TaxTMI 
TaxTMI 
2016 (1) TMI 506
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....te with Mr. Mayur Khandeparkar i/by Kanga & Co. for the Appellants in Company Appeal No.22 of 2015; for Resp. No.7 in Company Appeal No.21 of 2015 and Company Appeal No.24 of 2015 and for Resp. No.3 in Company Appeal No.23 of 2015. Mr. Janak Dwarkadas, Senior Advocate with Mr. N.H. Seervai, Senior Advocate, Mr. Sharan Jagtiani, Mr. Chirag Kamdar, Mr. Gerald Misquitta, Mr. Alok Patel i/by Mahendra Patel & Associates, for Resp. Nos.2, 3, 4 and 6 in Company Appeal No.21 of 2015 and for Company Application No.11 of 2015; for Resp. Nos.3, 4, 5 and 6 in Company Appeal No.22 of 2015 and for appellants in Company Appeal No.23 of 2015 and for applicants in Company Application No.12 of 2015 in Company Appeal No.23 of 2015 and for respondent Nos.2, 3, 4 and 6 in Company Appeal No.24 of 2015. Mr. Darius Khambata, Senior Advocate with Ms. Namrata M. Shah, Mr. Prashant Bari i/by Beri & Co. for Respondent No.8 in Company Appeal No.21 of 2015 and Company Application No.11 of 2015; and for Respondent No.7 in Company Appeal No.22 of 2015 and for Respondent No.2 in Company Appeal No.23 of 2015 and Company Application No.12 of 2015; and for the appellant in Company Appeal No.24 of 2015. Mr. C....
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....e Company Petition, the authorized share capital of SAF Yeast was Rs. 3 crores (Rupees three crores only) divided by 300000 equity shares of Rs. 100/(each). The approximate value and paid up capital of SAF Yeast at the relevant time was Rs. 1,58,37,500/comprising of equity shares of Rs. 100/each. 4. The shareholding of SAF Yeast is as follows: Nafan B.V. owns 80,772 equity shares, approximately constituting 51% of the total shareholding. Mr.Arunachalam Muthu holds 16,800 equity shares constituting approximately 10.607% of the total shareholding. Mr.A.M. Arunachalam holds 10396 equity shares constituting approximately 6.56% of the total shareholding. Mr.A.M. Muthiah holds 10397 equity shares, constituting approximately 6.57% of total shareholding. Mr.TNM Arunachalam, who passed away during the proceedings, held 1,800 equity shares constituting 1.13% of total shareholding. Helios Food Additives Pvt. Ltd. holds 38010 equity shares constituting approximately 24% of total equity share capital. Mr.B.B. Pay Master, who is no more, held nominal 200 equity shares of SAF Yeast. 5. Nafan B.V. (referred to as Nafan) is a Company incorporated under the laws of Netherlands, having its regi....
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....It was therefore provided in the agreement dated 6 June 1981 that in the event the laws of India are amended and it is made legally permissible to hold the majority interest, Muthu would transfer the necessary shares to Lesaffre or its subsidiary, and that they would then hold majority of equity capital. When SAF Yeast was incorporated, the word 'SAF' was derived from the name Lesaffre and the interim license agreement was entered into between Lesaffre and SAF Yeast on 11 December 1982, after obtaining requisite approvals. Lesaffre was issued 6000 equity shares comprising of 40% of equity capital. On 22 March 1991, Lesaffre and Muthu entered into a participation agreement to update the agreement of 6 June 1981. Article 6 of participation agreement required that Memorandum of Articles of Association of SAF Yeast would reflect the terms of participation agreement. In accordance with Article 7 of the Participation Agreement, Lesaffre was entitled to have majority in the Board of Directors of SAF Yeast. Article 7.4 provided for scheme of appointing an alternate Director. Article 7.6 lay down the day-to-day management of SAF Yeast to be in the Board of Directors, except as deleg....
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....n terms and settlement. The nominee Directors of Nafan, bonafide believed that reasonable settlement with Calyon Bank as the bankers would be in the interest of SAF Yeast; however, the terms put-forth by Muthu were not reasonable. (iv) Meeting of Board of Directors was held on 14 April 2005 in France. The pending cases with the Calyon Bank were discussed. The meeting was attended by Muthu, Lucian Lesaffre, Alain Laloum, and Alain De Gouy. In the meeting, a resolution was passed that it would be in the interest of SAF Yeast to settle the dispute with the Calyon Bank against the payment of compensation of Euros 5,00,000 and a draft of discussion was forwarded to Calyon Bank and to Muthu. (v) After the meeting, Muthu's attitude underwent a change. Muthu group was under a belief that the dispute with the Calyon Bank was something that could be used to their advantage by placing Nafan in difficulties. Muthu started his attempts to force Lesaffre to sell 51% shares held by Nafan so that he could control SAF Yeast. The minutes of the meeting of 14 April 2005 were incorrectly recorded and when it was pointed out, Muthu disputed the position. Correspondence ensued between the part....
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....information was not supplied. (x) Muthu purportedly held a Board meeting on and around 26 July 2005, without any notice to Nafan. Nominee Directors of Nafan came to know of the meeting on 26 July 2005 for the first time when it was referred to in Muthu's letter on 2 March 2006 addressed to Alain Laloum. Muthu attempted to falsify the record of SAF Yeast. Such meeting was invalid and illegal. Nafans Nominee Directors also sought for convening of Annual General Meeting and an explanation for not holding the same on time. Letters were written on 21 February 2006, 5 May 2006. These letters invoked no response and it is only when Nafan took inspection that it found out that the meeting was held on 23 November 2005. Nafan was deliberately not given notices of Annual General Meeting to avoid the majority shareholders from raising their funds, to change the number of directors and for declarations of dividend. Nafan requested Muthu to provide copies of various litigations in respect of Calyon Bank, however, Muthu failed to give these documents. Instead, Muthu persisted in his baseless allegations that Nafan was forcing him to settle with Calyon Bank. When Nafans nominee directors ca....
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.... was made by Alain Laloum and Lesaffre and others seeking exemption from personal appearance which was rejected by the High Court of Allahabad where the contempt proceedings were pending. A Special Leave Petition was filed in the Apex Court and the Apex Court by order dated 17 July 2006 directed dispensation of personal appearance. A senior advocate on behalf of SAF Yeast opposed the Special Leave Petition, and even requests for adjournments were opposed. Meetings were held between the parties. Heads of Agreement were entered into on 14 August 2007. (xiii) On 17 April 2009, Nafan received a notice from Company Registrar, Pune as to why action should not be taken for non-filing of annual returns and balance sheet for the year ending 31 March 2006 to 31 March 2008. A notice for calling a meeting at Brussels or Geneva was sent to Muthu. In the meanwhile, Alain Laloum informed that he had been induced to sign some papers by Muthu for their Montreux (Switzerland) and pursuant to that; he has received some valuation made by Sharp & Tannan. The valuation had no sanctity and validity and it was just a scrap of paper. Nafan had not called it and therefore it was to be ignored. On 3 May 2....
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....up as a business partner. 8. Nafan prayed for following reliefs: (a) To pass an order thereby directing the Respondent Nos.1 to 6 to rectify the Register of Members (ROM) of the Respondent No.1 Company by inserting name of the Petitioner in relation to 80722 shares held by the Petitioner. (b) To pass an order terminating the appointment of the Respondent No.2 as Managing Director and the Respondent No.3 as Joint Managing Director with immediate effect and remove them from the Board without prejudice to the rights of the Respondent No.1 Company to appoint any professional Managing Director. (c) To pass an order removing the Respondent No.2 to Respondent No.4 as directors and/or any other nominee directors of the Respondent No.2. (d) To pass an order directing that the board of Respondent No.1 Company be reconstituted at a suitable general meeting of its shareholders. (e) To pass an order declaring Articles 14 to 18 of the Articles of Association of the Respondent No.1 Company as null and void. (f) To pass an order thereby directing the Respondent Nos.2 to Respondent No.6 to sell the shares held by them in Respondent No.1 Compa....
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.... experience of manufacturing yeast outside of Europe or any experience of using 100% yeast, and of the Indian conditions. They, therefore, had no option but to tie up with someone like Muthu. A joint venture was formed on 6 June 1981. SAF Yeast was incorporated on 12 August 1981. There were three Directors, Muthu, B.B. Paymaster, and Lucian Lesaffre. Muthu was the Managing Director right from the inception. It was the obligation of the Lesaffre Group to provide technical assistance, which they failed to do. (ii) Muthu single handedly set up a factory at Chiplun, without any assistance from Lesaffre. He raised loans from various banks and gave personal guarantees. Lesaffre Group did not give any such guarantee. When the factory became functional, it was found that strength of yeast given by Lesaffre was unsuitable and Lesaffre had rendered no technical assistance or advise. Muthu made efforts to get the correct strength. As the factory at Chiplun progressed, a second factory was set up at Sandhila through efforts of Muthu. The assertion of Nafan that the name SAF comes from Lesaffre is not correct. The participation agreement dated 22 March 1991 was not to be acted unless the cla....
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.... of US $ 5,59,621.92. Calyon Bank on 24 February 1997, after satisfying itself with the documents, issued a credit advice in the account and credited US $ 5,54,638.99, minus the commission in the account of SAF Yeast. Calyon Bank wrote to SAF Yeast on 4 March 1997, enclosing a telex message of Meespierson NV, stating that an amount of US $ 1,01,531.25 was being deducted as demurrage charges and an amount of US $ 4,58,040.67 was being paid under letter of credit. (vi) Lesaffre transferred its entire shareholding in SAF Yeast through Nafan. J.L. Meurant on behalf of Lesaffre informed SAF Yeast and Muthu of the transfer and request was made to SAF Yeast to take all necessary legal steps to register the transferred shares. (vii) Calyon Bank filed a civil suit, which was, transferred to Debt Recovery Tribunal, against SAF Yeast for recovery of an amount approximately, Rs. 45.76 lacs including interest. Prior to filing a suit, the Calyon Bank issued the caution notice against SAF Yeast, Muthu, and Pay Master to the State Bank of India and Indian Bank Association. The State Bank of India circulated the caution notice widely to all their branches across the country. This caused serio....
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....ed. Muthu sent an email on 13 November 2005 denying the contentions. He pointed out that it was unfortunate that in spite of the fact that SAF Yeast was struggling against Calyon Bank, Nafan and Lesaffre were not giving any support, on the contrary, they were forcing SAF Yeast to settle with Calyon Bank on unreasonable terms. (xii) Muthu wrote to Alain De Gouy on 21 November 2005 complaining about the attempts of Lesaffre to force SAF Yeast in settling with Calyon Bank, in terms proposed by it. Muthu asserted that, in the meeting of 14 April 2005, Lucien Lesaffre had stated that SAF Yeast would have to accept the proposal for settlement. It was further stated that Lesaffre and Calyon Bank were proposing to settle the terms without consulting SAF Yeast or its Directors. Muthu made the grievance that, throughout the dispute with Calyon Bank, Nafan and Lesaffre were supporting Calyon Bank and not SAF Yeast. Muthu also pointed out that Nafan and Lesaffre were threatening to use their majority shareholding to achieve its objects of forcing SAF Yeast to settle with Calyon Bank. Muthu also wrote to Denis Lesaffre reminding him that the Directors of SAF Yeast owed fiduciary duty to SAF ....
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....ondence, he was not responding to the said request. (xv) On 5 May 2006, Alain Lesaffre replied to Muthu denying that there were any pressurizing or forcible views of majority shareholders and reiterated stand of Nafan in settling the dispute with Calyon Bank in such a manner that would benefit SAF Yeast. Laloum also stated that there was no evidence that SAF Yeast was finding it difficult to raise finance through banks and in fact, it appeared that SAF Yeast was doing well. Laloum also asserted that offer of USD one million made by Calyon Bank, as a compensation was a fair offer. Laloum objected to the meeting of 26 July 2005 without notice to nominee Directors of SAF Yeast and approval of the minutes of the meeting dated 14 April 2005. Laloum sought appointment of alternate Directors in India and to convene a Board meeting in Paris. Laloum also stated that is is more than 15 months since a general meeting was held which was contrary to Articles of Association. Muthu wrote back on 10 May 2006 stating that it will not be possible for him to attend the meeting at Paris due to personal difficulty. He also pointed out that the atmosphere resulting due to the exchange of corresponden....
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.... Heads of Agreement, which could culminate into a shareholders agreement. Again, a meeting was held in December 2006 between Lucien Lesaffre and Muthu in London. On 24 September 2007, the Lesaffre Group and Muthu Group finalized the Heads of Agreement setting out certain broad terms and as to how their relationship in SAF Yeast would continue. It was agreed that the shareholding of both the groups be 50:50percentage. The agreement, however, did not fructify into final agreement. Thereafter correspondence ensued between Alain Laloum, Lucien Lesaffre with Muthu between October 2007 to November 2008, in which it appeared that the relation between the parties had not deteriorated further. (xvii) On 29 April 2008 Alain de Gouy resigned from the Board of Directors and Lucien Lesaffre resigned on 6 June 2008. Lesaffre appointed a new group Managing Director Jean Louis Meurant. Meetings were held between Muthu and Alain Laloum between February 2008 to August 2008 to resolve the differences, at Montreux, Geneva, and London. A meeting was held in Montreux in February 2008 on invitation of Alain Laloum where several modes of resolution were discussed. Muthu made it clear that his sharehold....
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....formed him that Sharp & Tannan would send it shortly. Thereafter Sharp & Tannan sent their certificate of valuation on 11 February 2009 to Laloum with a copy to Meurant. Muthu sent an email to Meurant with a copy to Laloum about the further steps taken pursuant to the MOU. Muthu tried to call Meurant on several occasions from 11 February 2009 to 18 February 2009 but Meurant was not available in the office. Laloum informed Muthu that Nafan could not locate the original share certificate. Between March and April 2009, Muthu took the matter of transfer of shares pursuant to the MOU and copy to Laloum and Corinne Wisniewski regarding the steps of process for completing the transaction. (xxi) On 3 May 2009, Muthu sent an email to Denis Lesaffre replying to the email sent by Corinne Wisniewski dated 30 April 2009 and mentioned regarding several meetings and telephonic calls. Corinne Wisniewski replied and demanded meeting of Board of Directors of SAF Yeast. An issue was raised by Corinne Wisnieswski regarding letter from ROC, Pune. Muthu clarified that it was a non-issue at the registered office of SAF Yeast was at Mumbai and not within the jurisdiction of ROC, Pune, and the steps hav....
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.... four Indian directors of SAF Yeast attended the Board meeting. At the relevant time the record of share transfer were placed before it ascertaining that the amount was transferred. The Board of Directors considered the request of SAF Yeast as an agent of the Nafan for issuance of duplicate share certificate for 80,772 shares. The issue was discussed and not having found any adverse evidence, resolved to cancel the lost original share certificates and issue duplicate share certificates to enable issuance of duplicate share certificate to enable issuance of duplicate share certificate. The meeting was adjourned by 45 minutes. (xxiii) After the duplicate share certificates were prepared, the duly executed share transfer forms were taken on record along with the duplicate share certificates. The share transfer forms were accepted and resolution was passed to transfer the shares in the name of A.M. Muthiah and accept him as a shareholder for the 80,772 shares. It was thus resolved to delete the name of Nafan as a shareholder from SAF Yeast. SAF Yeast, through Muthu informed Corinne on 28 May 2009 stating the steps taken pursuant to the MOU referring to previous correspondence and th....
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....he purchase money on/or on behalf of the Nafan, the shares were transferred. The participation agreement dated 22 March 1991 is not enforceable The issue involving the litigation between the SAF Yeast and Calyon Bank has been set out in the reply filed by Muthu, which is adopted. Affidavit of Alain Laloum 14. On 10 June 2010, Alain Laloum filed his affidavit taking briefly the following contentions: (i) In 2006, Muthu initiated proceedings in Allahabad High Court, Lucknow Bench, against Laloum and other nominee directors. Several discussions took place between Muthu and Lucian Lesaffre to resolve the dispute. Lucian Lesaffre and Muthu signed Heads of Agreement at London. After the Heads of Agreement were signed, they exchanged draft of redemption shareholder agreement. Muthu and Lucian Lesaffre agreed that their lawyers would discuss and finalize the agreement. Muthu was aware that neither Lesaffre nor Nafan will execute any agreement without first it drawn by their lawyers and placing it for approval before the Board, having been finally executed by Lesaffre family. Muthu was also aware that no policy decision, more particularly, a decision to exit from India would ever b....
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....ry relief in the Court at Montreux, Switzerland for the fraud committed by Muthu by alleging that MOU is a binding contract when it is not. The validity of the MOU is matter for the Swiss Court, the Court of appropriate jurisdiction. Various false statements have been made in the reply filed by Muthu especially regarding meeting between Muthu and Laloum in Montreux, Switzerland. The entire basis of the case put up by Muthu Group is the MOU being a binding agreement to transfer the share, is incorrect. The case put up in the reply is fraudulent, the alleged transfer of shares is void ab initio, and no Board meeting took place, which is concocted for giving effect to fraudulent scheme. Records have been fabricated and shares, worth not less than Euro 25 Million Euros, as in May 2009 have been sought to be misappropriated. ii) The Company did not have sufficient means and but for the loans provided by Lesaffre and through its good offices from Bank Indosuez, SAF Yeast Company would not have the adequate finances. SAF Yeast Company was incapable of surviving without the support of Lesaffre. Lesaffre also provided technical assistance regarding strains, testing and technical advise. ....
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....e valuation sent along with letter dated 10 February 2009 was addressed to Laloum and not to Lesaffre or Nafan. The valuation was at the instance of SAF Yeast. If the Auditor had addressed the valuation to Lesaffre, they could not have made a ridiculously low valuation. The valuation report did not take into consideration Discounted Cash Flow method, which is a detailed exercise. There was no basis for valuation to be carried out as of 31 March 2008. The manner in which the valuation was carried out and the speed at which it was carried out was entirely suspicious. The valuation was done by Nafan from reputed firms of Chartered Accountants would show that the valuation of SAF Yeast was wholly fraudulent. Even the well settled methods of valuation were not applied. vi) Attempts were made to meet Muthu in Paris to discuss future progress of the joint venture. Muthu avoided doing so. The Special Leave Petition before the Apex Court was adjourned on 27 March 2009 on the basis that negotiations are in progress and it was never contended that there has been any agreement to sell the shares. There was no reference to any Board meeting regarding the MOU. Muthu's lawyers opposed the ....
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.... had called him to discuss a possible solution. On 24 January 2009, Laloum attached protocol of agreement setting out Muthu's will for resolving the disputes. Nafan had at no time wish to sell its shareholding. As the MOU was not binding, it was not brought to the notice of Lesaffre. Meurant did inform Lesaffre about Muthu's wish to buy the shares and valuation. When Lesaffre asked Laloum to have a meeting in Paris, he did not agree insisting upon receiving agenda for the meeting. Affidavit filed by Muthu Group in response to affidavit filed by Alain Laloum. 17. On behalf of Muthu Group, Muthu briefly stated as under. If there was any truth in assertion of Laloum, then he should have affirmed the petition as being the person most likely involved in the proceedings. The case that MOU is a mere proposal is contrary to the averments made in the petition. The MOU was culmination of series of meetings to settle the dispute. Laloum had a clear authority to execute the MOU. The averments made by Laloum in the affidavit were dealt with parawise and denied and the fact that the MOU was binding and Laloum had the authority was reiterated. Sur-rejoinder filed by Muthu Group ....
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.... rejoinder. The Heads of Agreement are no bar to the validity of the MOU. (v) It is baseless to suggest that only because SAF Yeast used the trademark, Nafan should be reinstated as a shareholder. The principal product of Nafan was sold under the name Prestige. There was hardly any financial assistance provided by Lesaffre to SAF Yeast, so also the technical assistance. Both the terms, Muthu Group and Lesaffre Group are well known, and it is ridiculous to suggest that MOU is not binding on that count. 19. Further affidavit was also filed by Mr. Muthu on 11 October 2010 by placing certain documents on record. Proceedings before the Company Law Board 20. With these pleadings, the parties went for hearing before the Company Law Board. In addition to the voluminous pleadings and documentary evidence, the parties also filed their written submissions. 21. The CLB framed points for determination. The points for determination were - (i) Whether the petition has not been properly verified and filed as per CLB Regulations ? If so, its effect. (ii) Whether the petition is not maintainable on the grounds stated in the reply(s) filed by the Respondent Nos.2 to 4? ....
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....that Nafan was no longer a member and therefore could not file Company Petition was rejected. The rejoinder and other affidavits are part of pleadings, the Nafan had not suppressed material and vital facts, and the petition was not liable to be dismissed on that count. The MOU was not obtained by fraud or inducement and Laloum had the authority to sign the MOU. The Board concluded that Nafan and Lesaffre wanted to sell the shares, and in fact agreed to sell their shareholdings vide the MOU. It was held that Muthu Group took immediate steps for withdrawal of the cases at their end. The MOU was not bad on the ground of uncertainty in terms and conditions. The Board held that it was competent to take into consideration the intention of the parties from the MOU to pass appropriate orders in exercise of its rights and powers under Section 402 of the Act. A transfer notice must fulfill both the conditions stipulated in Article 15, that, it must be a notice of the members desire to transfer the shares and it must appoint the Company as an agent for finding a transferee. The first part of Article 14 is separate, distinct, and independent of latter part of Article 14 and that the contention....
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....ngly set aside. The meetings dated 29 January 2009, 23 May 2009, and 25 May 2009 were declared as nonest, illegal and void. Nafan and Lesaffre were directed to transfer the shares to Muthu Group proportionate to their shareholding. To carry out a fair valuation, the Board of Directors was suspended and kept in abeyance. Until the valuation was concluded, an administrator was appointed. The administrator so appointed was authorized to appoint an independent auditor. After the complete exit of Nafan and Lesaffre of receiving the consideration, the administration function would come to an end. Accordingly, the Company Petition was disposed of by the impugned order dated 28 March 2013. Present Appeals 23. Thereafter the abovementioned four appeals have been filed. A Company Appeal was first filed by Nafan, in which a Company Application was taken out for interim relief. By order dated 8 May 2013, the Court did not accept the contention of Nafan that only part of the impugned order be stayed and placed the matter on board for admission. The matter thereafter came up on board on 11 June 2013, when Muthu Group, Lesaffre, Union of India, and Sharp & Tannan filed their appeals. The ap....
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....y of Lesaffre's Appeal 27. The Lesaffre has filed the Appeal No.24 of 2015. In this appeal, the Lesaffre has inter alia challenged the order passed by the Board as regards the declaration in Para 333 of the operative order and judgment, the findings that the resolution passed at the Board meeting of January 2009 were not oppressive, and the MOU is valid and binding; the direction to sale 51% shares of Lesaffre in the SAF Yeast; other consequential findings and directions. Mr. Dwarkadas, senior advocate appearing on behalf of Muthu Group taken a preliminary objection regarding the maintainability of the appeal filed by Lesaffre. He contended that Lesaffre was joined as a proforma respondent in the petition filed by Nafan and it was specifically stated in the Petition that Lesaffre is only proforma respondent in the proceeding. He submitted that Lesaffre did not have any cause of action to file its own petition, as it holds no shareholding in SAF Yeast neither Lesaffre was a joint petitioner with Nafan. He further submitted that Lesaffre had not filed any affidavit in reply neither any statement on oath. Mr. Dwarkadas submitted that Lesaffre had sold its entire shareholding in....
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....te and distinct from Lesaffre. Even the case of Muthu Group before the Board indicates that Lesaffre can be considered as a person aggrieved. In the facts and circumstances, therefore, the appeal filed by Lesaffre needs to be considered on merits along with the appeal filed by Nafan. When Mr. Dwarkadas had initially raised the contention regarding maintainability of the appeal filed by Lesaffre, it was kept open to be decided at the time of final order and Mr. Khambata on behalf of Lesaffre has made the submissions on merits as well. I am therefore not inclined to dismiss the Appeal No.24 of 2015 filed by Lesaffre only on the ground of maintainability. Lassafre is entitled to contend that the directions issued to it should be set aside. However a positive relief,if any, can only be granted to Nafan as per its prayers in the petition. Preliminary 29. I now proceed to consider the controversy at hand dealing with the four appeals on merits. Learned Counsel have taken great pains to expound the law on the subject. The Counsel and their teams have meticulously done research on various legal aspects. What needs to be kept in mind are the parameters of the jurisdiction is exercised....
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....nder the Act, then the Board has various powers under Section 402 of the Act to pass suitable directions. The term 'oppression' generally refers to a conduct which is wrongful and harsh. It refers to a lack of probity and fair dealings in the affairs of the Company. Oppression can be in different forms. Something, which is illegal may not always be oppressive and something which is legal may be oppressive. A deliberate act to cause harm to the members of the Company in respect of the affairs of the Company would be an act of oppression. Therefore, the enquiry in such matters will be focused on probity and fairness in dealing amongst the shareholders, rather than only testing only the legality of the actions. 32. Various decisions have been cited by the learned counsel for the parties on the concept of oppressive conduct falling within the ambit of Section 397. It is not necessary to refer to all of them individually as in the case of Sangramsinh P. Gaekwad v/s Shantadevi P. Gaekwad (2005) 11 SCC 314, the Apex Court has outlined them as under. "180. The expression 'Oppression' complained of, thus, must relate to the manner in which the affairs of the comp....
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....tinuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs of the company prosper in consequence." 190. In Shanti Prasad Jain v. Kalinga Tubes Ltd., etc.: [1965] 2 SCR 720 , this Court quoted with the approval the following passage from the decision in Elder's Case, , as summarized at page 394 in Meyer's case,: "(4) Although the word 'oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are' treating the company and its affairs as if they were their own property' to the prejudice of the minority share-holders-and in which just and....
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....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 "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 from the method adopted, "which is common to partnership, that there should be the utmost good faith between the constituent members". Finally, it was held that the court ought not to allow technical pleas to defeat the beneficent provisions of Section (page 344, per Lord Keith; pages 36869, per Lord Denning). 195. In Re Five Minute Car Wash Service Ltd., the....
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....ts or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Noble & Sons (Clothing) Ltd.) 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. 200. It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. (See In re Bengal Luxmi Cotton Mills Ltd.: 69CWN137). 201. In Shanti Prasad Jain Vs. Union of India it was held that the power of the company court is very wide and not restricted by any limitation contained in Section 402 thereof or otherwise 202. In Shoe Specialities Ltd. v. Standard Distilleries and Breweries (P) and Ors. , it is stated: "While exercising the powers under sections 397 and 402 of the Companies Act, the Court is considering not only the relief that is sought for but also considers as to what is the nature of the complaint and how the same has to be re....
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....nd Lesaffre that there is no suppression and the MOU is not determinative factor but the effect of the so-called Board meetings, and in any case, at the time of deciding the petition all the facts were before the Board. 35. As regard the verification of the petition, it is contended by Mr. Dwarkadas that one Mr. Siraj Ahmed, who has no personal knowledge, has affirmed the petition. He submitted that the source and the basis of the knowledge of Mr. Siraj Ahmed are not indicated primarily because he has no such personal knowledge. It is contended that the petition is dated of prior to the date of signing the petition and is attested prior to that date. He submitted that by making a person, who is not aware of the facts, the conduct of Nafan demonstrates lack of bonafides. He relied on decision of this Court in Intesa Sanpaolo SPA v/s Videocon Industries Ltd. Rendered in Company Petition No.528 of 2012. Mr. Dwarkadas submitted that the verification would have to comply with the provisions of Order XIX Rule 3 of Code of Civil Procedure. He relied upon the decision of the Apex Court in the case of State of Bombay v/s Purshottam Jog Naik. A.I.R. 1952 SC 317. He submitted that, the Ape....
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....The ultimate objection of Muthu Group to the verification of Mr. Siraj Ahmed is that the concerned persons have put him up to avoid taking a stand on oath. This objection does not survive once the concerned persons i.e. Laloum and Lesaffre have put forth their stand on oath and have taken a responsibility as to what is stated in those affidavits. Simplicitor dismissing the Company Petition on that ground alone would have only meant that the petition would have been filed again with same allegations for the same reliefs, which would only multiply the litigation. In the circumstances, I am not inclined to interfere with the finding of the Board that the Petition ought not to have been dismissed on this count. 37. The second objection is that the petition ought to have been dismissed since Nafan had suppressed various facts. This argument was made before the Company Law Board and it was rejected. The Board concluded that, considering the petition and rejoinder, the facts and events stated to have been suppressed pertain mostly to the period 20052006 which were not much relevant. 38. Mr. Dwarkadas submitted that Nafan suppressed several material documents and material facts despi....
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....tition does not mention that before the meeting in Montreux, Switzerland, on 23rd January 2009 which resulted in the MOU, there were several prior meetings between Respondent No. 2 and Alain Laloum in Montreux, Geneva and London in the year 2008 (apart from the meetings in June and December 2006 with Lucien Lesaffre in London) to discuss the possibility of a resolution to the ongoing disputes between the Muthu Group and the Lesaffre Group; (iii) The Petitioner suppressed the fact that the meeting in Montreux in January 2009 was at the instance of Alain Laloum as has been brought out in the Reply with reference to Mr. Laloum's text messages and emails prior to the meeting; (iv) The Petition conveys the clear impression that apart from Alain Laloum, no other officer or representative of the Petitioner / Respondent No. 8 / Lesaffre Group was aware of the MOU and valuation of the shares. Contrary to this, the Reply disclosed that in addition to Alain Laloum, Mr. J.L. Meurant (the Group Managing Director) was in the know of the meeting at Montreux on 23rd January 2009, the MOU, the valuation of the said shares and Respondent No. 2's assertion seeking the transf....
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....ledge of the Petitioner and its officers on or after 30th April 2009 or 3rd May 2009; (vii) The Petitioner suppressed its own document, namely its own Articles of Association, obviously because Article 10(2) clearly states that each of the Directors of the Petitioner is independently authorized to represent the Petitioner. This fact is also borne out from the extract of the Petitioner from the Trade Register of the Netherlands Chamber of Commerce, a statutory body for maintaining the corporate record in the Netherland. The extracts dated 21st July 2008, which is prior to Mr. Alain Laloum executing the MOU, and 21st June 2009 clearly state Mr. Alain Laloum's powers as being "solely/independently authorized", in accordance with the Articles of Association of the Petitioner and there was no change in his power during the intervening period (between 21st July 2008 and 21st June 2009). (vii) The Petitioner did not disclose its own document i.e the flower of Attorney dated 31st January 2005 issued by the Petitioner to TMF Management, the Petitioner was able to solemnly argue that TMF Management was the only entity authorized to execute the MOU and bind the Petitione....
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....of any alleged inaccuracy of the Minutes of Meeting of 14th April 2005 in person in October 2005 when he attended a Board of Directors meeting in Mumbai (despite having thought it appropriate to comment during January 2006 by his above referred emails). This untenable stand was nevertheless taken to explain the Petitioner's silence on this issue during October 2005 despite having received by then the Minutes of the said meeting of April 2005 at least by September 2005. However, even this stand (of Alain Laloum not being Chairman of the 14th April 2005 meeting) has been falsified by his email of 30th January 2006 when Mr. Alain Laloum asserted that he chaired the very same meeting (of 14th April 2005); (x) The Petitioner failed to disclose the facts and events which shows that the Petitioner was never excluded from the administration of the Company and in particular was not unaware of the holding of AGM's. Neither was the Petitioner unaware of the financial position of the Company. The documents and facts disclose that the Directors Reports for the years from 2004 2005 onwards (which is the period during which the Petitioner alleges exclusion from the Company) were ....
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....arkadas submitted that, since the jurisdiction of the Company Law Board under Sections 397 and 398 is equitable, the conduct of the parties is most material and, therefore, the party which suppresses relevant material, ought not to be given any indulgence. Mr. Dwarkadas relied upon the decision in the case of Sangramsingh P. Gaekwad v/s Shantidevi P Gaekwad, (2005) 11 SCC 314 of the Apex Court; decision in the case of Srikanta Datta Narasimharaja Wadiyar v/s Sri Ventakeswara Real Estate Enterprises (Pvt.) Ltd.1991 (72) CompCas 211 of Karnataka High Court; decision of the Delhi High Court in Smt.Abnash Kaur v/s Lord Krishna Sugar Mills & ors. (1974) 44 CompCas 390 (Delhi), decision of the Appeal Bench of this Court in Maganlal Kuberdas Kapadia v/s Themis Chemicals Ltd.Rendered in Appeal No.332 of 1991, decision of the Apex Court in Gujrat Bottling Co. Ltd. & ors. v/s The Coca Cola Co. & ors.A.I.R. 1995 SC 2372, and S.P.Chengalvaraya Naidu v/s Jagannath. A.I.R. 1994 SC 853. Mr. Dwarkadas submitted that these decisions and several others have laid down that the Courts exercising equity jurisdiction must not allow any attempt to mislead them and the party coming to the Court must come ....
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....ts that became known from the reply during the inspection after filing of the reply by Muthu Group necessitated placing the factual position on record. He submitted that pleadings should receive a liberal construction and Muthu Group was fully aware the case that they had to meet. He submitted that the petition ought to have been amended was not the plea taken by Muthu Group in the affidavit-in-rejoinder. He further submitted that the plea of Muthu Group is a mere technicality and the Board while dealing with case of oppression is entitled to take into consideration the entire material on record. 43. I have considered the submissions. Firstly, what is the exact case made out by Nafan in this petition needs to be seen. The relief sought by Nafan is that the register of members should be rectified by inserting the name of Nafan in respect of 80,772 shares and an order terminating the appoint of Mr.Muthu as the Managing Director and that Muthu Group be directed to sell their shares to Nafan. In the petition, the Nafan has pleaded the relevant particulars. It has placed on record the particulars of the parties, the backdrop to the joint venture. Then it stated that Muthu Group is at....
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....ntreux have not been mentioned at all in the petition. The fundamental aspect of the acts of oppression is meetings without notice and the transfer of shares. There is no correspondence on record from Nafan or Lesaffre stating that they will abide by MOU and it should be placed before the Board, nor is a specific share transfer notice given by Nafan. The entire argument of Mr. Dwarkadas on this count is based on the silence on the part of Nafan and Lesaffre Group regarding the MOU and enquiry about valuation. According to him, once Nafan was made aware that the MOU exists and will be enforced, then by not taking any steps, Muthu was right in believing that the MOU was accepted. According to Nafan, Muthu Group was trying to divert the course of adjudication towards the legality, validity and binding effect of the MOU, but from Nafan's point of view in the petition the real issue in the matter was the oppressive nature of the Board meetings through which the transfer of share have taken place. 45. The Lesaffre and Nafan had made it clear through the email written by Corinne Wisniewski that the valuation was ridiculously low. Whatever may be the stand of Nafan and Lesaffre rega....
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....(1987) 2 SCR 805, has held that the pleadings should receive liberal construction and whenever question of law regarding the pleading is raised, the enquiry should not be about the form of pleadings, instead the Court must find out whether the parties knew the case and issues contested. Once it is found that, in spite of deficiency in the pleadings, parties knew the case and they proceeded to trial on those issues by producing evidence, it would not be open to a party to raise the question of absence of pleadings. Before the Board decided the matter, all the parties had exhaustively filed their pleadings through petition, replies, affidavits, rejoinders, sur-rejoinders, etc. and the parties were fully aware of each other's case. The decision in the case of Mohta Brothers (supra) is of no assistance to Mr. Dwarkadas, as in that decision, the Court was concerned with the subsequent events and held that the matter needs to be decided upon the facts pleaded in the petition. In the present case, it is a grievance of Nafan that various facts leading to the meetings were suppressed from them, which they came to know after filing of the petition and therefore rejoinder had to be filed.....
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....it may be oppressive to the minority shareholders or prejudicial to the interests of the Company. Such a resolution can certainly be struck down by the Court under Section 397 or 398. Equally a converse case can happen. A resolution may be passed by the Board of Directors which may in the passing contravene a provision of law, but it may be very much in the interests of the Company and of the shareholders..." (emphasis supplied). The Apex Court specifically stated that the Court will have to consider the entire material on record and may not insist upon the petition to prove acts of oppression. This observation has been emphasized by Mr. De' Vitre. The Apex Court disapproved the reliance by the High Court on the pleadings made in some other proceedings and ignoring the assertions made by the respondent therein in the proceedings. The decision of the Apex Court in the case of Sangram Singh (supra) therefore does not state that in spite of the fact that the parties knew the case and all pleadings were on record, the petition ought to have been dismissed because the cause of action could not have been made out in the rejoinder. 49. Furthermore, there are more reason....
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....d an ex-parte orderly misleading the Board. Both parties were fully aware of the facts. When the Board took up the matter for consideration, all the facts were placed before it placed on record either by Nafan or by Muthu Group. It is after considering the entire record the CLB took an informed decision and to my mind rightly did not dismiss the petition on the ground of suppression of facts. Memorandum of Understanding. 52. The next broad head for consideration is regarding the MOU dated 21 January 2009. The MOU, which is handwritten, is reproduced below. "Memorandum of Understanding entered into between the Lesaffre Group represented by Mr.Alain Laloum and the Muthu Group represented by Mr.A.Laloum at Montreux on 23/01/2009. Regarding the shareholdings in M/s SAF Yeast Co. Pvt. Ltd. It was agreed that Muthu Group would buy 51% shareholding of the Lesaffre Group in M/s SAF Yeast Co. Pvt. Ltd. immediately. The fair valuation of the shares will be done by the company (M/s SAf Yeast Co. Pvt. Ltd.) Auditors in accordance with clause 17 of the Articles of Association and the Memorandum of SAF Yeast Co. Pvt. Ltd. As soon as the valuation is carr....
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....to Plaintiff No.3 being a member/nominee of the "Muthu Group" and for the said purpose this Hon'ble Court give all necessary directions to specifically perform the Memorandum of Understanding dated 23 January 2009 including the Defendant No.1 taking all ancillary and incidental steps for effecting a transfer of the suit shares in performance of the Memorandum of Understanding dated 23 January 2009; (c) Alternatively, and in the event of Defendant No.1 failing to do so, this Hon'ble Court may be pleased to appoint a Receiver or any fit and proper person to transfer the suit shares for and on behalf of Defendant No.1 and if necessary to take all incidental and ancillary steps to effect transfer of the suit shares for and on behalf of Defendant No.1; (d) That, pending the hearing and final disposal of the present suit, the Defendant No.1 by itself and through its servants, officers and agents be restrained by an order of injunction from in any way selling, transferring, encumbering, dealing with or creating any third party rights in respect of the suit shares; (e) That, pending the hearing and final disposal of the present suit, Defendant No.1 by its....
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....d it does not amount to a transfer notice; the MOU is legal, valid and binding but it does not constitute transfer notice; the intention behind MOU can be taken into consideration while passing an order under Section 402 of the Act. However, there is yet another facet. Should the Muthu Group have given a notice of the Board meeting before transferring the shares on the basis of MOU out of fairness and as a matter of probity? Though I would proceed to examine these viewpoints, as they have been agitated before me at some length, I am of the opinion that it is the last facet that should be kept at the forefront of the discussion. 58. Mr. De'Vitre submitted that the finding that the MOU is valid and binding could not have been made, as the Board does not have jurisdiction to do so. The MOU was a disputed document and at the most an arrangement amongst the shareholders. He submitted that the Board did not have any power to grant declaration of the validity, more particularly, since Muthu Group had already filed a civil suit for specific performance. To hold that the MOU is arrived with consent and for consideration and is nothing but to decide on its validity. He submitted that ....
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.... and binding MOU has filed a petition to resile from the same. He further submitted that no party should be allowed to resile from a contract. It was open to the Board to consider the MOU as one of the relevant circumstances. He relied upon decision in the case of Probir Kumar Misra Vs Ramani Ramaswamy (2010) 104 SCL 174 (Mad), rendered by Madras High Court, to contend that a MOU can be considered as a relevant circumstance. Mr.Dwarkadas further submitted that the contempt petition came to be withdrawn within the legal frame work and it was not entirely in the hands of Muthu group to withdraw the contempt petition, which had to depend upon orders of the Court. He submitted that theory of Laloum being induced is false. Nafan is changing its stand as regards the MOU, has taken contradictory stand, and ultimately has admitted that the MOU exists. He then relied upon the averments made in the rejoinder by Nafan and the additional affidavits. Mr. Dwarkadas referred to various documents on record in detail seeking to demonstrate that the MOU was not an isolated piece of document but there were series of meetings and exchange of emails, fax messages that led to execution of the MOU. He su....
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....of parties into consideration. I do not think this is correct. First, this would be doing granting specific performance. Second, assuming such course of action can be adopted in cases of unquestionable intentions, The MOU did not spell out any such unquestionable intention. 62. It is settled that the Board in law does not have power to grant specific performance of a contract between two groups of shareholders. The powers of Board under the Act are to be exercised in respect of the affairs of the company and property and not to decide the disputes amongst shareholders. The powers are conferred to correct oppressive conduct and mismanagement and not to decide civil disputes. Whether Lesaffre agreed to sell its shareholdings to Muthu group is a dispute between two groups of shareholders. In the Apex Court in the case of Chatterjee Petrochem (India) Pvt. Ltd. v. Haldia Petrochemicals Ltd. and Ors. (2011) 10 SCC 466, has made it clear that the Board has no power to decide disputes regarding transfer of shares. Similar view is taken in the case of Sangramsinh Gaekwad (supra); Incable Net (Andhra) Ltd. v. AP Aksh Broadband Ltd. 2010 (6) SCC 719; T.Vinayaka Perumal v. T. Balan (2011) 1....
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....ndation of the case of Muthu Group is the MOU and it is their main defence to the allegations of oppression. According to Nafan, MOU was at the most a proposal to take the transaction forward and Muthu Group was attempting to convert this memorandum into a binding contract. 65. Reference was also made by the Board to the decision of the High Court in Switzerland in which the High Court has according to the Board held that the MOU is a contract. However, the observations and the operative part of the High Court order reported in paragraph 82 of the impugned order itself shows that the proceedings were dismissed for want of jurisdiction. Therefore, the observations made in the decision of the High Court of Switzerland could not have been held against Nafan. The legal effect of MOU is already being agitated in the Civil Court where the Court will decide its legality and validity. 66. The question therefore, arises is whether it could be said that the MOU was such a clear unequivocal document that it presented an open and shut case, and that a clear intention of Nafan to act on the MOU followed therefrom and all that had to be done was to only complete the procedural formalities ....
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....t the valuation was ridiculous. The manner and the form in which the document stood executed and the reaction to the valuation and in normal course of business to transfer shares, it could not be said that an unquestionable intention flowed from the MOU. Therefore, the Board even though it came to the conclusion that Laloum had the authority to sign the contract did not consider that fair valuation was one of the ingredients and after coming to know that valuation was not fair, Nafan and Lesaffre had no interest in taking the MOU forward. Therefore, the Board fell in clear error to attribute an unquestionable intention on the part of Nafan and Lesaffre to sell their shareholding. 70. Both Muthu group as well as Nafan and Lesaffre are assisted by administrative and legal staff, as their correspondence would show. In normal business transactions, solicitors and legal professionals will draw documents for transfer of shares. Drafts would be exchanged. The understanding would be reduced to a formal documentation. There may be meetings at both ends to finalise the decisions, there would be negotiations, discussions on the price. Before the drafts are finalized, the parties could back....
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....entry of unquestionable intention. The Board has in fact in para 165 of the impugned order rightly distinguished the case of Probir Kumar Misra (supra) relied upon by Mr.Dwarkadas, holding that in that case both the parties had substantially acted on the MOU, but in the present case, it is not so. In the present case, there is a dispute between the parties. Stand is taken by Nafan and Lesaffre that they had absolutely no intention to take any steps based on the MOU considering the valuation. Once their stand was clear , was prima facie tenable, it was not open for the Board to dissect the MOU, take out the intention and use while passing an order under section 402, 403 of the Act. 72. Mr.Dwarkadas made a grievance that Nafan was changing their stand regarding the status of the MOU at every stage. Firstly, they did not accept its validity and then when they had to accept it, they called it a neutral document. I am not impressed with this submission. To my mind, the MOU is nothing but a red herring to divert the controversy. Assuming MOU exists, it is the manner in which the shareholding of Nafan has been transferred which is the crux of the dispute. 73. Furthermore, there was ....
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....sell out their shares based on the socalled intention under the MOU. Furthermore, the crux of the matter is the manner in which the meetings took place. Therefore, we now come to the crucial aspect of the case that is the Board meetings. Nature of Board meetings 74. The disputed Board meetings were held on 29 January 2009, 23 May 2009 and 25 May 2009. It will be necessary to reproduce the minutes as they have been placed on record. MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF SAF YEAST COMPANY PRIVATE LIMITED HELD ON 23RD MAY, 2009 AT THE REGISTERED OFFICE AT 419 SWISTIK CHAMBERS, MUMBAI 400071 AT 12.15 P.M. IN ATTENDANCE: 1 Mr. A. Muthu 2 Mr. A. M. Arunachalam 3 Mr. A. M. Muthiah 4 Mr. P. B. Thatte 1 CHAIRMAN OF THE MEETING Mr. A. Muthu was elected Chairman of the Meeting. 2 LEAVE OF ABSENCE Leave of absence was granted to Mr. Alain Laloum and Mr. M. E. Lesaffre. 3 CONFIRMATION OF THE MINUTES OF THE PREVIOUS MEETING The Minutes of the previous Board Meeting held on 17th May, 2009 were noted, confirmed and signed by the Chairman. 4 PURCHASE BY THE MUTHU ....
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....e money from the Mr. A .M. Muthiah. After discussion it was: "RESOLVED THAT a Current Account titled "SAF YEAST CO. PVT. LTD. SHARES ACCOUNT", be opened with the Axis Bank Ltd., Chember Branch, Mumbai in addition to the existing Current Account". "RESOLVED FURTHER THAT Mr. A. Muthu, Mr. A. M. Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte, Directors of the Company and Mr. K. K.N. Swamy, an Officer of the Company be and hereby authorized to operate the said Account singly". "RESOLVED FURTHER THAT Mr. A Muthu, Mr. A. M. Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte, Directors of the Company and Mr. K. K.N. Swamy, an Officer of the Company be and hereby authorized to draw, accept and endorese, cheques, promissory notes and other negotiable instruments singly". "RESOLVED FURTHER THAT Mr. A. Muthu, Managing Director of the Company or Mr. A. M. Muthiah, Director of the Company of Mr. A. M. Muthiah, Director fothe Company be and is hereby authorized to inform the said Bank in this matter and to take such action as may be necessary to open the said Current Account with the Axis Bank Ltd., Chembur Branch, Mumbai". "RESOLVED FU....
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....he previous Board Meeting held on 17th May, 2009 were noted, confirmed and signed by the Chairman. 4 PURCHASE BY THE MUTHU GROUP OF THE SHARES IN THE COMPANY HELD BY LESAFFRE GROUP THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED 23RD JANUARY 2009 RECEIPT OF THE PURCHASE MONEY FROM MR.A.M.MUTHIAH PURSUANT TO RECEIPT OF WRITTEN OPINION FROM MR.SHANTI BHUSHAN SENIOR ADVOCATE The Chairman referred to the resolution passed pursuant to the receipt of the written opinion from Mr. Shanthi Bhushan, Senior Advocate, at the Board Meeting held on 23rd May, 2009 to accept the purchase money / relevant consideration of Rs. 27,49,38,822/net of TDS of Rs. 7,35,92,358/on capital gains from Mr. A. M. Muthiah, the Purchasing Member of the 80,772 Shares and hold the same in Trust for and on behalf of the proposing Transferor Nafan B. V. The Chairman tabled before the Board a letter dated 25th May, 2009 from Mr. A. M. Muthiah informing that an amount of Rs. 27,49,38,822/has been transferred from his Account at the Axis Bank Ltd., Chembur Branch to the credit of the Company's Account at Axis Bank Ltd., Chembur Branch and Mr. A. M. Muthiah has requested the Company t....
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....d having not found any adverse evidence and taking note of the contents of the request dated 23rd May 2009 Resolved to issue the duplicate Share Certificates. After discussion, it was: "RESOLVED THAT the Original Share Certificates bearing Numbers as detailed below be and are hereby cancelled forthwith". Original Share Certificate No Distinctive No. of Shares From To 6 9001 15000 6000 7 15001 20000 5000 14 36501 47500 11000 17 55001 65000 10000 18 65001 75000 10000 19 75001 85000 10000 20 85001 95000 10000 21 95001 105000 10000 22 105001 113772 8772 "RESOLVED FURTHER THAT duplicate Share Certificates be and are hereby issued in lieu of the lost and subsequently cancelled Share Certificates, as detailed below: Original Share Certificate No (Cancelled) Duplicate Share Certificate No Distinctive No. of Shares From To 6 35 9001 15000 6000 7 36 15001 20000 5000 14 37 36501 47500 11000 17 38 55001 ....
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.... 333 and Anderson v. Hogg 2000 S.L.T. 634 at page 642, O'Neill & Another v. Phillips & Others Re a company (No.00709 of 1992) at page 969, in support of his submissions. 76. On the other hand, Mr.Dwarkadas submitted that the Participation agreement was never acted upon. The terms of the Participation, agreement referred to by Mr. De'Vitre is in conflict with the provisions of Articles of Association. He submitted that Article 7.10.b of the Participation agreement is not included in clause 3 of the proposed amendment. Mr.Dwarkadas submitted that meetings of the Board of directors were always conducted in accordance with the Articles of Association and notices were issued and quorum was maintained as per the articles. It was contended by Mr.Dwarkadas that the Participation agreement provides for retirement by rotation. It also states that Muthu was liable to provide personal guarantee only up to 44 per cent and secured loans availed by M/s SAF Yeast Co. Pvt. Ltd. have been to the extent of 100 per cent. It was contended that Muthu group was not required to give notice to the directors outside India as per Section 286(2) of the Companies Act and the Articles of Association.....
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....ed high degree of proof. The finding of the Board after scrutinising the evidence and considering the burden of proof cannot be termed as perverse to be interfered with under Section 10F of the Act. What is legal effect of the meetings is of course open for consideration. 78. Lot has been debated about the notice of the meetings dated 29 January 2009, 23 May 2009 and 25 May 2009. It is contended by Nafan and Lesaffre that as per the Participation agreement notice was required to be given and out of fairness, when it is the stand of Muthu group that the Act and the Articles of Association did not require it to be so. According to them Participation agreement was never acted upon. To my mind the most crucial aspect of service of notice is out of fairness than out of legality, and whether probity required that the notice is to be given or not. In the case of Kamal Kumar Dutta v/s Ruby General Hospital Ltd. (supra), the Apex Court emphasized the need to maintain utmost good faith. The Apex Court observed as under: "32. Following the English cases referred to in Kalinga Tubes Ltd., similarly in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., t....
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....ppression.In this context, 'oppressive' means burdensome, harsh and wrongful. It does not include conduct which is merely inefficient or careless. Nor does it include an isolated incident; there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member; whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs of the company prosper in consequence. 42. In Palmer's Company Law, 23rd Edn.,p.848 it is stated: "64-02. Relationship is with company: the fiduciary relationship of a Director exists with the company; the Director is not usually a trustee for individual shareholders. Thus, a Director may accept a shareholder's offer to sell shares....
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....ation Agreement. First, the argument regarding the notice based on the Participation agreement and the Act. The Board has found that the parties acted upon the Participation agreement. It held that the execution of Participation agreement has not been disputed and it was acted upon. The Participation agreement was not unlawful, it was never cancelled, certain terms were acted upon, and the agreement was not contrary to the Articles of Association or the Act. Before me, it is not contended that the Participation agreement never existed. The Participation agreement was entered into on 22 March 1991. The Company had been formed in August 1981 and it was after 10 years that the participation agreement was executed. The relevant clause of the Participation Agreement is as under: "(h). In accordance with Article 7.10(b) at least 14 days notice was required for every meeting of the Board of Directors to be given in writing to every director, including directors outside India and to their alternates, if any, in India along with an agenda for the meeting." 80. The Board has held that the Participation Agreement required notice to be given to the directors present in India for th....
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....wing observations in the opinion rendered by Radhakrishnan J. as under: "261. Shareholders' Agreement (for short SHA) is essentially a contract between some or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the Company Law. SHA is a private contract between the shareholders compared to Articles of Association of the Company, which is a public document. Being a private document it binds parties thereof and not the other remaining shareholders in the company. Advantage of SHA is that it gives greater flexibility, unlike Articles of Association. It also makes provisions for resolution of any dispute between the shareholders and also how the future capital contributions have to be made. Provisions of the SHA may also go contrary to the provisions of the Articles of Association, in that event, naturally provisions of the Articles of Association would govern and not the provisions made in the SHA. 262. The nature of SHA was considered by a two Judges Bench of this Court in V. B. Rangaraj v. V. B. Gopalakrishnan and Ors. (1992) 1 SCC 160. In that case, an agreement was entered into....
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....ription option etc. SHA in a characteristic Joint Venture Enterprise may regulate its affairs on the basis of various provisions enumerated above, because Joint Venture enterprise may deal with matters regulating the ownership and voting rights of shares in the company, control and manage the affairs of the company, and also may make provisions for resolution of disputes between the shareholders." Based on the above decision, it is strenuously contended by Mr.Dwarkadas that the Participation agreement, i.e. a Shareholder agreement can never be contrary to the Act as well as Articles of Association. However, I do not think an elaborate discussion is necessary, as the clause, which gives an additional safeguard of notice, is not in conflict with the Act and the Articles of Association. The articles do not say under no circumstances notice need not be given to those residing outside India. 82. Turning now to the argument of Mr.Dwarkadas that the Participation agreement was not acted upon. On the other hand, it is the contention of Mr.De'Vitre that it was substantially acted upon. The Board has taken note of the following events. (i) In 1992, after the Participation ....
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.... Agreement and the Participation Agreement of 22 March 1981. All parties, including the Company, clearly acted on the Participation Agreement. Mr.Dwarkadas commented on each of these grounds mentioned by the Board and contended that these findings of fact are erroneous. He contended that no efforts were ever made to modify the Articles of Association. The increase in shareholding was based on an understanding prior to Participation Agreement. Muthu was also Managing Director before the Participation Agreement. Nothing was shown that any Joint Managing Director was appointed pursuant to the Participation Agreement and Muthu nowhere confirmed the acceptance of the Participation Agreement. He contended that no steps were taken to get the Participation Agreement incorporated. He submitted that the Participation Agreement was never implemented and it remained, at the best, a private agreement. 83. Mr. De'Vitre, on the other hand, has countered each of the assertions of Mr.Dwarkadas and contended that the Participation Agreement was acted upon. He submitted that as per the agreement when income of the Company increased and the shareholding, additional shares were offered. Muthu....
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....The Board rightly observed that since this term was not contrary to the Articles, and the Act, Muthu Group was not entitled to say that it need not give notice because Participation Agreement was not part of the Articles of Association. Furthermore, it is the case of the Nafan and Lesaffre that the incorporation of Participation Agreement into Articles of Association had to be done by Muthu. When both the groups coexisted for more than 20 years and the meetings were to determine the exit of one group, that too in acrimonious circumstances, notice was required. Neither in the Articles of Association nor in Section 286 nor in any decision dealing with the similar factual situation at hand, has it been stated that it is not necessary to give notice in such circumstances. The findings of the Company Law Board that the meetings of 29 January 2009, 23 May 2009 and 25 May 2009 were illegal for want of notice cannot be termed, as perverse. The Company Law Board has also rightly taken note of the fact that the agenda of the meeting was not circulated. The agenda is not produced on record for the meetings of 29 January 2009, 23 May 2009, and 25 May 2009. This is an additional ground. 86. ....
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....illing to purchase the same at the fair value mentioned in Article (15) hereof. 15 The person proposing to transfer any shares (hereinafter called "the proposing transferor") shall give notice in writing (hereinafter called "the transfer notice"to the Company that he desires to transfer the same. Such notices shall constitute the Company his agent for the sale of the shares to any member of the Company or person selected as aforesaid at a fair value to be agreed upon between the proposing transferor and the purchasing member and in default of such agreement to be fixed by the Auditors of othe Company provided in Article 17 hereof. The transfer notice may include several shares and in such case shall operate as if it were a separate notice in respect of each share. The transfer notice shall not be revocable except with the sanction of the Directors. 16 If the Company shall, within the space of sixty days after being served with such notice find a member or person selected as aforesaid willing to purchase the share (hereinafter called "the purchasing member") and shall give notice thereof to the proposing transferor, he shall be bound upon payment of the fair value ....
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....r debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures: Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit: Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law. [(1A) Every instrument of transfer of shares shall be in such form as may be prescribed, and - (a) every such form shall, before it is signed by or on behalf of the transferor and before any entry is made therein, be presented to the prescribed authority, being a person already in the service of the Government, who shall stamp or otherwise endorse thereon the date on which i....
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....Mr.Dwarkadas it would be in a case where there is a disagreement of the price of shares to be transferred. Article 19 according to him applies only where the proposed transferor has not contracted to sell his shares to another member. He contended that last sentence in Article 22 contains words 'these articles' being in plural will apply event to member to member transfer. According to Mr.Dwarkadas, combined reading of Articles as scheme is to facilitate a smooth expeditious transfer of shares by a member and it is for this reason that the Articles provide for distinct schemes. Irrespective of whether the transfer is between the members, which is covered by first part of Article 14 it has to read with 15, 17, 18, and 22. Mr.Dwarkadas placed reliance on the decision of Holmes and another v Keyas and others (1958) 2 W.L.R.772, rendered by Court of Appeal in England and decision of the Malaysian Court of Appeal in Lo Mu Sen & Sons (SDN) BHD & ANOR (2002) 2 CLJ 184. 91. Mr.Khambatta and Mr.De'Vitre submitted that unlike a public Company the transfer of shares in a private limited company can be subjected to restrictions, but there is no prohibition. They submitted that t....
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....ly for a member-to-member transfer. It was submitted that, in any case, the MOU could not be a transfer notice, as Article 15 requires a notice to be given by a proposed transferor to the Company and expressly authorizing the Company as proposing transferor's agent and without any such authority, the transfer is void. It was also submitted that any document by which desire to transfer share is envisaged does not become a transfer notice. Article 15 must constitute the Company as an agent and the company cannot infer the intention. Reliance is placed on the decision in the case of Lyle & Scott Ltd. v. Scott's Trustee (1959) 2 AII ER 661. It was contended that the MOU only refers to Article 17 for the purpose of valuation and does not constitute any transfer 92. I have considered the submission. Muthu group has treated the MOU as a transfer notice and authorizing the company to transfer the shares. The first question is whether the first part of Article 14 is separate, distinct, and independent of the latter part, and whether Articles 15 and 18 are applicable. Article 14 is reproduced again for the sake of convenience. '14. A share may be transferred by a memb....
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....ial reason why in respect of this Company they should go through the entire gamut of making company the agent. This document simply and clearly contemplates this elaborate machinery for member to nonmember transfer. The reading of the articles need not be made deliberately complicated and opposed to common sense, merely because such interpretation justifies the action taken by Muthu group. If the present dispute had not arisen and the articles were to be interpreted in a routine manner, any reasonable reader would read them as for member-to-member transfer, there is no question of making the Company agent, fair valuation etc. The articles cannot be read in absurd manner or only because reading them in this manner in retrospect justifies actions of Muthu group. The finding of the Board that clause 14 is a distinct scheme did not subject to restrictions in the other articles, is a possible view to be taken, and is not perverse. 94. Furthermore, even assuming Article 15 applies it will have to be strictly followed. Article 15 reads as under: 'Article 15. The person proposing to transfer any shares (hereinafter called "the proposing transferor") shall give notice in wri....
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....ccept this argument will be artificially stretching the meaning of the article. 97. The Articles are not to be read like a statute. Restrictions on transfer of shares from one member to another have to be specific (see Greenhalg (supra) and V.B.Rangaraj (supra). Restrictions have to be clear to the concerned members. Further, such restrictions have to be strictly construed. If Article 15, 16 and 17 were to apply in member-to-member transfer, then the concept of fair value mentioned therein will lead to absurd reasons. There could be cases where the members have agreed on a fixed price. Such fixed price will be a fair value for them. If the interpretation of Mr.Dwarkadas is to be accepted, it will mean fair value has to be fixed only after the Company received the transfer notice. Then it will be that there will be no contract of sale until the transfer notice. Businesspersons to regulate their affairs have framed the Articles. If they wanted to place restrictions on themselves for inter-se transactions by providing a methodology to give notice to the Company to appoint a valuer and fixed fair value, they would have been so specifically provided. Such interpretation cannot be foi....
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....ny share shall give notice in writing to the Company that he desires to transfer the same. Such notice shall constitute the Directors his agents for the sale of the share to any member or persons selected as aforesaid, at a fair value to be agreed upon between the Transferor and the purchaser and in default of such agreement to be fixed by the Auditors of the Company. The notice may include several shares and in such case shall operate as if it were a separate notice in respect of each share. The notice shall not be revocable except with the Sanction of the Directors. 60. If the Directors, shall, within the space of 30 days after being served with the Transfer Notice, find a purchasing member or a person selected as aforesaid willing to purchase the share and shall give notice thereof to the proposing transferor, he shall be bound upon payment of the fair value fixed as aforesaid to transfer the shares to the purchaser. 61. In case any differences arises between the Transferor and the Purchaser as to the fair value of a share, the Auditors of the Company shall certify in writing the sum which in their opinion is the fair value and the same be binding on the transf....
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....any to admit to membership. The last category is the person to whom the transferor may choose to sell the shares. As long as there is any person in a higher category, there is no question of sale or purchase by a person in a lower category. Thus for example the right of a member or a person in the 2nd category to purchase shares can arise only in the event there is a default or refusal on the part of the preemptor and so on. A person may fall within any one or more of these four categories and would, by virtue of these articles have distinct and separate rights to purchase the shares in each of the four categories. So even if a preemptor or a nominee of a preemptor does not exercise his/her right under Article 57A to purchase the shares at a price certified by the company's Auditors, such person may choose to exercise the right as an ordinary member and purchase the share at a fair value or the transferor may choose to sell the shares to such person under Article 63. 24.2 In the case of a transfer to a person in the 2nd and 3rd categories of putative purchasers, the Directors are appointed agents of the transferor. The notice of transfer is required to constitute the D....
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....r of the shares and applied a different yardstick. The Apex Court did not hold that even in case of first category, the directors were to be appointed as agents. This decision was sought to be distinguished by Mr.Dwarkadas on the ground that the right of preemption was conferred on specific persons and there was no Article similar to Article 22 in that case. As regards Article 22, I have already held that in the scheme of the present Articles, it cannot be brought in to cover member-to-member transfer. Even though right of preemption in the Articles in Sakal Papers (supra) was given to an identifiable class, in the present case also the transfer is to any person who is then identified as the one chosen by the transferor. As regards the decision by the Malaysian Court in the case of Lo Mu Sen (supra), once there is a decision of the Apex Court interpreting similar Articles holds the field, it is not necessary to refer to the same. Mr.De'Vitre has relied upon the decision in the case of Dr.Percy Rutton Kavasmaneck Vs. Gharda Chemicals Ltd. (2009) 96 SCL 515 (Bom), taking a view similar to that of Sakal Papers (supra). Even otherwise as it is rightly pointed out by Mr.De'Vitre....
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....in keeping with the Articles as far as Articles to 63 were concerned. As we have already observed, notices to willing members or to selected persons under Article must succeed and not precede the actual operation of Article 57A. The notices issued by the respondent Nos. 2, 3 and 4 also did not constitute the Directors as the transferor's agents for the purposes of selling the shares in terms of Article. There was, in the circumstances, no question of the transferors selling their shares to any 3rd party under Article unless proper notice had been issued to the 2nd and 3rd category of persons if any. There was also no question of the transferor invoking Article bypassing the right of a willing member or selected, if any, to negotiate a fair price." (emphasis supplied) The above-emphasized portion would show that unless a specific notice is issued, there was no question of any agency being created. The Apex Court also held that the directors must be specifically constituted as an agent. Thus, Apex Court laid down that the transfer notice itself must make the directors the agents. 102. If one goes through the articles regarding requirement of notice again, it clearl....
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....their action was bonafide. The opinion of the senior advocate refers to Article 16, which according to Mr.Dwarkadas, does not apply. It was agreed by the counsel that it will be proper not to debate on the merits of the opinion but to restrict the debate only to bonafides. The senior advocate did not opine that Muthu group could proceed in the manner as they have done. Question here is the lack of probity. Muthu is an experienced business. He fully knew what he was doing. The opinion is only used as crutches to support an otherwise oppressive act. 104. The things did not stop at that. The shares were transferred by issuing duplicate shares. Before we consider the question of duplicate shares and thereafter the valuation, a review of the manner in which the Board meetings were held need to be taken, to put things in prospective. The minutes have already been reproduced earlier. On 23 May 2009, the meeting began at 12.15 p.m. Mr.A.Muthu, Mr.A.M.Arunachalam, Mr.A.M.Muthiah, and Mr.P.B.Thatte attended it. Mr.A.Muthu was elected as the chairperson, leave of absence was granted to Laloum and Mr.Lesaffre. The chairperson referred to written opinion received by senior advocate, which wa....
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....ch 2009. Not a single text message is also produced nor any communication in writing to issue duplicates certificates. There is no explanation at all why, if told in February 2009, suddenly Muthu thought it fit to get duplicate share certificates printed at the time of the meeting. Muthu group did not bother to crosscheck with Laloum as to whether by then he had located the duplicate share certificates. If everything was fine, Muthu could have easily asked Laloum whether the share certificates were still missing and whether duplicate share certificates be issued. Since the scheme was to push through the disputed MOU by keeping Nafan and Lesaffre in dark, for obvious reasons this was not done. The letter of Muthu dated 23 May 2009 is reproduced below: "To, Saf Yeast Co. Pvt. Ltd., Mumbai. Dear Sirs, Sub.: Loss of Original Share Certificates by Nafan B.V. As verbally informed by Mr.A.Laloum - Request for issuance of Duplicate Share Certificates in lieu thereof. I wish to bring to your notice that Mr. A. Laloum Director of the Company and a Director of Nafan B.V. of Lesaffre Group, shareholder in the company informed me during one ....
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....plicate thereof may be issued, shall be such as may be prescribed.] Also needs to be noticed are the Articles of Association as under: Article 8 of the Table "A" If a share certificate is defaced, lost or destroyed, it may be renewed on payment of such fee, if any, not exceeding two rupees, and on such terms, if any, as to evidence and indemnity and the payment of out of pocket expenses incurred by the company in investigating evidence, as the directors think fit". In the present case no attempts at all have been made by SAF Yeast to ascertain the factum of lost certificate before issuing any duplicate certificates, naturally so because the affairs of SAF Yeast in India were being controlled by Muthu at that time. When a Company receives, an application for issuance of duplicate shares there must be some investigation before concluding that the share certificates are lost. Section 84(3) makes a company liable for penal action for wrongful issuances of duplicate share certificates. Therefore, the cautious approach is warranted, not a casual one. 108. The question of issuance of duplicate share certificate arose for consideration of the division bench of Ma....
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....ssue duplicate certificate immediately. It directed an investigation to be made, and caused an advertisement to be published in the dailies, and waited for objections. For nearly eight months, the duplicate certificates were not issued to Sanman Investments Pvt. Ltd. So, the first respondent is also aware of the normal practice. Before the Company Law Board, the petitioners have also given other instances where the first defendant took time to investigate and satisfy itself about the loss of the certificate. The bona fides of the first respondent at least could have been shown by issuing a notice to the first petitioner to produce the original. The inaction on the part of the first respondent in issuing a notice to the first petitioner to produce the original and the hurried manner in which a resolution was passed on the very second day of reconstitution of the new board of directors to issue a duplicate certificate shows lack of goods faith in its acts. In this connection, we may also note that even though there is not statutory provision for giving any notice or advertisement, when there is an established practice by the first respondent itself, why it deviated from such....
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....le, it is patently biased, partial and based on incorrect methods. M/s Sharp & Tannan has deliberately used guidelines, which are inapplicable. The Board has concluded that the valuation report is wrong in principle, erroneous and got up document and is liable to be set aside. This finding has been challenged by Sharp and Tannan and Muthu group. M/s Sharp & Tannan is aggrieved by the observations and declarations made by the Board that the report is biased, partial and in contravention of statutory guidelines and rules to carry out valuation of shares of going concern. It is the contention of Nafan and Lesaffre that the valuation was done at the instance of Muthu group, it was deliberately kept on the lower side and prepared in short time span to meet the requirements of Muthu group, and thus in collusion. It was contended that right from inception, Muthu knew that he would be able to get valuation from Sharp & Tannan as per his requirement. 111. Mr.Subramaniam learned Senior advocate on behalf of M/s Sharp and Tannan submitted that M/s Sharp and Tannan is unconcerned with the dispute and is only challenging the finding of imputation of bias and other criticism levelled by the B....
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....CF), does not mean that is the only method. Mr.Subramaniam submitted that there is nothing wrong in preparing a report within 24 hours and it is easily possible when all the data is available on the computer. He reiterated that method of valuation under CCI guidelines is legitimate method of valuation. He relied on RBI Circular No.7 of 2008/2009 dated 1 July 2008 referring to CCI guidelines. He submitted that the Apex Court in the case of Hindustan Lever Employee's Union Vs.Hindustan Lever Ltd. AIR 1995 SC 470 and Miheer H.Mafatlal Vs.Mafatlal Industries Ltd. has laid down that the valuers are experts in their field and Court should be slow in substituting their findings. Merely because an expert adopts a particular method of valuation in one case and the same method not adopted in another case does not render the valuation bad. As regards the contentions about suppression in the pleadings, Mr.Subramaniam supported the contentions of Mr.Dwarkadas. 113. Mr.Dwarkadas contended that Nafan had furnished no particulars as to why the valuation was fraudulent. It is not open for Nafan to challenge the valuation on the ground that it is low after having left the valuation to the sta....
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....and in violation of the RBI instructions. The valuation is absurd, extremely low, completely unfair, and the Board has rightly set it aside. 115. Before issue of valuation is to be discussed in detail, it needs to be placed in correct perspective. This is not to a exercise to assess the correctness of the valuation in case of a transaction between a willing buyer and a willing seller debating over the price. This case is regarding the manner in which the valuation is undertaken, as a ground of oppression. 116. The MOU referred to a fair valuation. I have already held that, prima facie the MOU only indicated beginning of modalities depending on the fair value. The fair value has to be seen in the light of the fact situation. It was the value to be paid for exit of Nafan from SAF Yeast. That would mean that the association of Nafan and Lesaffre right from the beginning and its majority stake in the Company would end. Two groups of shareholders started SAF Yeast together. The Company is well established. It has a substantial turnover. Even assuming the case of Muthu that it was contemplated that majority shareholders would exit upon valuation; fair valuation was to be done by st....
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....why DCF and CCA Guidelines were not adopted. It is not that these two methods are inapplicable or outdated. The valuer is supposed to take into consideration the well-established methods and give reasons as to why a particular method is being adopted. In the case of G.L.Sultania the Apex Court has emphasized that the valuer need to give reasons why it excludes well-established principles of valuation at all from consideration. The contention that choice of method is a matter of pure discretion of the valuer cannot be accepted. The valuer does not have discretion to simply disregard well-known methods of valuation when he is entrusted with the task of arriving at a fair valuation. Completely excluding the well-known methods of valuation, without any reason , when they had to arrive at a fair valuation,in these circumstances,was not a proper exercise on the part of Sharp and Tannan. Again, it has to be noted that for the working of the MOU, the valuation had to be fair. 118. Nothing has been shown that DCF method and CCA Guidelines have ceased to exist or they have been discontinued. The DCF method is well known because it takes into account all the relevant factors. One need not ....
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....10 each of Darshak Ltd. for the purpose of the proposed merger." (Emphasis supplied) In the above case M/s Sharp and Tannan had reasoned that the DCF method captures all the elements of valuation compared to all other methods. In the present case M/s Sharp and Tannan have not referred to DCF method at all. An explanation is sought to be given that the valuation had to be done in a hurry in view of the MOU. There was no such hurry to produce valuation report in 24 hours. 119. It was contended by Mr.Dwarkadas and Mr.Subramanian that the valuation done complies with the Reserve Bank of India circular and the RBI circulars mandating that DCF method does not apply. As it has been rightly pointed out by Mr.De'Vitre that M/s Sharp and Tannan as a statutory auditor had to arrive at a fair value. Their assignment was not to ascertain value as per the RBI guidelines but to arrive at a fair value of the shares. The RBI circular is in relation to the Special and General Permission of Reserve Bank of India under Foreign Exchange and Management Act. The permission for transfer of shares from a nonresident to resident is specified in the circular dated 4 October 2004 and it lay....
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...., has correctly rejected this contention. There is no perversity in this finding. 122. Coming to the CCI guidelines supposed to be followed by M/s Sharp and Tannan, it is the contention of Mr.De'Vitre that even these guidelines have not been followed. Para 7.3 of CCI guidelines have been relied upon. I have seen the guidelines. The guidelines state that though past profits would serve as indicator, future should not be completely ignored. In spite of this position, the valuation is based on the earlier years and there is no projection for future. Even the time taken for assessing the average earning, the years in which there is an unusual variance has to be excluded. The year 2005 should have been excluded as in that year the earning was Rs. 82,36,045 in comparison with 2004 where it was Rs. 1,20,41,10352 and 2006 where it was Rs. 15,53,28,546 . The reduction for lack of mobility is reduced to 20% when the CCI guidelines provide 1:15 per cent capitalisation. There is also merit in the contention of Mr.De Vitre that rate fixed under the Guidelines is now outdated and business outline has changed since 1992 to 2009. M/s Sharp and Tannan has insisted on following outdated metho....
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....s of quasi judicial character. Since the experts could not be sued, their determination could be impugned in the litigation between the parties affected by their determination or opinion. Learned counsel further argued that the aforesaid principle has been discarded in England and the position, as made clear by the House of Lords, is that an expert can be sued for damages when he acts negligently in performance of his duties. In support of his submissions, Mr.Khanna relied on the following decisions: 1. Sutcliffe v.Thackrah (1974) 1 All ER 859 (HL) (pages 29 to 57). 2. Burgess and another v.Purchase & Sons (Farms) Ltd. (1983) 2 All ER 4 (Ch.D) Pages 58 to 66) 3. Jones and other v. Sherwood Computer Services (1992) 2 All ER 170 (CA) (Pages 67 to 79). Mr. Khanna also submitted that the position in India is no different from the one which is prevailing in England. In this regard he referred to the decision of the Supreme Court in K.K. Modi v. K.N. Modi (1998) 92 CompCas 30. On the other hand, Mr. Sanghi, learned counsel for the petitioner, contended that the court can go behind the valuation report and look at the reasons offered by the val....
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....court order on the basis of the terms of the compromise arrived at between the parties and the same was not made under Order 26 Rule 9 C.P.C. It is not necessary to examine the submissions of the learned counsel for the parties in view of the aforesaid determination." (emphasis supplied) Delhi High Court has concluded that not all the principles laid down in the decisions of the English Court reflect the legal position prevalent in India. It held that an expert opinion does not enjoy absolute immunity even if it suffers from fundamental mistake, collusion, and fraud. I respectfully agree with this view. Even in the cases relied upon by Mr.Dwarkadas, and which were considered by the Delhi High Court, the Courts have kept the rider that the valuers report does not enjoy absolute immunity. In the present case, I agree with the finding of the Board that the valuation report has to be discarded. 124. Next question is of the imputation of bias against Sharp & Tannan and the acts of oppression in obtaining such report and acting upon it. The speed at which the valuation report was generated with no apparent reason for hurry and glaring omission not taken into consideration ....
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....tion to statutory law... The present day concept of fraud on statute has veered round abuse of power or mala fide exercise of power. It may arise due to overstepping the limits of power or defeating the provisions of the statute by adopting subterfuge or the power may be exercised for extraneous or irrelevant considerations. The colour of fraud in public law or administrative law, as it is developing, is assuming different shades. It arises from a deception committed by disclosure of incorrect facts knowingly and deliberately to invoke exercise of power and procure an order from an authority or tribunal. It must result in exercise of jurisdiction which otherwise would not have been exercised. That is, misrepresentation must be in relation to the conditions provided in a section on existence or nonexistence of which power can be exercised. But nondisclosure of a fact not required by a statute to be disclosed may not amount to fraud. Even in commercial transactions nondisclosure of every fact does not vitiate the agreement. 'In a contract every person must look for himself and ensure that he acquires the information necessary to avoid bad bargain'. In public law the duty is n....
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....e must know of the dishonest and fraudulent design, though not necessarily of the whole design; and he must know that his act assisted in the implementation of such design if these acts proved, fraudulent act on the part of the directors can be imputed. In this connection, it is better to refer to Kerr on the Law of Fraud and Mistake, 7th edition (1952), at pages 672 and 673, the learned author has said thus: "It is not, however, necessary, in order to establish fraud, that direct affirmative or positive proof of fraud is given. Circumstantial evidence is not only sufficient, but in many cases it is the only proof that can be adduced. In matters that regard the conduct of men the certainly of mathematical demonstration cannot be expected or required. Like much of human knowledge on all subjects, fraud may be inferred from facts that are established. Care must be taken not to draw the conclusion hastily from premises that will not warrant it, but a rational belief should not be discarded because it is not conclusively made out. If the facts established afford a sufficient and reasonable ground for drawing the inference of fraud, the conclusion to which the proof te....
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....uros at that time while Sharp & Tannan valued the shareholding at approximately 27 crores only. Thus, price of a majority stake in one of leading yeast manufacturing company in India is valued at 27 crores. It cannot be helped but observing that is the cost of two, three residential flats in upmarket Mumbai. Not that on that ground alone the valuation of M/s Sharp and Tannan is bad, but this valuation carried out by another reputed valuer is not an irrelevant circumstance, when it is coupled with other circumstances. Nafan's immediate response to the valuation was that if that is the price of shares, they were ready to pay the double. Totality of the circumstances will have to be therefore seen. Sharp & Tannan are not detached valuers but statutory auditors of the company for years with full knowledge of the finances. 126. To my mind therefore, the manner in which the valuation report was prepared and used by Muthu group, the finding of the board that this conduct of the Muthu group is a part of oppressive conduct, cannot be termed as a perverse finding. Considering the facts on record as analyzed earlier, one is surely left with an impression that something was seriously am....
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....ints, which were subsequently withdrawn. On behalf of Muthu group, it was contended that they should be permitted to buyout the share holding of the Nafan. According to Muthu group, Muthu was Managing Director since inception. The Company was managed successfully by him single handedly and without any technical support as alleged from Nafan or Lesaffre. Nafan or Lesaffre demanded no royalties and neither there was any protest. It would be in the benefit of SAF Yeast that Muthu group runs it. It was also contended that Nafan and Lesaffre any way wanted to step out of the Company and the only objection was to the valuation. 129. The Board after considering rival contentions held that it would not get into the contentions of either parties regarding their respective contribution, as it was a joint venture. The Board held that the joint venture was for commercial purpose. Lesaffre and SAF Yeast have already received back their money with interest. Nafan and Lesaffre are based in Netherlands and France respectively and it is necessary that Indians are involved in running the Company since it is in interior places in India, and the policy of Indian government relating to foreign inves....
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....to start it in a joint venture. Therefore, once joint venture had been set up the aspect of contribution does not assume so much of importance as rightly held by the Board. The Board however proceeded to hold that Lesaffre and Nafan had already received their money back with interest as against their investment in the form of shareholding. I do not find this approach to be correct. Lesaffre and Nafan are not investors. They were 51 per cent majority shareholders of the Company. Thus, they were owners of the Company and not investors. They had equal interest in continuing the Company and it was not a mere loan transaction. These also not mere finances but experts in the production of yeast. 131. It is the contention of Mr.Dwarkadas that if the finding of oppression rendered against Muthu group is set aside and the appeal of Nafan and Lesaffre are dismissed, then the order to buyout under Section 402 cannot be disturbed. He has further contended that the entire case of Nafan and Lesaffre is that they should be permitted to buyout because they are injured party and majority shareholders. He relied on the decision of the Calcutta High Court in Bajrang Prasad Jalan v. Mahabir Jalan A....
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.... running various companies in other developing countries. Then the Board has brought in the intention of Nafan and Lesaffre while executing the MOU to order the buyout, which aspect I have already dealt with. Equally untenable is the ground that since Nafan and Lesaffre are based in Europe, it is better that an Indian runs the Company. The joint ventures between Indian entities with a foreign one now common. Even though Nafan and Lesaffre are based outside India, they can always have local nominee directors and such other staff who are based in India. If buyout is to be ordered on this ground then most of the joint ventures in India will be in serious peril. 133. As regards the government of India not allowing Lesaffre to acquire 100 per cent shareholding, a specific query was put to all the learned counsel including the Union of India and nothing has been shown that there is any embargo as contemplated by the Government of India. Policy documents have been placed on record by Mr.Samdani, the learned Senior advocate. 134. One more aspect, which has been contested that is the name of SAF Yeast. According to De Vitre, word 'SAF' is linked to Nafan/Lesaffre continuing as....
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....airs of the Company by employing competent professionals. To my mind all the grounds given by the Company Law Board to order a buy out in favour of Muthu group, are completely irrelevant. 136. Though the Board has wide powers under Section 402 of the Act, the power is not to be used arbitrarily and should be based on well-settled principles. If both the parties are competent to carry on the business, then the party who is proved guilty of oppression generally ought not be rewarded, as it will be opposed to fairness. 137. One more principle is that a majority shareholder should not ordinarily be directed to exit. Mr.De' Vitre placed heavy reliance on the decision of the Apex Court in the case of Dale & Carrington v. P.K.Prathapan (2005) 1 SCC 212. He also relied upon the decision of the Calcutta High Court in the case of Tea Brokers v. Hemendra Prosad Barooah (1998) 5 CLJ 463. He submitted that the Apex Court in the case of Dale & Carrington (supra) and the Calcutta High Court in the case of Tea Brokers (supra) have clearly indicated that a party should not be allowed to reap benefits of its own wrong. In the case of Dale & Carrington (supra) the ordinary rule that the maj....
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....thermore, the basic proposition that normally majority should not be ordered to exit is not diluted in any manner. 138. There could possibly be an exceptional circumstance where the minority could be directed to buy out the shares of the majority. Question is whether any exceptional circumstance in the present case is made out. I have already upheld the finding of the Board that the acts of oppression on the part of Muthu group were proved. I have also held that the grounds that only Muthu is competent, that his family will be on the streets, Nafan and Lasaffre are foreigners, are all completely irrelevant grounds. The Board taking lenient view of oppression of the Muthu group on the ground they acted on the advice of a senior advocate and secondly, that since Muthu group apprehended that some stringent decision would be taken against Muthu group in the meeting to be held in Paris, held that it was natural for Muthu group to act in haste. The Board also held that one aberration should not be the reason to severely reprimand any one whosoever. 139. To my mind, the Board has trivialized the acts of oppression and has termed them as one time aberration. The holding of meetings w....
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....the Apex Court observed as under: "46. The CLB has in minute detail discussed with regard to all the resolutions which we have already adverted to. No proper notice was served on the appellant No. 1 who is a major shareholder of the company or to appellant No. 2. If the Board meeting had been convened without proper service of notice on the appellants by the respondent No. 2 then such Board meeting cannot be said to be valid. Mr. Nariman however tried to explain various meetings and their subsequent confirmation by next board meeting to show that once the resolution of the subsequent meeting has confirmed the resolution of earlier meetings then those minutes stand confirmed irrespective of the fact that the appellants had been served or not. We shall highlight some of the instances. We would show that how subtle attempt was made to show that several notices were given to the major shareholders of the company at their local address in India knowing fully well that both the appellants are NRIs. The outstanding feature is that the appellant No. 2 ,Dr. Binod Prasad Sinha has been shown as an NRI but notice to him was sent at the address P.O. Hirapur, District. Dhanbad, Bihar a....
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....ct of oppression by the Board of Directors. Sometime after dispatching Dr. Dutta from the Managing Directorship most of the shares were cornered by the subsidiary companies of Sajal Dutta so as to acquire the management of the company and to alter material change in the management of the company. What can be more unfortunate than this ? When a material change is brought about in the management to the detriment of the interest of the main promoter it is squarely covered under Section 398(1)(b) of the Act. The company which is floated by the elder brother and which has been run by the younger brother in the absence of the elder brother the younger brother manages the whole company and that the Managing Director is totally ousted and shares are being cornered substantially so as to have full control of the company, is oppression being squarely covered by Section 397(1)(b) of the Act." (emphasis supplied) The abovementioned passage clearly shows that the Apex Court strongly disapproved of a conduct of taking an important decision in the absence of a main promoter to oust him from directorship. The Apex Court noted that it was the "grossest act of oppression" and "c....
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....ernment pursues needs the business climate in India to be stable and supportive to investments, collaborations, and joint ventures. The Board cannot be oblivious to these wider issues when it passes orders of buyout in respect of joint ventures between an Indian resident and a foreign collaborator. It is of utmost importance that the atmosphere of trust is created between the collaborators. It is also of importance that any person seeking to do business in this country is assured that the rule of law is followed and grossly unfair conducts are not tolerated. If the acts such as the one perpetuated by Muthu group, are not corrected ,it will send wrong signals in the international business community. It will reflect negatively on the general level of honesty and rule of law. 143. In the case of Intesa Sanpaolo SPA (supra), this Court observed as under: "66. The Company Court may in appropriate cases consider the larger public interest. For instance, such criterion has effect on production, markets, workers and investors. But equally important considerations are of commercial morality, national prestige and need to instill confidence in international commercial transaction....
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....untry's economy on international commerce, the company court needs to be alive to the changing commercial and economic realities, and exercise its discretionary powers accordingly." (emphasis supplied) 144. Nafan has pressed for the buyout in its favour. It has requested that any reputed valuer be appointed and they are ready to buyout the shares of Muthu Group. On behalf of Muthu Group, it is contended that their civil suit is pending and if buyout is ordered in favour of Nafan now, then it would become 100 percent shareholder of SAF Yeast. If later the suit is decreed in favour of Muthu Group, then Muthu Group will become 51 percent shareholder and Nafan will be come 49 percent shareholder, which is impracticable. It was also contended that by this methodology the MOU would be kept aside. I am not impressed by these submissions on behalf of Muthu Group. If the meetings were held in legal, proper, and fair manner, Nafan and Lesaffre would have put-forth their stand on MOU that they were not ready. Muthu Group would in normal circumstances would have filed a civil suit to enforce the MOU. Muthu Group would have sought an injunction against Nafan not to transfer the ....
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.... 147. For the purpose of valuation of shares, it will be most appropriate that today's date is taken as a reference. The order could thus be in two steps. Part I will be the forward competitive bid for which Muthu Group will have to withdraw the civil suit they have filed and not take any steps based on MOU henceforth and convey its acceptance within a particular period .If such willingness is not shown in the stipulated period, then Part II of the order regarding buyout will come into effect. 148. An Administrator will have to be appointed for this exercise so also a Chartered Accountant. As regard the actual modalities for both forwarding competitive bidding and the buyout, Mr.De' Vitre has handed over a broad outline as regards the procedure to be adopted for both the options. Having found the modalities to be satisfactory, I propose to adopt them. Mr.De'Vitre has sought appointment of a retired judge as an Administrator. Board has suggested name of Justice J.N.Patel, retired chief justice of Calcutta High court as the Administrator. As regards the Chartered Accountants, the parties have not indicated any choice. Nafan has left it to the court. I am of the opinio....
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.... The declaration by the Board that the Valuation Report prepared by Sharp and Tannan is biased, partial and in contravention of the statutory guidelines and rules to carry out the valuation of shares of a going concern and the direction to set it aside, is confirmed. C. i) The declaration by the Board that the Board Meeting held on 29 January 2009 is invalid and illegal, is confirmed. ii) The declaration that the Resolutions passed in the Board Meeting held on 29 January 2009 are not oppressive, is quashed and set aside. iii) It is declared that the Resolutions passed in the Board Meeting held on 29 January 2009, are oppressive. D. i) The declaration by the Board that the Board Meetings held on 23 May 2009 and 25 May 2009 are non-est, illegal and void, is confirmed. ii) The direction by the Board that the Resolutions passed in both these meetings are set aside being illegal and oppressive to the Nafan and Lasaffre, is confirmed. E. The directions by the Board setting aside the transfer of shares in favour of the A.M.Muthiah and canceling the duplicate shares issued in favour of the A.M.Muthiah, are confirmed. F. The direction by the Board that the shareholding ....
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....inistrator alone. d. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six months for or on behalf of the Company, (e) change the nature of the business of the Company, (f) alter or increase the share capital or issue further shares of the Company, or (g) enter into any related party transactions for or on behalf of the Company. e. The Administrator shall be entitled to appoint ,at an appropriate monthly compensation to be paid by the Company as the administrator deems fit, an independent, suitably qualified person conversant with the yeast industry to assist him in the functioning of the Company. f. Nafan shall be provided complete and unimpeded access within seven days from the date of the order to the statutory and other records books and all the relevant documents as indicated in the Schedule to Note on Modalities given by Nafan, and shall be allowed full and unimpeded access to the....
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....an rupee. n. The Nafan as well as the Muthu Group Respondent Nos.2 to 6 shall fully cooperate in the completion of all formalities, including signing and execution of share transfer forms, compliance with any and all necessary requirements under the Company law to effect the transfer of their shares in favour of the successful bidder under the auction. PART - II a. M/s.Ernst and Young, Chartered Accountants are appointed to value the 49% shares of the Company held by Respondent Nos.2 to 6 Muthu group including, if required, a forensic audit/ due diligence of the records, books and accounts of the Company within three months from today. b. For the purpose of (a) above, the Chartered Accountant so appointed shall convene a preliminary meeting with Nafan and the Muthu group-Respondent Nos.2 to 6 to decide the valuation methods and both parties shall be entitled to make recommendations/suggestions in writing to the Chartered Accountant in that regard. c. The appointed Chartered Accountant shall determine the fair market value of the Muthu group Respondent Nos.2 to 6's 49% shareholding interest, as on today, using such generally accepted valuation methodologies for va....