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TMI Blog1994 (5) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... tent. The other major share-holders are Industrial Development Corporation Limited (in short, 'IDC') and the State Government, Private parties held equity shares to the tune of ₹ 5 lakhs, Appellant with his own effects approached different financial institutions for advancement of loans to the company for carrying on its smooth business. He was appointed as Managing Director of the company with effect from 15-9-1974 for a period of five years. In an extraordinary general body meeting held on 25-11-1975 decision was taken to restructure the company at corporate level and question of removal of appellant from office of Managing Director was also discussed. Notice was issued for holding an extraordinary general body meeting of the company on 26-12-1975 to transact the business of restructuring the company by removing its Managing Director. A group of share-holders led by one Mr. N. R. Murty (hereinafter referred to as 'Murty') filed Company Act Case No. 5 of 1975 under Sections 397 and 398 of the Ac! on 15-12-1975 for a direction to the company to conclude the formal agreement and give necessary undertaking to Industrial Development Bank of India (in short, &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 and requested for its immediate acceptance. Eventually the resignation was accepted. Appellant's stand, however, is that there was an understanding between him and IDC that he would be given a suitable assignment and he would be paid benefits like the gratuity and other benefits allowed in his favour by the Central Government under sections 269/198 and 309 of the Act. Appellant was relieved of his post of Managing Director on 23-3-1983 after executing an agreement of rehabilitation and amalgamation wherein there was no stipulation for selling the industry. In the aforesaid premises, appellant filed an application purported to be one under Sections 391 and 395 of the Act on 29-7-1992 before the learned Company Judge praying for implementation of the direction of this Court dated 7-1-1977 passed in Company Act Case No. 5 of 1977 and for a direction to the respondents to implement the compromise/settlement arrived at between the parties and with further prayer for grant of injunction against sale of the company. The said application was registered as Company Act Case No. 10 of 1992. 3. IDC and the State appeared and questioned locus standi of the appellant. It was urged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the application were not otherwise maintainable, as nothing had been disclosed in the application for invoking jurisdiction of the Court under Section 391 of the Act. 5. Learned Company Judge held that in the connected case (Company Act Case No. 14 of 1992), where Murty was the applicant) which was heard analogous with Company Act Case No. 10 of 1992 filed by the appellant it was held that a case for interference was not made out. Accordingly the case was not admitted and was dismissed. 6. Mr. S. B. Mukherjee, learned counsel for appellant urged that the view of learned Company Judge that appellant has no locus standi is erroneous. Even a legal heir of a deceased share-holder can maintain an application. Reliance is placed on a decision of apex Court in World Wide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desoi, AIR 1990 SC 737 for the purpose. An application for amendment has been filed to bring in some factual aspects, to implead Murty as a co-appellant, and to amend the prayer. Learned counsel for appellant fairly conceded that application styled one under Sections 391 and 395 of the Act was really not the proper application. He, however, submitted that substance and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if for proper guidance and supervision, interim management is frustrated in its efforts to continue proper functioning of the company, and thus it is within the competence of the Court to give directions and instructions from time to time so as to resolve the problems and difficulties of the Board of Management; The group of sections in Chapter VI of the Act comparising of Sections 397 to 407 confers upon the Court wide and extensive powers to prevent oppression by one group of share-holders over the other, or mismanagement of affairs of the company in a manner prejudicial to public interest or to interests of the company. 8. To constitute a code by themselves and in granting relief Court has powers of the widest amplitude untrammelled by other provisions of the Act and conferred upon it wide powers even to regulate conduct of affairs of the company and to provide for such other matters as the Court thinks just and equitable in the facts and circumstances of the case. Provisions of Sections 634 and 635 of the Act are directory in nature and an order made by the Court under the Act could be executed either under the procedure provided by the Companies (Court) Rules. 1959 or under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e apex Court in World Wide Agencies case (AIR 1990 SC 737) (supra). It is urged that though there was no specific statement as to how the appellant was a shareholder, when dispute was raised in that regard, an affidavit was filed indicating the details. The learned Company Judge took note of the assertions, but came to an erroneous conclusion. The learned counsel for the respondents vehemently opposed to the prayer for amendment stating that in the garb of amendment, appellant wants to substitute a differently new case. 11. So far as locus standi of the appellant is concerned, we find that for the first time in an affidavit filed on 22-10-1992 (counter affidavit to the application for vacation of stay) it was stated that the appellant still holds shares as successor of his deceased mother Rukmani Mohapatra. In the said counter affidavit filed to the application for vacation of stay, copy of a document dated 2-9-1992 purported to have been executed by Kavita Mohapatra, S. K. Mohapatra, L. K. Mohapatra and B. K. Mohapatra was annexed. This document forms the trump-card so far as the appellant is concerned on the question of locus standi. We find that existence of such a document w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the main application. Position is worse here. There was no amendment, and even the new point lacked details. An assertion divorced from the original pleadings was taken in the counter affidavit to the application for vacation of stay. Learned Company Judge should have ignored it. As held by apex Court in World Wide Agencies case (AIR 1990 SC 737) (supra), a successor can maintain an application. But it has to be established that such right was acquired, as claimed. Before apex Court abundant materials were placed to show that the claimants had come into the shoes of the original share-holder. In the case at hand, in the original petition itself appellant accepted that he had no shares in the company after transfer of the shares held by him (as stated in para 8.4 of the application). We also find that appellant submitted his resignation on 22-3-1983, and requested for its immediate acceptance. By that time, the relinquishment arrangement as put forth now is stated to have come into existence. No explanation has, however, been offered as to why no steps were taken by appellant, who was Managing Director to regularise the matter of getting shares recorded in terms of the relinquishm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not permissible. The amendment sought for in present case precisely intends to do so. We, therefore, reject the prayer for amendment, 13. Coming to the prayer for impleading Murthy as co-appellant (by making him co-petitioner in original application), we find that though Murty had filed a separate Company Act Case and had also filed A.H.O. No. 57 of 1993 before this Court, he withdrew the same. Murty has not filed any application in this appeal for being impleaded as a co-petitioner in the original application of co-appellant. It is stated that Murty had filed an application (Misc. Case No. 122 of 1992) for being impleaded as an intervener. He having abandoned his appeal, prayer for impleading Murty cannot be accepted. From records of connected company case No. 10 of 1992, we find that there is no order passed in regard to the application for impletion. Since the original petition filed by the appellant has been disposed of, nothing survives in that application. Be that as it may, in view of the fact that he had separately moved this Court in a Company Act case which was heard along with Company Act Case No. 10 of 1992, and a decision adverse to him was rendered, challenging wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not think it necessary to examine the question whether there was any allegation of oppression to the minority group and what would be effect thereof in view of the Amendment Act. Correctness of this conclusion is no more available to be examined by us in view of withdrawal of the appeal by Murty in AHO No. 57 of 1993. Learned Company Judge examined as to whether order passed in Company Act Case No. 5 of 1975 was to be treated as compromise or arrangement within the meaning of Section 391 It was held that directions in Company Act Case No. 5 of 1975 did not amount to a compromise or arrangement within the meaning of Section 391. It was noticed that in Company Act Case No. 5 of 1975, the conclusion was that it would not be appropriate to wind up the company, and there was no need for restructuring the company. It was also held that there was no justification for removal of Managing Director, with the observation that IDC must co-operate in management of the company. In the concluding para of the order, it was held that it was open to the company to unload its shares cither in the open market or in favour of the Managing Director and his group, if at any point of time IDC was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. Powers under this section confer discretion of a very very wide nature on the Court and should be exercised with care, otherwise any person disgruntled with the management of the company can put the whole business of the company into jeopardy by bringing proceedings under this section. The Court has to very carefully exercise power under Sections 397 and 398 and not so as to substitute management by Court for the existing management for every difference of opinion between the shareholders. It is necessary to show not merely that there has been some sort of oppression of any shareholders, but that the affairs of the company are being conducted in an oppressive manner. A mere general allegation that 'the affairs of the company arc conducted in a manner oppressive to any part of its members including one or more of the applicants is not enough. Nor is it enough that an isolated act or incident is oppressive. The words 'are being conducted' suggest a course of oppressive conduct which must exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial for smooth functioning of the company. Attempt is to be made to maintain that balance by admitting, on principle, the rule of majority but limiting it, at the same time by number of well defined minority rights. The exceptions under the common law are, however, as exceptions to the rule in Foss v. Horbottle (1843) 2 Hare 461. Majority cannot confirm (i) any act which is illegal or ultra vires the company; (ii) any act which is a fraud on the minority. Reason for this exception is that if minority shareholders were denied right to bring an action on behalf of themselves and all others, their grievance would never reach the Court because the wrong-doers themselves being in control would not allow the company to sue. (See Edwards v. Halliwell (1950) 2 All ER 1064 at page 1067, per Jenkins, L.J.). Various rights are given to minority shareholders under the Act. Under the general law, doctrine that the majority of members must not commit a fraud on minority but must act bona fide for benefit of the company as a whole. Thus, in Cook v. Decks (916) 1 AC 554, an individual shareholder was able, despite Foss's case (supra), to bring an action to recover company's property f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to initiate proceedings for feeding private grudges of warring groups or for the purpose of fighting out their private grudges. 19. Restrictions in public interest are those which seek to protect public health, safety, morals and property. (See Kalyani Stores v. State of Orissa, AIR 1966 SC 1686; and State of Karnataka v. Hansa Corporation, AIR 1981 SC 463). 'Public interest' means something in which the public has a vital interest in either a pecuniary or personal sense. It can mean a purely inquisitive interest as well as a material interest. One feature of the public interest is that justice should always be done and should be seen to be done : per Morris, L.J. ( Ellis v. Home Office (1953J 2 All ER 149). A matter of public or general interest does not mean that which is interesting as gratifying curiosity or a love of information or amusement; but that in which a class of the community have a peculiar interest, or some interest by which their legal rights or liabilities are affected, (per Campbell, C.J. R. v. Eadfordshire (1855) 24 LJQB 81 (84)). 20. Judges in the aforesaid background, we find that no ease for our interference is made out. We are satisfied that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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