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TMI Blog2012 (2) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed of the petition accordingly and held that the appellants including Sri Ajeet Singh Puri acted in a highly oppressive manner towards the Respondents and declared the impugned appointment of the Appellants as directors null and void and removal of the instant Respondents 1 2 as directors null and void and further restored shareholding as it prevailed before 31.03.2007. The Company Law Board hence ordered rectification of the register of members and refund of the consideration paid for the cancelled shares and protected Sri Ajeet Singh Puri (respondent no.2 therein) from being excluded from the management of the company and discharge functions as he was doing before 31.03.2007. The Board also stipulated that bank accounts be operated jointly by either of the Respondents and the 2nd respondent therein (Sri Ajeet Singh Puri) so as to prevent allegations of siphoning of funds and provided for five days' notice along with the agenda to be circulated amongst the other two directors by the person whosoever convenes board meeting. The Company Law Board also observed that since post of Managing Director never existed in the company, Sri Ajeet Singh Puri shall cease to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brokers (P) Ltd. v. Hemendra Prosad Barooah, (1998) 5 CompLJ 463 it was contended that if a member, who holds the majority of shares in a company, is reduced to the position of minority shareholder in the company, by an act of the company or by its Board of Directors mala fide, the said act must be considered to be an act of oppression to the said member against which remedy lies under section 397 of the Act. Tea Brokers (P) Ltd. (supra) was a case of a minority shareholder who on becoming the Managing Director of the company, issued further share capital in his favour in order to gain control of management of the company. Barooah and his friends and relations were majority shareholders of the respondent company having 67% of the total issued capital of the company. Barooah personally held 300 equity shares out of 1155 shares issued by the company. He was at all material times a Director of the company. His case was that he was wrongfully and illegally ousted from the management of the company. One Khaund, who initially started as an employee of the company had 110 shares in the company and belonged to the minority group. Khaund was appointed as the Managing Director of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The Supreme Court in Dale Carrington Invt. (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212 following the decision in Tea Brokers (P) Ltd. (supra) and approving inter alia Piercy v. S. Mills Co. Ltd., (1918-19) All ER Rep 313, where Directors, who controlled merely a minority of the voting power in the company allotted shares to themselves and their friends not for the general benefit of the company, but merely with the intention of thereby acquiring a majority of the voting power and of thus being able to defeat the wishes of the existing minority of shareholders. It was held that, even assuming that the Directors were right in considering that the majority's wishes were not in the best interests of the company, the allotments were invalid and ought to be declared void. The Supreme Court while summing up in Dale Carrington Invt. (P) Ltd. (supra) outlined that the exercise by Directors of fiduciary powers for purposes other than those for which they were conferred is invalid. The Apex Court also observed that although the power of issuing shares is given to Directors primarily for the purpose of enabling them to raise capital when required for the purpose of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r would unfairly prejudice the applicants. Learned senior counsel Sri Prashant Chandra elucidating further stated on the basis of the decision of the Gujarat High Court in Laxmi Film Laboratory and Studios P. Ltd., In re, 56 Comp. Cas 110 to show that unwise, inefficient or careless conduct of a director in performance of his duties cannot give rise to a claim for relief under section 397 of the Act. The person claiming oppression must show that he has been constrained to submit to a conduct, which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. Reliance was also placed on Girdhar Gopal Gupta v. Aar Gee Board Mills Private Limited, (2009) 3 SCC 628 to argue that conversion of majority shares to minority shares by allotment of shares to the family members of Director of one group could amount to oppression only where conduct of the parties suggest that the shareholders of the other group were not aware of the allotment. The submission of the learned senior counsel for the Appellants is that the Company Law Board failed to consider material facts. The share application money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vacancy, the said can be filled up in terms of Section 262. There was no casual vacancy in the board to invoke the provisions of Section 262 of the Act. . .Further, even for raising the share capital, no jurisdiction was given and that itself would show that the motive for allotment of shares was only to gain majority in shareholding. . . It was also submitted before the Company Law Board that in another general meeting allegedly held on 18.12.2007, the Respondent No. 1-2 were removed from directorship by Sri Ajeet Singh Puri. The Company Law Board finding such an action to have been taken only to concentrate managerial powers within himself and considering the fact that the company being family company where Respondents' group was actively involved from last 25 years made the impugned order and restored the directorship of Respondents 1 2. We have perused the impugned order. Also, we have heard the parties at length and considered the submissions advanced. The scope of the power of the High Court in appeal under section 10-F of the Act has been outlined by the Apex Court in Dale Carrington Invt. (P) Ltd. (supra), at page 236. Setting aside the judgment of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts unless such findings are perverse, based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate court under Section 10-F is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate court would interfere under Section 10-F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) omission to construe (sic consider) relevant materials. What is perverse has been subject matter of deliberation in a number of decisions of the Supreme Court and various other courts. Reference can be made to Gaya Din v. Hanuman Prasad, (2001) 1 SCC 501, the Supreme Court observed that the expression perverse means that the findings of the subordinate authority are not supported by the evidence brought on record or they are against the law or suffer from the vice of procedural irregularity. In Parry's (Calcutta) Employees' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under Item No.6, it was recorded that the Board felt the necessity of one more director and the Board thereupon resolved that Shri Karan Puri be and is hereby appointed as the Director of the Company with the effect from the date of this Board meeting and Sri Ajeet Singh Puri is authorized to file the return of appointment before the Registrar of Companies . There being no other business, the meeting ended with a vote of thanks to the Chairman. It is clear from the said minutes that allotment of shares to Smt. Daljeet Puri and Sri Karan Puri was made on the basis of the fact that the amount for allotment of equity shares was already with the company for quite some time. In face of such a clear record, it is not open to the Appellants to contend that the allotment of shares was made out of the amount of unsecured loans given by the Appellants. To be clear, the contention of the Appellants that the share application money which was deposited to the tune of ₹ 31,000/- was being reflected in the balance sheet as on 31.03.2006 and 310 shares were allotted to Appellant No.2 from the said amount and further that Appellant No.1 had given unsecured loans to the company to the tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 397 and 398. (e) Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide. (f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact. The above discussion will clearly lead to the conclusion that the impugned allotment of shares to the Appellants and the impugned appointment of the two additional directors as aforesaid and removal of the Respondents 1 and 2 from directorship is oppressive to them. We agree with the findings of the Company Law Board for the reasons recorded that with a view to bring to an end the matters complained of, it is necessary that the matter be disposed in the terms formulated by the Company Law Board. We also think on the given facts and circumstances of the case that to wind up the company would unfairly prejudice the members of the company and that it was just and equitable that the company should not be wound up. There are no facts pleaded and brought ..... 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