TaxTMI 
TaxTMI 
2009 (8) TMI 713
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....d C.A. No. 15 of 2009 is filed by the second respondent. 3. For the purpose of brevity, the parties are referred to in this judgment as shown in the impugned order of the Company Law Board. 4. The petitioners before the Company Law Board, who are the professionals, promoted the first respondent-company, viz., Creative Port Development Private Limited (CPDP), being subscribers to the memorandum and articles of association and are stated to have originally had 100 per cent of shares. The company, having been constituted with an object of development of sea ports, was incorporated on 6-2-2006. 5. The second respondent, which is a wholly-owned subsidiary of the sixth respondent (SREI), was stated to have been issued 70 per cent of shares of the company by virtue of an investment agreement dated 26-5-2006, on an understanding that the second respondent, being an investor, should meet the entire funding requirements in respect of the projects undertaken by the first respondent-company. Therefore, after the said invest- ment agreement, the shareholding of the petitioners, which was 100 per cent, has come down to 30 per cent in the first respondent-company and the second responden....
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.... (Creative) on the other hand by which it was agreed that Creative of the petitioners shall associate with the consortium till the award of the project and in the event of such award till the commencement of its commercial operations of the port. As per the agreement, while 51 per cent of the Machilipatnam Port Project would be owned by Maytas and NCC, the remaining 49 per cent should be with SREI and the first respondent-company and, therefore, Maytas-NCC combine and SREI and the first respondent-company combine were to share in the ratio of 51:49. The 51 per cent on the side of Maytas-NCC was agreed to be shared at the rate of 40 per cent and 11 per cent each. In respect of 49 per cent, on the side of SREI and the first respondent-company combine, SREI was to have the holding of 38 per cent, while the remaining 11 per cent was to be held by the company. 11. A consortium agreement was entered into on 25-3-2006. According to the petitioners, the name of the second respondent (SREI) was proposed in the consortium, since at that time, the first respondent-company was a new entity which was incorporated only on 6-2-2006. On the other hand, it has been the stand of respondent Nos. 2....
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....ined by an independent expert valuer, appointed by the Bench. The second respondent shall exercise either of the options, by filing an appropriate affidavit before the Bench Officer, within 30 days of the receipt of the copy of the order, towards due completion of the exit formalities of the second respondent from the company. (ii )Respondent Nos. 2 to 6 shall ensure reimbursement, in favour of the company, of 30 per cent of all benefits enjoyed by SREI from and out of the Machilipatnam Port Project as at March 31, 2008, which shall be ascertained by the expert valuer. (iii)The petitioners shall forthwith reconstitute the board of directors of the company, in exclusion of the nominees of the second respondent, upon which the company is at liberty to carry on its business, in terms of the articles of association of the company. (iv)The petitioners shall keep informed the second respondent of any major developments in the Subarnarekha Port Project every month, within seven days of the following month commencing from June 2009, till completion of the whole of exit formalities of the second respondent from the company." 15. For arriving at such conclusion, the Company Law B....
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...., namely, Mr. Ramani Ramaswamy and Mr. R. Rangarajan are holding 100 per cent shares. While making it clear that the Subarnarekha Port (P.) Ltd.'s project as stated to be approved by the Government of Orissa will continue, respondent Nos. 1 and 2 shall maintain status quo in respect of their share holding in Subarnarekha Port (P.) Ltd. Learned counsel appearing for respondents are directed to produce all subsequent records to this Court during the course of arguments." 18. The said order was passed taking note of the fact that Subarnarekha Port Project is a public project and public interest is involved. 19. Even though under the relief granted by the Company Law Board in paragraph 9(iv) there was a direction against the petitioners to keep informed the second respondent of any major developments in the Subarnarekha Port Project every month, the complaint was that the same was not followed, for which the contention raised on behalf of the petitioners is that if the above said direction is accepted, respondent Nos. 2 to 6 must withdraw their appeals. 20. Before going into the contentions raised by the respective counsel and merits of the case relating to the impugned ....
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.... consider, the decision of the Company Law Board is final even though the High Court might not, on the materials, have come to the same conclusion if it had the power to substitute its own judgment. (Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC): AIR 1957 SC 49). In between the domains occupied respectively by questions of fact and of law, there is a large area in which both these questions run into each other, forming enclaves within each other. The questions that arise for determination in that area are known as mixed questions of law and fact. These questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on an application of the appropriate principles of law to the facts ascertained. The ultimate finding on the issue must, therefore, be an inference to be drawn from the facts found, on the application of the proper principles of law, and in such cases an inference from facts is a question of law. In this respect, mixed questions of law and fact differ from pure questions of fact in which the final determination, equally with the finding or ascertainment of basic facts, does not involve the applicat....
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....as lawful for the Company Law Board to permit the petitioners to reconstitute the board of directors of the company without even securing the payment of consideration; (vi)as to whether the Company Law Board was right in allowing the reconstitution of the board of directors, without the approval of the shareholders and whether the same is within the provisions of the Act; (vii)as to whether the claim on Machilipatnam Port Project, which is based on the memorandum of understanding, can be a subject-matter of oppression; (viii)as to whether it is proper for the Company Law Board to rely upon the memorandum of understanding dated 14-11-2007, which is held by the Company Law Board itself as not enforceable; (ix)as to whether it is within the jurisdiction of the Company Law Board to decide an issue which is referable to arbitration as per the Investment Agreement; (x)as to whether respondent Nos. 3 to 5 can be personally made responsible in respect of an amount stated to have been received by the second respondent; and (xi)as to whether the relief granted by the Company Law Board by virtue of the powers conferred under section 402 of the Act can be sustained. 25. Th....
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....agreement is not as and when the petitioners have been demanding, and it is only those demands which are pertinent to the projects of the company, the second respondent-investor can be expected to fund. On the facts of the case, an enormous amount has been claimed as strategic expenses without explaining the reasons and in such circumstances, it cannot be said to be a refusal to fund when the explanation from the petitioners, who are in the day-to-day affairs of the company, has not given the reasons for such extraordinary claim of strategic expenses and even assuming that there is a breach of funding obligation under the investment agreement, the same cannot be attempted to be enforced in the guise of oppression and mismanagement; (iii)the memorandum of understanding dated 14-11-2007 is not valid and enforceable since there is no contract in existence, but the real intention of the petitioner in approaching the Company Law Board complaining under sections 397 and 398 of the Act is only to enforce the said memorandum of understanding dated 14-11-2007, thereby to make the exit of respondent Nos. 2 to 6 at any cost. It is also the case that by virtue of the subsequent agreement by....
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....elongs to the second respondent, which has been granted to the first respondent-company to have its registered office, but on the basis that the petitioners have been carrying on their own private and other activities in the said premises, which are detrimental to the interest of the first respondent-company and the sealing itself was only after the intention of the petitioners was known, viz., that they have not been acting in the interest of the first respondent-company and, therefore, there was no question of oppression or mismanagement. 27. The Company Law Board, while holding that the memorandum of understanding dated 14-11-2007 is not enforceable, has directed the second respondent to transfer all its shares in the first respondent-company in favour of the petitioners for a consideration of Rs. 52.50 crores, which is stated to form part of the memorandum of understanding dated 14-11-2007. The Company Law Board, while arriving at such conclusion, has decided that the second respondent was only an investor/money-lender and cannot be treated as a promoter of the first respondent-company and, therefore, as an investor its interest is only to earn money out of the money investe....
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....e-model, demolish, develop, improve, grades, curve, pave, macadamize, cement, and maintain sea and sea ports, dams, bridges, buildings, structures, apartments, hospitals, malls, places of worship, highways, roads, educational institutions, food storage, power plants, energy installations, marine structures, desalination plant, distribution utilities, energy trading, convention centers, water treatment and distribution facilities, alleys and to do other similar infrastructure and for these purposes to purchase, take on lease, or otherwise acquire and hold any lands and prepare lay-out thereon or buildings of any tenure or description wherever situate, or rights or interests therein or connected therewith. 2. To own, develop, sell, distribute, lease, hire, licence, use, operate, assemble, record, maintain, repair, recondition, work, alter, convert, improve, procure, install, modify and to act as consultants or otherwise deal in all kinds of infrastructure projects and developments and to promote, encourage, develop, maintain, organize, undertake, manage, operate, conduct, and to act as consultants, Advisors, negotiators and service providers." 32. It is not in dispute that befo....
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....of proposing a 80:20 equity sharing between Maytas and NCC group and SREI and Ramani group respectively. It is understood that they are serious on not letting go anything more than 26 per cent to us. In the worst case, they may propose 60:40. Mr. Ramani highlighted and made it very clear in the presentation itself that SREI-Ramani group needs to hold majority stake since SREI-Ramani group has the expertise which is very critical for the entire project. Maytas and NCC appeared to have been a bit inconvenient with the firm statement made by Mr. Ramani on the majority stake." 35. In the said communication, it is also stated as follows :- "SREI-Ramani group will be the lead member/partner of the bidding consortium. The preliminary terms for drafting the (i) consortium agreement; (ii) joint venture shareholders agreement; (iii) work distribution agreement; (iv) non-compete agreement; (v) agreement on permission to use technical data/documents/know-how; (vi) agreement on selection of other operators and sub-contractors; and (vii) advisory services agreement, etc., may be included in the memorandum of understanding to avoid disputes at a later stage." 36. The fund requirement for....
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....e incorporation of the first respondent-company between the petitioners and the representatives of the second respondent, it is clear that the second respondent has been taken as a lead member in respect of the said projects, as admitted by the petitioners themselves when they were partners of the Creative Infrastructure before incorporation of the first respondent-company. It is true that at the time when the first respondent-company was incorporated none of the representatives of the second respondent-company were made a signatory to the memorandum and articles of association. But, the presence of the representative of the second respondent as a first and permanent director of the company is available under the articles of association as stated above. 40. It is well-known that the promoters of the company, who act before the incorporation of the legal person, need not necessarily be either a signatory of the memorandum and articles of association or shareholder or the director of the company. The promoter, who is called a "midwife" of the business as coined by Henn and Alexander in Law of Corporations, has not been defined under the provisions of the Act. Nevertheless, before ....
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....a person is required to the issue of a prospectus and he has given that consent, or where, under sub-section (3) of section 60, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if any purporting to be made by him as an expert." 42. A reading of section 62(1) of the Act makes it clear that even if a promoter is not chosen to become a director, he is liable for any such loss or damages. 43. Section 62(6)(a ) of the Act, while explaining the expression "promoter" in the context of the liability for mis-statement, states as follows :- "62. Civil liability for mis-statements in prospectus.-. . . (6) For the purposes of this section- (a)the expression 'promoter' means a promoter who was a party to the preparation of the prospectus or of the portion thereof containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company; and . . . ." 4....
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....nder the Act. Section 41 of the Act is as follows :- "41. Definition of 'member'.-(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of a company, and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. (3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company." 47. Therefore, the second respondent, who has acted as a promoter of the company, who has not been made as a subscriber of the memorandum of association but its representative was only made as a first and permanent director, has become a member by virtue of section 41(3) of the Act as an investor after the investment agreement dated 26-5-2006 has come into existence. 48. I am, therefore, of the considered view, on the facts and circumstances of the present case and as submitted by learned senior counsel appearing for the appellants herein th....
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....to be part." (p. 94) 51. The Court of Appeal in Twycross v. Grant [1877] 46 L. J. QB 636, while deciding about the status of promoters in issuing prospectus of the company, in the words of Cockburn C.J., held as under :- ". . . The question as to when one, who in the outset was a promoter of a company, continues or ceases to be so, becomes, therefore, as it seems to me, one of fact. A promoter, I apprehend, is one who undertakes to form a company with reference to a given project, and to set it going, and who takes the necessary steps to accomplish that purpose." 52. This Court in Official Liquidator of the National Live Stock Registrtion Bank Ltd. v. Velu Mudaliar [1938] 8 Comp. Cas. 7 after referring to the decision in Twycross ( supra), in the words of Alfred Henry Lionel Leach C.J., has held as under :- "3. I will first discuss the question whether the first respondent can be deemed to be a promoter. In Twycross v. Grant [1877] 2 C.P.D. 469, Cockburn C.J., defined the word 'promoter' as being one who undertakes to form a company with reference to a given project, and to set it going, and to take the necessary steps to accomplish that purpose. Other definitions have ....
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.....), Nandi Transport (P.) Ltd. v. S.T.A.T. had occasion to consider in a different context the legal implications in relationship of a promoter and the company under incorporation. There was an elaborate consideration of that matter with reference to authorities, A Division Bench in appeal W.A. Nos. 85 and 86 of 1963 (Mad.), Palaniswami v. Nandi Transports (P.) Ltd. and etc., arising out of those petitions also covered the question in some detail. But, for our present purpose, we think it is not necessary to cover the entire ground. A promotor according to Cockburn C.J. in Twycross v. Grant [1877] 2 C.P.D. 469 is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose. Halsbury's Laws of England, 3rd edition, page 91 and Palmer's Company Law, 19th edition, page 322, elaborate this idea. In the writ petitions, one of us after referring to these authorities summed up the position of a promoter : 'A "promoter" therefore, is a compendious term given to a person who undertakes, does and goes through all the necessary and incidental preliminaries, keeping in view the objects, to bring into e....
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....from time-to-time by primary market development. By the Guidelines of 2000, the rights and liabilities of the promoters as per the SEBI Guidelines have been demarcated to the effect that the promoters contribution for public issues by unlisted as well as listed companies has been made uniform at 20 per cent in respect of issue size. Likewise, in respect of offer for sale of securities of unlisted companies, the promoters' shareholding subject to lock-in has been increased to 20 per cent apart from making it clear that all securities issued to the promoters not forming part of promoters' contribution are locked in for a period of three years whether issued to the promoters or persons other than the promoters. The obligations of such promoters as per the SEBI Guidelines, as amended in the Guidelines, 2000, are as follows :- "5.3-5 Undertaking 5.3-5.1 The issuer shall submit an undertaking to the Board to the effect that transactions in securities by the 'promoter', the 'promoter group' and the immediate relatives of the promoters during the period between the date of filing the offer documents with the Registrar of companies or stock exchange as the case may be and the date of ....
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....second respondent and to that limited extent as per the lock-in period mentioned in the SEBI Guidelines and that has been consciously incorporated under clause 15.8 of the investment agreement as follows :- "15.8. Lock-in period.-The promoters undertake to submit such number of shares for lock-in as may be required under the SEBI Guidelines for Disclosure and Investor Protection prevailing at that time and/or any other regulatory authority. In the event that the VC Investor are considered to be promoters of the company under any regulation then in force, due to their shareholding in the company exceeding a certain percentage or otherwise, the promoters agree to negotiate a solution to ensure that the VC Investor are not considered 'promoters' including without limitation, purchasing from the VC Investor, such excess number of shares, which would otherwise be required to be submitted for lock-in by the VC Investor." 61. By the said clause, the petitioners have specifically excluded the second respondent within the meaning of promoters of the company to ensure that the second respondent, as venture capital investor, is not considered as a promoter without limitation and, theref....
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....on law, this is a patent error committed by the Company Law Board in holding as if the second respondent cannot be treated as a promoter for the purpose of the Act, ignoring the fact that the investment agreement intends to magnify the petitioners as promoters only to protect the second respondent-investor and that itself shall not take away the real fact as admitted between the parties and the memorandum of understanding dated 8-2-2006, wherein the parties have specifically admitted the joint participation of the second respondent in promoting the first respondent-company. 65. Be that as it may, now that it is clear that the facts of the case show that it is not as if the second respondent is being made liable for any pre-incorporation liabilities either towards the petitioners or towards any third parties or towards the first respondent-company, the finding as to whether the second respondent is also a promoter of the first respondent-company is purely academic. In spite of the same, the matter has been dealt within some detail only for the purpose of making out the legal position clear in respect of the conduct of the parties in the pre-incorporation stage. 66. The memoran....
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....valid up to the earliest of the following two events :- "10. This memorandum of understanding will be valid up to the earliest of the following event : Rejection of the proposal submitted by the Maytas Nagarjuna Combine and SICP led Consortium. Entering into a more detailed shareholders' agreement between SICP and/or its associate and Maytas Nagarjuna Combine upon winning of the project by the Consortium." 69. On the same day, viz., 8-2-2006, there was another memorandum of understanding entered between the consortium of Maytas Infra Private Limited, Nagarjuna Construction Company Limited, SREI Infrastructure Finance Limited, Kolkata and Sarat Chatterjee and Co. (VSP) Private Limited on the one hand and Creative Infrastructure, the partnership of the petitioners, on the other hand. The said memorandum of understanding shows that it was Maytas as a lead member of the consortium, who along with Nagarjuna Construction Company Limited has submitted their bid for the Machilipatnam Port Project of Government of Andhra Pradesh and were financially qualified, while to make further proposal as per the stipulations laid down in the Request For Proposal (RFP), having found that Cr....
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.... a strong and competitive proposal the shortlisted consortium has inducted additional members with a view to strengthen the consortium with port specific experience and also fulfilling certain stipulations of the RFP." 74. This shows that in order to fulfil request for proposals additional members are inducted, which probably means the induction of Creative Infrastructure, namely, the partnership of the petitioners and may also include SICP, namely, the combination of the sixth respondent and the first respondent, as stated in the memorandum of understanding dated 8-2-2006, referred above. 75. Even though such clause about the additional members is provided in the said consortium agreement under which a Special Purpose Company (SPC) was agreed to be incorporated on award of contract by the Government of Andhra Pradesh to the consortium to undertake the project, the nominated members of the consortium are stated as follows:- "( a) Mr. T. Nagarjuna : Maytas ( b) Mr. Chiranjeevi Rao : NCC ( c) Mr. T.K. Bharathan : SREI ( d) Mr. B. Rama Gopal : SCC" 76. It is also specifically stated in cla....
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....ar end, will probably transfer funds in first week of April. The bill you sent is related to Machilipatnam port which is jointly done by us and Maytas. Isn't this bill supposed to be borne by the concerned JV. Also what is the total pre-operative cost for this project? Best regards : Bajrang Kumar Choudhary Vice President SREI Infrastructure Finance Limited 86C, Topsla Road (South) Kolkata-700 046." 80. It is to be remembered that at the time of the said e-mail, the investment agreement dated 26-5-2006 between the second respondent and the petitioners has not come into existence. 81. It was on 20-1-2007, the Government of Andhra Pradesh issued a Letter of Intent (LoI) to M/s. Maytas Infra Private Limited, Hyderabad directing the said Maytas to furnish performance security for Rs. 10 crores based on the Request For Proposal (RFP) document in the form of an unconditional and irrevocable bank guarantee from a scheduled bank in India acceptable to the Government of Andhra Pradesh and also directed Maytas to pay Rs. 1 crore as project development fund, of which 50 per cent was to be paid at the time of signing the concession agreement as first instalment and t....
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....ite undertaking or commitment from the Creative Infrastructure. The said letter also shows that the Government has not required such commitment from the first respondent-company, but from the petitioners as partners of Creative Infrastructure based on their technical competency. Even though by the time the letter was sent by the Government on 8-5-2006 the first respondent-company has already come into existence on 6-2-2006 itself, there is no reference about the first respondent-company in the said letter dated 8-5-2006. 86. While replying the said letter of the Government of Andhra Pradesh dated 8-5-2006, the second and sixth respondents, through its Vice President-Bajrang Choudhary, in the letter dated 19-5-2006, has stated as under: "With reference to your letters mentioned above and with specific reference to point No. 18 therein, we wish to clarify that we are a member of the consortium for this project. Our share in this project would be undertaken through a special purpose port development vehicle named Creative Port Development Company Private Limited (CPDP), wherein M/s. Ramani Ramaswamy and R. Rangarajan (joint promoters of Creative Infrastructure) hold substantial ....
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.... themselves as partners of Creative Infrastructure in respect of Machilipatnam Port Project, except referring about the second memorandum of understanding dated 8-2-2006, as stated above. 90. It is relevant to remember that at that stage the second and sixth respondents-SREI has 38 per cent share in the Machilipatnam Port Project as per the consortium agreement dated 25-3-2006. 91. As stated above, while awarding contract in respect of the Machilipatnam Port Project, the Government of Andhra Pradesh has granted it only to Maytas and in the said order dated 20-1-2007, there is nothing to show that the grant of project to Maytas is depending upon the participation of the first respondent-company. 92. It was in that background, the investment agreement came to be entered on 26-5-2006 between the newly constituted scheme of SREI Venture Capital Trust called Infrastructure Project Development Fund, the trust having been incorporated and registered as venture capital fund under the SEBI (Venture Capital Funds) Regulations, 1996 called as "VC Investor" represented by the second respondent, which is a company registered under the provisions of the Act, as investment manager of the....
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....ioners was made to continue as the managing director and the VC investor was empowered to nominate the directors based on which the nominations have been made and the management has been vested with the board consisting of the directors, including the nominee directors of the second respondent. Clause 8 of the investment agreement confers rights to the VC investor, which shows that the management of the first respondent-company is under its control, while the managing director post remains with one of the petitioners. The financial control of the petitioners has been restricted to the minimum of 30 per cent of the issued and paid-up capital of the company at all times. 97. The pre-emption right of the petitioners as promoters of the first respondent-company has been waived under the terms of the investment agreement. As enumerated above, clause 11.7 of the investment agreement indemnifies the VC investor jointly by the petitioners and the first respondent-company in respect of any loss or liability or expenses incurred by the VC investor by the conduct of the petitioners as well as the first respondent-company. 98. In respect of the powers of the board of directors, clause 13....
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....nment of Andhra Pradesh has granted the project to the lead member of the consortium-Maytas as per its letter dated 20-1-2007 and required Maytas to furnish a performance security of Rs. 10 crores. Pursuant to the said letter, it is seen that Maytas in the letter dated 25-1-2007 addressed to the Government of Andhra Pradesh has enclosed the performance security amount of Rs. 10 crores in the proper format provided by Maytas and Nagarjuna Construction Company equally on behalf of the consortium and seeking permission to replace the said two guarantees with guarantees from all four members of the consortium equally, namely, Maytas, NCC, SREI and SARAT. 104. In the letter of the second respondent dated 15-3-2007 addressed to the Government of Andhra Pradesh, while referring to the consortium agreement dated 25-3-2006 and also the memorandum of understanding dated 8-2-2006, in addition to the clarification issued by Maytas in the letter dated 24-5-2006, the second respondent has informed the Government of Andhra Pradesh that the petitioners as owners of M/s. Creative Infrastructure have direct commitment in the development of the said port. 105. By the subsequent letter dated 21-....
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...., quoting clause 4.4 of the request for proposal threatening to cancel the contract, the second respondent by subsequent letter dated 6-11-2007 addressed to the Government of Andhra Pradesh has withdrawn its earlier letter dated 21-6-2007. It is this letter which is sought to be the reason for the petitioners to agree for making exit of the second respondent from the first respondent-company completely by fearing that the new project from Orissa, viz., Subarnarekha Port Project also would be spoiled by improper funding of the second respondent. 110. It is the case of the petitioners that it was due to that reason the new memorandum of understanding was entered into on 14-11-2007 and that was alleged to be a conduct of oppression on the part of the second respondent, being a majority shareholder of the first respondent-company. The oppression sought to be raised against the second respondent in this regard was that due to the non-funding of Machilipatnam Port Project, the petitioners as well as the first respondent-company had to be compelled to enter into the memorandum of understanding on 14-11-2007, agreeing to part away a huge amount of Rs. 52.50 crores for Subarnarekha Port ....
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....ion has relied upon a letter of Maytas dated 22-4-2006 wherein a reference has been made to the expertise of Creative Infrastructure, of which the petitioners are partners, and inasmuch as Creative Infrastructure has entered into a memorandum of understanding on 8-2-2006 and by the communication of the second respondent dated 19-5-2006 and 15-3-2007 has made a commitment that the first respondent-company, wherein the petitioners are holding substantial stake, would have direct commitment in the development of Machilipatnam Port Project, ignoring the fact that even by the conduct of the second respondent if it is incumbent on it as per the investment agreement between it and the petitioners dated 26-5-2006, inasmuch as neither the petitioners nor the first respondent-company are, admittedly, members of the consortium agreement dated 25-3-2006, neither the petitioners nor the first respondent-company can be made members of the consortium to which the contract was awarded by Government of Andhra Pradesh. 114. Again, in my considered view, the Company Law Board has committed gross error in concluding that the first respondent-company is a party to the award of the contract of Machil....
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....mpanies and port operator, respectively, at least till the expiry of 5 years from the commercial operations date. The equity capital of the concessionaire shall be contributed by the consortium members by cash as follows : (a )Maytas Infra Ltd. and (40 per cent) (b )Nagarjuna Construction Company Limited (11 per cent) Both (a) and (b ) combined to contribute 51 per cent subject to mini-mum of 26 per cent, from (a) (c )SREI Infrastructure Finance Limited (38 per cent) and Sarat Chatterjee and Co. (Visakhapatnam) Private Limited (11 per cent). The lead member of the consortium shall have control over the associate and affiliate companies as shown in (b) above. 'Control' shall mean : (i )control over the appointment and removal of majority of the board of directors of the company; or (ii )control of at least 26 per cent (twenty-six per cent) of the issued equity share capital and voting power of the company." 117. There is nothing to presume under the concession agreement as if the first respondent-company or the petitioners as Creative Infrastructure have become party to the awarding of contract by the Government of Andhra Pradesh in respect of Machilipatna....
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....me to a conclusion that the second respondent and Sarat Chatterjee and Co. (VSP) Private Limited have agreed to sell their equity shares held in Vajra in favour of Maytas and NCC and the subsequent allotment of shares in Vajra to third parties as it is found out from Form No. 2, dated 22-9-2008, are all not absolutely relevant for the purpose of deciding the issue about the oppression stated to have been committed by the second respondent towards the first respondent-company. 121. The reliance placed by the Company Law Board on section 88 of the Indian Trusts Act, 1882 for the purpose of arriving at a conclusion that the second respondent has obtained unjust benefit in the Machilipatnam Port Project by not funding adequately and the subsequent result of sale of its share towards Maytas and NCC amounts to breach of trust and, therefore, the second respondent is liable to repay the 30 per cent of benefit received out of the said conduct is totally uncalled for. 122. As I have stated earlier, inasmuch as on admitted facts it is seen, as it is also found by the Company Law Board, that the first respondent-company is not a party to the consortium agreement to which the Government ....
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.... PC 161. The dictum laid down by the Privy Council cannot be made applicable to the facts and circumstances of the present case to make respondent Nos. 3 to 6 liable under the concept of fiduciary relationship. 126. Taking into consideration the overall picture that in the letter of intent by the Government of Andhra Pradesh dated 20-1-2007, the first respondent was not a party and contract was awarded only to Maytas, lead member of the consortium, to which the second respondent is a party along with others, that in the concession agreement dated 21-4-2008 entered between the members of Vajra and the Government of Andhra Pradesh, the first respondent-company is not a party, and neither the first respondent nor the petitioners conduct has ever been discussed in the concession agreement and that apart from Maytas, NCC and Sarat Chatterjee and Co. (VSP) Pvt. Ltd., it was only the second respondent who was a party, and that in the shareholders agreement dated 3-3-2008, which is an agreement entered again between Maytas, NCC, SREI and Sarat Chatterjee and Co. (VSP) Pvt. Ltd., wherein the Maytas-NCC group and SREI-SCPL group have been collectively called as Vajra Sea Port Private Limi....
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.... lacuna filled up by other evidence oral or documentary [see Bengal Laxmi Cotton Mills Ltd., In re [1965] 35 Comp. Cas. 187 (Cal.)]." (p. 635) 129. In the absence of such pleading regarding fiduciary relationship, the finding and the consequential decision of the Company Law Board as directed in paragraph 9(ii) is perverse. In any event, making the nominated directors of the second respondent, namely, respondent Nos. 3 to 5 liable to indemnify to the extent of 30 per cent to the petitioners is absolutely unwarranted and cannot be accepted by any stretch of imagination. 130. The reliance placed on the judgment of the Madras High Court in Syed Mahomed Ali v. R. Sundaramurthy [1958] 28 Comp. Cas. 554 : AIR 1958 Mad. 587 for the Company Law Board to come to a conclusion that even without a prayer a wider power is available under section 402 of the Act, is not applicable to the facts and circumstances of the present case. It is true that under section 402 of the Act, there is ample jurisdiction to the Company Law Board in the larger interest of the company and the public interest to investigate. It is also true that even in the absence of specific prayer in the petition under sect....
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.... not performed its function as per the consortium agreement. Even if such complaint is made by Maytas, in the context of my holding that Machilipatnam Port Project cannot be treated as a project of the first respondent-company, any such complaint by Maytas against the second respondent cannot be made available either to the first respondent-company or the petitioners to bring home the complaint of oppression under section 397 of the Act towards the first respondent-company by the second respondent. Even the petitioners as partners of Creative Infrastructure or as directors of the first respondent-company to contribute the share of the second respondent to the extent of 38 per cent arose only from the investment agreement dated 26-5-2006. Inasmuch as under the investment agreement Maytas is not a party, there is nothing to infer that in respect of the affairs of the first respondent-company, there has been oppression on the part of the second respondent in non-furnishing of performance security in accordance with the letter of intent by the Government of Andhra Pradesh dated 20-1-2007. 134. There is nothing on record to show that in accordance with the said clause 3.1 of the inve....
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....oard. It was also contended that such transfer would bring a material change in the management of Haldia Petrochemicals Limited which will be prejudicial to the interest of the members. On such factual matrix, the Calcutta High Court has held that the same is not relating to the affairs of the Haldia Petrochemicals Limited and, therefore, the petition under section 397 of the Act cannot be decided by the Company Law Board on such factual circumstances. The relevant portion of the judgment is as follows : "In my view, the question is whether regarding the question of transfer of the said 155 million shares by the WBIDC in terms of the agreement dated January 12, 2002, the HPL was competent or supposed to do anything; and if the answer is in the affirmative, then it must be held that it was one of its affairs. Mr. Bimal Chatterjee, in my opinion, is right in saying that though the HPL was a party to the agreement dated January 12, 2002, it was not competent or supposed to take any decision or to do any other thing regarding the question of transfer of the said 155 million shares by the WBIDC to the CP(M)C, or to its nominee the CP(I)PL that entered into a separate agreement dated ....
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....the appointment of a director or of some other kind. His contention was that in the petition the only relief prayed for was regulation of the conduct of the affairs of the company in future and not in regard to any action against the directors for the alleged malfeasance and misfeasance. That may be so, but the petition contains an elaborate statement of the charges against the directors and an investigation into those charges would be necessary even for the purpose of regulating the affairs of the company. We do not think that the absence of any formal prayer in the petition under section 397 would entitle the Court to refrain from investigating into the various charges levelled against the directors. In Gower's Modern Company Law (second edition), at page 513, the scope of section 210 of the English Act which corresponds to section 397 of the (Indian) Companies Act is discussed and referring to the Cohen Report, on which the section in the English Act was based, the learned author says "that it was the intention that the Court should 'have power to impose upon the parties whatever settlement the Court considers just and equitable'. While recognising that the Court could not be ex....
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....ries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743 (SC); while referring to section 397 of the Act and section 210 of the English Companies Act and also taking note of the dictionary meaning of the word "oppression" in the light of the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] 29 Comp. Cas. 1 wherein it was termed as "burdensome, harsh and wrongful", observed as follows : "46. Coming to the law as to the concept of 'oppression', section 397 of our Companies Act follows closely the language of section 210 of the English Companies Act of 1948. Since the decisions on section 210 have been followed by our Court, the English decisions may be considered first. The leading case on "oppression" under section 210 is the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] 29 Comp. Cas. 1 : [1959] AC 324. Taking the dictionary meaning of the word 'oppression', Viscount Simonds said at page 342 that the appellant-Society could justly be described as having behaved towards the minority shareholders in an 'oppressive' manner, that is to say, in a manner 'burdensome, harsh and wrongful'. The l....
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....of Needle Industries (India) Ltd.'s case (supra), the Division Bench of the Madras High Court in Shoe Specialities (P.) Ltd.'s case (supra), has held as follows : "39. Even if the unlimited powers expounded by the various decisions are not exercised, the decision in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743 ; MANU/SC/0050/1981 will be of some help. In that case, their Lordships said that in a given case even if the case of oppression is not proved, substantial justice must be done between the parties and the parties must be placed as nearly as may be in the same position if they could have been placed. The relevant portion of the said paragraph 172 reads thus (at page 845 of 51 Comp. Cas.) : '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. 29) 142. In Sangramsinh P. Gaekwad's case (supra), w....
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....ation must be brought to the notice of the Court since the power of the Court under section 402 of the Act is far-reaching in its character. The relevant portion is as under : "185. It has to be borne in mind that when a complaint is made as regards violation of statutory or contractual right, the shareholder may initiate a proceeding in a civil court but a proceeding under section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the Court keeping in view of the wide and far-reaching power of the Court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be rejected." (p. 631) 144. It was also held by the Supreme Court that even in cases where no instance of oppression has been made out relief can be granted to render substantial justice, as under : "199. In a given case the Court despite holding ....
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....ed under clause 2.4, which is as follows : "2.4. Formation of Special Project Company (SPC).-It is recognised by the parties that the CPDP is in the process of promoting a special project company (hereinafter called 'SPC') which will be a body corporate incorporated under the Indian Companies Act, 1956, with its registered office in the State of Orissa. CPDP and its subsidiaries shall hold not less than 51 per cent (fifty one per cent) of total equity capital subscribed of the SPC which shall be locked in till operation date. This body corporate shall be duly incorporated prior to the commencement date. It is agreed by the parties hereto that the CPDP shall be entitled to subrogate all its rights and obligations under this agreement in the form of an instrument in favour of the said body corporate which the Government consents. Before granting the subrogation, the CPDP shall inform the Government in respect thereof and all necessary steps shall be carried out by the parties to give effect to the said subrogation within 30 days from the date of such information. After the subrogation, the new body corporate (SPC) shall be recognised by the Government for all legal and operatio....
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.... letter dated 23-1-2008 has replied to the first petitioner stating that they continue their commitment towards the investments in respect of the projects. As far as the Subarnarekha Port Project is concerned, as it is revealed from the communications exchanged between the first respondent-company and the Government of Orissa, it is clear that it is in the preliminary stage, but it is not known as to what prompted the petitioners to take the pain of creating encumbrance of their private properties for raising Rs. 1 crore to pay to the Government of Orissa. While there are no documents to show that the second respondent has deliberately refused to fund for Subarnarekha Port Project, there are records to show that the second respondent has taken objection regarding the strategic expenses of Rs. 50 crores. It is not the case of the petitioners that the second respondent in its funding position is not capable of extending funds. A consideration of the said fact along with the letter of the second respondent dated 23-1-2008 makes it clear that even though the Subarnarekha Port Project is a project of the first respondent-company and the funding obligation of the second respondent is in ....
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....copy of the resolution, duly certified by one of the directors, be furnished to the Bank for their records." 152. The abovereferred to resolution dated 7-11-2007 shows that the amount authorised relates to Subarnarekha Port Project and it is also significant to note that the petitioners are individually authorised to give undertakings and sign/execute all documents as per the requirement of the bank. By the time the said resolution was passed, the Subarnarekha Port Project has come into existence by award of the same in the form of memorandum of understanding with the Government of Orissa dated 18-12-2006, while the concession agreement with the Government of Orissa in respect of the said project was entered into long afterwards, viz., on 11-1-2008. 153. It is immediately after the passing of the said resolution dated 7-11-2007, a memorandum of understanding was entered on 14-11-2007 by which it is stated that the second respondent has opted to come out of the first respondent-company for a consideration, coupled with the subse- quent e-mail of the third respondent-Naveen Bansal dated 15-11-2007 addressed to the petitioners. Therefore, it is clear that in respect of Subarnare....
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....faction of the investors, the payment will be made by February 28, 2008 at a consideration to be mutually agreed upon. 4. M/s. Ramani Ramaswamy and R. Rangarajan will get the concession agreement signed with the Government of Orissa for the Subarnarekha Port Project within thirty days from the date of issue of the Government Order and take all necessary steps to take the project forward. This undertaking will be valid till February 28, 2008, within which if the transaction of the investments does not get concluded, then this understanding will become null and void." 155. In the abovesaid memorandum of understanding dated 14-11-2007, there is no reference about the consideration to be received by the second respondent for the purpose of sale of its interest in the first respondent-company. The words in paragraph (3) of the said memorandum of understanding are to the effect that once the due diligence is completed to the satisfaction of the investors (the second respondent), consideration has to be mutually agreed upon. The said memorandum of understanding also authorised the petitioners to get the concession agreement signed with the Government of Orissa. Admittedly, immedi....
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.... relating to Subarnarekha Port Project are certainly binding upon the said respondents, who cannot rescind from the undertaking specifically given by them. Therefore, the contention raised on behalf of the appellants by their respective counsel, including the senior counsel-Mr. S.N. Mookherjee, Mr. A.L. Somayajee, Mr. P. Raman and Mr. P. Arvind Datar that the direction of the Company Law Board in the impugned order directing the second respondent to transfer its shares and go out of the first respondent-company on consolidated price of Rs. 52.50 crores would amount to specific performance of the memorandum of understanding dated 14-11-2007, cannot be accepted. 159. A reference to the memorandum of understanding dated 14-11-2007, as extracted above, makes it clear that there is nothing to be enforced as per its terms. But the parties have acted upon the said memorandum of understanding which is evidenced from the fact that the petitioners have approached the Axis Bank for raising fund for the purpose of providing bank guarantee for Subarnarekha Port Project on their own and that the third respondent on behalf of the second respondent by e-mail dated 15-11-2007 has agreed to recei....
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....its chairman. Other provisions of the agreement refer to matters of detail to which it is unnecessary to refer. It will be seen, however, that there is no provision in the agreement as to what would happen if and when the share capital was actually increased beyond the increase envisaged at the time of the agreement. There is also no provision in the agreement to the effect that the articles of association of the private company as it then was would be amended suitably to bring the provisions of the agreement with respect to shareholding and the board of directors into line with the agreement. Thus, there is nothing in the agreement about the future in the matter of allotment of shares in case capital was actually increased thereafter." (p. 367) 161. The Supreme Court, on the facts of the said case, held that the haste with which the allotment of shares has been made cannot be held to be an oppression in the following words : "27. It is, however, urged that the haste with which the new shares were issued on July 30, 1958, shows a design to harm the appellant as a minority shareholder. It is no doubt true that the shares were issued in haste. But, as we have already indicated,....
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.... of the Act it is decided that oppression has not been made out, it is not as if the Courts are powerless in giving solution since the remedy under sections 397 and 402 of the Act is equitable in nature. That was the law laid down by the Supreme Court in Needle Industries (India) Ltd.'s case (supra) in the following words : "174. We must mention that we have rejected the charge of oppression after applying to the conduct of Devagnanam and his group the standard of probity and fairplay which is expected of partners in a business venture. And this we have done without being influenced by the consideration pressed upon us by Shri Nariman that Coats and Newey, who were two of the three main partners, were not of one mind and that Newey never complained of oppression. They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by section 397 of the Companies Act. Shri Seervai drew our attention to the decision in Blissett v. Daniel [1853] 68 ER 1022: [1853] 10 Hare 493, the facts of which, as they appear at pages 1036-37, bear, according to him, great resemblance to the facts before us. The....
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....ct, and held as follows : "As per section 397, any person who is eligible to apply under section 399, can apply before the CLB that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but 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. If the Tribunal is satisfied that there exists a situation where the business of the company is being conducted in a manner prejudicial to the interest or in a manner oppressive to any member or members and that winding up of the company would unfairly prejudice such member or members but 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, it may with a view to bringing to an end the matters complained of, make such order as it deems fit. Therefore, what it transpires in the present context is, we have to examine whether the acts of the company were oppressive to any member or....
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.... found by the Tribunal that in order to bring to an end or preventing further mismanagement, it can pass such order as it deems fit including that of winding up. Therefore, the parameters in both the sections, i.e., sections 397 and 398 are very clear. It will depend upon case to case. No hard and fast rule can be laid down. In the case of oppression to the interest of member or members, if the Tribunal is satisfied that the winding up is just and equitable then it can do so or pass any order as it thinks fit. Likewise, in section 398 if the management wants to bring any material change in the management and control of the company prejudicial to the interest of the company, then in that case, appropriate order can be passed by the Tribunal. The acts which would amount to oppression to the members or mismanagement or material alteration in the control of the company or prejudice to the interest of the company would depend upon facts of each case." (pp. 699 and 700) 168. The Supreme Court has confirmed the decision in Sangramsinh P. Gaekwad's case (supra) with approval. 169. The Supreme Court in M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja [2008] 143 Comp. Cas. 97 ^1 held....
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.... Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492: [1973] AC 360, whereupon strong reliance has been placed by Mr. Sundaram as also in Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch. D 426 (CA), 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." (p. 112) 171. The Company Law Board in the impugned order while referring to a similar contention of Mr. S.N. Mookherjee, learned senior counsel appearing for the appellants has, in fact, found that in the memorandum of understanding dated 14-11-2007, the proposed investor-M/s. Clear Water Fund was not a party, that the contents of the memorandum of understanding regarding the transfer of shares by the second respondent in favour of the petitioners does not relate to the affairs of the company, that the consideration of Rs. 52.50 crores has not crystallised in the memorandum of understanding, that the mem....
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.... the limits were found in the 'general meaning' of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independent enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law." (p. 817) 174. At this juncture it is relevant to refer to sections 397, 398 and 402 of the Act, which are as follows : "397. Application to Company Law Board for relief in cases of oppression.- (1) Any member of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, ....
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....e conduct of the company's affairs in future; (b )the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c )in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d )the termination, setting aside or modification of any agreement, howsoever 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)and (iv)[******] (v )the manager, upon such terms and conditions as may, in the opinion of the Company Law Board, be just and equitable in all the circumstances of the case; (e )the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), 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; (f )the setting aside of any transfer, delivery of goods, payment, execution or other act re....
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....ent-company has not been thwarted. 177. In any event, the continuous association of the second respondent with the first respondent-company in respect of the said project would only hamper the project which is of public importance, since the cordial relationship between the parties has become strained to an irrecoverable position and looking from that angle, I am of the view that the order of the Company Law Board insofar as paragraph 9(i) directing the second respondent to sell its shares, etc., to the petitioners for Rs. 52.50 crores or any other amount that may be fixed by the valuer is just and equitable and that part of the decision needs no interference by this Court. 178. One other submission raised by learned senior counsel appearing for the appellants in all these cases that by the impugned order of the Company Law Board the majority shareholders are directed to sell their shares to the minority shareholders and that is not permissible under the Act, deserves to be rejected. The main focus of the contention is that when the second respondent is holding 70 per cent of the shares with utmost control over the affairs of the first respondent-company and the petitioners a....
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.... no meeting point between the petitioners and the second respondent which is certainly a grave circumstance warranting the Company Law Board to invoke the just and equitable ground for winding up of the company. But, on winding up of the company, greater prejudice will be caused not only to the first respondent-company but also to the public interest and in such view of the matter, the relief granted by the Company Law Board cannot be said to be unjust or unreasonable. 182. Further, as rightly submitted by Mrs. Nalini Chidambaram, learned senior counsel appearing for the petitioners when the majority share-holders have shown no interest in the projects of the first respondent-company and in the absence of such legitimate interest, certainly the Company Law Board was right in permitting the minority shareholders to purchase the majority rights. 183. The impugned order of the Company Law Board in that regard is in consonance with the decision of this Court in Syed Mahomed Ali's case (supra), wherein the Division Bench presided over by P.V. Rajamannar, C.J. has held as under : "We are not hampered by such rigid technicalities of procedure and if the minority in a company comp....
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....nature, its proper construction should be to give the words used their widest amplitude. Probably the Legislature in England did not contemplate belligerent and unprincipled shareholders like the appellants before us in this case. The facts in this case show very clearly that there is no chance of redress in the domestic forum of the company. If a Board meeting was to be called, one group would contend that there were five directors, whereas the other group would urge that there were seven. If a meeting of the shareholders was to be convened, according to one group, there would be only sixteen shareholders while according to the other, the number would exceed twenty-five. One group would contend that the number of shares issued was 8,606, while the other group would assert that another lot of 2,113 had been issued. There is no certainty even about the registered office of the company. According to one group, the registered office is at Dr. Abani Dutta Road, while according to the other, it is at Jogendra Mukherjee Road. There would be complete chaos and confusion if any meeting was to be summoned." (p. 530) 185. It was further held that if a Court arrives at an equitable conclus....
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....hat the learned Judge failed to evolve a formula for remedying the permanent evil of the company, namely, the conflict between two groups of shareholders. In my opinion, the company cannot function properly if these two warring groups continue to hold the shares. As a matter of fact, at the early stage of the hearing of the appeal, a suggestion was made that one of the two groups should buy up the other's holding but nothing tangible came out of attempts made by counsel on that behalf. In my opinion, the special auditor should be directed to find out the fair value of the shares at the date of the petition as was directed by Lord Denning in Scottish Co-operative Wholesale Society Ltd.'s case [1959] 29 Comp. Cas. 1 (HL): [1959] AC 324 . We also order the oppressor, i.e., the respondents to the petition to buy the shares of the petitioners. In case, the respondents are unable or unwilling to buy the shares, the petitioners should have an option to buy the respondent's shares at the same price. The price is to be arrived at on the basis of the break-up value of the shares. The respondents should be given three months time after the submission of the report of the special auditor and t....
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....pted only after the middle of the year 2007. As found by the Company Law Board, in my view correctly, when the bank account has been jointly operated by the petitioners along with the third respondent there can be no scope for wrongful withdrawal of funds by the petitioners, which is also not the case of the petitioners against the second and third respondents. 190. In the absence of any factual finding by the Company Law Board in the impugned order that by virtue of either locking of the registered office of the first respondent-company or by freezing of the accounts, the objects of the first respondent-company have been hampered by any impediment or the petitioners have suffered any loss, it is not possible to accept the view of the Company Law Board that the said two incidents would amount to oppression and mismanagement. It is true that by virtue of the strained relations between the petitioners and second and third respondents there has been a deadlock created in the first respondent-company's affairs and there is a loss of mutual trust and lack of probity. Such incident itself is not sufficient, in my view, to constitute oppression which should be tested in the light of th....
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....petitioners to reconstitute the board of directors of the first respondent-company in exclusion of the second respondent and its nominees and carry on business in terms of its articles of association, since the same is consequential to the relief granted under paragraph 9(i) of the impugned order of the Company Law Board. 193. As submitted by learned senior counsel on the side of the appellants, inasmuch as a statutory appeal is available to the affected parties before this Court under section 10F of the Act, the Company Law Board should have directed the reconstitution after the relief granted under paragraph 9(i ) of the impugned order is complied with. As it has been held in a hierarchy of judgments, as elicited above, the power of the Company Law Board to grant relief is on just and equitable ground and it is in that sense the power is wider. Still, while passing such orders by exercising the wide powers conferred, the Company Law Board is certainly bound to consider the interest of all the parties concerned before giving such far-reaching directions. When once the second respondent and its nominees are directed to go out of the first respondent-company on receipt of the con....
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....ion as per the expert's value, ought not to have directed the reconstitution of the board of directors of the first respondent-company even before such exercise could be completed. 198. It is relevant to point out that after the Company Law Board passed the impugned order on 27-5-2009, the present appeals have been filed well within the statutory period of limitation prescribed by presenting the appeals on 18-6-2009. As stated earlier, when the matter came up for admission before this Court on 24-6-2009, Mr. T.V. Ramanujun, learned senior counsel appearing for the petitioners, has submitted that pursuant to the impugned order of the Company Law Board, the board of directors have been reconstituted, but he has undertaken that the newly constituted board of directors will not convene any meeting. 199. It is seen that even during the pendency of the proceedings before the Company Law Board, the petitioners have floated the said Subarnarekha Port Private Limited on 23-9-2008 as subscribers to the memorandum and articles of association and the company was incorporated on 1-10-2008, constituting it as a special purpose vehicle of the first respondent-company and the petitioners hav....
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....merce and Transport Department, Government of Orissa about the allotment of lands, renewal of bank guarantee, etc., but has not chosen to reveal anything to the Government of Orissa, even at that stage, about the constitution of a new company-Subarnarekha Port Private Limited by the petitioners themselves. 203. Immediately after the impugned order dated 27-5-2009 was passed by the Company Law Board, it is seen that the third respondent sent an e-mail dated 29-5-2009 to the petitioners informing them that the respondents are taking legal action against the order of the Company Law Board. On the same day, the third respondent has sent a letter to the petitioners stating that the meeting of the board of directors of the first respondent-company will be held on 6-6-2009 to decide about the impugned order passed by the Company Law Board. 204. By a letter dated 29-5-2009 addressed to the Chief Secretary, Government of Orissa, the first petitioner as a Joint Managing Director of the first respondent-company has informed the Government about the order of the Company Law Board and requested for an appointment to meet the Government officials in person. On the same day, by another lett....
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....wly constituted Subarnarekha Port Private Limited. 208. On the same day, viz., on 31-5-2009, the newly constituted company-Subarnarekha Port Private Limited, represented by the petitioners themselves passed a resolution accepting the subrogation of the concession agreement which stood in the name of the first respondent-company and authorising the petitioners themselves to execute necessary documents of subrogation. It is further astonishing to note that, on the same day, on behalf of the first respondent-company the petitioners addressed to the Government of Orissa about the constitution of Subarnarekha Port Private Limited with its registered office at Bhubaneswar, even though the company-Subarnarekha Port Private Limited came to be floated much earlier, viz., on 1-10-2008 itself, stating that "M/s. Subarnarekha Port Private Limited will hereafter undertake all aspects of the project envisaged in the Concession agreement. This letter is for your information as per clause 2.4 of the concession agreement". The said letter was signed by the first petitioner as joint managing director of the first respondent-company. 209. On the same day, viz., 31-5-2009, the first petitioner, ....
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....bably to complete the entire issue taking advantage of the order of the Company Law Board to frustrate the claim of the second respondent and its nominee directors. 212. The more shocking of all the conducts of the petitioners is the entering into of memorandum of understanding dated 4-6-2009 between Subarnarekha Port Private Limited, represented by the petitioners and Signature Group International Limited, Cayman Islands of U.A.E., by which the said company has agreed to be responsible for arranging the entire equity which is estimated at around Rs. 6,000 million or around US $ 125 million. The said memorandum of understanding entered into by the Subarnarekha Port Private Limited has also been communicated by the first petitioner, as a director of Subarnarekha Port Private Limited, by letter dated 5-6-2009, to the Deputy Secretary to Government, Department of Commerce and Transport, Government of Orissa. 213. All these acts are, no doubt, well within the powers of the petitioners since they are empowered by the impugned order of the Company Law Board. But, they are relevant for the purpose of deciding the correctness of the direction given by the Company Law Board in the con....
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....ard by granting relief under paragraph 9(iii). 216. As it is a well-settled principle that an equitable and workable order has to be passed in the interest of the members of the first respondent-company, especially with reference to respondent No. 2 and its nominee directors, and at the same time, the public interest has to be preserved since the project, namely, Subarnarekha Port Project is a project which is to be enjoyed by the public at large, this Court is empowered to pass an equitable order by striking a balance between the two extremes and the virtual deadlock which has been created by the impugned order of the Company Law Board in this regard. While arriving at such conclusion, this Court is of the view that at any cost the public project should not be invalidated. 217. As far as the last relief granted under paragraph 9(iv) of the impugned order of the Company Law Board which states that the petitioners shall inform the second respondent about the major developments in the Subarnarekha Port Project every month, by virtue of the additional documents which are stated to have been received by the second respondent as well as the documents filed on behalf of the petitio....
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....ted); (iii)there is no obligation on the part of respondent Nos. 2 to 6 (appellants in these company appeals) to reimburse 30 per cent of benefits enjoyed by the second respondent (SREI) to the petitioners or the first respondent-company (Creative Port Development Private Limited); (iv)the alleged conduct of the second respondent (SREI) in relation to Machilipatnam Port Project cannot be held to be oppressive towards the petitioners or towards the first respondent-company (Creative Port Development Private Limited) under section 397 of the Act; (v)the Subarnarekha Port Project granted by the Government of Orissa entered into by way of memorandum of understanding dated 18-12-2006 and subsequent concession agreement dated 11-1-2008 is a project of the first respondent-company (Creative Port Development Private Limited); (vi)the non-funding by the second respondent-investor (SREI) on the said project cannot be treated as oppressive or against public interest in the light of memorandum of understanding dated 14-11-2007 and the consequent conduct of the petitioners who have chosen to contribute an amount of Rs. 1 crore towards the Government of Orissa and the third responden....
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....spondent-company cannot be said to be an instance of oppression and mismanagement since the same is not so grave for the company court to decide for an ultimate order of winding up under section 433(f ) of the Act on just and equitable grounds for the reasons explained; and (xii)since the Company Law Board has decided the entire issue as a whole and due to the reasons arrived at by the Company Law Board, there is no necessity for the Company Law Board to give a separate finding in the contempt application while disposing the company petition. 220. For the foregoing reasons, the appeals are partly allowed in the following terms : (i)the order of the Company Law Board in respect of relief granted under paragraph 9(i) is confirmed with a direction to the second respondent to transfer its shares and all other interest held in the first respondent-company (Creative Port Development Private Limited) to the petitioners either at an agreed consolidated price of Rs. 52.50 crores or any fair value to be arrived at by an independent expert valuer as at 31-3-2009, whichever is higher. The Company Law Board shall appoint, on an application by the second respondent within a period of th....