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TMI Blog2017 (11) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant (B.Vridhagiri) in Company Appeal No.12 of 2012 as party in person and taking into consideration the submission made by the learned counsel for the appellants in Company Appeal No.10 of 2014 that such arguments may be taken as the arguments on behalf of all the appellants, they are accordingly disposed of by a common order. 2.For the sake of brevity, the appellants in Company Appeal No. 12 of 2012 are taken as such for the purpose of disposing of the appeals. The other appellants are none other than the family members of the second appellant in Company Appeal No.12 of 2012. 3.Before going into the merits of the case, as espoused by the parties, let us have a revisit to the provisions governing. 4.Section 397 of the Companies Act, 1956 (hereinafter referred to as 'the Act') enables any member of a company to file an application to the Company Law Board for appropriate relief qua oppression. Section 398 of the Act inter alia provides for a relief in cases of mismanagement. In both these provisions, the Company Law Board has been invested with substantial powers as could be seen from the words make such order as it thinks fit . 5.Under Section 402 of the Act, powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Others ((2005) 123 Compcas 566(SC)), the following passage would be of relevance: "The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warranted." 10.Again, the High Court of Gauhati in Deepaklohia Vs. Kamrup Developers Private Limited ((2010) 157 Compcas 82 (Gauhati) was pleased to hold that the Company Law Board can pass a just and equitable order in the interest of justice. It is apposite to place hereunder the following paragraph: "The said provisions of the Act, therefore, make it clear that the Company Law Board, apart from passing orders, as it thinks fit, while dealing with an application under Section 397/398 of the Act, is also empowered to pass any such order, which in its opinion is just and equitable. The validity of an order passed by the Company Law Board, therefore, is to be judged in the backdrop of its power to pass such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the company that is being considered and not the individual dispute between the petitioner and the respondent. If that be so, the interest of the company requires that the majority shareholders must have their say in the management...." The same principle was reiterated in ALDGATE INTERNATIONAL SA VS. AL CHAMPDANY INDUSTRIES LIMITED AND OTHERS, (2011 (164) Comp. Cases 123). Thus, in the light of the aforesaid pronouncement and the discussion made, there is no difficulty in holding that the power of the Company Law Board is wide enough to be exercised in the interest of justice. 12.As against the decision of the Company Law Board aforesaid, an appeal would lie under Section 10F of the Act. This provision permits any person aggrieved by a decision or an order of the Company Law Board to file appeal before the High Court. However, there lies a caveat. Such an appeal is not a regular first appeal but only on the question of law, which in turn must emanate from the order appealed against. Therefore, the statute prohibits an adjudication otherwise on a question of law. The High Court merely provides a remedy under the statute and hence is bound to act within the restricti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter. There were correspondence between the creditor bank and the second appellant. There was also some understanding on the increase of share holding pattern to 76:24 between respondents 1 and 2 and the second appellant. Under Ex.B39, it was also informed to the creditor bank on 19.08.2008. It was followed by another letter dated 22.08.2008. They have been sent on behalf of the first appellant by notifying the first respondent as the Chairman and the second appellant as the Managing Director. 17.The second appellant/party-in-person sent a communication under Ex.B43 dated 16.10.2008 to the first respondent seeking to extend the letter of credit. In the said letter, he also indicated that the draft agreement would be cleared from his end. This letter of credit is with respect to an export order. The first respondent made a reply under Ex.B44 stating that the second appellant could not perform the letter of credit as per Rules despite an extension granted. The letter also indicates that the plant has been shut down without intimation. Accordingly, a request was made to pay back the investment made in the company. 18.The request made was followed by two more communications. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only recording in the order was with respect to the steps taken by the respondents in organizing the letter of credit worth Rs. 65 lakhs while securing the export order. The communication between the parties as seen from Ex.B43 dated 16.10.2008 and Ex.B44 dated 16.10.2008 would also show that the first respondent has clearly told the second appellant that it is he who has failed to take the necessary and appropriate action. The records also would reveal that the second appellant did not raise this issue thereafter. 23.The Company Law Board came to the conclusion that divesting the respondents 1 and 2 on 30.09.2008 constituted oppressive act. After all, the second appellant and his family members owned the company in all respects. The entire action on the part of the appellants by conducting the Annual General Meeting and General Body Meeting was one out of design to reduce the share holding of the respondents and to remove them from the directorships by back door method. Accordingly, it was held that such action lack probity and good faith especially when there was no notice. Resultantly, the respondents are entitled to get their directorship with the first appellant restored. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted. The intention of respondents 1 and 2 was to grab the company. The memorandum of understanding will not bind the first appellant as it was only between the second appellant and the first respondent. The transaction is only a loan transaction. The decisions relied upon by respondents 1 and 2 are not applicable to the case on hand. There is no way the properties of the Directors and the one which is the subject matter of the agreement could be included. The liability of the company cannot be fastened on the Directors. There is no oppression or mismanagement involved. The Company Law Board has not taken into consideration the relevant facts. It has also applied the facts wrongly. In support of the contentions of the appellants, the following judgments have been relied: (i)Shanthi Prasad Jain Vs. Kalinga Tubes Ltd., ((AIR 1965 SC 1535) (ii)Maharaja Exports and Another Vs. Apparels Export Promotion Council ((1986) 60 Compcas 353) (iii)V.B.Rangaraj Vs. V.B.Gopalakrishnan and Others (AIR 1992 SC 453) (iv)Hari Vishnu Kamath Vs. Ahmad Ishaque and Others (AIR 1995 SC 233) (v)Hanuman Prasad Bagri and Othes Vs. Bagress Cereals (P) Ltd. and Others (AIR 2001 SC 1416) (vi)So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .As discussed above, the powers of the Company Law Board are rather wide. When the powers are wide so is the element of discretion. The Company Law Board gave a specific finding bringing the case under Sections 397 and 398 of the Act, thus exercised the powers under Section 402 of the Act. There is no dispute on the memorandum of understanding entered into. It has been entered into by the second appellant on behalf of the first appellant. The fact that it has been given effect to is not in dispute through the shares allotted and as seen from the subsequent documents including the correspondence with the bank. Therefore, it is not open to the appellants to contend that it was purely an agreement between the second appellant and the first respondent. Similarly, the transaction is not a pure and simple money transaction. If that is the case, there was no need to remove the Directors and reduced the shares through the meetings conducted without respondents 1 and 2. All these aspects have been considered at length by the Company Law Board. This Court does not find any perversity in the decision arrived at. Having found that the appellants are still holding 51% of the shares and having t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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