in respect of SSCO for the following substantive reliefs : "(a )The board of directors of the company be superseded; (b )An administrator and/or special officer be appointed to take charge of the management and affairs of the company and its books, papers, records and documents; (c )An inquiry be conducted into the accounts of the company and a special audit of its accounts be directed; (d )A scheme be framed for the management, administration, control and affairs of respondent No. 1-company on such terms and conditions as to this hon'ble Board may seem fit and proper; (e )****** ( f)Perpetual injunction retraining respondent Nos. 2 and 3 acting as, representing themselves to be or holding themselves to be directors of respondent No. 1 company in any manner whatsoever; (g )Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them from interfering and/or intermeddling with the management and affairs of respondent No. 1-company in any manner whatsoever; (h )Perpetual injunction....
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....he instant litigation in any manner whatsoever; (r )Ad interim order in terms of prayers above; (s )Costs of an incidental to this application be paid by the respondents; ( t)Such further and other order or orders be made and/or direction or directions given as to this Hon'ble Board may seem fit and proper." Company petition No. 41 of 2002 was filed in respect of the SSTS for following substantive reliefs : "( a)The board of directors of the company be superseded; ( b)An administrator and/or special officer be appointed to take charge of the management and affairs of the company and its books, papers, records and documents; ( c)An inquiry be conducted into the accounts of the company and a special audit of its accounts be directed; ( d)A scheme be framed for the management, administration, control and affairs of respondent No. 1-company on such terms and conditions as to this Hon'ble Board may seem fit and proper; ( e)Perpetual injunction restraining respondent Nos. 2 and 3 acting as, representing themselves to be or holding themselves to be directors of the company in any manner whatsoever; ( f)Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them....
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....aling with, disposing, encumbering, alienating or transferring the assets and properties of respondent No. 1-company in any manner whatsoever; ( p)Perpetual injunction restraining respondent Nos. 2 and 3 and each one of them from utilising the funds of respondent No. 1-company for the purpose of the instant litigation in any manner whatsoever; ( q)An independent person be appointed as financial controller of respondent No. 1-company on such terms and conditions as to this Hon'ble Board may deem fit and proper with a further direction empowering such financial controller to countersign all cheques issued by respondent No. 1-company; ( r)An independent person be appointed as general manager of respondent No. 1-company to conduct its day-to-day affairs as to this Hon'ble Board may deem fit and proper; ( s)Perpetual injunction restraining respondent Nos. 2 to 5 and each one of them from transferring out any funds outside the country with regard to the agency agreement entered into between respondent No. 5 and respondent No. 4 or Samrat Shipping and Logistics (P.) Ltd.; ( t)Mandatory order directing respondent No. 5 to deposit before this Bench, the commission, fees, remuneration d....
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....ce of the Puri group is the main controversy that needs to be resolved in these appeals. That aspect has been considered by the Board in paragraphs 18 to 23 of the judgment under challenge. The Board proceeded to examine that aspect on the basis as to whether the Puri group had breached its fiduciary duties to SSTS in getting the contract to the fourth respondent (Seaworld Shipping and Logistics (P.) Ltd. - hereinafter referred to as 'the SSL') and, the Puri group and SSL is accountable to SSTS for the benefits derived by the fourth respondent (SSL) from the contract with the Contship, which was initially impleaded as respondent No. 5. At this stage, it is relevant to note that Contship, respondent No. 5, was deleted from the array of the respondents by a speaking order passed by the Board accepting the plea of Contship that no allegation was made qua them in the petitions as filed. Be that as it may, the Board further examined whether the Puri group - second respondent and the third respondent in Company Petition No. 41 of 2002, being the managing director and director respectively of SSTS - has breached the fiduciary duties to SSTS in getting the Contship agency to SSL, which is ....
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....party refuses to deal with the company; and that the opportunity was offered to the director in his personal capacity. It has also observed in the said para that one of the main elements of fiduciary duties of a director is loyalty to the company. It has referred to the defences taken on behalf of the Puri group, which were that the agency with SSTS had come to an end, therefore, even if Puri continued as a director of SSTS, he could take away the agency to his own company; Puri had brought the agency of Contship to Samrat group; he was free to take it; that Contship did not want to have the agency with the company; that Contship desired to have the agency with Puri because of his expertise. The Board has straightway rejected the defence that since Puri had brought the agency to the company, he could have taken away the same, because such a plea could not be countenanced and would be anathema to the fiduciary duties of the director/managing director. Thereafter, by applying the principles deduced from the judicial precedents, referred to in para 18, the Board in para 19 proceeded to examine the question as to whether the Contship agency was a corporate opportunity for SSTS. It has ....
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....1, and the fourth respondent commenced the agency assignments immediately as is evident from the Service schedule issued by the fourth respondent dated December 14, 2001. The agreement could not have been signed on December 1, 2001, without prior consultation with Contship. Therefore, it is obvious that he used the knowledge derived in his official capacity that Contship was terminating the agency with SSTS effective from December 1, 2001, to his own advantage. In other words, even when the agency was subsisting with SSTS, he was planning to take the same subsequently without disclosure to the board of SSTS. The Sippys have alleged that the fourth respondent was incorporated only with a view to take over the agency business. It appears to me that the sequence of events would support this allegation. One Shri Virah M. Barucha applied to the RoC, Goa, for incorporating a company in the name of 'Samrat Shipping & Logistics (P.) Ltd.' on December 22, 2000. In this application, it is stated that the proposed company would be a group company of SSTS and the proposed promoters/directors were the second and third respondents. These two respondents, in their capacity as directors of SSTS, g....
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....mpany (SSTS) cannot be permitted as a defence to corporate opportunity claim, sans disclosure. It was of the view that such defence, especially after the opportunity has been taken away, will have to be rejected mainly because it would present significant evidentiary problems, inasmuch as the fiduciary and the third party would not come forward to admit that the third party was also interested in working with the company. The Board then proceeded to express the view that if the third party shows unwillingness to deal with the company, the director should disclose this fact and should attempt to cure the problem. To buttress this view, reliance is placed on the decision in Industrial Development Consultants Ltd.'s case (supra) and another decision of the Appeal Court of Massachusetts in Energy Resources Corpn. v. Porter 438 NE 2d 391. It found that since the Puris were aware that Contship did not want to deal with SSTS as fiduciary, they should have unmistakably disclosed the refusal to the company (SSTS) together with a fair statement of the reasons for the refusal and failure to do so resulted in breach of fiduciary duties. It observed that a director is always under the constant ....
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....beyond four years from October 15, 1992, till the refund of the amount. Only this direction has been challenged on behalf of the Puris by way of Company Appeal No. 2 of 2004. 7. In para 25, the Board considered the question of relief to be granted. It found that since there was complete deadlock in the affairs of both the companies and because of the loss of confidence between the two groups, it would warrant winding up of the company on just and equitable grounds. It, however, observed that instead of winding up, the best solu-tion was of parting of ways by the two groups, which would not only be in the interest of the concerned groups, but also of the companies in question. It took the view that in such a peculiar situation, the appropriate course would be to direct the Sippy group to take one company and the Puri group to take the other company. It recommended the Sippy group to take over the control and management of SSCO by purchasing the shares held by the Puri group in the company, and likewise, the Puri group to take over the control and management of SSTS, which was incorpo- rated only in 1996 with main business relating to the agency with Contship by purchasing the share....
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....of law formulated in the respective appeals are as follows. In Company Appeal No. 1 of 2004, following questions of law, filed by the Puri group, as amended, are formulated, namely :- "(A)What is the correct law in India relating to the existence, effect, nature and extent of directors fiduciary duties? (B)Whether a Tribunal is bound to apply the law in this behalf as set out in a judgment of the Supreme Court and Full Bench of a State High Court in preference to judgments of foreign courts? (C)Whether, after independent termination by the third party principal of an agency agreement with the company, a director of the company had a fiduciary duty to the company qua that agency business/agreement? (D)Whether an agency business arrangement with a company, duly terminated by the third party principal, can ever represent a lost business or corporate opportunity capable of diversions from the company? (E)Whether in Indian law, third party unwillingness to deal with a company (and its willingness to deal only with a director of that company) was a defence to an action based on alleged diversion of business? (F)Whether a director is liable to account to the company for profits made....
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.... as filed, but an attempt is made to articulate questions of law in the synopsis, accompanying the memorandum of appeal. The same reads thus : "A.The appeal raises the following questions of law, which in the respectful submission of the appellants require to be finally adjudicated upon and determined by this Hon'ble Court : ( i)In a case where a director breaches his fiduciary duties to the company and diverts business to another company, how is the quantum of benefits/profits that the director has to derived, to be calculated and in what manner is the company to be reimbursed for such diversion of business? (ii )Whether, having concluded that respondent Nos. 2 and 3 (by taking away the agency of Contship Containerlines to respondent No. 4) has breached his fiduciary duties to the company the CLB ought not to have directed respondent No. 4 to pay over all the benefits/profits that respondent No. 4 has derived and/or is to derive from the agency of Contship Containerlines, to the company? B.The Hon'ble CLB having concluded that respondent Nos. 2 and 3 (by taking away the agency of Contship Containerlines to respondent No. 4) has breached his fiduciary duties to the company, oug....
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....The Hon'ble CLB erred in concluding that the period between December 1, 2001, and March 31, 2003, was 'reasonable' when admittedly the agency agreement between Contship Containerlines and respondent No. 4 did not stipulate any specific period. K.The Hon'ble CLB after having directed respondent No. 4 to account for all the benefits/profits that it derived from the agency contract with Contship Containerlines, ought not to have limited such payment to fifteen months, i.e., the period from December 1, 2001, to March 31, 2002. L.The Hon'ble CLB erred in concluding that the valuer will compute the amount of profit that respondent No. 4 has derived from the agency with Contship Containerlines from December 1, 2001, to March 31, 2003. M.The Hon'ble CLB ought to have directed the valuer to compute the valuation of the company on the basis that the agency of Contship Containerlines is ongoing with the company. N.The Hon'ble CLB has not exercised its discretion judicially and judiciously. O.The impugned order and decision is contrary to law, equity and good conscience and is liable to be set aside: P.The findings recorded and the order passed by the CLB are otherwise contrary to the se....
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....out either considering or holding that to wind up the company would be prejudicial to the interests of the petitioners?" After hearing counsel for the parties, to my mind, broadly the following questions will have to be addressed in the present appeals: (1)What is the correct law as applicable in India relating to the existence/effect/nature and extent of director's fiduciary duties? (2)Is the case held as proved by the Company Law Board pleaded against the Puri group and SSL, which is newly formed and fully controlled by the Puri group? (3)Whether the Puri group has breached its fiduciary duties to SSTS in getting the contract to SSL and not to SSTS, of which they continue to be the managing director and director? (4)When the agency is not subsisting or, in fact, was terminated, can the company (SSTS) or any of its members, complain of breach of fiduciary duties by the managing director/director of the company, and more particularly, of diverting business of SSL, a newly formed and fully controlled company of the Puri group? (5)Whether SSL, a company newly formed and fully controlled by the Puri group, is accountable to SSTS for the benefits derived by it from the contract w....
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....d party did not want to give business, as the company was dealing with the competitor; and in one case, the principal itself gave up particular business. This can be found from the observations in para 18 of the judgment under appeal. 18. Be that as it may, the appropriate course, to my mind, is to straightaway refer to section 88 of the Indian Trusts Act, 1882. The same reads thus: "Advantage gained by fiduciary.-Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained." 19. This provision came come up for consideration before the apex court in the case of Chennuru Gavararaju Chetty v. Chennuru Sitaramamurthy Chetty AIR 1959 SC 190. In para 13 of this decision, the apex court had adverted to section 88, refer....
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....e profits derived from a renewal of the lease by the surviving partner." (p. 197) The apex court then went on to observe that as per the English law, there is no absolute rule of law or equity that a renewal of a lease by one partner must necessarily enure for the benefit of all the partners. It observed that there is a presumption of fact, as distinguished from a presumption of law, that there is an equity in favour of the renewal of the lease enuring for the benefit of all the partners. But such a presumption being one of fact, is rebuttable and must, therefore, depend upon the facts and circumstances of each case. Since I am dealing with this judgment, it is necessary to point out that the Puri group placed emphasis on the dictum in the later part of para 14 of this judgment, which reads thus: "...This is a business in which the personal factor of the persons in charge of managing the business, is more important than anything else. Another important matter which has a bearing on the case, has also to be adverted to. Between the years 1939 and 1942, that is to say, during the last three years of the term of the partnership, the partners were not on cordial terms, and there does....
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....e is no rule which incapacitates a trustee from dealing with a cestui que trust. In Coles v. Trecothick [1804] 9 Ves Jun 234, (247) Lord Eldon said: 'A trustee may buy from the cestui que trust, provided there is a district and clear contract, ascertained to be such after a zealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended, the trustee should buy; and there is no fraud, no concealment, no advantage taken by the trustee of information acquired by him in the character of trustee. I admit, it is a difficult case to make out, whenever it is contended that the exception prevails.' As stated in Kerr on fraud and Mistake, Sixth edition, page 192: 'Thus a trustee for sale may purchase the trust estate, if the cestui que trust fully and clearly understands with whom he is dealing and makes no objection to the transaction, and the trustee fairly and honestly discloses all that he knows respecting the property and gives a just and fair price, and does not seek to secure surreptitiously any advantage for himself. The onus, however, rests upon the trustee, and he is bound to produce clear affirmative proof that the parties were at arms' ....
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....W on becoming insolvent assigned all his estates to four creditors trustees, to carry on his business for the creditors' benefit. W's principal asset was a valuable agency for the defendants, also creditors. As part of the arrangement, W's agency contract was cancelled, and a fresh one, for about thirteen months, was entered into with the trustees for the creditors' benefit. Before the expiration of the fresh contract, and before the trust was wound up, B, one of the trustees, applied to the defendants to renew the agency to the trustees, and, on that being refused, obtained from the defendants a contract that his own firm should have the agency when that of himself and his co-trustees expired. B did not inform his co-trustees of this arrangement for his own benefit. Subsequently, another application was made to the defendants to renew the agency to the trustees and refused. It was held in these circumstances by Pearson J. that B was by reason of his trusteeship disqualified from obtaining the agency for himself, on the ground that it had become against his interest to press for renewal to the trustees, and that the interest he had acquired belonged to the trust estate. Indeed, thi....
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....ortunities not available to, or rejected by, the corporation. The same reads thus : "A business opportunity ceases to be a corporate opportunity and becomes personal when the corporation is definitely no longer able to avail itself of the opportunity. The view is taken that the doctrine forbidding a corporate director or officer to appropriate a corporate opportunity for his own benefit is not applicable if the opportunity is one which the corporation is financially unable to undertake. At least this is so where the corporation is financially insolvent. In the case of a corporation which, by reason of insolvency, has ceased to prosecute its business, the directors and officers thereof are under no obligation to refrain from engaging in the same line of business, notwithstanding by doing so they appropriate to themselves the business which otherwise would have gone to the company had it continued operations. An officer or director of a corporation has no specific duty to use or to loan his own personal funds to assist the corporation to take advantage of a business opportunity. However, there is authority that mere financial inability of a solvent corporation to enter into a trans....
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....1, which was valid till September 30, 1996, and thereafter continued from October 1, 1996. The turnover and net profit, after tax, to SSTS during 1996-97 up to March 30, 2001, is stated in the statement annexed to the petition as annexure P3. In para 11 of the petition, it is clearly averred that on or about December 7, 2001, 'for the first time', the Sippy group became aware of a company (SSL) having come into existence with the name 'Samrat Shipping and Logistics Pvt. Ltd.' with the word 'Samrat' as a dominant and significant part of its name and trading style. On enquiries, it is stated that, it was revealed that the shareholders and directors of SSL were none other than the Puri group. It is expressly stated in the same paragraph that the petitioners (Sippy group) verily believe that "if the Samrat Shipping and Logistics Pvt. Ltd. have acquired" the agency of respondent No. 5 (Contship), this has been only due to respondent No. 2 (Mr. Puri), who, till date, continues to be the managing director of the company (SSTS) and SSCO, misusing and/or abusing his position and in violation of 'fiduciary obligations' towards SSCO and the company (SSTS). It is further averred that the petit....
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....SSTS). It is then averred that the Puri group are seeking to derive wrongful personal gain to themselves by their said wrongful acts, which are a fraud on SSCO and the company (SSTS) and its shareholders. It is then averred that in breach of the trust and confidence reposed by the Sippy group on the Puri group in relation to the management and affairs of the company, the Puri group are in breach of their obligations, which were fiduciary in character towards the company SSTS and its shareholders, including the Sippy group and have purported to conduct and manage the affairs of the company in a manner harsh, burdensome and 'oppressive' to the petitioners (Sippy group) and in a manner prejudicial to the interests of the company (SSTS) and prejudicial to public interest. The foundation for these allegations as mentioned earlier is provided in the earlier paras. Thus, the stand contained in para 26 not only complains of oppression of the Sippy group and the shareholders, but also of the mismanagement of the affairs of the company (SSTS), which is prejudicial to the interests of the company (SSTS). In para 27, it is alleged that the Puri group have 'caused' Contship to terminate the age....
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....mpany Law Board. The expression 'fiduciary duty' or 'fiduciary character' is not defined either in the Companies Act or the Indian Trusts Act. The meaning ascribed in the relevant provisions can, however, be discerned from the meaning provided to expression 'fiduciary' in the Black's Law Dictionary, which reads thus : "Fiduciary. -The term is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. A person having duty, created by his undertaking, to act primarily for another's benefit in matters connected with such undertaking. As an adjective it means of the nature of a trust; having the characteristics of a trust; analogous to a trust; relating to or founded upon a trust or confidence. A term to refer to a person having duties involving good faith, trust, special confidence, and candor towards another. A 'fiduciary' includes such relationships as executor, administrator, trustee, and guardian. ABA Code of Judicial Conduct, Canon 3C(3)(b) . . . A lawyer is also in a fiduciary relati....
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....o hesitation in taking the view that the Puri group have breached their fiduciary duties to SSCO and SSTS. 26. I find substance in the argument canvassed on behalf of the Sippy group that having regard to the nature of arrangement obtaining between the two groups in managing the affairs of both the companies, it is more than clear that even though they are registered as private companies, but, in substance, it was a glorified partnership. Once this position is reached, although the provisions or the requirements governing the principle of a partnership firm may not be directly applicable, the principles underlying the same can be pressed into service. While examining the case on hand, as rightly contended on behalf of the Sippy group, the court will be obliged to examine the matter as a bystander and apply the objective tests of whether the acts of the Puri group have caused unfair prejudice to the Sippy group, or, for that matter, the companies (SSCO and SSTS). 27. In this context, reliance was placed on the statement of law occurring in Palmer's Company Law, twenty-fourth edition, volume I, page 992, which reads thus : "The same approach was adopted by Hoffmann J., in Re A Com....
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..... However, in that case the learned judge granted a winding up petition on the just and equitable ground to a petitioner who had been excluded from participation in its management, following Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL), but refused the petition under section 459 on the grounds that the respondents conduct had not been unfairly prejudicial to the petitioner. This was mainly on the grounds that the petitioner had shown a lack of interest in being involved in the running of the company. Whether the view that 'unfair prejudice' connotes a narrower basis for granting a remedy than the just and equitable ground will be followed in future cases remains to be seen." [Emphasis supplied] 28. Reliance was then placed on the statement of law occurring in Company Law, seventh edition, by Robert R. Pennington, at page 886, which reads thus : "If the court is satisfied that a petition is well founded, that is, presumably, that the petitioner has proved his allegations and they constitute an unfair prejudice of the petitioner himself, or of the petitioner and all or some of the members of the company taken together, the court may make such order as it thinks fi....
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....to sell his shares to them at a reasonable price." And again, at page 897, which reads thus : "Likewise, where the company was formed by its shareholders, who were also its directors, as a quasi-partnership, and the success of the company was envisaged by them as depending on the mutual trust and confidence between them, the removal of the petitioner from his membership of the board, either by a board resolution or by a resolution of a general meeting, may amount to an act which is unfairly prejudicial to the petitioner as a member of the company, unless his removal is for a reason other than a wish to exclude him from the benefits of his shareholding and directorship and a fair offer is made to him for the purchase of his shares. The special treatment under the statutory provision of shareholders of companies which are quasi-partnerships has been generalised by the Court of Appeal in one case that in deciding whether to give relief on petitions by shareholders of such companies the court will take into account not only the rights conferred on them by the company's memorandum and articles and any agreement entered into between all the shareholders on the company's formation, but ....
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....restatement by the House of Lords of the grounds of a just and equitable winding up order under what is now section 517(1)(g) so notable. The question of who may petition under section 459 is further examined below." As mentioned earlier, since the nature of arrangement between the two groups for conducting the affairs of the companies was one of a glorified partnership, which fact has been conceded by both parties and in particular the Puri group in the letters dated February 23, 2001 (para 7.3) as well as dated March 18, 2002, (para 2.4), counsel for the Sippy group was right in arguing that the principles underlying the general duties and fiduciary duties of a partner of a firm should govern the adjudication of the case on hand. In my view, reliance has been rightly placed on the statement of law relating to the nature of duty of a partner, as appearing in Lindley and Banks on Partnership, seventeenth edition, at pages 483, 484, 486, 488, 490 and 493, which reads thus : "The general duty . . . Perhaps the most fundamental obligation which the law imposes on a partner is the duty to display complete good faith towards his copartners in all partnership dealings and transactions....
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....tions affecting the partnership, to do his best for the common body, and to share with his co-partners any benefit which he may have been able to obtain from other people, and in which the firm is in honour and conscience entitled to participate; Semper enim non id quod privatim interest unius ex sociis servari solet, sed quod societati expedit'." [Emphasis supplied] "Full disclosure If the duty to account is to be avoided in such a case, it is essential that the partner concerned makes full disclosure of his interest of his co-partners. However, nothing short of such full disclosure will suffice. It appears that, in Dunne v. English [1874] LR 18 Eq. 524, the plaintiff knew that the defendant had some interest in the purchase beyond his share of the known profit of 10,000 pound sterlings but he did not know what that interest was and the real position was concealed from him. It was held that the defendant, being the plaintiff's partner and expressly entrusted with the conduct of the sale, was bound to make full disclosure of the true facts; having failed to do so, he could not exclude the plaintiff from his due share of the profits realised on the sale." [Emphasis supplied] "Inf....
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....Sippy group. That is distorted meaning ascribed by the Puri group. The fact remains, as has been found by the Board, that neither the factum of incorporation of a new company by the Puri group (i.e., SSL), nor the termination of agency by Contship on September 1, 2001, nor the offer of Contship to give the agency to SSL, which was fully controlled by the Puri group, was disclosed by the Puri group to the Sippy group at any point of time. If it is so, applying the above standards applicable to the partners of any partnership firm, it will have to be held that the Puri group committed breach of its fiduciary duties to the SSCO and SSTS. So understood, some error here or there committed by the Board - such as observing that the agreement between SSTS and Contship was coming to an end on November 30, 2001, or of referring to the American decision in the judgment without prior indication in that behalf during the hearing - cannot be the basis to overturn the ultimate conclusion reached by it. On the other hand, the final conclusion and finding that the Puri group had a fiduciary duty to SSTS and SSCO and have breached the same cannot be doubted at all. 31. Besides, in my opinion, the B....
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....ppressive to the minority shareholders. It was said that the company should have secured its rayon cloth from the mill by a contract. But that is beside the point, looking to the special relationship between the company and the society. A partner who starts a business in competition with the business of the partnership without the knowledge and consent of his partners is acting contrary to the doctrine of utmost good faith between partners. He is also acting in a manner which, I think, may be regarded as oppressive to his partners for he is doing them an injury in their business. In the same way, there was here, in my opinion, oppression by the society of the minority shareholders and it was, I consider, oppression in the conduct of the affairs of the company. Oppression under section 210 may take various forms. It suggests, to my mind, as I said in Elder v. Elder and Watson [1952] SC 49, a lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members. The section introduces a wide power to the Court to deal with such a situation in an equitable manner which it did not have in the case of a company prior to the passing of the Act of 19....
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.... : see Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch 426 (CA)...." [Emphasis supplied] (p. 31) 34. Reliance has been rightly placed by the Sippy group on the decision of the Supreme Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 , at pages 365-366, wherein the expression 'oppressive' has been considered. It is observed that the phrase "oppressive to some part of the members" would suggest that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fairplay on which every shareholder who entrusts his money to a company is entitled to rely. 35. Reliance was also placed on the observations of the Supreme Court in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743. In this decision, referring to the observations in Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1950] 20 Comp. Cas. 179 (SC), it is observed that it is well established that directors of a company are in a fiduciary position vis-a-vis the company and must exercise their power for the benefit of the company. 36. My attention w....
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....e that the business opportunity was not available to SSTS and that the agency was given to SSL, after disclosure to the Sippy group and SSTS and that there was refusal or waiver by the Sippy group or SSTS. The materials pressed into service on behalf of the Puri group would only indicate that Contship was keen to deal only with the Puris. That material, however, does not positively point out that Contship was unwilling to deal with SSTS with whom, admittedly, the Puri group continued to be the managing director and director of the companies (SSCO and SSTS). Even accepting the case of Contship that it was keen to deal only with the Puri group, no explanation is forthcoming as to why the arrangement presently obtaining with SSTS, with whom the Puri group was still associated, was required to be terminated and given to SSL, which was newly formed and fully controlled by the Puri group. Understood thus, the presumption of fact remains unrebutted. If it is so, the Puri group being fiduciary of SSCO and SSTS were obviously in breach of their duties to the companies. 40. The next question is whether, even if the agency is not subsisting, or, in fact, was terminated, can SSTS or the Sippy....
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....Bom. LR 778, which deals with the scope of power to be exercised by the court in the proceedings under sections 397 and 398 of the Act. Section 402 of the Act is a provision without prejudice to the generality of the powers of the Board under sections 397 and 398 to bring to an end or prevent the matters complained of or apprehended and make such orders, as it thinks fit. On a conjoint reading of sections 397, 398, 402 and 406 with sections 539 to 544 of the Act, it would appear from the legislative scheme that the Board has plenary powers to pass such equitable orders not only to remedy the mischief, but to prevent recurrence thereof. 42. The question, however, is : Can such direction be passed against the person other than the company or the members of the company. As mentioned earlier, SSL has been created by the Puri group, who continue to the managing director and director of SSCO and SSTS to put it differently, SSL is none other than the Puri group or its alter ego; and the direction as passed ostensibly against SSL was, in fact, against the Puri group and such direction can be justified even by virtue of expansive provisions contained in the Act, including sections 542, 543....
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.... of 12 per cent per annum for the period beyond four years from October 15, 1992, till the refund of the amount of Rs. 49 lakhs. There is further direction issued by the Board directing both the groups to purchase the shares of the other group. In the first place, having regard to the expansive provisions contained in the Companies Act, no fault can be found with the Board for issuing such directions. The directions so issued are obviously for adjusting equities and for bringing to an end or preventing the matters complained of or apprehended. 46. Insofar as the direction issued by the Board restricting the period for accounting of the benefits derived by the SSL from Contship agency, only between the period from December 1, 2001 and July 21, 2003, in my opinion, the same is inappropriate. Once it is found that the Puri group was fiduciary, it necessarily follows that any (all) benefits derived by the fiduciary are to be accounted on the assumption that the same have been availed for the benefit of the trust or company. So long as the fiduciary relationship of the Puri group continued with the companies and till the Contship agency is continued with SSL, which is newly formed and ....
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....n the present case, it is a matter of record that SSCO is constituted only of two groups, namely, the Puri group and the Sippy group. If the shareholders of the company were to be different persons, obviously, the Puri group could have been directed to pay interest for the delayed payment so that the other shareholders would also have been benefited by such an order. Besides, in the present case, the finding as has been recorded by the Board is that the entire transaction was completed with the knowledge and consent of the Sippy group. Understood thus, if the Puri group was required to pay interest, ostensibly to the company, SSCO, the benefit thereof would be received by the Sippy group. As mentioned earlier, the Sippy group having approached the court with unclean hands by making disclosures, which were false to their knowledge, in respect of the same transactions, they would not be entitled to take advantage of their own wrong and, for which reason, the direction issued by the Board to the Puri group to pay simple interest for the delayed payment cannot be sustained. This is more so because no appeal has been filed by the Sippy group challenging the correctness of the conclusion....
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....hase shares of the Puri group in SSCO by paying fair value therefor. Such a course was the appropriate relief and direction to be passed in the fact situation of the present case. 50. It was however, contended on behalf of the Puri group that this arrangement clearly overlooks the allegations of the Puri group of diversion of business and funds of SSCO by the Sippy group. However, to my mind, the process of valuation of shares by an independent valuer would obviously reckon that aspect and that should address the grievance advanced on behalf of the Puri group. Moreover, there can be no fool proof scheme adopted in the fact situation of the present case. As has been found by the Board no case for investigation into the affairs of the companies has been made out; that finding having gone unchallenged, and it is not possible to overturn the same in this appeal, the scope of proceedings cannot be enlarged nor the correctness of the direction be said to be without authority of law. In my opinion, the course as suggested and adopted by the Board was the only way in resolving the problems of the two groups inter se and also to ensure that the companies are not required to be wound up, wh....