TaxTMI 
TaxTMI 
2009 (8) TMI 713
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....d 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 respondent was given 70 per cent of equity shares. The pet....
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....reative 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 to 6 that the project was not that of the first respondent-c....
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....ond 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 Board has accepted the contention of the petitioners that the Machilipatnam Po....
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....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 order of the Company Law Board, it is relevant to point out some of the factual circumstances to ....
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....ials, 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 application of any principle of law. The proposition that an inference from facts is one of law will be correct in i....
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....ven 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. The grounds of oppression which are broadly raised by the petitioners before the Company Law Board alleged against respondent Nos. 2 to 6 wer....
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....nd 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 the petitioners in constituting a new company in the name of Subarnarekha Port Private Limited, by which there has been a subrogation of the rights of the c....
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.... 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 invested. To come to such a conclusion the Company Law Board has referred to various documents to show that the second respondent has itself voluntarily decided to go out....
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....ces 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 before floating of the first respondent-company, the petitioners had their partnership in the name of "Creative Infrastructure". The petitioners themselves claim only two projects, namely, ....
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.... 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 the Machilipatnam Port Project as estimated on 5-2-2006 was around Rs. 1,100 crores with range of Rs. 50 crores plus or minus. It was stated in the abovesaid communication as follows :- "Gangavaram P....
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....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 the legal person has come into existence, it is the promoter who does the major role for the purpose of bringing the corporate person into existence like proposing the objects of the company to be incorporated, ar....
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....ot, 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 . . . ." 44. It is also abundantly clear that a promoter need not become a director. On the facts of the present case, the communication between the parties stated above makes it clear the second respondent in the pre-incorporation stage of the firs....
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....embers 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 that the second respondent-investor has been a promoter of the first respondent-company along with the petitioners. The said fact has been expressly admitted by the first petitioner himself, being a signatory to the memorandum of understanding dated 8-2-2....
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.... 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 been given by learned Judges from time-to-time, but it is impossible to define accurately what is meant by the word 'promoter'. The difficulty is discussed at length by the learned author of Palmer's Company Precedents at pages 103 to 109. After referring to a number of th....
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....al 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 existence an incorporated company. This process leading to the genesis of a company may include a variety of things, not the least of them, I think, being some of the steps taken by a promoter to ensure commencement, within a reasonable time, of the business, for the carrying on of which t....
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....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 closure of the issue shall be reported to the stock exchanges concerned within 24 hours of the transaction(s). 5.3-6 List of promoters' group and other Details. 5.3-6.1. The issuer company shall submit to the Board the list of the persons who constitute the promoters' group and their individual sha....
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....ed 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, therefore, the term "promoter" has been restricted towards the petitioners alone only to safeguard the interest of the second respondent-investor. 62. The Company Law Board in the impugned order itself narrates about various protections which are conferred to the venture capital investor under various clauses of the invest....
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....hall 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 memorandum of understanding dated 8-2-2006, entered between Maytas Infra Private Limited and Nagarjuna Construction Co. Ltd. on the one hand and SREI Infrastructure Finance Limited and the first respondent-company on the other hand, wherein the first two parties are termed as Maytas-Nagarjuna Combine, while the second parties, viz., S....
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....te 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 Creative Infrastructure, partnership of the petitioners, have strong BOT port development experience in the development of Kakinada Port privatization, Dhamra Port development, Haldia Port Development, etc., sought support from Creative Infrastructure in the bidding process and subsequently, on the development of the port upon success. 70. ....
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....reative 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 clause No. 5 of the consortium agreement that "it is agreed that the members of the consortium shall be jointly and severally liable for the implementation of the project". There is also an arbitration clause under the consortium agreement, further stating that the consortium agreement shall be terminated on the happening of following two events :- "(a )Rejection of the bid submitted by the consort....
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....ed 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 the balance as second instalment on the date of financial closure. 82. The e-mail of the first respondent-company dated 12-4-2006 addressed to Mr. Farooque refers to the consortium agreement to be signed among the consortium members and it also refers to various financial particulars about the members of the consortium signed by the company secretary or auditor or chartered accountant, etc. But, by the time the said e-mail was sent by the first resp....
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....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 stake as individual investors and prime promoters of the company. Therefore, the owners M/s. Ramani Ramaswamy and R. Rangarajan of M/s. Creative Infrastructure would have a direct commitment in the development of Machilipatnam Port. This is further to the already signed MoU between Creative Infrastructure and the consortium for the development and operation of the port. This we hope would clarify the commitment and binding nature of Creative Infrastructure's rol....
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....overnment 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 VC investor as a party of the first part, the petitioners referred to as promoters as a party of the second part and the first respondent-company as a party of the third part. 93. As per the said investment agreement, in addition to the present paid-up equity share capital of the first respondent-company which was Rs. 3 lakhs comprising 30,000 ordinary shares which were subscribed to by the petitioners as its promoters-each 15,000 shares, the VC investor has agreed to subscribe ....
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....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 of the investment agreement makes it clear that any decision or resolution of the board which may affect the borrowing, amalgamation, etc., shall be with the concurrence of the VC investor's director voting in favour of such resolution, which includes any change in the corporate name, address of the company or any of its divisions, branches, works or offices, etc., as it is seen in clause 13.1-9. 99. Clause 16 of the investment agreement relates to the undertakings of the VC investor in provi....
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....g 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 21-6-2007 addressed to the Government of Andhra Pradesh, the second respondent has reiterated that the 38 per cent obligation of the consortium member, viz., SREI will be through the first respondent-company, which is based on the Investment Agreement dated 26-5-2006 entered between the second respondent and the petitioners along with the first respondent-company. 106. By letter dated 10-7-2007, Maytas, viz., the lead member of the consortium to whom the contract has been awarded by the Government of Andhra Pr....
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....ing 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 Project and for sale of the interest held in Machilipatnam Port Project to the extent of Rs. 35 crores. In fact, the pleadings in this regard show that the petitioners have specifically pleaded that the conduct of the second respondent regarding Machilipatnam Port Project in not providing bank guarantee to the Government of Andhra Pradesh is only in breach of the investment agreement. 111. It is relevant to point out that the petitioners and the first respondent-company issued legal notice to Maytas-NCC stating that ....
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....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 Machilipatnam Port Project by the Government of Andhra Pradesh due to reason that Maytas, the lead member of consortium agreement has enclosed its letter of assurance to the first petitioner and the second respondent in the e-mail dated 17-5-2007, sent to the first respondent-company and informed that SREI portion of equity would be contributed by the first respondent and, therefore, it should be presumed that the Machilipatnam Port Project is that of the first respondent-company. There is absolutely no reason for arriving at such ....
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....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 Machilipatnam Port Project. Merely because there is a private agreement between the second respondent and the petitioners and the first respondent-company for the purpose of financing under the investment agreement, in the absence of any proof to show that the Machilipatnam Port Project has been awarded to the first respondent- company, it cannot be held by any stretch of imagination that even in the absence of any contribution by the second respondent towards its share under the concession agreement to the Government of Andhra Pradesh, by sharing with Maytas, th....
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....sts 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 of Andhra Pradesh has granted the contract, the mere failure of the second respondent as one of the members of the consortium in fulfilling its obligation towards the Government of Andhra Pradesh is only harmful to the lead member-Maytas to whom the contract was granted and if in their process of negotiation the second respondent is asked to go out of the project for a consideration, it cannot be said that the second respondent should disclose his interest in the said project to the first respondent-company or the petitioners, being its directors. There is abso....
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....ween 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 Limited, the petitioners or the first respondent-company is not a party and there is no reference about them anywhere in the said agreement, it is patently improper for the Company Law Board to consequently direct respondent Nos. 2 to 6 to reimburse in favour of the first respondent-company 30 per cent of all benefits enjoyed by the second respondent from and out of the Machilipatnam Port Project as on March 30, 2008. 127. A reference to the pleadings, especially relating to the finding of the Company Law Board and if there is a breach of fiduciary duty on the part of respo....
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....he 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 section 397 of the Act, the powers of the Court to investigate under section 402 of the Act are wider. But that does not mean that in the absence of specific plea of breach of fiduciary relationship, the Court can enter into the same to hold that there is a breach of fiduciary relationship. In any event, as held by the Supreme Court, as stated above, even for a grant of relief under section 397 of the Act, a case must be made out in the petition which cannot be cured at a later stage, even if lacuna is found out by evidence which is oral or documentary. On the factual matrix which has ....
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....espondent-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 investment agreement, there has been any decision of the board of the first respondent-company regarding the expenses to be funded by the second respondent as the VC investor. It is only in the e-mail of the first petitioner dated 20-2-2007, being a director of the first respondent-company, addressed to the second respondent, by which based on the terms and spirit of the investment agreement, the first petitioner has referred for the first time about the requirement of Rs. 50 crores towards strategic expenses and bank guarantee margin. In the said letter, he has also chosen to refer about Rs. ....
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....illion 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 March 8, 2002, with the WBIDC. The agreement dated March 8, 2002, was not an agreement between shareholders of the HPL, the CP(I)PL that was deemed to have pledged the deemed transferred and delivered shares was not a shareholder of the HPL. Simply because the HPL subsequently wrote letters seeking confirmation from the WBIDC whether it had transferred those shares, and seeking the IDBI's decision regarding approval of the transfer, I do not think it can be said that the matter became an affair of the HPL. To my mind, the Board committed an error of law by holding that the question of transfer o....
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....itle 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 expected in every case to find and impose a solution it was thought that its discretion must be unfettered for it is impossible to lay down a general guide in the solution of what are essentially individual cases". Referring to the decision in Antigen Laboratories Ltd., In re [1951] 1 All ER 110 (Ch. D), the learned author says "that it has been held that the petitioner cannot just ask the Court to exercise its discretion but must indicate the nature of the relief wanted. This decision though perhaps inevitable seems regrettable and inconsistent with the intention that the Court should have power to find ....
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....e 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 learned Law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the first hearing of the case to the effect that section 210 'warrants the Court in looking at the business realities of the situation and does not confine them to a narrow legalistic view. Dealing with the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination, one result followed f....
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....he 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), while deciding about section 397, read with section 402, of the Act and the jurisdiction of the Court, it was observed that there are wide powers to the Court while exercising jurisdiction under section 402 of the Act, but it is not in all cases relief can be given and the same must be depending upon the exigencies of the situation and a decision can be arrived at only on analyzing the materials. The observations are as follows : "The jurisdiction of the Court to grant appropriate relief under section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the Court while exercisi....
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....y 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 that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties." (p. 635) 145. These legal principles which have been crystallized by hierarchy of judgments are not in dispute. But, the question is, on the facts and circumstances of the case, when the allegation made by the petitioners is that there was improper funding by the second respondent as per the investment agreement, while the second respondent being a party to the investment agreement had the obligation of funding in respect of Machilipatnam Port Project towards the lead member, Maytas, as per the consortium agreement d....
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....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 operational purposes. It is further agreed that the CPDP shall cause to provide suitable required letter from the new body corporate (SPC) consenting to the above arrangement and for the smooth implementation and the SPC shall be the successor to the rights, duties and obligations under this agreement of CPDP." 148. The term "port premises" as referred to in clause 2.1, is defined in clause 2.20 as follows : "2.20. Port Premises.-Port premises means and include (1) land (including submerged land) and water area as notified by the Government as port limit given on lease to the CPDP; (2) all structures and facilities constructed or provided by the Governme....
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....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 relation to the affairs of the company as per section 397 of the Act, inasmuch as the entire project itself is in preliminary stage and no damage has been caused to the project, one cannot come to a conclusion that due to the said isolated incident an extraordinary circumstance is in existence to warrant interference by this Court normally to wind up the company and in order to avoid the same to invoke the powers under section 397, read with section 402, of the Act. 151. It is apposite to point out at this stage that the resolution of the board of directors of the first respondent-company dated 7-11-2007 authorizing to avail of bank guarantee from Axis Ba....
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....f 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 Subarnarekha Port Project, the petitioners have taken up the personal responsibility at their own risk on the mortgage of the flats owned by them and, accordingly, a concession agreement was obtained from the Government of Orissa on 11-1-2008. This is also factually found by the Company Law Board in its impugned order. While so, it cannot be said that there has been any oppression on the part of the second respondent, since the petitioners have consciously taken a decision to involve themselves in the Subarnarekha Port Project by excluding the second respondent probably based on the memorandum of understanding dated 14-11-2007, as stated above, along with the subsequent letter of the third re....
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....ed 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, immediately thereafter the concession agreement has been signed with the Government of Orissa on 11-1-2008, during the time when the memorandum of understanding was kept valid, which was up to 28-2-2008. 156. From the above, it is clear that the petitioners have acted upon the memorandum of understanding signed by the third respondent on behalf of the Infrastructure Project Development Fund and that the negotiations between the parties have fructified into a concrete term of consideration to be paid to the second respondent for the exit of the second respondent from the first respondent-company, as it is seen from the e-mail of the third respondent sent on behalf of the second respondent-company addresse....
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....ing 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 receive the amount of Rs. 52.50 crores in full and final claim towards all the rights in the first respondent-company at least in respect of Subarnarekha Port Project. Therefore, it cannot be said that the Company Law Board has directed the parties to enforce the memorandum of understanding dated 14-11-2007. The memorandum of understanding is not an enforceable one, but the subsequent conduct of the third respondent makes it clear that the second respondent has agreed to exit from the first respondent-company and it is only the undertaking of the second respondent which has been directed to be performed by the second respondent in the impugned order of the Company Law Board which is well within its jurisdiction. The....
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....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, the company was in need of money for expansion and its getting the loan from the Industrial Finance Corporation also depended upon the increase of subscribed share capital. Therefore, the haste with which the shares were allotted on July 30, 1958, cannot really be said to be a part of a design to oppress the minority. The haste became necessary because the interim injunction was vacated on that day and it was felt that if immediate action was not taken and the new shares allotted, there might be further injunction which would further delay the issue of shares and getting the loan from the Industrial Finance Corporation. The haste, therefore, appears to have occurred because of the action taken by the appellant in brin....
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.... 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 following observations in that case are of striking relevance (at page 1040 of 68 ER: 536 of 10 Hare) : 'As has been well observed during the course of the argument, the view taken by this Court with regard to morality of conduct amongst all parties-most especially amongst those who are bound by the ties of partnership is one of the highest degree. The standard by which parties are tried here, either as trustees or as co-partners, or in various other relations which may be suggested, is a standard, I am thankful to say so, far higher than the standard of the world; and, tried by that standard, I hold it to be impossible to sanction the removal of this gentleman under these circumstances.' Not only is the law on the side of De....
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....uld 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 members justifying the winding up as just and equitable. It is not necessary that in every case, the relief of winding up should be made. It is an option with the Tribunal if it considers that in order to bring to an end the matters complained of, it can pass orders for winding up if it is just and equitable or it can pass such order as it thinks fit. It does not necessarily mean that in every case such winding up order need be passed. Similarly, under section 398 also, if the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change not being a change brought about by, or in the interests of any creditors including debenture holders....
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....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 that while dealing with a case of oppression under section 397 of the Act, there should be a finding of fact to the effect that there has been oppression, but the jurisdiction of the Company Law Board to pass any further order in the interest of the company is still available. S.B. Sinha, J., in the said judgment, has reiterated the legal position once again in the following words : "13. Ordinarily, therefore, in a case where a case of oppression has been made a ground for the purpose of invoking the jurisdiction of the Board in terms of sections 397 and 398 of the Act, a finding of fact to that effect would be necessary to be arrived out. But, the jurisdiction of the Company Law Board to pass any other or further order in the interest of the compa....
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....d 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 memorandum of understanding was not supported by consideration, that the memorandum of understanding has not been approved by the board of directors of the first respondent-company and that it suffers from various other legal infirmities, but still came to a conclusion that they are not relevant for granting relief under section 397 of the Act, holding that by virtue of the said memorandum of understanding dated 14-11-2007 and the subsequent e-mail dated 15-11-2007, the second respondent has clearly made out its intention to go out of the first respondent-company, especially relating to Subarnarekha Port Project and that the petitioners have acted upon the memorandum of understanding by furnishing the bank guarantee by themselves to the extent of Rs. 1 crore in favour of t....
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....ief 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, on any application under sub-section (1), the Company Law Board is of opinion- (a )that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b )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, the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Company Law Board for relief in cases of mismanagement.-(1) Any members of a company who complain- (a )that the affairs of the company are being conducted in a manner prejudicia....
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.... 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 relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (g )any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made." 175. Sections 397 and 398 of the Act, which relate to oppression and mismanagement, respectively, ultimately enable the Company Law Board to pass orders with a view to bring to an end the matters complained of or to prevent the apprehended conduct, of course subject to the procedural restrictions under section 399 of the Act. In addition to the inherent and general powers which are conferred on the Company Law Board while deciding the issue o....
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....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 are holding only 30 per cent of the shares, having not invested monetarily to a large extent and claiming stake only based on their merit and ability in the port project, the direction of the Company Law Board in paragraph 9(i) is really against the basic principles of corporate law that the majority rule will prevail. 179. At the outset, as elicited above, the relevant provisions of the Act dealing with the concept of oppression, mismanagement and powers of the Company Law Board, nowhere restrict the Company Law Board in appropriate cases to direct the majority shareholders to submit to the minority shareholders. It is of utmost importance to understand that the concept of oppression and mismanagement itself is an exception to the general rule that the majority shall rule the company, which is acceptable in normal circumstances. ....
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.... 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 complains of an oppression and disclosed certain grounds of complaint in the petition which are made the basis for the relief, we would hold that the Court should ordinarily investigate the charges. Such investigations may in certain cases be necessary even to regulate the future conduct of the company for providing against recurrence of such abuses of power by the majority." (p. 562) 184. A propose the said issue it is also apt to refer to the decision in Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal. 512, wherein a Division Bench of the Calcutta High Court held that there is no lower limit of qualification of any shareholder or group of shareholders for complaining of oppression and mismanagement and further observed that even the majority shareholders can apply under the said provisions, in the following words : "56. Relyi....
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....t 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 conclusion based on evidence even if certain facts are lacking justice will not suffer, as under : "64. It must be admitted that a strong case was not made out in the petition and what view the Court would have taken if a point of demurrer had been argued it is difficult to say. But once all the evidence is before the Court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. In Firm Sriniwas Ram Kumar v. Mahabir Prasad AIR 1951 SC 177, the Court observed that 'there would be nothing improper in giving the plaintiff a decree upon the case which the defendant himself makes'. Again in Kedar Lal v. Hari Lal AIR 1952 SC 47, it was observed by Bose J. (paragraph 51) 'I would be slow to throw out a claim on a mere technicality of ple....
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....spondents 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 the ascertainment of the value of the shares to buy out the petitioners. In default the petitioners will have the right to buy up the respondents' shares within a further period of three months from that date. Except for this modification the order made by the learned Trial Judge will stand." (p. 531) 187. As far as the last submission complained about oppression and mismanagement which relates to the alleged locking of the premises of the registered office of the first respondent-company by the second respondent-company and others and freezing of the accounts of the first respondent-company, it is no doubt true that there was actually no transactions conducted on behalf of the first respondent-company. I have already found that there are only two projects of the first respondent-company and the Machilipatnam Port Project cannot be termed as the project ....
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....trained 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 the powers of the Court under section 433(f) of the Act to take the extreme step of winding up of the company under just and equitable ground, as such extreme step would be more prejudicial to the affairs of the company and also the interest of its members and, therefore, remedial measures are given under sections 397 and 402 of the Act and, hence, the relief given in that regard in paragraph 9(i) of the impugned order is quite within the jurisdiction of the Company Law Board for rendering substantial justice between the parties. In fact, the Company Law Board has given a proper reason for arriving at such conclusion, which is as follows : "The only board meeting, which was held on May 21, 2008 in the course of the present proceedings admist the controversies raised by the petitioners could not serve any purpose in view of non-implementation of any of the resolut....
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.... 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 consideration which is well within the powers of the Company Law Board under section 397 or 402 of the Act, the Company Law Board ought to have secured the interest of the second respondent and its nominee directors at least insofar as it relates to the relief granted under paragraph 9(i ) of the impugned order. 194. As rightly submitted by learned senior counsel for the appellants, the exercise of such power by the Company Law Board in a far-reaching manner has certainly resulted in causing detriment to respondent Nos. 2 to 6 even in implementing the relief granted under paragraph 9(i ) of the impugned order. In that view of the matter, the relief under paragraph 9(iii) of the impugned order ought to have been granted only after securing the interest of the second respondent, which has been directed to go out of the first respondent-company. 195. It is under such circum....
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....y 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 have signed as signatories to the memorandum and articles of association, each having been allotted 5,000 equity shares as it is also evidenced from Form No. 32 filed before the authorities under the Act. In Form 1 filed by the newly constituted company-Subarnarekha Port Private Limited on 1-10-2008, the authorised capital of the company is stated as Rs. 10 lakhs with number of equity shares as one lakh of Rs. 10 face value. 200. In Form No. 18 filed by the newly constituted company as per section 146 of the Act on the same day, viz., on 1-10-2008, the registered office of Subarnarekha Port Private Limited has been stated as at Bhubaneswar, Orissa. On fact it is true that these factual things, which were in existence at the time when the proceedings before the Company Law Board were pending, were not brought to the notice of the Company Law Board nor were informed to this Court at th....
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....tary, 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 letter addressed to the Commissioner-cum-Secretary, Department of Commerce and Transport, Government of Orissa, the first respondent has enclosed a copy of the order of the Company Law Board and requested the said official to confirm the appointment on 3-6-2009 at 2.30 pm. On the very same day, a similar letter was addressed to the Principal Secretary to the Hon'ble Chief Minister, Government of Orissa. 205. On the same day, viz., on 29-5-2009, the petitioners have passed a resolution on behalf of the first respondent-company without notice to the second respondent, who is the majority shareholder, and inducted (i) Ilangumaran Matchendran, (ii) Prabhakar Ram Tripathi, and (iii) Ashok Bhatnagar as additional directors and further resolved that respondent Nos. 3 to 5 cease to be directors of the first respondent-company by virtue of the order of the Company Law Board dated 27-5-2009 and that the register....
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....oncession 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, as director of Subarnarekha Port Private Limited, has intimated the Commissioner-cum-Secretary, Department of Commerce and Transport, Government of Orissa consenting to all the terms of the subrogation. The contents of the said letter are as follows : "This has reference to the clause 2.4 of the signed concession agreement for the Subarnarekha Port Project. We wish to introduce ourselves as the special purpose company incorporated for this project. Our company has already entered into a deed of subrogation on 31-5-2009 with M/s. Creative Port Development Pvt. Ltd. In this regard we confirm and consent to all the terms of the subrogation as in the deed mentioned above with Creative Port Development Pvt. Ltd. We also confirm and consent to being the successors to the rights, duties and obligations of M/s. Creative Port Development Pvt. Ltd. as per the terms of the signed concession agreement on 11-1-2008. Al....
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....e 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 context of the magnitude of implications caused by the conduct of the petitioners. 214. By virtue of the subrogation of the concession agreement in respect of Subarnarekha Port Project, all the rights have been transferred to the newly constituted-Subarnarekha Port Private Limited consisting of the petitioners alone, who in their turn have completely made it over to the Signature Group International Limited, Cayman Islands of U.A.E., thereby leaving nothing to be recovered by the second respondent even in respect of the relief given by the Company Law Board under the impugned order under paragraph 9(i) from the first respondent-company. This is not an ordinary situation to be lightly taken by any judicial forum. This can only be treated as one of the apt instance as to how the consequence of a judicial order can be disastrous if the same is passed without any sense of anticipation, even though the same is consequential and wit....
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....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 petitioners, all material facts required from the date of passing of the order by the Company Law Board till 25-6-2009 are available before this Court either by way of information obtained under the Right to Information Act, 2005, by the second respondent or otherwise. It is also relevant to point out that in compliance with the directions of this Court dated 10-7-2009 extracted above, Mr. T.V. Ramanujun, learned senior counsel appearing for the petitioners, has also produced copies of the documents in the form of typeset relating to the subsequent events starting from 1-8-2008 till 25-6-2009. 218. After perusal of the said documents filed in the form of typeset of papers by Mr. T.V. Ramanujun, learned senior counsel copies were directed to be given to learned counsel for the second respondent, which has been complied with and based on the information and documents obtained, the second respondent has filed miscellaneous petitions for rece....
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....nst 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 respondent who has agreed to receive Rs. 52.50 crores as a consideration for leaving from the first respondent-company in respect of the said project respectively; (vii)by virtue of the memorandum of understanding dated 14-11-2007 read with the categoric letter of the third respondent dated 15-11-2007, by which the second respondent has agreed to receive a sum of Rs. 52.50 crores to leave the first respondent-company relating to Subarnarekha Port Project is binding on the second respondent and by applying the principle of estoppel, it is not open to the second respondent to go back on such letter, especially when the same has been acted upon by the petitioners; and the impugned order of the Company Law Board is not in effect enforcing the memorandum of understanding dated 14-11-2007, since the order of the Company Law Board in that regard is only to give effect to the letter of the third respondent dated 15-11-2007, which is certainly binding upon the seco....
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....s. 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 thirty days from the date of receipt of a copy of this order, an independent Expert Valuer and decide about all other formalities in that regard; (ii)the relief granted by the Company Law Board under paragraph 9(ii) stands set aside, holding that the second respondent shall not have any obligation to reimburse any benefit accrued by it under Machilipatnam Port Project either to the petitioners or the first respondent-company; (iii)all further acts of the petitioners pursuant to the order of the Company Law Board dated 27-5-2009 are directed to be kept in abeyance, except those vital acts which require the petitioners to act for the purpose of retaining the Subarnarekha Port Project with the Government of Orissa, till the formalities in respect of fixing the consideration for exit of the second respondent is fixed by the Company Law Board, as stated above, and the entire amount is paid to the second respondent; and (iv)the petitioners who have disclosed the affair....