AI Drafter 
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2024 (1) TMI 189
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....n Impugned Order dated 18/09/2019 in TCP No. 1/2016 (CP No. 94/1999) and TCP No. 88/2016 (CP No. 20/2012) passed by the National Company Law Tribunal, Chennai Bench, by which common Order, the NCLT has dismissed both the Company Petitions, as devoid of merit. 2. At the outset, a brief history of the various Orders and the reliefs prayed for are being detailed as hereunder for better understanding of the case. The reliefs prayed for in Company Petition TCP No. 1/2016 filed by Mr. Shankar Sundaram against 26 Respondents seeking to implead another 21 Respondents, are detailed as hereunder: a) "Appointment of an independent Administrator to take charge of the affairs of the first respondent, Amalgamations Ltd. This will be necessary to regulate the conduct of the first respondent and affairs in future as stipulated under Section 402 (a); b) To terminate the appointment of the second respondent as Chairman/Director of the first respondent and also the Chairman and Managing Director of TAFE Ltd. c) To terminate the appointment of Mr. S. Balasubramaniam and Mr. P.V. Sundaram as Directors of Addisons Paints and Chemicals Ltd; and to appoint an independent Chai....
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....5th respondent to obtain on job work/out-source such of those paint products wherein the cost of production exceeds the nett sales realisation. d) To direct TAFE (8th respondent) to purchase their requirements of paints from the 5th respondent as per the earlier prevailing practice of the Amalgamations Group. e) To appoint the petitioner as a Director on the Board of the 1st respondent and entrust him with an office of profit in one of the larger profit making subsidiary company of the 1st respondent commensurate with the educational qualifications and work experience on an equal footing with the other members currently working in the AL Group. f) Appointment of Chartered Accountant to investigate accounts of Amalgamations Ltd., India Pistons, Bimetal Bearings, TAFE etc. where serious discrepancies as mentioned in para 6.5 above have been pointed out. g) To restrain the statutory auditor of the first and fourth respondents (M/s R.G.N. Price & Co.) from functioning as the Auditors of the aforesaid companies. h) For such or other reliefs that this Hon'ble Company Law Board may deem fit in the facts and circumstances of the case." 4.....
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....and proper under the facts and circumstances of the case and thus render full justice." 6. The Company Law Board Principal Bench in the matter of 'Shankar Sundaram Vs. Amalgamations Limited' in CA No. 48/2000 in CP No. 94/1999, dated 18/10/2000 observed that the Company has 38 subsidiaries and some of the subsidiaries are in turn 'Holding Companies' of other 'Subsidiaries' and in that Company Petition the Petitioner had arrayed 17 subsidiaries as Respondents and had sought reliefs against some of the subsidiaries in terms of Section 402 of the Companies Act, 1956. It was observed that the Petitioner other than holding 10% shares in the Company does not hold any shares in any of the subsidiaries except in one. In that background, the first Respondent Company as well as some of the Respondent subsidiaries have questioned the maintainability of the Petition against the subsidiaries in as much as the Petitioner does not fulfil the requirements of Section 399 of the Act as far as these subsidiaries are concerned. The Respondents had sought for deciding the issue as a preliminary issue before considering the Petition on merits. The Company Law Board (CLB) while....
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....plication on facts and circumstance of the case. But the Company Law Board has held that the main Company Petition under Section 397 of the Act is not demurable or objectionable in the absence of subsidiary Companies and their directors and share holders and in appropriate case, they would come under the expression affairs of the Company meaning the affairs of the holding Company" Further, it was also held that "Therefore, when a person is not a member of a Company, his alleging oppression and invoking the provisions of Section 397 against that Company does not arise. Therefore, a shareholder of a holding Company cannot complaint of oppression by a subsidiary in which he is not a member as there is no legal relation between him and the subsidiary Company." ....... 48. The Company Law Board has rightly concluded that the Company Petition is essentially a Petition against the holding Company. Therefore the Company Law Board found that without even going into the merits of the case and ordering investigation into the affairs of the holding Company, the Court cannot definitely order for investigation into the affairs of the subsidiary Companies. In fact, if it is foun....
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....ned Single Judge, the Company Law Board has not made any error in recognising the statutory right of the Respondent herein under Law to file a Petition under Section 214(2) read with Section 235 of the Act. Further, in view of the fact that we have categorically held that the order of the Company Law Board ordering to delete the names of the subsidiary Companies from the array of parties in the Company Petition and permitting the holding Company to file objections relating to the objections made against them is valid, we do not find any reason to interfere with the order passed by the learned Single Judge in C.M.A. No. 2036 of 2002 and therefore, the relief sought for in LPA No. 130 of 2002 cannot be granted. 51. In the result, we allow LPA Nos. 129 & 131 of 2002 by setting aside the order dated 3.6.2002 passed by the learned Single Judge in C.M.A. No. 2018 of 2000 and restore the order passed by the Company Law Board deleting the names of the subsidiary Companies from the array of parties from the Company Petition No. 48 of 2000. Consequently, we dismiss the LPA No. 130 of 2002 by confirming the order dated 3.6.2002 passed by the learned Single Judge in C.M.A. No. 2036 of....
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....e outset, the first issue raised by the Learned Senior Counsel for the Appellant is that equal rights were denied to equal inheritors, which is argued to be an act of oppression against the Appellant. It is submitted that Mr. Ananta Ramakrishnan was owning the entire 100 % shares in the first Respondent Company when he died intestate on 18/04/1964 and all his shares were devolved equally among his five legal heirs namely, his wife, his two sons and his two daughters, one of whom was the Appellant's mother. The Learned Senior Counsel drew our attention to the family tree for better understanding of the shareholding pattern. 10. It is the case of the Appellant that having equally inherited all the shares, the legal heirs had become equal partners of the first Respondent Company with equal rights and in the absence of any specific component in the Articles of the Company or any other Agreement contrary to this position, the Appellant ought to have been given equal rights. After the demise of the Appellant's grandfather, the sons were inducted into the Board and started managing the Company while Auditors were kept out of the Board. It is submitted that the Appellant's g....
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....0,00,000/- on an average. It is submitted that by 2018 the said amount escalated to Rs. 512.25 Crores which is an average of Rs. 52 Crores p.a. and that today it has crossed Rs. 850 Crores, the average being Rs. 100 Crores p.a. It is the case of the Appellant that Mr. Sivasailam and his two daughters namely Mallika Srinivasan and Jayshree Venkatraman and his granddaughter Lakshmi Venu along with Mr. Krishnamoorthy had appropriated Rs. 478.88 Cores; Seetha Venkatraman's husband and sons Rs. 26.33 Crores, while the Appellant's sister Lakshmi Narayanan got Rs. 7.04 Crores. During this entire period the Appellant was never given any position or remuneration / Commission exhibiting disparity and discrimination. 13. It is submitted that the contention of the Respondents that all such remuneration and commission are well within the maximum limits permitted under the Companies Act, 1956 is no justification for such discrimination and that such an act is an oppressive one. 14. The Learned Counsel for the Appellant also placed reliance on para 49 of the Judgment of the Hon'ble Apex Court in the matter of 'Needle Industries (India) Limited and Ors. Vs. Needle Newey (Indi....
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....de intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands." (Emphasis Supplied) 15. In support of his submissions regarding such acts of oppression, Learned Senior Counsel placed reliance on the Judgment in the matter of 'JM Housing Limited & Ors. Vs. Mr. Surender Kumar Gupta & Ors.' in Company Appeal (AT) No. 182/2020, in which it is held as follows: "55. It is to be pointed out th....
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....rped by them, placed themselves and their kith and kin in posts of profit in the subsidiaries and fixed unjustifiably exorbitant remuneration for such posts and in this process a major chunk of the profits earned by the subsidiaries was fritted away towards such high remuneration and only a meagre portion of the real profits earned by the subsidiaries were reflected in the books of the 1st Respondent Company as profits, dividends, interests etc. It is argued that the dividends were declared to the members of the 1st Respondent Company and paid only on such meagre profits. It is submitted that had the management acted fairly and not siphoned off a major portion of the profit the dividends would have been much more and this is a clear fraud on the majority. There is no reason given for not giving an equal opportunity to the Appellant in the group Companies under the control of the 1st Respondent to earn remuneration and commission on par with the others. It is submitted that even after the death of AS in the year 2011, his daughter Mallika Srinivasan continued to act in the same style and manner, appointing her daughter as the Director of the Subsidiary and fixing here remuneration a....
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....ere being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts. . . with reference to Section 397." (p. 737) At pp. 734-35 of the judgment in Kalinga Tubes [(1965) 2 SCR 720, 737 : AIR 1965 SC 1535. Wanchoo, J. has reproduced from the judgment in Meyer [1959 AC 324 : (1958) 3 All ER 66 (HL)] the five points which were stressed in Elder [1952 SC 49]. The fifth point reads thus: The power conferred on the court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding-up order. 52. ....
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....e and Carrington Investment (P) Ltd. v. P.K. Prathapan [(2005) 1 SCC 212] (d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [(2005) 11 SCC 314] (e) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [(2006) 7 SCC 613] From the above decisions, it is clear that oppression would be made out: (a) Where the conduct is harsh, burdensome and wrong. (b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-Ã -vis the others. (c) The action is against probity and good conduct. (d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398. (e) Once conduct is found to be ....
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.... ratio of 25:75 in a family arrangement; that there was no dividend payable at all. It is distinguishable as Simpson, TAFE and TMPL are all Public Companies and no remuneration can be drawn beyond 11 % of the net profits in accordance with Law. In the instant Case, the Appellant has been receiving dividend but it is his grievance that the dividend is not at par with the other Shareholders. 24. At this juncture, to ascertain whether the Appellant was being paid dividend and whether he had approved the same while attending the Annual General Meetings, the said statement showing the proposals of the various Annual General Meetings of the first Respondent Company is reproduced as hereunder: 25. It is seen from the aforenoted statement that the AGMs were conducted periodically and they were all attended by the Appellant right from 1984 to 1999 and the Appellant had approved the 'proposed' dividend. There was no objection raised in any of those Meetings as per Documentary evidence on record regarding the quantum of dividend. Even on 30/09/1999, which is one month prior to the filing of Company Petition, the Appellant had attended the Meeting and approved the dividend propos....
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.... Company, with the intention of vesting controlling interest of the Amalgamations group, in the hands of the two sons and the family members and thus quell the impending conflict in the management thereof. The transfer of Valli's 20 % shares was to avoid a possible deadlock and to vest in her two sons so that they could control R1 Company and through it, the other Companies of the group. The Learned Counsel for the Appellant submitted that Mrs. Mallika's statement in Paras 34 and 35 in her Petition clinches the issue 'The Plaintiffs reliably understand from the records available that initially for the first few years, the Defendant No. 2 Company (R1 Company) paid the dividends to the owners, namely, Mr. A. Sivasilam and Defendant No. 1 (AK)..." ... "Accordingly, from the year 1993 onwards the Plaintiffs understand that the dividends which have been declared by Defendant No. 2 (R1) Company have been paid by drawing cheques in favour of the respective Trusts...". Hence, it is the case of the Appellant that these statements made by Mrs. Mallika establish that the control of the Subsidiaries vested with the Holding Company and that the associated Companies are inextricably ....
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....set v. Daniel the limits were found in the "general meaning" of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law." * 'Hind Overseas Private Limited Vs. Raghunath Prasad Jhunjhunwalla and Anr.' reported in (1976) 3 SCC 259 "33. When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity ....
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....r Section 433(f) of the Companies Act by a three-Judge Bench of this Court in Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla [(1976) 3 SCC 259 : AIR 1976 SC 565] following Ebrahimi [(1972) 2 All ER 492 : 1973 AC 360 : (1972) 2 WLR 1289 (HL)]. However, it was observed that when more than one family or several friends and relatives together form a company and there is no right as such agreed upon for active participation of members who were sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. 229. In Kilpest (P) Ltd. v. Shekhar Mehra [(1996) 10 SCC 696] it was stated: (SCC p. 701, paras 11- 12) "11. The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under Section 402, very rarely would it be necessary to wind up any company in a petition filed under Sections 397 and 398. ....
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....nancial performance of these Companies. The balance sheets of the Subsidiaries are also placed for adoption in the AGMs of the Holding Companies. The Appellant is therefore estopped from questioning the appointments and remuneration after having approved the consolidated Annual accounts of the entire group for years together. 30. It is submitted that the 1st Respondent Company or its Subsidiaries cannot be treated as a quasi-partnership. It is the common case of the Respondents that the observations made in 'Ebrahimi Vs. Westbourne' (Supra) are not applicable to this case and that the principles for applying equitable considerations i.e. the principles of quasi-partnership have been dealt exclusively in 'Hind Overseas Pvt. Ltd. Vs. Raghunath Prasad Jhunjhunwala' reported in [1976 3 SCC 259] and in the matter of 'Tata Consultancy Services Ltd. Vs. Cyrus Investments Pvt. Ltd.' [(2021) 9 SCC 449]. 31. At this juncture, we find it appropriate to address the issue as to whether any excessive remuneration and commission paid to the Directors of the Subsidiaries and consequent reduction of dividends, if any, would constitute an act of Oppression and Mismanagement. It....
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.... is a question of fact to be determined in each case. The facts of the attendant case do not show that there is any 'lack of probity' or 'fair dealing' relating to the exercise of proprietary rights as a Shareholder to constitute oppression. Admittedly, the remuneration paid to the Directors of the Subsidiaries is within the limits prescribed under the Companies Act, 1956 and also the Companies Act, 2013. It is also significant to mention that none of the Shareholders of the respective Subsidiaries have complained with regard to the remuneration paid to the Directors of the respective Companies, neither have they challenged their appointment. It is the case of the Appellant there is a 'legitimate expectation' of being appointed as Director with remuneration so as to enjoy the profits of the Subsidiaries in addition to the dividends by virtue of inheritance of shares from his late mother who in turn inherited the shares from her father. It is the Appellant's case that pre-existing partnership is not a necessary condition for applying partnership principles to a Company, though it might be a sufficient condition. We are of the view that the principles of q....
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....hall be considered for the purpose of grant of relief having regard to the concept of quasi-partnership. 'Sangramshinh' has reiterated the principle in 'Shanti Prasad Jain' referring to 'Elder Vs. Elder and Watson Ltd.' 1952 SCC 49 in which it was categorically held that the conduct complained of must relate to the manner of management of the affairs of the Company and must be such so as to oppress the minority of the Members including the Petitioners qua-shareholders. The Court also opined that Law, however, has not defined what oppression is for the purpose of the said Section and it was left to the Court to decide depending upon the facts of each case, whether there was any oppression. From the aforenoted Table (Para 33), it is crystal clear that different subsidiaries under the Holding Company, i.e. Amalgamations Pvt. Ltd. have different dates of incorporation and comprise of several listed Companies having foreign Shareholders. It is not in dispute that Agco Holding BV, U.S.A has 23.75% of the Shareholding with a foreign Director in TAFE; T. Stanes and Company Ltd. is a listed Company with 32 % Public Shareholding; L.M.Van Moppes Diamond Tools India Pvt....
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....nt to support his case that 'Corporate Veil' need not be lifted in all cases are as follows:- * State of UP and Ors. Vs. Renusagar Power Company and Ors. [1978 4 SCC 59] "66. It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly owned subsidiary of Hindalco a....
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....of share the respondent Nos. 2 to 5 in truth and substance and subsidiary companies of Akshay Nidhi Ltd. which is thus, a holding Company and thus in such a situation, the Court cannot be a helpless spectator in looking behind the corporate veil so as to disentitle itself from considering as to whether in fact there had been mismanagement of oppression by one group or the other. There is another aspect of the matter. Provisions of Section 397 and 398 are taken recourse to in a piquant situation where two groups running the company are at logger heads so that it is impossible for them to join hands together and run the affairs of the company. The Court in such a situation would exercise its equitable jurisdiction and may grant appropriate reliefs. 23-24. In Life Insurance Corporation of India v. Escorts Ltd., reported in AIR 1986 SC 1370 : (1986 Tax LR 1370) the Apex Court after taking into consideration various decisions and treatises held that for certain purposes corporate veil can be lifted. It was stated (at page 1418 (of AIR):- "Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the vei....
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.... of assets, itemwise. The facts of this case show sale of the entire investment made by HTIL, through a top company viz. CGP, in the Hutchison structure. In this case we need to apply the "look at" test. In the impugned judgment, the High Court has rightly observed that the arguments advanced on behalf of the Department vacillated. The reason for such vacillation was adoption of "dissecting approach" by the Department in the course of its arguments. Ramsay [1982 AC 300 : (1981) 2 WLR 449 : (1981) 1 All ER 865 (HL)] enunciated the look at test. According to that test, the task of the Revenue is to ascertain the legal nature of the transaction and, while doing so, it has to look at the entire transaction holistically and not to adopt a dissecting approach. 97. One more aspect needs to be reiterated. There is a conceptual difference between a preordained transaction which is created for tax avoidance purposes, on the one hand, and a transaction which evidences investment to participate in India. In order to find out whether a given transaction evidences a preordained transaction in the sense indicated above or investment to participate, one has to take into account the factor....
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....ch cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. No multinational company can operate in a foreign jurisdiction save by operating independently as a "good local citizen". 101. A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be guarded." (Emphasis Supplied) 39. This Tribunal finds it apt to refer to the r....
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....e applied to such consumption, that is to say, 1 paisa per unit for the first two generating sets and nil rate in respect of third and fourth generating sets. It is appropriate to refer that having regard to the conduct of the State the power cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar's energy by Hindalco as anything other than (sic or) different from consumption of energy by Hindalco from its own source of generation. We are, therefore, of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation." 40. In the aforenoted matter it was held that both 'Hindalco' and 'Renusagar' be treated as one concern and that the Corporate Veil should be lifted. In this matter, it was observed that the consumption of energy by 'Hindalco' is clearly the consumption from its own source of generation and therefore, based on the facts of the matter the Corporate Veil was sought to be lifted....
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....erson with its rights and liabilities [legally] appropriate to itself ... whatever may have been the ideas or schemes of those who brought it into existence." Most of the cases subsequent to Salomon case [1897 AC 22 : (1895-99) All ER Rep 33 (HL)], attributed the doctrine of piercing the veil to the fact that the company was a "sham" or a "facade". However, there was yet to be any clarity on applicability of the said doctrine. 71. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)]. The six principles, as found at paras 159-64 of the case are as follows: (i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) The court cannot pierce the corporate veil, even in the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; (iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liabi....
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....atute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc." 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculi....
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....not a partnership or even a quasi-partnership". 139. That, "for superimposing an equitable fetter on the exercise of the rights conferred by the articles of association, there must be something in the history of the company or the relationship between the shareholders", is fairly well settled [Saul D. Harrison & Sons Plc., In re, 1994 BCC 475]. 140. In Lau v. Chu [Lau v. Chu, (2020) 1 WLR 4656 (PC)], the House of Lords indicated: (WLR p. 4662, para 14) "that a just and equitable winding up may be ordered where the company's members have fallen out in two related but distinct situations, which may or may not overlap." The first of these is labelled as, "functional deadlock", where the inability of members to cooperate in the management of the company's affairs leads to an inability of the company to function at Board or shareholder level. The House of Lords pointed out that functional deadlock of a paralysing kind was first clearly recognised as a ground for just and equitable winding up in Sailing Ship Kentmere Co., In re [Sailing Ship Kentmere Co., In re, 1897 WN 58]. The second of these is where a company is a corporate quasi-partnership and an irretriev....
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.... the Company has no bearing if just and equitable standard is fulfilled and that the test is not whether an act is lawful or not but whether it is oppressive or not." (Emphasis Supplied) 44. It is held by the Hon'ble Supreme Court that for invoking the 'just and equitable standard', the underlying principle is that the Court should be satisfied that the partners cannot carry on together or that one of them cannot certainly carry on without the other and there is a 'functional deadlock'. It was observed that 'SP Group had boarded the train half way through the journey of Tata Sons' in the instant case, there is a lack of confidence and trust between the Appellants and the Respondents and this lack of confidence alone would not be sufficient, as pointed out in 'SP Jain Vs. Kalinga Tubes' (Supra). There should also be lack of probity in the conduct of Directors to invoke this just and equitable clause. In the instant case, having regard to the history of inheritance of shares of the Appellants; the nature of the Company i.e. that the Subsidiaries of the Holding Company include Limited Companies, Foreign Directors and Foreign Shareholders with ....
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.... Rao and Ors. Vs. Rajeswari Ramakrishnan & Ors.' reported in (1987) 61 Comp Case 20 (Mad) (Para 60-61 and 107), it was specifically held that the principles of quasi-partnership can be invoked only in a case where originally the business was a partnership concern which was later on converted into a private limited company or where if the Corporate Veil or Corporate character of a Company is lifted, it could be found that in reality it was a partnership. The Appellant has not entered into any partnership argument or understanding with the other shareholders of the first Respondent Company or any other Company in the Group. The 'Amalgamation' group of Companies cannot be considered as a 'Partnership' in the light of the complex Shareholding pattern, independent management of each Company, Management participation from domestic / foreign investors and specifically in the absence of any kind of understanding between the Shareholders. This Tribunal is of the considered view that the equitable considerations can only flow from the fact if the Company had originally been started as a Partnership concern or if there was an Agreement or understanding that all or some of ....
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....to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a passage in Buckley's Companies Act (12th Edn.), p. 894 where the etymological meaning of dividend is given as dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the Question 1s to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian la....
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....of dividend is certainly not the source of the profit and any right to participate in the profit exists independently of any declaration by the Company. It is a settled proposition that a Shareholder cannot compel the Company by any process of Law to declare a dividend. Therefore, the contention of the Learned Senior Counsel for the Appellant that excess remuneration was eating into the profit of the Company thereby leading to a lower dividend, which he alleges is an act of Oppression, cannot be sustained, specifically keeping in view that a Shareholder of a Holding Company, cannot, as a matter of 'Right' seek to be appointed as a 'Director' in a Subsidiary Company, in which he may not be a Shareholder, but instead the Appellant seeks the position of a 'Director', by virtue of his being a member of the Family. The exercise of the inherent right of the Shareholders in such circumstances, to elect their Director cannot be contended as constituting 'Oppression'. 48. In the facts of this case, we are of the considered view that there is an absence of an element of lack of probity or fair dealing in the matter of his proprietary rights as a Shareholder....
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....39;Shareholder' are not affected in any manner. Other Contentions of the Appellant: 49. The Learned Senior Counsel for the Appellant vociferously contended that the Appellant's genuine grievance is that the majority Shareholders of the first Respondent Company who controlled the Subsidiary made themselves as Directors, earning huge remuneration, thereby oppressing the Appellant who is a minority and that being majority Shareholders, the decision as to who would be the Directors of the Subsidiary Companies is decided only by them and hence, it is a clear case of self-appointment; that even if there is no agreement to the effect that the Appellant has an equal right of participation, such a right of participation ought to be the natural consequence of equal inheritance of the entire shares in the Company; that this disparity in terms of getting themselves appointed in the Subsidiary Companies leaving the Appellant out of the board and earning huge remuneration is an act of oppression which the NCLT has not addressed to. It is also a specific allegation of the Appellant that after the death of A.Sivsailam in the year 2011 and also after filing C.P. 20/2012, his daughter ....
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.... by TAFE Limited. It is the Respondent's case that the Appellant is neither a Shareholder in TAFE nor in Amco Batteries and that TAFE was a Shareholder in Amco Batteries and entered into a sale transaction for the land on Mysore Road for Rs. 15.24 Crores which was the market value and TAFE had paid the entire sum of Rs. 15.24 Crores including stamp and Registration charges, on account of which transaction Amco had recorded a profit of Rs. 15.18 Crores in his Books which consideration was used to reduce the VRS commitments. We find force in the submission keeping in view the Sale Deed which is part of the record. Further, this Tribunal does not find it a fit case to adjudicate this allegation as we are of the considered view that the Holding and the Subsidiary Companies cannot be treated as a single economic unit and that the Corporate Veil which was required to be lifted keeping in view the nature of the Companies and specifically the direction of the Hon'ble Supreme Court, was not adhered to. 52. The Learned Counsel representing Mrs. Mallika submitted that the first Respondent Company had always sponsored the studies of the family members and that the Appellant had also....
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....ese allegations. It is submitted by the Counsel for the Respondents that the required details were submitted to the concerned authorities. This Tribunal does not have any express jurisdiction to conduct any such investigation to enquire into these kinds of allegations. The Appellant may approach the concerned authorities, if so advised. As regarding the contention of the Appellant that two flats and one bungalow in Kotturpuram, Chennai, owned by one of the Subsidiaries of the first Respondent, were transferred in favour of the second Respondent at a price much below the market value, is not substantiated by any documentary evidence and is also in respect of a transaction in the year 2005, and in the absence of any specific material on record cannot be construed to be an act of oppression and mismanagement as defined under the Act. 55. At this juncture, we find it relevant to reproduce Sections 241 and 242 of the Companies Act, 2013, detailing what constitutes an act of oppression and mismanagement: 241. (1) Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in....
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....fication, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including....
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....l be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both. 56. The Hon'ble Supreme Court in a catena of Judgments has observed that though Law has not defined what is oppression for purposes of this Section, it is left to the Courts to decide on the facts of each case whether there is such oppression which calls for action under this Section. The Hon'ble Apex Court in 'S.P Jain Vs. Kalinga Tools Ltd.' reported in [(1965) (35 CompCases 351)] has while discussing what constitutes oppression and Section 210 of the English Act noted as follows: "14. We may in this connection refer to four cases where the new Section 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson [(1952) SC 49] (2) George Meyer v. Scottish Cooperative Wholesale Society Ltd. [(1954) SC 181] (3) Scottish Cooperative Wholesale Society Ltd. v. Meyer [(1958) 3 All ER 66] which was an appeal from Meyer case [(1954) SC 181] and (4) Re. H.R. Harmer Limited [(1958) 3 All ER 689]. Among the important considerations which h....
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....ulated to destroy its subsidiary, with resulting loss to the minority shareholders, this may amount to oppression within the meaning of Section 210; (3) that the conduct of a majority shareholder may amount to oppression notwithstanding the fact that his own shares depreciate in value pro rata with those of the minority; and (4) that, even if the majority shareholder has virtually destroyed the substratum of the company by his oppressive conduct and it is conceded by all parties to be just and equitable that the company be wound up, the oppressed minority may nevertheless be entitled to a remedy under Section 210." .................................................................... 18. These observations from the four cases referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the compa....
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....ion, which is absent here. In the instant case, the Appellant had approved and signed the Minutes of AGMs with respect to Dividends, the Appointment of Directors upto the date of signing of the Petition. Any excessive remuneration cannot amount to an act of mismanagement. If a director of a Company were to draw remuneration to which he was not legally entitled or in excess of the remuneration to which he was legally entitled, this would not by itself amount to oppression, as held in 're Jermyn Street Turkish Baths Limited' (1971) 1 WLR 1042. It is further held in 'Smith and Ors. v. Croft and Ors.' (1986) BCLC 207 that any excessive salary paid by the Company to its Directors would not constitute an act of oppression. 58. The Learned Senior Counsel Mr. Aryaman Sundaram appearing for R24 to R26 submitted that the Appellant has shares only in R1 Company but his allegations are against the Subsidiary Companies for which the Corporate Veil has not been lifted and the Petition is maintainable only against the Holding Company and moreover, merely because they are Subsidiary Companies, it does not ipso facto be treated as a Single Economic Unit. We find force in the cont....
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.... a mistake to use this term, as it usually is when one introduces a new label to describe a concept which is already sufficiently defined in other terms. In saying that it was "correlative" to the equitable restraint, I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the articles. It is a consequence, not a cause, of the equitable restraint. The concept of a legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which the traditional equitable principles have no application. That is what seems to have happened in this case." 60. In the case on hand, the Shareholders have not entered into any 'Association upon understating' that each of them who has ventured his capital will also participate in the management of the Company. It is only upon the existence of such an 'Association upon understanding', that the aggrieved member could be said to have an 'legitimate expectation' that he would be able to participate in the Company or withdraw from the Company. A 'legitimate ex....
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....t Respondent Company and hence, the Claim for such an 'Office of Profit' in the other Subsidiary Companies, does not arise as the appointments in the Subsidiary Companies are controlled by the respective Board of Directors in accordance with their respective Articles of Association and any inheritance of Shares does not automatically entitle any of the family members to automatic post of Directorship and therefore any 'Legitimate Expectation' by the Appellant, in the facts of this situation, whether he is not a 'Shareholder' in the Subsidiary Companies, cannot be justified. BUYOUT OF SHARES 63. It is the main case of the Appellant that the powers of the Tribunal to grant relief under Sections dealing with Oppression and Mismanagement is very wide and can be granted even when Oppression is not made out. It is submitted that at the stage of granting relief in an Application under these provisions, the final question that the Court should ask itself is as to whether the Order to be passed will bring to an end the matters complained of. The Learned Senior Counsel for the Appellant sought a direction to buyout the Appellant's shares at an appropriate fa....
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....r further order in the interest of the company, if it is of the opinion, that the same would protect the interest of the company, it would not be powerless. The jurisdiction of the Company Law Board in that regard must be held to be existing having regard to the aforementioned provisions. 16. The deadlock in regard to the conduct of the business of the Company has been noticed by the Company Law Board as also the High Court. Keeping in view the fact that there are only two shareholders and two Directors and bitterness having crept in their personal relationship, the same, in our opinion, will have a direct impact in the matter of conduct of the affairs of the Company. 17. When there are two Directors, non- cooperation by one of them would result in a stalemate and in that view of the matter the Company Law Board and the High Court have rightly exercised their jurisdiction. .................................................................... 23. Sections 397 and 398 of the Act empower the Company Law Board to remove oppression and mismanagement. If the consequences of refusal to exercise jurisdiction would lead to a total chaos or mismanagement of the c....
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....ther the interest of the Shareholders would also be safeguarded. 65. In the facts of the instant case, the Appellant is a minority Shareholder and the Company is not in a deadlock situation and having come to such a conclusion we are of the considered view that there is no case made out by the Appellant that there was any Oppression or Mismanagement as defined under Sections 241 and 242 of the Act and no direction can be given compelling the Respondents to purchase the Shares of the Appellant or for any buyout of shares. We are also conscious of the fact that the reliefs sought relates to shares that are subject matter of the Suits filed by the 24th Respondent and the Appellant before the Hon'ble Madras High Court in which the rights of the Parties are yet to be determined. The Appellant has filed C.S. 745/1999 seeking partition of the estate of his grandparents, which is subjudice. Though the powers of this Tribunal under the Sections 241 and 242 of the Act is wide, the over-all objective of these Sections must be kept strictly in view and the marginal note of the said Section of this Act shows that the purpose of the Order of the Court in this Section is to give relief ....
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....ing of the Petition cannot be relied upon and the validity of the Petition will be judged on the facts existing at the time of the presentation of the Petition. 66. This Tribunal is of the considered view that there are no substantial grounds for concluding that there was any 'Oppression or Mismanagement' and therefore, the question of passing any Order directing buyout of shares, bringing to an end any matter complained of, cannot be done in the facts of this case. There is no case made out by the Appellant to exercise any equitable jurisdiction to grant such relief. 67. For all the foregoing reasons, these Appeals, TA (AT) No. 18/2021 and TA (AT) No. 114/2021 fails and are accordingly dismissed. No Order as to Costs. All connected pending Interlocutory Applications, if any, are closed. ============= Document 1 Statement 1 ANALGAMATIONS FRINTELMITED Established on 2nd December, 1338 As an 1065 Apr, 1954 3,900 Equity Shares of 10-in Amalgamation Praha Linded pared by Sr. S. AMANTHARAMAHA ES beld by M. M. Verbaan nie of St. Ann in Aragonation Prine Linted Legal Fels. Avana NFE SOM 201 T CAUGHTER DAUGHTER T Smt. Kalyani Sundro....
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....STORS PRIVATELTO HR3) (843) (RIT) Document 4 ANNEXURE "D" Before the NCLT Chennal Bench Shankar Sundaram vs. Amalgamations Pvt. Ltd. & Others TCP Nos. 1 & 00 of 2010 Summary of Financial Position for preceding a nancial years submitted by Respondent Nos. 1.12.23.24 in TCP 00/16 Simpson & Co. Ltd. Respondent No. 4 in TCP No. 1 of 2016 Respondent No. 12 in TCP No. 8 of 2016 Cate of incorporation: 3rd February 1925 (approx in Total Income Prof Defere Taxes Net Profit Dividend Так FY 2014-1 1337 190 crores FY 2015-16 1467 crores 220 crores FY 2016-17 1443 crores 217 crores 43 crores 55 crores 50 crores 164 crores 168 crores 26 crores 30 crores 20 crores Tractors and Farm Equipment Limited Respondent No. 8 in TCP No. 1 of 2016 Respondent No. 23 in TCP No. 8 of 2016 Date of Incorporations 20th November 1960 (approx in Total Income Profit Before Taxes Так Net Profic Dividend FY FY 2014-15 2015-16 5595 crores PY 2016-17 5367 crores 5909 crores 726 crores 741 crores 755 crores 212 crores 221 crore 224 cror....
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....941 1950 5 Mr. M. V. Venkatraman-Director 02/09/1946 11/08/1981 Mr. M. V. Venkatraman-Chariman 06/05/1964 31/07/1968 6 Mr. H.B.Stanford 26/10/1951 17/04/1953 17 Mr. V. A. Watts 11/07/1952 26/10/1967 8 Mr. P.Kumar 22/04/1954 21/12/1963 9 Mr.PL. Shengy 12/07/1954 11/06/1955 10 Mr. EO. Austin 25/06/1956 23/12/1964 11 Mr. A. Land 09/08/1958 1959 12 Mr. R.K. Stanford 24/02/1961 23/12/1964 13 Mr.5.5. Ragavachar 17/04/1966 01/07/1970 14 Mr. S. Anantharam 06/05/1964 08/01/1983 15 Mr. A. Sivasallam-Director 06/05/1964 12/01/2011 Mr. A. Sivesallam-Chairman 01/08/1968 12/01/2011 16 Mr. A. Krishnamoorthy-Director 25/09/1970 Mr. A. Krishnamoorthy-Vice Chairman 12/02/1981 Mr. A. Krishnamoorthy-Chairman 29/01/2011 17 Mr. N. Venkataramani 29/01/2011 Document 7 Convenience Tabulated Statement of Dates of Incorporation of Respondent No. 1 (Holding Company) and all Indian Subsidiary Respondents 5.Ne Name of the Company Respondent in CA in CA 325/2018 328/2019 Date of Inception 22-12-1939 2 Add & Company Rep ....