1992 (10) TMI 263 - Board - Companies Law

Summary

Issues Involved:
1. Oppression and Mismanagement under Section 397/398 of the Companies Act, 1956.
2. Maintainability of the Petition.
3. Application of Partnership Principles to a Limited Company.
4. Nature of Powers under Section 397/398 and Reliefs.

Summary:

1. Oppression and Mismanagement under Section 397/398 of the Companies Act, 1956:
The petitioner, holding 14,791 equity shares and supported by 12 other shareholders, alleged acts of oppression and mismanagement in Groz-Beckert Saboo Limited. The company had a history of collaboration with a German firm (GB), which held 60% shares, while the Saboo group held 40%. The petitioner contended that the collaboration agreement and articles of association provided for shared management and equal representation despite unequal shareholding. However, relations soured after Dr. Lindner became chairman in 1987, leading to disputes over management control, expansion programs, pricing, and use of trademarks.

2. Maintainability of the Petition:
The petition was supported by only 25% of the equity holders, though the Saboo group held 40% shares. The respondents argued that the issues could be resolved within the company's domestic forum as per the articles of association, which provided for a casting vote by the chairman. The petitioner argued that the company functioned like a partnership, requiring mutual trust and confidence, which had broken down, leading to a deadlock in management.

3. Application of Partnership Principles to a Limited Company:
The court examined whether the principles of partnership could be applied, given the unequal shareholding but equal management participation. It was noted that the company's articles required unanimous decisions on certain matters, indicating a deadlock situation. The court concluded that despite the unequal shareholding, the right to equal participation in management and veto power on specific issues justified applying partnership principles.

4. Nature of Powers under Section 397/398 and Reliefs:
The court acknowledged that even if oppression was not established, it had the power to provide relief to do substantial justice between the parties. Given the deadlock and the strained relations, the court considered various reliefs, including appointing independent directors, bifurcating assets, or directing the majority to buy out the minority shares. Ultimately, the court ordered the GB group to buy the Saboo group's shares at a fair value determined by an independent valuer, with provisions for obtaining necessary permissions from the Reserve Bank of India and other authorities.

Conclusion:
The court found a deadlock in the management and ordered the GB group to buy the shares of the Saboo group at a fair value to resolve the disputes and ensure the smooth functioning of the company.