Net (Andhra) Limited & Ors. Vs. AP Aksh Broadband Ltd.& Ors.  INSC
368 (7 May 2010)
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION SPECIAL LEAVE
PETITION NO.9110 OF 2008
Petitioners herein filed Company Petition No.69 of 2006 before the Additional
Principal Bench of the Company Law Board at Chennai under Sections 397, 398,
402 and 403 of the Companies
Act, 1956, alleging mismanagement and oppression by
the majority shareholders of the first respondent 2 Company. Various reliefs,
including reconstitution of the Board of Directors of the said Company, were
prayed for. By its order dated 17th December, 2007, the Company Law Board,
hereinafter referred to as "CLB", dismissed the Company Petition
against which the above-mentioned Company Appeal was filed before the High
Court under Section 10F of the aforesaid Act. The said appeal was dismissed by
the High Court as being misconceived upon the finding that the CLB had
considered all the materials, applied the law and recorded its findings
correctly and no question of law arose from the said order. This Special Leave
Petition arises out of the said order of the High Court.
order to appreciate the submissions made on behalf of the respective parties,
the facts leading to the filing of the Company Petition before the CLB are set
the intention of providing broadband network connectivity to all Government
offices across the State of Andhra Pradesh, to connect the State capital with
the Districts, Mandals, Blocks and Gram Panchayats, the State Government with
the help of Andhra Pradesh Technology Services, hereinafter referred to as
"APTS", identified a consortium of Companies, led by the Respondent
No.5 to form a Joint Venture Company under the name of M/s AP AKSH Broadband
Limited, the Respondent No.1 herein.
AKSH Broadband Limited, hereinafter referred to as "APAKSH", was
contemplated as a Special Purpose Vehicle to undertake and complete the
Petitioner No.1 was one of the companies forming the consortium which entered
into a Share Holders Agreement with the Respondent No.5, Aksh Broadband Ltd.
(since merged with 4 Aksh Optifibre Limited), hereinafter referred to as
`AKSH'. The Petitioner No.1 is the Company and the Petitioner No.2 is its
Managing Director. The Respondents Nos. 2 to 4 are Directors of APAKSH. The
Respondent No.5 holds 57% of the fully paid up equity shares and in addition it
was allotted 12,41,62,500 partly paid shares, giving the said Company a
complete majority control over the affairs of the Respondent No.1 Company.
terms of the Share Holders Agreement the Petitioner No.1 was to acquire 21.10%
of equity capital, AKSH was to acquire 64.80% equity capital and the balance
14.30% was to be allotted to APTS. On 29.5.2006 the Board of Directors of
APAKSH passed a Resolution to call upon the share-holders of the partly paid
shares to pay the balance of the call money of Rs.2/- per share on or before
28.2.2006 (Date 5 to be confirmed). A second and final notice was issued by the
Respondent No.1 for payment of the call money, but on the request of the
Petitioner No.2 the time was extended.
on 25.11.2006, yet another notice was issued by the Respondent No.1 for payment
of the balance call money of Rs.2/- per share on the partly paid shares.
overall estimated cost of the project was Rs.395 crores, out of which equity
participation by the three constituent partners was Rs.175 crores. The balance
Rs.220 crores was to be mobilized as loan by the Respondent No.1 Company, and,
in the event the Respondent No.1 failed to do so, the deficiency was to be met
by further equity contribution by the partners.
mentioned hereinbefore, APAKSH was established as a Special Purpose Vehicle
with 6 the sole object of implementing the connectivity project in accordance
with the contract awarded by APTS on 21st April, 2003, apart from which no
other business was to be undertaken by it. On 10th May, 2005, the Respondent
No.1 gave a turnkey contract to the Respondent No.5 which is one of the
principal shareholders having a controlling interest in the Respondent No.1
Company. The said Engineering, Procurement and Construction contract,
hereinafter referred to as the `EPC' contract, envisaged the completion of the
infrastructural facilities within a period of 65 weeks at a fixed cost of
Rs.370 crores upto the stage of commission and implementation of the project.
Appearing for the Petitioners, Mr. Jaideep Gupta, learned Senior Advocate,
submitted that the Schedule of work in the Agreement entered 7 into between
APTS and APAKSH provided that the project was to be completed and commissioned
within 65 weeks, which was to end on 31st December, 2006. It also stipulated
that connectivity upto the district and all mandal levels was to be completed
in a phased manner within a period of seven months from the date of execution
of the contract. Mr. Gupta submitted that towards that end the Respondent No.1
placed orders for supply of optic fibre cables on its sister concern, AKSH
Broadband Limited, the Respondent No.5, which subsequently merged with AKSH
Optifibre Limited, the substituted Respondent No.5, represented by the
Respondents Nos. 2 to 4, for completion of the project. Mr. Gupta submitted
that despite the fact that over a crore of rupees had been contributed by the
Respondent No.1 to the Respondent No.5 towards the execution of the EPC
contract, it had not 8 achieved connectivity in any of the 23 districts of the
State in terms of the Agreement dated 21st April, 2005, executed by APTS. Mr.
Gupta submitted that AKSH Broadband Limited had used its sister concern, AKSH
Optifibre Limited, prior to its merger, to dump useless and defective cable and
to store them as part of the stores of AKSH Broadband Limited and siphoned out
the monies from APAKSH Broadband Limited, purportedly for execution of the EPC
contract, but without any tangible benefit to the Respondent No.1.
Gupta urged that the Petitioner had been lured by the Respondents Nos. 2 to 4
to procure finance for the purpose of investment in the Respondent No.1 Company
from Elegant Capitals Private Limited, the Respondent No.6 herein, which had
promised to advance a loan of Rs.33 crores to the Petitioners towards capital 9
contribution in the Respondent No.1 Company.
submitted that taking advantage of their stranglehold over the Company and its
officers, the Respondent Nos. 2 to 5 had by a series of acts mismanaged the
affairs of the Respondent No.1 Company and rendered the Petitioners completely
ineffective inspite of their investment, thereby attracting the provisions of
Sections 402 and 403 of the Companies Act, 1956.
Gupta urged that the Respondent No.5 was involved with the turnkey project in
two capacities. On the one hand, it is the principal shareholder of the
Respondent No.1 Company, holding and controlling more than 64% equity of the
Respondent No.1 and, on the other, it is the EPC contractor who is responsible
for delivering goods and services in accordance with the Agreement executed 10
between itself and the Respondent No.1 Company on 10th May, 2005. Mr. Gupta
submitted that it was in this context that it was necessary for the Company Law
Board and the High Court to have inquired into the conduct of the Respondent
No.5 in the matter of execution of the turnkey project. Mr. Gupta submitted
that such omission has resulted in grave miscarriage of justice in so far as
the Petitioners were concerned.
Gupta submitted that since the Petitioners had not been permitted to adduce
oral evidence involving events which had occurred during the pendency of the
appeal, the only course left open to rectify the injustice caused to the
Petitioners was to remit the matter to the Company Law Board for a proper
inquiry into the various allegations made by the Petitioners regarding the
gross misconduct of the 11 Respondent No.5 in executing the turnkey project
which was the very substratum of the existence of APAKSH Broadband Limited, the
Respondent No.1 company. Mr. Gupta submitted that the aforesaid acts of the
Respondent No.1 Company through the Respondent No.5 herein, taking advantage of
its complete control over the management and affairs of the Respondent No.1
already established that the Company's affairs are being conducted in a manner
oppressive to the Petitioners and the facts justified the making of a winding-up
order on the ground that it was just and equitable that the Company be wound
Gupta also submitted that after holding that they lacked jurisdiction under
Sections 397 and 398 and 10-F of the Companies Act,
neither the Company Law Board nor the High Court should have commented on the
merits of 12 the matter which has prejudiced the interests of the Petitioners.
It was urged that it is in this context that the complaint made about the
failure of the principles of natural justice before the Company Law Board
assumes significance. Referring to the decision of this Court in Needle
Industries (India) Ltd. & Ors. vs. Needle Industries Newey (India) Holding
Ltd. & Ors. [(1981) 3 SCC 333], Mr. Gupta submitted that in the said
decision it had been held as follows :- "63. We appreciate that it is
generally unsatisfactory to record a finding involving grave consequences to a
person on the basis of affidavits and documents without asking that person to
submit to cross-examination. It is true that men may lie but documents will not
and often, documents speak louder than words. But a total reliance on the
written word, when probity and fairness of conduct are in issue, involves the
risk that the person accused of wrongful conduct is denied an opportunity to
controvert the inferences said to arise from the documents...........".
said judgment, this Court also observed that many decisions had been cited in
support of 13 the contention that issues of mala fides and abuse of fiduciary
powers are almost always decided not on the basis of facts but on oral
Gupta also referred to the decision of this Court in Sangramsinh P. Gaekwad vs.
Shantadevi P. Gaekwad [(2005) 11 SCC 314], in which the question of oppression
for the purposes of Section 397 and 398 of the Companies Act has been dealt with in
some detail. Their Lordships held that the remedy under Section 397 of the Companies
Act is not an ordinary one. The cause of oppression had to be burdensome, harsh
and wrongful and an isolated incident may not be enough for grant of relief and
continuous course of oppressive conduct on the part of majority shareholders
was, therefore, necessary to be proved. It was also observed that the
jurisdiction of the Court to grant appropriate relief under Section 397 was of
wide aptitude and in exercise of its powers the 14 Court was not bound by the
directions contained in Section 402 of the Companies Act if in a particular fact situation further relief or reliefs were
warranted. At the same time, a word of caution was introduced and it was also
held that it had to be borne in mind that when a complaint is made as regards
violation of statutory or contractual rights, the shareholders may initiate
proceedings in a Civil Court or in a proceeding under Section 397 of the Act
which would be maintainable only when an extra-ordinary situation is brought to
the notice of the Court keeping in view the wide and far reaching power of the
Court in relation to the affairs of the Company.
Gupta pointed out that several letters had been written on behalf of the
Petitioner-Company objecting to the manner in which the funds of the Company
were being siphoned off by the Engineering Procurement and Construction
Contractor, 15 hereinafter referred to as "the EPC Contractor",
without any progress in the project work. In the first of such letters dated
22nd August, 2006, addressed by Shri R.V.R. Chowdary, Chairman and Managing
Director of the Petitioner Company, to the Chairman of the Respondent No.1 Company,
the financial indiscipline on account of payment of commission to the EPC
contractor was objected to as the same ought to have been spent in proportion
to the funds earmarked for each category of expenditure. The next letter
referred to by Mr.
the one dated 1st November, 2006, addressed by the Vice-Chairman of the
Respondent No.1 Company to the Respondent No.5 complaining of the fact that
despite all the support received by the Respondent No.5 as the EPC contractor
and payment of about Rs.100 crores, connectivity had not been completed even in
one district nor in the State Secretariat which was the central hub of the
project. Various other shortcomings of the 16 Respondent No.5 were also pointed
out and it was also stated that A.P. Broadband Project had been used by the
Respondent No.5 to enrich itself using the free right of way granted by the
Government of Andhra Pradesh. It was also mentioned that no further infusion of
funds was necessary and the EPC contractor would have to make immediate
measures to make triple play completely operational in at least 4 to 5
another letter dated 29th September, 2006, addressed to Mr. V.K. Dhir, the
Chief Executive Officer of the Respondent No.5 was referred to by Mr. Gupta
from which it would be evident that the work had not been completed nor had the
timelines indicated been followed. A letter on similar lines addressed by the
Department of Information Technology and Communication, Government of Andhra
Pradesh, to Dr. Kailash Chowdary, Managing Director of the Respondent No.5,
expressing serious concern 17 with regard to the progress made, was also
brought to the notice of the Court.
Gupta submitted that it is only too obvious that the Respondent No.5 had
misused its control over the Respondent No.1 Company in not only securing the
contract for the project which was nothing but the modus operandi of the
Respondent No.5 in collusion with Respondent No.1 to siphon off the funds of
the Company, after having induced the Petitioners to invest large sums of money
in the Respondent No.1 Company and rendering the holding of the petitioners in
the Respondent No.1 Company of little or no value. As against the investment of
Rs.112 crores by the Petitioner Company, no connectivity had been achieved even
in Hyderabad, let alone in the 23 districts and all the mandals and villages of
the State or even in at least one district.
Gupta submitted that this was a classic example of oppression by majority
shareholders having a controlling interest, confined to unjust enrichment at
the expense of minority shareholders of the Company. Mr. Gupta submitted that
unless appropriate orders were passed on the Petitioners' application under
Sections 397, 398, 402 and 403 of the Companies Act, 1956, the Petitioner Company
would completely lose its investment in the Respondent No.1 Company and would
also be made to face continuous litigation and harassment at the hands of the
Respondents Nos.2 to 6.
18. Appearing for the
Respondent Nos.1, 3, 4 and 5, Mr. K.G. Raghavan, learned Senior Advocate,
submitted that the conduct of the Respondent No.5 as EPC contractor and a
shareholder in Incable Net has been cited by the Petitioners in their
application under Sections 397 and 398 of the Companies Act, as acts of oppression on the 19 Petitioner Company.
Referring to the various allegations made against the Respondent No.5 and its
purported control of the Respondent No.1, Mr.
pointed out that the Petitioners had deliberately suppressed the fact that the
payments made to the Respondent No.5 had been done under the signature of the
Petitioner No.2. Mr. Raghavan submitted that having himself participated in the
Board meetings as Director of the Respondent No.1 Company and having chaired
eight Board Meetings between 14.2.2005 and 4.3.2006 and having been a signatory
to the minutes of the meeting dated 21st April, 2005, in which the EPC contract
had been awarded in favour of the Respondent No.5, it did not lie in the mouth
of the Petitioner No.2 to attribute acts of oppression by the Respondent No.1
as far as the Petitioners are concerned. Mr. Raghavan submitted that apart from
the above, the Petitioner No.2 was also a member of the Managing Committee and
Audit Committee of the Respondent 20 No.1 Company and had also signed the Audit
Report and its Balance Sheet for the year 2005-06.
Raghavan submitted that during this period, when the Petitioner No.2 was not
only participating in the affairs of the Company, but was taking an active role
in its management, no allegation as to oppression or even mis-management was
raised. It was only after the call money for the balance price of the partly
paid shares was repeatedly demanded from the Petitioners and the Petitioners
failed to pay the said amount, that all these allegations began to surface for
the first time after 1st November, 2006. Mr. Raghavan submitted that between
2003 and 2006, ten Board Meetings were chaired by the Petitioner No.2 as
reference was made to the meeting held on 21st April, 2005, which was chaired
by the Petitioner No.2, and wherein the EPC contract to be given to the
Respondent No.5, was approved. Mr.
Raghavan submitted that at no point of time was any demand made for
cancellation of the EPC Agreement and even in the Company Petition before the
CLB no such prayer was made.
Raghavan submitted that the Director of the Company stands in a fiduciary
capacity to the Company, but the same cannot be equated with his duties towards
the shareholders which stood on a different footing and in case of conflict
between the two interests, the Company's interests had to be protected. A
Director has to act in the paramount interest of the Company. He has no
statutory obligation as far as individual shareholders are concerned.
Accordingly, the duty of the Petitioner No.2 as a Director of the Respondent
No.1 Company was to the Company before his combined interest as a Director in
the Petitioner No.1 Company, which was a shareholder in the Respondent No.1
Company. Mr. Raghavan urged 22 that the Company Law Board had quite correctly
disallowed the claims of the Petitioners and left it to the collective wisdom
of the Directors of the Respondent No.1 Company to take such action as was
deemed fit and proper in the course of management of the day-to-day affairs of
the Company, particularly with reference to evaluation of the quantum of work completed
by AKSH and the investments made by it towards the share capital of the
Company, realization of the final call money from the shareholders, recovery of
the security deposits from the Petitioner No.1,, settlement of the pending
bills of the Directors, audit of the accounts of the Company, etc. which were
within the lawful domain of the Board of Directors.
this regard, Mr. Raghavan referred to the decision of this Court in Sangramsinh
P. Gaekwad (supra), which had also been referred to by Mr. Gupta, in support of
his contention that the duties 23 of a Director to the Company and to the
shareholders stand on different levels, but while a Director stands in a
fiduciary capacity to the Company, he does not have such a duty towards
far as denial by the CLB as well as the High Court to the adducing of oral
evidence is concerned, Mr. Raghavan submitted that Section 10E(5) of the Companies Act, 1956, indicates the manner in which the Company Law Board has
to exercise its powers and to discharge its functions under the Act.
sake of reference, Section 10E(5) is set out herein below :
Constitution of Board of Company Law Administration.- (1)
Without prejudice to the provisions of sub-sections (4C) and (4D), the Company
Law Board shall in the exercise of its powers and the discharge of its
functions 24 under this Act or any other law be guided by the principles of
natural justice and shall act in its discretion."
Raghavan submitted that there was no compulsion on the Company Law Board to
record oral evidence, when all that the Petitioners had to say had already been
said by them on affidavit. The Company Law Board, therefore, did not commit any
illegality in disallowing the Petitioners' prayer for adducing oral evidence.
Mr. Raghavan also referred to the relevant portions of the decision of this
Court in Needle Industries (India) Ltd.
where an argument had been advanced that under the Company Court Rules framed
by this Court, the provisions of the Civil Procedure Code were made applicable
to proceedings before the Company Law Board under Section 397 of the Act. Mr. Raghavan
pointed out that in paragraph 63 of the judgment this Court had observed that,
although, it had to be appreciated that it is generally 25 unsatisfactory to
record a finding involving grave consequences towards a person on the basis of
affidavits and documents, without asking that person to submit to
cross-examination, but a total reliance on the written word, when probity and
fairness of conduct are in issue, involved the risk that the person accused of
wrongful conduct is denied an opportunity to controvert the inferences said to
have arisen from the documents. The said submission was ultimately not acted
upon on the ground that such a submission was a belated attempt to avoid an
inquiry into the conduct and motives of one of the Directors of the Company.
Raghavan reiterated his submissions that where there was a conflicting interest
between the Company and the shareholders, the Director's duties would at first
always be for the benefit of the Company and that in the context of Sections
397 and 398 of the Companies
Act, the Legislature in its 26 wisdom had left the
procedure to be adopted in these matters to the Company Law Board itself, with
special emphasis on due compliance with the principles of natural justice.
Raghavan placed reliance on the decision of this Court in V.S. Krishnan &
Ors. vs. Westfort Hi- Tech Hospital Ltd. & Ors. [(2008) 3 SCC 363], wherein,
while considering the scope of the expression "oppression" within the
meaning of Sections 397, 398 and 402 of the Companies Act, it
was held that in order to establish "oppression" it would have to be
shown that the conduct of the majority shareholders towards the majority
shareholders was harsh, burdensome and wrong and that such conduct was mala
fide and was for a collateral purpose where although the ultimate objective
might be in the interest of the Company, the immediate purpose would result in
an advantage for some shareholders over others. It was also 27 observed that
the action of the majority shareholders was against probity and good conduct.
conduct was found to be oppressive under Sections 397 and 398, the
discretionary power given to the Company Law Board under Section 402 to set
right, remedy or put to an end such an oppression, is very wide.
Raghavan submitted that even in the decision of this Court in Dale &
Ltd.& Anr. vs. P.K. Prathapan & Ors. [(2005) 1 SCC 212], this Court had
held that when a majority shareholder was reduced to a minority shareholder by
a mala fide act of the Company or its Board of Directors, such act would amount
the minority shareholders.
also submitted that it is only in such circumstances that a decision was taken
by the Respondent No.1 Company to consider the question of forfeiture of the
partly paid shares held by the 28 Petitioner No.1. He also submitted that the
call money amounting to Rs.24,83,25,000/- had already been deposited by the
Respondent Nos.3 to 5.
Except to submit that the project had been undertaken by the State Government
to abridge the digital divide which existed within the State, Dr.
Singhvi, learned Advocate appearing for the Respondent No.2, had little else to
reply to the submissions made on behalf of the respondents, Mr. Jaideep Gupta
submitted that the High Court had not decided the question of jurisdiction
under Sections 397 and 398 of the Companies Act. The
findings of misconduct by the High Court against the Petitioners was not only
on the question of contractual obligation between the Respondent No.1 and
Respondent No.6, but also with regard to the mala fide manner in which the
Petitioners were placed on account of the close proximity between the
Respondent No.1 and the 29 Respondent No.5. Mr. Gupta also submitted that the
participation of the Petitioner No.2 as a Director in the affairs of the
respondent No.1 Company was prior to the implementation of the project.
was lastly urged that "oppression" is a mixed question of law and
fact as was held in the Needle Industries (India) Ltd.'s case (supra) and the
views expressed by this Court in the said case, in fact, applies to the case of
the Petitioners necessitating the setting aside of the orders of the Company
Law Board as well as the High Court.
the allegations contained in the Company Petition filed by the Petitioners
under Sections 397, 398, 402 and 403 of the Companies Act, 1956,
the reliefs prayed for are as follows :- "(i) To direct the 1st respondent
company to incorporate the Shareholders Agreement dated 04.06.2005 in the
Memorandum and Articles of Association of the 1st respondent company;
To reconstitute the Board of Directors of the 1st respondent company and
provide that all policy decisions, and all decisions on key matters be decided
by a Board of directors at a meeting where at only one nominee from each of the
groups viz., 5th respondent, 1st petitioner apart from APTS nominee are
Appoint a Chartered Accountant to investigate into the investments made by the
5th respondent towards the share capital especially keeping in mind the source
of funds for investments in share capital of the 1st respondent company;
Appoint a team of Chartered Accountants/ Chartered Engineers to evaluate the
quantum of work done by the 5 respondent th company, and declare that the
investment of the 5th respondent company over and above the said quantum of
work to have been issued without consideration and consequently annul the said
shares and direct the modification of the shareholding of the 1 respondent
Vest the day-to-day administration of the 1st respondent company in a Committee
of Directors comprising of a nominee from each group viz., petitioners, APTS
and 5th respondent; and pass such other order(s) as the Hon'ble Board deems fit
and proper in the circumstances of the case."
allegation on the basis of which such reliefs have been prayed for basically is
that the 31 EPC Contractor AKSH, the Respondent No.5, which is also the
majority shareholder in the Respondent No.1 Company, had mismanaged the funds
and operations of the Company and the work on the project was delayed on
account of the various acts of omission and commission on the part of AKSH.
reliefs prayed for have been opposed on behalf of the Respondents contending
that the contractual obligations under the EPC Contract did not fall within the
scope of Sections 397 and 398 of the above Act and the right of the Petitioners
as shareholders was in no way affected, particularly, when the Petitioner No.2
was a Director and Vice- Chairman and a member of the Managing Committee
constituted to monitor the implementation of work of the project and at no
point of time had he made any grievance with regard to the EPC Contract.
apart, he had chaired the meetings of the Board and operated the bank accounts
and payments made to AKSH by the Respondent No.1 Company had in 32 most cases
been done by him on behalf of the Company.
32. It is
on the said foundation that a case of oppression and mismanagement has been
attempted to be made out by the Petitioners. However, in the facts of the case
it becomes difficult to take a different view as has been expressed both by the
CLB as also by the High Court.
Admittedly, the Respondent No.5 is a majority shareholder in the Respondent
No.1 Company and at the same time the EPC Contract has also been given by the
Respondent No.1 Company to the Respondent No.5, to which transaction the
Petitioner No.2, Shri R.V.R. Chowdary, was also a party in his capacity as
Vice-Chairman of the Respondent No.1 Company. Besides being a party to the
decision to give the EPC Contract to the Respondent No.5, the Petitioner No.2
was also instrumental in payment of large sums of money being made to the
Respondent 33 No.5 which estops him from alleging that the Respondent No.2
Company had been siphoning off the funds of the Respondent No.1 Company without
diligently performing its part of the contract.
substance in Mr. Raghavan's submissions that the EPC Contract given to the
Respondent No.5 by the Respondent No.1 was a commercial contract and stands
outside the ambit of Sections 397 and 398 of the Companies Act.
Failure to act in terms of the contract cannot be said to have amounted to
either oppression or mismanagement by the Respondent No.1. At best it can be
said that the Respondent No.1 had been used as a tool or mechanism by the
Respondent No.5 to acquire benefits for itself, which in the instant case, does
not appear to be so, having regard to the fact that one of the Petitioners in
the Company Petition was himself responsible for such payments being made.
the parties have placed reliance on the decision of this Court in Needle Industries
(India) Ltd. (supra). Mr. Gupta relied on the said decision in support of his
submission that by denying an opportunity to the Petitioners to adduce oral
evidence, the CLB had shut out vital evidence which would have strengthened the
case of the Petitioners. The views expressed in paragraph 63 of the said
decision is the expression of a general principle of law and only confirms the
principle of adducing evidence, but does not lay down a hard and fast rule that
in all cases the Court or the CLB is bound to allow oral evidence to be led as
otherwise there is a risk that the person accused of wrongful conduct is denied
an opportunity to controvert the inference said to have been arrived at from
the evidence produced before the Court alone. As a proposition of law there can
be no disagreement with the same, but the question is as to whether 35 the same
is required to be applied in the facts of the instant case.
the submissions made on behalf of the respective parties and the materials on
record, the point which falls for consideration in this appeal is as to whether
a case of oppression and mismanagement by the majority shareholders against the
minority shareholders had been established or not.
Whether there is any truth in Mr. Gupta's submissions as to the siphoning of
funds by the Respondent No.5 Company from the Respondent No.1 Company, which
had been set up as a Special Purpose Vehicle and in which the Respondent No.5
was a majority shareholder, holding about 60% of the equity shares has not been
other hand, the materials on record indicate that the Petitioner No.2, who is a
Director of the Petitioner No.1 Company, which is also a 36 shareholder in the
Respondent No.1 Company, had functioned as a Vice President of the Respondent
No.1 Company and had also chaired 8 of its Meetings including the Meeting held
on 21st April, 2005, in which the decision was taken to award the EPC Contract
to the Respondent No.5 Company. Furthermore, the Petitioner No.2 had signed most
of the cheques by which payments were made to the Respondent No.5 Company for
supply of materials under the EPC contract. It does not lie in the mouth of the
Petitioner to now contend that the funds of the Respondent No.1 Company had
been siphoned by the Respondent No.5.
the facts as revealed, the only conclusion that can be arrived at is that the
Respondent No.5 had committed a breach of contract in regard to supply of
materials to the Respondent No.1 Company in terms of the EPC contract. Such
lapse, in our view, would
not constitute the ingredients of a 37 complaint under Section 397, 398, 402
and 403 of the Companies Act, 1956. Such breach could give rise to an action of
breach of contract under Section 73 of the Indian Contract Act, 1872.
decisions cited on behalf of the respective parties and in particular, the
decision in Needle Industries (India) Ltd. (supra), in support of the claim of
the Petitioners for being allowed to lead oral evidence, does not really come
to the aid of the Petitioners, since from the materials on record itself it has
been established that at best the Respondent No.5 had failed to abide by its
commitments in the EPC contract executed in its favour by the Respondent No.1
are unable to understand as to how the decisions in the above case are of any
help to the Petitioners, since nothing concrete has been established by them in
regard to either oppression or mismanagement by the Respondent No.5 as far as
38 the Petitioners are concerned. On the other hand, the conduct of the
Petitioner No.2 provides a different picture since at the relevant point of
time he was at the helm of affairs of the Respondent No.1 Company, despite
being a Director on the Board of the Petitioner No.1 Company. The decision in
V.S. Krishnan's case (supra) is more apposite to the facts of the case. Quoting
Halsbury, this Court observed that the expression "oppression" within
the meaning of the Sections 398, 399 and 402 of the Companies Act had been interpreted to mean that the conduct of the
majority shareholders towards the minority shareholders was harsh, burdensome
and wrong and that such conduct was mala fide and was for a collateral purpose
which would result in an advantage for some shareholders over others, although,
the ultimate object might be in the interest of the Company. However, the facts
disclosed in this case do not establish such 39 conduct on the part of the
Respondent No.5. Until the conduct of the majority shareholders was found to be
oppressive in terms of the above description, under Sections 397 and 398 of the
Companies Act, 1956, the Company Law Board was
not competent to invoke its jurisdiction under Section 402 of the said Act to
set right, or put an end to such oppression.
40. On an
overall analysis of the facts involved and the part played by the Petitioner
No.2 in the affairs of the Company at the relevant time, we are not inclined to
interfere with the orders of the High Court or the Company Law Board, since we
are not satisfied that any act of oppression or mismanagement within the
meaning of Sections 397, 398, 402 and 403 of the Companies Act, 1956, has been made out by the Petitioners against the majority
shareholders of the Respondent No.1 Company which would justify the making of a
winding 40 up order on the ground that it would be just and equitable to do so
and to pass appropriate orders to bring to an end the matters complained of.
Special Leave Petition is, accordingly, dismissed.
will, however, be no order as to costs.
................................................J. (ALTAMAS KABIR)