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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 ..... ejeebhoy a/w Mr. Vivek Vashi, Ms Kanika Sharma, Mr. Hrushi Narvekar, Mr.Krishnendu Sayta, Ms Shaheda Madraswala i/b M/s Bharucha Partners, Mr. Sudipto Sarkar Senior Advocate, Mr. Navroz. H. Seervai Senior Advocate, Mr. Zubin Behramkamdin, Mr. Jehangir Jejeebhoy a/w Mr. Vivek Vashi, Ms Kanika Sharma, Mr. Hrushi Narvekar, Mr. Krishnendu Sayta, Ms Shaheda Madraswala i/b M/s Bharucha Partners For the Respondent : Mr.Fredun DeVitre, Senior Advocate a/w Mr.Nikhil Sakhardande a/w Ms.Swagata Naik a/w Ms Sonali Mathur, Ms.Priyanka A.Shetty i/b AZB Partners JUDGMENT : INTRODUCTION These two Company appeals arise from the common order passed by the Company Law Board, Mumbai bench, Mumbai dated 14 December 2012. The parties and the issues raised 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 1994. A Technical Know How Agreement was also entered into between the parties. The Shareholders Agreement executed on 12 January 1994 was between Enercon Gesellschaft fur Energieanlagen mbH Co. i.e. EG and Mr. Yogesh Mehra, acting for himself and his family members. The Agreement stated that the Mehras have incorporated a Company, Enercon India Limited , having its registered office at Mumbai, Maharashtra and the Mehras have requested EG and the EG has agreed to supply technical knowhow and assistance for manufacturing, marketing of Wind Turbine Generators and components excluding Wind Turbine Controllers and parts. The authorised share capital of the EIL was to be 22.500.000 Rupees (twenty two million five hundred thousand Rupees), divided into 2,250,000 Equity shares 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 wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective date or from 7 years from the commencement of production. In the contingency of EG withdrawing its shareholding, EIL was to retain right to manufacture the products in India and the technical knowhow already transferred. 8. The Reserve Bank of India gave its Inprinciple approval. The permission for conversion of loan into equity was received from Government of India, Ministry of Finance and from Government of India, Ministry of Industry. A Supplementary Shareholders Agreement was executed on 19 June 1998. The share capital of EIL was increased in the year 2000. The general permission from Reserve Bank of India was received. The EG subscribed additional 1.26 million Equity shares and the Mehras subscribed to additional 0.99 million Equity shares. A further Supplementary 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At that time EG realised that the Mehras were trying to deceive them by inflating the price of shares of EIL. Mehras concealed vital information regarding EIL from EG. Management related information was not given. Inspite of technical knowhow agreements, the finances of EIL were hidden by the Mehras. The EIL is a joint venture between EG and Mehras and the foundation of the EIL was the innovation and inventions of Dr. Aloys Wobben, the chairman of EG. The relations between Dr. Wobben and Mr. Yogesh Mehra were excellent and thus Dr. Wobben put his full trust in him. By the year 2005, it became apparent that EIL was in need of funds and EG was ready to infuse funds. Mehras however avoided to infuse funds in EIL. Mehras stated that they would make it a zero debt Company. Though in the month of May 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. Instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted. The Mehras should be directed to transfer their shareholding of 44% upon independent fair valuation. 12 EG in Company Petition No.82 of 2011 made the following prayers (a) Pass appropriate orders and directions removing the Respondent Nos.2 and 3 from the positions of Managing Director and Whole Time Director respectively of Enercon (India) Limited. (b) Pass appropriate orders and directions removing the Respondent Nos.2 and 3 from the positions of Managing Director and/or Whole Time Director and respectively of the said subsidiary and associate companies of Enercon (India) Limited. (c) Direct that the Articles of Association of Enercon India shall stand amended, in particular Article 171, 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. (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) Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompromise efforts had failed and matter needed to be heard on merits. By order dated 19 May 2008, the Board directed that no board meeting to be convened without the leave of the Board. Reply by Mehras to the Company Petition No.82 of 2011 14. On 4 July 2008, a reply came to be filed by the Mehras opposing the Company Petition No.82 of 2011. The case of Mehras in their reply, briefly was as follows : (i) Since the inception, the work of Mehras has been very good and EIL has been successfully managed. The turnover of EIL as on 31 March 2007 is ₹ 2200 crores. Profit after tax was estimated upto ₹ 82 crores. It was only since May 2006 that grievances were started being raised by EG. In fact EG on various occasions had praised the Mehras for conducting EIL smoothly. (ii) In the petition EG has suppressed various material 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 orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of deleting the Article 171 as there was no case of mismanagement made out. IPLA was a draft document and was not a concluded contract. As recent as 2 October 2006, letters of oppression were given to Mehras by EG. There being no mismanagement or oppression, petition was liable to be rejected. Company Petition No. 83 of 2011 of Mehras 15. Thereafter the Mehras filed a Company Petition No.83 of 2011 (renumbered from Company Petition No.74 of 2008). The case of Mehras, after narrating basic facts, in this petition was in short as under (i) The EG in its capacity as a majority shareholder committed various acts of oppression. The EIL was being managed by Mehras competently and there was no complaint by EG in respect of the management by the Mehras. The EG with an intention to force exit on Mehras made an attempt when deciding to purchase 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 157, and EG should transfer their entire shareholding to Mehras at a fair value. 16. Accordingly the Mehras in the Company petition made the following prayers- a) Direct that Respondent No.1 be obliged to comply with the Agreed Principles executed on September 29, 2006 between Petitioner No.1 on behalf of Respondent No.2 and Respondent No.3 on behalf of Respondent No.1 in particular continuous supply of parts, components, raw materials and special components as per the pricing parameters as had been agreed on; b) Pass appropriate orders and directions removing Respondent Nos.3 and 4 from the board of Respondent No.2 owing to their acts of breach of fiduciary duties to Respondent No.2 as pointed out in the body of this petition; c) Direct that Respondent Nos.1, 3 and 4 be enjoined and restrained from representing to any third party, banks, financial institutions 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 ₹ 112 crores into Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld more than 15 illegal meetings between April 2007 to October 2007 without notice to EG. Through these illegal meeting Yogesh and Ajay Mehra assumed wide powers. The Mehras concealed that certain subsidiaries were created. (vi) The Mehras adopted dilatory tactics in respect of the audit. The auditors did not comply with the orders of the Board. The conduct of the statutory auditor to EG was not fair and was only to support the Mehras. The Mehras manipulated accounts to falsify credit ratings, high inventory of almost 120 fully finished products was maintained to causing EIL to commit violations of taxing statutes. The Mehras, by keeping EG in dark, created huge debts and committed misappropriation of assets of EIL. The profits of EIL were artificially increased. 18. The averments made in the petition by the Mehras were dealt with by EG parawise, and in consonance with their stand enumerated earlier, 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 wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by this Court in Company Appeal No.91 of 2009. It noted that undertaking as contemplated by the order passed by this Court was not filed in Company petition. The submission of EG that undertaking was not required was rejected in view of the order passed by this Court. By order dated 23 November 2011, the Board directed EG to furnish undertaking in view of the order. The appeal filed by EG challenging the order dated 23 March 2011 was dismissed. Thereafter EG filed a special leave petition in the Apex Court, which was also dismissed. The EG furnished an undertaking, which according to it, was in substantial compliance of the direction of this Court. 21. Before the Board the petitions were extensively heard. The EG contended that the Mehras in conducting the affairs of the EIL had committed acts of oppression and mismanagement and the Mehras alleged that the EG has acted oppressively against the interest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition is not maintainable as no case is made out of oppression by shareholders via the business and management of EIL and the complaint made must relate to the affairs of the Company. It was urged that the acts of oppression complained against EG were not in the capacity of shareholders and independent acts of EG as technical knowhow provider could not come under the concept of oppression. As regards the allegation made by Mehras, the EG contended that the issues regarding transfer pricing and other contractual disputes are subject matters of dispute before other forums. It was contended that no shareholder can be forced to infuse funds. It was further submitted that in view of conduct of Mehras of downloading of data from SAP server that EG had to take protective action. The Mehras had also withdrawn their personal guarantees from various banks when EG withdrew its guarantees, there is no question of any oppression. It 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 regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L will not be financially affected and the Mehras are best suitable to carry on with the EIL. These were broadly the submissions made by the Mehras before the Company Law Board (the Board) with dismissal of EG's petition and for grant of relief in their petition. Impugned order of the Company Law Board 25. By the impugned order dated 14 December 2012, the Board dismissed the Company petition No.82 of 2011 filed by EG stating it as not maintainable. The Company Petition No.83 of 2011 filed by the Mehras, was allowed with various directions. The Board found that the Mehras had made out a case of oppression by the EG and that parting of ways could not be avoided. The Board came to the conclusion that it would be in the interest of EIL and the shareholders that EG should go out of EIL. It held that even though Mehras were in the minority, giving EIL to EG will be rewarding the wrongdoer. The Board further noted that for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore remanded back. Mr.Kamdar, without prejudice to the submissions of Mr. Sarkar, advanced submissions on merits in case the prayer of remand was not accepted. According to him the Mehras petition was liable to be dismissed and EG's petition needed to be allowed. Mr. DeVitre supported the impugned decision of the Board to contend that there is no nonapplication of Board and there is no need for remand and the order of the Board was fully justified. Submissions on behalf of EG. 29. Mr. Sarkar learned Senior Advocate in brief submitted as Under (i) The impugned order was passed by the learned member of the Board in haste. The order suffers from nonapplication of mind and having not addressed itself to the merits of the contentions. The order is perverse and contains errors on the face of it. The arguments were closed before the Board on 27 November 2012. The Written submissions were filed on 11 December 2012 and the impugned order 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hra's shares at inflated prices. Thus having observed that the petition has to be heard on merits, nonconsideration of all the above grounds would make the order perverse and liable to be set aside on the ground of nonapplication of mind. (vi) The Company Petition filed by Mehras under Section 398 of the Act was not maintainable against EG, the shareholders, who were not in active management of the Company. The requirement of Section 398 of the Act is that the act of mismanagement must be attributable to the shareholders who are in management of the Company and against only such shareholders that the petition making grievance of mismanagement can be filed. (vii) Not only factually EG was never in management and the Mehras were in management, this position is also made clear in the Articles of Association of EIL. Inspite of raising this point which goes to the root of the claim made by Mehras the Board did not deal with the issue. The Mehras also did 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not address itself to this basic issue, the impugned order therefore, suffers from nonapplication of mind. (xiii) While listing out the proceedings initiated by Mehras and EG, the learned member of the Board did not mention the suit for stoppage of supplies, being Suit No.2667 of 2007, filed by Respondent No.2 and 3 for very same relief in this Court and various proceedings instituted by Mehras were clubbed under one head. The Board passed orders in the petition filed by Mehras, which are beyond the scope of Section 402 and 403 of the Act. While granting relief under Section 402, the Board recorded findings on validity of the IPLA, transfer of technology, stoppage of supplies. Once the Board itself had agreed that these disputes will not form part of the proceedings before the Board, the Board could not have given findings on merits of the same. (xiv) The Board could not have directed transfer of technology to Mehras merely because they were permitted to buy out the 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 direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shold. Considering these facts this is a fit case where the order of the Board be quashed and the matter be remanded back for fresh consideration. 30. Mr. Kamdar, learned Senior Advocate on behalf of EG contended in brief as under (i) Firstly, that the impugned orders ought to be quashed and set aside and the petition filed by the EG needs to be restored to the file to be heard by the Board afresh on merits. If this prayer is not acceded to, relief be granted in favour of EG as prayed for in their Company petition as the various acts of the Mehras constituted oppression and mismanagement on their part, and Mehras petition be dismissed. (ii) The Mehras unauthorisedly altered the Articles of Association to enable them to run the EIL in a manner they wanted. The amendments were carried out unauthorisedly, disregarding the special rights of EG. The Article 170A of the Articles of Association was amended without notice to EG and this clearly constituted an act of oppression against the EG. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mehras incorporated Vaayu Companies with similar structure of EIL, with a clear view to defeat the rights of EG. (viii) The Mehras fraudulently funded these Vaayu Companies with a shareholding pattern as out of which 11 Vaayu Companies had shares belonging to Mehra group and not of EG. The Mehras transferred the benefits to the 11 Vaayu companies in which they and their family members were the sole shareholders. The Vaayu companies were established with a view to siphon out the funds of EIL and to misuse the technology and disintegrate and destroy the EIL. These Vaayu companies were incorporate to pervert the process of valuation and to transfer the technology without any authority. The act of incorporating these Vaayu Companies was gross act of oppression of Mehras. (ix) When the EG's representation had come to India and were staying at Taj Mahal hotel, on 1 September 2008, officers of the Economic Offence Wings, in connection with a complaint filed by Mehras, interrogated them for six hours. EG'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 matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 397. The Board, after holding that such contractual disputes are outside the purview of petition under Section 397 and 398, went on to adjudicate them. The relief sought for by Mehras in their petition are clearly contractual and on this reason alone the petition filed by Mehras was not maintainable and should have been dismissed. Even assuming that the petition was maintainable, none of the allegations made by Mehras had any substance and none of them constituted acts of oppression on the part of EG. (xiv) The allegation that EG initiated spate of litigations against the Mehras to throttle the Company are baseless. Mehras misused and infringed the patents and technology license by EG and committed breach of the Technical KnowHow Agreement and in the circumstances to protect it's contractual and intellectual property rights EG had to institute various litigations. EG had, in fact, invoked arbitration clause, however instead of cooperating with the same Mehras filed Civil Suit and obtained certain interim orders. They also filed criminal proceedings only to harass EG. It was Mehras therefore, who instituted numerous frivolous and vexatious proceedings against EG. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to put funds in the Company when it was needed. The Mehras mismanaged the Company and presented wrong picture to induce EG to purchase portion of Mehras shareholding at an inflated value. The allegation of Mehras regarding transfer pricing was based on speculation and there was no real impact due to increase in prices. EG had increased the prices of only one item out of many that were being supplied that too on account of a global price rise. The Mehras created various charges without leave of the Board inspite of the order passed by the Board. The Mehra's petition requires to be dismissed and EG's petition be allowed. Submissions on behalf of Mehras 31. A summary of arguments of Mr. Fredun DeVitre, on behalf of the Mehras as under (i) The EG has levied unfair allegations against the learned member of the Board that she misconducted herself. The Board has reproduced the written submissions and there is nothing wrong in the same as it is a matter of convenience. Adequate reasons have been given and the basic position that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Directors would consist of four directors, two directors from each shareholder group and in case of deadlock, chairman was to have casting votes. The EG did not at any time prior to filing of the petition choose to exercise its rights to appoint any alternate director and a Joint Managing Director as it was entitled to under the Articles. (vi) The daytoday management was carried on by the Mehras with the consent and knowledge of EG. The EG invested amount of ₹ 3.78 crores for its 56% equity shareholding. The Mehras invested ₹ 2.97 crores. There were four relevant time periods. Firstly, from 1994 to January 2004 i.e. till the technology transfer agreement expired by efflux of time. Secondly, February 2004 to January 2007. Thirdly, from February 2007 to August 2007 when EG filed it's agreement and fourthly, after August 2007 when Mehras filed the petition. After 1994 when the joint venture was set up there was no grievance or objection raised by EG in respect of functioning of EIL. Various subsidiary companies were set up as the main business of EIL was of manufacturing and marketing of wind turbines by undertaking turnkey projects. Accounts of these companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same price. The Mehras refused to sell at such a low price. (xii) As a consequence thereafter EG took various steps to suppress the value of shares. The EG thereafter as a majority shareholder stopped the supplies to EIL. There was no prior intimation of stoppage of supplies. The stoppage of supplies was ordered by Dr. Wobben as a main shareholder of EIL which is clear from the correspondence. The Board therefore, correctly held that stoppage of supplies by EG was in its capacity as a shareholder. The Mehras then sent such information which was sought for by EG. Supplies were resumed in March 2007 since information sought for was furnished. Again correspondence received in reference to the discussions that took place on 24 February, 2007 were as parties had agreed for termination of partnership in EIL. Due diligence was carried out and all the information was supplied. On 5 May, 2007, the Mehras wrote a detailed letter setting out the illeffects regarding introduction of the E40 model and according to the Mehras it was not in the best interest was the Company. In July 2007 again supplies were stopped without any reason. These acts affected EIL and they were done by EG in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of a fresh valuer since EG refused to give an undertaking, EG filed an appeal in this Court which was rejected, Special Leave Petition filed by EG was also dismissed by the Apex Court. After the completion of hearing EG made an application calling upon the Board to accept modified form of undertaking which was rightly objected to by the Mehras. The entire conduct of EG was not bonafide and in breach of the orders passed by the Board and this Court. EG therefore, is not entitled to any equitable relief. (xvi) EG misused the information supplied by the Mehras and entered into correspondence with the suppliers, vendors, even competitors to discredit EIL and to create a blockade so as to ensure maximum harm is caused to EIL to bring the business of EIL to close and in order to depress the value of the shares. (xvii) There is no substance at all in EG's allegations of oppression and mismanagement by Mehras. There was no unauthorised alteration of Articles of Association as alleged. Amendment to Article 170(a) was carried out in the year 2003 when there was no dispute between the parties. EG was kept fully informed of all the meetings. Amended Articles were forwarded to E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not provide for closure of activities of the Company. There is absolutely no substance in the allegation that Mehras instituted vexatious criminal proceedings. Mehras bonafide pursued remedies available to them in law. (xxii)The contention of EG that allegations against EG were not maintainable as they were not in day to day management is incorrect. Section 397 does not have a concept of minority or majority shareholders. Being in fact in control and in law being in control, are settled legal propositions. The directors can act oppressively by doing nothing to defend the interest of the Company when certain action is warranted. Section 397 also contemplates a situation where a shareholder who may not be in active management of the Company can be guilty of oppressive conduct against other shareholders. The stand of the EG that its actions were not in the capacity of majority shareholder is incorrect. The stoppage of supplies were in the capacity as majority shareholder, withdrawal of corporate guarantee and addressing correspondence to customers, bankers, suppliers were all in capacity of majority shareholders. Letters sent to competitors were also in capacity of majority s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plex issues arose for consideration. The grievances made by EG are serious and cannot be brushed away simplicitor. Such grievances ultimately have a bearing on the faith of the litigants in the decision making of the Board. It is therefore necessary to consider the various statutory provisions regarding the role and functioning of the Board and the grant of relief under Section 397, 398 and 402 of the Act to appreciate the decision making process of the Board. 33. The Company Law Board is established under the Companies Act 1956. It was found desirable to set up a Board for convenient administration of Companies Act. Until 1 February 1975, the Board functioned as a delegate of the Central government. By the Companies Amendment Act of 1974, the Board was empowered with certain functions, which were earlier with the Courts. Later on it was found necessary to increase the strength of the Board so that the Board could decide all the matters which were transferred from the Court, by forming benches. To enable it to discharge the quasijudicial functions more effectively, it was found necessary to empower the Board with powers akin to Civil Court to summon witnesses, production of docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 397 and 398 of the Act, any member of a company can apply to the Board in case of oppression and mismanagement in respect of the affairs of the Company by the other member or members. Under Section 397 any member can approach the Board complaining that the affairs of the Company are conducted prejudicial to public interest or causing oppression to any member or members. The Board can remedy the situation by putting an end to the oppression if it is of the opinion that the Company's affairs are being conducted opposed to public interest and oppressive to other member of members, and though case for winding up of the Company is made out, it will be unjust to such member or members who is complaining of oppression to wind up the company. Under Section 398 any member can bring to the notice of the Board that the affairs of the Company are being conducted prejudicial to public interest and to the interest of the Company and that there has been a material change in the management and control of the Company which is likely to affect the affairs of the Company prejudicially. The Board, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred on the Board in the matters relating to a company. Considering such wide powers, it is axiomatic that they must be exercising in fair, transparent and judicious manner. Directing a buyout of a group of shareholders and ordering their exit from the Companies is serious for such members. For them it is end of their association with the company. 40. It is obvious, considering the nature of proceedings and the implications of the outcome, that the litigants expect that they will be dealt with fairly by the Board. The orders of the Board have farreaching effect on the affected parties. The Board which was once an authority to oversee the provisions of the Act working under the supervision of the Central government, is now, by various amendments, a body with the attributes of a judicial body. The strict parameters of conduct as applicable to a judicial body are desirable to be followed by the Board. 41. One of the fundamental attributes of the judicial functioning is the procedural justice. It requires that viewpoints presented by either parties are addressed, cogent reasons are given as which argument and why it is accepted or rejected. Care needs to be taken that no litig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrown out at the threshold'. It is not expected of the Board to use such important phrases casually. It is not expected of the appeal Court to look for meanings and hear debates on what the learned member actually meant. Even though the above three positions cannot coexist, I will now consider whether the learned member was right in any of these respect. 45. First aspect is as to whether the Board was right in holding that the petition of EG was 'not maintainable' and 'deserved to be thrown out at the threshold,' taking the phrases as they are used. Chapter VI of the Act deals with prevention of oppression and mismanagement. This Chapter contains Section 397 and 398, which have been referred to earlier, deal with petitions of the members making a grievance regarding oppression and mismanagement. The right to approach the Board under Section 397 and 398 is conferred subject to conditions laid down in Section 399 of the Act. In the case of company having share capital, the right to apply under Section 397, 398 is on not less than 100 members and not less than 1/10th of total number of members whichever is less, or members holding not less than 1/10th of issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... started making more inquiries various tactics came to light. It is pleaded that Mehras tried to justify the poor performance while giving assurance, however none of the assurances were followed up. It is stated that various issues arose regarding the financial practices and as a part of ongoing legal discussions. Mehras offered to sell their shareholding and thereafter went back on their commitment. It is urged that the valuation produced by Mehras was highly inflated. The EG further alleged malafide conduct on the part of Mehras to conceal state of affairs from it. It is alleged that high inventories and stock in transit were maintained. Thereafter it is alleged that the Mehras recklessly proceeded to deny the IPL and take various steps in contravention of the agreement thereunder. The EG summarised the acts and oppression and mismanagement. From paragraph 61 to 81 the EG enumerated the grounds on which according to Mehras committed acts of oppression and mismanagement. It is with these pleadings that the Mehras filed a petition for oppression and mismanagement and consequential reliefs in their favour. It is pertinent to note that the EG's petition was first in time. 47. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . c. Incorporation of four group companies. d. Incorporation of Vaayu companies. e. CARE rating. f. Standard accounting practices. g. High inventories. h. Noncompliance with GAAP. i. Meeting with bankers. j. Financial assistance from various bankers. k. Refusal to infuse capital. l. Inflation of profits m. Distorted financial picture. n. Diversion of resources. o. Breach of security on SAP server. p. Technology infringement. q. Attempts to revoke patents. r. Misappropriation and inducing EG to purchase shares at inflated prices. EG s case was based on these grounds. If the learned member has dismissed the case of EG on merits as urged, then the learned member is expected to have dealt with these issues. 51. One of the central contention that was raised by EG was that a petition for mismanagement cannot be filed against the members who are not in management. It was their contention that the petition filed by Mehras was under Section 397 and 398 of the Act. According to them EG was never supposed to be in management of EIL and also factually EG was not in the management and Mehras since inception have been managing the Company. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at EG would be made aware of all meetings and minutes from time to time and EG was forwarded all the information and therefore, the grievance made regarding no notice, was without any substance. The EG had challenged the stand taken by Mehras as factually incorrect and not contained in the petition. Therefore, the question that needed to be considered by the Board was whether the action of Mehras in carrying out the amendment amounted to oppression as it was without notice and without following the due mandatory procedure or factually any special procedure was not necessary in view of the practice and understanding between the parties. The Board, though referred to this aspect of the matter, has not dealt with it as required by a original fact finding body. EG has argued this point on merits in this Court without prejudice to its' contentions that it is the Board who at the first instance must decide this controversy. Mr. DeVitre has also made submission on merits. However the charge of nonapplication of mind cannot be brushed aside. The Board has not addressed itself at all to this head of oppression which is pressed into service by EG with seriousness. 54. Similarly, anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression was incorporation of Vaayu companies. It was a case of EG that EG came across that the Mehras incorporated various companies referred to as Vaayu companies sometime in the year 2010. According to them, the incorporation of some of these companies were in contravention of the interim order of the Board dated 29 October 2007 and 19 September 2008. EG placed on record the details of the said Vaayu companies such as the date of incorporation and shareholding. EG urged that Mehras created these companies to siphon off the funds and defeat the rights of EG. According to them this was to misuse the technology which was previously licensed and sublicensed the proprietary technology. It was urged on behalf of Mehras that the prayer made by EG in Company application No.426 of 2009 not to form any new subsidiaries without the leave of the Court was rejected. It was their contention that nothing is shown by EG as to how these companies are carrying on competing business and Mehras offered that the Vaayu companies can be included in the valuation exercises. Thus a serious issue arose as to what was the impact of incorporation of Vaayu companies as regards charge of oppression. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation exercise, which aspect was not adverted. Drawing conclusions in favour of one party without discussion is not decision making. 58. Another grievance made by EG was that Mehras instituted malicious criminal proceedings against EG's representatives, employees and independent professionals. EG made a grievance that these persons were subjected to harassment with a view to ensure that they did not come to India, this conduct was oppressive. What was the real impact of the incident of representative of EG being questioned by the investigating authorities, was a question which arose for consideration, as it was one of the grounds of oppression. The learned member again simplistically concluded the issue by stating that several proceedings were taken to take EIL's interest. The application of mind and reasoning of the learned member is extremely sketchy on this ground as well. 59. The heads of oppression listed in paragraph 50 were some of the major heads of oppression alleged by EG, which are unfortunately dealt with by the learned member in most perfunctory manner. The grounds raised by EG cannot be stated as frivolous to deserve the summary treatment meted out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so filed in this Court on the issue of supply. Learned member had reminded herself the position of law that the contractual disputes between members is not within the jurisdiction of the Board to decide. Inspite of this position, the learned member went on to address contractual disputes on merits and held that the allegation of stoppage of supplies by EG was true and it was without justification and that EG was obliged to supply to EIL. The learned member also came to the conclusion that EG deliberately supplied material which was not required, causing mismatch which caused substantial loss to EIL. These were clear findings on the merits of the contractual dispute, which the learned member had reminded herself not to enter into. This is a clear error on the part of the learned Member. 63. Main question that arose was whether these acts were in the capacity as a shareholder or as a technology provider. Learned member chose to address herself on the merits of the dispute to hold against EG. Such observations therefore, on merits of contractual dispute fell outside the jurisdiction of the Board. 64. Withdrawal of bank guarantees by EG was put forth as a ground of oppression by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner detailed above, but even while upholding the charge of Mehras of oppression by EG, she did not take into consideration various grounds raised by EG and proceeded to draw conclusion without any discussion. This is apart from the fact that if EG's petition is held to be rejected without application of mind then even relief in favour of Mehras cannot be sustained. 67. Further grievance was made by EG that even while granting relief the learned member has proceeded in completely arbitrary manner. It was contended that no reason is given why a particular method of valuation was chosen. Even copy of valuation report is not given to EG and no opportunity is given to EG to challenge valuation. Learned member decided the date of valuation as 31 March 2006 and 31 March 2007, as the dates have been nearest to filing of petition. Reliance was placed on the decision of Profinance Trust SA v. Gladstone [2001 EWCA CIV 1031] and Re London School of Electronics [1986] Ch.211. Perusal of these cases indicate that it is in the discretion of the court, in the interest of justice, which date of valuation figures which is fair to both the parties is to be arrived at. Therefore there had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urth largest wind turbine manufacturer in the world. Dr. Aloys Wobben, person behind EG holds more than 40% of all registered patents in the field of wind energy. The Mehras are also leading businessmen. The dispute between them over the control of EIL will have bearing on the production of wind energy in India. This is only to emphasise that the dispute to be dealt with by the learned member was not minor but had wider implications. Both the sides had raised various grounds and submitted voluminous pleadings and written submissions, with record in running into not less than forty volumes. Voluminous written submissions were presented by both the sides. Arguments were advanced on almost every aspect of the dispute. Considering at what was at stake at both the sides i.e. the control of an important segment of the industry and considering the complexity of the matter one would have expected a thorough application of mind and a decision rendered with some seriousness. Unfortunately, the learned member has completely abdicated her duty to decide judicially and has rendered a decision which is not befitting a quasijudicial body. 71. Before the learned member detailed oral arguments w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mehras. They indeed seem to be copied and pasted. The Court may, as a time saving device, while narrating the arguments of the parties copy from the written arguments, but it is not expected that the reasoning part of the judgment is nothing but a copy of the written submissions of the winning party. This not only shows complete nonapplication of mind but also creates extreme dissatisfaction in the mind of a losing party about the fairness of decision making. 74 Therefore that the Judgment was pronounced within three days of filing written submissions is not a ground of challenge in itself but it is coupled with the submission that this extremely short time span has resulted in a complete nonapplication of mind and has left many of the issues unaddressed. The discussion in the earlier paragraphs will show that the charge of nonapplication of mind is wellfounded. The decision does seem to have been rendered in a hurried manner and liable to be set aside. 75. The structure of the impugned decision is also confusing. The learned member from paragraph 1 to 11 narrates the facts in brief in respect of both the petitions and some of the orders passed by the Board. Paragraph 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to comment upon the same. If a shareholder is directed to exit from a company, which is a serious consequence, this is not the way that the board should treat him. Naturally the counsel for EG have made a serious grievance and they cannot be faulted for the same. 77. The learned member thereafter tabulated the litigation launched by Mehras and EG against each other. This tabulation was for the purpose of ascertaining the impact of litigation and whether the litigations would such result in acts of oppression. The learned member listed sixteen proceedings filed by EG against EIL and Mehras. Then the proceedings initiated by Mehras against EG are tabulated and six proceedings have been mentioned. Mr. Sarkar made a grievance that forty seven Revocation petitions filed by Mehras have been put under one head i.e. Revocation petition at Serial No.5 in the chart. According to Mr. Sarkar, the learned member by this methodology showed a skewed picture of the rival litigations. On the other hand, Mr. DeVitre submitted that the learned member has only reproduced the chart given by the EG. Had this been a standalone ground nothing much would turn on this, as there can be no fault with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bank guarantee, malicious letters. Thereby holding that these grounds were proved against EG. The learned member has proceeded as if she had already reached a conclusion that these charges were established against EG. In the preceding paragraphs before reaching these conclusions, what is reproduced by the learned member, are submissions of the rival parties. Though Mr.DeVitre, in a valiant effort to give a shape and substance to the reasoning of the learned member, submitted that learned member has not reproduced the submissions but that is how she has dealt with the matter. It is not possible to accept this explanation. Each paragraph opens with referring to a submission of the counsel. These submissions is simplicitor reproduced from written submissions. As stated earlier, stoppage of supplies , mismatch of supplies , refusal to infuse capital , withdrawal of bank guarantees are slogans. The learned member thereafter repeatedly refers to these heads to castigate EG and to arrive at a conclusion that EG committed acts of oppression. For each of these heads EG had various points to contend, as demonstrated by Mr. Sarkar and Mr. Kamdar in great detail. 79. After proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther Company at Hyderabad for ₹ 2 lakhs and Company at Ahmedabad for ₹ 3 lakhs. The grievance has been rightly made that Mr. Acharya is appointed as facilitator of Companies situated at Bangalore, Mumbai, Hyderabad, Ahmedabad on per month basis and it is not possible for him to simultaneously look at different companies in different situations. All the facts regarding Mr. Acharya have gone uncontroverted except to state that Mehras do not insist on Mr. Acharya. Such kind of repeated sou motu appointment by the learned member needs lot to be desired. 81. Mr. Sarkar submitted that this is not the first time that the decisions of this particular learned member have been reversed by the higher courts on the ground of nonapplication of mind and unsatisfactory decision making. He relied upon the observations of this Court in Shah Pulp Paper Mills Ltd. v. Pravinchandra Hirji Shah (Company Appeal No.1 to 2011 in CLB Company Petition No.60 of 2006 dated 17 May 2013) and the decision of the Culcutta High Court in Dharam Godha v. Universal Paper Mills Ltd. (2012) 172 Comp Cas 169, and the decision of Gujarat High Court in the case of Vraj Integrated Textile Park Ltd. ors. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party who has succeeded insist on it being done. The way the learned member has merely copied the submissions, drawn direct conclusions, written a 130 pages judgment in three days with total nonapplication of mind to vital issues, cannot be simply be ignored and the appeal be considered on merits even though there are no factual finding. Tolerance of such decision making will send a wrong signal. 85. Furthermore it is not only the question of inter se rights of the parties but there is a wider angle. That is the perception of a litigant about the administration of justice. The concern that justice should be administered in a fair and transparent manner and after following principles of law, goes beyond an individual dispute. The manner in which the learned member has proceeded, raises various questions regarding the confidence of a litigant in the dispensation of justice by the Board. Company Law Board is established to exercise functions earlier exercised by the Courts and the Board is under obligation to follow the principles of natural justice. Fairness is an integral part of the principles of natural justice. A litigant coming before the Board has to be dealt with fairl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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