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TMI Blog2011 (9) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... had not registered the same in the Company's Register of Share-holders, thereby depriving the Chatterjee Group from exercising its right to vote in respect of the said shares - transferring 150 million shares in favour of IOC, the character of the Company was altered from a Private Company into a Government Company and also reduced the Chatterjee Group to a minority – Held that:- failure of WBIDC and GoWB to register the 155 million shares transferred to CP (I) PL could not, strictly speaking, be taken to be failure on the part of the Company, but it was the failure of one of the parties to a private arrangement to abide by its commitments. The remedy in such a case was not under Section 397 of the Companies Act. No acts of oppression had been made out against the Company. Directions given to WBIDC and GoWB to transfer 520 million shares held by them in HPL to the Chatterjee Group - CIVIL APPEAL NOS. 5416-5419, 5420 & 5437-5440 OF 2008 - - - Dated:- 30-9-2011 - ALTAMAS KABIR AND CYRIAC JOSEPH, JJ. JUDEGMENT Altamas Kabir, J. - M/s. Haldia Petrochemicals Ltd., hereinafter referred to as "H.P.L.", was incorporated in 1985 for establishing a green field petrochemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, whereby it was agreed that between 24 months of commencement of commercial production or within 60 months of the date of the JVA, whichever was later, at least 60% of the shareholding of the WBIDC would be offered to CP (M) C at Rs. 14/- per share. It was provided that the role of the Government in the Company would be limited to its promotion and guidance through the initial phases of the project and that the nominee of CP (M) C would be the Managing Director. In March, 1995, the Articles of Association of the Company were altered to bring it in line with the terms of the JVA. An addendum to the JVA was executed on 30th September, 1996/4th October, 1996, by which the project cost was revised to Rs. 5170 crores and the equity participation was revised to Rs. 432.857 crores to be provided by WBIDC and by CP (M) C, while Tatas were to provide Rs. 144.286 crores. The remaining equity participation of Rs. 969 crores was to be from the public. 3. The project started in 1997 and commercial production commenced in August, 2001. Thereafter, further agreements were entered into between the parties and the first of such agreements was entered into on 12th January, 2002, whereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. 6. In the months of January and February, 2005, HPL had approved the issuance and allotment of equity shares worth Rs. 150 crores at par to Indian Oil Corporation (IOC). Objecting to the proposed allotment of shares to IOC and also on the ground that WBIDC and the Government of West Bengal had failed to fulfil their commitment to transfer their balance 36% shares to the Appellants, the Appellants filed Company Petition No. 58 of 2009 before the Company Law Board under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, inter alia , for the following reliefs :- "( a ) An order be passed directing the company to take immediate steps for modifying and/or altering and/or amending the Articles of Association of the Company to incorporate therein the complete agreement by and between the joint venture partners and special rights of the petitioner in relation to the Company, as provided in the Agreements dated 20th August, 1994, 12th January, 2002, 8th March 2002 and 30th July, 2004. ( b ) Appropriate orders be passed directing the entire shareholding of the respondent No. 2 in the Company to be transferred in favour of the petitioner at the agreed price of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party except the petitioners; ( j ) ( k ) ( l ) Direct the reconstitution of the Board of the Company to reflect the majority control and the special rights accorded under the Agreements between the shareholders to the petitioners; ( m ) ( n ) ." Subsequently, on coming to learn that the shares in question had already been allotted to IOC, the Appellants filed an application for amendment of the petition to challenge the allotment in favour of IOC and seeking cancellation thereof. 7. Before the Company Law Board, hereinafter referred to as "the CLB", not only was it reiterated by the Chatterjee Group that PC had to rejuvenate the Company and to implement the project, for which he was recognized as a "promoter" in the Memorandum of Understanding entered into on 3rd May, 1994, but that there was a clear understanding that the Chatterjee Group would have management interest in the Company. Before the CLB it was further contended that the Company was really a quasi-partnership with each of the three groups having financial stakes and management participation. The Chatt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Company. Before the CLB it was further contended that had the said shares been registered in the name of the Chatterjee Group, the total shareholding of the Chatterjee Group would have been 51% which would have given them control of the affairs of the Company. Hence, a prayer had been made before the CLB for a direction upon WBIDC/GoWB to complete the transfer of the 155 million shares in favour of the Chatterjee Group. 10. On behalf of the Chatterjee Group it had also been contended before the CLB that it had agreed to induct IOC as a portfolio investor in the Company at the instance of GoWB. However, subsequently, by its letter dated 20th September, 2004, the Chatterjee Group had indicated that in view of the proposed public offer, there was no further necessity of inducting any portfolio investor, but the investment of Rs. 150 crores by IOC could be considered. A resolution was adopted by the Company on 2nd November, 2004, to allot shares to IOC, although the Chatterjee Group was against such allotment. In order to maintain the private character of the Company, the Chatterjee Group called upon WBIDC to sell 60% of its shareholding to the CP (M) C at the agreed price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Association had not been modified or altered to reflect the rights which the Chatterjee Group enjoyed and the clandestine arrangement arrived at between the GoWB, WBIDC and IOC undermined the very basis on which the request made by GoWB and WBIDC had been accepted by the Chatterjee Group. Accordingly, the said arrangement was required to be brought to an end for resolving the oppressive acts of the GoWB and the WBIDC. 14. On the basis of the aforesaid allegations, the Chatterjee Group contended before the CLB that the affairs of the Company were being conducted in a manner which was prejudicial to the public interest and oppressive to them. It was further contended that winding-up of the Company would unfairly prejudice the parties but that otherwise the facts would justify the making of a winding-up order on just and equitable grounds. 15. The aforesaid stand taken by the Chatterjee Group was opposed on behalf of the Company on the ground that inspite of having made several promises to infuse equity into the Company, it had failed to do so and in view of severe fund crunch faced by the Company on account of such failure, the Company had no other alternative, but to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween GoWB and IOC, though of very little significance, has been magnified by the Chatterjee Group in the Company Petition. 18. The Government of West Bengal, through its Joint Secretary in the Department of Commerce and Industry, filed an appeal before the Calcutta High Court against the said order of the CLB dated 31st January, 2007 under Section 10F of the Companies Act, 1956, and the same was numbered as A.P.O. No. 45 of 2007. Among the various grounds taken in the Appeal, a question was raised as to whether the CLB could have assumed jurisdiction on the Company Petition filed by Chatterjee Petrochem (Mauritius) Ltd. Co., Winstar India Investment Company Ltd., India Trade (Mauritius) Ltd. and Chatterjee Petrochem (India) Pvt. Ltd., to enforce rights under private contracts. Another ground taken was that the CLB had erred in applying the doctrine of legitimate expectation in a Petition under Section 397 read with Sections 398 and 402 of the Companies Act, 1956, and in treating the Company to be a quasi-partnership. As a corollary to the said question, the Government of West Bengal also questioned the jurisdiction of the CLB to convert the Company Petition into a Suit for Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumption could not be arrived at merely on the ground that the promoters of the Company described themselves as partners. 21. The learned Single Judge further held that from the entire pleadings in the Company Petition no case whatsoever had been made out that in conducting the affairs of HPL, the GoWB and WBIDC had oppressed the Petitioners in any way so as to attract the provisions of Section 397 of the Companies Act. The learned Single Judge also held that the CLB was not right in applying the doctrine of legitimate expectation to the agreement entered into between WBIDC and CP (I) PL on 8th March, 2002, thereby converting the Company Petition into a suit for specific performance of contract. The learned Judge observed that by granting relief in the name of the doctrine of legitimate expectation, the CLB has actually enforced specific performance of the contract and agreements, which was beyond its jurisdiction. 22. Lastly, on the question of the induction of IOC and the allotment of 155 million shares to the said Company, the learned Single Judge held that the induction of IOC was on the basis of the Debt Restructuring Package and the Refinancing Scheme, which were to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, allotting 150 million shares to IOC, the acts of the Company reduced the Chatterjee Group from a majority shareholder to a minority shareholder, which amounted to oppressive treatment by the Company. 24. Mr. Nariman submitted that at the time of entry of the Chatterjee Group through the CP (M) C in 1994, the total issued share capital of HPL was 1010 million shares of Rs. 10/- each and the shareholding pattern was as under :- CP (M) C - 433 million shares WBIDC - 433 million shares Tatas - 144 million shares 25. However, on 28th September, 2001, at the Board Meeting of HPL, a Resolution was taken to offer a Rights Issue to the existing shareholders so that a further sum of Rs. 223 crores could be infused in HPL in the ratio of 107:107:36. Although, the other shareholders subscribed to the Rights Issue, the Chatterjee Group did not on the ground that such equity could be infused once the financial restructuring of HPL had been completed. Accordingly, on 8th March, 2002, the shareholding pattern as per the Register of Members in the share capital of 1153 million shares was : CP (M) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by CP (I) PL, a part of the Chatterjee Group. However, in the Company Petition filed before the CLB, WBIDC and GoWB denied the same and ascertained that the 155 million shares continued to be part of the holding of the WBIDC and a further stand was taken that at no point of time had the Chatterjee Group held the majority shares in HPL. In addition to the above, by transferring 150 million shares to IOC, the WBIDC/GoWB had reduced the Chatterjee Group from a majority to a minority, which clearly amounted to oppressive treatment by the Company. 30. Mr. Nariman contended that on account of the various defaults committed by the Chatterjee Group in failing to infuse equity into HPL, in breach of the Agreement dated 12th January, 2002, WBIDC and the GoWB were absolved of the application to register the 155 million shares in favour of CP (I) PL. It was pointed out that under the aforesaid Agreement, CP (M) C had agreed to infuse Rs. 107 crores into HPL, of which Rs. 53.5 crores was to be paid within 5 working days of signing of the Agreement, which was executed on 25th January, 2002. Taking into account the aforesaid sum, CP (M) C was required to arrange for a minimum amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup on an understanding that it would always have a majority control over the Company's management, was simply an agreement between two shareholders and not an affair of the Company, was not acceptable. Mr. Nariman urged that the refusal of the WBIDC to register the 155 million shares transferred to the CP (I) PL affected the shareholding pattern of the Company and was, therefore, directly an affair of the Company, which fact had been duly recognized by the CLB. Mr. Nariman submitted that it is on account of the various assurances given by WBIDC and the GoWB that the Chatterjee Group had become the owner of the 155 million shares, that it had been the consistent stand of the Chatterjee Group that they were the majority shareholders of the Company. 32. Relying on the decision of this Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 3 SCC 333/ 51 Comp. Cas. 743, Mr. Nariman submitted that in determining a question of oppression under Section 397 of the Companies Act, the Company Law Board was entitled to take into account facts which had come into existence after the company petition had been filed. Learned counsel gave several in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice between the parties. 36. Learned counsel submitted that Company law had developed seamlessly from the law of partnership which is based on mutual trust and confidence, as was observed by the House of Lords in O'Neill v. Phillips [1999] 2 All ER 961, and in such a situation, the highest standards of honour had to be maintained. It was also submitted that the aforesaid decision of the House of Lords which was based on the earlier decision in Blisset v. Daniel [68 E.R. 1022], was subsequently reiterated by the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 and also by this Court in the Needle Industries (India) Ltd. case ( supra ). Mr. Nariman urged that in Dale Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2005] 1 SCC 212/[2004] 54 SCL 601 / 122 Comp. Cas. 161 (SC), this Court had held that if a Member who holds the majority of shares in a Company is reduced to the position of a minority shareholder by an act of the Company or by its Board of Directors, the said act must ordinarily be considered to be an act of oppression to such Member. 37. Reference was also made to the decision of this Court in Rajahmundry Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sarkar submitted that the said principle had been subsequently followed by this Court in ( i ) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 11 SCC 314/ 57 SCL 476 / 123 Comp. Cas. 566 (SC); ( ii ) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 7 SCC 613/ 70 SCL 222 / 134 Comp. Cas. 678 (SC); ( iii ) M.S.D.C. Radharamanan's case ( supra ). Mr. Sarkar submitted that in Sangramsinh P. Gaekwad's case ( supra ) this Court had observed that the jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act is of wide amplitude and while exercising its discretion, the Court was not bound by the terms contained in Section 402 of the said Act, if in a particular fact situation a further relief or reliefs was warranted. Furthermore, in a given case, even if the Court came to a conclusion that no case of oppression had been made out, it could still grant such relief so as to do substantial justice to the parties. 40. Mr. Sarkar submitted that a Joint Venture Agreement, in fact, contemplates a partnership, as was indicated by this Court in New Horizons Ltd. v. Union of India [1995] 1 SCC 478/[1998] 15 SCL 148/[1997] 89 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that even if no case of oppression had been made out in the Company Petition filed by the Chatterjee Group, relief under Section 397/398 could still be granted under Sections 397 and 398, if it was just and equitable to do so. Referring and placing reliance on a decision of this Court in V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 3 SCC 363/ 83 SCL 44 / 142 Comp. Cas. 235, Mr. Sarkar urged that once the conduct of the management was found to be oppressive under Sections 397 and 398 of the Companies Act, the discretionary power given to the CLB under Section 402 of the Companies Act to put an end to such oppression was very wide. Mr. Sarkar urged that the expression "legitimate expectation" had found its place in Indian Jurisprudence and has been considered by this Court in Needle Industries (India) Ltd. case ( supra ), which was followed in V.S. Krishnan's case ( supra ) and several other cases. The Agreement of WBIDC to transfer its entire shareholding to the Chatterjee Group gave rise to an expectation that such an expectation would be fulfilled. Mr. Sarkar contended that since WBIDC did not fulfil its reciprocal promise to sell its entire shareholding in HPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fiduciary and corporate obligations which was clearly oppressive and was sufficient ground for interference by the CLB in the proceedings initiated by the Appellants under Sections 397 and 398 read with Section 402 of the Companies Act, 1956. 46. Dr. Singhvi submitted that despite the attempts of GoWB and WBIDC to make an issue of the non-infusion of Rs. 107 crores by the Chatterjee Group, at no point of time had the Chatterjee Group refused to invest the amount in HPL, though on certain conditions. Referring to Dr. Chatterjee's letter dated 4th December, 2001, Dr. Singhvi pointed out that in the said letter it had been clearly indicated that CP(M)C was prepared to bring equity into the company in the context of a comprehensive restructuring of HPL's balance sheet and management control in line with the original promise made to the Chatterjee Group for management control of HPL. A suggestion was also made to avail of the corporate debt structuring available under established Reserve Bank of India procedure. Dr. Singhvi submitted that the entire sum of Rs. 107 crores which CP(M)C had agreed to invest had, in fact, been infused by the Chatterjee Group, though not by subscribing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedent for completion of the deal, was without any foundation, since from the records it would be clear that on 22nd July, 2005, GoWB had indicated that it wanted to conclude the transaction by 25th July, 2005. As a matter of fact, by his letter of 25th July, 2005, Dr. Chatterjee had indicated his willingness to conclude the transaction and provided a letter from the Deutsche Bank, also dated 25th July, 2005, indicating the availability of funds to the tune of 266 million US dollars to conclude the transaction. 50. Dr. Singhvi submitted that it was GoWB and WBIDC which had fraudulently omitted to disclose the secret arrangement for the induction of IOC into HPL as a strategic partner in the Explanatory Statement to the notice for the Extraordinary General Meeting issued on 21st December, 2004. Dr. Singhvi urged that there was no need to induct IOC for effectuating the debt restructuring process, since HPL had also taken steps for IPO of 300 million shares which would have fetched at least Rs. 540 crores based on the indicated price of Rs. 18/- per share. Dr. Singhvi submitted that Dr. Chatterjee objected to the allotment of shares to the IOC as that would immediately conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted to be in control of the Company, was reduced to a minority. Dr. Singhvi pointed out that the direct consequence of the aforesaid acts of GoWB and WBIDC resulted in decline of profit before tax in 2007-08 and 2008-09, thereby adversely affecting the interest of the Company and the shareholders. 53. Dr. Singhvi submitted that the part played by Mr. Tarun Das, the Chairman of HPL, was also partisan and was contrary to the interest of the Chatterjee Group which, it had been agreed, was to be in management and control of the Company and its affairs. Reiterating the submissions made by Mr. Nariman, Dr. Singhvi submitted that the secret and clandestine move to convert HPL into a 619-B Company by the arrangement entered into between WBIDC and IOC went against the very grain of the agreements entered into between the Chatterjee Group and WBIDC/GoWB in that regard. 54. Dr. Singhvi submitted that in the entire exercise, Mr. Tarun Das, the Respondent No.7, who was also the Chairman of the Company, had precipitated the allotment of 150 million shares to IOC, although, the Re-financing Package approved by IDBI on 27th May, 2005, and by the Board of HPL on 28th May, 2005, did not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , seriously affected the entire scheme on the basis whereof the Chatterjee Group had agreed to invest large amounts in HPL. 57. Learned Senior Advocate, Mr. Ashok Desai, appearing for Haldia Petrochemicals Ltd., the Respondent No.1 in all the appeals, repeated and reiterated the submissions made on behalf of the appellants regarding the manner in which the GoWB conceptualised HPL as a showcase project of the GoWB on its coming into existence. Mr. Desai submitted that apart from equity, for the purpose of starting the project HPL had planned to avail credit from financial institutions and banks to the extent of Rs. 2,400 crores. The project involved a total investment of Rs. 3,600 crores. Mr. Desai submitted that this in itself would indicate that the principle of quasi-partnership, as urged both by Mr. Nariman and Mr. Sarkar, could not apply to the Company, both at the time when it was conceived and during the subsequent period when the shareholdings of the parties changed periodically. Mr. Desai submitted that, in any event, HPL is today recognized as a deemed Government Company under Section 619-B of the Companies Act, 1956 and steps have been taken by the Comptroller and Aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, under Section 402 thereof. 60. Mr. Desai submitted that all the aforesaid submissions made were misconceived and that in order to file a complaint under Section 397 of the above Act, the complainant had to be a Member (emphasis supplied) of the Company, having the requisite standing under Section 399 of the Act. It was also urged that the conduct complained of had to be such as to be oppressive to the complainant/complainants as shareholders/members. Inasmuch as, CP (I) PL was not a member of HPL, it could not have filed and maintained the complaint under Section 397 before the Company Law Board. Mr. Desai submitted that it was no doubt true that upon transfer of the shares, the transferee became the beneficial owner thereof, but till the shares were registered in the Company's Share Register and subsequently, in the records of the Registrar of Companies, the transferee did not acquire the right to vote at a meeting of the Company on the basis of acquisition of the said shares. Mr. Desai submitted that for all practical purposes the transferor remained in control of the transferred shares and also enjoyed the right to vote on the strength thereof. The failure of the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. As to the findings of both the Company Law Board and the High Court in relation to the applicability of Section 398 of the above Act, Mr. Desai submitted that since both the Courts had held that the same was not attracted, there was really little to add to the observations of both the forums that there was absolutely no reason to say that GoWB and WBIDC with their associates were conducting the affairs of HPL in any manner prejudicial to HPL's interests. The allotment made in favour of IOC was, in fact, in the interest of the Company and the allotment of shares to IOC was part of the terms and conditions of the debt restructuring package. 63. Regarding the failure of WBIDC to register the 155 million shares in favour of CP (I) PL, Mr. Desai submitted that, in fact, there was no pleading in that regard in the Company Petition filed by CP (I) PL. Accordingly, neither could CP (I) PL maintain the Company Petition, not being a member of HPL, nor could any prayer have been made for a direction upon the Company to register th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a loan agreement had been entered into between HPL and IDBI for a sum of Rs. 12,500 lakhs and in the event the borrower defaulted on the loan, the Bank would have the right to convert upto 20% of the loan into fully paid up equity of the Company. The Bank was also given the right to appoint a Nominee Director on the Board of HPL. Mr. Dave submitted that in 2003 the question of restructuring of the debt came up for consideration and in its meeting held on 8th August, 2003, the Company agreed to allow IDBI to refer the Company to the Corporate Debt Restructuring (CDR) Cell with a debt restructuring proposal. Subsequently, on a 22nd January, 2004, at a meeting of the Empowered Group, Dr. Chatterjee agreed for conversion of debt to equity to the extent of Rs. 140 crores. Thereafter, on 23rd March, 2004, the Board of Directors of HPL approved a CDR package and Dr. Chatterjee's proposal to convert debt to equity. Dr. Chatterjee was, in fact, interested to give effect to the same. Mr. Dave submitted that subsequently the debt restructuring plan failed to fructify and the Bank was informed by the Principal Secretary, Government of West Bengal, on 27th July, 2005, that the permission whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 397 of the aforesaid Act. Mr. Ahmed submitted that the said finding of the CLB had been duly upheld by the High Court. 71. Mr. Ahmed submitted that the question raised by the Chatterjee Group with regard to the employment of Mr. Bhowmik as the Managing Committee was without any basis whatsoever, since he was appointed unanimously by the Board of Directors consisting of the nominees of the different shareholders. Mr. Ahmed also pointed out that the Respondent No.16 had been responsible for the resurrection of HPL from the brink of financial disaster which had been occasioned by the failure of the promoters to infuse equity into the Company. It was only after assessment of his performance during the initial two year period of his tenure that the Board of HPL reappointed him for a further period of 3 years, inspite of the objection from the Chatterjee Group. 72. Mr. Ahmed submitted that the Respondent No.16 has moved I.A.Nos.25-28 of 2009 for a direction upon the Company to pay his arrears of salary as per the resolution passed by the Board of Directors on 28th May, 2008, for the period covering 29th March, 2005 to 31st March, 2007. A further prayer has also been made to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been considered first before such directions are given. Mr. Venugopal submitted that the proceedings under Section 397 of the Companies Act should not have been allowed to be made a vehicle for relief which was available to the Chatterjee Group under the provisions of the Specific Relief Act, 1963. It was also submitted that the Company Law Board erred in applying the principles of private law in the exercise of its jurisdiction under Sections 397/398 and 402 of the Companies Act, since the decision of the State Government not to disinvest would have to be decided by applying the public law in appropriate proceedings. In this regard, Mr. Venugopal referred to the decision of this Court in BALCO Employees' Union v. Union of India [2002] 2 SCC 333/ 35 SCL 182 / 108 Comp. Cas. 193, wherein it was observed that it is neither within the domain of the courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or something better could be evolved. This Court also observed that the courts are not inclined to strike down a policy merely because it has been urged that a different policy was fairer or wiser or more scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the CLB did not have the jurisdiction to grant such relief and, in any event, in view of the overriding public interest, no relief should be granted to the appellant in the instant appeals. 77. Mr. Anil Dewan, learned Senior Advocate, who appeared for Mr. Tarun Das, who was functioning as the Chairman of HPL, adopted the submissions made by Mr. Desai and Mr. Venugopal and urged that the Company Petition itself was not maintainable as it had been filed by a Company which was not a member of HPL, despite being the owner of 155 million shares thereof. Mr. Dewan submitted that instead of assisting the Company in meeting its financial liabilities, the appellants not only failed to infuse equity into the Company but also confined their focus on acquiring only 51% of the shareholding in order to maintain its control over the management of the Company. Mr. Dewan submitted that the judgment of the High Court did not call for any interference in the instant proceedings. 78. In continuation of Mr. Desai's submissions, Mr. C.A. Sundaram, learned Senior Advocate appearing for the Respondent No.2, reiterated the factual aspect of the case as portrayed by Mr. Desai. Mr. Sundaram, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoters had been requested to induct 50% of the equity and the last date for such infusion was 18th June, 1996, the Chatterjee Group failed to make such investments, although, both the Tatas and WBIDC brought in their respective equity contributions of Rs. 35.5 crores and Rs. 117 crores. Once again, since the Lenders were insisting on immediate infusion of Rs. 581 crores into HPL and HPL was on the threshold of becoming a Non-Performing Asset, a Rights Issue Offer was made by HPL to the existing shareholders for subscription of 34,99,99,988 shares at the rate of Rs. 10/- per share. Despite Dr. Chatterjee's assurance to bring in Rs. 53.5 crores immediately along with additional fund of Rs. 53.5 crores and a further sum of Rs. 300 crores, the Chatterjee Group did not subscribe to the Rights Issue, thereby depriving the Company of Rs. 107 crores at a very crucial time. In order to re-assure HPL, the Chatterjee Group on 12th January, 2002, agreed to induct a minimum of Rs. 500 crores and such other further funds towards equity and equity-like instruments to effectuate the Corporate Debt Restructuring. However, despite such commitment, till today, the Chatterjee Group has not brought i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as necessary in the interest of the Company. The third question posed by Mr. Sundaram was whether in addition to the findings indicated above, the Company Law Board could direct sale of shares under Sections 397 and 398 read with Section 402 of the above Act in the absence of a finding that without giving such a direction it might be just and equitable to wind-up the Company. 82. On the aforesaid issues, Mr. Sundaram reiterated the submissions made by Mr. Desai that the said questions have been answered by this Court in Shanti Prasad Jain's case ( supra ) and in the subsequent decisions in Sangramsinh P. Gaekwad ( supra ), M.S.D.C. Radharamanan ( supra ), V.S. Krishnan ( supra ), the Needle Industries ( supra ) and in the case of Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 4 SCC 420/ 33 SCL 78 / 105 Comp. Cas. 493 (SC) 83. Mr. Sundaram submitted that the next issue involved the question as to whether the concept of legitimate expectation of a body of shareholders would be applicable to a large public limited company or only in quasi partnerships and family companies and whether in those situations also the sale of shares could be directed in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries Ltd. [2002] 110 Comp. Cas. 764/[2000] 25 SCL 349 (CLB - New Delhi). On the concept of legitimate expectation, Mr. Sundaram submitted that it has to be considered whether the same should be restricted to maintaining the state of affairs at the time when the parties became shareholders or whether any subsequent understanding arrived at by private treaty between the shareholders would fall under the purview of the Company Law Board to enable it to deal with such questions between private shareholders. 85. Mr. Sundaram repeated that in this regard it would have to be decided as to whether the CLB could direct sale and transfer of shares to a group to give it majority control on an application under Section 397/398 read with Section 402 of the Companies Act and to enforce specific performance of agreement between the parties whether legitimate or not, especially when such specific performance was not necessary in the interest of the company, or to prevent winding up of the company. Another question of equal importance in this connection was whether specific performance could be directed at the instance of a party whose own conduct had been inequitable in failing to carry out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transfer, such transaction could not be avoided by the Company Law Board as the same was in the interest of the Company, which would otherwise have been converted into a Non Performing Asset. 89. What emerges from the materials on record and the submissions made on behalf of respective parties is that HPL was incorporated in 1985 by the West Bengal Industrial Development Corporation and the R.P. Goenka Group, and their nominees were the subscribers to the Memorandum of Association. Soon thereafter, in 1990, the Goenka Group left the Company and Tata Chemicals and Tata Tea were inducted into the project between 1990 and 1993. However, since the TATAs were not very keen to continue with the Project, in June 1994, Dr. Purnendu Chatterjee, a Non-Resident Indian industrialist and financier, evinced his interest in implementing the project. Accordingly, a Memorandum of Understanding was entered into between WBIDC and the Chatterjee Petrochem (Mauritius) Company and the Tatas on 3rd May, 1994. Certain assurances were given to Dr. Chatterjee that the Company would remain a private enterprise with the Chatterjee Group in control of the management thereof. A further assurance was gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, and the reliefs prayed for therein. 94. The law relating to grant of relief on a petition under Sections 397, 398 and 402 of the Companies Act, 1956, has been crystallised in various decisions of this Court, including those cited on behalf of the parties. The common refrain running through all these decisions is that in order to succeed in an action under Sections 397 and 398 of the Companies Act, the complainant has to prove that the affairs of the Company were being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. For better appreciation of the above, Section 397 of the above Act is extracted hereinbelow : "397. Application to [Tribunal] for relief in cases of oppression. (1) Any member of a company who complains 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 Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated in the Agreements dated 20th August, 1994, 12th January, 2002 and 8th March, 2002. 96. Let us examine as to whether any of the complaints contained in the Company Petition before the CLB make out a case 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, which was sufficient to justify the passing of a winding-up order on the ground that it was just and equitable that the Company should be wound-up, but that to wind-up the Company would prejudice such member or members. In Shanti Prasad Jain's case ( supra ), referred to hereinabove, in a similar situation, it was observed by this Court as follows :- "It is not enough to show that there is just and equitable cause for winding up the Company though that must be shown as a preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and do they bring the acts of oppression complained of within the purview of Section 397 for grant of relief under Section 402 of the Companies Act? 99. The case of the Chatterjee Group is woven around two particular issues, namely, that it had been induced to invest in HPL so as to make it a successful commercial enterprise on the promise that the Company would always retain a private character and the Chatterjee Group would have control over its management, but such a promise had not been adhered to and, on the other hand, negotiations were undertaken by WBIDC to induct IOC, a Central Government Company, with the intention of ultimately handing over the management of the Company to IOC. The aforesaid case of the Chatterjee Group is also based on the grievance that while keeping the Chatterjee Group under the impression that it intended to ensure that the Chatterjee Group had the requisite number of shares to allow it to have a majority shareholding and thereby control of the Company's management, the Company carried on clandestine negotiations with WIBDC to transfer all the shares held by it in the Company to IOC to give it management and control over the Company's affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Chatterjee Group also promised to provide a part of the same, it did not do so and instead of bringing in equity, it obtained a loan from HSBC through the Merlin Group, which only increased the debt equity ratio of the Company. Furthermore, while promising to infuse sufficient equity in addition to the amounts that would have been brought in by way of subscription to the Rights Issue, the Chatterjee Group imposed various pre-conditions in order to do so, which ultimately led GoWB and WBIDC to terminate the agreement to transfer sufficient number of shares to the Chatterjee Group to enable it to have complete control over the management of the Company and also to retain its private character. It is at a stage when there was a threat to the supply of Naphtha, which was the main ingredient used by HPL for its manufacturing process, that it finally agreed to induct IOC into the Company as a member by transferring 150 million shares to it. It may not be out of place to mention that it was on Dr. Chatterjee's initiative that it had been decided to induct the IOC as a member of the Company at meetings of the Directors which were chaired by Dr. Chatterjee himself. Of course, as ex ..... 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