9911796707
TMI Blog2012 (8) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... ince been terminated and the amount repaid, directed that the respondent No. 2 company shall take action to recover interest from the appellant company at the then prevailing bank rates on the outstanding loan amount after adjusting for repayment from time to time and share of profits, if any passed on. 2. In brief, the facts and the background aspects, so far relevant for the present appeal, could be noticed as follows: The respondent No. 1 filed the aforesaid company petition before the CLB on 03.06.1993 as a member of the respondent No. 2 company with reference to Sections 397 and 398 of the Act while alleging particularly that various acts and omissions of the persons in charge of the affairs of the company were leading to oppression of the minority shareholders and to mismanagement. It is noticed that on the similar nature allegations, the respondent No. 1 earlier filed one company petition under Sections 397/398 of the Act in this Court that remained pending for about seven years and then, was withdrawn in order to avail of a more efficacious remedy before the CLB. Though the said company petition before the CLB was filed by the respondent No. 1 on various grounds, but some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thereafter, proceeded to examine the other contention regarding the agreement dated 30.09.1983 as entered into between the appellant company and the respondent No. 2 company whereby and whereunder, certain facilities were required to the offered by the appellant and the respondent No. 2 was to advance an amount of Rs. 55 lacs, repayable in 30 years with provision for profit sharing out of the common facilities. 7. It was contended on behalf of the petitioner that under the agreement in question, money was spent to facilitate, help and improve the activities of a competitor to the prejudice of the company; that the ownership of the facilities to be developed was to remain with the other company and continuation of the facilities after termination of the agreement was uncertain; that a interest-free advance of Rs. 55 lacs over a period of 30 years without casting any obligation on the other company would cost the advancing company about Rs. 35.84 crores by way of loss of interest; that the company had, in fact, spent a sum of Rs. 50.78 lacs between April to June of the year 1982 which was debited to the account of the other company based on a purported resolution dated 29.12.1981; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was mutually altered so that repayment of Rs.2 lacs every year could be obtained and payment of charges amounting to Rs. 2 lacs, to be paid annually by the advancing company for sharing the facilities, was waived. It was asserted that since the year 1984-85, repayment was being made at Rs. 2 lacs per annum and the advancing company was also getting half share of the income accruing to the other company by use of some of the facilities created by the agreement. The answering respondent further pointed out that in the month of October 1993, it was decided to terminate the agreement; and after notice and deliberations, ultimately one year's time was granted for repayment. 9. After taking note of the stand of the contesting parties and the features of the agreement in question, the CLB formed the opinion that the so-called common facilities were not made available to the advancing company (the respondent No. 2); and that duration of loan, of 30 years, was also unduly long and for this entire period, the respondent No. 2 had to bear the expenses running in crores of rupees while it was borrowing money at the market rate of interest. Though the facts were given out that the agreement h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the petitioner is a shareholder in R-1 company. R-3 company is a private company in which petitioner has no interest but the Managing Director and two other Directors have interest. If a transaction of interest free loan though approved by the board of directors is entered into, the financial implications of such transaction on the company have to be matched with a corresponding benefit which can accrue to that company. The respondents in this case, have tried to justify, that the interest free loan is against certain facilities which are to be availed of from R-3 company. It ultimately has transpired that all facilities of that kind have not been created which could be availed of by R-1 company. This is also evident from the auditors report which we have studied in respect of the year 1988-89, which clearly states that the R-3 company does not possess many facilities. If these facilities are essential and such facilities were actually availed and utilized by R-1 company there was no need for terminating the agreement in 1993 as it has been done. Even the termination should not have been deferred upto 1993, if the facilities were not available at all. In the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such investments nor agreed for removal of any of the Directors. The CLB concluded on the petition as under:- "In view of the above we consider it appropriate to dispose of this petition only with the direction with regard to payment of interest on the loan granted by R-1 to R-3 company and without conceding any other prayer of the petitioner." 11. The learned counsel for the appellant has strenuously argued that the order as passed by the CLB against the appellant company remains not only unjustified but beyond jurisdiction too inasmuch as by directing recovery of interest over the amount advanced under the agreement dated 30.09.1983, the CLB has essentially ordered modification of the terms of the said agreement between the parties and that could not have been done without the consent of the appellant, who is to be prejudicially affected by such a modification. The learned counsel also contended that no prejudice was caused to the respondent No. 2 company by the agreement in question that was made way back on 30.09.1983 during the life time of Maharana Bhagwat Singh who was the Managing Director of the said company; and was necessitated for saving its hotel from down-gradatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in modification of the terms of the agreement between the parties; and such a modification could not have been made without the consent of the appellant company in view of clause (e) of Section 402 of the Act. Worthwhile it shall be to refer to the scheme of the relevant provisions as contained in Part-A of Chapter VI of the Act on the powers of Company Law Board for prevention of the oppression and mismanagement. Sections 397 and 398 of the Act provide the basis and foundation for a petition by member of a company complaining of mismanagement or oppression, as the case may be; and wide powers are found with the Company Law Board to deal with the given situation with Section 402 of the Act describing the nature of reliefs which could be granted in a petition under the aforesaid provisions of Section 397/398 of the Act. Section 402 of the Act, in its present form, reads as under:- "402. Powers of Tribunal on application under section 397 or 398.- Without prejudice to the generality of the power of the Tribunal under section 397 or 398, any order under either section may provide for - (a) the regulation of the conduct of the company's affairs in future; (b) the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not referred to in clause (d). As per the stipulations in clause (e), this nature relief cannot be granted except after due notice to the party concerned i.e., the party likely to be affected. Moreover, and significantly, an agreement between the company and any person not referred to in clause (d) cannot be modified except after obtaining the consent of the party concerned. 16. Thus, notwithstanding the general powers conferred by Sections 397 and 398 of the Act and even by the other clauses of Section 402 of the Act, so far an agreement with a third party [i.e., the person not referred to in clause (d)] is concerned, a special provision has been made to the effect that such an agreement shall not be terminated, set aside, or modified except after due notice to the party concerned. And then, yet another extra-special provision, over the said special provision, is made to the effect that no such agreement with the third party shall be modified except after obtaining consent of the party concerned. In regard to this extra-special provision, for its very nature, the principle contained in the maxim Generalia specialibus non derogant would apply; which means that if a special provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t over and above the terms of the agreement without its consent. This Court is clearly of view that in the given fact situation, such modification, inflicting extra liability of interest on the appellant company, could not have been ordered in these proceedings beyond the terms of the agreement in question and without the consent of the appellant. 18. Even on the merits of the case, the CLB appears to have proceeded rather on the wrong assumption that according to the auditor's report of the year 1988-89, the appellant company was not possessing many facilities and that the facilities were not availed by the respondent No. 2 company. The relevant contents of the auditor's report dated 01.09.1989 in relation to balance-sheet of the respondent No.2 company as on 31.03.1989, as occurring in its paragraph 9, are as under:- "....(iii) The Company had entered into an agreement with another Company in which the former Managing Director and two other Directors were interested. Under the said agreement, a sum of Rs. 55.00 lacs was advanced to the other Company which would make available to the quests of Lake Palace Hotel, the user of various facilities which it does not possess and for sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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