TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2657
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2015 (Company Application (L) No. 37 of 2013) is taken out in Company Appeal No.21 of 2015 and Company Application No.12 of 2015 (Company Application (L) No. 43 of 2013) is taken out in Company Appeal No.23 of 2015. All these appeals and applications were filed in the year 2013; however, regular numbers were given in the year 2015. INTRODUCTION 3. The dispute pertains to the control and management of M/s. SAF Yeast Company Pvt. Ltd. (hereinafter referred to as SAF Yeast), a Private Limited Company, having registered office at 419, Swastik Chambers, Chembur, Mumbai. SAF Yeast has one plant in Chiplun, Maharashtra and another at Sandhila, Uttar Pradesh. SAF Yeast is a joint venture company. The joint venture is between Nafan B.V. and Mr.Arunachalam Muthu and M/s.Helios Food Additives Pvt. Ltd. SAF Yeast carries on business of manufacture of yeast and is a dealer and exporter in the yeast products, bread, bread-improvers, their derivatives, and allied products. The authorized share capital of SAF Yeast originally was Rs. 25,00,000/- divided by 25000 equity shares of Rs. 100/- (each). The authorized share capital was increased from time to time and at the time of filing of the Compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cha Road, Mumbai - 400 020. M/s. Sharp & Tannan are the statutory auditors of SAF Yeast. FACTS Pleadings 6. Muthu group has made a grievance that Nafan did not disclose various facts and they were brought on record by subsequent affidavits and rejoinder. Hence, the facts are narrated as per the pleadings placed on record by way of petitions, reply, rejoinder, additional affidavits, in that order. Petition by Nafan 7. Company Petition No.62 of 2009 was filed by Nafan under Sections 111, 235, 237, 397, 398, 402 and 403 of Companies Act, 1956 (the Act), briefly on the following averments: (i) Lesaffre is one of the leading company in the world in the manufacture of yeast. Lesaffre family set up the manufacture of yeast in France around the year 1873. Muthu met Alain Laloum in an international fair in Germany, sometime in May 1980. Muthu was keen to have a joint venture with Lesaffre. SAF Yeast was incorporated on 3 August 1981, pursuant to an agreement dated 6 June 1981, between Lesaffre and Muthu. At the relevant time, due to restrictions in India regarding foreign investment, Lesaffre was not in a position to set up a 100% subsidiary or to hold majority shares. It was therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ely to take over the powers of the Board of Directors and fraudulently and illegally usurp Nafans shareholding. Pursuant to a transaction, sometime in the year 1997, involving SAF Yeast and Credit Agricole Indosuez (Calyon Bank) and another Company NCS Estate Pvt. Ltd., the Calyon Bank filed cases against SAF Yeast and SAF Yeast also filed criminal case No.238 of 2000 under Sections 408, 420, 477A, 467, 471 read with Section 34 of Indian Penal Code against Calyon Bank. A First Information Report was registered against Calyon Bank and proceedings were filed in the Court of Chief Judicial Magistrate, Hardoi, Uttar Pradesh. After considerable lapse of time after filing the complaint, the nominee Directors of Nafan were informed about the dispute with the Calyon Bank. All concerned including Muthu felt that the issue with Calyon Bank needed to be amicably resolved. Muthu proposed a settlement on certain conditions with the Calyon Bank by letter dated 2 March 2001. It was suggested that the offences were non-compoundable and Court at Hardoi had taken cognizance against the Calyon Bank. Muthu sought intervention through a Judge and after certain discussions, proposed certain terms and se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... It became a success due to Nafan and Lesaffres financial and technical contribution. In spite of benefiting from this substantial financial and technological assistance, Muthu attempted to discredit Nafan, as a part of a design to take control of SAF Yeast. Muthu indulged in various acts of oppression and mismanagement against Nafan in relation to SAF Yeast. (viii) The Nominee Directors of Nafan made several requests to provide copies of minutes of meeting of Board of Directors. Letters were sent on 17 January 2006, 18 January 2006, and 5 May 2006, and in the year 2007 to 2009. Muthu failed to provide copies of the minutes and sought to run SAF Yeast as his exclusive domain. Muthu failed to provide statutory records, such as minutes of shareholders' meetings etc. (ix) Muthu, as the Managing Director, earlier used to provide finance statement and monthly information statements to Nafan through Lesaffre. However, for the financial year 2005-06 Nafan did not receive any financial report. Muthu stopped sending reports. Nafan sought for these reports and financial information by letters dated 20 February 2006 and 18 March 2006. In spite of this position, the information was not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l contempt petition against the nominee Directors of Nafan. The petition was filed by one employee of SAF Yeast and not by Muthu. There was no order of restraint by any Court and the meeting of the Board of Directors was held as scheduled on 23 May 2006 at Paris. Four nominee Directors of Nafan attended the meeting and unanimous resolution was passed for alternate Directors for four nominee Directors of the Petitioner pursuant to Article 43 of the Articles of Association and Participation Agreement. The fact that Muthu did not attend the meeting did not make any difference, as the resolution would have in any way been passed by majority and in view of the casting vote. On 28 May 2006, Muthu wrote a letter making incorrect and false allegations against the nominee Directors of Nafan that was replied to. Minutes of Board meeting were circulated on 19 June 2006. Muthu wrote to alternate Director threatening him with criminal contempt to dissuade him from acting as an alternate Director, who later on succumbed to the pressure, and resigned. Muthu continued to make baseless allegations and threatening the alternate Directors. (xii) On 14 July 2006, an application was made by Alain Lal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d no sanctity. Muthu Group could not unilaterally take law into its own hands. Muthu Group committed fraud, mismanagement, and oppression by deleting the name of Nafan from the statutory records. (xvi) The Board meeting dated 29 May 2009 as scheduled was held at Paris. Denis Lesaffre and Ms. Corinne Wisniewski were appointed as Additional Directors, along with some other Directors. The issue holding of alleged Board meeting on 25 May 2009 as communicated by Muthu and the deletion of name of Nafan were taken up. It was resolved that since nominee Directors of Nafan received no notice of alleged meeting of 29 May 2006, such meeting, if held, was void. The deletion of Nafans name from members register was non-est. The steps taken by the Muthu Group, and Muthu in particular were oppressive, fraudulent, unjust, and unfair. They had acted contrary and against the Articles of Association and the Participation Agreement of SAF Yeast. They acted in breach of fiduciary duty. Nafan had lost confidence in Muthu Group and since SAF Yeast essentially have been a quasi-partnership between two groups; Nafan was no longer in position to carry on business with the Muthu Group as a business partner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is denied that the valuation is fraudulent or ridiculously low or there has been any collusion. It is denied that the valuation was carried out to cause wrongful loss to Nafan and give advantage to the Muthu Group. 11. Sharp & Tannan has nothing to do with the dispute, as it was never a party to any decision for deletion of the name of Nafan from the members register. Reply by Muthu Group 12. On 25 March 2010 Muthu on behalf of himself and respondent Nos.3 and 4 filed a reply. They took a stand that the correct facts were suppressed from the Board and sought to place their version of the dispute. Allegations were denied and following contentions, in short, were taken: (i) Muthu is a Mechanical Engineer with 45 years' experience in production, distribution, and use of yeast in baking and production of alcohol. He was instrumental in setting up a brewery and a yeast factory for his past employer - Shaw Wallace & Co. He met Laloum in May 1980 at an exhibition and Laloum showed interest in setting up a factory in India since he had connections with India. He was impressed with Muthu's knowledge. Lasaffre Group had no experience of manufacturing yeast outside of Europe or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncrease of the shareholding of Lesaffre in SAF Yeast from 40% to 50% and certain conditions regarding foreign exchange dividend payment were laid down. Sometime in the year 1996, Lesaffre requested SAF Yeast to obtain molasses from one Ganesh Benzoplast for exporting it to Lesaffre Group. Certain dispute arose between SAF Yeast and Ganesh Banzoplast. Arbitration proceedings were filed. Initially, the Arbitrator gave an award in favour of SAF Yeast, directing Ganesh Benzoplast to release molasses to one M/s. NSC Estates Pvt. Ltd. M/s. NSC Estates Pvt. Ltd., on 31 January 1997 assigned molasses in favour of SAF Yeast pursuant to an export contract. It was on the condition that NSC Estates Pvt. Ltd. would be liable to make good the loss. SVG Amsterdam, a Dutch company was to make payment for the export contract under a letter of credit by Meespierson NV Bank. Calyon Bank, which was completely aware of the terms of the contract, agreed to act as an Advisor and Negotiator for the export transactions. (v) SAF Yeast supplied molasses as per the purchase order and letter of credit dated 4 February 1997. SAF Yeast raised an invoice of US $ 5,59,621.92. Calyon Bank on 24 February 1997, aft....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Board meeting held on 26 July 2005, the minutes of the meeting dated 14 April 2005 were confirmed. In the meeting of 20 September 2005, the minutes of the meeting dated 26 July 2005 were confirmed. Again, a meeting was held on 30 October 2005, Alain Laloum attended it. Even in this meeting also, the minutes of 26 July 2005 along with 20 September 2005 were confirmed. In this meeting, the Annual Accounts and Directors reports were adopted, also holding of the Annual General Meeting for the year ending 31 March 2005 was approved, and Alain Laloum signed it. (xi) Laloum, sometime at the end of the year 2005 when he visited India, carried with him a Deed of Settlement, which Nafan and Lesaffre wanted to SAF Yeast to sign with Calyon Bank. Lesaffre and Nafan, by virtue of their shareholding were forcing SAF Yeast to settle this dispute in a particular manner. Lucien Lesaffre on behalf of Nafan objected to the minutes of the meeting dated 14 April 2005 and 4 November 2005 prepared by Muthu. Lucien Lesaffre stated that the representative of the majority shareholder did not approve the manner in which the minutes were drafted. Muthu sent an e-mail on 13 November 2005 denying the content....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere correct and they were confirmed in the subsequent meeting. Muthu placed on record the intimidation on the part of Nafan's Nominee Director to force Muthu for signing the deed of settlement with Calyon Bank. It was pointed out that though the Calyon Bank may address a letter to the State Bank of India, it was still up to the State Bank of India to delete the blacklisting of SAF Yeast. Muthu stated that there was a loss of confidence between Nafan and Lesaffre on one hand and Muthu Group on the other. He suggested that Muthu Group was willing to buy Nafan's shareholding in SAF Yeast. He also addressed an e-mail to Alain De Gouy and Lucien Lesaffre complaining of illegal and unethical conduct of the Calyon Bank and the incalculable hardship caused by it to SAF Yeast. He again reiterated that Nafan and Lesaffre were consistently siding with Calyon Bank. On 12 April 2006, Nafan and SAF Yeast asked Muthu for minutes of general meeting since 2003, details of transfer of shares and present list of shareholders. Muthu, by reply dated 19 April 2006 stated that, in view of the situation that developed and the correspondence, he was not responding to the said request. (xv) On 5 M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....06, Muthu Group received the copies of minutes of meeting dated 23 May 2006. In the minutes, the Indian directors were shown as absent and it was stated that even if the votes in respect of the resolution were four in favour and four against that the resolution, Laloum who occupied the Chair voted exercising his casting vote in favour of the resolution. On 23 June 2006, Muthu informed the alternate directors about pending criminal proceedings and the attempt of Lesaffre and French directors of SAF Yeast to force SAF Yeast into accepting the settlement with Calyon Bank. Muthu also addressed an e-mail with a copy to Alain Laloum, copy to Lucien Lesaffre, Alain de Gouy, and Maurice Lesaffre. In spite of receiving the minutes of 23 May 2005, a month late, he reiterated his objection to the meeting and pointed out that it is illegal. He also pointed out that the alternate directors were appointed, without circulating their qualifications and credentials to occupy the position. On 7 May 2006, a meeting took place between Muthu and Lucien Lesaffre, wherein it was agreed to work together on 50:50percentage basis and signing a Heads of Agreement, which could culminate into a shareholders ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thu wrote the MOU. Laloum carried out corrections to the document in his own handwriting and initialed them. Immediately on signing the MOU, Laloum informed Meurant who also spoke to Muthu and thanked him for long association with the Lesaffre Group. Alain Laloum also forwarded a copy of the MOU on 24 January 2009 to Meurant, which Nafan had suppressed. (xix) A meeting of SAF Yeast was held on 29 January 2009 in Mumbai where Muthu tabled the MOU before the Board. The MOU was taken on record as a notice in writing under Article 15 and it was resolved to refer the issue of fair value to Sharp & Tannan as per Article 17 of the Articles of Association. Laloum, on 7 February 2009, sent a telex message to Muthu stating that he had returned home and was awaiting copy of the valuation report. (xx) SAF Yeast requested Sharp & Tannan on 9 February 2009 to work out the fair value of equity shares of SAF Yeast as on 31 March 2008. Sharp & Tannan carried out valuation exercise and valued the equity shares of SAF Yeast at Rs. 4315/- per share. Laloum telephoned Muthu on 10 February 2009 about the valuation report and Muthu informed him that Sharp & Tannan would send it shortly. Thereafter Sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... SAF Yeast Co. Pvt. Ltd. Shares Account" and the consideration in respect of transfer of shares would be deposited. K. Narsimhan, Vice President Finance of SAF Yeast was authorized to execute share transfer forms in terms of Article 18 upon receipt of consideration of Rs. 27,48,38,822/- for 80,772 shares held by Nafan. Muthu informed SAF Yeast that Laloum had informed him that original share certificates of Nafan were lost and called upon SAF Yeast to issue duplicate share certificate. SAF Yeast informed Narsimhan on 21 May 2009 of the decision taken in the meeting held on 23 May 2009 authorizing him to transfer the documents in the name of Nafan and in favour of A.M.Muthiah, Director. On 25 May 2009, Bank of India Shareholding Ltd. stamped nine unsigned share transfer forms. A letter of the same date of A.M. Muthiah to SAF Yeast was taken on record stating that he had paid the amount of Rs. 27,49,38,822/- as the purchase money for 80,772 shares. A letter from the Axis Bank of the same date confirmed that the amount was transferred from A.M.Muthiah's saving account to current account of SAF Yeast with Axis Bank. The four Indian directors of SAF Yeast attended the Board meeting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e binding. No notice was required to be given to the nominee directors. Reply by SAF Yeast 13. On behalf of SAF Yeast, reply was filed by Muthu being the Managing Director and authorized signatory, briefly as under: (i) Petition ought to be dismissed, as Nafan is not a shareholder or member of SAF Yeast. Nafan/Lesaffre entered into binding MOU to transfer shares to Muthu Group on 23 January 2009, pursuant to a meeting. This MOU was entered into to end all pending litigations in the Apex Court and High Court of Allahabad, Lucknow Bench. The signing of the MOU by Laloum itself was notice to SAF Yeast of the same. After the execution of the MOU in a meeting of Board of Directors, the MOU was tabled as notice in writing under Article 15 of the Articles of Association. It was referred for issuance of fair value to statutory auditor. Nafan/Lesaffre did not take steps to execute the transfer of shares to Muthu Group. This constituted a default on the part of Nafan/Lesaffre and therefore SAF Yeast as a duly appointed agent was empowered under Articles of Association to act on behalf of Nafan/Lesaffre. After receiving the purchase money on/or on behalf of the Nafan, the shares were tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oum suggested that Muthu should take lead in writing the document. Muthu wrote out the document. Laloum did not pay much attention to it, as it was his understanding that it was only his proposal to Denis Lesaffre. In that, light Laloum signed the proposal. After the meeting, Laloum informed Meurent that they had signed an understanding regarding proposal, which will be forwarded. It was never discussed in the meeting what are the consequences of the sale of shares. What was signed was not an agreement for sale of shares held by Nafan in any Company. Lesaffre family could only do this. Laloum enquired about the valuation because he wanted to know if it was worthwhile to follow up with Muthu's proposal. When the valuation was received from Sharp & Tannan, Laloum was shocked at extremely low value. Laloum never informed about the loss of original certificates to Muthu. Rejoinder on behalf of Nafan 15. Rejoinder affidavit was filed by Denis Lesaffre as a Chairman of the Board of Nafan. In the rejoinder Nafan, in short, stated as under: (i) Certain proceedings were initiated by Nafan for declaratory relief in the Court at Montreux, Switzerland for the fraud committed by Muthu b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not been authorized to enter into any settlement. (iv) When the meeting took place at Montreux, Laloum was not well. He had travelled in a wheelchair to Algeria. Muthu insisted upon a meeting as a condition for postponement of hearing before the Apex Court. The manner in which Muthu acted during this meeting is already set out in the affidavit of Laloum. What Laloum signed was in nobody's contemplation as a contract and certainly not in Laloum's contemplation that any binding contract has been entered into. Valuation was yet to be done, contempt proceedings were pending, and the proposal was to be considered by the Lesaffre family members. If Muthu knew that he would get a ridiculously low valuation from the auditors, MOU was a document obtained by inducement, undue influence, and fraud. (v) When the valuation was received from Sharp & Tannan, Laloum was shocked at the low valuation and immediately spoke to Muthu and told him that it will be for the Board of Lesaffre to consider. The valuation was so ridiculously low that no attention was given to the assertion of Muthu regarding MOU. The valuation sent along with letter dated 10 February 2009 was addressed to Laloum ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Neither Nafan, nor Lesaffre were party to the MOU. Laloum was not specifically authorized to enter into such transaction to the knowledge of Muthu. There was no shareholding or Board resolution of Nafan to authorize transfer of shares. Muthu himself did not comply with the precondition of enforcement of MOU. The MOU is even otherwise vague and uncertain. The reliance of Muthu Group on Article 18 of Articles of Association is fraudulent. Nafan at no time given transfer notice or any notice to SAF Yeast in writing. (ix) The Lesaffre had contributed substantially by way of financial assistance, allowing its valuable trademarks and technical assistance to development of SAF Yeast. The Lesaffre had also contributed substantially through Muthu and held Muthu and his family. The reply filed by Muthu was thereafter dealt with parawise and the contents therein are denied and explained in consonance with the stand taken earlier. Affidavit of J. L. Meurant 16. Meurant filed an affidavit on 18 November 2009. To summarize, asserted that around mid-January 2009, Laloum called Meurant and told him that Muthu had called him to discuss a possible solution. On 24 January 2009, Laloum attached p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidering all the relevant material. No capital can be made of the fact that valuation was prepared in a short time span. The Sharp & Tannan are auditors for around 27 years and therefore they were fully aware of the finances. The criticism made on the valuation is based on incorrect figures. Lesaffre Group in the past had accepted the valuation of the auditors without questioning the basis or the integrity of the valuers. (iii) It is not possible to believe that in spite of the fact that Meurant received the MOU on 24 January 2009, he will not inform his colleagues. The allegation that the meetings held in January and May 2009 were not disclosed, are incorrect. The letter of SAF Yeast dated 28 May 2009 makes a reference to the Board meeting. The replies filed in earlier proceedings were not exhaustive replies. In any case, these affidavits do refer to meetings held in January 2009 and May 2009. The Board meetings held in 2009 were validly held and there is no question of that being challenged. (iv) The allegation of forgery is false and this theory is taken for the first time in the rejoinder. The Heads of Agreement are no bar to the validity of the MOU. (v) It is baseless to su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liable to be set aside ? (x) Whether the purported valuation report is a manufactured/got up document prepared by the Respondent No.7 in connivance with the Respondent No.2 to Respondent No.6 to favour them in contravention of the Statutory guidelines and is not based on the recognized principles for the valuation of a company ? If so, its effect. (xi) Whether the issuance of duplicate shares by the Respondent no.1 to Respondent No.4 is illegal being made in contravention of the statutory provisions as contended by the Petitioner ? If so, its effect. (xii) Whether the Petitioner has successfully proved the alleged acts of oppressions and mismanagement by the Respondent No.2 to Respondent No.6 in the affairs of the Respondent No.1? If so, its effect. (xiii) To what relief, if any, is the Petitioner entitled to ? Findings of the Board 22. (I) The Board held that the petition was properly verified, and was filed as per the Rules. It held that the petition was maintainable and the argument 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....authorize the Company to carry out any transfer in absence of original share certificates. The Board further concluded that the act of issuance of duplicate share certificates was part of a design to usurp the shareholding of Nafan. The Board accordingly concluded that Nafan succeeded in proving the case of oppression by the Muthu Group. (IV) The Board thereafter considered the grant of relief. It noted that, it was apparent that two groups could not run the Company together. Parting of ways and sale of shares from one group to another was most appropriate. The Board took into consideration the contribution of Muthu, equity and humanitarian perspective, and that Muthu had acted on legal advice, the intention to execute the MOU, and held that Muthu Group should be allowed to buy out the shareholding of Nafan and Lesaffre. (V) Accordingly, the Company Law Board declared that the MOU dated 23 January 2009 was valid and enforceable, the valuation report was biased, partial, and it was accordingly set aside. The meetings dated 29 January 2009, 23 May 2009, and 25 May 2009 were declared as non-est, illegal and void. Nafan and Lesaffre were directed to transfer the shares to Muthu Group....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d order regarding the valuation report being biased, partial, non-transparent, and deliberately based on wrong guidelines. DISCUSSION 25. I have heard Mr. Fredun De' Vitre, learned Senior Advocate along with Mr. Pravin Samdani, learned Senior Advocate on behalf of Nafan, Mr. Darius Khambata, learned Senior Advocate on behalf of Lesaffre; Mr. Janak Dwarkadas, learned Senior Advocate along with Mr. N.H. Seervai, learned Senior Advocates on behalf of Muthu Group, and Mr. T.N. Subramanian, learned Senior Advocate on behalf of Sharp & Tannan. 26. The Board had framed points for determination. Learned Counsel for the parties have also made their submissions generally on these points for determination. In addition to these points for determination, further issues that arise for consideration are the maintainability of the appeal filed by Lesaffre Group and the grounds raised in the appeal filed by Sharp & Tannan taking exception to imputation of bias against them. Maintainability 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s references and directions to Lesaffre. It declares that the MOU which is executed by Laloum, which mentions 'Lesaffre Group', as valid. Any person aggrieved by any decision or order of the Company Law Board can file an appeal under Section 10-F. The phrase used is 'any person aggrieved'. Once there is a specific direction in a order to a person to transfer his shareholding it will be hyper-technical to hold that such person is not even entitled to file an appeal. What needs to be seen is the direction to the person concerned. The legality or otherwise of the direction is the matter of merits to be considered after hearing the appeal. The Muthu Group is pressing the relief granted by the Board regarding the declaration and the transfer of shareholding even against Lesaffre. It is not argued by Muthu Group that the directions to Lesaffre be set aside. The argument advanced by Muthu Group before the Board was that Nafan was nominee of Lesaffre and Nafan is not separate 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d probity. Instead of making this adjudication more complex, as sought to be done by the Muthu Group, the correct approach will be to deconstruct and simplify the controversy to get at the heart of the matter. Notions of probity and fairness are beacons to navigate in this dispute, lest one gets lost in side alleys and traps. Learned counsel for the parties have cited almost all the cases on the subject of Indian courts, English Courts,Malayasian Courts and courts of other countries. I have refrered to the ones which, in my humble opinion are closest on the fact situation and which have taken reiew of the case law. 31. Section 397 of the Act deals with the concept of 'oppression' and Section 398 deals with the concept of 'mismanagement'. Both these provisions enable any member of a company to approach the Company Law Board for appropriate directions. If the Board is convinced that the acts of oppression or mismanagement or both have been made out as defined under 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bers including the petitioners vis-à-vis the shareholders which a fortiori must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members. The interest of the company vis-à-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956. . "184. In Halsbury's Laws of England, 4th Edition, Volume 7, para 1011, it is stated: "1011. Conduct amounting to oppression. 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 bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- holders per se that brings S. into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involved at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. " 194. In Needle Industries (supra), this Court observed: "44. Coming to the law as to the concept of 'oppression', Section 397 of our Companies Act follows closely the language of Section of the English Companies Act of 1948. Since the decisions on Section have been followed by our Court, the English decisions may be considered first. The leading case on 'oppression' under Section is the decision of the House of Lords in Scottish Co-op. Wholesale Society Ltd. v. Meyer,. Taking the dictionary meaning of the word 'oppression', Viscount Simonds said at page 342 that the appellant-society could justly be described as having behaved towards the minority shareholders in an 'oppressive' manner, that is to say, in a manner "burdensome, harsh and wrongful". The learned Law Lord adopted, as difficult of being bettered, the words of Lord Presi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of his proprietary rights as a shareholder. " 196. The Court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section of the English Companies Act, the Court stressed the existence of prejudice to the minority which is unfair and not just prejudice per se. 197. The Court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (See Re London School of Electronics). 198. Furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e valuation and the imputations against the valuer for the valuation report; and (e) the relief to be granted. Maintainability of the company petition and suppression of facts. 34. Under this first broad head, further issues that arise are, whether there was any suppression on the part of Nafan, whether the petition was properly verified, and whether the subsequent rejoinder and affidavits should be considered along with the petition. To indicate broadly the rival contentions, it is the case of Muthu Group that there was a blatant suppression by Nafan in the petition more particularly regarding the events leading to execution of MOU and for this gross suppression no equitable relief needs to be granted to Nafan and Lesaffre. On the other hand, it is the contention of Nafan and 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 sourc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....afides of the case of Nafan is concerned, it is not that it has rested only on the verification of Mr.Siraj Ahmed. In the case of Entesa Sanpaolo SPA (supra) the concerned persons had avoided to take a stand on oath, which is not in the present case. Lesaffre and Laloum have filed affidavits and have put-forth factual position according to them existing, on record. Apex Court in the case of Associate Journals Ltd. v. Mysore Paper Mills Ltd. [2006] 69 SCL 311 has held that even if there is slight error or irregularity in filing an affidavit, opportunity needs to be given to the party to cure the defect. The Apex Court has held that the rules of procedure cannot be a tool to circumvent justice and procedural objections cannot be used to defeat to justice. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....009 and Articles of Association were not produced. He submitted that if these documents were produced, the case made out in the petition could not have been sustained. Mr. Dwarkadas submitted that various vital facts have been suppressed in the petition, and the petition ought to have been rejected on suppression of facts. 39. The facts, which have been stated to be suppressed, are mentioned in paragraph 56 of the impugned order of the Board. For sake of convenience, the paragraph is reproduced as under. "(i) Although Alain Laloum retained a copy of the MOU, which is an admitted fact that was first mentioned in the Reply filed by the Respondents and accepted in the Rejoinder Affidavit and in the Affidavit of Alain Laloum. (ii) The Petition 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spondent No. 2 inquired about and sought the valuation report by the Statutory Auditors; (b) The Statutory Auditors sent a copy of the valuation report directly by email to Alain Laloum and J. L. Meurant on 11th February 2009. The Petition states that Alain Laloum received the valuation report from the Respondent No. 2 and not from the Auditors; (c) On 11th February 2009 Respondent No. 2 addressed an email to J.L. Meurant and copied to Alain Laloum referring to the MOU as a contract to transfer the said shares and seeking the transfer of the same; (d) On the contrary, the Petition contains a positively misleading suggestion that the valuation of the said shares came to the knowledge 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he cause of action in the Petition, which is founded on the alleged inaccurate recording of the Minutes of Meeting of April 2005 as done by Respondent No. 2. Had the Minutes of the April 2005 meeting as prepared by Respondent No. 2 been as inaccurate as has been falsely suggested in the Petition, that grievance would have been made by the Petitioner in the aforementioned emails of 4th January 2006 and 30th January 2006, which was not done; (c) Alain Laloum has stated in his Affidavit dated 10th June 2010 that since he was not the Chairman of the meeting held on 14th April 2005 (in France), he did not think it appropriate to raise the, issue 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 14t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that this charge of oppression would fail in the plain sight of Article 55 of the Articles of Association of the Company which requires notice only to Directors in India as per Section 286 of the Act the Petitioner is attempting to rake up the participation Agreement dated 22nd March 1991 as being the alleged basis of the relationship between the shareholders. In this, regard, the Petitioner suppressed a whole lot of relevant facts and events which are to the knowledge of the Petitioner and which unequivocally establish that the two shareholding groups of the Company never acted upon the Participation Agreement." 40. Mr. Dwarkadas 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 (supra) of the Apex Court; decision in the case of Srikanta Datta Narasimharaja Wadiyar v. Sri Ventakeswara Real Estate Enterprises (P.) Ltd. [1991] 72 Comp. Cas. 211 (Kar.) of Karnataka High Court; decision of the Delhi High Court i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... became known of the petitioners subsequently, petition at the most can be amended which is not done in the present case. He also submitted that Order VI Rule 4 of Code of Civil Procedure stipulates that the fraud must be pleaded in full particulars in the plaint. 42. Mr. De' Vitre, on the other hand, submitted that the cause of action has been sufficiently pleaded in the petition and relief that was sought i.e. rectification of register regarding alleged deletion of shareholding, was sustainable on the cause of action made out. He submitted that certain facts 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of some amount, and in accordance with Article 18 struck off the name of Nafan. This was done based on the alleged MOU and the valuation, which were fraudulent. Therefore, the entire thrust of Nafan in the manner in which Muthu removed their names without notice to them in a meeting. According to them, the MOU was not a valid document and Nafan had never agreed to sell its shares. It had specifically stated that if the MOU were produced, Nafan would make its submission and take objections accordingly. 44. It is not that the MOU and meeting with Laloum at Montreux 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, Muth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng without notice remains. It is, therefore, not possible to uphold the contention of Mr. Dwarkadas that the petition itself did not contain cause of action and the rejoinder sought to supply the same and the petition should have been dismissed on that count. Nafan had clearly reserved the liberty to rejoin in case the MOU is pressed in service by Muthu group as valid document. I do not find that there was any suppression of facts either. 47. Furthermore, the Apex Court in the case of Ram Sarup Gupta v. Bishun Narain Inter College [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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se be oppressive. Bhagwati, J. (as His Lordship then was) in Mohanlal Ganpatram and Anr. v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and Ors.,: [1964] GLR804 at 103 stated the law, thus: ....It may be that a resolution may be passed by the Directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet 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 di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion is thrown out only on the ground of suppression of facts, when the facts the Petitioner is supposed to have suppressed were the facts suppressed by the Respondent from them. As far as MOU is concerned, Nafan had mentioned the same and made it clear that it is not considering it as valid. Why it was valid was the defence of Muthu group, which they put forth. Nafan countered that defence in their rejoinder. Persons concerned filed their affidavits placing contested factual position on record. It is not that Nafan obtained 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er/declare the said Memorandum of Understanding dated 23 January 2009 to be valid, subsisting and binding on the Defendant Nos.1 and 2 hereto and that the Defendant Nos.1 and 2 are bound and liable to perform the same; (b) That this Hon'ble Court be pleased to order and direct Defendant No.1 by a mandatory order of injunction to specifically perform the Memorandum of Understanding dated 23 January 2009 so as to transfer in accordance with law the suit shares 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u Group came to know that Nafan and Lesaffre were not going to honour their so-called commitments under MOU was to file a civil suit or approach the Board for necessary relief. The question is whether the Muthu Group could have done it unilaterally without notice. There could be various angles, such as, the MOU is valid, legal and binding, and it amounts to a transfer notice; the MOU is not legal, valid and binding, and 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 jurisd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the MOU were made part of cause of action by Nafan itself, which is clear from its pleading. Mr. Dwarkadas submitted that the decisions relied upon by De Vitre and Mr.Khambatta to contend that the Board does not have powers akin to Civil Court, are not applicable as they deal with a party approaching the Board seeking relief to enforce a contract. He submitted in the present case Nafan having entered into a valid 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 v. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mented and therefore, question of enforceability does not arise. 61. The Board has culled out an intention of the parties from the MOU. It concluded that Nafan, with full knowledge and free will, had entered into a MOU for sale of its shares. This intention is relevant for considering buyout. Board accepted the position that a specific performance of the MOU cannot be granted by it ,but has taken the intention 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing, and properly executed. This submission cannot be accepted. Nafan had come to the Board making a grievance regarding the meetings held without notice wherein their shareholding was transferred. Nafan had stated in the petition that, if MOU were relied upon then would reserve their right to contest the same. It is the case of Muthu Group that MOU was binding and it is wrongly been resiled from and the MOU constituted a transfer notice. The foundation 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 hel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness, the consent of family members ought to have been taken. 69. Looking at the version put up by Nafan, I do not feel that the theory put forward by Nafan and Lesaffre that MOU was a document to explore possibility of settlement could be rejected outright as absurd. After signing of the MOU there are no steps taken by Nafan except to inquire about the valuation. Once the valuation was informed to Nafan and Lesaffre, their reaction was that 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 assiste....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... enter into disputed areas of intention of parties in respect of the said contract adjudicated as to whether intention exists and then give effect to the intention. This is not to lay down an absolute proposition then even in a case that all ingredients of contract are satisfied only procedural formalities remain, both parties take all possible steps to see that the contract is to be executed even in such circumstances the Board cannot take 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear and unequivocal intention to transfer the shares. Therefore, though the Board was right in considering that MOU could not be specifically enforced, erred in relying on intention, which did not exist while passing an order under Section 402. The question of the validity of the MOU has to be left to the Civil Court and I am of the opinion that the version of the Nafan regarding the MOU can be termed as so absurd that they can be ordered to sell out their shares based on the so-called 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 T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....embur Branch, Mumbai for its regular operations. However, it is necessary to open a separate Current Account under the name and style of "SAF YEAST CO. PVT. LTD. SHARES ACCOUNT", in addition the existing current account for the exclusive purpose of holding in Trust, for and on behalf of Nafan B.V. , the purchase 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, Directo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... B. Thatte 3 Mr. A. M. Arunachalam 4 Mr. A. M. Muthiah 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere unable to locate the same. The Board discussed in detail all the aspects relating to the issuance of duplicate share certificates in lieu of the original Share Certificates that has been informed to be lost by Nafan B. V. The Board 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 2000....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urne Galleries Ltd.[1972] 492 ALL ER 500, followed in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.[1981] 3 SCC 333 and Anderson v. Hogg [2000] 634 SLT 642, O'Neill v. Phillips [Co. No. 709 of 1992], 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 directo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ufficient enough to prove the charge of fabrication which required 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. Ruby General Hospital Ltd. [2006] 70 SCL 222 (SC), 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s stated : "1011. Conduct amounting to oppression.- 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 the time bei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red 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 between shareholders of a private company wherein ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egulate 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 Agreement, the paid up capital of the Company was increased and the shareholding of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....greement. 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 continued beyond the expiry of 15 years. Though Articles of Association did not specify that meetings to be held outside India, they we....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 co-existed 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. The Board has held that the meetings of 23 May 2009 and 25 May 2009 were illegal and oppressive. As regards the meeting dated 29 January 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 to transfer the shares to the purchasing member. 17 In case any difference arises between the proposing transferor and the purchasing member as to the fair value ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansferee 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 it is so presented, and (b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise en- dorsed thereon shall, after it is executed by or on behalf of the transfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 v Keyas [1958] 2 WLR 772, rendered by Court of Appeal in England and decision of the Malaysian Court of Appeal in Lo Mu Sen & Sons (SDN) BHD [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 the purpose of such restrictions is to ensure that the company remains closely held and the entry of outsider is not easily possible. It was submitted that under Section 27(3) of the Act, restrictions might be imposed if the shareholder is put to notice of the restricti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 All ER 661. It was contended that the MOU only refers to Article 17 for the purpose of valuation and does not constitute any transfer notice. 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 member or other person entitled to transfer to any member or other person entitled to transfer to any member selected by the transferor but save as aforesaid and save as provided by these Articles, no share shall be transferred to a person who is not a member so long as any member, or any person selected by the Directors as one whom it is desirable in the interest of the Company to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....up. 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 foisted because it validates the acts of one group. The interpretation placed on these articles has to be seen in the context of charge of oppression of unilaterally taking MOU as notice and transferring the shares. Question therefore is, whether the articles were so clear in their purport that even no notice was necessary. For any businessperson reading these articles, the interpretation placed on the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase 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 transferor and the purchase. Provided however that the Auditors so certifying shall not be considered to be acting as Arbitrators and the Indian Arbitration Act 1940 shall not apply. The Auditor shall be considered to be acting as an expert. 62. If in case the proposing transferor, after having become bound as aforesaid, makes default in transferring the share, the Directors may receive the purchase money and shall there upon cause the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 57-A 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 Directors as the transferor's agents. This notice is distinct from the other required to be given under Article 57-A. In respect of these two categories, the price of the shares is at first to be negotiated with the transferor. It is only in the case of a default in such agreement being reached that the company's Auditors step in and fix a "fair price". The third distinctive feature of these two categories is that upon refusal/default of the preemptor, the t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to cover member-to-member transfer. Even though right of pre-emption in the Articles in Sakal Papers (P.) Ltd. (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 & Sons (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 v. 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 in the case before the Malaysian Court, the Company was a family Company and the founder of the Company, father had wished that shares will be held by the children in a particular proportion and it is in that background that the factum of transfer was considered. 99. Next question thereafter is, even assuming Article 15 and the scheme as is sought to be interpreted applies, whether this MOU constituted a transfer notice and the agency. According t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elling 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 clearly envisages a notice from the transferor to the Company specifically constituting it as an agent. A clear unambiguous notice will curtail future litigation such as the present one. The MOU is not even a letter. It is at the most an agreement between two groups of shareholders as to their shares held. It is absurd to suggest that since Muthu is a managing director, even though what Muthu signed was regarding his shareholding, will constitute a notice to the Company. Further MOU does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 was taken on record. Purchase by Muthu of the shares pursuant to MOU dated 23 January 2009, opening of current account to hold purchase money was discussed. The current account was resolved to be opened, directors were directed to operate the account. Mr.K.Narasimhan was authorised to execute share transfer forms in the name of Nafan. Mr. K.Narasimhan was requested to act as a seller for Muthiah. Mr.Narasimhan was authorized to execute the share transfer forms on receiving the purchase money of Rs. 27,49,38,822 for 80,772 shar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plicate 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 of his telephone calls on or about 20th February, 2009 that Nafan B.V. has lost the share certificates for the 80,772 shares they hold in the company and they are unable to locate the same. I therefore request the company to consider issuing duplicate share certificates in lieu of the share certificates that have been informed to be lost by Nafan B.V. to comply with the requirements of law. Yours faithfully, Sd/- A. Muthu (For Saf Yeast Co. Pvt. Ltd., Agent of Nafan B.V.)" When Muthu wrote this letter on 23 May 2009 to SAF Yeast for issuance of duplicate cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, 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 Madras High Court in the case of Shoe Specialties Ltd. v.Tracstar Investments Ltd.[1996] 10 SCL 121. The Division Bench referred to J.C.Bali on Secretarial Practice in India, 5th revised edition and quoted the passage therefrom as under: "Loss of share certificate. - Sometimes a shareholders loses or misplaced his share certificate and is compelled to apply to the company for another certificate in place of the one lost. The articles of association of most companies and Table A provide that if a share certificate is lost or destroyed the shareholder may obtain another on payment of a fee and on supplying such evidence and giving such indem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rst 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 a practice should have been properly explained. No attempt was made on its part in that regard." (Emphasis supplied) 109. In the present case, the facts are glaring. Muthu, who wants to usurp the entire shareholding of Nafan, writes to SAF Yeast on behalf of Nafan that Nafan has lost the original shares, gets the duplicate shares issued through the Company which he controls and transfers it to his group in a meeting, without a single notice to Nafan. What further is needed render a finding of gross impropriety? The manner in which the entire meeting has been pushed through and the manner in which the duplicate share certificates have been secured is nothing but a clear and calculated d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ept 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 Board. According to him, the valuation report was prepared adopting the well-known methods of valuation and the observations and findings of the Board are unwarranted and are liable to be set aside. He submitted that the valuer has tendered its valuation as part of its professional duty, and not concerned as to whether it is finally accepted by the concerned parties or not, neither the professional valuer is concerned with inter-se disputes. Mr.Subramaniam submitted that M/s.Sharp and Tannan carried out their duty of preparing a valuation report as per rules and needless aspersions have been cast upon it. Mr.Dwarkadas submitted that the valuation report was fair and proper and reflected the cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....indings. 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 statutory valuers. He submitted that article 17 was referred to in the MOU and parties agreed to abide by the valuation of the statutory auditor. Nafan did not insist upon any valuation method in spite of having received the MOU some time in February 2009. He contended that if the price of shares between 1992 and 2009 is concerned, it has grown from Rs. 237 per share to Rs. 4315 per share. The same valuer had carried out the valuation earlier. In the year 1998, when Lesaffre sold its shareholding to Nafan the shares were sold at Rs. 1070. Therefore, since 1998 there has been 400 per cent increase in shares. He submitted that unless the valuation is vitiated by fraud or fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 statutory auditor. M/s Sharp and Tannan have been the auditors of the Company for a long time. With such a major decision being left to them, it was their duty to be fair to both Muthu group, and Nafan and Lesaffre. They would be fully aware what they were determining was the price of exit of Nafan from the Company. This is not to say in a routine valuation, care need not be taken, in the present case but M/s Sharp and Tannan were fully aware of the implications of their valuation, having been associated with the SAF Yeast for several years. The manner in which the valuation was done in 24 hours, when there was apparently no need for such urgency without following well known method....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 travel far for this purpose as M/s.Sharp and Tannan themselves have endorsed DCF method over all other methods. This stand of Sharp and Tannan is noted by the Gujrat High Court in the case of Alembic Ltd. v Deepak Kumar J. Shah [2003] 41 SCL 145, as under : "In light of the aforesaid principles, this court proceeds to examine the grievance of the objector that the exchange ratio has not been properly worked out. The objector is a shareholder in Alembic Ltd. with 30 shares of Rs. 10 each. The objector, who is himself a chartered accountant by profession, is not in a position to indicate as to how the exchange ratio is detrimental to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 non-resident to resident is specified in the circular dated 4 October 2004 and it lays down that where the shares are not listed on the Stock Exchange, the transfer of shares at a price lower than two independent valuations, one by a statutory auditor of the Company and the other by Chartered Accountant is contemplated. It is for this reason that the valuation is carried out for the purpose of Circular of the year 2004. There is no gain saying that the valuation conformed to the parameters laid down in the RBI Circular of 2004, when the Circular was not for fair value but for completely different reasons. In fact, the Circular dated 4 May 2010-RBI has emphasized for DCF as is the most relevant method for the valuation of shares. 120. The arguments advanced by Mr.Dwarkada....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld 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 methodologies for valuation and without any reason has not followed well-established methods. 123. It was then argued on behalf of Muthu group that once Nafan group agreed that fair valuation should be done as per Article 17 by the statutory auditor and the statutory auditor has carried out the valuation; the Court will uphold the valuation. This argument is difficult to accept. What the MOU stated was the parties would part ways on fair value and not upon valuation, which is not fair. Can it be said that even if the valuation is arrived at ignoring well-established methods and it is at Rs. 1, still Nafan must accept the same since it agreed that a statutory auditor would carry out the valuation.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....od 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 valuer in support of the valuation arrived at by him. He contended that since the valuation made by the valuer was based on erroneous principles, the same can be challenged in these proceedings. In aid of his submissions he cited the following decisions:- 1. Dean v.Prince and others. 2. Dean v.Prince & others. 3. Jones (M) and another v. Jones (RR) and another. 4. Arenson v. Arenson and another". The learned Judge then took review of the entire case law in respect of challenge to the report of the valuation and observed as under :- "Be that as it may, the position in law seems to be that a valuer cannot claim immunity any more if he acts negligently in making his determination and can be sued for tort or negligence but....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the cogent method of valuation and the way the valuation report is then used by Muthu group raises various questions and the points to something more than a mere incorrect valuation. The Division Bench of Madras High Court in Shoe Specialities Ltd. (supra), analyzed the law regarding fraud and collusion, held as under : 'We may have also to consider what is meant by "collusion". In P. Ramanatha Aiyar's The Law Lexicon, reprint edition 1987, at page 216-i, "collusion" is defined as "a secret agreement for a fraudulent purpose; a secret or dishonest arrangement in fraud of the rights of another; a secret agreement by two or more persons to obtain an unlawful object, an agreement between persons to obtain an object forbidden by law, or to obtain a lawful object by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence 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 non-disclosure 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 not to deceive....". In De Smith's Judicial Review of Administrative Law Action, fourth edition (1980), at pages 335 and 336, the learned author says thus : "A power is exercised fraudulently if its repository intends to achieve an object other that for which he believes the power to have been conferred. For example, a local authority committee would exercise in bad faith its power to exclude interested members of the public if it deliberately chose to hold the meeting in a small room. The intention may be to promote another public interest or private interests. A power is exercised maliciously if its repository is motivated by personal animosity towards those who are directly affected by its exercise." In "Administrative Law" by justice C.K. Thakker, (1992) edition, at page 328, the learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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 tends must, in the absence of explanation, or contradiction, be adopted. It is enough if from the conduct of a party the court is satisfied that it can draw a reasonable inference of fraud, or if facts be established, from which it would be impossible upon a fair and reasonable conclusion, to conclude but that there must have been fraud"' (Emphasis supplied). These principles need to be kept in mind. As held by the Madras High Court that it is not always possible to have direct evidence of fraud and collusion and inference has to be drawn. The question that arises is whether the conclusions drawn by the Board from the circumstances can be termed as perverse. 125. The Board took note of the pleadings on record and viewed that it was sufficient to constitute pleadings of collusion. The relevant pleadings are reproduced in para 265 of the impugned order. For sake of brevity, they are not re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 amiss the way the valuation report was presented. Had it been a stand-alone instance of a mere valuation report presented for discussions, it would have been a different matter. The preparation of such valuation report was a piece of much large picture and it fitted in the scheme of things perpetuated by Mr.Muthu. The preparation of such valuation report through M/s Sharp and Tannan completed the scheme of usurping the shares of Nafan. 127. The Board was therefore fully justified, in facts and circumstances of the case, to discard the valuation report and make the observations it made. M/s Sharp and Tannan, knowing the responsibility casts upon them and the consequences thereof, ought to have been more careful and ought not to have prepared a report on the basis completely different than the acceptable norms. The total lack of explanation as to why there was need to prepare report in 24 hours and that DCF me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 investment may not allow Nafan to acquire 100 per cent shareholding. It was held that Muthu group has given personal guarantees. The action taken in the meetings was on legal advice and it was bonafide meeting, which had to be hurriedly called in view of the meeting to be held in Paris on 29 May 2009, and one aberration should not be a reason to severely reprimand any one. Thereafter the Board directed buyout in favour of the Muthu group. Thus, to summarise the Company Law Board ordered buy out in favour of Muthu group because Lesaffre and Nafan have entered into joint venture for money, which they have received. They are not based in India and their personnel rarely visit the unit established in India. It is better that the Indians run the Company. Government may not allow Lesaffre and Nafan to acquire 100 per cent shareholding. Muthu group has given guarantees. Muthu has vast experience in the business and has succes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rbed. 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 AIR 1999 Cal. 156 to contend that the main consideration is what course of action would be for the benefit of the Company. He submitted that in the case of Probir Kumar Misra (supra), the Madras High Court had clearly relied upon underlying intention in an agreement to order a buyout. He submitted that in any case, without prejudice, Muthu group is willing to put an end to the litigation by having the shares valued by an independent expert and thereby completing the buyout process. Therefore, the primary stand of the Muthu group is that since there is no oppression by them there is no question of any buyout of their shares and without prejudice, they are willing to buyout the shares at the valuation fixed by this Court. 132. I have already concluded that the findings of the Board regarding oppression by Muthu group are correct. Therefore, question is regarding the validity of the direction to order buyout in favour o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overnment 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 a shareholder and in case Nafan is ordered to exit, the Company will lose its name, which will result in substantial loss of goodwill for SAF Yeast. I find that in spite of making the submission before the Board regarding loss of good will by loss of name 'SAF', at the time of ordering buyout, the Board has not referred to it at all. In the Participation Agreement of the year 1991, the parties have agreed that SAF Yeast will use the term 'SAF' only with the consent of Lesaffre and Nafan and if the share of Nafan and Lesaffre drop below a particular limit, the word 'SAF' will be deleted. It is the contention of Muthu group that the phrase 'SAF' is not derived from Lesaffre but from a Hindi term and it is not much of importance. However, the clause in the Participation Agreement cannot be ignored. The Board has also noted that Lesaffre is a world leader in manufacturing of yeast. Phonet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the Apex Court in the case of Dale & Carrington (P.) Ltd. (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 (P.) Ltd. (supra) the ordinary rule that the majority should not be allowed to exit has been laid down as under: "24. Further, it was held that if a member who holds the majority of shares in a company is reduced to the position of minority shareholder in the company by an act of the company or by its Board of Directors mala fide, the said must ordinarily be considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled by virtue of his majority to control, manage and run the affairs of the company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the affairs of the company by electing his own men to the Board of Directors of the company." "25. A majority shareholder should not ordinarily be directed to sell his shares to the minority group of sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 was not as innocent as it is made out to be. As far as the opinion of the senior advocate is concerned, the learned counsel of the parties after debating over it for some time agreed that it will not be appropriate to put in issue whether the opinion was right or wrong and restricted the argument only to the bonafides of the Muthu group. I have seen the opinion. The concerned senior advocate never stated in his opinion that Muthu group can hold meetings without informing Nafan and Lesaffre and they can transfer their share holding in an unfair manner. It is not a matter of legal niceties but a matter of basic fairness in dealing with somebody who was once a long-standing partner, and the association was almost that of a quasi partnership. 140. The Board noticed decision of the Apex Court in the case of Kamal Kumar Dutta (supra), but has not given effect to the underlying principle laid down therein. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 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 and those notices have even been sent with very short interval. The meeting was convened on 13.4.1996 and the notice was sent on 8.4.1996. Likewise, another meeting was scheduled to be held on 5.9.1996 and the notice was sent on the very same day i.e. 5.9.1996, the date of meeting was 2.12.1996 and the notice was sent on 28.11.1996; the date of meeting was 12.3.1996 and the notice was sent on 8.3.1996. The meeting was to be held on 27.3.1996 but the notice was sent on 22.3.1996. Apart from this, it was known to the respondent- Sajal Dutta who is the brother of appellant No. 1 that whenever his brother comes to Calcutta he does not stay in his house yet the notices were sent to Jodhpur Park, Calcutta. This shows lack of probity on the part of Respondent No. 2 to somehow or the other oust his brother from the majority shareholding. Similarly, on the basis of such resolution, Dr. Binod Prasad Sinha, the appellant No. 2 was ousted from the directorship....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at 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 "could not be more unfortunate." In this case, younger brother knew that whenever the elder bother came to Calcutta he did not stay in his house yet the notices were sent to him at that address. What the Board has trivialized as a onetime aberration is in fact the grossest act of oppression, according to the Apex Court. 141. Mr.Dwarkadas contended that in case of Kamal Kumar Dutta (supra) there was no MOU neither there were any articles, which did not mandate a notice nor in the past notices were given. None of these arguments have any substance. As regards the MOU and the Articles, I have already rendered my findings. The question is of probity and fairness. Muthu group fully knew that meeting is to be held in Paris. Muthu group consciously did not give notice to Nafan and Lesaffre as they wanted to transfer their share holding behind their back and a clear plan was hatched for that purpose. Even assuming that they did so as a pre-emptive action that does not excus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 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 transactions. Post liberalization Indian companies have engaged in large scale commerce and financial dealings with the banks and companies abroad. Finances are advanced to the Indian companies by foreign investors. If the conduct such as the one exhibited by the Respondent Company, is condoned purely on the ground of public interest, it may protect this Company but will send a wrong signal to the investors and lenders all over the world. Investors will be reluctant to advance capital even to commercial solvent and honest companies. The division bench of Delhi High Court echoed similar sentiments in the case of SRM Exploration Pvt. Ltd. v. N & S & N Consultants S.R.O., as under : "12. ..... The world is a shrinking place today and commercial transactions spanning across borders abound. We have wondered whether we should be dissuaded for the reason of the transaction for which the appellant Company had stood surety/guarantee being between foreign companies. We are of the opinion th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 shareholding to anyone else. When Muthu Group apprehended coercive action on the part of Nafan, they could had invoked jurisdiction of the Board and the Board would have issued appropriate direction if case was made out. The Muthu group did not take any such steps expected of a law-abiding citizen. 145. The right in favour of Nafan as a majority shareholder to buy-out the oppressive minority is established right now. The right of Muthu Group is based on the MOU which will have to be agitated in Civil Court. Grant of specific performance of an agreement is discretionary. Therefore, the right in favour of Muthu Group has not fructified yet to defeat the right which has accrued right now in favour of Nafan. 146. There is however one more aspect. I must also keep in mind the interest of SAF Yeast. If future uncertainties are avoided it will be good for SAF yeast. If future of SAF Yeast can be made litigation free, then I will explore that option first. That option I will rank higher that the right of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ustice 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 opinion that M/s Ernst and Young can be appointed as the Chartered Accountants. They are an experienced firm and nothing is shown that they are disqualified to carry out the task in respect of SAF yeast. CONCLUSION 149. The conclusion in short is as follows. The appeal filed by Lesaffre is maintainable. The petition filed by Nafan was rightly not dismissed by the Board on the ground of suppression of facts. The declaration given by the Board that MOU is valid, effective, and enforceable document and its terms are binding, cannot be sustained as it is beyond the jurisdiction of the Board, and needs to be agitated in the suit, which is pending. Prima facie, no unquestionable intention can be culled out from the MOU. The Board meetings held on 29 January 2009, 23 May 2009, and 25 May 2009 and the resolutions passed therein, are invalid, illegal, and oppressive, so also the issuance of duplicate share certificates. The Board has rightly discarded the valuation report and the reliance upon the same by Muthu Gro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of Nafan and Lasaffre stands restored, is confirmed. G. The direction by the Board to Muthu Group to rectify the Register of Members of the SAF Yeast as per law, is confirmed H. The direction by the Board to Nafan and Lasaffre to transfer the 80,722 shares held by them to the Muthu Group proportionately to their respective shareholdings, is quashed and set aside. I. If within six weeks from today Muthu group withdraws the civil suit and associated proceedings filed by them and files an undertaking on affidavit in the registry of this court that they will not take any proceedings on the basis of the MOU in question, then Part-I of this order will come in operation. If the above mentioned steps are not taken by Muthu Group within the stipulated period as above, Part-II of the order will come into effect forthwith and prayer clause (a) sought for by Nafan in its company petition will stand granted on the terms mentioned in Part II. J. Interim orders operating in these appeals shall continue for peri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Company's industrial plants. g. Access shall also be made available to any such Chartered Accountant nominated in writing by Nafan and the said access shall be provided continuously on a day-to-day basis for a period of forty five days from today. h. After the said forty five days of Nafan being given continuous access as provided above, a continuing competitive bid auction shall take place within fifteen days and the bidding shall be only between Nafan and the Respondent Nos.2 to 6-Muthu Group as one. The party bidding the highest cash amount for 100% of the shares under the auction shall be entitled to buy 100% of the shares of the Company with the successful bidder getting credit for its own shares (either 51% for Nafan or 49% for the Muthu Group-Respondent Nos.2 to 6); the process of auction shall be conducted under the supervision of the Administrator. i. The successful bidder will deposit in Court by Bankers cheque (Demand Draft) the amount payable, along with all applicable taxes, within fifteen ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....air 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 valuing a going concern as the Chartered Accountant deems fit and proper in the facts and circumstances of the present case, after hearing the parties. d. 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 accounts of Saf Yeast, and such other relevant documents as indicated in the Schedule to Note on Modalities given by Nafan and shall be allowed full and unimpeded access to the industrial plants. e. The Board of Directors, including the powers of the Managing Director, is immediately and completely suspended. f. Mr.Justice J.N. Patel, Retired Chief Justice of Calcutta High Court is appointed as an Administrator on the same emoluments sand immunity as directed by the Board, with the powers of the Chairman of the Company's Board of Directors, and the Managing Director, to supervise the functioning of the Company on an interim basis until the process of sale/purchase is complete; upon appointment of the Administrator, Re....