TaxTMI 
TaxTMI 
1982 (10) TMI 217
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....group, applied to the Government of India for permission to set up an electrical resistance wires and strips mill in India. This proposal, which is annexure "B" to the main petition, envisaged 60% of the shares of the proposed company to be held by the Swedish company and 40% by the Indian shareholders. 5. In anticipation of a company being incorporated in India, an agreement was entered into on September 23, 1964, between A.B. Kanthal on the one hand and Jagdiswar Singh and others being the partners of petitioner No. 5 on the other. This agreement, inter alia, provided for the authorised capital, the issued capital, the respective shareholding, the number of directors, quorum of board meetings, etc., the details of which need not detain us. Suffice it to say that some of these provisions were incorporated in the articles of association of the company, which was formed later on, as will appear from what is stated hereinafter. Similarly, another agreement was entered into on the same date between A.B. Kanthal and the partners of petitioner No. 5 which was known as the "shareholders' agreement". 6. The Government of India, by its letter dated April 18, 1964, approved of ....
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....cles also vested in the shareholders a right of pre-emption. The relevant articles around which a lot of controversy in this case centered are Articles 3, 34, 35, 36, 38 and 40. These articles may be conveniently set out herein below : " 3. The company being a private company, the following provisions shall have effect, namely :-- (a) the number of members of the company (not including persons who are in the employment of the company and persons, who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased) is not to exceed fifty, but where two or more persons hold one or more shares in the company jointly, they shall for the purpose of this paragraph, be treated as a single member ; (b) an invitation to the public to subscribe for any shares in, or debentures of, the company is hereby prohibited ; (c) the right of transfer of shares of the company shall be restricted in the manner, hereinafter in these articles provided. 34. Subject to the provision of Section 111 of the Act, the board may, in its absolute and uncontrolled di....
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....oresaid, makes default in transferring the share, the proposing transferor shall be deemed to have appointed any one director of the company as his agent to execute the transfer of the share to the purchasing member and upon the execution of such transfer and upon receipt of the purchase money the company shall cause the name of the purchasing member to be entered in the register as the holder of the share and shall hold the purchase money in trust for the proposing transferor. The receipt of the company for the purchase money shall be a good discharge to the purchasing member and after his name has been entered in the register in purported exercise of the aforesaid powers, the validity of the proceedings shall not be questioned by any person. If the proposing, transferor fails and neglects to hand over the share certificate after the purchasing member had paid in full the purchase money, the board shall have a right to issue a duplicate share certificate and to cancel the share certificate which the proposing transferor may have failed and neglected to hand over to the purchasing member. 40. The shares specified in any transfer notice shall be offered by the board to the ....
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....mission to the company and it wanted that the foreign equity shares of the company should be reduced to 40%. On May 21, 1976, the Indian company again applied to the RBI for reconsideration of its decision. The RBI granted permission to the company to continue its operation in India and to have non-resident share holdings in excess of 40%, inter alia, on condition that the Indian company was to earn foreign exchange by export of goods manufactured by it at ex-factory cost (less excise duty, if any) and the export in each year being not less than 10% of the ex-factory cost of the Indian company's total production during the relevant year. The export obligation would be in force till such time the non-resident's interest in the company would continue to be more than 30/40%. 13. On May 5, 1978, the Indian company in terms of the RBI's sanction executed an undertaking whereby it undertook to earn foreign exchange by export of goods manufactured by it. On January 9, 1981, the RBI informed the Indian company that it had failed to comply with the conditions contained in para. 2{iv) of its letter dated November 26, 1977, and called upon the Indian company to bring down the f....
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.... final proposal to the RBI. 18. There is another factual aspect of this case which may be conveniently noted at this stage. As mentioned above, Mr. A.C. Daphtary, who was holding 2% of the shares of the Indian company and who was appointed chairman of the board of directors, died on April 27, 1980, leaving his wife, a son and a daughter. He also left a will dated August 28, 1979, whereby and whereunder he appointed one Mr. Jagjit Singh as his sole executor. Under the will, which will be set out hereinafter in full, Mrs. Leila Daphtary, the widow of Mr. Daphtary, was to be the sole legatee in respect of his entire estate. 19. In or about September, 1980, Mr. M.T. Shah was nominated by the Swedish company as the chairman of the board of directors of the Indian company in place and stead of Mr. Daphtary, since deceased. At the instance of the Swedish company, the board of directors of the Indian company was also reconstituted. This was done consequent upon the change in the control of the Swedish company in Sweden. 20. The board of directors of the Indian company met on June 23, 1981, in Bombay and transacted various items of business. In the minutes of the meeting, the follo....
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....K. Thanwala and Mr. Subramanyam, and the secretary was directed to make the appropriate entries in the register of shareholders." 24. In pursuance of these resolutions an application was made to the RBI on September 23, 1981, under Section 19(5) of the FERA. The forwarding letter was sent on behalf of the company by Mr. M.T. Shah as its chairman. 25. These two resolutions precipitated the situation and was followed by a series of correspondence between the parties inter se and between Singh group of shareholders and their advocates-on-record and the RBI. Ultimately, the Swedish company by their telex dated September 15, 1981, declined to sell 9% shares to the petitioners and expressed their desire to sell the shares to Mr. M.T. Shah only. 26. The only other factual aspect to be noted before I come to the controversy between the parties is that, according to the petitioners, at the instance of the nominee directors of the Swedish shareholders, M/s. S. R. Batliboi & Co., chartered accountants, were appointed to make a special review of the accounts of the Indian company for the accounting year ended December, 1979. In the report which was submitted to the Indian company, the....
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..... I hereby appoint Mr. Jagjit Singh of E29, Panchsheel Park, New Delhi, as sole executor to my estate. (Sd/-) Anil Chandra Daphtary." 31. It may be mentioned at this stage that a copy of the will was forwarded to the directors of the Indian company by Mrs. Daphtary. The letter dated March 14, 1981, contained the following paragraphs : '' I would be most grateful if the request for transmission can be granted. I shall send the share certificate for appropriate endorsements and the same can be returned to me." 32. Admittedly, no probate has yet been granted of the will of Mr. Daphtary. 33. According to the petition, this letter of Mrs. Daphtary although dated March 14, 1981, forwarding the copy of the will was never placed before the board of directors of the Indian company until the controversial board meeting held on August 25, 1981, when none of the nominees of the Singh group were present. From the minutes of the board meeting dated August 25, 1981, it appears that the letter of Mrs. Daphtary was with Mr. Subramanyam, an alternate director of the Indian company, who produced the letter. 34. At an earlier meeting of the board held on June 2....
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....equence of the death or bankruptcy or insolvency of any member upon producing such evidence that he sustains the character in respect of which he proposes to act under this article or of his title as the board thinks sufficient, may, with the consent of the board (which the board shall not be bound to give), be registered as a member in respect of such shares, or may subject to the regulations as to transfer hereinbefore contained, transfer such share. This article is hereinafter referred to as " the transmission article ". 37. According to Mr. S.B. Mukherjee, who appeared on behalf of the petitioners, in the present case, Article 48 squarely applies to the facts of the present case. According to Mr. Mukherjee, Articles 48 and 49 are mutually exclusive. According to this contention, since Article 48 applies, Article 49 can have no application to the present case. It was submitted on an analysis of Article 48 that upon the death of a shareholder, only the executor, the administrator and the holder of a succession certificate are the persons who can be recognised by the company and brought on its register of members in place and stead of the deceased shareholder. Before it recogni....
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....urther submitted that the letter of Mrs. Daphtary dated March 14, 1981, was deliberately not placed before the meeting of the board of directors of the Indian company held on June 23, 1981. It was placed only at the board meeting of August 25, 1981, when none of the nominees of the Singh group were present. There was no item on the agenda of the board meeting of August 25, 1981, with regard to the transmission of shares in favour of Mrs. Daphtary. Such action on the part of the nominee directors of the Swedish group, it was submitted, lacked in probity and was not bona fide. 42. According to the petitioner, incentives were given to Mrs. Daphtary for transfer of the shares of the late Mr. Daphtary in favour of M.T. Shah by paying her a sum of Rs. 42,000. Such payment was made without any resolution of the board of directors and was at the instance of Mr. M.T. Shah. It was submitted that it will appear from the record that the petitioners' group objected to the proposed transfer of these 2% shares to Mr. Shah by a letter dated September 8, 1981, addressed by M/s. Rajesh Khaitan & Co., advocates-on-record for the petitioners to the Indian company. The petitioners also offered t....
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....ers exercised their pre-emptive right and evinced their desire to purchase the said 9% holding of the said Swedish company and the 2% shares held by late A.C. Daphtary." 47. Paragraph 56 of the petition contains the following statements : " In the premises and facts stated hereinbefore aforesaid, to wind up the said company would unfairly prejudice the interest of the public, the said company as well as your petitioner, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable. It is indeed of paramount interest to the said company that the hon'ble court be pleased to pass an order directing the said Swedish group to transfer their equity holding to the extent of the 9% to the aforesaid Singh group and to the extent of the 2% by the said Mrs. Leila Daphtary to your petitioners so that the continuing oppression by the majority over the minority cease for all times to come." 48. It is evident from these two paragraphs that the petitioners are expressing an unequivocal desire to purchase the 9% holding of the Swedish group, an aspect which will be dealt with hereinafter as also the 2% shares of the late Mr. D....
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....third limb is subject to the second limb. It envisages that a member can transfer shares to any other member or a non-member but such transfer has to be effectuated with the prior consent of all other members. ' Prior consent ' does not confer a right of pre-emption but merely enables the other members to object reasonably to the unsuitability of a member or a non-member being made the transferee shareholder ; (iv) The proviso, which is the fourth limb of the article, is an independent provision. It authorises a body corporate, inter alia, to transfer its shares to its ' nominee ' unrestrained by the requirements of the third limb." 51. The second principal item of controversy between the parties was with regard to the sale of the 9% of the shares of the Indian company held by the Swedish company. The factual background to this controversy may be noted. 52. Prior to the incorporation of the Indian company, the Swedish company wanted to have 60% of the shares of the Indian company and the other 40% was to be held by the Indian shareholders. This will appear from a letter dated July 20, 1961, addressed by the Swedish company to the Ministry of Commerce ....
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....an company proposed to dilute the non-resident interest by increasing its share capital as appears from the minutes of the meeting of the board of directors dated March 30, 1981. 56. This proposal was, however, rejected by the RBI. At a board meeting held on July 27, 1981, a sub-committee consisting of Mr. Singhania and Mr. Thanawalla was constituted to ascertain the views of the Controller of Capital Issues which, however, did not materialise. Ultimately, at the board meeting held on August 25, 1981, where the Singh group did not participate, the following resolution was passed : " Resolved that, as previously decided in the last meeting of the company held on July 27, 1981, a proposal may be submitted to the RBI to divest Bulten Kanthal A.B. of 9% of the shares held by them in favour of Mr. M.T.Shah." 57. It is this decision of the board of directors of the Indian company to allow the transfer of all these 9% shares of the Indian company held by the Swedish company in favour of Mr. M.T. Shah which is challenged before ' me in this application. 58. The principal ground of challenge of Mr. S.B. Mukherjee on this aspect of the matter is founded on Article 34 of....
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....ILLING TO PAY PRICE. PLEASE LET US KNOW PRICE OFFERED BY MR. SHAH WE AGREE TO PAY SAME PRICE SUBJECT TO APPROVAL OF the RESERVE BANK OF INDIA." 62. According to Mr. Mukherjee, this telex message from B. Singh, on behalf of the Singh group, clearly shows that there was no question of the Singh group of shareholders agreeing to the transfer of these 9% shares to Mr. M.T. Shah. 63. Mr. P. R. Mridul, who appeared for the respondents, placed strong reliance on a decision of the English Court of Appeal in the case of Express Engineering Works Ltd., In re [1920] 1 Ch 466 (CA). In that case, a syndicate of five persons formed a private company, in which they were the sole shareholders, and sold to it for GBP 15,000 in debentures of the company, property which they had, a few days before, acquired for GBP 7,000. The contract for the sale and the issue of the debentures was carried out at a meeting of the five who and there then appointed themselves directors. This meeting was described in the minutes as a board meeting. At a subsequent meeting; the seal of the company was affixed to the debentures. The articles of the company provided that no director should vote in respect of any con....
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....her submitted that the provisions of the articles of association and the provisions in the pre-incorporation agreement and the correspondence between the parties would clearly show that Mr. B. Singh was not representing the Singh group of the shareholders. In any case, it was pointed out that no such case had been made out in the affidavits. 68. A pertinent question was posed by Mr. Mukherjee that if the Swedish group of shareholders were so sanguine that consent had been given by the Singh group of shareholders to the transfer of the 2% and 9% of the shares of the Indian company, then why were the resolutions passed in an unseemly haste at the meeting of August 25, 1981, when these were not on the items of the agenda of the meeting and when no one representing the Singh group of shareholders was present at the meeting ? It was submitted emphatically that there can be no question of any waiver or acquiescence of the Singh group of shareholders in respect of the above-mentioned transfers at this meeting. 69. Coming to the articles of association of the Indian company on this aspect of the matter, Mr. Mukherjee submitted that the relevant articles are Articles 34 to 40 which ha....
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....tention of Mr. Mridul is accepted, then the entire purpose of enacting the prohibition of holding of more than 40% of the equity shares of an Indian company by a foreign company would be completely defeated. In other words, if this contention is accepted, the Swedish company would continue to hold 49% of the shares of the Indian company by itself and through its nominees, notwithstanding the prohibition in the FERA. 75. Coming back to the article, it was submitted that Articles 35 to 45 provide the mechanics of transfer of shares by the members of the Indian company. The first condition is a notice of the intention of transfer to be given to the company which will constitute the company as an agent of the member for the purpose of finding out whether any other member is willing to purchase the shares. It was pointed out that, in the facts of this case, no such notice was given. It was pointed out that it is only, after such a notice has been given, that the company becomes an agent of the member for the purpose of transfer and the mechanics contemplated in Article 40 of the articles comes into play. If there is a dispute as to the fair value of the shares, it is to be resolved i....
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....9] 1 WLR 62 : 29 Comp Cas 305 (CA) and Westbourne Galleries Ltd., In re [1971] 1 All ER 561 : [1971] 2 WLR 618 (CA). 79. It was next submitted that individual or isolated illegal acts do not necessarily and by themselves amount to oppression within the meaning of Section 397 of the Act. It is only when illegal acts are of such a nature as would show that the majority is abusing its power or is otherwise guilty of burdensome, harsh and wrongful conduct that the provisions of Section 397 can be said to be attracted. Then there would be " oppression " so as to attract the provisions of Section 397 of the Act. In support of this proposition. Mr. Mridul relied on the decision of Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Cas 777 (Guj) and the decision of the Supreme Court in Needle Industries' case [1981] 51 Comp Cas 743 which has been noted above. 80. It was submitted that one of the tests of what constitutes " oppression " within the meaning of Section 397 of the Act is to see whether the majority is taking an unfair advantage of its position as a majority. In support of this proposition, reference was made to the English ca....
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.... three directors nominated by the Swedish group, two directors nominated by the Singh group and one appointed by the U.P. Industrial Finance Corporation. There is no allegation that there is any deadlock in the functioning of the board of directors or functioning of the company. Mr. B. Singh is the president of the company. Mr. M.T. Shah is the chairman of the company. There is no allegation that they cannot carry on the business of the company or that there is any friction in the management. There is no plea that any directors of the Singh group have been excluded from the management. There is no plea that Mr. B. Singh is prevented from functioning as the president of the company. 85. It was further submitted that the company is not a glorified partnership. 86. The relations between the Singh group and the Swedish group arose out of commercial transaction. There is no element of personal relationship. Hence, it was submitted that the principles of winding-up referable to a partnership are not available in the present case. Even assuming that these principles were applicable, there is no breach of faith or lack of probity in the conduct of the Swedish group. Thus, the prelimi....
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....y, according to Mr. Mukherjee, is not to allow the continuation of such foreign shareholding either directly or through nominees. 90. It was submitted by Mr. Mukherjee that the recent Supreme Court decision of Needle Industries' case [1981] 51 Comp Cas 743 clearly establishes that the non-resident shareholding cannot be permitted to continue beyond the limit laid down in the FERA and the result of such continuation would be a clear violation of the provisions of the FERA resulting in an automatic cessation of the COB licence. Even if the foreign non-resident shareholders be willing to take up more shares, they cannot be permitted to do so in view of the express provisions regarding the foreign shareholding in the FERA. It was submitted that the principles laid down in Needle Industries' case [1981] 51 Comp Cas 743 on this aspect of the matter applies in full force to the instant case. 91. It was submitted that when under the provisions of the Act, the RBI asked for or required disinvestment of foreign shareholdings, the Reserve Bank is not merely concerned with the repatriation of foreign exchange but it is also concerned with Indianisation in the sense that there sho....
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....espondence between the parties, there is no whisper of any misappropriation of funds by the Singh group. 94. With regard to the reference to para. 23(a) of the main petition by the respondents to show that petitioner No. 5 had received a sum of Rs. 52 lakhs odd as agency commission, it was submitted, on behalf of the petitioners, that there was nothing wrong in this. The agency commission was payable in terms of the agreement between the Indian company and petitioner No. 5. Such agreement has not only been approved by the shareholders of the Indian company but it has also been approved by the Central Government. It was mentioned that it was only after Mr. Shah joined the board of directors that the payment of commission to petitioner No. 5 was temporarily stopped. There is no dispute, according to the petitioners, with regard to the quantum of commission payable to petitioner No. 5. This would be evident from the Indian company's balance-sheet which has been approved by the shareholders and all the directors of the Indian company. The last balance-sheet for the year ended December 31, 198'0, shows that a sum of Rs. 5,40,000 is still due and payable by the company to peti....
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.... board of directors of the Indian company could have easily found out that supplies were being made to Beni Ltd. without payments being received therefor. Reference was made in this connection to the minutes of various board meetings of the Indian company which were tendered and forms part of the records of this case by virtue of my order dated January 25, 1982. It will appear from the minutes of the meetings that the board was fully aware of the actual position. As will appear from the language used in the board resolutions, the board "considered", "examined", "scrutinised" the transactions between the Indian company and Beni Ltd. and approved of such transactions at various board meetings. Pointed reference was made to the fact that notwithstanding the report of M/s. S. R. Batliboi & Co., the board of directors of the Indian company at their meeting held on March 30, 1981, at which three directors representing the Swedish group were also present, resolved to support the scheme propounded by Beni Ltd. It was further pointed out that at the board meeting held on July 27, 1980, it was recorded that the amount due and payable by Beni Ltd. was considered "good and realisable". 99. ....
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....ent application was moved and the interim orders obtained that at a meeting of the board of directors held on September 25, 1981, it was resolved to constitute a sub-committee to devise a method for taking steps in pursuance of the report of M/s. S. R. Batliboi & Co. According to the petitioners, it will appear from the draft minutes of the board meeting dated September 25, 1981, as circulated by the secretary of the Indian company and as purported to have been corrected by the chairman, that the chairman, Mr. Shah, has manipulated the minutes and inserted an item therein for revival of the report of M/s. S.R. Batliboi & Co. although this was not one of the items of the agenda for that meeting. 102. Mr. S.B. Mukherjee submitted that in the context of the above facts and circumstances, the petitioners had cause for genuine apprehension when they came to court regarding the termination of the sole selling agency agreement. This apprehension, according to Mr. Mukherjee, is fully justified by the extremely hostile attitude which is taken by Mr. M.T. Shah in his affidavit-in-opposition. It was submitted that the court should not allow the termination of the sole selling agency by the....
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....transmit the shares in the name of Mrs. Daphtary in clear violation of articles of association of the Indian company. (f) A sum of Rs. 42,000 was paid to Mrs. Daphtary without any resolution of the board of directors and at the instance of Mr. Shah as an inducement for transfer of 2% shares in favour of Shah. (g) The meeting of the board of directors was held on August 25, 1981, notwithstanding the request for adjournment by Mr. Singhania by his letter dated August 10, 1981, and by Mr. Jalan in his telex dated August 18, 1981. Significantly, the most vital and important decisions regarding the transfer of 9% shares to Mr. Shah and the transmission of 2% shares in favour of Mrs. Daphtary were taken at this board meeting although none of these items featured in the agenda of this meeting. And although the agenda was circulated on August 21, 1981, none of the nominee directors of the Indian shareholders were present at the meeting. (h) At the meeting of the board of directors held on June 23, 1981, it was resolved that the report of M/s. S. R. Batliboi and Co. should not be pursued for the time being. This was sought to be revised at the instance of Mr. Shah....
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.... adopted to acquire the 2% shares of Mrs. Daphtary and its transfer to Mr. Shah is directly wrongful and illegal as to deprive the petitioner of their pre-emptive right granted by the articles of association of the Indian company. 105. It was pointed out by Mr. Mukherjee that the real opposition in this case is not from the Swedish group but from Mr. Shah. It was pointed out that the affidavit filed, on behalf of the Swedish group, by Mr. Subramonium merely adopts the statements made in the affidavit of Mr. Shah. It was pointed out with reference to the main petition that initially there was complete confidence in M.T. Shah. It was submitted that this is not unusual in the case of companies which are really governed by the principles of partnerships that relations are founded on mutual faith and confidence. However, a point of time may arrive when such mutual faith and confidence is lost. It was submitted that the petitioners in the instant case are justified in losing, their confidence in Mr. Shah because of the hasty steps he took since the passing of the board resolution at the meeting held on August 25, 1981, regarding the transfer and transmission of shares which were entir....
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....ad assented to the legacy of the 2% shares in favour of Mrs. Daphtary: My attention was drawn in this connection to Section 333 of the Indian Succession Act, 1925, which is in the following terms : "333(1). The assent of the executor or administrator to a special bequest shall be sufficient to divest his interest as executor or administrator therein, and to transfer the subject of the bequest of the legatee, unless the nature of the circumstances of the property require that it shall be transferred in a particular way. (2) This assent may be verbal, and it may be either express or implied from the conduct of the executor or administrator." 109. Although considerable arguments were advanced by Mr. Mridul which were sought to be repelled by Mr. Mukherjee, in my view, the legal position on this aspect of the matter is perfectly simple. Mr. Mridul's submission on this point is totally unacceptable for two reasons. In the first place, Section 333 of the Indian Succession Act can only be invoked when there is a question of the executor's assent to a specific legacy. As will appear from the will of the late Mr. Daphtary which has been set out in an ea....
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.... late Mr. Daphtary in favour of Shah could not be held to be valid resolutions inasmuch as there was no agenda with regard to those resolutions at the relevant meeting. This contention of Mr. Mukherjee was sought to be answered by Mr. Mridul by the submission that under the law an item not on the agenda can also be taken up. According to Mr. Mridul, the principle of law is well settled that notice of a board meeting need, not unless strictly otherwise provided, specify the nature of business to be transacted. 115. It was submitted by Mr. Mridul that the relevant articles of association of the Indian Company with regard to board meetings are Articles 113 and 114. Those articles are in the following terms : "113. The meetings of the board shall be held in accordance with the provisions of Section 285 of the Act and notice of such meetings shall be given to every director in accordance with the provisions of Section 286(1) of the Act provided notice of such meeting shall be sent to the directors residing out of Calcutta by registered air-mail post or by cable so as to reach the addressee thereof in the normal course at least twenty-one days before the date of the meeting u....
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....hose business it is to attend to the transaction of the affairs of the company or corporation. It is not uncommon for directors conducting a company's business to meet on stated days without any previous notice being given either of the day or of what they are going to do. Being paid for their services--as they generally are, and as is the case in this company--it is their duty to go when there is any business to be clone; and to attend to that business whatever it is and I cannot now say for the first time that as a matter of law the business conducted at a directors' meeting is invalid if the directors have had no notice of the kind of business which is to come before them. Such a rule would be extremely embarrassing in the transaction of the business of companies. " 119. Reference was made by Mr. Mirdul in this connection to Palmer's Company Law, 22nd edition, Volume I, at pages 661-62, where the following passage occurs : " The articles usually provide that any one director may summon a meeting directly or by requesting the secretary to do so. Prima facie, due notice must be given convening a meeting of directors, and in default the meeting is i....
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....e sons as members and not merely as directors were oppressed by the singular conduct of the father. The oppression must no doubt be oppression of members as such, but it does not follow that the fact that the oppressed members are also directors is a disqualifying circumstance when the question of relief under Section 210 arises. " 123. It may be noted that Section 210 of the English Act corresponds to Section 397 of the Indian Act. 124. Reference was also made by Mr. Mukherjee to the decision of Mallick J. in the case in Albert David Ltd., In re [1964] 68 CWN 163. Reference was placed to a passage at page 175 of the report which is as follows : " According to Mr. Mukherjee, a shareholder is given the right to apply under Sections 397 and 398, when his right as shareholder is affected. If his right qua director is affected, that is, if he is improperly removed from the board or prevented from being appointed as a director, this infringement of a shareholder's right cannot be the foundation of an application under Sections 397 and 398 of the Act, I am unable to agree with Mr. Mukherjee. The right to appoint a director is a very valuable right of a shareholder and ....
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....sion over a period before he can invoke the powers of the court. If the oppression is of short duration but is of such a lasting character that redress is impossible by calling board meetings or general meetings of the company, a case for intervention under Section 397 is made out." 127. On the strength of the above declarations, it was submitted by Mr. Mukherjee that our courts have held if there is a single act which gives rise to a chain reaction, that would be sufficient for invoking the jurisdiction of this court. The present case, according to Mr. Mukherjee, is of such a type. 128. Dealing with Mr. Mridul's submission as to an alternative remedy, Mr. Mukherjee pointed out that, according to Mr. Mridul, three alternative remedies were available to the present petitioner. The first is a suit for injunction. The second is an approach to the Reserve Bank under the FERA. The third is a rectification application under Section 155 of the Act. 129. As a proposition of law, Mr. Mukherjee submitted that the proceedings under Sections 397 and 398 being a remedy alternative to winding up, the court is not called upon to find out whether there is an alternative to an alternat....
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....ples of this case have been applied and accepted by our Supreme Court to the extent that where, before being incorporated, there was a partnership or where the shares are held more or less equally, the partnership principle will apply. 133. On the amplitude of the court's power to give relief in an application under Sections 397 and 398 of the Act, strong reliance was placed on a recent decision of a Division Bench of this court in the case of Debi Jhora Tea Co. Ltd. v. Barendra Krishna Bhowmick [1980] 50 Comp Cas 771. At pp. 782-83 the following passage occurs : " It should be borne in mind that when a court passes an order under Sections 397, 398 and 402 as has been done in the instant case, there could be no limitation on the court's power while acting under the sections. Instead of winding up a company, the court under the abovementioned sections has been vested with ample power to continue the corporate existence of a company by passing such orders as it thinks fit in order to achieve the objective by removing any member or members of a company or to prevent the company's affairs from being conducted in a manner, prejudicial to the public interest. The ....
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....that the court had power to make the order in regard to convening and holding of the meeting, filing of proxies or nominations or any other matter for the purpose of conducting the affairs of a company which might be contrary to the provisions of the articles of the company or the Companies Act, by virtue of the provisions of Sections 397 and 398 read with Section 402 of the said Act." 135. On the question of the wide amplitude of the court's power in granting relief in a petition under Sections 397 and 398 of the Act in exercise of powers under Section 402 thereof, reference was made by Mr. Mukherjee to the Supreme Court decision in the well-known case of Cosmosteels Pvt. Ltd. v. Jairam Das Gupta [1978] 48 Comp Cas 312. At p. 318 of the report, it is as follows : " The scheme of Sections 397 and 402 appears to constitute a code by itself for granting relief to oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia, lifting the ban on a company purchasing its shares under court's direction, is conferred on the court. When the court exercises this power by directing a purchase of its shares by the company, it ....
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....herjee as showing the widest amplitude of powers the court has under Section 402 of the Act. It was submitted that in exercise of that power, the court could if necessary override certain statutory provisions of the Companies Act as has been done in the above case. 137. On the question of the application of the partnership principle in an application for winding-up of a company under the just and equitable clause, Mr. S.B. Mukherjee relied on a decision of the Supreme Court in the case of Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91. Although that case related to the winding-up of a company, Mr. Mukherjee referred to Section 397, which, inter alia, provides that the court must be of the opinion that the facts in Section 397 application would justify the making of a winding-up order on the ground that it was just and equitable that a company should be wound up. 138. In that case, it was held that in a case where the shareholding is more or less equal and there is a case of complete deadlock in the company on account of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company....
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....f the present case. I accept the contention of Mr. Mukherjee that this consent must be given by each individual shareholder and cannot be inferred by the presence of any shareholder as representing a "group" at a board meeting or even by his implied assent. To put it concretely, even assuming that the presence of Mr. B. Singh or of the nominees of the Indian group could be construed as an implied assent to the transfer of the 9% shares of the Swedish group in favour of Mr. Shah, such implied assent would not amount to a compliance with the abovementioned articles with regard to the transfer. I accept the submission of Mr. Mukherjee that such consent, as mentioned above, would have to be the individual act of each shareholder and cannot be spelt out in a representative manner. It would follow that I reject the somewhat elaborate submission of Mr. Mridul on this aspect of the case. 142. With regard to the question whether a mere illegality or an action of the company contrary to the articles would by itself warrant the interference of the court under Sections 397 and 398, I am of the opinion that this legal proposition which was not disputed does not stand in the way of the petiti....
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....e view that the attempts by the nominees of the Swedish group to rake up S. R. Batliboi and Co.'s report, although at an earlier board meeting it was decided not to take any steps pursuant to the report for the present, is nothing but an attempt on behalf of the Swedish group and its nominees to find a ground for termination of the sole selling agency in favour of petitioner No. 5. I hold that the petitioners were justified in being apprehensive that attempts would be made to terminate the sole selling agency agreement which is otherwise valid up to May, 1983. It would follow that I am of the view that the petitioners are entitled to relief on this account also. 148. It should be evident from what I have stated hereinabove that the petitioners, in my view, have made out a case of oppression within the meaning of Section 397 and are entitled to appropriate relief. 149. In the result, this application succeeds. The resolution passed at the board meeting of respondent No. 1 held on August 25, 1981, purporting to transmit the 812 shares of the late A.C. Daphtary in favour of Mrs. Leila Daphtary is declared void and illegal and the same is directed to be delivered up cancelled....