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TMI Blog2011 (2) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... f a complaint under Sections 397, 398, 402 and 403 of the Companies Act - petitioners before the Company Law Board who are respondents in this appeal have failed to establish mismanagement and oppression on the part of the management and for conversion of warrants into equity shares in an application under Section 397/398 of the Companies Act is not contemplated X X X X Extracts X X X X X X X X Extracts X X X X ..... lling stake in the company are trying to dispose of the said unit by way of transferring its shareholding to a 3rd party without the consent and approval of the shareholders. The attitude of the existing promoters to wash their hands of the Company's Management confirms the belief that affairs of the company are being conducted with an intent to defraud its members, creditors and public at large and are oppressive to its members. The circumstances and facts as now emerging or as may emerge fully after investigation would prove beyond doubt that some person other than the existing promoters, who intend to take over management of the Company is influencing the policy of the company. Such action adversely affects the rights of the shareholder at large. It is also alleged that in case of promoters holding the controlling stake handover the company to a party alien to the present line of business, the same would be prejudicial to the interest of the company and consequently the shareholders. It is further alleged that the present management/directors intend to handover the management of the company to some outsiders to absolve themselves from the liability of the company after siphoning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to Respondent No. 10 at Rs. 41.14 paise per share amounting to Rs. 5.78 crores is null and void. (4) For a declaration that 40,00,000 warrants of OSIL converted into the equity shares is null and void and for a direction to OSIL and its Directors to transfer 30 lakhs warrants in the name of Bhushan Energy Ltd. In the said petition, i.e., the case of the appellants is that on inspection of records of Torsteel Research Foundation in India (Respondent No. 10 before CLB) and TRFI Investment Private Limited (Respondent No. 11 before CLB) from the Registrar of Companies portal of MCA 21, the following facts emerged which constitute the acts of oppression and mismanagement: (I) In March 2004, Torsteel Research Foundation in India was holding 11% share in OSIL. During the third quarter of 2005, Torsteel Research Foundation in India purchased 12,00,000 shares from Industrial Promotion and Investment Corporation of Orissa Limited which was also a shareholder of OSIL at 58.06 per share amounting to Rs. 6.97 crores. Torsteel Research Foundation in India had received Rs. 6 crores as a loan from Torsteel Services Limited which is owned and controlled by the promoters of OSIL and this amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took place before Bhushan Group (the present appellants) became shareholders. By these transactions, Bhushan Group has not been affected at all in any manner. From paragraph-27 of the impugned order, the Company Law Board proceeded to examine the allegations relating to the alleged tainted transactions but observed that three transactions had been alleged to be tainted. While for two transactions, details were given, for the third one only an apprehension had been expressed. Therefore, the Company Law Board examined the two alleged tainted transactions and came to the following findings. The first transaction relates to acquisition of 12 lakh shares by Torsteel Research Foundation and it is admitted that OSIL has not funded these transactions. UTI had sanctioned a loan of Rs.6 crores to Torsteel Services Private Limited which was not a party to the proceeding for mining development. This loan was taken on the security of receivable from OSIL. This was the primary security provided by Torsteel Services Limited and the loan was guaranteed by Torsteel Research Foundation. The conclusion arrived at by the Company Law Board is that OSIL has not given any financial assistance directly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above two transactions are tainted transactions and OSIL had directly or indirectly rendered financial assistance for the above two transactions. It was contented by Shri Kapur, the learned Senior Counsel for the appellants that so far as the first transaction is concerned, UTI Bank advanced a loan of Rs.6 crores to Torsteel Services Pvt. Ltd. for mine development of OSIL. The primary security provided for the said loan was the OSIL payables from it's Escrow account to Torsteel Services Pvt. Ltd. and the said loan was guaranteed by Torsteel Research Foundation. Torsteel Services Pvt. Ltd. after obtaining loan from UTI advanced the same as loan to Torsteel Research Foundation and in turn Torsteel Research Foundation utilized the said amount for purchasing 12 lakh shares of OSIL from IPICOL. Referring to the copy of the Bank transactions of Torsteel Services Pvt. Ltd., it was contented by Shri Kapur, the learned Senior Counsel for the appellant that all these transactions took place on the very same day. So far as the second transaction is concerned, it was contended by the learned Senior Counsel that UTI Bank sanctioned a loan of Rs. 6 crores to OSIL for mine development by Tors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in relation to the office of Torsteel Research Foundation in India office area at Nariman Point, Mumbai had been created. This property itself was worth of more than Rs. 20.00 crores and therefore, no further security was also necessary against a loan of Rs. 6 crores. In respect of the second transaction, Shri Chatterji also contended that the loan of Rs. 6 crores had been granted by UTI Bank in favour of OSIL to be utilized for mine development which was undertaken by Torsteel Services Pvt. Ltd. Therefore, the said amount was provided as advance by OSIL to Torsteel Services Pvt. Ltd. for mine development. The conduct of Torsteel Services Pvt. Ltd. in providing a similar amount as loan to Torsteel Research Foundation for conversion of the warrants into shares cannot be said to be a financial assistance rendered by OSIL either directly or indirectly to Torsteel Research Foundation for conversion of warrants into shares. The learned counsel made the above submissions on facts, alleged in the petition and also cited some decisions in support of their respective submissions. I now proceed to examine the submission of the learned Senior Counsel appearing for both the parties with ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. Shri Chatterji, the learned Senior Counsel submitted that only when a finding of fact arrived at by the Company Law Board is found to be perverse or based on no evidence, then only the same can be set aside in appeal. But this is a case where the findings of the Company Law Board are based on documents produced by the parties, under no stretch of imagination it can be said that the findings are based on no evidence or that they are perverse. As stated earlier, the appellants in order to substantiate their claim that the above two transactions were tainted had relied upon certain documents referred to above and the Company Law Board referring to the said documents recorded the findings against the appellants. Therefore, it cannot be said that the findings are based on no evidence. The question as to whether such findings are perverse or not, it is necessary to refer to the very same documents again. So far as the first transaction is concerned, it is clear from the letter of the UTI Bank dated 26.7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of shares or conversion of warrants into shares. The further objection raised by the appellants was that Torsteel Services Pvt. Ltd. was involved in the business of fisheries but there is nothing on record to show that it was not involved in mine development. Though the transactions shown in the balance sheet in the initial years do not indicate that the said Company was running well, there is nothing on record to disprove the claim of OSIL that it had engaged Torsteel Services Pvt. Ltd. for mine development. Under these circumstances, I find absolutely no error in the findings of the Company Law Board with regard to the above two alleged tainted transactions. Accordingly, on facts, I find that the appellants have miserably failed to prove direct or indirect involvement of OSIL in funding Torsteel Research Foundation in either acquiring the shares from IPICOL or converting the warrants into shares of OSIL as alleged by them and consequently there has been no contravention of Section 77 of the Companies Act. Shri Kapur, the learned Senior Counsel appearing for the appellants placed reliance on a decision of the Hon'ble Supreme Court in the case of Smt. Claude-Lila Parul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Hon'ble Supreme Court observed that a plea of limitation cannot be decided as an abstract principle of law divorced from facts as in every case the starting point of limitation has to be ascertained, which is entirely a question of fact. A plea of limitation is a mixed question of law and fact. Therefore, unless it becomes apparent from the reading of the company petition that the same is barred by limitation the petition cannot be rejected under Order 7, Rule 11 (d) of the Code of Civil Procedure. The appellants in the said reported case had filed a Company Petition for rectification of the register of the Company as provided under Section 155 of the Companies Act. Respondents 1 and 2 therein filed an objection and prayed to dismiss the said Company Petition on the ground that the same was barred by limitation. The application was allowed by the Company Judge and the Company Petition was dismissed on ground of limitation. Division Bench also confirmed the said order of the Hon'ble Single Judge and the matter went to the Hon'ble Supreme Court. On consideration of facts of that case, the matter was remitted back to the High Court for reconsideration. It was contended with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and has observed that contravention of the prohibition contained in Sub-section (2) of Section 77 only attracts a penalty under Sub-section (4) of Section 77. Therefore, even assuming for the sake of argument that Shri Kapur, the learned Senior Counsel appearing for the appellants is right in saying that there has been contravention of Sub-section (2) of Section 77, such contravention can only attract a penalty under Sub-section (4) of Section 77. 10. For the reasons stated above, I do not find any merit so far as these two Company Petition Nos. 40 and 41 of 2009 are concerned. 11. With the above allegations made in the Company Petition, now I proceed to examine the case of the appellants in COPET No. 39 of 2009. 12. This appeal has been filed by OSIL against the part of the impugned judgment and order passed by the Company Law Board in respect of the directions to OSIL for conversion of 35 lac warrants held by Bhushan Energy Limited into 35 lac equity shares which would constitute approximately 12% of the diluted share capital. Shri P. Chatterji, the learned Senior Counsel appearing on behalf of the OSIL assailed this part of the judgment and order of the Company Law Board o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead to winding up of the company which shall be prejudicial to the shareholders (b) the acts of oppression and mismanagement continued up to the date of filing of the petition (c) the alleged acts of mismanagement of the company affects the rights of the complainant as regards his status as a shareholder of the company and in regard to his proprietary rights. According to the learned Senior Counsel unless the above requirements are satisfied, a derivative action is not maintainable as it is the ante-thesis to the democratic operation of the Company wherein the shareholders appoint the Directors and Directors are entitled to decide for and on behalf of the shareholders such conduct and acts which are for the benefit of the company. Such a democratic process cannot be interfered with or over-looked by a court unless the above conditions are met at the time of filing of the applications under Sections 397 and 398 of the Companies Act. An isolated or a stray act of the company affecting the rights of a shareholder cannot attract Section 397 and 398 of the Companies Act. In this connection, reliance was placed on a decision of the Hon'ble Supreme Court in the case of Sangramsinh P. Gae ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Kerala High Court in the case of V.J. Thomas Vettom v. Kuttanad Rubber Co. Ltd. [1984] 56 Comp. Cas. 284. The relevant observation of the Hon'ble High Court in the said case is quoted below: "Every kind of oppression cannot be remedied by the court. The oppression must be such as to justify the winding up of the company on just and equitable grounds. Since the words used are "are being conducted", the action complained of must be a continuous one and not either an isolated or a stale one. Once the court is satisfied that the complaint is made without bona fides and to settle old scores or with the sole intention of mud-slinging, no orders under s. 397 or s. 398 will be passed. The court must have strong grounds before it to order winding up. An order under s. 397 or s. 398 can be supported only if such grounds are present. The fact that the complaining parties were themselves participants in the alleged activities will be one of the factors to dissuade the court from exercising its powers under the section. Delay and acquiescence in the acts complained of will also be circumstances against the grant of reliefs. The powers of the court under s. 402 are wide. But the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the subterfuge of conversion of warrants into equity shares obtained from an existing shareholder who was well known to the OSIL for the sole purpose of taking over the company. Reliance is placed on the following clauses of the Public Announcement made by the Bhushan Group which according to Shri Chatterji, the learned Senior Counsel appearing for the OSIL discloses the intention of Bhushan Group. The relevant two clauses are quoted below: "3.6 The Acquirer and PACs intend to acquire a majority shareholding in the Target Company accompanies with a change in control of the Target Company. Consequently, this offer is being made in compliance with Regulation 10 and 12 of the Regulations. The Acquirer and/or the PACs may acquire additional equity shares of the Target Company, including from the open market, through negotiation or otherwise, in accordance with the Regulations upto 7 working days prior to closure of the offer. Furthermore, the Acquirer may decide to exercise warrants mentioned under paragraph 1.3 above upto working days prior to closure of the offer. The Acquirer has requested OSIL for registering the warrants in its name". 7.2 The acquisition of Equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Kerala High Court accepted the above view and held as under: "We have already referred to what P.W.1 has said as regards the real object of the petition. This real object which is tacitly reflected in the prayers made by the petitioners has been expressly stated in the deposition of P.W.-1. The first prayer is to pass appropriate orders for the purchase of the shares held by the petitioners. We feel that in view of the clear and unambiguous statement by P.W.-1, it is difficult for us to discern a different object which will satisfy section 397 of the Act other than an outside object of section 397 of recovering the amount invested for purchasing the shares. Of course, counsel for the respondents wanted to say that the object of the petition was to take action under section 397 of the Act and the relief the petitioners wanted was recovery of the money they have invested. This explanation, we feel, is not commendable and so we cannot accept it, we feel that we have to follow the dictum laid down in Bellador Silk Ltd., In re [1965] 1 All ER 667 (Ch D). We hold that the petition is liable to be dismissed on this sole ground". Reliance was also placed on the judgment of J.E. Cade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court would not order under s 459, namely a takeover bid by Emerson. The petition is, in my judgment, being used for the purposes of exerting pressure in order to achieve a collateral purpose, that is to say, the making of a takeover bid by Emerson. The petitioners' attempt to use s 459 as, in effect, a tactical ploy to force Emerson to make a takeover bid, though no doubt wholly well-intentioned, is in my judgment misguided as a matter of law. As such it constitutes in my judgment an abuse of process. That in itself would be sufficient ground for striking the petition out. Mr. Potts also submitted as another ground for striking out the petition that if the petition were allowed to proceed, there is no realistic prospect of the court granting the relief sought. In the circumstances it is unnecessary for me to consider that submission. In the result, for the reasons which I have attempted to express, I conclude that this petition is plainly and obviously unsustainable, that it is bound to fail, and that it should be struck out. I so order". 15. With reference to above decision, it was contended that the entire purpose of filing the petition under Sections 397 and 398 of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties herein have not made any efforts to examine themselves in court so as to enable the other side to cross-examine them. Had the parties to the proceedings been examined and cross-examined, they could have been confronted with the earlier statements made by them in another affidavit." Reliance was also placed on another decision in the case of Mohta Bros. (P.) Ltd. v. Calcutta Landing & Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 (Cal.). The relevant portion of the judgment referred to by the appellants is quoted below: "Full particulars must be given by a petitioner in an application under Sections 397 and 398 of the Act of acts of mismanagement and oppression. Vague and uncertain allegations of mismanagement and oppression, although they may constitute grounds for suspicion, do not entitle a petitioner to ask the court to embark upon an investigation into the affairs of the company, in the hope that in consequence of such investigation, something will turn up which will enable the court to grant relief to the petitioner. It is true that it may not always be possible for one or a group of shareholders to furnish particulars of acts of mismanagement, fraud, oppression, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to Section 397". With reference to the above judgments, it was contended on behalf of the appellants that the facts mentioned in C.A. Nos. 113, 161, 213, 258 and 295 of 2009 contained certain allegations which did not find place in the main petition. No amendment was sought for by the respondents for amending the Company Petition and therefore, in view of the above decisions, the interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to grant a perpetual injunction restraining a person from instituting a proceeding in a court not subordinate to it, as a relief, ipso facto temporary relief cannot be granted in the same terms. The interim relief can obviously be not granted also because the object behind granting interim relief is to maintain status quo ante so that the final relief can be appropriately moulded without the party's position being altered during the pendency of the proceedings." Relying on the said decision, it was contended on behalf of the appellant that an interim relief can be granted provided it is in the aid of the final relief and there being no nexus between the pleading made in the Company Petition and the pleadings made in the Misc. case, the Court could not have allowed such prayer made in the Misc. application. 17. In relation to Ground No. (d), it was contended that Section 397 and 398 of the Companies Act is an alternative remedy to winding up under Section 433 (f) of the Companies Act. Before the Company Law Board can exercise jurisdiction under Sections 397 and 398 of the Companies Act, it has come to a conclusion that the acts of the management are fit to lead the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at being outvoted; nor mere dissatisfaction with or disapproval of the conduct of the company's affairs, whether on grounds relating to policy or to efficiency, however well founded. Those who are alleged to have acted oppressively must be shown to have acted at least unfairly towards those who claim to have been oppressed. In Scottish Co-operative Wholesale Society Ltd. v. Meyer (a case under section 210) Viscount Simonds L.C. adopted a dictionary definition of the meaning of "oppressive" as "burdensome, harsh and wrongful." Reference was also made to the following paragraph in the case of Shanti Prasad Jain (supra) by the learned counsel for the appellant which has been quoted earlier. Reliance was also placed in the case of Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageswara Rao [1956] 26 Comp. Cas. 91 (SC) and in the case of World Wide Agencies (P.) Ltd. v. Mrs. Margaret T. Desor [1990] 67 Comp. Cas. 607 (SC). The relevant part of the judgment in both the cases are quoted below respectively: "It was next contended that the allegations in the application were not sufficient to support a winding up order under section 162, and that therefore no action could be taken und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are contracts, the same cannot be enforced in an application under Section 397/398 of the Companies Act and reliance was placed on paragraph 185 of the judgment in the case of Sangramsingh P. Gaekwad (supra). The said paragraph is quoted below: "185. It has to be borne in mind that when a complaint is made as regard violation of statutory or contractual rights, the shareholder may initiate a proceeding in a civil court but a proceeding under Section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view the wide and far-reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be rejected." In the case of Incable Net (Andhra) Ltd. v. A.P. Aksh Broadband Ltd. [2010] 100 SCL 402/5 taxmann.com 24, the Hon'ble Supreme Court held that when there is a breach of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Section 173 of the Companies Act is required to be provided in the explanatory statement. In the present case, warrants were issued after passing of a special resolution accompanied with an explanatory statement wherein it is clearly stipulated that warrants shall not be used for change in management. Since the respondents sought to misuse the warrants for achieving change in management as per their own public announcement, the appellant sought opinion of legal experts and it was opined that the company must hold another general meeting if the warrant was allowed to be used for change in management of the company. The purpose of an explanatory statement is that the shareholders make up their decision in one way or the other on the basis of the said statement. Therefore, the explanatory statement is required to be given full details otherwise it would amount to misleading the shareholders. Relying on a decision of the Hon'ble Supreme Court in the case of Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1950] 20 Comp. Cas. 179, it was contended that efforts of a company to avert a takeover which is not liked by the existing shareholders by an outsider, by holding a general me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beginning of 1958 there were differences between the appellant and the Patnaik and Loganathan groups and there was loss of confidence between them. But mere loss of confidence between these groups of shareholders would not come within section 397 unless it be shown that this lack of confidence sprang from a desire to oppress the minority in the management of the company's affairs and that there was at least an element of lack of probity and fair dealing to a member in the matter of his proprietary right as a shareholder". 21. Before dealing with the submission of Shri Kapur, the learned Senior Counsel appearing for the respondents Bhushan Group, it is necessary to refer to the submissions made by the learned counsel with regard to acquisition of 35,00,000 warrants by Bhushan Energy Limited, one of the petitioners before the Company Law Board. According to the respondents, in the year 2007, the company was going through an extremely difficult financial situation and it decided to make a further issue of capital on a preferential basis by way of allotment of warrants which would be convertible into shares at a later stage following the mandatory procedures laid down in SEBI (Disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired by Bhushan Energy Ltd. into equity shares. 22. Now coming to the reply in relation to the grounds taken by Shri Chatterji, the learned Senior Counsel appearing for the appellant OSIL, the following submissions are made by Shri Kapur, the learned Senior Counsel appearing for the respondents Bhushan Group. Submissions made by Shri Kapur, the Learned Senior Counsel for Bhushan Group 23. In reply to Ground No. (a), it was contended that the mismanagement and misconduct are more than one. On one hand there is illegal refusal of the company to convert 35,00,000 warrants into equivalent number of equity shares and on the other hand there is violation of Section 77 (2) of the Companies Act time and again (on three occasions) and there are also other facts regarding attitude of the promoters and majority shareholders and their collusion and conspiracy with the Monnet group in the domestic forum. This collusion is proved by the public announcement made by the Monnet Group claiming itself to be a new promoter along with original promoters and asserting various rights on the basis of a share purchase agreement dated 24.2.2009 whereby the professed object was to confirm the majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of shares after the company petition was filed before the CLB. Nobody questioned conversion of these warrants into shares in favour of the promoter group but on the contrary the promoter group though converted the warrants held by TRFI did not do so in the case of Bhushan Energy Ltd. The legitimate request made by Bhushan Energy Ltd. for conversion of warrants was castigated as an attempt to take over the company. The standard applied by the company in case of warrants given to TRFI in contradistinction to the warrants given to Bhushan Energy Limited are discriminatory, arbitrary and unfair. The ground on which conversion of the warrants into shares held by Bhushan Energy Ltd. was refused is that the Bhushan group would take over the management and control of the company. According to the respondents, this argument was factually not correct and the same has also been held by the Company Law Board in the impugned order. 25. In reply to Ground No. (c), it was contended that when the company petition was presented before the CLB, a demand had been made for registration of warrants in the name of Bhushan Energy Ltd. and the demand had been refused. In paragraph-6(k), the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended that subsequent development of facts which have a material bearing on the entitlement of the parties to relief or on aspects which bear on moulding of relief may be taken note of at any stage of the proceeding. 26. In reply to Ground No. (e), it was contended that the powers of CLB under Sections 397, 398 and 402 of the Companies Act are limitless and the Court may make any order as it thinks fit, with a view to bringing to an end the matters complained of. The CLB may also make such order as is necessary for the regulation of the conduct of the company's affairs and also make any order which in the opinion of the CLB, it is just and equitable. In the present case, the facts are indisputable, stark and imperative and there is no denying the same. Having issued the warrants and enjoyed the benefits there under it was and is the bounden duty and obligation of the company to execute the undertakings contained in the warrants and as envisaged therein by converting the warrants into equity shares. There being no disputed questions of facts involved in the case, the argument of OSIL that the Bhushan Group should seek conversion of warrants into shares by filing a suit is mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his submission referred to two instances of mismanagement and oppression and in the note of submission furnished to the Court by the said respondents, there is also mention of those two instances only. The first instance of oppression and mismanagement is that OSIL indirectly by means of a loan/guarantee rendered financial assistance to TRFI for purchasing shares in the Company in contravention of Section 77 of the Companies Act. The second instance of oppression and mismanagement is inaction on the part of OSIL in converting 35,00,000 warrants held by Bhushan Energy Limited into equity shares. So far as the first instance of oppression and mismanagement is concerned, I have dealt with the same extensively in COPET Nos. 40 and 41 of 2009 and having found no substance in the said allegation, I have already held that there has been no contravention of Section 77 of the Companies Act. Therefore, the second alleged instance of oppression is an isolated alleged act on the part of the Company. Shri P. Chatterji, the learned Senior Counsel appearing for the OSIL had contended that single instance of oppression and management will not be sufficient to maintain a petition under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l conduct over a period of time. If the Court is satisfied that a single wrongful act is such that its effect will be a continuous course of oppression and there is no prospect of remedying the situation by the voluntary act of the party responsible for the wrongful act, the Court is entitled to interfere by an appropriate order under Section 397 of the Act. It is, therefore, clear the law as settled by Courts is that the remedy under Section 397 of the Companies Act is not an ordinary one and the acts of oppression alleged must be harsh and wrongful and that an isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, therefore, necessary to be proved. Only when an isolated act of oppression has such effect that it may amount to continuous course of oppression and there is no prospect of remedying the situation, the Court may consider an application under Section 397 of the Act. In the present case, as discussed earlier, OSIL in the year 2007 took a decision to make a further issue of capital on a preferential basis by way of allotment of warrants which would be convertible into shares at a late ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuance of Section 173(2) of the Companies Act. Undisputedly in total 35,00,000 warrants had been issued in favour of Prakausali. The Explanatory statement clearly stipulates that due to the above preferential allotment of equity shares and/or the warrants and the resultant issue of equity shares, no change in management control is contemplated. It was submitted by Shri Chatterji, the learned Senior Counsel appearing for the OSIL that the demand of Bhushan Energy Limited for conversion of these 35,00,000 warrants into equity shares after purchasing the same from Prakausali is for the purpose of taking control of the company and thereby changing the management. Though such an allegation is denied in the note of submission furnished by respondents Bhushan Group, it is a fact that if conversion of these 35,00,000 warrants into equity shares is allowed, the shareholding of Bhushan Group will increase substantially and therefore, the contention of OSIL that the Bhushan Group can make an attempt to take over the company and bring in change in management is not totally unfounded. The above finding also gets support from the Public Announcement made by Bhushan Group. In para-14 of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt to get the warrants converted into equity shares have filed this application under Section 397/398 of the Companies Act for a direction to get the warrants converted into shares. The purpose behind getting the warrants converted into equity shares is to take over the Company and bring in change in the management entirely and utilize the mines belonging to OSIL for other Steel Industries owned by Bhushan Group. Shri Kapur, the learned Senior Counsel appearing on behalf of Bhushan Group submitted that 75,00,000 warrants issued in favour of TRFI could be converted into equity shares immediately and nobody questioned such conversion but an objection is raised when a legitimate claim is made by Bhushan Energy Limited for conversion of 35,00,000 warrants into equity shares. The apprehension of OSIL that by such conversion, the Bhushan Group may take over management and control of the company is factually not correct. Reference in this connection was made to the case of Bellador Silk Ltd. (supra) Palghat Exports (P.) Ltd. (supra) and J.E. Cade & Son Ltd. (supra) which have already referred to while dealing with submission of Shri Chatterji, the learned Senior Counsel appearing for OSIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered as Company Applications and there is no illegality in the same. There is no necessity to go into this debate in view of my finding earlier that the petitioners before the Company Law Board have come up with only two alleged acts of oppression and mismanagement and they have failed to prove such alleged act of oppression and mismanagement. Therefore, there is no necessity to go into such a technical question. 30. The refusal of OSIL to convert 35,00,000 warrants held by Bhushan Energy Limited into equal number of equity shares may amount to a breach of contract but such breach of contract cannot constitute the ingredients of a complaint under Sections 397, 398, 402 and 403 of the Companies Act. As decided in the case of Incable Net (Andhra) Ltd. (supra), such breach could give rise to an action of breach of contract under Section 73 of the Indian Contract Act, 1972. 31. In view of the above finding that the petitioners before the Company Law Board who are respondents in this appeal have failed to establish mismanagement and oppression on the part of the management and for conversion of warrants into equity shares in an application under Section 397/398 of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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