TaxTMI 
TaxTMI 
2010 (5) TMI 390
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....was dismissed by the High Court as being misconceived upon the finding that the CLB had consi-dered all the materials, applied the law and recorded its findings correctly and no question of law arose from the said order. This Special Leave Petition arises out of the said order of the High Court. 2. In order to appreciate the submissions made on behalf of the respective parties, the facts leading to the filing of the Company Petition before the CLB are set out hereinbelow. 3. With the intention of providing broadband network connectivity to all Government offices across the State of Andhra Pradesh, to connect the State capital with the Districts, Mandals, Blocks and Gram Panchayats, the State Government with the help of Andhra Pradesh Technology Services, (hereinafter referred to as "APTS"), identified a consortium of Companies, led by the respondent No. 5 to form a Joint Venture Company under the name of M/s. AP AKSH Broadband Limited, the Respondent No. 1 herein. M/s. AP AKSH Broadband Limited, (hereinafter referred to as "APAKSH"), was contemplated as a Special Purpose Vehicle to undertake and complete the project. 4. The petitioner No. 1 was one of the companies forming....
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..... 370 crores up to the stage of commission and implementation of the project. 8. Appearing for the petitioners, Mr. Jaideep Gupta, learned Senior Advocate, submitted that the Schedule of work in the Agreement entered into between APTS and APAKSH provided that the project was to be completed and commissioned within 65 weeks, which was to end on 31-12-2006. It also stipulated that connectivity up to the district and all mandal levels was to be completed in a phased manner within a period of seven months from the date of execution of the contract. Mr. Gupta submitted that towards that end the respondent No. 1 placed orders for supply of optic fibre cables on its sister concern, AKSH Broadband Limited, the respondent No. 5, which subsequently merged with AKSH Optifibre Limited, the substituted respondent No. 5, represented by the respondent Nos. 2 to 4, for completion of the project. Mr. Gupta submitted that despite the fact that over a crore of rupees had been contributed by the respondent No. 1 to the respondent No. 5 towards the execution of the EPC contract, it had not achieved connectivity in any of the 23 districts of the State in terms of the agreement dated 21-4-2005, execut....
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....g the turnkey project which was the very substratum of the existence of APAKSH Broadband Limited, the respondent No. 1-company. Mr. Gupta submitted that the aforesaid acts of the respondent No. 1- company through the respondent No. 5 herein, taking advantage of its complete control over the management and affairs of the respondent No. 1 already established that the Company's affairs are being conducted in a manner oppressive to the petitioners and the facts justified the making of a winding-up order on the ground that it was just and equitable that the Company be wound up. 12. Mr. Gupta also submitted that after holding that they lacked jurisdiction under sections 397 and 398 and 10F of the Companies Act, neither the Company Law Board nor the High Court should have commented on the merits of the matter which has prejudiced the interests of the petitioners. It was urged that it is in this context that the complaint made about the failure of the principles of natural justice before the Company Law Board assumes significance. Referring to the decision of this Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 3 SCC 333, Mr. Gupta submitte....
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....-company objecting to the manner in which the funds of the company were being siphoned off by the Engineering Procurement and Construction Contractor, (hereinafter referred to as "the EPC Con- tractor"), without any progress in the project work. In the first of such letters dated 22-8-2006, addressed by Shri R.V.R. Chowdary, Chairman and Managing Director of the petitioner-company, to the Chairman of the respondent No. 1-company, the financial indiscipline on account of payment of commission to the EPC contractor was objected to as the same ought to have been spent in proportion to the funds earmarked for each category of expenditure. The next letter referred to by Mr. Gupta was the one dated 1-11-2006, addressed by the Vice-Chairman of the respondent No. 1-company to the respondent No. 5 complaining of the fact that despite all the support received by the respondent No. 5 as the EPC contractor and payment of about Rs. 100 crores, connectivity had not been completed even in one district nor in the State Secretariat which was the central hub of the project. Various other shortcomings of the respondent No. 5 were also pointed out and it was also stated that A.P. Broadband Project had....
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....ntractor and a shareholder in Incable Net has been cited by the petitioners in their application under sections 397 and 398 of the Companies Act, as acts of oppression on the petitioner-company. Referring to the various allegations made against the respondent No. 5 and its purported control of the respondent No. 1, Mr. Raghavan pointed out that the petitioners had deliberately suppressed the fact that the payments made to the respondent No. 5 had been done under the signature of the petitioner No. 2. Mr. Raghavan submitted that having himself participated in the Board meetings as Director of the respondent No. 1-company and having chaired eight Board Meetings between 14-2-2005 and 4-3-2006 and having been a signatory to the minutes of the meeting dated 21st April, 2005, in which the EPC contract had been awarded in favour of the Respondent No. 5, it did not lie in the mouth of the Petitioner No. 2 to attribute acts of oppression by the Respondent No. 1 as far as the Petitioners are concerned. Mr. Raghavan submitted that apart from the above, the petitioner No. 2 was also a member of the Managing Committee and Audit Committee of the respondent No. 1-company and had also signed the A....
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....rs, audit of the accounts of the Company, etc., which were within the lawful domain of the Board of Directors. 21. In this regard, Mr. Raghavan referred to the decision of this Court in Sangramsinh P. Gaekwad's case (supra), which had also been referred to by Mr. Gupta, in support of his contention that the duties of a Director to the Company and to the shareholders stand on different levels, but while a Director stands in a fiduciary capacity to the Company, he does not have such a duty towards shareholders. 22. As far as denial by the CLB as well as the High Court to the adducing of oral evidence is concerned, Mr. Raghavan submitted that section 10E(5) of the Companies Act, 1956, indicates the manner in which the Company Law Board has to exercise its powers and to discharge its functions under the Act. For the sake of reference, section 10E(5) is set out hereinbelow :- "10E. Constitution of Board of Company Law Administration.- (1) to (4)** ** ** (5) Without prejudice to the provisions of sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the discharge of its functions under this Act or any other law be guided by the ....
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....ders towards the majority shareholders was harsh, burdensome and wrong and that such conduct was mala fide and was for a collateral purpose where although the ultimate objective might be in the interest of the Company, the immediate purpose would result in an advantage for some shareholders over others. It was also observed that the action of the majority shareholders was against probity and good conduct. Once the conduct was 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 to an end such an oppression, is very wide. 26. Mr. Raghavan submitted that even in the decision of this Court in Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 , this Court had held that when a majority shareholder was reduced to a minority shareholder by a mala fide act of the Company or its Board of Directors, such act would amount to "oppression" against the minority shareholders. It was also submitted that it is only in such circumstances that a decision was taken by the respondent No. 1-company to consider the question of forfeiture of the partly paid shares held by the p....
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....; (iv)Appoint a team of Chartered Accountants/Chartered Engineers to evaluate the quantum of work done by the respondent-company, and declare that the investment of the 5th respondent-company over and above the said quantum of work to have been issued without consideration and consequently annul the said shares and direct the modification of the shareholding of the 1st respondent-company; (v )Vest the day-to-day administration of the 1st respondent-company in a Committee of Directors comprising of a nominee from each group, viz., petitioners, APTS and 5th respondent; and pass such other order(s) as the Hon'ble Board deems fit and proper in the circumstances of the case." 31. The allegation on the basis of which such reliefs have been prayed for basically is that the EPC Contractor AKSH, the respondent No. 5, which is also the majority shareholder in the respondent No. 1-company, had mismanaged the funds and operations of the company and the work on the project was delayed on account of the various acts of omission and commission on the part of AKSH. The reliefs prayed for have been opposed on behalf of the respondents contending that the contractual obligations under the E....
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....is Court in Needle Industries (India) Ltd.'s case (supra). Mr. Gupta relied on the said decision in support of his submission that by denying an opportunity to the petitioners to adduce oral evidence, the CLB had shut out vital evidence which would have strengthened the case of the petitioners. The views expressed in paragraph 63 of the said decision is the expression of a general principle of law and only confirms the principle of adducing evidence, but does not lay down a hard and fast rule that in all cases the Court or the CLB is bound to allow oral evidence to be led as otherwise there is a risk that the person accused of wrongful conduct is denied an opportunity to controvert the inference said to have been arrived at from the evidence produced before the Court alone. As a proposition of law, there can be no disagreement with the same, but the question is as to whether the same is required to be applied in the facts of the instant case. 35. From the submissions made on behalf of the respective parties and the materials on record, the point which falls for consideration in this appeal is as to whether a case of oppression and mismanagement by the majority shareholders again....