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TMI Blog2007 (9) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... ts - HELD THAT:- In my view, the question is whether regarding the question of transfer of the said 155 million shares by the WBIDC in terms of the agreement dated January 12, 2002, the HPL was competent or supposed to do anything ; and if the answer is in the affirmative, then it must be held that it was one of its affairs. Mr. Bimal Chatterjee, in my opinion, is right in saying that though the HPL was a party to the agreement dated January 12, 2002, it was not competent or supposed to take any decision or to do any other thing regarding the question of transfer of the said 155 million shares by the WBIDC to the CP(M)C, or to its nominee the CP(I)PL that entered into a separate agreement dated March 8, 2002, with the WBIDC. The agreement dated March 8, 2002, was not an agreement between shareholders of the HPL, the CP(I)PL that was deemed to have pledged the deemed transferred and delivered shares was not a shareholder of the HPL. Simply because the HPL subsequently wrote letters seeking confirmation from the WBIDC whether it had transferred those shares, and seeking the IDBI s decision regarding approval of the transfer, I do not think it can be said that the matter became an aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on stood established. The petitioners in the company petition were required to plead and prove the act or acts of oppressions, and an act or case of oppression was not to be searched out somehow by the Board ; it was just to be apparent, having been established. I am unable to agree with counsel for the Chatterjee group that the findings of oppression recorded by the Board, tying up the IOC allotment and the question of transfer of the said 155 million shares, being a pure finding of fact cannot be interfered with. I hold that the finding of the Board regarding oppression is perverse, and hence the impugned order entirely based on such finding is liable to be set aside. The Board applied the concept ignoring many aspects of constitution and functioning of the HPL. In my judgment, on the facts it is very difficult to apply the concept of quasi partnership to the HPL, and I hold that the Board was not justified in applying the concept, particularly when for deciding the case made out in the company petition it was not necessary to decide whether the HPL was actually in the nature of a quasi-partnership only between the GoWB and the WBIDC and the CP(M)C, since the Tatas did not claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share certificates. PC was obstructing that, and for no valid reason. Although his activities exposed all concerned to threatened civil and criminal actions, he remained unmoved. The HPL s interests were at stake. Hence it cannot be said that the chairman was unjustified in proposing the circular resolution. I find no merit in the argument that the legal opinion with connected papers were not disclosed with the proposed resolution. Case u/s 398 of the Companies Act, 1956 - There is absolutely no reason to say that the GoWB and the WBIDC with their associates, if there were any, were conducting the affairs of the HPL in any manner prejudicial to the HPL s interests. Whatever changes the IOC allotment and allotment of shares to the lenders in terms of the debt restructuring package and the refinancing scheme were to bring about were in the HPL s interests, as had been decided by its board of directors from time to time. The IOC came in according to terms and conditions of the debt restructuring package. It seems to me that without any real basis for making any complaint the petitioners in the company petition referred to the provisions in section 398 There is absolutely no reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and establish any case of oppression, a must for getting relief under section 397 of the Companies Act, 1956. In view of the rules governing the proceedings, the Board was supposed to consider only those documents which were brought on record as part of the pleadings of the parties. It has also been said that the case of the petitioners in the company petition stated in their written argument was completely different from the one made out in their pleadings. I do not think these questions require any further close examination, since I have found that on merits the order of the Board cannot be sustained. Thus, the order of the Board is liable to be set aside and the company petition should be dismissed. Accordingly, I allow the three appeals filed by GoWB, WBIDC and IDBI, and dismiss all the eight cross-objections and the appeal filed by the petitioners in the company petition. The order of the Board (Chatterjee Petrochem (Mauritius) Co. v. Haldia Petrodhemicals Ltd.) is set aside and the company petition is hereby dismissed. All the pending interlocutory applications shall be deemed to be disposed of. There shall be no order for costs in the proceedings. - JAYANTA KUMAR BISWAS J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, except the CP(I)PL, were and still are shareholders of Haldia Petrochemicals Ltd., hereinafter referred to as the HPL . Among the twenty respondents in the petition, while the first respondent was HPL, the second, third and sixth respondents were West Bengal Industrial Development Corporation Ltd. (in short the WBIDC ), Government of West Bengal (in short the GoWB ), and Indian Oil Corporation Ltd. (in short the IOC ) respectively. The fourth, fifth, and seventh to twentieth respondents were the directors of the HPL. The seventh, eighth, ninth, sixteenth and twentieth respondents were Mr. Tarun Das, the chairman of the HPL, Dr. Sabyasachi Sen, Principal Secretary, Commerce and Industries Department, GoWB, Mr. Gopal Krishna, managing director, WBIDC, Mr. Swapan Bhowmik, managing director, HPL, and Dr. Purnendu Chatterjee (in short PC ), prime mover of the Chatterjee group respectively. 3. The facts culled out from the pleadings running into the thousands and placed by counsel for the parties in the course of thirty nine days uninterrupted arguments, put in a nutshell, are these. In 1985 HPL was incorporated as a public limited company. It was promoted jointly by WBIDC, a wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M)C, the WBIDC was to transfer requisite number of shares held by it in the HPL to the CP(M)C for ensuring that the CP(M)C had 51 per cent. of the total paid up equity of the HPL. Another thing provided in that agreement was that on demand by the CP(M)C, the WBIDC would sell its entire HPL shareholding to the CP(M)C. The agreement put an obligation on the CP(M)C to bring in a minimum of Rs. 500 crores equity or equity like instruments or advance for the HPL by March 31, 2002. Though Rs. 107 crores was not invested by the CP(M)C (it arranged for the HPL further HSBC loans for making that figure), a loan agreement dated March 8, 2002, was executed by and between the CP(I)PL (as borrower), WBIDC (as lender) and the CP(M)C (as guarantor). It was stated therein that in terms of the agreement dated January 12, 2002, 15,50,99,998 HPL shares (hereinafter referred to as the said 155 million shares ) had been transferred and delivered by the WBIDC to the CP(I)PL, and that price for them would be deemed to be paid and accepted, and further that those shares would be deemed to be pledged to the WBIDC that would be deemed to have given an interest free loan, repayable in ten years, to the CP(I) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was further provided that the GoWB and the WBIDC would be entitled to cause induction of Rs. 150 crores of equity in the HPL through an industrial portfolio investor. In the circumstances the GoWB and the WBIDC started negotiations with the IOC for its induction, since the GAIL had by then decided not to make any investment in the HPL and the lenders had been demanding induction of the IOC. On September 3, 2004, PC met the Chief Minister who told him about the IOC developments. On September 13, 2004, a meeting was held in which all concerned, except the Chatterjee group, participated, and the IOC agreed to participate in the HPL. By a letter dated September 16, 2004 the GoWB informed PC about the matter. By a reply dated September 20, 2004, PC communicated his agreement on the IOC and wanted the GoWB to accommodate loss suffered by the CP(M)C from 1994. On September 24, 2004, the HPL and the IOC entered into a confidentiality agreement. It was stated that the IOC equity investment in the HPL would be not exceeding Rs. 150 crores. Then by a letter dated September 29, 2004, the IOC wanted the GoWB to execute an memorandum of understanding recording that the HPL shares acquired b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer terms mentioned in its letter dated October 29, 2004. The IOC did not respond, and on the contrary, by a letter dated November 10, 2004, it accepted the HPL s invitation dated November 2, 2004. Noticing that the IOC accepted the HPL s invitation, the WBIDC wrote a letter dated November 10, 2004, informing the IOC about further modification of its counter offer terms mentioned in its letter dated November 5, 2004. The IOC did not respond to this as well. By a letter dated December 10, 2004, PC requested the chairman of the HPL to convene a board meeting for recording reasons for the IOC induction and how that was unfavourable to existing and minority shareholders, when with the IOC coming in the HPL was likely to become a Government company. By then with the acquisition of the HPL shares by the WBIDC from the Tatas and allotment of 271 million redeemable preference shares, on conversions of loans of a few of the GoWB companies, the HPL had become a section 619B company from October 14, 2004. The share capital structure became : equity WBIDC 47.88 per cent., the Tatas 3.19 per cent., the CP(M)C 30.70 per cent., Winstar 9.03 per cent., IT(M)L 7.60 per cent. and others 1.60 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of complaint from the IOC, issued notices against the HPL. But PC insisted on the GoWB ensuring that the IOC did not want any allotment of the HPL shares. In the circumstances the GoWB that had already obtained the lenders approval to the deal by its letter dated July 27, 2005, informed PC that in view of his conduct and in the interests of the HPL, it decided to defer the proposal to disinvest, and that it would remain in the HPL to extend full support to it. Simultaneously, the chairman of the HPL issued a notice for a circular resolution proposing to allot 150 million equity shares to the IOC. The resolution was adopted and shares were allotted to the IOC. Under the circumstances on August 3, 2005, the company petition was filed. 12. The allegations made by the petitioners in the company petition are these. At the insistence of the GoWB, they agreed to induct the IOC in the HPL as a portfolio investor. By letter dated September 20, 2004, they pointed out that in view of the proposed initial public offer there was no necessity for inducting any industrial portfolio, but they agreed to consider investment of Rs. 150 crores by the IOC, since the Chief Minister wanted that. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it had not made any commitment to the IOC to allow it to participate in the HPL management, the GoWB and the WBIDC were not allowing the CP(I)PL to register shares purchased by it, and to amend of articles of association of the HPL to reflect the terms of the agreements. Though as many as eight drafts of the share purchase agreements were circulated by them during the period from April 2005 to July 25, 2005, the GoWB and the WBIDC failed to respond officially. 14. Sometime before July 15, 2005 their misgivings about the IOC s investment in the HPL were substantiated, when they discovered the letter dated November 10, 2004, written by the WBIDC to the IOC. The GoWB and the WBIDC concealed from them that there had been negotiations between the GoWB and the IOC. The discussions were deliberately suppressed from thepetitioner mala fidely and for the collateral purpose of wrongfully and by misrepresentation obtaining the petitioner s consent to the resolution at the extraordinary general meeting on January 14, 2005, to allot shares at par to respondent No. 6 and in breach of all the earlier agreements between the parties. The GoWB and the WBIDC never intended to honour and perform the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner prejudicial to the public interest and oppressive to them. They also alleged that the WBIDC had brought and was likely to bring about material change in the management of the HPL. They claimed that winding up of the HPL would unfairly prejudice them, but that otherwise the facts would justify the making of a winding up order on just and equitable ground. They wanted necessary order cancelling the special resolution dated January 14, 2005, on the ground that they had been induced to consent to that. They wanted order directing the WBIDC to ensure their majority shareholding and management control in the HPL. They prayed for an order directing amendment of articles of association of the HPL for incorporating their special rights provided in agreements dated August 20, 1994, January 12, 2002, March 8, 2002 and July 30, 2004. In addition to seeking order cancelling the special resolution dated January 14, 2005, they wanted order directing the WBIDC to sell its entire HPL shareholding to them at the agreed price of Rs. 14 per share (for 60 per cent. of the holding) and at the price to be determined, for the balance 40 per cent., in terms of the order of the Board. 17. The Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no secret agreement. There was no merit in the contention that the special resolution was passed without full disclosure of material information in the explanatory statement to the notice. The discussions held by the GoWB and the WBIDC with the IOC had no bearing on the special resolution. The circular resolution was not vitiated by non-compliance with the provisions in section 289. The allegation that their consent to support the special resolution had been obtained by inducement or by making any false promise was without any substance. There was no reason to cancel allotment of shares to the IOC. 19. Mr P. C. Sen, counsel for the WBIDC, has said that once the Board found that the IOC allotment affair of the HPL had not been conducted by the GoWB and the WBIDC in any manner oppressive to the petitioners in the company petition, and when that was the only case of oppression alleged in the company petition, the Board ought to have dismissed the company petition. His submission is that when the company petition was to be dismissed, since the allegation of oppression made therein was not established, as found by the Board, it was allowed by the Board on the basis of a case n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners in the company petition did not pay any consideration for the said 155 million shares. They were entitled to get those shares registered in the name of the CP(I)PL, and for putting an end to the controversy appropriate directions should be given. 22. The question of transfer of the balance shares, though was an issue between two groups of shareholders, the HPL was directly involved in it. It was bound to be concerned, since the transfer was to convert it from a joint sector company into a private sector company. Besides by letter dated December 17, 2004, the GoWB conveyed to the chairman of the HPL its commitment to transfer all shares held by the WBIDC in the HPL. Thereafter, the principal secretary, a nominee director of the WBIDC, signed the agreement on behalf of the GoWB on January 14, 2005. This fact was known to the chairman of the HPL and the managing director of the WBIDC. Thus, four directors of the HPL were aware of the proposed transfer, and their knowledge was the knowledge of the HPL. It was apparent from the minutes of board meetings dated March 29, 2005 and May 28, 2005, that the other directors of the HPL were also aware of the transfer proposal. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdictional error in that without forming and recording the opinion on the conditions mentioned in section 397(2) of the Companies Act, 1956, it exercised the power to make order granting relief under section 397. 25. Therefore, the questions that require decisions are whether the Board was required to form and record any opinion regarding the three conditions mentioned in section 397(2), and whether the opinions, if required, were formed and recorded by it. Section 397 is as follows : 397. Application to Company Law Board for relief in cases of oppression. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Company Law Board is of opinion (a) that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and (b) that to wind up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief what is to be considered today is the merits of the case, and not whether conditions mentioned in section 397(2) stood satisfied. 28. By referring me to Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 ; Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 ; [1997] 1 Comp LJ 243 (Mad) ; Shree Anupar Chemical (India) P. Ltd. v. Dipak G. Mehta [1999] 4 Comp LJ 474 (Bom) ; Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 ; [2005] 11 SCC 314 ; and Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 (SC) ; [2006] 5 Comp LJ 511, he has submitted that even if no case of oppression is established, for doing substantial justice appropriate relief under section 397 can be given, and that no technical pleas are to be entertained and considered, since today section 397 has no condition precedent. His further submission is that by not recording the opinions, which can definitely be gathered from the order, the Board, exercising jurisdiction akin to the jurisdiction of a High Court, as was held in Stridewell Leathers P. Ltd. v. Bhankerpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after forming and recording opinions regarding existence of the three things the Board could consider the question of making order granting relief in the application under section 397. 30. The question is whether I am reading the provisions in section 397 contrary to any authority. I find that Rajya Lakshmi [1962] 32 Comp Cas 207 (Cal) is the authority to say that an order under section 397 can be made only after forming the opinions, and further that if any one of the conditions is not satisfied, no further question can arise under section 397. I am simply bound by this Division Bench decision of this court. In Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535 (paragraphs 14 and 19) the apex court held that power to make order under section 397 read with section 402 can be exercised only after coming to the conclusion that the petitioners in the company petition proved the allegation of oppression and showed the just and equitable ground for winding up the company that must unfairly prejudice the member concerned. There is nothing in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 . Counsel for the Chatterjee group have picked out the expression the court used by their Lordships. Their submission is that by the expression the apex court meant all courts including the Board that subsequently came into existence with jurisdiction akin to the jurisdiction of a High Court, as was held in Stridewell Leathers P. Ltd. v. Bhankerpur Simbhaoli Beverages P. Ltd. [1994] 79 Comp Cas 139 ; [1994] 1 SCC 34. According to them in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 the apex court declared the law that even when no case of oppression is made out, order granting relief under section 397 can be made for doing substantial justice between the parties, and that in view of article 141 of the Constitution of India that law is binding on all courts including the Board. They have said that from Krishan Lal Ahuja [1983] 53 Comp Cas 60 (Delhi), Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 ; [1997] 1 Comp LJ 243 (Mad) and Sangra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips. 33. Mr. Sen drew my attention to a single bench decision of this court in Jaladhar Chakraborty v. Power Tools and Appliances Co. Ltd. [1994] 79 Comp Cas 505 ; 96 CWN 313, in which it was said (paragraph 62) (page 527), I do not read Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333, as an authority for the proposition that even in cases where oppression and mismanagement are not found under section 397 or 398 of the Act, the court can compel the company or the respondents to buy out the dissident shareholders . He also relied on Indian Bank v. ABS Marine Products P. Ltd. [2006] 131 Comp Cas 339 ; [2006] 5 SCC 72, saying (in paragraph 26) that what the High Courts should follow is the law declared by the apex court, and not the directions, treating them as the law declared, given by the apex court relaxing the application of the declared law for doing complete justice on the peculiar facts of the case concerned. 34. While dealing with the subject oppression and mismanagement, in Sang ramsinh [2005] 123 Comp Cas 566, 635 (paragraph 199) the apex court said, In a given case the court despite holding that no ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, converting them from the majority into a minority, was oppressive to them. Whether this opinion can be sustained that is a different question, and I will examine it presently. But it cannot be said that the Board did not form and record any opinion at all. The Board, however, did not form and record any opinion on the two other things : (i) unfair prejudice, and (ii) winding up on just and equitable ground, as mentioned in section 397(2)(b). I am unable to agree with Mr. Sarkar that opinions on these would automatically follow from the opinion formed by the Board on oppression, or that the opinions can be gathered from the order of the Board. The question of gathering could arise, had the Board said anything about the two things. It did not say anything at all. The opinions were to be formed on the basis of relevant facts, because both the questions were essentially pure questions of fact. When the Board said nothing about them, I do not see how it can be said that, that the Board was satisfied that winding up of the HPL would unfairly prejudice the petitioners in the company petition, but that otherwise the facts and circumstances would justify the making of a winding up order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the order of the Board is vitiated by incurable jurisdictional error. 37. Another question that has arisen is whether regarding the said 155 million shares the Board could make any order at all. But before I proceed to examine the question, I think it is necessary to mention that in course of hearing of the case, I was told, on more than one occasion, by counsel for the Chatterjee group that while deciding the appeals filed by the GoWB and the WBIDC, I should not entertain and examine (a) any submission regarding correctness of findings of fact recorded by the Board, and (b) any question of law that does not arise out of the impugned order. I was taken through section 10F, which is : 10F. Appeals against the orders of the Company Law Board. Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order : Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the prescribed form to refer any question of law arising out of its order for decision of the High Court. 41. With respect to the scope and ambit of the provisions in section 10F, I do not find any disagreement between the counsel for the parties. It is not disputed that on any question of law arising out of the order of the Board the parties in the case are entitled to prefer an appeal or file a cross-objection before this court. It is not disputed either that the order can be questioned on the ground that findings recorded and conclusions reached by the Board are perverse. Here one of the questions that arises out of the order of the Board is whether it had jurisdiction to consider anything connected with the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL. This jurisdictional question arises for two reasons : (i) the CP(I)PL was not a member of the HPL, and (ii) there was no pleading in the company petition that the question of transfer of the said 155 million shares was an affair of the HPL, and that, that affair had been conducted by any of the respondents in the company petition in a manner oppressive to the petitioners therein. 42. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundry P. Ltd. AIR 1966 Cal 512 and Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 ; [1997] 1 Comp LJ 243 (Mad). 44. The petitioners in the company petition claimed that they collectively held the majority of the HPL shares. Their such claim was based on the agreements dated January 12, 2002, March 8, 2002 and July 30, 2004, terms and conditions whereof were mentioned in the company petition. No allegation was, however, made that regarding transfer of the said 155 million shares by the WBIDC to the CP(I)PL and their registration by the HPL in favour of the CP(I)PL, the respondents in the company petition conducted any affair of the HPL in a manner oppressive to the petitioners therein. To be precise, nothing connected with the said 155 million shares was a matter in issue in the company petition. In the counter filed by the GoWB and the WBIDC it was stated that according to the HPL register those shares were held by the WBIDC, and not by the CP(I)PL ; and that before allotment of shares to the IOC, the petitioners in the company petition held 48.93 per cent. equity shares of the HPL, and not the majority thereof as claimed by them. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on regarding the said 155 million shares was made out in the company petition. 46. In Mohta Bros. P. Ltd. v. Calcutta Landing and Shipping Co. Ltd. 73 CWN 425, the Division Bench of this court said (in paragraph 13 of the report), In our view this question is well-settled namely that in a petition under sections 397 and 398 of the Act, the court must confine itselfto the case as made out in the petition and to the allegations in the petition itself and supporting affidavits, if any, and not look at other evidence with regard to events that might have happened subsequent to the petition . While taking this view their Lordships referred to a single bench decision of this court in Bengal Luxmi Cotton Mills, In re [1965] 35 Comp Cas 187 ; 69 CWN 137. Approving Bengal Luxmi [1965] 35 Comp Cas 187 ; 69 CWN 137 in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 ; [2005] 11 SCC 314 the apex court said (in paragraph 200 of the report) (page 635) : It is now well-settled that a case for grant of relief under sections 397 and 398 of the Companies Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve directions for their transfer. Mr. Sarkar has contended that even assuming no case regarding the question of transfer of the said 155 million shares was made out in the company petition, in view of Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 ; [1997] 1 Comp LJ 243 (Mad) in which Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 ratio was indicated as the law declared by the apex court recognising power of all courts to make order for doing substantial justice even when no case of oppression is made out, the Board was competent to consider a case argued before it. I have already said that in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 no such law as was visualised in Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 ; [1997] 1 Comp LJ 243 (Mad) had been declared. The Board did not possess any such power as seen by Mr. Sarkar. 49. The Board held that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL was an affair of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether regarding the question of transfer of the said 155 million shares by the WBIDC in terms of the agreement dated January 12, 2002, the HPL was competent or supposed to do anything ; and if the answer is in the affirmative, then it must be held that it was one of its affairs. Mr. Bimal Chatterjee, in my opinion, is right in saying that though the HPL was a party to the agreement dated January 12, 2002, it was not competent or supposed to take any decision or to do any other thing regarding the question of transfer of the said 155 million shares by the WBIDC to the CP(M)C, or to its nominee the CP(I)PL that entered into a separate agreement dated March 8, 2002, with the WBIDC. The agreement dated March 8, 2002, was not an agreement between shareholders of the HPL, the CP(I)PL that was deemed to have pledged the deemed transferred and delivered shares was not a shareholder of the HPL. Simply because the HPL subsequently wrote letters seeking confirmation from the WBIDC whether it had transferred those shares, and seeking the IDBI s decision regarding approval of the transfer, I do not think it can be said that the matter became an affair of the HPL. To my mind, the Board comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to get those shares transferred and registered in the name of the CP(I)PL was thwarted by the GoWB and the WBIDC or by any other person. In the absence of the litigation and with the IOC allotment going smoothly, perhaps the GoWB and the WBIDC would have transferred them to the CP(I)PL ; for necessary steps that were taken and the CP(I)PL, as will appear from its letter dated November 4, 2004, to the WBIDC, was also fully satisfied with the steps taken. The question is whether these facts coupled with the possibility could be employed for holding that it was permissible to make an order under section 397 directing the WBIDC to transfer those shares. The order was not, however, made by the Board for these reasons and the possibility alone. What it held is that the said 155 million shares had stood transferred to the CP(I)PL, and that consequent upon acquisition of those shares the Chatterjee group had acquired the status of holder of the majority of the HPL shares. Having so held, it then held that since the IOC allotment was to be upheld on merits, it was necessary to direct the WBIDC to transfer the said 155 million shares, because otherwise the Chatterjee group would stand conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that in the final adjudication process the Board was not justified in recording a finding of fact taking exception to the submissions made at the admission stage. Counsel for the GoWB and the WBIDC were entitled to resist the prayer for interim relief on the basis of the case made out in the company petition by the petitioners themselves. Though the said 155 million shares had never actually been acquired by the CP(I)PL and in reality the Chatterjee group was not the majority shareholders in the HPL, the petitioners in the company petition claimed that having acquired those shares they had become the majority shareholders in the HPL. That was an absolutely incorrect statement of fact. They were fully aware of the fact that as from October 14, 2004, the HPL had become a section 619B company. Whatever may be the effect of the agreements dated January 12, 2002 and March 8, 2002, read with the agreement dated July 30, 2004 (I say so because their enforceability, validity and legality were questioned before the Board and also before me, and I do not think it is necessary for me to examine those aspects), the fact remains that the Chatterjee group never held the majority of the HPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the basic facts and the case of the GoWB and the WBIDC. The origin of the said 155 million shares was the agreement dated January 12, 2002. They were to be given for a specific reason the CP(M)C was to ensure investment of a minimum of Rs. 500 crores by March 31, 2002, for survival of the HPL that was, because of severe financial crisis, on the verge of being declared sick. Not a rupee was invested by the CP(M)C by March 31, 2002, and not only it slapped interest burden on the HPL by arranging further loans totalling to Rs. 107 crores that it was to invest by subscribing to the rights issue long ago, itnever brought the balance of the minimum of Rs. 500 crores. By taking over the HSBC loan of Rs. 107 crores, and thus releasing the HPL of the interest burden, it indirectly brought in Rs. 107 crores only on July 30, 2004, when equity shares at par for the amount were allotted to Winstar. 59. If the Chatterjee group was really after management control, it was free to invest suitably in terms of the agreement dated January 12, 2002, for ensuring its absolute majority status, that right was given to it. It is apparent that the group was not interested in attaining majority status by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished. 61. For making the order the Board held that the question of sale of the shares in terms of the agreement dated January 14, 2005, though was an issue between two groups of shareholders, was an affair of the HPL that was bound to be concerned, since the transfer was to convert it from a joint sector company into a private sector company. In my opinion the Board was absolutely wrong. True it is that, as noticed by the Board also, the question of transfer of all the HPL shares held by WBIDC to the CP(M)C was noticed by the HPL board, the directors whereof were also aware of the proposed transfer in terms of the understanding dated January 14, 2005. Simply because the Board was noticing the developments, the directors of the HPL were aware of the events which were happening after the document dated January 14, 2005, was signed, or on the transfer taking place in the HPL was to stand converted from a joint sector company into a private sector company, I do not see how it could be said that the question of transfer of shares by WBIDC to the CP(M)C on the basis of understandings recorded in the document dated January 14, 2005, did become an affair of the HPL. The HPL had no right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition, the Board accepted the Chatterjee group s case that what it was seeking was not specific performance of any agreement, but enforcement of the legitimate expectations arising from the agreements. 64. The Board proceeded on the basis that it was required to examine, keeping in view the conduct of the parties, the only issues whether the Chatterjee group established that it had any legitimate expectation while joining HPL, and whether such expectation of the group continued. It held as follows : the GoWB and the WBIDC admitted that they, with the CP(M)C and the Tatas, were the promoters of the HPL. PC s personal relationship with the Chief Minister and the officials of GoWB brought the CP(M)C and its group companies and the WBIDC in association with the HPL. Ninety-five per cent. of the subscribed equity shares were held by the Chatterjee group and WBIDC as the only two dominant groups of shareholders. With their respective four nominees on the board of directors they took all major decisions in consultation and with the consent of each other. According to articles of association right of pre-emption was conferred on the promoters. Hence, in reality the HPL was a quasi partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 397 and 398 of the Companies Act, 1956. He has said that as was held in National Buildings Const. Corpn. v. S. Raghunathan [1998] 7 SCC 66, a plea of legitimate expectation, an offshoot of promissory estoppel, does not call for any examination at all if not pleaded, and hence the Board should not have undertaken a speculative exercise for deciding the issue of legitimate expectation, essentially a question of fact, since there was no pleading in the petition. 67. Mr. Pal has said that legitimate expectation, a substantive principle, is to be considered not according to the claimant s perception, but keeping in view the larger public interest wherein other more important considerations may outweigh what would otherwise have been the legitimate expectation of the claimant. For this he has relied on Food Corporation of India v. Kamdhenu Cattle Feed Industries [1993] 1 SCC 71. On the strength of A. C. Roy Co. v. UOI AIR 1995 Cal 246 ; D. Wren International Ltd. v. Engineers India Ltd. AIR 1996 Cal 424 ; Hira Tikkoo v. Union Territory, Chandigarh [2004] 6 SCC 765 and Ram Pravesh Singh v. State of Bihar [2006] 8 SCC 381, he has contended that when agreement is alleged no question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o equitable principles. He has relied on O Neill v. Phillips [1999] 97 Comp Cas 807 (HL) ; [1999] 2 All ER 961, to show that company law has developed seamlessly from the law of partnership which was treated by equity as a contract of good faith. Mr. Mitra has relied on Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp Cas 60 (Delhi), in support of his submission that closely held companies are in the nature of partnerships, where the holding represents not only investment for gain but also a desire to be directly associated in the course of management. On the basis of Sewkissendas Bhatter v. Dominion of India AIR 1957 Cal 617, he has said that when the Government does anything in pursuance of ventures, which a private individual may undertake in commercial operations, the state is governed by the same principles as that of private individuals in similar matters, and hence it is fully answerable in a court of law for such acts which are distinct from acts done in exercise of Governmental powers. On the basis of New Horizons Ltd. v. UOI [1995] 1 SCC 478 ; [1997] 89 Comp Cas 849, he has said that the expression joint venture connotes a legal entity in the nature of a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at significance ; and from then the financial institutions were playing vital role. It is true that the Tatas all along remained virtually dormant, and that shares to the extent of around 95 per cent. were held by GoWB and the Chatterjee group. It is also true that in terms of articles of association right of pre-emption was conferred on the promoters. But that was subject to approval of the lenders ; everything was subject to prior approval of the lenders. The debt restructuring proposal was referred to the corporate debt restructuring cell, and that was done by the IDBI as the lead lender, according to guidelines of the Reserve Bank of India. The package was approved with various obligations and restrictions. 72. In the share subscription agreement dated July 30, 2004, (allotting the HPL shares to Winstar) it was specifically provided (in clause 18.2) that the parties therein would not be deemed to be partners. In the joint venture agreement dated August 20, 1994, and also thereafter in some documents the expression partner was used. The question is whether on these facts it could very safely be said that the HPL was actually in the nature of a quasi partnership between WBIDC and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the CP(M)C. 74. As to the doctrine of legitimate expectation, I think counsel for the GoWB and the WBIDC are fully justified in saying that in the absence of any case whatsoever made out in the company petition that by conducting any affair of the HPL, the GoWB and the WBIDC had oppressed the petitioners therein, in the sense that the act or acts defeated their legitimate expectation of getting management control of the HPL through transfer of shares by WBIDC to the Chatterjee group, the Board was not competent to apply the doctrine on the basis of mere submissions made by counsel for the Chatterjee group. The Board granted relief under section 397 on the basis that in view of the assurances and commitments given by the GoWB and the WBIDC from time to time that management control would be given to the Chatterjee group, the petitioners in the company petition were entitled to legitimately expect to get the said 155 million HPL shares from WBIDC. 75. In my view, the Board was not right in making the doctrine of legitimate expectation as the sole basis for exercising its jurisdiction. Legitimate expectation of the petitioners in the company petition, if there was any, could be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, I do not see how it can be said that the petitioners in the company petition were entitled to get an order directing WBIDC to sell all its HPL shares to them in terms of the understandings recorded in the document dated January 14, 2005. PC first wrote a letter dated January 17, 2005, supplying names of three firms for choosing one from among their number and engaging it for determining the value of the shares held by WBIDC in the HPL. By a letter dated January 28, 2005, the HPL offered 150 million shares to the IOC. Then by a letter dated January 31, 2005, PC complained that the GoWB and the WBIDC were not showing the same haste in transferring shares to the Chatterjee group that had been shown in allotting shares to the IOC. He wanted that the valuer should be nominated by February 1, 2005. The IOC accepted the offer and submitted the requisite application accompanied by a cheque for the requisite amount. This exercise the IOC completed on February 17, 2005. By a letter dated March 9, 2005, PC requested the Chief Minister to expedite transfer of shares by WBIDC to the Chatterjee group. He wanted the thing to happen immediately for making HPL acquire a position of global eminen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders of the HPL at a board meeting and a general meeting approved and passed all required resolutions for an investment of Rs. 1,500 crores for the purpose of acquisition of shareholding in Basell N. V. This was one of the objections GoWB had raised after considering a previous draft agreement. By a legal notice dated May 17, 2005, the IOC called upon the HPL to issue and allot the 150 million shares for which the company had accepted Rs. 150 crores from it. It stated in the notice that if the shares were not issued and allotted within seven days from May 17, 2005, it would be constrained to initiate appropriate proceedings against the HPL and its directors. By a letter dated May 25, 2005, GoWB requested IDBI to permit it to purchase from WBIDC all its HPL shares and then to transfer them to the CP(M)C and one Essex Development Investment (Mauritius) Ltd., a nominee of the CP(I)PL. 80. By a letter dated May 25, 2005, the IOC informed GoWB that in spite of requests, letters, legal notices, etc., the HPL had chosen to keep quiet on the question of allotting 150 million shares to it for which it had deposited the requisite amount through a cheque as back as February 17, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intervene and advice the management of the HPL to take immediate steps for allotment of 150 million shares to it for which the HPL had not been taking any action in spite of repeated reminders. By a letter dated June 29, 2005, the CP(M)C called upon WBIDC to take steps for dematerialising 3,87,75,000 pledged shares in terms of agreement dated March 8, 2002. By another letter dated June 29, 2005, the CP(M)C called upon the WBIDC to release 7.5 million pledged shares in terms of cl. 2.5 of the agreement dated March 8, 2002, so that it might use them for arranging fund for the proposed buy out of WBIDC shareholding in the HPL. By another letter also dated June 29, 2005, the CP(I)PL called upon WBIDC to release 30 million pledged shares in terms of cl 2.5 of the agreement dated March 8, 2002, so that it might use them for arranging fund for the proposed buy out of WBIDC shareholding in the HPL. 82. In the circumstances, Mr Tarun Das, the chairman of the HPL, wrote (in his own handwriting) a personal letter to PC dated June 30, 2005, which is : Thank you for your message of concern regarding my mother s health. She is making slow progress. I have been thinking about issues relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CP(M)C asked GoWB to send the formal offer for sale, and informed GoWB that it was willing to enter into a simple share purchase agreement and conclude the transaction expeditiously. 85. By another letter dated July 15, 2005, the CP(M)C wanted the Chief Minister to give necessary direction for complying with the conditions precedent mentioned in its letter dated July 6, 2005. By yet another letter dated July 15, 2005, the CP(M)C called upon GoWB to take necessary actions particularly regarding the confirmation to be obtained in writing rom the IOC that it would not subscribe to any share in the HPL and would withdraw all claims in relation thereto. A copy of a letter of Deutsche Bank dated July 15, 2005, written to PC in relation to the bank s term sheet dated June 11, 2005, was also supplied to GoWB. By that letter the bank confirmed that it was willing to make available to Essex a sum of up to Rs. 11.10 billion for acquisition of 384,900,002 shares owned by WBIDC in the HPL, on the basis of the terms contained in the term sheet, and that subject to completion of documentation in a form and substance acceptable to the bank, the offer would remain valid till July 22, 2005. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GoWB s HPL shares to the Chatterjee group as annulled on the ground that the proposed transfer did not fructify. By a circular letter dated July 27, 2005, the chairman of the HPL informed all its directors about the legal opinion obtained by him regarding the HPL s failure to allot shares to the IOC. Relevant portion of the opinion was circulated with the comment that the HPL directors would individually face criminal action. By a notice dated July 27, 2005, the board meeting of the HPL fixed for July 29, 2005, was postponed on the ground that the date did not suit the convenience of many directors. In the circumstances the chairman issued notice dated July 28, 2005, suggesting that the board of the HPL should adopt the proposed resolution through circulation. The proposed resolution was to encash the cheque issued by the IOC and to allot 150 million equity shares to it in terms of decision of the board of directors taken in the meeting held on November 2, 2004. By a letter dated July 31, 2005, Winstar objected to the proposed resolution by circulation on the ground that in terms of agreement dated July 30, 2004, it was entitled to get at least ten days notice. Under the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 ; and Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59 Comp Cas 46 (Cal). 90. While commenting on fiduciary duty of a director and duty to act in good faith making full disclosures to the shareholders, Mr. Sarkar has cited to me Dale and Carrington Invt. P. Ltd. v. P. K. Prathapan [2004] 122 Comp Cas 161 (SC) ; [2005] 1 SCC 212. He has said that a single act of oppression is enough, and that the oppressor should not get the benefit of his own wrong. Mr. S. N. Mukherjee, counsel for IT(M)L, has given me TSC Industries Inc. et al. v. Northway Inc. [1976] 426 US 438, in support of his contention that an omitted fact is material for the purpose of section 173 of the Companies Act, 1956, if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. In support of the proposition that if non-compliance with provisions of the statute deprives shareholders of their rights, then it is a just and equitable ground to wind up the company, he has relied on Loch v. John Blackwood Ltd. [1924] All ER 200. 91. On the basis of Maharani Lalita R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e GoWB and the WBIDC in a manner oppressive to the petitioners in the company petition. 93. In 2000 when the HPL was in severe financial crisis and funds were urgently needed, by a letter dated April 23, 2000, PC gave certain proposals for streamlining management and in that he mentioned that the IOC was interested in participating in the HPL. By that letter written to the Chief Minister of the State he gave an ultimatum by saying that if his proposals were not acceptable, then he would have no option but to withdraw from the project with all his dues paid up. By a letter dated August 29, 2001, the IOC informed GoWB that it was willing to participate in the HPL provided it was given at least 26 per cent. of the HPL shares and management control. PC was against giving management control to the IOC and he also wanted the HPL to remain a non-Government company. Since the CP(M)C was not investing Rs. 107 crores by subscribing to the rights issue in terms of decision of the HPL board dated September 6, 2000, the HPL was on the verge of becoming a non-performing asset, and this was informed to the persons concerned by the managing director of the HPL by his letter dated October 26, 2001. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. In reply the IOC wrote a letter dated July 25, 2002, stating that it was still keen to participate in the HPL and was willing to look to the future under the likely scenario. By then the CP(M)C started acting as if it were the holder of the majority of the HPL shares, in reality it was not. As a matter of fact it was only permitted to control the management of the HPL in the manner it could do that qua a majority shareholder ; this is apparent from the letter dated March 30, 2002, written by WBIDC to GoWB. 96. By a letter dated September 23, 2002, IDBI informed the chairman of the HPL that for debt restructuring package of the HPL its sponsors must infuse substantial interest-free funds and induct a strategic investor ; it wanted infusion of Rs. 500 crores by November 30, 2002, and a further Rs. 200 crores by February 26, 2003. However, on January 13, 2003, it referred the HPL s debt restructuring proposal to the corporate debt restructuring cell ; the reference was made in terms of guidelines issued by the Reserve Bank of India. By letter dated April 16, 2003, it requested GoWB to revive the IOC s proposal for equity participation in the HPL, since the GAIL s terms of equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated January 12, 2002, to call upon WBIDC to sell its entire HPL shareholding to it on demand. It was stated that GoWB would be entitled to cause induction of Rs. 150 crores of equity through an industrial portfolio investor on normal and customary terms, so that time limit and quantum of cash infusion mentioned in the debt restructuring package might be met. 98. In terms of the supplementary agreement dated July 30, 2004, GoWB approached the IOC for its participation in the HPL as a portfolio investor. On September 3, 2004, a meeting was held between the Chief Minister of the State and PC, and the Chief Minister told PC about the IOC s possible induction as an equity participant at par. On September 13, 2004, a meeting was held in which all concerned, except anyone from the side of the Chatterjee group, participated. The question of the IOC s participation was discussed, and GoWB by a letter dated September 16, 2004, informed PC of the developments. It was mentioned in the letter that the IOC, in addition to equity for Rs. 150 crores, had asked for the HPL shares held by the Tatas that WBIDC was in the process of acquiring. By a letter dated September 20, 2004, PC informed GoWB th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities including issuance of share certificates. That decision was, however, subject to approval of the shareholders to be obtained in a general meeting. On November 2, 2004, itself the letter of invitation annexing the key terms of offer was sent to the IOC. Under the circumstances, WBIDC wrote a further letter to the IOC dated November 5, 2004, stating what it would do if the IOC accepted the offer dated November 2, 2004. The IOC, writing its last letter dated October 25, 2004, did not respond in any manner, and on the contrary it wrote a letter to the HPL dated November 10, 2004, communicating its decision to accept the offer dated November 2, 2004, on the conditions mentioned in the annexure to the invitation letter. 100. Then WBIDC wrote the letter dated November 10, 2004, modifying the terms and conditions of its offer made by letter dated November 5, 2004. The IOC did not respond in any manner to this as well. In the letter WBIDC said : Sub: Proposed investment of Rs. 150 crores by the IOC in Equity Shares of the HPL. Kindly refer to our letter dated 5 November, 2004 and your letter No. BDPC/65.1, dated 10 November, 2004, on the above subject. In part modification of our abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004, PC requested the chairman to adjourn the extraordinary general meeting. He raised objection that the IOC investment would make the HPL a Government company. By another letter dated January 7, 2005, he asked the chairman to postpone the extraordinary general meeting on the ground that because of short notice it was not possible to obtain authorisation from the CP(M)C board to support the resolution. Then he wrote letter dated January 11, 2005, seeking adjournment of the meeting on the ground that he was discussing with GoWB the inter se promoters issues. At the same time he wrote letter dated January 11, 2005, calling upon WBIDC to sell its entire HPL shareholding to the CP(M)C. He mentioned that in terms of letter dated September 30, 1994, WBIDC was to sell 60 per cent. of its HPL shares to the CP(M)C at Rs. 14 per share. He called upon WBIDC to sit for completing the terms and conditions of the transaction. 102. In the circumstances, the document dated January 14, 2005, was signed by Dr. Sabyasachi Sen as representative of GoWB and PC as representative of the CP(M)C. They agreed as follows : (1) The Government of West Bengal shall sell its entire shareholding in the HPL to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance on November 10, 2004 and the final allotment offer was also made to it according to the original terms. Mr. Pratap Chatterjee, counsel for the IOC, in my view, is absolutely justified in saying that on the facts there was absolutely no scope to say that GoWB, WBIDC and the IOC entered into any binding arrangement for transfer of all its HPL shares by WBIDC to the IOC on its becoming a member of the HPL. He is right in saying that once the IOC did not write any letter after October 25, 2004, it was to be presumed that the negotiations between GoWB, WBIDC and the IOC regarding the IOC s acquisition of the HPL shares held by WBIDC ended in a failure, and that the IOC just decided to make a simple investment of Rs. 150 crores. 105. The whole case in the company petition was based on the alleged discovery of the letter dated November 10, 2004, written by WBIDC to the IOC mentioning the modified terms and conditions. By a coeval letter the IOC had already accepted the terms of invitation to invest Rs. 150 crores in the HPL as an equity participant. The letter of WBIDC dated November 10, 2004, never received the slightest attention of the IOC that chose not to respond. These we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of fact after October 25, 2004, the IOC did not respond to the modified offers made by WBIDC by its letters dated November 5, 2004 and November 10, 2004, and on the contrary by letter dated November 10, 2004, it unconditionally accepted the invitation issued by the HPL on November 2, 2004. He has rightly pointed out that by the letter dated October 25, 2004, the IOC had offered to acquire 150 million equity shares and the HPL shares held by WBIDC simultaneously, but ultimately it decided to go only for the 150 million shares. It is therefore evident that the negotiations between WBIDC and the IOC ended in a failure. In my opinion, such failure was not a material thing to be communicated to all the directors of the HPL or to the shareholders thereof who were to consider the question of voting in the extraordinary general meeting fixed for January 14, 2005. 108. The case of the petitioners in the company petition that for insistence of GoWB they agreed to induct the IOC in the HPL as a portfolio investor cannot be accepted. GoWB took the steps in terms of the supplementary agreement dated July 30, 2004, whereby responsibility of inducting an investor with Rs. 150 crores was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having failed to bring in the strategic investor, the responsibility was taken over by GoWB, and after starting negotiations with the IOC, the developments were made known to PC on September 3, 2004. It therefore cannot be said that PC was merely accepting the wish of the Chief Minister who even wanted to know clearly whether PC would remain in the HPL. 110. The allegations of misrepresentation and fraud were made without giving any particulars whatsoever. Who made the misrepresentation and when and how it was made nothing was said in the company petition. It has been rightly said that such a bald and vague allegation of fraud as was made in the case is not to be noticed at all. Admittedly, after discovering the alleged fraud PC did not disclose his reaction, and he rather took steps for getting the benefit of the fraud. Mr. Sarkar has explained this by saying that even after discovering the fraud PC did not react, because he was not bothered at all when the IOC was going out and the balance HPL shares of WBIDC were almost in his pocket. I am unable to say that Mr. Pal was unjustified in saying that such a mind boggling story of fraud should be rejected outright. The foundation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares to the IOC. The anxiety on the part of the GoWB and the WBIDC to make the IOC invest in the HPL was reflected in the letters written by WBIDC. In my view, there is absolutely no reason to say that by suggesting ways and means to ensure acquisition of more shares by the IOC, WBIDC in any manner wanted to affect any existing right of the CP(M)C. Thus, it is apparent that the case of any existing special right getting defeated sought to be made in the company petition was absolutely baseless. 112. PC was objecting to allotment of shares to the IOC on the ground that fund was no longer needed, and that on its induction the HPL would become a Government company. Both these objections, in my view, to his knowledge, were of no substance. The fund was very much needed. The petitioners in the company petition said that they were ready to bring in Rs. 150 crores. It is not the case that till the date of filing the company petition, and particularly till January 14, 2005, they ever said that the fund likely to be invested by the IOC would be brought in by them. But then the IOC was not to be brought in only for the funds. In the board resolution dated October 11, 2004, the reasons for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the consent in question was obtained by exercising fraud. Not that PC was not in the habit of writing letters, he was rather writing letters for everything. I think Mr. Pal has rightly questioned the worth of the allegations ; they were made just to build a case. 114. GoWB made commitment to sell to the CP(M)C all the HPL shares held by WBIDC. Offer letter to the IOC was sent and after the IOC made payment, instead of encashing the cheque and allotting and issuing the shares to the IOC, PC started demanding that the IOC must withdraw from the HPL The IOC was giving notices threatening legal actions against the HPL and its directors. The chairman of the HPL personally requested PC to encash the IOC cheque and allot shares to it. The Registrar of Companies issued notices against the HPL. The lenders were demanding immediate resolution of the problem. But nothing could move PC who wrote the letter dated July 6, 2005, putting the conditions precedent, inter alia, that balance shares of WBIDC would be purchased by the CP(M)C, only if GoWB obtained written commitment from the IOC that it would withdraw unconditionally from the HPL. He also wanted that before entering into the deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate governance the allotment issue should have been decided in a regular board meeting. 116. According to counsel for the Chatterjee group the Board ought to have held that the circular resolution was adopted in a manner oppressive to the petitioners in the company petition, when the Board found that the circular resolution route should not have been followed. On the basis of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333 Mr. Sarkar has said that it was not necessary for the petitioners in the company petition to show that the circular resolution route was adopted mala fide. According to Mr. Divan and Mr. Jayanta Mitra what the Board did is that after finding that there was nothing wrong with the circular resolution (that was not necessary at all), it made certain uncalled for observations of advisory nature regarding good corporate governance. They have said that it was apparent on the face of the resolutions dated November 2, 2004 and January 14, 2005, that not only the HPL decided to allot 150 million shares to the IOC, but the persons named in the resolutions were also duly authorized to allot the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of shares to the lenders in terms of the debt restructuring package and the refinancing scheme were to bring about were in the HPL s interests, as had been decided by its board of directors from time to time. The IOC came in according to terms and conditions of the debt restructuring package. It seems to me that without any real basis for making any complaint the petitioners in the company petition referred to the provisions in section 398 There is absolutely no reason to make any order granting relief under that section. Hence the Board was fully justified in not making any order by making any reference to the provisions in section 398. 119. The appointment of the managing director in the HPL, it seems to me, was made a matter in issue in the proceedings before the Board without any valid reason. It has been contended that the Board was wrong in not granting relief to the petitioners in the company petition holding that the appointment of the managing director was liable to be set aside, since decision to appoint him was taken in the meeting held on March 29, 2005, when not only there was no vacancy for a director, but there was also no item on the agenda proposing to appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it has been argued by Mr. Chatterjee with vehemence that in the course of hearing of the company petition for its final disposal IDBI that had made an application at the initial stage of the proceedings and which was kept pending, was not heard, Mr. Sarkar has advanced his argument by saying that the order of the Board will show that IDBI was heard. 121. I am unable to agree with Mr. Sarkar. What the Board mentioned was actually the order made by it at the earlier stage of the proceedings. There is nothing to show that in the course of hearing of the section 397 application for its final disposal or before making the order giving the directions, IDBI was actually noticed and heard. The Board rather presumed that IDBI would not raise any objection to the order, since before filing of the company petition it had signified its consent in writing to the transfer of the said 155 millions and all other HPL shares held by WBIDC to the CP(I)PL, the CP(M)C or its nominee. To my mind, there was no valid reason for the Board to proceed on the basis of a presumption. Hence I agree with Mr. Chatterjee that the Board made the order in clear contravention of the provisions in section 402(e). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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