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TMI Blog2015 (9) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... d in these two appeals are interlinked. The appeals were argued and heard together and are being disposed of by this common judgment. 2. Both the Company Appeals are filed by Enercon GmbH. In Company Appeal No.42 of 2013 - Enercon GmbH has challenged the order passed by the Company Law Board in Company Petition No.83 of 2011 (originally numbered as Company Petition No.74 of 2008) filed by Mr. Yogesh Mehra and others. In Company Appeal No.43 of 2013 Enercon GmbH has challenged the order passed by the Company Law Board in Company Petition No.82 of 2011 (originally numbered as Company Petition No.121 of 2007) filed by Enercon GmbH. 3. The Company in respect of which the proceedings have arisen is M/s Enercon (India) Limited, now named Wind World (India) Ltd. Enercon GmbH holds 56% equity shares in Enercon India Ltd and 44% shareholding is by the Mehra family. Yogesh Mehra is the Managing director of Enercon India Limited. His brother Ajay Mehra is a whole time director. The other directors on the board of Enercon India are Dr. Aloys Wobben who is also the chairman, and Mr. Hans Dieter Kettwig. Dr. Aloys Wobben is 100% shareholder of Enercon GmbH, the 56 percent shareholder in Enerco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of 10 Rupees (ten Rupees) each. It was provided that the EG will take over 1,020,000 equity shares in EIL being 51% paid up capital at par and the Mehras would take 980,000 Equity Shares being 49% of the paidup capital EIL. The management of the EIL was agreed to vest in four Directors. So long as EG owned not less than 51% of the share capital, EG was to have a right to appoint two directors, one of them would be a nonretiring director. So long as Mehras owned not less than 49% of the equity shares, the Mehras would also have right to appoint two directors, one of them a nonretiring director. Chairman of the board was to be appointed by EG. Managing director was to be appointed by the Mehras. It was agreed that in case of deadlock the Chairman would have a casting vote. It was agreed that 30 days written notice of meeting of directors would be given to every director in India or outside for meetings of the board. In case of directors residing outside, notice of meeting was to be sent by cable, telex or fax. The board of directors were given certain powers to take decisions. As regards transfer or sale of shares it was agreed that if any party desired to dispose of its shares, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding agreement was executed on 19 May 2000. 9. One more Agreement was entered into that is Intellectual Property License Agreement (IPLA) dated 29 September 2006. It was stated in the recital that the technical knowhow agreement of 1994 has since expired this agreement was being entered into. IPLA agreement is now subject matter of an arbitration proceedings. The implications of IPLA in respect of consideration of the subject matter of the present proceedings will be dealt with at a later stage. 10. This was broadly the arrangement between the parties. The day to day management of EIL was with the Mehras. Sometime around the year 2006 negotiations took place between Yogesh Mehra and Dr. Wobben for sale of 6% shares of Mehras to EG. Certain price was offered by Dr. Aloys Wobben as a chairman of EG. However, the transaction could not go through as the parties differed on price. Thereafter there were disputes between EG and EIL in respect of supply of parts. The Mehras negotiated with one IL & FS to sell its shares of 6% for Rs. 220 crores and informed EG by letter dated 10 August 2007. In view of the intention of the Mehras to sell its shareholding to an outsider the EG fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006, Mehras assured that 55 crores of equity would be put in, Mehras took no steps to increase it. (iii) The debt burden of EIL increased to about 560 crores. To obtain loans Mehras falsely projected the balancesheet of EIL. EIL was being run by manipulation of accounts so as to project it as having a lucrative investment and to raise finances from the open market and borrowings. Instead of concentrating on manufacturing on wind turbines generators and its research, Mehras were more interested in indiscriminately acquiring land and needlessly created various subsidiary Companies. The Mehras were responsible for EIL committing Sales tax and VAT violations and funds of the Company were also being siphoned of in the construction of towers etc. Yogesh Mehra was misusing his position as Managing director and was not supplying correct information to EG. (iv) The matters came to head when Mehras denied Intellectual Property Licence Agreement. The Mehras, inspite of having received benefit under the IPLA, were avoiding to make self assessment of accounts. On 16 February 2007, EG demanded information which was kept back from EG relating to reporting system, financial results, balance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mehra Group (Respondent Nos.2 to 8) shall stand deleted. (d) Direct that the Articles of Association of Respondents Nos.9 to 35 being the subsidiary and associate companies of Enercon India shall stand amended to the effect that rights of appointment of directors and participating in management given to the Mehra Group (Respondent Nos.2 to 8) shall stand deleted. (e) Direct Respondent Nos 2 to 8 to transfer their entire shareholding (44%) in Enercon (India) Limited to the Petitioner at a fair value to be independently arrived at on the basis of the balance sheet of the Company giving the true view of the Company. (f) Direct Respondent Nos 2 to 8 to transfer their entire shareholding in the subsidiary and associate companies of Enercon (India) Limited including but not limited to Respondent Nos.9 to 35 herein to the Petitioner at a fair value to be independently arrived on the basis of the balance sheet of each of the said companies giving the true view of each company. (g) Direct an investigation to ascertain the conduct of the Respondent Nos.2 to 8 in dealing with assets, properties, monies and management of the Respondent No.1 Company. (h) Direct Respondent No.1 to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial facts and only with a view to force exit of the Mehras from EIL. As many as around 35 to 40 important documents have been suppressed. EG had obtained an exparte temporary injunction against EIL in the Regional Court at Hamburg, Germany. This fact was suppressed. The Hamburg District Court on 9 April 2008 had vacated the exparte adinterim order. Even in the proceedings before the High Court the order passed by the Hamburg Court was suppressed. Various attempts have been made by EG to bring the functioning of EIL at a standstill so that it can acquire the shareholding of Mehras at lowest price. (iii) The supplies of necessary parts was stopped without reason. Therefore, EIL had to cancel various orders. Nonavailability of components seriously affected the functioning of EIL and so also the various agreements EIL had entered into between the other parties. (iv) The EG arbitrarily rejected the proposal of Mehras to access the capital market which would have enormous benefits to EIL and ensured long term continuity. The Mehras had not agreed that 44% of 10 million Euros would be put in by the Mehras. The EG had offered a sum of rupees 40 million Euros for 6% stock of Mehras fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase 6% shareholding of Mehras at 40 million Euros unilaterally changed over to purchase 12% of the shareholding at the same amount. When the Mehras rejected this revised offer, EG took various steps vindictively to ensure ouster of Mehras from EIL. (ii) EG unilaterally and fraudulently stopped supplies of parts and components and inspite of the interim orders passed by the Board in EG's petition EG continued to indulge in these acts of oppression. After agreeing that EG would infuse capital in a meeting with bankers EG backed out from the same. EG recalled the facility of rupees 34 crores sanctioned to EIL by ABN Amro Bank. In view of this withdrawal EIL was placed in serious financial trouble. (iii) The EG unjustifiably relied upon a draft IPLA, which was not a concluded, contract to stop the supplies which was crucial for existence of EIL. EG instituted frivolous and vexatious proceedings in the Court at Hamburg, withholding information important to EIL in respect of its transfer pricing. EG also stopped the access of EIL through the SAP system, which was necessary for its day to day functioning. (iv) EG addressed malicious correspondence to third parties including custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutions and any other lending agency that the draft IPLA is terminated and not enforce any rights that it may allegedly accrue from its termination; d) Direct that Respondent No.1 act upon its commitment, as made before the banks on December 20, 2007 to infuse further capital of Rs. 112 crores into Respondent No.2; e) Direct that the accounts of Respondent No.2 for the financial years 20062007 and 20072008 be audited as per past practice and standards and that Respondent No.1 extend all cooperation to this end; f) Direct that the Articles of Association of Respondent No.2 shall stand amended, in particular Article 171, to the effect that rights of appointment of directors and participating management given to Respondent Nos.3 and 4 shall stand deleted; g) Direct that the Articles of Association of Respondent No.2 shall stand amended, in particular Article 157 in as much as the power of the casting vote shall not be exercised by any director so appointed by Respondent No.1; h) Direct that Respondent No.1 transfer their entire shareholding 56% in Respondent No.2 to the Petitioners at a fair value to be independently arrived at on the basis of the valuation carried out by any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, denied the contentions. The EG accordingly sought dismissal of the Company petition filed by Mehras. Proceeding before the Company Law Board 19. On 27 January 2009, the Company Petition along with Company Application No.329 of 2008, No.372 of 2008 and No.429 of 2008 were taken up for consideration. The Board noted the position of the shareholding. It noted that there has been a complete loss of trust and confidence between two sets of shareholders which is evident from the fact that each of them have filed the petitions. There was a complete deadlock due to which board meetings were not being held, and parting of ways was in interest of the EIL. The Board suggested that parties to consider parting of ways. Since the parties agreed for appointment of M/s Sharp & Tannan both the parties were given liberty to make submissions before the valuer. On 29 January 2009, matters were taken up and an order was passed superceding the earlier orders. Certain modalities were laid down for the purpose of valuation for determination of value of shares. Independent valuation of each of the Respondent No.9 to 35 was to be carried out. The issue whether Respondent Nos.33, 34 and 35 were part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest of EIL. Both the parties thus alleged oppression / mismanagement on the part of other side and defended their own action. 22. It was argued by EG that Mehras held 15 board meetings and an extra ordinary general meeting without any notice to EG. Various companies were incorporated to frustrate the valuation proceedings and profit at the expense of EG and EIL. It was submitted that Mehras were attempting to render EIL defunct by siphoning its funds. It was argued that Yogesh Mehra was interested in setting up independent power wind farms. It was further contended that Mehras resiled from their duties to infuse funds. Despite the order of statusquo the Mehras continued dealing with short term and long term finances keeping EG in dark. It was contended by EG that its technology was usurped and its intellectual property rights were infringed. It was submitted that the proceedings had been brought by EIL against Dr. Aloys Wobben for revocation of 19 of the patents. Mehras attempted to cause EIL to wrongfully obtain parts ignoring the patents of EG. It was contended that EIL abused the SAP server by importing EGs data and peep into it's global operations. It was contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that the EG's technology is patented and EG has always retained its exclusive rights and only part of the technology was licensed to EIL for a limited period which was wrongfully sought to be taken away by EIL. Various decisions were cited as regards the rule that the Board should ordinarily direct buy out in favour of majority. On these and various other grounds EG presented its case. 24. Mehras contended that none of the prayers in Company Petition No.82 of 2011 filed by EG, could be granted as the conduct of EG was unfair and prejudicial. It was contended that the EG had indulged in acts of oppression of sudden stoppage of supplies, mismatch of supplies, withdrawal of guarantees, denying access to SAP server, refusal to infuse capital and refusal to give information on transfer pricing. It was also contended that inspite of the direction of this the Board to EG to file an undertaking that the data sought for will not be misused, EG did not furnish such undertaking. The charge of EG regarding Vaayu Companies was denied contending that none of the orders passed prevented the incorporation of such subsidiaries and no competing business was done. The Mehras cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or parting of ways valuation was necessary for which EG had refused to give an undertaking. The Board accordingly directed that one Mr. Hari Sankar Acharya, ExChief Commissioner of Income Tax be appointed as Facilitatorcumobserver. He was directed to sort out the issue of giving requisite information to the valuers. He was given complete immunity from any civil or criminal proceedings and all the parties were directed to cooperate with him. The Board appointed M/s Grant Thornton India Pvt. Ltd. at Mumbai as Valuers to value EIL and the subsidiaries as on 31 March 2006. The valuation was to be furnished to EIL with a copy to the Board. Even if EG failed to give requisite undertaking the valuation was to continue. On receipt of valuation report, the Mehras were to make remittances of the dues to EG within three months. The observer Mr. Acharya was directed to ensure smooth proceedings before the Valuers of EIL till the valuation was completed and EG's dues were cleared. Mr. Acharya was given liberty to mention the matter to apprise the Board and seek further directions if necessary. The Company petition No.82 of 2011 filed by EG was accordingly dismissed as not maintainable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was passed on 14 December 2012 running into 171 pages without dealing with various contentions. The learned member has merely reproduced the various contentions of the parties. The case laws cited by the Appellants have not been considered at all. (ii) The Board has dismissed the petition of the EG as not maintainable even though all the ingredients of Section 399 of the Act were satisfied. Inspite of the relevant ingredients missing from the Mehras petition, the same was allowed. The conclusion that the petition of EG was not maintainable was contrary to the observations made by the Board itself in the impugned order. Furthermore, by order dated 29 January 2009, the Board had observed that there is complete deadlock in the board and complete parting of the ways was the only solution and that Mehras should sell their shareholding. (iii) The Board could not have dismissed the petition as not maintainable. In the operative portion of the impugned order the Board has recorded that the petition of the Board requires to be thrown out at the threshold, despite of observing that the Board had no option but to dispose of both the petitions on merits in view of the order of this Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not establish that any of the acts of EG were oppressive and no case for oppression has been made out in the Mehra's petition. (viii)The Board completely lost sight of the settled legal position that in order to succeed in the charge of mismanagement, the Petitioner has to prove that it is the affairs of the Company which is conducted by the shareholders in a manner oppressive to some part of the members. The conduct must be burdensome and operate harsh and the position must continue till the date of the petition. To constitute an act of oppression there must be actions on one group of shareholder in respect of the affairs of the Company. Therefore Mehras had to demonstrate that the action complained by EG were in their capacity as a shareholder and those actions in the capacity of shareholder were oppressive to Mehras. (ix) The Board confused between the actions of EG in its capacity as a shareholder with the actions of EG as a technology provider. If at all any act of oppression is to be alleged, it will have to be established that the actions of EG as a shareholder were oppressive. No complaint can be made that the actions of EG as a technology provider is oppressive as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding of EG. The Board had no jurisdiction at all to arrive at such finding. Furthermore the issue regarding transfer of technology is being agitated in various courts and is sub judice. (xv) The direction to issue transfer of technology is not only not within the powers of the Board, the direction is issued without considering that the EG is a world leader in production and manufacture of wind turbines and Mehras were only involved in textile business earlier. (xvi) The Board could not, in absence of exceptional circumstances, direct the Mehras, the minority, to buy out EG, the majority. The normal rule is that the majority should buy out the minority. No exceptional circumstances are shown to order the buyout by minority of the shares of the majority. The Board failed to give effect to settled position of law and introduced a concept of de jure and de facto control, concepts which are unknown to law in respect of buy outs. (xvii) The Board proceeded on completely erroneously basis to order the valuation. Principles of natural justice were violated by the order of the Board by denying the copy of valuation report to EG and directing payment of consideration as per valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The amendment deprived EG of their affirmative vote on various issues and removed various restrictions on the powers of Mehras. The amendment unilaterally increased the limit for short term loan. This is a clear act of oppression by Mehras against EG. (iii) Between April 2007 to October 2007, fifteen illegal board meetings of EIL were held by Mehras, without giving notice to EG, which EG came to know first time in January 2008. The Board resolutions dated 26 April 2007 passed without notice to EG, gave sweeping powers to Yogesh Mehra. The powers were given to buyback and enter into other arrangement with customers who were close to Mehras. Powers were conferred to defend or institute legal proceedings on behalf of EIL and authorising themselves to take decision without approval of board. It has to be held that the illegal resolutions constituted oppression and mismanagement. (iv) These purported Resolutions were passed empowering Yogesh Mehra and Ajay Mehra to take various major policy decisions without the approval of the Board, terming them as day to day activities. None of the powers conferred by the said resolution could be termed as day to day activities. These resolutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's representative filed Criminal Revision Application in this Court and the stay was granted to further proceedings. However, the Mehras continued to press the criminal matter. All this was done by Mehras to pressurise EG by exposing its representative to the threat of arrest. This was also a serious act of oppression by Mehras. (x) The auditors, Deloitte Haskins and Sells, acted in connivance to defy the order dated 29 October 2009 of the Board the Board refused to provide EG, the majority shareholder, the requisite information as required by the EG despite of the order of the Board. (xi) The Mehras created various charges on the property of EIL on the strength of illegal meetings and resolutions and misappropriated the assets of EIL. Inspite of orders of The Board dated 29 October 2007 and 19 May 2008 granting interim orders, the Mehras procured various loans from bank and encumbered assets of EIL in contravention of the orders of the Board. Equitable mortgages on all immovable property for amount of Rs. 63 crores, hypothecation of entire assets of the companies for Rs. 25 crores, hypothecation of certain assets for 20 crores and modification of an earlier charge for Rs. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They also filed criminal proceedings only to harass EG. It was Mehras therefore, who instituted numerous frivolous and vexatious proceedings against EG. (xv) There is no substance in the allegations of Mehras that the EG initiated malicious correspondence to third parties so as to affect the business of EIL. These letters were written by EG only to protect it's intellectual property rights and contractual rights which were being misused by the EIL at the behest of Mehras and therefore the EG was justified in addressing such correspondence. The actions of EG were not as a shareholder and therefore, could not constitute an oppression. The Board did not consider this position of law and straightaway concluded that EG kept it's own interest above the interest of EIL. (xvi) The allegation of Mehras that there was stoppage and mismatch of supplies is also baseless. The Mehras filed a derivative suit for resumption of supplies wherein Mehras clearly alleged that these acts of EG were in violation of their contractual obligation. Even though the EG was under no obligation to supply after the expiry of the agreement, the EG continued to make supplies under impression that the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is lack of trust between two groups is established and only question was which group should be directed to buy out the other. The Board with a wellreasoned decision after giving detailed reasons has directed the Mehras to buy out the share of EG. The petitions were heard at length and the matter has been dealt with in detail and therefore, there is no reason to remand the matter which will put the parties to inconvenience. The EG is only interested in delaying the matters. The learned member had taken extensive notes of the arguments. Parties filed their written submissions and thereafter decision was given. The submission that the decision was taken in undue haste is without any basis. (ii) Though the Board stated that the petition by EG is not maintainable and deserves to be rejected at threshold, the Board decided the matter on merits and the discussion by the Board would demonstrate this fact. (iii) The Mehras have at the outset taken a stand that appointment of Mr. Acharya can be set aside and be substituted by any fit and qualified person by this court and no capital can be made out of this appointment by EG. The Board has provided for fair process of valuation. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of EIL was of manufacturing and marketing of wind turbines by undertaking turnkey projects. Accounts of these companies was included in the accounts of EIL. A SAP system was set up and EG had all time access to the transaction in India. Thus EG was in full knowledge of the functioning of EIL. (vii) No objection or any protest was made by EIL regarding any matter concerning the EIL. The EG was kept full informed of all the transaction in India in respect of management of EIL. It was for the first time in February 2007 that EG, only to create some dispute, demanded provision for 7.5% of total sales invoice with full knowledge that all the profits of EIL would be wiped out. (viii)There was no structured format for exchanging information and this would be done by representatives of EG and some time by visiting India for exchange of information. Mr. Yogesh Mehra would also visit Germany atleast twice a year. Statutory auditors would scrutinise the accounts. Minutes of the meetings were also sent. This functioning was recorded in the letter dated 23 February 2007 which was never denied by EG. (ix) The EG from time to time by addressing letters acknowledged and appreciated the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n July 2007 again supplies were stopped without any reason. These acts affected EIL and they were done by EG in its capacity as a shareholder. (xiii) EG thereafter withdrew corporate guarantees given on behalf of EIL to ABN Amro Bank. This was without notice to EIL and Mehras. When EG filed it's petition there was no mention of withdrawal of guarantees by EG. Mehras had pointed out that withdrawal of corporate guarantee without prior notice did serious damage to the EIL. The Mehras on the other hand, had given personal guarantees to the tune of approximately Rs. 540 crores. After filing the petition EG withdrew the SAP access / connectivity of EIL falsely claiming authorization for the access. This caused tremendous problems in the functioning of EIL. The access to SAP was essential for business operations of EIL. The action of EG was equivalent to a majority shareholder taking the books of accounts. The Board has therefore, correctly held that this action of EG amounted to oppression. (xiv) EG filed vexatious proceedings in Hamburg Court and obtained exparte injunction in respect of the alleged trademark infringement. The conduct of EG and its directors was in contravention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the parties. EG was kept fully informed of all the meetings. Amended Articles were forwarded to EG. They were also annexed by EG to its petition stating that there are amended articles. There is no grievance regarding the amendment to Article 170(a) in the petition filed by EG inspite of being aware of the amendment. Correspondence entered into between the parties would clearly show that EG was aware of the amendment to the Articles throughout. Even in the suit filed by Mehras in this Court the amended Articles of Association were annexed. Objection that no notice was given cannot be raised after such a long passage of time. In any case, the amendment cannot be termed as oppressive as powers exercised by Mehras pursuant to these amendments was for the benefit of EIL and could not be termed as oppressive. Similarly, there is no basis for the allegations that the Board resolutions dated 26 April 2007 were illegal and amounted to oppression. EG raised a grievance regarding board meeting of 26 April 2007 for the first time in Company application which was filed on 27 February 2008. (xviii)The issue regarding the Board resolutions was concluded by order of the Board dated 19 October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of majority shareholders. Letters sent to competitors were also in capacity of majority shareholders. The nominee directors of EG on the board of EIL chose not to further the interest of EIL. All the actions of Mehras were in the interest of EIL. (xxiii) The Mehras have been in day today management of the Company for 20 years. There have been no objections or protests regarding management of the Company. Mehras have adopted manufacturing of turbines to suit Indian conditions. EG has distanced itself from the Company and did not take part by appointing nominee directors. EG sought deletion of the word 'Enercon' and the name of 'EIL' had to be changed. (xxiv) It is not a settled proposition that the majority must buy out the minority even though majority is the oppressor. Various decisions interpreting Section 402 of the Act relied upon by EG are all distinguishable on facts. The Board has correctly appreciated the factual background and has directed that Mehras should buy out the stock of EG and this finding substantially subsists, should not be interfered. The allegations of EG regarding the valuation process is baseless. The Board has directed that the valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard with powers akin to Civil Court to summon witnesses, production of documents, etc. It was also felt necessary to ensure that the members of the Board have adequate qualifications in law and exposure to discharge their quasijudicial function more effectively. 34. The Board was initially under the control of the Central Government and this control was infringing upon its independence as a quasijudicial body. Various changes were brought about by the Companies Amendment Act, 1988 as regards the powers and functions of the Board. This amendment was preceded by setting up of a committee who submitted its report. The committee noted that there was need for a quasijudicial Tribunal, independent of the executive authority of Central government, not only to ensure that the affected party is heard but also the decisions are seen to be taken judiciously and without interference. The committee recommended that the Board should be an independent quasijudicial body similar to IncomeTax Appellate Tribunal, with its benches at different places. The Act was amended in 1988 to establish a Company Law Board with independence to exercise judicial and quasijudicial functions. This was the backgro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the affairs of the Company are being conducted in a manner prejudicial to the interest of the Company and public interest or any change has been brought about resulting in prejudice, the Board can pass such orders as it deems fit. Substantial body of law is developed in England and in this country regarding the concepts of Oppression and Mismanagement in a Company. There are various decisions both in English and of Indian Courts laying down parameters as to what would constitute oppression and mismanagement and under what circumstances a relief can be sought. 37. Section 402 lays down the powers of the Board for dealing with the situations under Section 397 and 398. On an application under Section 397 or 398, without prejudice to generality of powers, the Board can pass orders regulating the conduct of the affairs of the Company in future. It can direct purchase of share or interest of member by other members. The Board can, in case of purchase of shares consequent reduction in share capital, terminate, set aside and modify any agreement between the company and it's managing director, director, managing agents, secretary, treasurer or the manager on equitable terms, after gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted or rejected. Care needs to be taken that no litigant goes with a feeling that the procedural justice was not followed. Keeping in mind this statutory frame work, the role the powers and responsibility of the Board and the expectations of the litigant from it, the grievances made by the EG needs to be considered. 42. The first grievance made by the EG is that the Company petition No.82 of 2011 filed by EG was dismissed as not maintainable inspite of observing that in view of the directions of this Court there was no option but to dispose of the petition on merits. It is the contention of the Mehras that though the Board did state that the petition is dismissed as not maintainable, but in fact, the Board has dealt with the petition of EG on merits. 43. There is no doubt that if the petition filed by EG is found to be dismissed as not maintainable and it is shown that the petition was indeed maintainable and deserved greater scrutiny, then it will have serious effect on the outcome of the litigation. There is no debate that the Board in the impugned order has stated that the petition filed by EG 'deserves to be thrown out at the threshold' and is 'not maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or members holding not less than 1/10th of issued share capital. In case of company not having share capital right is conferred on not less than 1/5th of total number of members. The Central Government is also empowered to authorise any member of a company to apply to the Tribunal under Section 397, 398 of the Act, even if requirements of requisite member are not fulfilled, subject ofcourse to certain conditions. No other requirement regarding maintainability of a petition is shown except the one laid down in Section 399. The EIL is company having share capital. The EG's share is 56% and therefore, EG clearly fulfilled the requirement under Section 399. If the requirement under Section 399 was not fulfilled the EG's petition could have been dismissed at the threshold, as stated by the Board. The petition therefore was maintainable and the finding of the Board taken in the first sense is therefore, completely perverse. 46. Now to the second aspect, that is to examine whether the petition was not maintainable as no cause of action was pleaded by EG to invoke section 397, 398 of the Act. It may be possible to not entertain the petition which is bereft of any particulars wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the EG's petition was first in time. 47. If the petition presented by EG is to be considered, no reasonable person would ever come to a conclusion that it had no particulars whatsoever and therefore it was not maintainable and required to be rejected at threshold without scrutiny on merits. All the adequate particulars which would constitute a cause of action for invoking these sections and the legal requirement of the Petitioners holding the requisite number were satisfied. The petition therefore, could not, in any circumstances be described as not maintainable for lack of particulars. What is further startling is that the Board also mentioned in the impugned decision that in view of the direction of this Court both, the Petitions will have to be decided on merits. Yet the learned member proceeded to state that the petition of EG was not maintainable and required to be dismissed at threshold. This is a completely perverse approach. 48. Now to the third scenario. This is the position urged by Mr. DeVitre, that mentioning that the petition is not maintainable is a mere error and in fact the Board has dismissed the petition of EG on merits. If the petition is dismissed on mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance was placed on the decisions in the cases of Chatterjee Petrochem vs Haldia Petrochem [(2011) 10 SCC 466]; Incablenet (Andhra) vs AP Boradband [(2010) 6 SCC 719]; Radha Raman vs Chandra Sikhar Raja [(2008) 6 SCC 750]; Kamal Kumar Datta vs Ruby General Hospital [(2006) 7 SCC 613] and Hanuman Prasad Bagri and Ors. Vs. Bagress Cereal Pvt. Ltd. [(2001) 4 SCC 420]. This ground was taken by the EG in their reply to the petition filed by EIL as well as in their submissions before the Board. This was an important point. Surprisingly there is no consideration of this major argument advanced by EG. 52. EG had urged that Mehras had unauthorisedly altered Articles of Association and it was one of their main ground to allege oppression. It was urged by them that alterations were made by Mehras in the Articles of Association with a sole purpose of acquiring more power and reducing the role of EG in EIL. It was EG's case that they came to know of such unauthorised alteration only after filing the company petition. EG raised this ground in their reply to the petition filed by Mehras. Both the parties urged their rival contentions on this issue and filed rejoinder and written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of oppression urged by EG has not met the scrutiny it deserves at the hands of the learned member. That ground was the assertion of illegality of both resolutions dated 26 April 2007. According to EG this board resolution passed without notice to EG gave wide and substantial powers to Yogesh Mehra. The powers were conferred to defend and institute legal proceedings and decide various matters, without approval of board of directors. Company application No.629 of 2010 was filed by EG seeking a stay on the resolution. Both the parties submitted their pleadings and also written submissions on this issue. It was urged by EG that the board resolutions were illegal as they did not conform to the statutory requirements and judicial decisions. Serious allegation was made by EG that the fact that board resolution was not disclosed made it a suspicious document and the said purported resolution was backdated to circumvent the interim order passed by the Board on 29 October 2007. 55. It was urged by EG that if the board resolution gave powers to Mehras to institute litigation on behalf of EIL then there was no need for Yogesh Mehra and Ajay Mehra to file Suit No.2667 of 2007 in a deriva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included in valuation exercise was a matter for the purpose of valuation and that by itself could not provide an answer to the charge of oppression. The controversy as to whether the Vaayu companies were incorporated to defeat the rights of EG, what were their shareholding composition, whether they were formed to further subcontract proprietary technology, were some of the issues which arose for consideration. The learned member found it not necessary to delve deeper in this controversy as according to her once Mehras offered that the Vaayu companies be included in valuation exercise, the issue lost its seriousness. However, the learned member completely lost sight of the fact that this was a ground on which oppression was alleged by EG and therefore, it was incumbent on her to decide this issue considering in that context. 57. EG had also made a grievance that auditors had refused to provide requisite information and they had committed contempt of the Board's order. Company Application No.67 of 2010 and No.68 of 2010 were filed by EG making an allegation that company's auditors were in collusion with the Mehras to prohibit EG from obtaining necessary information. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember. Each of the heads of oppression as alleged, constitute a serious charge and required a detailed discussion. What one finds is that the learned member has simply upheld the explanations of Mehras and has drawn direct conclusion and has dismissed the petition of EG as 'not maintainable'. EG in it's oral argument in this Court as well as in written submissions has advanced submissions on merits without prejudice to their contentions that the matter needs to be remanded to the Board. When both the parties have filed their petitions attributing oppression and mismanagement against each other and the petitions were heard together, then nonconsideration of grievance of one party will vitiate the proceedings, and the relief granted in favour of other party, which is an outcome of such decision also therefore, will not be sustainable in law. I therefore find merit in the claim of EG that its petition was not decided on merits at all. 60. Now turning to grant of relief in the petition filed by Mehras. Serious grievance was made by Mr. Sarkar and Mr. Kamdar that not only the petition filed by EG has been rejected without any reasoning and without addressing to the vital po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er again reached direct conclusion that EG, by entering into correspondence with the bankers attempted to destroy EIL. Various contentious issues raised by the parties have not been addressed to. It was EG's contention that EG was not obliged to provide financial support and the obligation was cast on Mehras and inspite of repeated requests critical financial information sought for was not supplied by Mehras to EG. It was their case that financial status was not candidly shared with EG. EG believed that the accounts of the Company were tinkered with to defraud the bankers and Mehras themselves withdrew their personal guarantee. Thus, a substantial area opened up for scrutiny as to what was the role of EG in respect of finances and securing bank guarantees and whether the parties fulfilled their respective obligations. Instead of undertaking this scrutiny, learned member summarily concluded that the act of withdrawal of bank guarantees was for destroying EIL. 65. Same treatment was given to the issue of access to SAP server. It was the allegation of Mehras that they were blocked from accessing SAP which severely impaired the ability of EIL to function. On the other hand, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valuation. No such exercise is carried out by the learned member. The grievance was also made that Respondent No.33 and 35 have been removed from valuation exercise without any reason. 68. A grievance was also made by EG that the various company applications, which were pending, were simply disposed of along with main petition. One finds no specific reasoning as regards each of the applications, discussion on the reliefs prayed therein and what would be the resultant consequences of these applications. Though Mr. DeVitre sought to urge that the impugned decision has broadly touched all the reliefs claimed in these Company applications, it is expected of the learned member to deal with each of the applications which were framed for specific reliefs. In absence of dealing with the applications individually their disposal in such a summary manner cannot be accepted and cannot be considered as a disposal on merits. This is also one of the grounds on which EG has sought that the matter be reconsidered by the Board. 69. Now to the serious grievance made by EG. That is regarding the manner in which the litigation was conducted by the learned member of the Board. The counsel have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es presented their written submissions. Submitting the detailed written submissions has now become a common practice in the matters involving voluminous record. Generally the hearing, even in this Court, takes place on adjourned dates, as sometimes it is not possible to give day to day hearing. Many times at the request of the counsel or for some other reason, day to day hearing cannot be held. In such a situation the counsel generally piece together all their oral arguments advanced in a truncated manner in the form of written submissions. The presiding officers also find such such written submissions useful when the hearing takes place over various dates. Generally therefore, when the written submissions are submitted and the arguments are closed, it is but natural that the member would take some time to go through the written submissions and then arrive at the verdict. This process takes some time if one has to assimilate what is narrated in the written submissions. 72. In the present case the learned member closed the arguments on 27 November 2012. Detailed written submissions were filed on 11 December 2012 at 1.00 p.m. The learned member passed the impugned order of 130 pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pleadings of EG. From paragraph 21 to 38, the learned member refers the arguments made on behalf of EG. Paragraph 39 refers and reproduces passages from the decisions cited by EG. Again from paragraph 40 to 53 the arguments made by EG are referred. Paragraph 54 to 84 reference is made to the arguments made on behalf of EIL and Mehras, the decisions cited by them and several facts and figures. Sometimes conclusions are drawn and operative order follows. It is difficult to ascertain where the arguments end and where the reasoning starts. 76. Both the parties had relied upon number of judicial pronouncements interpreting the various positions of law. The topic of oppression and mismanagement is of cardinal importance in the field of corporate management and has been subject to detailed scrutiny by various high courts, the Apex Court and the English courts. There is a vast body of judge made law which has laid down intricate nuances of these concepts. The ratio of the superior courts are binding on the authorities below it and the observations also provide a guidance to decide the case in hand. It is for this purpose that the parties cite and rely upon case laws. The parties adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady placed on record. But as one goes along analysing the impugned decision and finds various such seemingly innocuous lapses falling in a pattern substantiating the charge of nonapplication of mind and lack of fairness in decision making, then this point cannot be ignored. The purpose of this chart was to highlight the litigation instituted by the rival parties. Allegation of oppression was on the ground of needless litigations. Thus it was necessary to have have a balanced picture of the rival litigations. At a casual glance the reader gets an impression that EG instituted sixteen proceedings in different courts while Mehras instituted only six. The proceedings instituted by EG for patent infringement in different courts have been specifically listed. However when it came to Mehras chart, 47 Revocation petitions have been clubbed under one serial number as Revocation petition. It is not the question of what would be the impact of instituting such litigations on the charge of oppression, but the point here to note is that the way the chart has been reproduced by the learned member gives a completely distorted picture of the cases filed. If filing of cases against each other was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member concluded that Mehras succeeded in making out a case that EG's hands are unclean and EG's petition deserves to be thrown out at the threshold. The learned member rejected the contention of EG based on order dated 29 January 2009 holding that this order was merely interlocutory. The learned member also held that the Mehras specific allegations remained uncontroverted and thereafter proceeded to decide who would buy out the shareholding of the other group and appoint a valuer and a observer. 80. The appointment and choice of the observer made by the learned member is rather disturbing. The learned member has appointed one Mr. Hari Shankar Acharya, Ex Chief Commissioner of IncomeTax, with unfettered powers, immunity from all civil and criminal liabilities. Mr. DeVitre thought it fit to disassociate himself from the appointment of Shri Acharya stating that at the outset itself that Mehras are not insisting on Mr. Acharya and any other suitable observer can be appointed by this Court. This will not be of much relevance as in any case ultimately the choice has to be left to the Court and a party cannot insist on one particular individual. What is relevant is the suo motu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2012 dated April 9, 2013.] 82. Therefore, if one takes overall view of the decision, it clearly appears that the manner in which the learned member has proceeded to record conclusion and pass the operative order does not indicate that there was an application of mind and there is substance in the charge of extreme hurriedness and lack of fairness in decision making. 83. In light of the above it is contended by Mr. Sarkar that the matter needs to be considered de novo by the board. It was contended by Mr. DeVitre that though the learned CLB though has stated that petition of EG is dismissed as not maintainable has in fact dismissed it on merits after considering all aspects. He submitted that even the petition of Mehras has been considered in all aspects and an equitable order has been passed. He submitted that in any case there will have to be parting of ways and therefore, the only question that would remain is who should buy out whom and that question can be decided by this Court. He submitted that it is not necessary to remand the proceedings back to the Board, since all the record is before the Court and remand will only further an additional avoidable expenditure. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst a party. No impression be given that the issue was predetermined and something was amiss in the decision making. Though extent to which principles of natural justice will apply will vary from Tribunal to Tribunal, there can be no compromise on the adherence to concepts of procedural justice. One of the cardinal requirement is that the decision rendered must be a reasoned decision. An unreasoned decision may ultimately be correct but it is not so to the party which has lost. Giving adequate reasons in support of the decision removes unfairness from the decision making process. The adherence to these principles retains the faith of litigating public in judicial and quasijudicial proceedings and in no terms they can be compromised. There is no reason why the Board is not required to scrupulously adhere to principles of fairness especially considering the wide powers it enjoys. CONCLUSION 86. If all the points taken cumulatively and the entire effect of the impugned decision and the manner it is rendered is considered, makes out a case for remand of the proceedings to the Board. In my opinion, therefore, the impugned order needs to be set aside and the petitions needs to be reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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