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TMI Blog2023 (10) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Law Board (CLB) Principal Bench, New Delhi, in Company Petition No.7 of 2002 preferred by the Appellants - original Petitioners under Sections 397 and 398 of the Act, 1956 in respect of M/s. Laxmi Ventures (India) Limited - Respondent No.1. 2. For the sake of convenience and clarity, the parties are hereinafter referred to in the capacity in which they were arrayed before the CLB. The Petitioners are collectively referred as 'Sunil Group' and Respondent Nos.2 to 4 are collectively referred as "Anil Group". 3. The background facts leading to this appeal can be stated, in brief, as under : 3.1 Late Shri L.N. Agarwal was the father of Petitioner No.1 - Sunil and Respondent No.2 - Anil. Rekha Agarwal - Petitioner No.2 and Nimish Agarwal - Petitioner No.3, are the wife and son of Petitioner No.1 - Sunil. Chitra Agarwal - Respondent No.3 and Akash Agarwal - Respondent No.4 are the wife and son of Anil - Respondent No.2. 3.2 Late L.N. Agarwal had formed a partnership firm under the name and style of Agarwal Traders, which engaged, inter alia, in the business of cigarettes etc. After the demise of L.N. Agarwal, Agarwal Traders came to be reconstituted with Smt. Angoori Devi Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffered huge losses. The Petitioner No.1 protested and that led to actions on the part of the Respondents to oust the Petitioner No.1 from the board of Respondent No.1 company. Thus, the Respondent Nos.2 to 4 started creating hurdles in the smooth functioning and management of Respondent No.1 company. Adverting to the disputes and differences between Sunil and Anil groups and the efforts at amicable resolution of the disputes, and even at the partition of the joint family business/properties, the Petitioners assert that the Respondent Nos.2 to 4 conducted the affairs of the company oppressive of the rights of the Petitioners. It was also asserted that Respondent Nos.2 to 4 were also guilty of mis-management or conduct of the affairs of the company in a manner pre-judicial to the interest of the company and public interest. 3.8 Under the oppression of minority share holders, the Petitioners alleged, Respondent Nos.2 to 4 indulged in the following acts : (1) unlawful removal of Petitioner No.1 from board of directors of Respondent No.1; (2) illegal and wrongful withdrawal of the authority of Petitioner No.1 to operate the bank accounts of the Respondent No.1 Company; (3) non-furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 2000. Form No.32 incorporating the said change was also submitted under the signature of Respondent No.2. 3.13 Unsatiated with the aforesaid oppressive acts, Respondent Nos.2 to 4 mala fide informed the bankers, friends and relatives as well as the valuable customers of Respondent No.1 company that the Petitioner No.1 had ceased to be the director of the Respondent No.1 Company. The said mala fide act, hampered smooth functioning of the Respondent No.1 Company. The consequential withdrawal of the authority of the Petitioner No.1 to operate the bank account of the Respondent No.1 was also with an ulterior motive to gain absolute control over the affairs of the Respondent No.1 Company. 3.14 The Petitioners further asserted, the Respondent Nos.2 to 4 did not furnish copies of the documents and relevant information despite repeated request and that constituted unjustified deprivation of the ordinary rights of Sunil group. It was actuated by a design to keep minority shareholders in dark about the financial management of Respondent No.1. Gift of the shares of Respondent No.1 Company held by Angoori Devi Agarwal, mother of Sunil, to the sons of Respondent No.2, were alleged to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pretext of getting them overhauled and transferred / sold those machines worth more than Rs.1 Crore to Laxmi Tobacco and Industries Pvt. Ltd. and Assam Tobacco Co. Pvt. Ltd., and the Petitioners allegedly siphoned of about 1.50 Crores out of the funds of Respondent No.1 Company and diverted those funds to the aforesaid Gauhati based company in which the Petitioners were majority shareholders. 6. The Respondents assert, on account of the aforesaid alleged acts of mis- conduct and mis-management on the part of the Petitioner No.1, action as envisaged by Section 284 of the Act, 1956 was initiated. A special notice convening a meeting of the Board was issued on 5 January 2000. On the following day, the Petitioner No.1, on his own volition, submitted resignation. Thus, no further action for his removal as a director of Respondent No.1 was pursued by the Respondent No.1 company as the resignation of the Petitioner No.1 was accepted by the Board of directors, on 14 January 2000. 7. The Respondents contended that at the request of the Petitioner No.1 to show him as a director on paper, as the marriage of the Petitioner No.1's daughter was yet to be settled and the prospects of marriage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a litigant director and share holders to the Respondents for inspection of documents and, thereupon, the inspection of documents was to be given within 15 days from the receipt of such request. In the event of inability to give inspection of documents, the Respondents were to file appropriate affidavit indicating reasons thereof. 12. In an appeal against the said order, being Company Appeal No.22 of 2005 in Company Petition No.7 of 2002, by an order dated 4 May 2007, this Court, by consent, quashed and set aside the said order with a view to facilitate the conclusion of the Petition under Sections 397 and 398 on an expeditious basis, without expressing any opinion on the correctness of the observations contained in the said order and the rights and contentions of the parties. Since considerable submissions were canvassed on the aspect of the failure of the CLB to draw an adverse inference of not furnishing inspection of documents, it may be necessary to extract paragraph No.3 of the order passed by this Court on 4 May 2007. It reads as under : "3.In so far as the issue of inspection is concerned, it is clarified by consent that all the rights and contentions of the parties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made out for winding up of the Respondent No.1 company on just and equitable grounds. 16. The learned Member, CLB was also of the view that the order passed by the CLB dated 6 June 2005 directing the Respondents to furnish inspection of documents merged with the order passed by this Court dated 4th May 2007 in Appeal No.22 of 2005 and no case for drawing an adverse inference against the Respondents for non-disclosure and/or non-furnishing inspection of documents was made out. The learned Member, CLB, thus, found no merit in the Petition. 17. Being aggrieved by and dissatisfied with the impugned order, the Petitioners have preferred this Appeal. 18. I have heard Ms. Armin Wandrewala, learned Counsel for the Appellants, and Mr. Rohan Sawant, learned Counsel for the Respondents at considerable length. The learned Counsel took the Court through the pleadings and voluminous material on record. 19. At the outset, the learned Counsel were at issue over the scope of interference in an appeal under Section 10F of the Act, 1956. Considerable submissions were canvassed on the aspect as to whether the instant appeal involves the question of law arising out of the impugned order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid issue open. Instead, the learned Member, CLB, diluted the import of the said order passed by this Court by holding that the earlier order passed by the CLB merged in the said consent order. Lastly, Ms. Wandrewala would urge, a feature of the reasoning of the learned Member, CLB, which stares in the face, is noting the case of the Petitioners and not dealing with the same. Such an approach vitiated the entire decision making process, submitted Ms. Wandrewala. This surely constitutes a question of law meriting interference by this Court, submitted Ms. Wandrewala. 22. To buttress these submissions, Ms. Wandrewala placed strong reliance on the decisions in the cases of Sree Meenakshi Mills Ltd. V/s. Commissioner of Income Tax, Madras AIR 1957 SC 49, Sheikh Rahmat Illhahi V/s. Mohammad Hayat Khan and Ors. AIR (30) 1943 Privy Council 208 Starlinger and Co. GES. M.B.H. V/s. Lohia Starlinger Ltd. and Ors. (2007) 80 CLA 255 (All)., Dale and Carrington Investment (P) Ltd. and Anr. V/s. P.K. Prathapan and Ors. (2005) 1 SCC 212, Dilbagraj Punjabi V/s. Sharad Chandra AIR 1998 SC 1858 and Shri Ramdas Motor Transport V/s. Karedla Suryanarayana (2002) 36 SCL 361 (AP). 23. Mr. Sawant, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and therefore the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner......." (emphasis supplied) 27. In the case of V.S. Krishnan and Ors. (supra), the contours of the appellate jurisdiction under Section 10F were expounded as under : "16. It is clear that Section 10F permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e., the Company Law Board is the final authority on facts unless such findings are perverse based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate Court under Section 10F is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in exercise of appellate jurisdiction under Section 10F of the Act would, therefore, be required to appraise the impugned judgment in the context of the evidence adduced on a broad perspective and in a holistic manner to arrive at a finding as to whether the judgment is based on no evidence, there is an error in not considering the relevant facts/material or being swayed by irrelevant consideration or the finding is otherwise perverse. Certainly, the findings of fact, even if erroneous, may not furnish a justifiable ground for interference on the premise that the appellate court in the given state of facts would have been persuaded to take a different view of the matter. The impugned order is required to be tested on this touchstone. True Character of the Respondent No.1 Company : 30. The nature of the enterprise in the facts of the case has a significant bearing on the allegations of oppression of minority share holders and mismanagement to the prejudice of interest of the company. The nature of the corporate entity would bear upon the question as to whether the principles governing the partnership in the matter of dissolution of firm on just and equitable grounds c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership. 34. In the facts of the said case, the Supreme Court, inter alia, adverted to certain principles which may guide the determination of the character of a company. The cases of small companies stand on a different footing from a company like the one in the said case, with nineteen shareholders, although apparently arrayed in two groups. Merely because the shareholding is in two family groups, it cannot be said that the company thereby takes an image of partnership. The magnitude of the interest of the competing groups may also bear upon the determination. The question as to whether the shareholding pattern is such that the exit of one group may lead to deadlock in the management of the affairs of the company is also a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act by a 3-Judge Bench of this Court in Hind Overseas Private Ltd. (supra) following Ebrahimi (supra). However, it was observed that when more than one family or several friends and relatives together form a company and there is no right as such agreed upon for active participation of members were sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. 229. In Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra(supra), it was stated:.................... 230. Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra (supra), whereupon Mr. Desai placed strong reliance, thus, cannot be said to be an authority for the proposition that for no purpose whatsoever the principles of quasi-partnership can be applied to an incorporated company. The real character of the company, as noticed hereinbefore, for the purpose of judging the dealings between the parties and the transactions which are impugned may assume significance and in such an event, the principles of quasi- partnership in a given case may be invoked. 231. The ratio of the said decision, with respect, cannot be held to be correct as a bare proposition of law, as was urged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 (page 379), proposing the division of the family properties and the businesses; proposed distribution - Annexure A-30 (page 380); the Memorandum of family arrangement - cum - compromise - Annexure A-31 (page 381) proposing division of the businesses and assets, the draft Memorandum of Agreement, Annexure A-32 (page 393), purportedly signed by Sunil - Petitioner No.1 and Anil - Respondent No.2, setting out draft agreement which was to act as the basis for the final settlement and, lastly, the communication - Annexure A-33 (page 396) addressed to Sunil and Anil by their mother expressing her pain and anguish over the disputes between the brothers and suggesting the distribution of assets and businesses in the ratio of 60:40. 40. An endeavour was made by Ms. Wandrewala to draw home the point that had the parties been not conscious of the nature of the Respondent No.1 as a family entity with equal share holding and right of management, there would not have been efforts at settlement of the disputes between two groups proposing diversion of the assets and businesses in almost equal proportion. It was submitted that if the evolution of the businesses is considered in conjunction with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as of the year 2022 was 32.55%, the Petitioners do not admit the aforesaid share holding pattern and, instead, claimed that they have 50% share holding. The Petitioners assert that the diminished share holding of the Petitioners was brought about by manipulation of record by the contesting Respondents and transfer of the share holding by others without following due process. 45. Evidently, the share holding pattern, as is pleaded in the petition, indicates that the magnitude of the interest of two groups cannot be said to be more or less equal by any standard. The share holding of Anil Group almost triples to that of the Sunil Group. To add to this, the number of share holders is also a factor in the determination of the character of the enterprise. On the own showing of the Petitioners, apart from the members of the Sunil and Anil Groups, there were 13 other entities / persons who were the share holders of the Respondent No.1 company. Few of the common entities had distinct legal character, like corporate entities, partnership firms, proprietary concern and trust. In contrast to this, there is no material to indicate that the Respondent No.1 company was formed by dissolving and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to Section 397." (emphasis supplied) 48. In the case of Sangramsinh P. Gaekwad and Ors. (supra), the Supreme Court postulated the principles which govern the determination of application under Sections 397 and 398, as under : "196. The court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section 459 of the English Companies Act, the Court stressed the existence of prejudice to the minority which is unfair and not just prejudice per se. 197. The court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (see London School of Electronics, Re 1986 CH 211). 198. Furthermore, when the Petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a formal legality of an action. In a given case, the oppressive act complained of may have the formal appearance of legality. But it is the intent of the majority and intended effect on the minority, which the court is required to probe into. The legality and permissibility of an action can, therefore, is not the test. It is the propensity to operate in a harsh or burdensome manner and affect the rights of the minority share holders reflecting on the boba fide of the action, that is of relevance. By its very nature, the question of oppresiveness of an action is rooted in facts. 51. The principle ground urged on behalf of the Petitioners was that of unlawful ouster of Sunil from the board of Respondent No.1. The learned Member, CLB, was of the view that even if it was assumed that the removal of Petitioner No.1 from the Board of Respondent No.1 was unlawful, that could not have been an act of oppression under Section 397, as it would be in the nature of a directorial dispute, for which the Petitioner No.1 had remedies. Since the learned Member also found that the Respondent No.1's character was not that of a quasi-partnership, the exception to the general rule that a directorial d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital prospects of the daughter of Petitioner No.1. The learned Member, CLB, has ascribed reasons to hold that there was no unlawful ouster. It was, inter alia, held that the stand of the Petitioners as regards the removal from the board of directors was ambivalent. 56. Mr. Sawant would urge that this finding is impeccable as the record would indicate that the Petitioner No.1 changed his stance to suit the situation. Attention of the Court was invited to the assertion in the Petition, especially ground (a) - Page 218 that the Respondent No.2 had acted mala fide in compelling the resignation of Petitioner No.1 which was not placed before the Board of directors for its acceptance. In the affidavit in Rejoinder, the Petitioner No.1 endeavoured to deviate from the theory of both voluntary and involuntary resignation by asserting that only a draft letter ( not original) was faxed to Anil - Respondent No.2, for his knowledge and to enable him to appreciate the fact that subject to equal division, Sunil was ready and willing to resign from the company. It was sent only for the personal consumption of Anil (Respondent No.2) and not to the company. 57. The aforesaid stands of the Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indisputably, it is not a case of the Petitioners that a Board resolution was passed confirming the reappointment of the Petitioner No.1 as a director with effect from 15 January 2000. Reliance sought to be placed on Form No.32 (Annexure A6 - page 324) does not advance the cause of the Petitioners to the extent desired by the Petitioners. Even otherwise, the reappointment of the Petitioner No.1 as a director of the Respondent No.1 company with effect from 15 January 2000 would have lasted only upto the date of the next Annual General Meeting of the company, unless confirmed in the Annual General Meeting in view of the provisions contained in Section 260 of the Companies Act, 1956. Neither there is material to show that the Petitioner No.1 had filed consent to act as a director under Section 264 of the Act, 1956, nor to indicate that after 14 January 2000, the Petitioner No.1 was served with a notice of meeting of the Board of directors or attended such meeting. If removal from the Board of directors cannot be faulted at, the withdrawal of authority to operate the bank accounts of Respondent No.1 cannot be questioned as it was a consequential act. Conduct of Petitioner No.1 and Eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors for writing off the bad debts. The Petitioners were the majority share holders in Assam Tobacco Co. Pvt. Ltd. 66. The aforesaid conduct would reflect upon the equities. It is well recognized, the reliefs under Sections 397 and 398 of the Act are discretionary in nature. A party who seeks equitable reliefs must approach the court with clean hands. The conduct of the party seeking equitable reliefs must not be blameworthy. A party seeking equitable relief should be in a position to demonstrate that he was not unfair and inequitable in his dealings with the party against whom he was seeking equitable relief. 67. In the case of Needle Industries (India) Ltd. and Ors. V/s. Needle Industries Newly (India) Holding Ltd. and Ors. (1981) 3 SCC 333 the Supreme Court enunciated that a party who is seeking relief under Section 397 of the Act, 1956 must come with clean hands; if he does not, he cannot ask for the relief on the ground that other man's hands are uncleaned. 68. In the case of Sangramsinh P. Gaekwad and Ors. (supra), it was in terms ruled that the Court may refuse to grant relief where the Petitioner does not come to the Court with clean hands which may lead to a conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issues with respect to which the Respondents had withheld the inspection which required an adverse inference to be drawn. Inviting the attention of the Court to the letter dated 1 December 2000 (Annexure A to the Affidavit in Rejoinder) wherein the Petitioner No.1 had sought copies of documents, including copies of annual returns for the past three years, it was submitted that the learned Member, could not have refused to draw an adverse inference, especially in the face of the order passed by this Court on 4 May 2007 in Appeal No.22 of 2005, wherein the question was kept open. 73. The treatment of the aspect of drawing of adverse inference by the learned Member, CLB may be inarticulate. However, the substance of the matter cannot be lost sight of. As noted above, the Petitioners failed to substantiate the substratum of their case of oppression premised on the Respondent No.1 Company being quasi- partnership and unlawful removal of the Petitioner No.1 from the board of directors of Respondent No.1 and also on the parameter of the conduct of the Petitioner No.1. In this backdrop, the refusal to draw an adverse inference would not make the impugned order vulnerable for interferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the impugned order is vulnerable for non-consideration of relevant material or for having taken into account irrelevant material. The learned Member, CLB has exercised equitable jurisdiction, keeping in view the governing principles. Thus, no interference is warranted in exercise of limited appellate jurisdiction under Section 10F of the Act, 1956. Resultantly, I am impelled to dismiss the appeal. 80. Hence, the following order : ORDER The Appeal stands dismissed. Interim / Company Applications also stand dismissed. In the circumstances of the case, and having regard to the relationship between the parties, there shall no order as to costs. (N. J. JAMADAR, J.) 81. Ms. Wandrewala, the learned Counsel for the appellants, seeks continuation of the order dated 26th April, 2012 for a period of eight weeks. 82. By the said order dated 26th April, 2012, by consent and without prejudice to the rights and contentions of the parties, a workable arrangement as regard Appellants - Petitioners continuing to work at Bhilai Unit without interference by the Respondents, was made. 83. Mr. Sawant, the learned Counsel for the Respondents, submits that the said order dated 26th April, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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