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TMI Blog2000 (8) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... his group, ranged for about a day and half in the beginning after which we called upon Mr. Nag to argue the case of the petitioner in the court below who, along with his family being wife and daughter are the cross appellants before us. Mr. Nag argued for some 15 days. In reply we could not hear Mr. Poddar, appearing for the appellant, for more than even one day in all, because we felt that the judgment appealed from has gone astray on such a basic and elemental matter, that hearing the parties any further would be a sheer wastage of time. We felt this matter to be very unfortunate that although the papers before us today run into several thousands of pages and although the most laborious arguments and counter arguments were prepared both in the court below and for our assistance, yet one of the essential and basic characteristics of the very sections upon which the application was founded was never paid any due attention by any of the persons involved in the matter of deciding the case. 5. We propose to indicate outright the elementary and essential point upon which we feel, there has been a serious and unbridgeable gap left, which disentitles the company petitioners from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, i.e., they fail in showing that a winding up order on just and equitable ground would unfairly prejudice the adversaries, even then relief, inter alia, under Section 402 does not automatically follow as a consequence of success under Section 397. The petitioner under Section 397 has to satisfy the court on a further point. He must satisfy the court that although the facts are such that a just and equitable winding up of the company is called for, yet were the petitioners to apply for such a winding up and were the petitioners to be even successful in such a petition, yet such order of winding up would unfairly prejudice the petitioners under Section 397 themselves. That is why they come under Section 397 and they do not apply under Section 433(f), which is the section for just and equitable winding up. 12. In short, for the court to grant relief under Section 397, the respondents must fail to show that just and equitable winding up would unfairly prejudice them and the petitioners must succeed in showing that just and equitable winding up would, even if granted, unfairly prejudice the petitioners. 13. In the judgment in the court below which we have carefully scrutinised, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany will unfairly prejudice the applying members. 17. The judgment of the earlier Division Bench was pronounced on March 11, 1998. 18. In the manner we read that ten-page judgment of the earlier Division Bench, we are of the opinion that it was clearly laid down by that Bench that throwing out a petition on the mere technicality of pleadings, and deficiencies in pleading contained in the petition would not serve the ends of justice. At the end of the judgment it was said that the contention of the appellant in so far as the maintainability of the petition was concerned, as argued by way of a preliminary point, was rejected. The Division Bench ordered that the appeal would be heard on the merits other than the preliminary points. 19. The maintainability of the petition under Sections 397 and 398 is, therefore, no longer in issue nor need we consider the averments contained in the petition in the light of the above rule and form referred to in the Companies (Court) Rules. 20. It is of the utmost importance to note, and we were disturbed to find some confusion during arguments even in this clear matter, that a point of pleading, even if decided in favour of the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minority shareholdings are valued because a minority holding if sold out in the market is not likely to get the full pro rata worth. 24. Mr. Nag was at pains to demonstrate before us that what the trial court really ordered was not a valuation upon consideration of the books of account only. Mr. Nag sought to make out that the order in effect meant an investigation into the assets of the company itself by an examination not merely of the books, but also the physical examination and verification of the real property and other property held by the company. Mr. Nag was at pains to emphasize that according to him there are many valuable godowns owned by the company and that real property should be valued for properly valuing his clients' shares. There are other aspects of the case where the claim for money made by H. P. shows its face, but those we shall have to discuss later. 25. Now, on a winding up Mr. Nag's clients would get exactly what Mr. Nag is asking for. If the company is to be wound up, all its assets must be put up in the market and then after meeting all liabilities, whatever the assets can fetch would be shared pro rata amongst the shareholders including H. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al shareholding fight with each other for the control of the company. If one were to wait during a battle of this type, and ask, if the company petitioners have made out the case that winding up of the company will unfairly prejudice them, the queries would be met with a simple and straightforward answer, that nobody wants a winding up, the two sets are fighting for the company not its winding up. 33. An example of a case of this nature, where the parties do not even have to advert to this issue, is the case of Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., MANU/WB/0104/1966MANU/WB/0104/1966 : AIR1966Cal512 , which is a celebrated Division Bench judgment of our High Court. In vain one would look at the reports to find an answer to the question if the company petitioners have made out the case that just and equitable winding up will unfairly prejudice them because the question does not arise in a case of that nature. 34. Not so here, however, where with a small shareholding unable to resist even the passing of a special resolution by the adversaries, H. P. cannot ever hope to control the company. There are indeed prayers in his petition that there should be a scheme and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) of Section 397 remains unaltered in India, a case must be made out by the aggrieved petitioners that winding up would not serve his purpose at all. It might be made out in any manner the company petitioner sees fit and proper ; or the question might be shown to be an inappropriate and unnecessary question in the facts and circumstances of the particular case before the court, but if the question is not an unnecessary one, as here, then the aggrieved petitioner must obtain a favourable answer to it before getting relief. 40. We note here that in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC), it was said at page 778 of the reports as follows : In an application under Section 210 of the English Companies Act, as under Section 397 of our Companies Act, before granting relief the court has to satisfy itself that to wind up the company will unfairly prejudice the members complaining of oppression, but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. 41. Then again our Division Bench, deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43/1982MANU/WB/0143/1982 and took us to the passage on the right column at page 647 (page 794 of 58 Comp Cas). He relied on the white paper leading to the adoption of Section 210, amongst others, of the English Companies Act, 1948. This is usually known as the Cohen Committee report. That command paper was presented to the English Parliament in June, 1945. At paragraph 60 of the said report it was said as follows : In many cases, however, the winding up of the company will not benefit the minority shareholders, since the break-up value of the assets may be small, or the only available purchaser may be that very majority whose oppression has driven the minority to seek redress. 46. The prescience shown in this paragraph is peculiarly brought out by the Scottish Co-operative Wholesale Society Ltd.'s case [1959] 29 Comp Cas 1 (HL). There the oppressors bought the shares and there the oppressors had brought down the share value of the minority to a mere nothing. However, we do not find in this part of the report anything which would relieve the company petitioners to show why winding up will unjustly prejudice him. He might show it by showing the fallen value of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regate price of ₹ 96,000, although those had been acquired in 1980 at a cost of ₹ 75,000. The complaint was that the boxes were still usable and unnecessarily sold. (v) It was also complained that a large amount of commission, of the order of ₹ 20,00,000 or so, although receivable by M. L. Bagri and/or his son, was got paid by Mitsubishi to the company so as to avoid tax incidence to M. L. himself, who utilised the losses of the company for setting off of the profit, treating the company as M. L.'s own. (vi) A very important complaint was that the continuing directorship of H. P. Bagri was sought to be terminated without giving him appropriate notices of board meetings ; the terminations were alleged to be of no effect and the stoppage of remuneration and of directorial benefits, improper and illegal. 52. Before we deal with these six main items of complaint, we once again make it clear that in our opinion, the entire company petition is liable to be rejected for not entering a finding by the lower court that winding up will unjustly prejudice the applicant ; and because, in the facts and circumstances we have explained above, it is impossible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence between the two sections does not stop there. It has further legal and historical differences. 58. The primary legal distinction between Section 397 and Section 398 in founding the jurisdiction of the company court is this, that before granting relief for complaints which sound in oppression, the court must form an opinion of the appropriateness of a just and equitable winding up. 59. Not so with Section 398. 60. It is not an easy matter to prove circumstances requiring a just and equitable winding up of the company. That Section 398 does not contain this stringent requirement as a jurisdictional condition, must be borne in mind if the company court is to apply the correct law to the facts and circumstances of a particular case. 61. We have mentioned that the first court did not address its mind as to why winding up will be unjust to the complainants. 62. Even though the first court did address its mind to the aspect as to whether it would at all be just and equitable to wind up the company, it did so, and we say this with that respect which is due, in an incorrect and slipshod manner. 63. The finding of just and equitable winding up as appropriate in the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all. We do not see how paying the company of which H. P. was and still is a shareholder can be said to be oppressive to H. P. or his group. Because the first court proceeded in a sort of general excitement about the complaints, it failed to apply the necessary reason to the facts and circumstances. 70. We do not propose to deal with the complaints mentioned under the six items narrated above, excepting in a manner sufficiently to dispose of the broad aspect of those complaints. About the registered office shift and payment of commission into the company's till, we will not discuss the facts any further as further discussion is unnecessary. 71. When we said that Section 397 is historically different from Section 398 also we had a particular course of legislation undertaken in England in our mind, that is, from 1948 itself, which was the year of the first introduction of Section 210 into the English Companies Act. The law as to oppression and mismanagement has never been the same in India and in England. When this is borne in mind, and when Mr. Nag appearing for H. P. cited English decisions freely whenever decided, be those decisions modern or even very modern we cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 1948 to 1956, when the Companies Act was passed in India, the rule in Foss v. Harbottle [1843] 2 Hare 461 prevailed in India but not in England. 78. The report of the Parliamentary Committee of 1952 which resulted in the Companies Act of 1956, was handed up to us by Mr. Nag. 79. He also gave us the Supreme Court case of Raymond Synthetics Ltd. v. Union of India [1992] 73 Comp Cas 762 where the court has ruled as extremely significant, the contemporaneous construction placed upon an ambiguous section by the administrators entrusted with the task of executing the statute, the interpretation of which is in issue. The Report of the Company Law Committee, 1952, adopted, in regard to oppression Section 210 of the English Companies Act. Its remark at page 149 of the Report was as follows : We accordingly recommend the enactment of two sections : (i) to provide for a remedy for the oppression of minorities on the lines of Section 210 of the English Act, 1948 ; and (ii) to provide for a remedy in cases of mismanagement of company affairs in a manner prejudicial to the interests of the company. Thus the English Section 210 was materially adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner unfairly prejudicial to the interest of those members. 83. After the Jenkins Committee Report England got Section 75 of the Companies Act, 1980. Sub-section (1) of Section 75 is as follows : 75. Power of court to grant relief against company where members unfairly prejudiced.--(i) Any member of a company may apply to the court by petition for an order under this section on the ground that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. 84. There is no necessity to establish just and equitable winding up. There is no necessity to establish oppression. All that one needs to establish is unfair prejudice. The power of the court to grant relief, as maintained in other sections in England, which we need not unnecessarily quote here, remains as wide as those were before. 85. Mr. Nag gave us amongst other cases the single Bench decision in the case of R.A. Noble and Sons (Clothing) Ltd., In re [1983] BCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... often is a sort of quasi-partnership, 93. Before we go on to the law, we give the brief facts in this regard. 94. From the time H. P. joined the company in or about 1971, he had directorial status. When we looked at the first resolution giving him such status and we considered the wording of that resolution, we had some doubts as to whether it spelt out directorial status or not. But it would be most unjust to H. P. to rule at this distance of time that he did not have directorial status even at the beginning, because for nearly 15 years after his first joining he enjoyed the directorial position including remuneration and perquisites. Mr. Nag gave a lot of authorities for the proposition that a director by any other name still remains a director and it is his function which makes him so. As we accept this line of Mr. Nag's argument and as there are not really any contrary authorities of importance in this regard, we do not find it necessary to discuss the authorities in this regard. 95. A director H. P. was, but the question is whether he remained as such in 1988 when he commenced the company action. 96. The last board meeting which H. P. appears to have attended w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by suppression of notice, or termination of directorship by a bulldozer like show of majority, would not entitle the terminated person to petition for just and equitable winding up is, that there is an appropriate remedy by way of a company suit, which can give the terminated director every relief. If notice has been suppressed, he can file a suit for injunction and declaration and get himself reinstated as a director. If he has been removed from directorship by outvoting of the majority, and the case is not a case of quasi-partnership, then the company cannot be wound up on just and equitable grounds, the expulsion notwithstanding. 100. In a hearing of a company petition for just and equitable winding up, the court always has to pay attention to Sub-section (2) of Section 443 which reads as follows : 443(2). Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. 101. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerships. The best way to see how the change of just and equitable jurisdiction came about and how the court started using this jurisdiction in all its breath and scope, is to read the following passage from a book written by Mr. S. C. Sen, deceased, Barrister and Senior Advocate, when he was practising as a well-known and colourful member of the company Bar at Calcutta. The passage is to be found at page 256 of a small book called The New Frontiers of Company Law , published by the Eastern Law House in 1971, in which he unreservedly drew upon his considerable learning on the subject of corporate jurisprudence. The said passage runs as follows : just and equitable : A company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. Until 1924 the juridical view was that Sub-clause (f) was to be construed as ejusdem generis with the other five clauses. In Loch v. John Blackwood, Limited [1924] A. C. 783 (PC), the Judicial Committee decided that the clause was not to be construed as ejusdem generis. Lord Shaw stated in the course of his speech 'it seems plain enough that beyond these cases there is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company deserved to be wound up. This was also a case where the business was originally a partnership. 111. No doubt if H. P. was in the position of a partner of M. L. Bagree and he was being sought to be bulldozed out of the board by M. L. Bagree by using M. L.'s superior voting power, H. P. could rely upon the decision of Ebrahimi v. Westbourne Galleries Ltd. [1973] A. C. 360 (HL) to sustain the case of just and equitable winding up. 112. But the case of Ebrahimi v. Westbourne Galleries Ltd. [1973] A. C. 360 (HL) was not decided by the Supreme Court of India but by the House of Lords of England. The case has been considered by the Supreme Court in the case of Kilpest P. Ltd. v. Shekhar Mehra [1996] 87 Comp Cas 615. The court considered the case of Ebrahimi v. Westbourne Galleries Ltd. [1973] A. C. 360 (HL) at length. The facts of the case were summarised in the judgment at page 619 of the Reports. The court said near the end of the judgment at page 622 as follows : The promoters of a company, whether or not they were hitherto partners, elect to avail themselves of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that the case of just and equitable winding up could not at all be sustained on the facts of alleged directorial ouster. 119. Coming now to the other head of complaint about wheat quota allotment we find that the facts in this regard disclose neither oppression nor mismanagement. At the material time, the company in question was under a lock-out and, therefore, the wheat quota worth about ₹ 17 lakhs was allowed to be lifted by a sister concern. It was said that this was in violation of a control order. We do not find that anybody was proceeded against in regard to such alleged violation. The learned judge in the court below did not even come to a positive finding about this transfer of wheat quota. This is what was said : How can the wheat be transferred--under what circumstances these loans were granted--these are matters which require thorough and detailed investigation and enquiry for the purpose of ascertaining the real financial position of the company ; the allegation of manipulation of accounts and fictitious nature of the accounts seems to be justified in the facts and circumstances of the case, particularly having regard to the conduct of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money under H. P.'s instructions to another person than H. P. himself, H. P. makes a complaint in this company petition, this time asking not for winding up, but for relief under Section 397 or Section 398. 127. We are of the opinion that if a debt remained owing to H. P. from the company being the present company, i.e., Bagri Cereals Pvt. Ltd. it would be unreasonable for H. P. to ask for a just and equitable winding up of the company ; filing a suit would be proper, or filing an application for winding up, as he had done in the other case not on the grounds of just and equitable winding up but on the ground of the company's inability to pay debts after service of statutory notice. 128. We advisedly do not enter into further details of facts as the above broad aspects are quite sufficient for a just disposal of these factual parts of the case. 129. Apart from the appeal there are several applications made before us. One is for setting aside of the valuation report of S. P. Basu which we have already mentioned. Another is for payment of directorial remuneration. We have already opined that if directorial remuneration had not been legally stopped (but we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erquisites as is available to a director as of date. The administrator is also directed to pay the same. It is further ordered that upon investigation of accounts, adjustment of accounts be effected and in the event of any sum found due and payable by one of the directors, the same be paid. The auditor upon consideration of the accounts shall prepare a valuation report so far as the shares are concerned as on the date of presentation of this appeal and upon adjustment of accounts petitioner No. 1 is directed to sell his shares to the respondents together with the shares of petitioner No. 1's group members. It is only upon payment of the value of shares by the respondents to the petitioner that the administrator shall stand discharged. Each party to pay and bear its own costs. The administrator, auditor and all parties are to act on a signed copy of the operative portion of the minutes of this order on the petitioner's undertaking to draw up, complete and file this order, 131. The first point from the ordering portion which strikes one is that although the board of the company was superseded and an advisory committee consisting of J. P. and H. P. is constituted yet the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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