Prasad Bagri & Ors Vs. Bagress Cereals Pvt. Ltd. & Ors  Insc 179
(27 March 2001)
Babu & K.G. Balakrishnan Rajendra Babu, J. :
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.
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.
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.
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
the companys affairs are being conducted in a manner prejudicial to public
interest or in a manner oppressive of any member or members; and
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
the winding up order would unfairly prejudice 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.
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.
grievances made by the Petitioners before the Division Bench of the High Court
are as follows
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
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
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.
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
complaint was that the boxes were still usable and unnecessarily sold.
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.
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.
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.
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.
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
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.
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.
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.
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.
last and the most important point urged is in regard to continuation of
directorship of the first petitioner.
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.
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.
this background, the appeal having been dismissed, we do not find any good
reason to interfere with such an order.
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.