TaxTMI 
TaxTMI 
2007 (11) TMI 674
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....corporated under the Act. Appellant No. 2 namely K.P.P. Nambiar being a nominee of the first appellant has been a shareholder of the first respondent company namely GE Thermometries India Private Limited which was originally incorporated under the Act in the year 1993 as a Private Limited Company under the name and style "Bowthorpe 'Thermometrix (India) Pvt. Ltd" with its registered office at Bangalore with the objective of manufacturing and marketing of sensors including all type of Termistors, 'Thermistors Probes and Thermistors Electronics. This first respondent company has been a Joint Venture Company and hereinafter, it is referred as "JV Co". (b) The first appellant company and its nominees hold 26% of the issued, subscribed and paid up share capital of first respondent JV Co., and the balance 74% thereof are held by the second respondent company namely GE Pacific (Mauritius) Ltd. This 2nd respondent is a subsidiary company of the third respondent namely General Electronic Company (GE Co. for short). The Board of directors (BOD for short) consists of eight directors. The first appellant company has right to nominate 2 directors and the second resp....
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....uiry in the matter, the CLB though did not incline to grant any of the relief of declarations and injunctions sought for by the appellants in the said petition, but, by the impugned order dated 12.05.2006, it directed the appellants, who are minority shareholders, to sell their shareholdings to second respondent company which has been a majority shareholder of JV Company at a fair value which shall be determined by an independent and reputed firm of Chartered Accountants. (f) Aggrieved by the said order of CLB, the appellants have filed the present appeal praying this court to set aside the said direction in the said impugned order and to direct that the second respondent and its nominees to sell their shareholdings in JV Co., by giving the appellants first option to purchase the same at a fair value to be determined by M/s. Price Waterhouse Coopers, Chartered Accountants. The appellants have also sought for in the appeal such further orders as considered appropriate and necessary by this court having regard to facts and circumstances of the case. 3. We have heard the arguments of the learned Counsel for both the parties. Though the appellants have formulated in the Memorandum of....
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....6.6.2006. the authorized signatory of the first respondent-JV Co. addressed a letter to the appellants and respondent No. 12 (the Managing Director of JV Co.), suggesting names of 3 firms of Chartered Accountants for the said purpose. In response to this letter, the respondent No. l2-Padman wrote his letter dated 14.6.2006 on behalf of the first appellant Company to the second respondent Co. stating that the appellants agree with the suggestion of the first two firms mentioned in the letter dated 6.6.2006 for appointment as valuer for determining the fair price of shares of JV Co. in compliance with the said order of CLB and that in the event of the firm of Chartered Accountants at serial No. 1 viz., Price Waterhouse Coopers expressing its inability to conduct valuation, then they accept the firm at Sl. No. 2 viz., Ernst & Young as the valuer. The copies of these two letters are produced by the appellant along with the memorandum of appeal and they are found respectively at page Nos. 58 and 57 of paper book and they are not disputed by the other side. 6. It is an undisputed fact that in compliance with the said direction of CLB in the impugned order, both the parties appeared befo....
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....ted by both the sides, and the order of CLB dated 19.6.2006, it is clear that both the contesting parties have accepted that portion of the impugned order which relates to appointment of an independent valuer for determining the fair value of the shares of the first respondent-JV Co. However, though the contesting respondents have unconditionally accepted the finding of the CLB that in view of the strained relationship between the parties, they cannot go together in the administration of the first respondent-JV Co. and accordingly they must part their ways, and therefore the appellants should sell their shareholdings in JV Co. to the 2nd respondent Co., the appellants and respondent No. 12 have accepted the same, as stated by respondent No. 12 in his said affidavit, without prejudice to their right to challenge its correctness. This being so, the appellants have challenged in this appeal this finding along with all other findings recorded by CLB against them. The relevant observations of the CLB in the impugned order as to this finding is as under: The cumulative effect of these developments led to deadlock situation in the affairs of the Company, warranting a permanent solution, ....
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....nd other matters relating to administration of its day to day affairs. Besides this, the second respondent has also filed I. A.11/07 in this appeal seeking directions of this Court restraining respondent No. 12, the Managing Director of JV Co. from taking any action in the name of the said company without consent of its BOD and also seeking directions against him to hold the meeting of BOD and to take all actions as per the decisions of the BOD. Besides these facts there are several other undisputed facts also, such as correspondence between the appellants and the 3rd respondent GE Co. and its nominees in the JV Co., making allegations against each other, the passing of resolutions by the BOD of JV Co. providing for supervision of BOD the functioning of Respondent No. 12 as the Managing Director of JV Co, in respect of its management and for issuing certain directions to him by the BOD with regard to his powers and functions, etc, which have been referred to and discussed by the CLB in its impugned order, clearly establish that the both the parties can not go together in running J.V. Company. 11. In the case of Kamal Kumar Dutta and Anr. v. Ruby General Hospital Ltd. and Ors. (200....
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.... problem. To my mind giving the property of the company on lease would not solve the problem. The solution can only be found in one of the groups purchasing the shares of the other. 12. All the said undisputed facts referred to supra, considered together in the light of the observations of Hon'ble Supreme Court in the above two cases, we find that the above finding of the CLB that there are no chances of both parties jointly running the said company and therefore the only way to ensure smooth and healthy functioning of the said company is that the parties must part their ways is quite justified. Therefore, we are of the considered view that this finding does not call for any interference in this appeal. 13. After having found that the CLB was justified in recording its finding that both the parties cannot go together in the administration of the Company, now the question arises as to which of the parties shall have to be ordered to quit the company by selling their shareholdings to the other party. On this question Sri Naganand, Sr. Counsel appearing for the appellants, placing his reliance on the following decisions; i) Scottish Co-operative Wholesale Society Ltd v. Meyer a....
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....shareholders and employees, has rightly directed the appellants being minority shareholders to sell their shareholdings in the said company in favour of the second respondent company and as such the said direction does not call for any interference in this appeal. 15. In Scottish Co-operative Wholesale Society Ltd. which is relied upon by the learned Sr. Counsels for both parties it is observed at pages 66, 72 and 89 as under: The conduct of the appellants was oppressive and, in view of the facts that the company was a subsidiary of the appellants and that the appellants' nominees on the board of the company were participating in the policy of the appellants, was also oppressive conduct of the affairs of the company within Section 210 of the Companies Act, 1948, although the misconduct of the nominee directors was negative, being passive neglect of the company's interests. (page No. 66 ) Some criticism was made of the relief given by the order of the court It was said that only that relief could be given which had as its object and presumably its effect the "bringing to an end of the matters complained of' and that on order on the society to purchase the responde....
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....MR, it may well be that the petitioners have in any event become entitled to purchase the shares in the company held by FMR under the provisions of the shareholders' agreement of 23 July 1987, to which I referred earlier in this judgment on the ground that FMR has ceased to trade or is unable to pay its debts. I shall consider with counsel the form of order to be made to provide for the sale of FMR's shares to the petitioners. Placing strong reliance on these observations Sri Naganand, learned senior Counsel for the appellants submitted that CLB ought to have ordered the majority shareholders to sell their shares to the minority shareholders (appellants). Rebutting this argument Sri Sudhipto Sarkar, the learned senior counsel for the second respondent, submitted that as could be seen from the above observation in the said case there was evidence as to unsatisfactory financial position of FMR and it had ceased to trade or was unable to pay its debts and therefore it was ordered to sell its shares to the petitioners who were minority shareholders but the same is not the situation in this case. This argument deserves acceptance and therefore we hold that the above observation ....
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.... of wrong legal principles or by not following the precedents, the appeal court can interfere with the discretion so exercised by the trial court. In this case, the trial court, while issuing the impugned directions, did not at all take into consideration that, in all other cases, minority shareholders had been directed to sell their shares in favour of the majority shareholders. An exceptional case ought to have been made out for granting the extended relief in favour of respondent Nos. 1 to 3. On the facts, the impugned order was modified, that is to say, it was ordered that instead and in place of the appellants selling their shares in favour of respondent Nos. 1 to 3 and their group, respondent Nos. 1 to 3 and their group shall sell their shares to the appellants and their group on the same terms and conditions and upon determining the market value in the manner laid down by the trial court The submission of Sri Naganand the learned Sr. Counsel for the appellants, made on the basis of those observation of Calcutta High Court that the CLB exercised its discretion in issuing the impugned direction on the basis of wrong principles of law and also without following the precedents ....
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....herwise, the minority group of shareholders comes into power and management of the company. The majority shareholders by virtue of their majority will usually be in a position to redress all wrongs done and to undo the mischief done by the minority group of shareholders, as it will always be possible for the majority group of shareholders to regain control of the company so long as they remain in majority in the company by virtue of the majority. Except in unusual circumstances, the majority group of shareholders in my opinion, should never be ordered or directed to sell their shares to the minority group of shareholders. An order directing the majority group of shareholders to sell his shares to the minority group of shareholders will not redress The wrong done to the majority group of shareholders and will not give him sufficient compensation or relief against the act of oppression complained of by him, and, on the other hand, may add to his suffering and grievance and cause him greater hardship. Such an order will not further the ends of justice and indeed the cause of justice may be defeated", (para No. 25). The Hon'ble Supreme Court further observed at para 38 of the....
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....st option to purchase and, secondly, what is the price at which the shares be fixed. The managing director is an old man of nearly 84 years of age. Though he is willing to run the company, yet to my mind it will not be a long-term solution to ask him to purchase all the shares. Though all the allegations of oppression have been made against respondents Nos. 3 and 5, to my mind they should be given the first option to purchase the other shares. The oppressor being asked to purchase the shares is not something which is unknown to company law. (See Scottish Co-operative Wholesale Society Ltd. v. Meyer (1958) 3 All ER 66 at page 89 : (1959) 29 Comp Cas 1). It is admitted by the petitioner that for the last few years it is respondents Nos. 3 and 5 who have been managing the affairs of the company. According to the said respondents, and there is nothing to the contrary on the record, after respondent No. 5 had been inducted into the company the said company started making profits whereas previously it was incurring losses. In my view, therefore, it will be more beneficial for the company, at this stage, that the control goes into the hands of respondents Nos. 3 and 5. It may also be noti....
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.... in the case of Combust Technic Pvt. Ltd., in re. reported in (1986) Vol. 60 Company Cases 872. The facts of the said case were; There were only 30 shares and two shareholders-Directors of the said company of whom one was holding 14 shares and another 16. The dispute arose between the said two shareholders and consequently they ceased to attend the Board Meeting and stopped the bank account of the company. The petitioner therein who was a minority shareholder held a Board Meeting by himself and issued to himself further shares and thereby converted himself into a majority shareholder and also co-opted another director. On these facts the court observed as under: That admittedly there was mutual lack of confidence in the conduct and management of the company's affairs and as NP constituted the majority, it might not be possible for the petitioner to remedy such mismanagement in the domestic forum. On facts, the principles governing the dissolution of a partnership were attracted and the company could be wound up on just and equitable grounds, the application was maintainable. NP could not be kept out of management whatever be her competence. Majority was matter of arithmetic an....
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.... groups of shareholders were individuals but not the corporate bodies as in the present case. Further, in first of the said cases the acts of Managing Director Ramanujam allotting 6,865 equity shares of the company in his favour only without notice to the respondent Prathapan were held to be constituting fraud against Prathapan besides being oppressive against him and therefore the majority shareholders were ordered to sell their shares in favour of the minority shareholders, which is not the fact situation in the instant case. Further, in second of the said cases i.e., Mahabir Prasad Jalan and Anr. (supra) while modifying the order of the trial court that the appellants being majority shareholders should sell their shares to the respondent No. 1 to 3 therein, who were minority shareholders, the High Court observed that the trial court, while issuing the said impugned directions, did not at all take into consideration that in all other cases minority shareholders had been directed to sell their shares in favour of the majority shareholders and that an exceptional case ought to have been made out for granting extended relief in favour of respondents Nos. 1 to 3. The rival groups in ....
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..... (supra) the relief that has to be given under Sections 397 and 398 of the Act depends upon the facts of the particular case, therefore, having regard to all the peculiar facts of the present case and in the best interest of the company and its employees we have to see whether the direction issued by the CLB that the appellants shall sell their shares to the second respondent calls for any interference or it deserves to be left undisturbed or it needs to be modified. 27. It is not in dispute in the instant case that the first appellant company and its nominee namely respondent-12 the Managing Director of the JV Co. have founded the said company and contributed to a large extent towards its growth from the day of its incorporation in the year 1993 and till the third respondent GE Co. purchased 76% of its shares through its subsidiary company i.e., second respondent and also thereafter till to this date. Further, it is also not in dispute that by reason of entry of third respondent GE Co. into JV Co. in the year 2001 the latter company could grow to its maximum possible extent inasmuch as the net profits of JV Co. during initial six years (from 1993 to 2000 i.e., before the entry o....
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....t despite it being capable of running the company. Further, the outgoing group, whether it be the group of appellants or that of contesting respondents, would not be in a position better than the group which continues to run the company because the outgoing group has to spend considerable time and energy to establish its own industry with the proceeds of the sale of its shares and to earn profits therefrom. Besides this such group has to suffer monetary loss also as it would not be getting any income till its new establishment starts earning profits. On the other hand the group which acquires the management of the company and continues to run it would be in a position better than the outgoing group because it could proceed with the production of its products and sell in the world market without any time gap. Therefore, we are of the considered view that the outgoing group has to be adequately compensated by the group which continues to be the management of the company so as to enable the outgoing group to establish its own industry by spending considerable time and earn profits with the money which it gets by sale of its shares. 30. It would not be possible to achieve this object ....