TaxTMI 
TaxTMI 
2011 (2) TMI 1262
X X X X Extracts X X X X
X X X X Extracts X X X X
....g wrongful control of the company by the majority shareholders causing loss to it and being prejudicial and oppressive to its members. Those proceedings were marked as C.P. No. 3 (Kol.) of 2009. In aid of such proceedings they took out an application marked as C.A. No. 13 of 2010. In that application they sought an order of injunction restraining the company from selling their 13,36,220 shares in Dishergarh Power Supply Corporation Ltd. (DPSC Ltd.) and for other reliefs. The Board by its said order prima facie justified the sale of those shares. It refused injunction. However, it went on to pass a restraint order upon the company forbidding it from utilising the sale proceeds. 2. The company is in appeal. It feels seriously aggrieved by this order. They argue that if the Board could hold that the sale of shares was justified, it could not impose a bar on the company to utilise the funds. 3. This appeal has been argued for several days along with a connected appeal. 4. Now, I will discuss the facts more elaborately. Facts 5. The appellant held 13,36,220 equity shares in a company called DPSC Ltd., which was 32.31 per cent. of the shareholding. Andrew Yule and Co. Ltd., was also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sections 397 and 398 of the Act was filed by the respondents before the Company Law Board which was marked as C.P. No. 3 (Kol.) of 2009. In aid of that application in or about February, 2010, they made an application being C.A. No. 13 of 2010 for restraining the appellant from transferring the above shares and for other consequential reliefs. 12. For examination of the order dated 30-3-2010, one has to first ascertain the true nature, purport and scope of section 397 proceedings before the Board. 13. The respondents/applicants' claim to be minority shareholders of the appellant but having the support of the requisite number of shareholders to maintain an application under sections 397 and 398 of the Companies Act, 1956. These applicants complain about formation of a shareholders' trust known as the Descon Shareholders Trust. They also complain about an alleged transfer of shares in favour of the trust and reconstitution of its trustees. 14. The appellant-company had incorporated a foreign company in the United Kingdom called Descon (U.K.) Ltd. It is its wholly owned subsidiary. The respondents/applicants also complain of acquisition by the appellant-company, shares in DPSC Ltd.,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd., it is to be considered fair price to the shares of respondent No. 1 company. Nobody knows whether the share value will be more than Rs. 710 or less than Rs. 710 in future, but at present the value is considerably good, selling away the shares being the policy decision of the company, the shareholders with 4.73 per cent. cannot restrain or injunct from trading the shares on the ground that it is prejudicial to the interest of the company. As long as the decision taken by the company is sound and not prejudicial to the company, it cannot be said to be oppressive to any member of the company unless and until it is specifically proved. Prima facie it is evident that the offer given as Rs. 710 per share is on the higher side, any court is not supposed to interfere either with the trade or actions of the company unless such actions are proved as oppressive. No doubt the Company Law Board is not powerless to pass any just and reasonable order to protect the interest of the minority group. This power is vested with the Company Law Board or with any other court to protect the interest of each member of the company so as to see that they do not suffer from the doctrine of corporate de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC). 22. Next, it was contended that this order interfered with the management of the appellant-company without the existence of any cause whatsoever. The Company Law Board had failed to appreciate the well-settled principles of law that a company was free to manage its internal affairs. A clear cut case had to be made out before restraining a company from carrying out its normal business. No such case was made out by the respondents. 23. Next, it was contended that there was no foundation for this order in the main proceedings. The case run in the interlocutory application was different from the case in the main proceedings. The Company Law Board completely failed to appreciate this discrepancy. 24. Next, it was contended that the very order passed by the Board was very oppressive for the majority. 25. Lastly, it was contended that the order of the Company Law Board was perverse. The respondents have indulged in an abuse of the process of law, in filing such an application and obtaining such an order. 26. A Division Bench of our court in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. [1962] 32 Comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....) Ltd. [1990] Suppl. (1) SCC 727. Discussion and findings 31. Ordinarily an outsider, which includes the court, is not permitted to interfere with the affairs of a company. It has shareholders who constitute the general body. This general body elects the board of directors to administer the affairs of the company. They are called the insiders. The board is authorised to take most day to day decisions for running of the company. Certain decisions can be taken only by this general body of shareholders in a meeting or acting together without such meeting in some circumstances. Such decision taken by the required majority binds the shareholders as well as the company. Certain decisions of the board of directors are also subject to their ratification. The board of directors are also empowered to take decisions binding the company. The body of shareholders and the board of directors act in their respective fields but the overall and ultimate control is exercised by the general body of shareholders. 32. Only when the company is wrongfully in control of a body of shareholders or persons, so much so that decisions are taken prejudicial to the shareholders as a whole or any minority grou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der on the ground that it was just and equitable that the company should be wound up. The law, however, has not defined what is oppression for purposes of this section, and it is left to courts to decide on the facts of each case whether there is such oppression as calls for action under this section." (p. 363) 34. The order of the Company Law Board which is challenged before me, undoubtedly interferes with the right of the company to conduct its own affairs. 35. By its said impugned order it has restrained the appellant-company from "divesting the sale proceeds". The sale proceeds are over 90 crores. Therefore, an order of restraint upon a company to deal with over 90 crores of its funds is indeed a very serious order. 36. But before proceeding further with this discussion, I would like to point out that there is a lot of difference in selling the subject shares, receiving the proceeds in the funds of the company and utilising it. 37. It does not necessarily follow that just because the Company Law Board had upheld the sale by the company of the subject shares at Rs. 710 per share, it was obliged to permit the company to utilise the funds, applying the same reasoning. Both are....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., to assess the grounds which may have impelled the learned judge to use the discretion the way he did. That practice is now obsolete. Every decision maker making adjudication is required to provide reasons in support of the decision and absence of reasons is fatal. 43. But in this case, for absence of reasons I will not send the case back to the Company Law Board. The court of appeal has the same power as of the court trying the original proceedings to come to its own finding, without taking recourse to remanding the matter back to the trial judge (see Order 41, rule 24 of the Code of Civil Procedure, 1908). 44. The respondents/applicants with their supporters have no more than 4.374 per cent. of the share value in the company. It is also true that the case in the main application for interim relief is completely different from the case run by the respondents/applicants before the Company Law Board. Nevertheless, a substantive interlocutory application was filed in February, 2010 to restrain the appellant from transferring the shares in DPSC. There is some whisper about mismanagement and oppression of the minority shareholders without any great deal of particulars. 45. On such ....