2005 (12) TMI 286 - HC - Companies Law

Oppression and mismanagement - Company Law Board - Appeal against orders being passed u/s 398 of the Companies Act - prejudicial to the interest of the company - Removal from the post of chairman of the company - Siphoning off the company s funds by granting loans to sister concern - whether case of exercising this equitable jurisdiction is made out or not - HELD THAT - The submissions broadly are that decision of the Board does not deal with the submissions of the Jindal group. It merely records the submissions but has not dealt with the same and, therefore, it has failed to discharge its statutory function. In other words, according to the Jindal Group, no reasons are given for the alleged findings. I may state at the outset that though one of the acts of oppressions alleged the Jindal group is that Mr. Jindal was entitled to remain permanent Chairman of Caparo Maruti Ltd. in the course of submissions before this Court, the appellants gave up this contention and, therefore, it is not necessary to deal with the same. Suffice is to state that the Board s decision on this aspect is free from any flaw. It is true that no clear three days notice was given but there was no question of any prejudice to Mr. Jindal as he had replied to the notice with certain suggestions that interest should be between 13 per cent or 13.5 per cent. He did not complaint for short notice or postponement of the meeting, although it appears that notice had been issued by Company Secretary when he was fully aware that Mr. Jindal was not in town. However, this being an isolated instance in which Mr. Jindal had participated by making some suggestions. No prejudice seems to have been done to Mr. Jindal by this single and isolated instance. I am, therefore not inclined to accept the arguments of the petitioner that on this ground itself the Board Meeting of 18-1-2002 be declared null and void. It is misconceived to say, on the reading of the aforesaid para, that the findings are not supported by any reasons. No doubt the Board has recorded the Caparo group s reply to the Jindal group s arguments. But tenor of the language clearly suggests that the Board has found merit with the arguments of the Caparo group on this aspect and while accepting the same, it did not feel it necessary to repeat the same extensively as its own reasons. It is clear that the Board accepted the plea that the decision to grant loan at 14 per cent which was even higher than the borrowing rate was a prudent decision and taken in the best interest of the company. Therefore, I do not find any fault with the finding of the Board on this count. it is clearly impermissible on the part of the Jindal group to turn around and raise a plea that grant of loan to those companies was not in the company s interest or was given to the companies doing competing business. The Board has rightly observed that there are no details of the allegations of fraud, siphoning off funds etc. which cannot be looked into for want of these details and on mere suspicion in view of the law laid down in the case of Karedla Suryanarayan 1999 (6) TMI 483 - COMPANY LAW BOARD . It is, therefore, an afterthought plea raised, when the relation between the parties became sore. In view of this, the Board rightly did not deem it necessary to go into various allegations that such loans were given to certain companies which were prejudicial to the interest of the company. There is nothing wrong in the approach of the Board to reject such a plea at demurer. I am, therefore, of the opinion that the manner in which the Board has dealt with allegations of oppression and mismanagement levelled by the Jindal group cannot be faulted with. Whether case of exercising this equitable jurisdiction is made out or not - The relationship has worsened over a period of time. There are even criminal cases filed against each other. In these circumstances, petition was filed before the CLB challenging the removal of Mr. Jindal as Chairman and also alleging certain other acts of oppression as well as mismanagement. No doubt the CLB did not find any substance in these allegations and those findings are affirmed by me in the discussion recorded above. Thus, it is not possible for the two groups to remain together because of worsening acrimony. Subsequent events as high- lighted by the Jindal Group also justify this course of action. Therefore, keeping in view the principles laid down in Needle Industries (India) Ltd. s case 1981 (5) TMI 89 - SUPREME COURT and the manner in which they were followed by this Court in Chander Krishan Gupta 1981 (11) TMI 156 - HIGH COURT OF DELHI , I am of the view that direction of the CLB to the effect that shares of Jindal group be purchased by the Caparo group should not be interfered with. The judgments cited by learned senior counsel for the Caparo group on the scope of section 10F of the Act opposing the appeal of Jindal group would be equally applicable while considering this appeal of Caparo group. Once it is found that the CLB, in the given circumstances, was within its power to exercise equitable jurisdiction and it so exercised, it would not be proper to interfere with the said equitable discretion in an appeal u/s 10F of the Act. Therefore, without going into the maintainability of the appeal filed by Caparo group, the same is dismissed on merits. The argument of Jindal group is that direction of the CLB that the valuation of the shares will be based on the balance sheet as on 31-3-2002 after which date he was removed from the Chairmanship on 7-2-2003 is not proper. However, I find that the CLB has fixed the date of 31-3-2002 because after this date Mr. M.D. Jindal was removed from the Chairmanship on 7-2-2003. Therefore, there is a valid reason for arriving at valuation based on balance sheet as on 31-3-2002. Both the appeals, accordingly fail and are hereby dismissed without any orders as to costs.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement by the Caparo group.
2. Removal of Mr. Jindal as Chairman.
3. Siphoning off the company's funds.
4. Starting parallel business by the Caparo group.
5. Direction to purchase shares of Jindal group by the Caparo group.
6. Maintainability of the appeal filed by Caparo group.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement by the Caparo Group:
The Jindal group alleged that the Caparo group engaged in acts of oppression and mismanagement, including siphoning off funds and starting parallel businesses. The Company Law Board (CLB) dismissed most of these allegations, stating that the Jindal group failed to prove any acts of oppression or mismanagement. The Board noted that the loans given to Caparo group companies were sanctioned with the knowledge and consent of Mr. Jindal, and the interest rates on these loans were competitive. The Board also found that the Caparo group did not engage in any competing business.

2. Removal of Mr. Jindal as Chairman:
The Jindal group contended that there was an unwritten understanding that Mr. Jindal would remain Chairman for life. The Board rejected this claim, stating that there was no such agreement and that the shareholders had the inherent right to elect the Chairman. The removal of Mr. Jindal was deemed not to constitute oppression.

3. Siphoning Off the Company's Funds:
The Jindal group alleged that the Caparo group siphoned off funds by granting loans to sister concerns without proper terms. The Board found that the loans were sanctioned with proper procedure and consent, and the interest rates were commercially wise. The Board dismissed the allegations, noting that the loans were repaid with interest and the company benefited from these transactions.

4. Starting Parallel Business by the Caparo Group:
The Jindal group claimed that the Caparo group started a parallel business, Caparo Engg. India P. Ltd., which was in direct competition with the company. The Board found no substance in this allegation, stating that the businesses catered to different categories of customers and employed different technologies.

5. Direction to Purchase Shares of Jindal Group by the Caparo Group:
Despite dismissing the allegations of oppression and mismanagement, the Board directed the Caparo group to purchase the shares of the Jindal group if they desired to exit the company. This direction was based on the feeling of oppression expressed by Mr. Jindal. The Caparo group challenged this direction, arguing that it was without jurisdiction since no acts of oppression or mismanagement were proven. The High Court upheld the Board's direction, citing the need to exercise equitable jurisdiction to resolve the disputes between the two groups.

6. Maintainability of the Appeal Filed by Caparo Group:
The Jindal group argued that the Caparo group's appeal was not maintainable as they had accepted the impugned judgment by withdrawing an earlier appeal. The High Court did not find merit in this argument and proceeded to examine the appeal on its merits. The Court dismissed the appeal, affirming the Board's direction for the Caparo group to purchase the shares of the Jindal group.

Conclusion:
The High Court upheld the CLB's decision, dismissing the allegations of oppression and mismanagement but affirming the direction for the Caparo group to purchase the shares of the Jindal group. The Court emphasized the need for equitable jurisdiction to resolve the disputes and ensure fair treatment of the parties involved. Both appeals were dismissed without any orders as to costs.