TaxTMI 
TaxTMI 
2008 (3) TMI 471
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....nt is the Director thereof. Indisputably the parties are not on good terms. 4. Respondent No. 1 filed an application purported to be under sections 397 and 398 of the Act alleging several acts of oppression on the part of appellant hereinbefore the Company Law Board, Additional Principal Bench, Chennai. The said application was registered as C.P. No. 2 of 2004. By reason of an order dated 16-8-2004, the Company Law Board while opining holding there was no act of mala fide or oppression on the part of the appellant, opined that there exists a deadlock in the affairs of the company. It directed the appellant to purchase 2,84,000 shares held by the first respondent at a value to be determined by a chartered valuer. 5. An appeal was filed thereagainst by the appellant before the High Court of Judicature at Madras under of section 10F of the Act which was registered as C.M.A. No. 174 of 2004. By reason of the impugned judgment dated 11-10-2006 a Division Bench of the High Court dismissed the same opining that the Company Law Board could very well look into the justifiability of the situation and was, thus, right in arriving at its conclusion that there existed a deadlock situation. I....
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....erred by the first respondent so as to hold that the acts of omission and commission on the part of the appellant constituted such an oppression. 4.Both the High Court as also the Company Law Board committed a serious error in granting the relief in favour of the first respondent without taking into consideration that the grant of relief shall not only be in the interest of the company but also must have a direct nexus with the affairs of the company and conduct of its business. 5.In any view of the matter, having regard to the prayers made by the first respondent in his application before the Company Law Board, appointment of an Additional Director would have served the pur-pose. 6.As the appellant does not have the necessary fund to purchase the shares of the first respondent, he could not be forced to sell his shares. 7. Mr. K. Parasaran, learned Senior counsel, appearing for the respondents, on the other hand, would contend :- 1.Appellant did not raise any ground in the special leave petition that he is not in a position to purchase the shares of the respondent No. 1. 2.The company being a private limited company, which is in the nature of a quasi-partnership concern, the....
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....r order as may think fit and proper with a view to bringing to an end to the matters complained of. Interpretation of section 397(2) of the Act came up for consideration before a Division Bench of this court in Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 2 SCR 811. This court while examining the conditions laid down in the section, opined that : "No case appears to have been made out that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the company would unfairly prejudice the members of the company who have the grievance and are the applicants before the court and that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. In order to be successful on this ground, the petitioners have to make out a case for winding up of the company on just and equitable grounds. If the facts fall short of the case set out for winding up on just and equitable grounds no relief can be granted to the petitioners. On the other....
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....company. However, it was being felt for some time that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why section 210 was introduced in the English Act to provide an alternative remedy where it was felt that, though a case had been made out on the ground of just and equitable cause to wind up a company, it was not in the interest of the shareholders that the company should be wound up and that it would be better if the company was allowed to continue under such directions as the court may consider proper to give." The Court analysed the decision in H.R. Harmer Ltd., In re [1958] 3 All ER 689 in the following terms :- "19. In Harmer's case, it was held that 'the word "oppressive" meant burdensome, harsh and wrongful'. It was also held that 'the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the "just and equitable" rule, but only to those cases of that character which have in them the requisite element of op....
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....Chandrachud, CJ. upon considering a large number of decisions of this Court as also the English Courts including S.P. Jain's case (supra) and H.R. Harmer Ltd.'s case (supra) categorically held :- "172. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of May 2 were held in accordance with law. . . . ." (p. 428) 19. The provisions of the Act vis-a-vis the jurisdiction of the Company Law Board must be considered having regard to the complex situation(s) which may arise in the cases before it. No hard and fast rule can be laid down. There cannot be any doubt whatsoever that the acts of omission and commission on the part of a member of a company should be qua the management of the company, but it is difficult to accept the proposition that the just and equitable test, which should be held to be applicable in a case for winding up of a company, is totally outside the purview of section 397 of the Act. The function....
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....ppeal) under sections 397/398 and 402 is much wider and direction can be given even contrary to the provisions of the Articles of Association. It has even right to terminate, set aside or modify the contractual arrangement between the company and any person [see section 402(d) and (e )]. Section 397 specifically provides that once the oppressions established, the Court may, with a view to bringing to an end the matters complained of, make an order as it thinks fit. Thus, the Court has ample power to pass such orders as it thinks fit to render justice and such an order has to be reasonable. It is also an accepted principle that "just and equitable" provision in section 402(g ) is an equitable supplement to the common law of the company to be found in its Memorandum and Articles of Association." 22. 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 logger heads. A suit is pending regarding title of the shares of the Company. A contention had been rais....
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....ere at logger heads. It is in the aforementioned situation, the High Court opined :- "The Company Law Board should have categorically held that such surrender was beneficial to the company and the second respondent unjustifiably objected to it. Admittedly, the second respondent was not in favour of such surrender on the ground that it was required for future expansion of the factory activities. Such a plea of the second respondent is based on mere conjectures and surmises and not borne out by any proposed project for future expansion. As such the Company Law Board very well could have held that the second respondent was oppressive." 27. In relation to the non-issue of duplicate share certificates the Company Law Board opined :- "That is why the petitioner took up the very same issue again at the Board meeting convened on 20-3-2004, after filing of the company petition. It is on record that the second respondent did not attend the Board meeting on 20-3-2004 on the ground that the subject-matter is sub-judice before the CLB. Thus, there is no ultimate denial of the issue of duplicate share certificates by the second respondent in favour of the petitioner." 28. The High Court, how....
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....siphoned off Rs. 8,15,000 of the company money, the respondent No. 1 attempted to transfer by way of gifts properties given as collateral security to financial institutions and so on. When the petitioner herein either asserted his rights or attempted to thwart the wrongful acts of the respondent No. 1, the respondent No. 1, became abusive." 32. We may also notice that in his reply statement before the Company Law Board it was stated by the appellant:- "5.10 The Petitioner-Managing Director has become quite old. In fact under the Companies Act, in case of Public Companies there exist sufficient safeguards to restrict appointment of Managing Directors over the age of 70 without prior permission of the Central Government. Such provisions have been thoughtfully provided considering the inherent weaknesses that will emerge out of old age. In order to continue the smooth functioning of the enterprise, it would be very much conducive if the Managing Director gracefully retires from the post and lets a much younger and still experienced person to take over the mantle of the company. And further more, so, considering that the younger person is the only son of the present Managing Director....
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....ort when other remedies are not efficacious enough to protect the general interests of the Company." 35. This Court noticed that although the Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its own lines. It was opined that the principle of 'just and equitable clause' is essentially equitable consideration and may, in a given case, be superim-posed on law. The Court in arriving at the said conclusion considered the decision of House of Lords in Ebrahimi & Westbourne Galleries Ltd., In re 1973 AC 360 whereupon strong reliance has been placed by Mr. Sundaram as also in Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch. 412 amongst others. What is important is not the interest of the applicant but the interest of the shareholders of the company as a whole. If such a principle is applied in a case of winding up of a company, we do not see any reason not to invoke the said principle in a case under section 397 of the Act, subject of course to the applicability of the well known judicial safeguards. A similar question came up for consideration in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 57 SCL 476 wherein this Court upon, noticin....
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....o warrant grant of any remedy. 37. Reliance has been placed by Mr. Sundaram on Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 10 SCC 696, which has also been noticed in Sangramsinh P. Gaekwad's case (supra) opining : ". . .The real character of the company, as noticed hereinbefore, for the purpose of judging the dealings between the parties and the transactions which are impugned may assume significance and in such an event, the principles of quasi-partnership in a given case may be invoked. The ratio of the said decision, with respect, cannot be held to be correct as a bare proposition of law, as was urged by Mr. Desai, being contrary to a larger Bench judgments of this Court and in particular Needle Industries (India) Ltd.'s case (supra ). It is, however, one thing to say that for the purpose of dealing with an application under section 397 of the Companies Act, the court would not easily accept the plea of quasi-partnership but as has been held in Needle Industries (India) Ltd.'s case (supra ), the true character of the company and other relevant factors shall be considered for the purpose of grant of relief having regard to the concept of quasi-partnership." (p. 546) 38. Submiss....