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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 ..... arising out of the order passed by the CLB. There could be no duality of opinion on the point that the appellate jurisdiction is not as wide as that of the first appellate court, where the entire matter on facts and law is open for re-appreciation. Undoubtedly, the High Court in an appeal under Section 10F of the Act would be required to delve into the legality and correctness of the impugned order, but through the prism of question of law raised therein - Non-consideration of the evidence / material may also give rise to perversity. Taking a view which is so unreasonable that no prudent person could have recorded such a view in the given facts and circumstances, also renders the order perverse. The 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, 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. The situation which obtains is that upon being served with the special notice under Section 284 (annexure A-4) of the Act, 1956, the Petitioner No.1 tendered resignation. Evidently, the Petitioner No.1 did not face the proceedings for his removal in the Board meeting. Nor any contemporaneous material was placed on record to show that the special notice and action under Section 284 of the Act, 1956 were driven by the objective of oppressing the minority share holders. In the circumstances, it would be difficult to accede to the submission that the resignation was brought about by oppressive acts or the acceptance of the resignation by the Board was in itself an act of oppression. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. Appeal dismissed. - HON BLE N.J. JAMADAR, J. For the Appellants : Ms. Armin Wandrewala with Mr. Manan Jaiswal, Ms. Tanvi Parmar i/by MLS Vani and Associates For the Respondents : Mr. Rohan Sawant with Mr. Chakrapani Misra, Mr. Jigar Parmar, ms. Dixita Gohil i/by Khaitan and Co., JUDGMENT: 1. This appeal under Section 10F of the Companies Act, 1956 ( the Act ) is directed against the order passed by the learned Member, Company 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 back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers directly. The balance sheets were prepared separately for those units and later on incorporated with the main balance sheets. Financial, taxation and public relation affairs of the company were controlled and managed by Respondent No.2. The Petitioners averred, being in-charge of the financial matters, Anil -Respondent No.2 had always occupied a position of custodian and trustee in so far as the Sunil Group. 3.7 The Petitioners alleged, with the induction of Akash Respondent No.4 into the business in 1997 and the entrustment of affairs of Laxmi Solvex, a unit of Respondent No.1, at Indore, to the Respondent No.4, the company suffered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... participation by both the groups, the removal of Petitioner No.1 from the board of directors was not possible until the partition of family properties took place. Yet Respondent No.2 without the Board approving the resignation sent by Petitioner No.1, instantaneously issued a letter dated 6 January 2000 of acceptance of the resignation of Petitioner No.1. Thus, the Respondent No.2 acted illegally in removal of Petitioner No.1 from the post of director. When the Petitioner No.1 protested, Respondent No.2 issued a letter confirming reappointment of Petitioner No.1 as a director of Respondent No.1 company with effect from 15 January 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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projected himself as Managing Director, though he was only a director of Respondent No.1 Company till 14 January 2000, the Petitioner No.1 took over possession of the land of Respondent No.1 Company at Bhilai and constructed a building at the cost of Rs.1.26 Crores for and on behalf of Laxmi Narayan Trust, without any approval of the trustees and Board of directors of Respondent No.1 Company, the Petitioner No.1 had taken an advance of Rs.10 Lakhs against the sale of Respondent Company s flat at Nagpur without approval of the Board, the Petitioner No.1 removed twelve cigarette making machines out of the Bhilai Unit on the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed. 11. In the backdrop of the aforesaid pleadings, the proceedings before the CLB took various twists and turns interspersed with efforts at settlement, evidenced by consent terms and, later on, revocation of the order accepting the consent terms. It would be superfluous to delve into those aspects, except an order passed by the CLB which was carried in appeal before this Court as regards the disclosure and furnishing of documents/information. On 6 June 2005 on an application, being Company Application No.21 of 2002, the learned Member, CLB passed an order, inter alia, directing the Petitioners to write as 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard. Secondly, the report of M/s. D.R. Dinodia and Company, Auditors appointed by the CLB, bears upon the acts of misfeasance, mal-practices and breach of trust on the part of the Petitioner No.1. Thirdly, the Petitioner No.1 had engaged in related party transaction in breach of Section 283 read with Section 295 of the Act, 1956. Fourthly, the directorial disputes were not within the ambit of Sections 397 and 398 of the Act, 1956 unless a case of quasi partnership was made out and, in the facts of the case, there was no material to sustain such an inference. Lastly, the learned Member found no case had been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said order. First and foremost, the learned Member, CLB, did not delve into the evidence adduced by the parties, especially the Petitioners. Secondly, the learned Member drew inferences by one line reasoning despite the existence of material to the contrary. Thirdly, the learned Member erred in recording patently erroneous findings which no prudent person could have, in the given situation, arrived at. Fourthly, a singular legal infirmity in the impugned order is failure to draw an adverse inference despite the order passed by this Court in Appeal No.22 of 2005 dated 4th May 2007 keeping the said 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper principles of law, and it will be correct to say in such cases that an inference from facts is a question of law. 26. In Dale and Carrington Investment (P) Ltd. (supra), on which reliance was placed by both Ms. Wandrewala and Mr. Sawant, after adverting to the previous pronouncements, the Supreme Court succinctly culled out the scope of power of the High Court in Appeal under Section 10F as under : 36. Section 10F refers to an appeal being filed on the question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of facts arrived at by 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 jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the impugned order, but through the prism of question of law raised therein. If the CLB s order proceeds on an erroneous legal premise or can be termed to be perverse, that gives rise to a question of law even if the determination is based on facts. Perversity, in turn, may arise on account of the order being passed on no evidence. Non-consideration of the evidence / material may also give rise to perversity. Taking a view which is so unreasonable that no prudent person could have recorded such a view in the given facts and circumstances, also renders the order perverse. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rseas Private Limited V/s. Raghunath Prasad Jhunjhunwala and Anr. (1976) 3 SCC 259 33. In the case of Hind Overseas (supra), a three Judge Bench of the Supreme Court enunciated that when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Ltd. (1981) 3 SCC 333 ] 227. It is now well-known that principles of quasi-partnership is not foreign to the concept of the Companies Act. For the purpose of grant of relief the principles of partnership had been applied even in a public limited company. ( see Loch V/s. John Blackwood Ltd. 1924 AC 7883 and Ebrahimi V/s. Westbourne Galleries Ltd. (1972) 2 all ER 492 ) 228. The principles applicable to the winding up of a company contained in Section 44(g) of the Indian Partnership Act was applied in a winding up petition under Section 433(f) of the 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 auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir father to set up the businesses and the right of management of the businesses with cross holdings by the family entities, were pressed into service to bolster up a case of quasi partnership. 39. Taking the court through paragraph 9 of the Petition, Ms. Wandrewala would urge that it is with the joint efforts of the Petitioner No.1 Sunil and Respondent No.2 Anil, the family businesses grew into reputed group of companies, firms, HUF and sole proprietorship. Attention of the Court was invited to the Chart Annexure A-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tern, as pleaded by the Petitioners, may also assume significance. The Petitioners claimed, Anil group held 42.90% shares, Sunil Group held 21.88% shares and the common entities of the Petitioner No.1 and Respondent No.2 groups held 26% shares and other individuals held 9.22% shares. 44. Ms. Wandrewala urged with a degree of vehemence that though on the basis of Annual Returns of 31st March 2021 and the records available prior to 2002, the total share of Sunil Group (directly or indirectly) 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 50. Since the Court exercises equitable jurisdiction under Section 397 of the Act, the Court is required to take a broad view of the matter untrammeled by the consideration of 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resignation of Petitioner No.1, and, thus, acted illegally in removing Sunil from the post of Director. As the Petitioner No.1 remonstrated, the Respondent No.2 again issued a letter confirming reappointment of Petitioner No.1 with effect from 15 January 2000. 55. The Respondents have a different take on the reappointment. According to the Respondents, it was to maintain an aura of prestige of Petitioner No.1, especially with a view not to mar marital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 14 January 2000 were not false and fabricated as the Desk Officer of the CLB has duly authenticated the same, on the count that the originals were not produced. I am afraid, this submission cannot be entertained in this appeal and at this stage. 61. The case of the Petitioners that after reappointment with effect from 15 January 2000, Sunil continued to be a director of the Respondent No.1 company, is equally fraught with infirmities. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bacco Industries Pvt. Ltd. and Assam Tobacco Company Pvt. Ltd., in which the Petitioners were the majority share holders cannot be brushed aside lightly. The report of M/s.Dinodia and Co., also refers to some financial irregularities and diversions of funds outside the Respondent No.1. It, inter alia, refers to the writing off of bad debts of Assam Tobacco Co. Pvt. Ltd. of Rs.17,24,466/- without the approval of the Board of 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity on the part of the majority shareholders. The aforesaid pronouncement appears to be on all four with the facts of the case at hand. 72. Ms. Wandrewala would urge that the learned Member, CLB committed grave error in law in not drawing an adverse inference for not furnishing the inspection of documents. The learned Member, CLB recorded an incorrect finding that the Petitioners failed to specify as to what were the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of quantum of share holding is an adjudicatory exercise. Whether the shares of other members were unlawfully transferred in favour of Anil Group is a matter which cannot be legitimately determined by the Chartered Accountant. 79. The conspectus of aforesaid discussion is that neither the impugned order can be said to be based on an erroneous view of law, nor can it be said to be perverse. It does not appear 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, 201 ..... 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