Companies Act Case Law M.S.D.C. Radharamanan Vs M.S.D. Chandrasekara Raja and another

CASE NO.:
Appeal (civil) 2006 of 2008

PETITIONER:
M.S.D.C. Radharamanan

RESPONDENT:
M.S.D. Chandrasekara Raja and another

DATE OF JUDGMENT: 14/03/2008

BENCH:
S.B. SINHA & V.S. SIRPURKAR

JUDGMENT:
J U D G M E N T

CIVIL APPEAL NO. 2006 OF 2008
(Arising out of SLP (C) No. 5246 of 2007)
S.B. SINHA, J.
1. Leave granted.
2. M/s. Shree Bhaarathi Cotton Mills Private Limited is a company
registered and incorporated under the Companies Act, 1956 (For short, ‘the
Act’). Out of the 2,84,000 equity shares in the company of Rs.10/- each,
2,83,999 shares are held by the first respondent and his son (appellant
herein). The remaining one share is held by M/s. Visva Bharathi Textiles
Private Limited, shares in which again is held equally by the first respondent
and the appellant. Thus, for all intent and purport, all shares of the company
are held by the appellant and the first respondent.

3. Whereas the first respondent is the Managing Director of the
Company, the appellant is the Director thereof. Indisputably the parties are
not on good terms.

4. Respondent No.1 filed an application purported to be under Sections
397 and 398 of the Act alleging several acts of oppression on the part of
appellant herein before the Company Law Board, Additional Principal
Bench, Chennai. The said application was registered as C.P. No. 2 of 2004.
By reason of an order dated 16th August, 2004, the Company Law Board
while opining holding there was no act of mala fide or oppression on the part
of the appellant, opined that there exists a deadlock in the affairs of the
company. It directed the appellant to purchase 2,84,000 shares held by the
first respondent at a value to be determined by a chartered valuer.

5. An appeal was filed thereagainst by the appellant before the High
Court of Judicature at Madras under of Section 10F of the Act which was
registered as C.M.A. No. 174 of 2004.
By reason of the impugned judgment dated 11th October, 2006 a
Division Bench of the High Court dismissed the same opining that the
Company Law Board could very well look into the justifiability of the
situation and was, thus, right in arriving at its conclusion that there existed a
deadlock situation. It was opined that in such a situation it would be
impossible for both of them to pull on together as there was incompatibility
between them. The High Court noticed that the appellant herein even
intended to file a criminal complaint against his father, the first respondent
for alleged mis-appropriation of a sum of Rs.8,15,000/-. A suit for
partition, it was furthermore noticed, was pending. It was directed:
“77. .. However, if there is any dispute regarding the
method of valuation of the shares and the ultimate
valuation arrived at by the valuer, it is open for either
parties to approach the Company Law Board for getting
the valuation finalised. Thereupon, at the first instance,
the second respondent shall purchase the shares of the
petitioners, within six months from the date of
finalisation of such valuation and on his failure to do so,
the petitioner in C.P., shall purchase the shares of the
second respondent, within six months thereafter. In the
event of both the alternatives failing, the purchase of
shares of either the petitioner or the second respondent
could be transferred to third parties depending upon the
exigency. The Company Law Board is at liberty to pass
such further orders under Section 402 of the Companies
Act, in commensurate with the views expressed by this
court, for the smooth running of the company.
78. In view of the reasons given for deciding the
aforesaid point this civil miscellaneous appeal is partly
allowed by modifying the order passed by the Company
Law Board. The submission made by learned Counsel for
the petitioner is recorded as aforesaid.”

6. Mr. C.A. Sundaram, learned Senior counsel appearing on behalf of the
appellant, in support of the appeal, submitted :
1. The Company Law Board was not justified in issuing the
impugned direction in purported exercise of its jurisdiction under
Section 402 of the Act directing him to purchase the shares of the
respondent despite arriving at a finding of fact that no act of
oppression has been committed by the appellant.
2. The condition precedent for exercise of such power being
oppression on the part of a Director of a company being not
satisfied, the impugned judgment is wholly unsustainable.
3. The High Court committed a manifest error in passing the
impugned judgment in reversing the findings of fact arrived at by
the Company Law Board; although no appeal therefrom had been
preferred by the first respondent so as to hold that the acts of
omission and commission on the part of the appellant constituted
such an oppression.
4. Both the High Court as also the Company Law Board committed a
serious error in granting the relief in favour of the first respondent
without taking into consideration that the grant of relief shall not
only be in the interest of the company but also must have a direct
nexus with the affairs of the company and conduct of its business.
5. In any view of the matter, having regard to the prayers made by the
first respondent in his application before the Company Law Board,
appointment of an Additional Director would have served the
purpose.
6. As the appellant does not have the necessary fund to purchase the
shares of the first respondent, he could not be forced to sell his
shares.

7. Mr. K. Parasaran, learned Senior counsel, appearing for the
respondents, on the other hand, would contend :-

1. Appellant did not raise any ground in the special leave petition that
he is not in a position to purchase the shares of the Respondent
No.1.
2. The company being a private limited company, which is in the
nature of a quasi partnership concern, the Court should take a
holistic view of the matter and so viewed the judgments of the
Company Law Board as also the High Court are unassailable.
3. Appellant having not acceded to the proposal of respondent No.1
in regard to the appointment of the Additional Director, it does not
lie in the month to say that appointment of the Additional Director
would serve the purpose.
4. The Company Law Board, in exercise of its jurisdiction under
Sections 397 and 398 read with Section 402 of the Companies Act
has the requisite jurisdiction to direct a share holder to sell his
shares to the other, although no case for winding up of the
company has been made out or no actual oppression on the part of
the Director has been proved.

8. A shareholder of a company or a Director has several remedies under
the Act. Section 433 of the Act envisages filing of an application for
winding up thereof, inter alia, in a case where the Company Law Board may
form an opinion that it is just and equitable that the company should be
wound up.

9. Section 443 of the Act provides for the powers of Company Law
Board in a winding up proceeding. Sub-section (2) thereof provides that a
company may be directed to be wound up when a petition is presented for
winding up on the ground that it is just and equitable.
The Company Law Board may refuse to do so, if in its opinion some
other remedy is available to the petitioners and that they are acting
unreasonably.
The applicant, thus, in a given case, when it would not be in the
interest of the company to be wound up, may take recourse to other remedies
available in law. Making out a case of oppression is one of them.

10. An application under Section 397 of the Act may be filed in the
following circumstances :-

1) Where the affairs of the company are being conducted in the
manner prejudicial to public interest; or
2) In a manner oppressive to any member or members.

11. Sub-section (2) of Section 397 of the Act, however, provides that in
the event the Court is of the opinion that the company’s affairs are being
conducted in a manner oppressive to any member or members or
furthermore held that directing winding up the company would unfairly
prejudice such member or members, but the same otherwise justifies the
making of a winding up order on the ground that it is just and equitable that
the company should be wound up. It may make such other or further order
as may think fit and proper with a view to bringing to an end to the matters
complained of.
Interpretation of Section 397(2) of the Act came up for consideration
before a Division Bench of this court in Hanuman Prasad Bagri & Ors. vs.
Bagress Cereals Pvt. Ltd. & Ors. [ [2001] 2 SCR 811]. This court while
examining the conditions laid down in the section, opined that:
” No case appears to have been made out that the
company’s 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.”

After reviewing the decision of the High Court on the above test, this
Court held that no reasons prevailed for interference with the order and thus
dismissed the appeal.

12. Section 398 of the Act provides for filing of an application for the
reliefs in cases of mismanagement.

Section 402 provides for the powers of the Company Law Board on
an application made under Section 397 or 398 of the Act which includes the
power to pass any order providing for the purchase of the shares or interests
of any member of the company by other member (s) thereof or by the
company.
13. Ordinarily, therefore, in a case where a case of oppression has been
made a ground for the purpose of invoking the jurisdiction of the Board in
terms of Sections 397 and 398 of the Act, a finding of fact to that effect
would be necessary to be arrived out. But, the jurisdiction of the Company
Law Board to pass any other or 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.

14. 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.

15. When there are two Directors, non-cooperation by one of them would
result in a stalemate and in that view of the mater the Company Law Board
and the High Court have rightly exercised their jurisdiction.

16 Before us, learned counsel for the parties, have referred to a large
number of decisions operating in the field.
We may notice the legal principle emerging from some of them.

17 In S.P. Jain vs. Kalinga Tubes Ltd.: (1965) 2 SCR 720 this Court
compared the provisions of Section 397 with Section 210 of the English Act
to hold:-

“The law always provided for winding up, in case it was
just and equitable to wind up a company. However, it
was being felt for some time that though it might be just
and equitable in view of the manner in which the affairs
of a company were conducted to wind it up, it was not
fair that the company should always be wound up for that
reason, particularly when it was otherwise solvent. That
is why Section 210 was introduced in the English Act to
provide an alternative remedy where it was felt that,
though a case had been made out on the ground of just
and equitable cause to wind up a company, it was not in
the interest of the shareholders that the company should
be wound up and that it would be better if the company
was allowed to continue under such directions as the
court may consider proper to give.”

The Court analysed the decision in Re. H.R. Harmer Limited : [1958]
3 All. E.R. 689 in the following terms :-
“19. In Harmer’s case, it was held that ” the word ‘
oppressive ‘ meant burdensome, harsh and wrongful”. It
was also held that ” the section does not purport to apply
to every case in which the facts would justify the making
of a winding up order under the ‘ just and equitable’ rule,
but only to those cases of that character which have in
them the requisite element of oppression.” It was also
held that ” the result of applications under Section 210 in
different cases must depend on the particular facts of
each case, the circumstances in which oppression may
arise being so infinitely various that it is impossible to
define them with precision.” The circumstances must be
such as to warrant the inference that ” there has been, at
least, an unfair abuse of powers and an impairment of
confidence in the probity with which the company’s
affairs are being conducted, as distinguished from mere
resentment on the part of a minority at being outvoted on
some issue of domestic policy”. The phrase “oppressive
to some part of the members” suggests that the conduct
complained of ” should at the lowest involve a visible
departure from the standards of fair dealing, and a
violation of the conditions of fair play on which every
share holder who entrusts his money to a company is
entitled to rely . . . But, apart from this, the question of
absence of mutual confidence per se between partners, or
between two sets of shareholders, however relevant to a
winding up, seems to me to have no direct relevance to
the remedy granted by Section 210. It is oppression of
some part of the shareholders by the manner in which the
affairs of the company are being conducted that must be
averred and proved. Mere loss of confidence or pure
deadlock does not . . . come within Section 210. It is not
lack of confidence between share holders per se that
brings Section 210 into play, but lack of confidence
springing from oppression of a minority by a majority in
the management of the company’s affairs and oppression
involves … at least an element of lack of probity or fair
dealing to a member in the matter of his proprietary right
as a shareholder.”

It is true that observations in Harmer’s case was held to be applicable
in a case falling within the purview of Section 397 of the Act but the
statement of law that it was not enough that only a just and equitable case for
winding up of the company should be made out but it must also be found
that conduct of the majority shareholders was oppressive to the minority
members, cannot be said to be exhaustive.

18 The question came up for consideration yet again before a three judge
Bench of this Court in Needle Industries (India) Ltd. vs. Needle Industries
Newey (India) Holding Ltd., : (1981) 3 SCC 333 wherein Chandrachud, C.J.
upon considering a large number of decisions of this Court as also the
English Courts including S.P. Jain and Harmer Ltd. (supra) categorically
held :-

“172. Even though the company petition fails and the
appeals succeed on the finding that the Holding
Company has failed to make out a case of oppression, the
court is not powerless to do substantial justice between
the parties and place them, as nearly as it may, in the
same position in which they would have been, if the
meeting of May 2 were held in accordance with law.”

19. The provisions of the Act vis-`-vis the jurisdiction of the Company
Law Board must be considered having regard to the complex situation(s)
which may arise in the cases before it. No hard and fast rule can be laid
down. There cannot be any doubt whatsoever that the acts of omission and
commission on the part of a member of a company should be qua the
management of the company, but it is difficult to accept the proposition that
the just and equitable test, which should be held to be applicable in a case
for winding up of a company, is totally outside the purview of Section 397
of the Act. The function of a Company Law Board in such matters is first
to see as to how the interest of the company vis-a-vis its shareholders can be
safeguarded. The Company Law Board must also make an endeavour to
find out as to whether an order of winding up will serve the interest of the
company or subvert the same. Further, if an application is filed under
Section 433 of the Act or Section 397 and/or 398 thereof, an order of
winding up may be passed, but as noticed hereinbefore, the Company Law
Board in a winding up application may refuse to do so, if any other remedy
is available. The Company Law Board may not shut its doors only on sheer
technicality even if it is found as of fact that unless the jurisdiction under
Section 402 of the Act is exercised, there will be a complete mismanagement
in regard to the affairs of the company.

20. 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
company, would still the Company Law Board be powerless to pass
appropriate orders is the question.

If a literal interpretation to the provisions of Section 397 or 398 is
taken recourse to, may be that would be the consequence. But jurisdiction of
the Company Law Board having been couched in wide terms and as diverse
reliefs can be granted by it to keep the company functioning; is it not
desirable to pass an order which for all intent and purport would be
beneficial to the company itself and the majority of the members? A court
of law can hardly satisfy all the litigants before it. This, however, by itself
would not mean that the Company Law Board would refuse to exercise its
jurisdiction, although the statute confers such a power on it.

21. It is now a well settled principle of law that the Courts should lean in
favour of such construction of statute whereby its jurisdiction is retained
enabling it to mould the relief, subject of course, to the applicability of law
in the fact situation obtaining in each case.
In Pearson Education Inc. (formerly Prentice Hall Inc.) Vs. Prentice
Hall India (P) Ltd. and Ors. [134 (2006) DLT 450], as regards the
jurisdiction of the Company Law Board and the High Court under Sections
397/398 and 402, a learned single judge of the Delhi High Court held:
“Jurisdiction of the CLB (and ultimately of this Court in
appeal) under Sections 397/398 and 402 is much wider and
direction can be given even contrary to the provisions of
the Articles of Association. It has even right to terminate,
set aside or modify the contractual arrangement between
the company and any person [see Section 402(d) and (e)].
Section 397 specifically provides that once the
oppressiois established, the Court may, with a view to
bringing to an end the matters complained of, make an
order as it thinks fit. Thus, the Court has ample power to
pass such orders as it thinks fit to render justice and such
an order has to be reasonable. It is also an accepted
principle that “just and equitable” provision in Section
402(g) is an equitable supplement to the common law of
the company to be found in its Memorandum and
Articles of Association.”

22. In a case of this nature, where there are two shareholders and two
Directors, any animosity between them not only would have come in the
way of proper functioning of the company but it would also affect the
smooth management of the affairs of the company. The parties admittedly
are at logger heads. A suit is pending regarding title of the shares of the
Company. A contention had been raised by the appellant before the
Company Law Board that the 1st respondent having filed a wealth-tax return
as Karta of Hindu Undivided Family, he not only has 50 % shares in the
Company but also 50% shares in the H.U.F.; whereas the contention of the
1st respondent in that behalf is that the appellant had already taken his half
share in the joint family property and the H.U.F. mentioned in the Wealth
Tax Return pertains to the smaller H.U.F. which consists of himself and his
daughters.
1st respondent is about 80 years old. Because of his old age, he is not
in a position to look after the affairs of the company. Even in the grounds of
appeal before us, a contention has been raised that it was the 1st respondent,
who is the oppressor. We have noticed hereinbefore that, rightly or
wrongly, appellant also intended to file a criminal case against the 1st
respondent alleging that he had misappropriated a huge amount as a Director
of the company.

23. Before the Company Law Board, several grounds to establish a case
of oppression had been made out :-

1) Non co-opting of a third Director on the Board ;
2) Non clearance of accumulated stocks ;
3) Surrender of the surplus power in favour of TNEB ;
4) Non issue of duplicate share certificates ;
5) Non redemption of preference shares ;
6) Non sanctioning of increment to the staff members ;
7) Dead lock in the affairs of the company.

24. In regard to the first ground, admittedly, A. Jayakumar, son-in-law of
the 1st respondent being the brother-in-law of the appellant was nominated as
a Director of the company. Appellant indisputably did not agree in that
behalf. However, the first respondent left it to the discretion of the
Company Law Board to appoint a third Director, but we are informed at the
bar that even the same was objected to by the appellant.

25. It is in the aforementioned situation the Company Law Board has
opined that such an impasse could have been removed by resorting to
appointment of an additional Director. What the Board failed to notice was
that when the appellant himself intended to become the Managing Director,
he would like to have his own man in the Board which was not acceded to
by the 1st respondent.

26. Surrender of surplus power in favour of TNEB may be a business
decision but such a decision will have a direct impact on the conduct of the
business. It at least shows that the parties were at logger heads. It is in the
aforementioned situation, the High Court opined :-
“The Company Law Board should have categorically
held that such surrender was beneficial to the company
and the second respondent unjustifiably objected to it.
Admittedly, the second respondent was not in favour of
such surrender on the ground that it was required for
future expansion of the factory activities. Such a plea of
the second respondent is based on mere conjectures and
surmises and not borne out by any proposed project for
future expansion. As such the Company Law Board very
well could have held that the second respondent was
oppressive.”

27. In relation to the non-issue of duplicate share certificates the
Company Law Board opined :-
“That is why the petitioner took up the very same issue
again at the Board meeting convened on 20.03.2004,
after filing of the company petition. It is on record that
the second respondent did not attend the Board meeting
on 20.03.2004 on the ground that the subject matter is
sub-judice before the CLB. Thus, there is no ultimate
denial of the issue of duplicate share certificates by the
second respondent in favour of the petitioner.”

28. The High Court, however, in this regard opined “recording this, the
Company Law Board could have very well held that the second respondent
was not justified in causing obstruction to the issuance of such share
certificates.”
29. A ground has also been taken in the memo of appeal contending :
“The Division Bench entirely failed to appreciate that the
Petitioner being a whole time director and also being a
50% shareholder the Petitioner has a right to refuse to
give his consent to certain transactions if the Petitioner is
of the opinion that the same is not good for the business
of the Respondent No.2 company or that the same is
against the interests of the company. The Petitioner has
merely exercised his right as a whole time director in not
agreeing to certain resolutions and that by itself neither
amounts to a dead lock of oppression.”

We have referred to the views taken by the Company Law Board as
also the High Court, not being oblivious of the objection of Mr. Sundaram,
that in relation to those findings, the 1st respondent did not prefer any appeal.
30. Without going into the legal issue, however, we are of the opinion that
the same is only evidence of the instances as to how a dead lock in the
affairs of the company was viewed. Both the Company Law Board as well
as the High Court have arrived at a concurrent finding that as there was no
mutual trust and confidence between the parties and, thus, it would be
impossible for the company to run the same smoothly.
We are not again oblivious of the observations made by this Court in
S.P. Jain case that the same by itself would not be a ground of winding up;
but the ground of lack of mutual trust and confidence cannot be taken into
consideration in isolation. The same has to be considered having regard to
large number of other factors, the cumulative effect thereof would be
extremely significant to arrive at one or the other conclusion.
31. We may take notice of the fact that the appellant had made the
following allegations against the 1st respondent in the list of dates :-
“It is respectfully submitted that the Respondent No.1 did
not maintain proper books of minutes of meetings or
attendance registers, did not allow the Petitioner herein to
use the company guest house in Chennai, the Respondent
No.1 attempted to bring in a third director to marginalize
the role of the Petitioner, the Respondent No.1 siphoned
off Rs.8,15,000/- of the company money, the Respondent
No.1 attempted to transfer by way of gifts properties
given as collateral security to financial institutions and so
on. When the Petitioner herein either asserted his rights
or attempted to thwart the wrongful acts of the
Respondent No.1, the Respondent No.1 became
abusive.”

32. We may also notice that in his reply statement before the Company
Law Board it was stated by the appellant :-
“5.10 The Petitioner-Managing Director has become
quite old. In fact under the Companies Act, in case of
Public Companies there exist sufficient safeguards to
restrict appointment of Managing Directors over the age
of 70 without prior permission of the Central
Government. Such provisions have been thoughtfully
provided considering the inherent weaknesses that will
emerge out of old age. In order to continue the smooth
functioning of the enterprise, it would be very much
conducive if the Managing Director gracefully retires
from the post and lets a much younger and still
experienced person to take over the mantle of the
company. And further more, so, considering that the
younger person is the only son of the present Managing
Director, it is quite natural that the take-over of the
mantle that should be mooted.”

It was further averred :-
“6. There has been no oppression or mismanagement
as averred by the Petitioner. It is a fact that the
Petitioner, who is the Managing Director of the Company
is in a more convenient position to oppress the 2nd
Respondent but on the other hand, the Petitioner has been
alleging the opposite, without any basis. The mere fact
that one of the two directors/shareholders decides to
exercise his proprietary right as a shareholder/director to
vote for or against any resolution does not amount to
deadlock in management or oppression.”

33. In a case of this nature, it is necessary to take a holistic approach of
the matter. What might not be permissible for the affairs of a public limited
company or even a private company having large number of shareholders
and Directors, may be permissible in a case of this nature where a company
for all intent and purport a quasi partnership concern. The Parliament, while
enacting a statute, cannot think of all situations which may emerge in giving
effect to the statutory provision.
The situation obtaining in the present case in that sense is a pathetic
one. Both the Company Law Board as also the High Court has no doubt that
the acrimony between the parties is resulting in mismanagement of the
conduct of affairs of the company. Therefore, a conclusion as regards the
dead lock in the affairs of the company cannot be faulted with.
34. In Hind Overseas (P) Ltd. vs. Raghunath Prasad Jhunjhunwalla and
another [(1976) 3 SCC 259] this Court upon noticing a large number of
decisions opined :-
“37. Section 433 (f) under which this application has
been made has to be read with Section 443(2) of the Act.
Under the latter provision where the petition is presented
on the ground that it is just and equitable that the
Company should be wound up, the court may refuse to
make an order of winding-up if it is of opinion that some
other remedy is available to the petitioners and that they
are acting unreasonably in seeking to have the Company
wound up instead of pursuing that other remedy.
38. Again under Sections 397 and 398 of the Act there
are preventive provisions in the Act as a safeguard
against oppression in management. These provisions also
indicate that relief under Section 433 (f) based on the just
and equitable clause is in the nature of a last resort when
other remedies are not efficacious enough to protect the
general interests of the Company.”

35. This Court noticed that although the Indian Companies Act is
modelled on the English Companies Act, the Indian Law is developing
on its own lines. It was opined that the principle of ‘just and equitable
clause’ is essentially equitable consideration and may, in a given case,
be superimposed on law.
The Court in arriving at the said conclusion considered the decision of
House of Lords in Re : Ebrahimi and Westbourne Galleries Ltd. : 1973 AC
360 whereupon strong reliance has been placed by Mr. Sundaram as also in
Re: Yenidje Tobacco Co. Ltd. : (1916) 2 Ch. 412 amongst others.
What is important is not the interest of the applicant but the interest of
the shareholders of the company as a whole. If such a principle is applied in
a case of winding up of a company, we do not see any reason not to invoke
the said principle in a case under Section 397 of the Act, subject of course to
the applicability of the well known judicial safeguards.
A similar question came up for consideration in Sangramsinh P.
Gaekwad vs. Shantadevi P. Gaekwad 2005 (11) SCC 314 wherein this Court
upon noticing a large number of decisions including Needle Industries
(India) Ltd. (supra) observed :-
“191. In Shanti Prasad Jain referring to Elder case 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 a
minority of the members including the petitioners qua
shareholders. The Court, however, pointed out that that
law, however, has not defined what oppression is for the
purpose of the said section and it is left to the court to
decide on the facts of each case whether there is such
oppression.”

It was furthermore held
“196. The court in an application under Sections 397 and
398 may also look to the conduct of the parties. While
enunciating the doctrine of prejudice and unfairness
borne in Section 459 of the English Companies Act, the
Court stressed the existence of prejudice to the minority
which is unfair and not just prejudice per se.

197. The court may also refuse to grant relief where the
petitioner does not come to court with clean hands which
may lead to a conclusion that the harm inflicted upon him
was not unfair and that the relief granted should be
restricted. (See London School of Electronics, Re.)

198. Furthermore, when the petitioners have consented to
and even benefited from the company being run in a way
which would normally be regarded as unfairly prejudicial
to their interests or they might have shown no interest in
pursuing their legitimate interest in being involved in the
company. [See RA Noble & Sons (Clothing) Ltd., Re.]
199. In a given case the court despite holding that no case
of oppression has been made out may grant such relief so
201. In Shanti Prasad Jain v. Union of India it was held
that the power of the Company Court is very wide and
not restricted by any limitation contained in Section 402
thereof or otherwise. ”
36. It was opined that the burden to prove oppression or mismanagement
is upon the applicant. The Court, however, will have to consider the entire
materials on record and may not insist upon the applicant to prove each act
of oppression. It was furthermore observed that an action in contravention
of law may not per se be oppressive, whereas the conduct involving
illegality and contravention of the Act may be suffice to warrant grant of any
remedy.
37. Reliance has been placed by Mr. Sundaram on Kilpest (P) Ltd. vs.
Shekhar Mehra : (1996) 10 SCC 696, which has also been noticed in
Sangramsinh P. Gaekwad (supra) opining :

“The real character of the company, as noticed
hereinbefore, for the purpose of judging the dealings
between the parties and the transactions which are
impugned may assume significance and in such an event,
the principles of quasi-partnership in a given case may be
invoked.

231. The ratio of the said decision, with respect, cannot
be held to be correct as a bare proposition of law, as was
urged by Mr. Desai, being contrary to larger Bench
judgments of this Court and in particular Needle
Industries. It is, however, one thing to say that for the
purpose of dealing with an application under Section 397
of the Companies Act, the court would not easily accept
the plea of quasi-partnership but as has been held in
Needle Industries the true character of the company and
other relevant factors shall be considered for the purpose
of grant of relief having regard to the concept of quasi-
partnership.”

38. Submission of Mr. Sundaram that the appointment of an additional
Director could be a sufficient relief which the court may grant cannot be
accepted. Appellant rejected such an offer. At this stage bitterness and
acrimonious between the parties have ensued.
In a recent decision of J.K. Paliwal and Others vs. Paliwal Steels Ltd.
and others [(2007) 5 Comp LJ 279 (CLB)], on the role of the directors in
terms of Section 397 and 398 , the Company Law Board held that the role of
the directors was well settled and they were the trustees of the company. It
was thus opined that the directors were required to act on behalf of the
company in a fiduciary capacity and their acts and deeds have to be
exercised for the benefit of the company.
39. In Girdhar Gopal Dalima and others vs. Bateli Tea Co. Ltd. and
others : (2007) 1 Comp.LJ 450 (CLB) the Company Law Board held that
once the Company Law Board gives a finding that acts of oppression have
been established, winding up of the company on just and equitable grounds
becomes automatic.

40. We, in the facts and circumstances of this case, are of the opinion that
it is not a fit case where we should interfere with impugned judgment in
exercise of our discretionary jurisdiction under Article 136 of the
Constitution of India. The appeal fails and dismissed with costs. Counsel’s
fees assessed at Rs. 50,000/-.

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