Companies Act Case Law Hanuman Prasad Bagri & Ors Bagress Cereals Pvt Ltd & Ors

CASE NO.:
Special Leave Petition (civil) 17137 of 2000

 

PETITIONER:
HANUMAN PRASAD BAGRI & ORS.

Vs.

RESPONDENT:
BAGRESS CEREALS PVT. LTD. & ORS.

DATE OF JUDGMENT: 27/03/2001

BENCH:
S. Rajendra Babu & K.G. Balakrishnan

 
JUDGMENT:
RAJENDRA BABU, J. :
L…I…T…….T…….T…….T…….T…….T…….T..J

A petition under Sections 397 & 398 of the Companies
Act, 1956 [hereinafter referred to as the Act] was filed
before the Calcutta High Court on grounds of oppression and
mismanagement. The learned Company Judge held that the
Petitioners grievance in regard to ouster from the
management of the company is legitimate and justified; that
respondent No.3 had manoeuvred the matters in such a manner
to result in the ouster of the Petitioner No.1 from the
management of the Company. The learned Company Judge
further directed the Petitioner No.1 and his group members
to sell their shares to respondents at a value to be
determined by a Valuer as on 16.5.1988, that is, the date of
the petition and also held that the Petitioner No.1 had been
illegally removed as an Executive Director of the Company.
Appeal was preferred on behalf of the Company by respondent
No.2 and also on his own behalf. The Petitioners also
claimed in that appeal that the learned Company Judge should
have given guidelines for valuation of the shares on the
market value and should have also provided for payment of
interest on the amount receivable by them both on account of
share value and remuneration. The Division Bench of the
Calcutta High Court allowed the appeal by the order made on
25.8.2000 holding that one of the conditions precedent for
granting relief under Section 397 of the Act is that the
Petitioners should prove that winding up of the company
would unfairly prejudice the Petitioners who are claiming of
oppression, that otherwise the facts will justify the making
of a winding up on just and equitable grounds. Contesting
the correctness of this view, this special leave petition is
filed.

Relying upon the decision in Needle Industries (India)
Pvt. Ltd. v. Needle Industries New (India) Holding Ltd.,
AIR 1981 SC 1298, it is claimed that even if a case of
oppression is not made out by the Petitioners, the Court is
not powerless under Section 397 of the Act to do substantial
justice between the parties and, therefore, on the facts
available in the case the order made by the learned Company
Judge should have been maintained. It is pleaded that it is
not possible for the Petitioners and respondents to carry on
business of the company together and the only solution is
that one group shareholders should purchase the shares of
the other group and that the Petitioners have no objection
in selling shares of their group at a proper value.

Section 397(2) of the Act provides that an order could
be made on an application made under sub-section (1) if the
court is of the opinion (1) that the companys affairs are
being conducted in a manner prejudicial to public interest
or in a manner oppressive of any member or members; and (2)
that the facts would justify the making of a winding up
order on the ground that it was just and equitable that the
company should be wound up, and (3) that the winding up
order would unfairly prejudice the applicants. No case
appears to have been made out that the companys affairs are
being conducted in a manner prejudicial to public interest
or in a manner oppressive of any member or members.
Therefore, we have to pay our attention only to the aspect
that the winding up of the company would unfairly prejudice
the members of the company who have the grievance and are
the applicants before the court and that otherwise the facts
would justify the making of a winding up order on the ground
that it was just and equitable that the company should be
wound up. In order to be successful on this ground, the
Petitioners have to make out a case for winding up of the
company on just and equitable grounds. If the facts fall
short of the case set out for winding up on just and
equitable grounds no relief can be granted to the
Petitioners. On the other hand the party resisting the
winding up can demonstrate that there are neither just nor
equitable grounds for winding up and an order for winding up
would be unjust and unfair to them.

On these tests, the Division Bench examined the matter
before it. It was noticed that the shareholding of the
Petitioners is well under 20% while that of those opposing
the winding up is more than 80%. Therefore, the adversary
group has sufficient majority shareholding even to pass a
special resolution.

The grievances made by the Petitioners before the
Division Bench of the High Court are as follows:@@
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1. That the registered office of the company was
shifted from the congested Posta area to the multi-storeyed
building called Chatterjee Polk on Jawaharlal Nehru Road,
and then again shifted back from there.

2. That a certain amount of wheat quota for which above
Rs.17 lakhs was deposited by the company was allowed,
contrary to control orders to be lifted by a sister concern.

3. That a certain loan payable to the Petitioner No.1 a
little under Rs.6 lakhs was sought to be paid back by the
company by seeking to make a book adjustment, trying to show
a payment to another company Sumati in extinguishment of the
liability of the Petitioner No.1 to Sumati on the oral
instruction of Petitioner No.1 that the debt to him be paid
instead to Sumati.

4. That certain roller boxes, about 14 in number were
sold off at an aggregate price of Rs.96,000/-, although
those had been acquired in 1980 at a cost of Rs.75,000/-.
The complaint was that the boxes were still usable and
unnecessarily sold.

5. That a large amount of commission, of the order of
Rs.20 lakhs or so, although receivable by respondent No.3
and/or his son, was got paid by Mitsubishi to the company so
as to avoid tax incidence to respondent No.3 himself, who
utilised the losses of the company for setting off of the
profit, treating the company as the respondent No.3s own
company.

6. That the continuing directorship of Petitioner No.1
was sought to be terminated without giving him appropriate
notices of the Board meetings; the terminations were
alleged to be of no effect and the stoppage of remuneration
and of directorial benefits, improper and illegal.

The Division Bench was neither impressed with the merits
of the case nor with the legal position and reached a
conclusion that the company petition is liable to be
rejected on the ground that there is no finding by the
learned Company Judge that the winding up will unjustly
prejudice the company, therefore, the order of the nature
appealed had been passed and also concluded that the it is
impossible for them to arrive at a finding in favour of the
Petitioners. So far as shifting of the registered office
from Posta area to Chatterjee Polk and back to Posta, the
Division Bench was of the view that shifting of the
registered office by itself may not be a reason or a ground
to be raised in a petition under Section 397 or 398 of the
Act as long as the company did not suffer much loss on
account of the shifting and shifting back and no case was
made out to show that such exercise was undertaken to put an
oppressive pressure and pain upon the Petitioners. It is
not clear that such a course was adopted by way of a
wasteful expenditure so as to amount to mismanagement and on
that rejected the first contention.

As regards the second contention that a certain amount
of wheat quota for which above Rs.17 lakhs was deposited by
the company was allowed, contrary to control orders to be
lifted by a sister concern, it was found as a fact that
there is neither disclosure of oppression or mismanagement.
The company in question during the relevant time was under
lock out and, therefore, wheat quota worth Rs.17 lakhs was
allowed to be lifted by a sister concern. It is alleged
that such an act amounted to violation of control order and
that as the wheat quota was lifted by the sister concern,
the company in question was shown to be having an asset by
way of debt as against that sister concern and it is not
clear how the company suffered a loss by taking a debt and
giving the wheat quota to sister concern. On this basis the
second contention was also rejected.

On the third point about certain loan payable in
extinguishment of the liability of the Petitioner No.1 the
case put forth was that the company owed money to Sumati and
upon instruction of Petitioner No.1, money was paid by the
company to Sumati so that Petitioner No.1 does not have to
pay to Sumati and the company does not have to pay
Petitioner No.1. During the course of the proceedings in
this matter, Petitioner No.1 filed separate company petition
for winding up against another sister concern, Bagri
Synthetics Ltd. However, a suit was ordered to be filed and
a sum of Rs.5,74,662/- was directed to be deposited.
Thereafter, the suit was decreed by a judgment which was
upheld by the appellate court and, therefore, it was held
that if a debt remained owing to Petitioner No.1 from the
company it would be unreasonable for the Petitioner No.1 to
ask for a just and equitable winding up of the company on
the other hand filing a suit would be proper as it had done
in the other case and, therefore, did not enter into further
details of the facts of the case in that part of matter.
The fourth contention is in regard to certain roller
boxes about 14 in number were sold off at an aggregate price
of Rs.96,000/-, although those had been acquired in 1980 at
a cost of Rs.75,000/-. The complaint was that the boxes
were still usable and unnecessarily sold. On this point
also the Division Bench did not find any ground of
oppression or mismanagement as provided under Section 397 or
398 of the Act.

The Division Bench found that Mitsubishi commision of
Rs.23 lakhs could hardly be a matter of mismanagement of the
company to bring into its till money which is not even its
due. No loss is shown to accrue to the company because of
the bringing in of this commission and, therefore, it was
found that the mismanagement was not established.

The last and the most important point urged is in regard
to continuation of directorship of the first petitioner.
The first Petitioner joined the company in or about 1971 and
he is a director. It was noticed that the last Board
meeting which he appears to have attended was held on
19.8.1985 but apparently he did not thereafter attend the
meeting of 16.11.1985. Thereafter there was no material to
show that he went to the corporate office or attended any
board meeting. The petitioner No.1 pleaded that the
respondents could not have treated him as ceased to be a
Director in terms of Section 283(1)(g) of the Act. Form 32
had been filed by the company with the Registrar of
Companies on 15.1.1988 showing that the Petitioner No.1 had
ceased to be a Director with effect from 21.12.1987 and
since then it is maintained throughout that Petitioner No.1
ceased to be in the office of the Director of the Company.
The Division Bench noticed that the position that Petitioner
No.1 ceased to be a Director is seriously disputed and the
Division Bench ultimately concluded that the termination of
directorship would not entitle such person to ask for
winding up on just and equitable grounds inasmuch as there
is an appropriate remedy by way of company suit which can
give him full relief if such action had been taken by the
company on inadequate ground. The Division Bench found that
if a Director even if illegally terminated cannot bring his
grievance as to termination to winding up the company for
that single and isolated act, even if it was doing good
business and even if the Director could obtain each and
every adequate relief in a suit in a court.

In this background, the appeal having been dismissed, we
do not find any good reason to interfere with such an order.
However, Sri Dipankar Gupta, learned Senior Advocate for the
Petitioners, sought to urge the legal question as to the
interpretation placed by the Division Bench that if the
facts fall short of a case upon which the company court
feels that the company should be wound up on just and
equitable grounds in that event no relief can be granted to
the Petitioners in regard to Section 397 of the Act. We
find adequate support to the view taken by the Division
Bench and we cannot read the provisions of Section 397 of
the Act in any other manner than what has been done by the
Division Bench. Therefore we find no merit in this
petition. The same shall stand dismissed. No costs.

 

 

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