9911796707
Advanced Search 
TMI Blog2011 (9) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... erstanding was entered into between WBIDC and the Chatterjee Petrochem (Mauritius) Company, hereinafter referred to as "CP (M) C" and the Tatas on 3rd May, 1994. According to the said Memorandum, the initial cost of the project was estimated at Rs. 3600 crores which was to be funded with a debt of Rs. 2400 crores and equity of Rs. 1200 crores. Initially, equity capital of Rs. 700 crores was to be contributed by WBIDC, CP (M) C and the Tatas in the ratio of 3:3:1 respectively. It was also provided that the Board of the Company would consist of four nominees each of WBIDC, CP (M) C and two from the Tata group. This was followed by a Joint Venture Agreement, hereinafter referred to as "JVA", between the three parties on 20th August, 1994, incorporating the terms which had been agreed upon by the parties. It was decided that both WBIDC and CP (M) C would invest Rs. 300 crores each and the Tatas would invest Rs. 100 crores, while Rs. 500 crores was to be obtained from the public, including Non-Resident Indians and Financial Institutions, towards equity, keeping the debt equity ratio at 2:1. Certain other terms and conditions agreed between the parties were also included in the Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors of the CP (M) C. It was specifically agreed that all other rights and obligations of CP (M) C in terms of the earlier agreement would continue till CP (M) C acquired majority shares in the Company. 4. The aforesaid agreement was followed by another agreement dated 8th March, 2002, wherein it was recorded that in terms of the agreement dated 12th January, 2002, 155,099,998 equity shares of WBIDC had been transferred and delivered to CP (I) PL, on 8th March, 2002. It was also mentioned that the said shares were pledged with WBIDC and, accordingly, the shares had been duly lodged along with the share certificates with WBIDC and the pledge had been acknowledged. Certain other agreements in regard to the shareholding pattern and the management of the Company were entered into, wherein after allotment of shares to Winstar, which had been brought in to infuse Rs. 127.4 crores towards equity, the collective shareholding of the Appellants was shown to be 58.62% with a rider that 155 million shares transferred by WBIDC to CP (M) C was subject to registration and lenders' approval. We may have recourse to refer to some of the said agreements at a later stage. 5. One other agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts or assigns or otherwise howsoever from giving any effect or further effect to the resolution passed on the EGM held by the Company on January 14, 2005 in any manner whatsoever; (e) Permanent injunction restraining the Company from receiving any money or encashing any cheque that may have been issued by the Respondent No. 6 to the Company in pursuance of the Memorandum of Association and the resolution passed by the EGM of the Company held on January 14, 2005; (f) Permanent injunction restraining the Company and its Board of Directors from taking any major decision or policy decision relating to the management and affairs of the Company before the majority shareholding and management control in the Company is effectively established as per the Agreements dated 12th January, 2002, and 30th July, 2004, including the due recognition of the nominee of petitioner No.2 as Director of the Company pursuant to the letter of Petitioner No.2 dated 1st August, 2005; (g) Permanent injunction restraining the Company and its present board from dealing with or disposing of or alienating or encumbering any asset or property of the Company except strictly in the course of the business of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares of WBIDC if it chose to disinvest its shares. Before the CLB it was also emphasized that at the time of entering into a Memorandum of Understanding on 3rd May, 1994, it had been clearly understood between the parties that the Company would remain in the private sector. Repeating what has been indicated hereinbefore, learned counsel for the Chatterjee Group submitted before the CLB that in addition to the JVA, 4 letters had been exchanged between the Chatterjee Group and the WBIDC/GoWB providing for the Chatterjee Group to acquire at least 60% of the shares held by WBIDC at Rs. 14/- per share upon the happening of certain events within a particular timeframe. Before the CLB the Chatterjee Group also contended that it was understood by the parties that the role of the Government would gradually be confined to promotion and guidance during the initial stages of the project, after which the control of the management would be in the private sector and the nominee of the Chatterjee Group would be the Managing Director of the Company. 9. In support of its contention of mismanagement and oppression by the Company towards the Chatterjee Group, it was alleged that the decision to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary, 2005, between one Dr. Sabyasachi Sen and PC in the presence of Mr. Tarun Das, wherein they agreed to vote in support of the Resolution to allot 150 million HPL equity shares to IOC at par. The grievance of the Chatterjee Group before the CLB was that inspite of several letters written on behalf of the Chatterjee Group, no steps were taken by the Company to give effect to the Resolution dated 14th January, 2005. 11. Another major grievance of the Chatterjee Group before the CLB was that sometime before 15th July, 2005, doubts regarding IOC's investment in HPL were substantiated when the letter dated 10th November, 2004, written by the WBIDC to IOC was discovered. It was contended before the CLB that by deliberately suppressing the discussions between WBIDC and IOC which would give IOC control over the management of HPL, WBIDC/GoWB wrongly obtained the consent of the Chatterjee Group to the Resolution of the Extra-Ordinary General Meeting held on 14th January, 2005, to allot shares at par to the Respondent No.6 IOC. The Chatterjee Group also complained that neither GoWB nor WBIDC had ever intended to honour the agreement dated 14th January, 2005, and from the letter dated 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding dues even under the threat of taking appropriate action under the provisions of the Companies Act, 1956, the Company had no option but to transfer the 150 million shares to IOC as per the decision taken earlier. 16. In addition to the above, it was also submitted that the Chatterjee Group had agreed to the decision to induct the IOC in the Company as a portfolio investor. 17. The Company Petition was disposed of by the CLB by upholding the decision of the Company to allot 150 million shares to IOC, which would be at liberty to deal with the same in any manner it thought fit. Similarly, the transfer of 155 million shares by WBIDC to the Chatterjee Group at Rs. 10/- per share was confirmed. A further direction was given to GoWB and WBIDC to transfer the 520 million shares held by them in HPL to the Chatterjee Group. The Chatterjee Group was also directed to purchase the 271 million preference shares held by GoWB and WBIDC at par. The CP (I) PL was directed to pay a sum of Rs. 125 crores to WBIDC towards balance consideration for the 155 million shares on or before 28th February, 2007. It was further directed that on payment of the said amount, the shares in question would be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petition before the CLB, the said Company was not even a member of the Joint Venture Company. It was also reiterated that no case for mismanagement or oppression had been made out and the application under Section 398 of the above Act was liable to be dismissed. 19. Upon hearing the parties, the learned Single Judge held that CP (I) PL had no locus standi to maintain a petition under Section 397 of the Companies Act and that CLB could not have assumed jurisdiction on the Company Petition, in which CP (I) PL was a petitioner, since CP (I) PL was not a member of HPL. The learned Single Judge held that such a petition for the purpose of enforcing rights under private contracts would not be maintainable and that the agreement entered into between CP (I) PL and WBIDC for transfer of shares, being a private contract between two shareholders, the same could not be the subject matter of a petition under Section 397 of the Companies Act, 1956. The learned Single Judge also observed that such agreements could not be treated to be "affairs of the Company" and that, in any event, such a ground had not also been pleaded in the Company Petition. The learned Judge held that the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Companies Act, 1956. The learned Single Judge held that in the instant case, no such opinion had either been formed or recorded by the CLB relating to the said three conditions. The learned Single Judge also rejected the submissions made on behalf of the Petitioners that an opinion with regard to the said two conditions would automatically follow from the opinion formed by the CLB on oppression, or such opinion could be gathered from the order of the Board itself. The learned Single Judge, accordingly, held that the order passed by the CLB was contrary to the provisions of Section 402(e) of the above Act, since no relief under the said Section could be granted without a finding having been arrived at that a case of oppression had been made out within the meaning of Section 397 of the aforesaid Act. 23. Appearing for the Chatterjee Group, Mr. Fali S. Nariman, learned Senior Advocate, did not seriously oppose the contention that the prayers in the Company Petition were really for specific performance of the various agreements entered into by the parties, but that the same were on account of the acts of oppression and mismanagement on the part of GoWB, HPL and WBIDC with reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was obtained from the Lenders, being the Banks and Financial Institutions. Mr. Nariman submitted that as a result, despite the transfer by WBIDC of 155 million shares in favour of CP (I) PL, WBIDC continued to be shown as owner thereof in the Share Register of the Company. Mr. Nariman submitted that once clearance had been obtained from the Lenders, WBIDC could no longer refuse to register the said 155 million shares in the name of CP (I) PL, which was an integral part of the Chatterjee Group. 27. Mr. Nariman submitted that the number of shares transferred by WBIDC to CP (I) PL comprised 13.44% of the total number of shares amounting to 1153 shares, which meant that along with the 36.56% of the shares held by the Chatterjee Group, the total worked out to 51% and gave the Chatterjee Group the management control of HPL and reduced the shareholding of WBIDC from 46.83% to 36.9%. 28. Mr. Nariman submitted that on the same day on which the Supplemental Agreement had been signed, a Share Subscription Agreement was executed by HPL, CP (M) C, WBIDC and WINSTAR which, inter alia, referred to the agreement entered into by GoWB, WBIDC, CP (M) C and HPL on 12th January, 2002 and that WBIDC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional to the infusion of equity worth Rs. 500 crores by the Chatterjee Group. Such assurance was subject to compliance with the requirements of providing Letters of Comfort and acceptance thereof by the GoWB and upon payment of Rs. 53.5 crores as stipulated. Mr. Nariman urged that since the said conditions had been fulfilled by the Chatterjee Group, it was incumbent upon GoWB and WBIDC to transfer the 155 million shares to CP (M) C which was the beneficial owner thereof. It was submitted that the failure of WBIDC to effect such registration and at the same time, registering 150 million shares in favour of IOC, thereby reducing the Chatterjee Group to a minority shareholder, was a positive act of oppression on the part of the majority shareholder, which was sufficient to attract the provisions of Sections 397 and 398 read with Section 402 of the Companies Act, 1956. Mr. Nariman urged that even if the allotment of 150 million shares to IOC was not taken into consideration, the continuous refusal on the part of the Company to register the 155 million shares in the name of CP (I) PL, not only amounted to breach of the agreement dated 12th January, 2002, by which WBIDC and GoWB had agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's affairs. Mr. Nariman submitted that had it been brought to the knowledge of the Chatterjee Group that such a secret agreement to transfer 150 million shares to IOC was being negotiated, it would have never voted at the Extraordinary General Meeting of the Company on 14th January, 2005, in support of the allotment of the said shares to IOC. 34. Although, Mr. Nariman had made certain submissions with regard to the Agreement of 8th March, 2002, read with the requirements of the Depositories Act, 1996, SEBI (Depositories and Participants) Regulations, 1996 and the bye-laws and business rules/operating instructions issued by the depositories, we shall, if need be, refer to the same at a later stage of the proceedings. 35. Mr. Nariman submitted that the concept of oppression for the purposes of Sections 397, 398 and 402 of the Companies Act had been considered by this Court in various cases. Learned counsel pointed out that in the Needle Industries (India) Ltd. case (supra), this Court had observed that the behaviour and conduct complained of must be held to be harsh and wrongful and in arriving at such a finding, the Court has to look at the business realities of the situation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors and the law was stated as follows :- "It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. âEUR¦âEUR¦âEUR¦âEUR¦âEUR¦âEUR¦" 38. Mr. Nariman submitted that following the aforesaid principle, this Court had in M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja [2008] 6 SCC 750/ 83 SCL 451 / 143 Comp. Cas. 97, observed that once the Company Law Board gave a finding that acts of oppression have been established, an order in terms of Sections 397 and 402 on the doctrine of winding-up of the company on just and equitable grounds, becomes automatic. Accordingly, the interference by the learned Single Judge with the order of the CLB was wholly unwarranted. 39. Appearing for Winstar India Investment Company Ltd., Mr. Sudipto Sarkar, learned Senior Advocate, while adopting the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries (India) Ltd. case (supra). Mr. Sarkar submitted that in Ebrahimi's case (supra), Lord Wilberforce writing the main judgment indicated that the reliefs prayed for were for a direction upon the Respondent No.2 and his son to purchase the appellant's share in the company. In the alternative, an order for winding up of the company was sought. The learned Judge found that some of the allegations made remained unproved and that the complaint made did not amount to such a course of oppressive conduct as to justify an order under Section 210 of the Companies Act, 1948, in furtherance of the first relief. 41. Mr. Sarkar then proceeded to the question of legitimate expectation and contended that in Company Law there was sufficient room for recognition of the fact that there could be individuals with rights, expectations and obligations which may submerge in the corporate structure. In this regard, Mr. Sarkar submitted that the said doctrine of an enforceable expectation was considered in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, approved in O'Neill's case (supra). Several other decisions in this regard were cited by Mr. Sarkar which do not require elaboration. 42. Mr. Sarkar sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the Company. Accordingly, even if it was held that no case of oppression had been made out against the Company, it would still be open to the learned Company Judge to grant suitable relief to iron out the differences that might appear from time to time in the running of the affairs of a Company. 44. While considering the submissions made on behalf of the Chatterjee Group, we might as well refer to the arguments advanced by Dr. Abhishek Manu Singhvi, learned Senior Advocate, appearing for the India Trade (Mauritius) Ltd. (ITML), which is part of the Chatterjee Group and was the co-Petitioner No.3 in Company Petition No.58 of 2005 filed by the Chatterjee Group before the Company Law Board. ITML is also the Appellant in Civil Appeal No.5437-5440 of 2008. Incidentally, Dr. Singhvi also appeared for Dr. Purnendu Chatterjee, who was made Respondent No.20 therein. 45. Dr. Singhvi contended that ITML had infused a sum of Rs. 107 crores into HPL, which amount, along with Rs. 143 crores separately infused in HPL by the Chatterjee Group of Companies, was vitally necessary for the financial health of HPL and its revival and prosperity. Dr. Singhvi submitted that such investments had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad come into the project as an equal co-owner, unlike the other private investors who were neither promised nor given equal partnership. As per the Agreement between GoWB and WBIDC, the character of HPL was always intended to remain a private non-Government Company by projecting a shareholding ratio of 3:1:1 where four out of the seven parts would be held by Dr. Chatterjee and the Tatas. 48. Reiterating all that had been said on behalf of the Chatterjee Group by Mr. Nariman and Mr. Sudipto Sarkar, Dr. Singhvi submitted that the induction of IOC into the Company was contrary to the wishes of the Chatterjee Group since by not registering the 155 million shares in favour of the Chatterjee Group and on the other hand allotting 150 million shares to IOC, an imbalance was created which led to HPL becoming a Section 619-B Company under the Companies Act, 1956, thereby losing its private character. Dr. Singhvi submitted that it had been understood by GoWB, WBIDC and the Chatterjee Group, that IOC would be brought in not as a strategic partner but as a portfolio investor, but ultimately negotiations were commenced by GoWB and WBIDC to bring in IOC as a strategic partner with management con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect registration of the 155 million shares already transferred and for which the price had already been paid. Dr. Singhvi submitted that the observation made by the learned Single Judge was wholly misconceived since the GoWB and WBIDC had in the Agreements dated 12th January, 2002 and 8th March, 2002, already acknowledged that on account of the transfer of the said 155 million shares, the Chatterjee Group was in management and control of HPL. The further finding of the learned Single Judge that IOC had threatened civil and criminal action against HPL and its Directors for its unpaid dues for supply of Naphtha, was also not justified, since Dr. Chatterjee had strongly supported the refinancing package which had been approved by the Board of HPL. Dr. Singhvi submitted that Dr. Chatterjee and the Chatterjee Group had always wanted to act in the interest of the Company upon the assurance given by GoWB and WBIDC that HPL would always remain a private company and that the Chatterjee Group would always have control over the management thereof. 52. Dr. Singhvi then submitted that HPL had played an active role by supporting GoWB and WBIDC in the ongoing litigation, contrary to the under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 397, 398 and 402 of the Companies Act, 1956. 55. Dr. Singhvi contended that despite having acknowledged the Chatterjee Group as a prime sponsor of HPL and that the CDR Package and the Refinancing Package of HPL had been considered because of Dr. Chatterjee, the Lenders sacrificed their own interest by permitting the Chatterjee Group to be ousted from the management of HPL after the complaint was filed before the Company Law Board by the Chatterjee Group. 56. Dr. Singhvi submitted that the appointment of Mr. S.K. Bhowmick as Managing Director of the Company, after being appointed as the Additional Director as there was no vacancy on the Board and his appointment as Managing Director, was wholly illegal since only a Director could be appointed to the said post. Dr. Singhvi submitted that the Company played a dubious role in disallowing the claim of Winstar to have a Director on the Board of HPL on the ground that there was no vacancy, although, a vacancy had arisen on the resignation of Mr. Ratan Tata, which vacancy was utilized for regularization of the irregular appointment of Mr. Bhowmick and his subsequent re-appointment in view of the Agreements entered into on 12th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant at Haldia. Mr. Desai submitted that IOC, therefore, had a strong, commercial and symbiotic relationship with HPL which had developed over the years and HPL had also started procuring Naphtha on credit basis and the dues on such account had also multiplied. It was, therefore, in the interest of HPL that when the Chatterjee Group failed to infuse equity into the Company, 150 million shares were allotted to IOC for providing such equity. 59. Mr. Desai submitted that the case of the Appellants could be summarised into a few specific issues, namely, (a) that the Chatterjee Group had all along acted on the basis of the promise which had been held out by GoWB, WBIDC and the Company that the Company would always remain a private Company in which the Chatterjee Group would have managerial control and that it was towards that end that 155 million shares were transferred by WBIDC to the Chatterjee Group, though, ultimately it went back on its word and refused to register the same; (b) GoWB, WBIDC and HPL beguiled the Chatterjee Group into agreeing to the transfer of 150 million shares to IOC by entering into agreements in which it was admitted that upon transfer of the 155 million shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng power in the conduct of the Company's affairs and must relate to the manner in which the affairs of the Company were being conducted. Such conduct must also be shown as being oppressive to a minority of the members in relation to the shareholding in the Company. It was also emphasized that although, the facts disclosed might appear to furnish grounds for the making of a winding up order under the "just and equitable" principle, such facts must be relevant in disclosing that the winding up order would unfairly prejudice the minority members in relation to the shareholders. Referring to the use of the expression "legitimate expectation" by Lord Justice Hoffmann sitting in the Court of Appeal, in the decision rendered in Ebrahimi's case (supra), Mr. Desai submitted that subsequently in the case of Saul D Harrison & Sons Plc (supra), after referring to the decision in Ebrahimi's case (supra), Lord Justice Hoffmann held that such an expression had been borrowed from public law to describe the correlative right in the shareholder to which such a relationship might give rise. 62. Mr. Desai also urged that the decision in Kalinga Tubes Ltd.'s case (supra) was also relied upon by this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares to IOC, Mr. Desai referred to the observations of the Company Law Board which recorded that such allotment could not be questioned by the Chatterjee Group, since the same was neither clandestine nor surreptitious and was under contemplation from 2000 itself and the idea of inducting IOC was initiated by Dr. Chatterjee himself, as would be evident from the letter dated 24th March, 2000, addressed to the Chief Minister, as the Company was in dire need of funds. Mr. Desai pointed out that the said view was endorsed by the learned Single Judge of the High Court by observing that the Chatterjee Group had failed to produce any evidence with regard to the allegations that the allotment of shares to IOC was pursuant to a clandestine agreement to permit IOC to participate in the management of HPL. 66. Mr. Desai submitted that the case made out by the appellants before the Company Law Board was not only devoid of substance, but was entirely misconceived, since the same was not maintainable at the instance of CP (I) PL which was not a member of HPL. Even the allegations of oppression remained unproved, since the entire content related to the transaction between WBIDC and CP (I) PL, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned Single Judge and the appeal preferred therefrom was also dismissed by the Division Bench. Ultimately, in its final judgment dated 31st January, 2007, the CLB gave directions to the effect that Chatterjee Group would purchase 155 million shares from GoWB/WBIDC at a minimum price of Rs. 28.80 per share. It was also directed that the 155 million shares transferred to the Chatterjee Group would be dematerialized and registered and that the allotment to the IOC would remain. 69. Mr. Dave submitted that the question of CP (I) PL having any legitimate expectation did not arise and such a case was not also pleaded before the Board. Furthermore, since nothing had been proved before the Board that the conduct of GoWB and WBIDC was such as to justify an order of just and equitable winding up, no order could have been passed by the Board on the Company Petition filed by the appellants and the learned Single Judge of the High Court rightly allowed the appeals preferred against the order of the Board. 70. Appearing for the Respondent No.16, Mr. Altaf Ahmed, learned Senior Advocate, submitted that nowhere in the Company Petition had any allegation been made against the Managin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince from the very inception of HPL the Chatterjee Group wanted control of HPL, without making any effective contribution at times when such contribution was most needed and had, therefore, worked against the interest of the Company, its shareholders and the public at large. 74. Mr. K.K. Venugopal, learned Senior Advocate, who appeared for the Government of West Bengal and its officials, urged that the relief prayed for in the Company Petition for specific relief, could not be granted under Section 397 of the Companies Act. Since the said question had been adequately dealt with on behalf of WBIDC, Mr. Venugopal chose to deal with the directions given by the CLB to the GoWB to disinvest its entire shareholding in HPL, which was a Company set up in public interest and for which a huge extent of land had been acquired for the public purpose of maintaining supplies and services essential to the life of the community, by setting up a Petro Chemical Complex at Haldia. Mr. Venugopal contended that it was settled law that the decision of the Government to disinvest or not to disinvest was not in the realm of public law and was not, therefore, amenable to challenge or interference, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. Mr. Venugopal submitted that HPL had been conceived as a showcase project of the GoWB. It was only because of the active role of the State Government that it was also possible to acquire a total of 1031.305 acres of land for the project at Haldia, without any trouble and disturbance, from the year 1973 onwards. Mr. Venugopal submitted that the direction given by the CLB would be against the very grain of the concept of a Joint Venture between WBIDC, which was owned by GoWB, and the R.P. Goenka Group (RPG) and subsequently, with the exit of the RPG Group, the Tata Group as well as the CP(M)C. It was also submitted that even the financial institutions, namely, IDBI and SBI, etc., who had a total stake of Rs. 2989 crores in HPL, drew great comfort from the continued presence of the State Government and its active participation in the management of HPL. On the other hand, on several occasions the very same financial institutions had expressed their concern regarding the capability and intentions of the Chatterjee Group in managing the Company and inducting funds as necessary for the growth and development thereof. Mr. Venugopal submitted that the acts of oppression alleged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be allotted any shares of HPL. In the meantime, having accepted the offer of allotment of 150 million shares and having sent the price for the same to HPL, IOC sent legal notices to HPL calling upon the Company to issue and allot the said 150 million shares to IOC and to credit the same to the account of IOC after dematerialization. 79. Mr. Sundaram submitted that in the aforesaid cauldron of events, the GoWB wrote to the Chatterjee Group on 27th July, 2005, stating that it had decided to defer its proposal to disinvest shares in favour of the Chatterjee Group as it was not in a position to conclude matters. On account of the severe financial crunch being faced by HPL and in view of the stand of IOC, which was the main supplier of Naphtha to HPL, on 2nd August, 2005, HPL allotted 150 million shares to IOC and a return of allotment was also filed with the Registrar of Companies in respect thereof. On 3rd August, 2005, the cheque given to IOC for Rs. 150 crores was encashed by HPL. 80. Mr. Sundaram submitted that it was no doubt true that at the initial stages it had been the intention of GoWB and WBIDC to involve Dr. Chatterjee and his Group of Companies as the prime sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar of Companies and WBIDC continued to have voting rights on the said 155 million shares. Mr. Sundaram submitted that to cap it all, instead of bringing in equity of an amount of Rs. 53.5 crores, as promised as per the decision taken by the Company on 3rd June, 1996, to induct 50% of its equity, the Chatterjee Group brought in only Rs. 61.5 crores and that too as debt and not equity, despite the fact that post-dated cheques issued to vendors were still bouncing and other commitments were not met. In addition, the Corporate Debt Restructuring could not be implemented since CP(M)C could not induct a strategic investor. Ultimately, out of sheer compulsion in order to save the Company from becoming a Non-Performing Asset, a decision had to be taken to induct IOC as a portfolio investor, though there may have been discussion to bring in IOC as a strategic investor. 81. Mr. Sundaram submitted that one of the questions which arise in these proceedings is whether the Company Law Board, acting under Sections 397 and 398, read with Section 402 of the Companies Act, could direct sale of shares in the absence of a finding that there had been oppression by one body of shareholders again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. However, in a given case, the principles of dissolution of partnership may apply if the apparent structure of the company is proved not to be the real structure and on piercing the veil it is found that in reality it is a partnership. Mr. Sundaram submitted that, in any event, the application of the just and equitable clause would depend upon the facts and circumstances of each case. A note of caution was also introduced that even admission of a petition could prejudice and cause immense injury to a company in the eyes of the investors, if ultimately the petition is dismissed. Mr. Sundaram urged that in a petition under Section 397/398 of the Companies Act, it was not always incumbent on the CLB to order the winding up of a company on the just and equitable principle, but in order to pass any order under Section 397, the Company Law Board would have to arrive at a specific finding that there was just and equitable reason to order such winding up. 84. The next issue canvassed by Mr. Sundaram is that the Court would have to examine as to whether the direction given for sale of shares was in order to maintain the status quo which was being disturbed on account of the oppressive m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. Vardhman Publishers Ltd. [1992] 73 Comp. Cas. 80 (Ker.) and several other decisions to which we shall shortly refer as they have a bearing on the issue involving the rights acquired by the Chatterjee Group on the transfer of 155 million shares by WBIDC, which were not, thereafter, registered in the name of the Chatterjee Group in the Register of Members of the Company, nor was the factum of such transfer communicated to the Registrar of Companies. 87. Mr. Sundaram also raised another question as to why on failure of reciprocal promises in a contract on account of non-performance of the promises made by one of the parties, the benefits accrued to such party through part performance should not be restituted to the other party. In this regard, reference was made to Sections 51 to 54 of the Contract Act and the decision of the Privy Council in Satgur Prasad v. Harnarayan Das [AIR 1932 PC 89] and the decision of the Delhi High Court in Suit No.1481 of 1996, to which reference may be made, if required. 88. Lastly, on the question of allotment of the 150 million shares by WBIDC to IOC, Mr. Sundaram submitted that on account of the failure of the Chatterjee Group to bring in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic Relief Act, 1963. Various other terms and conditions were included with the intention of guaranteeing that CP(M)C would acquire a controlling interest to the extent of at least 51% shares which would also give it complete control over the day-to-day affairs of the Company. In addition, it was agreed that in future the composition of the Board would be altered to reflect the revised shareholding structure and WBIDC would vote along with CP(M)C on all issues in the shareholders meeting and its nominee would also vote along with the nominee Directors of the CP(M)C. 92. Despite the concessions given and/or afforded to the Chatterjee Group, it had failed to take advantage of the same and a subsequent Agreement dated 8th March, 2002, had to be entered into for recording the fact that in terms of the Agreement dated 12th January, 2002, 155,099,998 equity shares of WBIDC had been transferred/delivered to CP (I) PL on the same day. It was also indicated in the Agreement that all the aforesaid shares which had been transferred and delivered to the Petitioner No.4 would be pledged with WBIDC and, accordingly, their shares had been duly lodged along with their share certificates with WBID ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and operating harshly upto the date of the petition. 95. The main grievance of the Appellants appears to be that having been induced into investing large sums of money in establishing the petrochemical complex on various promises, particularly that the Company would continue to retain its private character and the Chatterjee group would have control over its management, such promises, although, reduced into writing in the form of agreements, not only remained unfulfilled, but even the character of the Company was altered with the transfer and sale of 150 million shares by the Company in favour of IOC. Coupled with the above, is the other grievance that despite having transferred 155 million shares in favour of CP (I) PL, and having received the full price therefor, the Company 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. The third grievance of the Chatterjee Group is that by not registering the transfer of the 155 million shares in their favour, but, on the other hand, transferring 150 million shares in favour of IOC, the character of the Company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase (supra), unwise, inefficient or careless conduct of a Director cannot give rise to claim for relief under Section 397 of the Act. For relief under this Section, the Applicant would have to prove that the conduct of the majority of the shareholders lacked probity and was unfair so as to cause prejudice to the Applicant in exercising his legal and proprietary rights as a shareholder. This, in fact, is the golden thread of the various decisions in relation to petitions under Section 397, 398 and 402 of the above Act. All the various decisions cited by the learned counsel for the various parties are ad idem on this issue and applying the said principles, each complaint under Section 397 will have to be judged on its own merit for the CLB to arrive at a conclusion as to whether the ingredients of Section 397 were satisfied and pass appropriate orders thereafter. 97. As has been indicated in some of the cases cited, the language of Section 397 suggests that the oppressive manner in which the Company's affairs were being conducted could not be confined to one isolated incident, but that such acts would have to be continuous as to be part of a concerted action to cause prejudice to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest in setting up of the Haldia Petrochemicals Ltd., various incentives had been offered to him by the GoWB and WBIDC to invest in the Company and to make it a successful commercial enterprise. Such investments were, however, contingent upon Dr. Chatterjee's bringing in sufficient equity to set up and run the Company. As would be seen, at the very initial stage all the understanding between Dr. Chatterjee and GoWB & WBIDC, both WBIDC and the Chatterjee Group were to hold 433 million shares each, while Tata was to hold 144 million shares. The promise extended by WBIDC and GoWB to the Chatterjee Group to provide at least 60% of the shares held by WBIDC at Rs. 14/- per share to the Chatterjee Group so as to give the Chatterjee Group the majority shareholding in the Company, as was indicated in the Agreements dated 12th January, 2002, 8th March, 2002 and 14th January, 2005, did not ultimately materialise and, on the other hand, the Chatterjee Group was reduced to a minority on account of its decision not to participate in the Rights Issue, and, thereafter, by transfer of 150 million shares by WBIDC in favour of IOC. 102. Although, the Chatterjee Group has complained of the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king, 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. It has been submitted by both Mr. Nariman and Mr. Sarkar that even if no acts of oppression had been made out against the Company, it would still be open to the learned Company Judge to grant suitable relief under Section 402 of the Act to iron out the differences that might appear from time to time in the running of the affairs of the Company. No doubt, in the Needle Industries case, this Court had observed that the behaviour and conduct complained of must be held to be harsh and wrongful and in arriving at such a finding, the Court ought not to confine itself to a narrow legalistic view and allow technical pleas to defeat the beneficial provisions of the Section, and that in certain situations the Court is not powerless to do substantial justice between the parties, the facts of this case do not merit such a course of action to be taken. Such an argument is not available to the Chatterjee Group, since the alleged breach of the agreements referred to here ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
