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TMI Blog2011 (2) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... icants before it, being respondent Nos. 1, 2 and 3 here, who will hereafter be referred to as the respondents/applicants are minority shareholders in this company called Descon Ltd. They filed an application under sections 397 and 398 of the Companies Act, 1956 ('the Act'), before the Board alleging wrongful control of the company by the majority shareholders causing loss to it and being prejudicial and oppressive to its members. Those proceedings were marked as C.P. No. 3 (Kol.) of 2009. In aid of such proceedings they took out an application marked as C.A. No. 13 of 2010. In that application they sought an order of injunction restraining the company from selling their 13,36,220 shares in Dishergarh Power Supply Corporation Ltd. (DPSC Ltd.) and for other reliefs. The Board by its said order prima facie justified the sale of those shares. It refused injunction. However, it went on to pass a restraint order upon the company forbidding it from utilising the sale proceeds. 2. The company is in appeal. It feels seriously aggrieved by this order. They argue that if the Board could hold that the sale of shares was justified, it could not impose a bar on the company to utilise the funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock of shares by Andrew Yule and Co. Ltd. and others, it had been reduced to a minority. It wanted to sell its 32.31 per cent. shares in DPSC Ltd., to Orbis Power Ventures P. Ltd., at Rs. 710 per share and ultimately sold them for over Rs. 90 crores. 11. Meanwhile, in 2009, this application under sections 397 and 398 of the Act was filed by the respondents before the Company Law Board which was marked as C.P. No. 3 (Kol.) of 2009. In aid of that application in or about February, 2010, they made an application being C.A. No. 13 of 2010 for restraining the appellant from transferring the above shares and for other consequential reliefs. 12. For examination of the order dated 30-3-2010, one has to first ascertain the true nature, purport and scope of section 397 proceedings before the Board. 13. The respondents/applicants' claim to be minority shareholders of the appellant but having the support of the requisite number of shareholders to maintain an application under sections 397 and 398 of the Companies Act, 1956. These applicants complain about formation of a shareholders' trust known as the Descon Shareholders Trust. They also complain about an alleged transfer of shares in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he acceptable rate available. The Company Law Board held as follows : "It is an admitted fact that offer is open for Rs. 710 per share to the stake of respondent No. 1 company in DPSC Ltd., it being not said as under valued, it being the price double the price initially DESCON purchased from DPSC Ltd., it is to be considered fair price to the shares of respondent No. 1 company. Nobody knows whether the share value will be more than Rs. 710 or less than Rs. 710 in future, but at present the value is considerably good, selling away the shares being the policy decision of the company, the shareholders with 4.73 per cent. cannot restrain or injunct from trading the shares on the ground that it is prejudicial to the interest of the company. As long as the decision taken by the company is sound and not prejudicial to the company, it cannot be said to be oppressive to any member of the company unless and until it is specifically proved. Prima facie it is evident that the offer given as Rs. 710 per share is on the higher side, any court is not supposed to interfere either with the trade or actions of the company unless such actions are proved as oppressive. No doubt the Company Law Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der restraining the company from divesting such funds. Moreover, no case had been made out by the respondents/applicants upon consideration of which the Board could come to such a conclusion and pass such a drastic order. 21. In support of this proposition, the said learned counsel cited Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC). 22. Next, it was contended that this order interfered with the management of the appellant-company without the existence of any cause whatsoever. The Company Law Board had failed to appreciate the well-settled principles of law that a company was free to manage its internal affairs. A clear cut case had to be made out before restraining a company from carrying out its normal business. No such case was made out by the respondents. 23. Next, it was contended that there was no foundation for this order in the main proceedings. The case run in the interlocutory application was different from the case in the main proceedings. The Company Law Board completely failed to appreciate this discrepancy. 24. Next, it was contended that the very order passed by the Board was very oppressive for the majority. 25. Lastly, it was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Further, after full consideration of the prima facie case of both the parties, the Company Law Board had passed its order under appeal. Therefore, this court should not interfere with the finding properly arrived at by it, following the principles in the case of Wander Ltd. v. Antox India (P.) Ltd. [1990] Suppl. (1) SCC 727. Discussion and findings 31. Ordinarily an outsider, which includes the court, is not permitted to interfere with the affairs of a company. It has shareholders who constitute the general body. This general body elects the board of directors to administer the affairs of the company. They are called the insiders. The board is authorised to take most day to day decisions for running of the company. Certain decisions can be taken only by this general body of shareholders in a meeting or acting together without such meeting in some circumstances. Such decision taken by the required majority binds the shareholders as well as the company. Certain decisions of the board of directors are also subject to their ratification. The board of directors are also empowered to take decisions binding the company. The body of shareholders and the board of directors act in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law, however, has not defined what is oppression for purposes of this section, and it is left to courts to decide on the facts of each case whether there is such oppression as calls for action under this section." (p. 363) 34. The order of the Company Law Board which is challenged before me, undoubtedly interferes with the right of the company to conduct its own affairs. 35. By its said impugned order it has restrained the appellant-company from "divesting the sale proceeds". The sale proceeds are over 90 crores. Therefore, an order of restraint upon a company to deal with over 90 crores of its funds is indeed a very serious order. 36. But before proceeding further with this discussion, I would like to point out that there is a lot of difference in selling the subject shares, receiving the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason, the court of appeal is unable to understand the grounds on which the discretion has been used. It is against reason to hypothetically provide reasons so as to support the alleged discretion used. In such a case the respective arguments of the parties have to be assessed by the court of appeal, to assess the grounds which may have impelled the learned judge to use the discretion the way he did. That practice is now obsolete. Every decision maker making adjudication is required to provide reasons in support of the decision and absence of reasons is fatal. 43. But in this case, for absence of reasons I will not send the case back to the Company Law Board. The court of appeal has the same power as of the court trying the original proceedings to come to its own finding, without taking recourse to remanding the matter back to the trial judge (see Order 41, rule 24 of the Code of Civil Procedure, 1908). 44. The respondents/applicants with their supporters have no more than 4.374 per cent. of the share value in the company. It is also true that the case in the main application for interim relief is completely different from the case run by the respondents/applicants before the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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