Government of West Bengal vs Chatterjee Petrochem (Mauritius) Co. and Others <BR> Chatterjee Petrochem (Mauritius) Co. and Others Vs Haldia Petrochemicals Ltd. and Others

Jayanta Kumar Biswas, J.—In these four appeals filed u/s 10F of the Companies Act, 1956 an order of the Company Law Board, Principal Bench, New Delhi, dated January 31, 2007 See Chatterjee Petrochem (Mauritius) Co. v. Haldia Petrochemicals Ltd. [2008] 143 Comp Cas 726. disposing of C.P. No. 58 of 2005, giving twenty one directions, has been questioned ; and hence they with the eight cross-objections have been heard together, and all are being disposed of by this common judgment.

The company petition under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956 was filed by (1) Chatterjee Petrochem (Mauritius) Co., (2) Winstar India Investment Co. Ltd., (3) India Trade (Mauritius) Ltd, and (4) Chatterjee Petrochem (India) P. Ltd., hereinafter referred to as "the CP(M)C", "Winstar", "IT(M)L" and "the CP(I)PL" respectively, and as "the Chatterjee group" collectively. They all, except the CP(I)PL, were and still are shareholders of Haldia Petrochemicals Ltd., hereinafter referred to as "the HPL". Among the twenty respondents in the petition, while the first respondent was HPL, the second, third and sixth respondents were West Bengal Industrial Development Corporation Ltd. (in short "the WBIDC"), Government of West Bengal (in short "the GoWB"), and Indian Oil Corporation Ltd. (in short "the IOC") respectively. The fourth, fifth, and seventh to twentieth respondents were the directors of the HPL. The seventh, eighth, ninth, sixteenth and twentieth respondents were Mr. Tarun Das, the chairman of the HPL, Dr. Sabyasachi Sen, Principal Secretary, Commerce and Industries Department, GoWB, Mr. Gopal Krishna, managing director, WBIDC, Mr. Swapan Bhowmik, managing director, HPL, and Dr. Purnendu Chatterjee (in short "PC"), prime mover of the Chatterjee group respectively.

The facts culled out from the pleadings running into the thousands and placed by counsel for the parties in the course of thirty nine days'' uninterrupted arguments, put in a nutshell, are these. In 1985 HPL was incorporated as a public limited company. It was promoted jointly by WBIDC, a wholly owned company of the GoWB, and the Goenkas. Towards the end of 1989 the Goenkas left, and the Tatas came in. In 1994 the CP(M)C joined WBIDC and the Tatas. They entered into a joint venture agreement dated August 20, 1994. In 1995 the Articles of association of the HPL were altered incorporating the relevant terms and conditions of the joint venture agreement. The equity share capital was to be paid for and held so as to maintain the following voting power : WBIDC 25 per cent., the CP(M)C and its nominees 25 per cent., the Tatas 8.33 per cent., and others including the public, financial institutions and banks, etc. balance 41.67 per cent. In Article 33(a) it was provided that should WBIDC decide to sell its HPL shares, it would give the CP(M)C first refusal on them and then to the Tatas ; and that WBIDC would enjoy similar first refusal on all HPL shares held by the CP(M)C and the Tatas.

In 1997 the project, setting up of a petrochemical complex, was started. Loans were taken from a large number of financial institutions. In the course of time the question of debt restructuring assumed great importance. By a letter to the Chief Minister dated April 23, 2000, PC, while threatened to quit with his dues paid up unless the CP(M)C, going to invest Rs. 150 crores for acquiring the majority position, was given management control, suggested for the IOC participation in HPL that, however, was on the verge of being declared a non-performing asset.

Considering the acute fund crisis, the HPL decided on September 6, 2000, to issue rights issue for Rs. 250 crores. While the WBIDC and the Tatas subscribed, the CP(M)C did not invest its share : Rs. 107 crores. In August 2001 commercial production in HPL commenced. The IOC was willing to participate if it was given at least 26 per cent. of the HPL shares and management control. PC was against giving management control to the IOC. The lenders were demanding decision on induction of the IOC as a strategic investor. By a letter dated January 7, 2002, they gave an ultimatum by saying that the HPL must take necessary steps by January 14, 2002. This situation brought into existence an agreement dated January 12, 2002, between the GoWB, WBIDC, the CP(M)C and HPL.

In terms of the agreement dated January 12, 2002, on investing Rs. 107 crores (for the rights issue shares), and on fulfilment of certain other conditions by the CP(M)C, the WBIDC was to transfer requisite number of shares held by it in the HPL to the CP(M)C for ensuring that the CP(M)C had 51 per cent. of the total paid up equity of the HPL. Another thing provided in that agreement was that on demand by the CP(M)C, the WBIDC would sell its entire HPL shareholding to the CP(M)C. The agreement put an obligation on the CP(M)C to bring in a minimum of Rs. 500 crores equity or equity like instruments or advance for the HPL by March 31, 2002. Though Rs. 107 crores was not invested by the CP(M)C (it arranged for the HPL further HSBC loans for making that figure), a loan agreement dated March 8, 2002, was executed by and between the CP(I)PL (as borrower), WBIDC (as lender) and the CP(M)C (as guarantor).

It was stated therein that in terms of the agreement dated January 12, 2002, 15,50,99,998 HPL shares (hereinafter referred to as "the said 155 million shares") had been transferred and delivered by the WBIDC to the CP(I)PL, and that price for them would be deemed to be paid and accepted, and further that those shares would be deemed to be pledged to the WBIDC that would be deemed to have given an interest free loan, repayable in ten years, to the CP(I)PL for an amount equivalent to the price of those shares. According to that agreement the pledged shares were to be released by the WBIDC in ten years according to repayment of the deemed loan. The shares were never actually delivered to the CP(I)PL, which did not either make any actual payment (except Rs. 7,75,50,000) for them, and they were never lodged with the HPL for registration in the name of the CP(I)PL.

Within March 31, 2002, the CP(M)C did not bring in any equity or equity like instruments, and financial crisis continued to plague the HPL. But in view of the agreement dated January 12, 2002 and PC''s objection to giving management control to the IOC, the GoWB was compelled to close the question of inducting the IOC in HPL. The lenders were demanding steps for immediate debt restructuring, and induction of a strategic investor in the HPL. On January 13, 2003, the IDBI, the lead lender, made a reference to the corporate debt restructuring cell for restructuring debts of HPL. On January 22, 2004, the debt restructuring package was approved. In terms of the package Gas Authority of India Ltd. (in short "the GAIL") was to be inducted in HPL as the strategic investor, and it was to invest Rs. 332 crores within 90 days of package sanction ; and within 180 days of sanction the CP(M)C was to arrange Rs. 268 crores. It was also to replace the HSBC loan amounting to Rs. 107 crores by subscribing to the HPL equity by March 31, 2004. Lenders were to be allotted, by converting Rs. 140 crores rupee loans, the HPL equity at par. The GAIL backed out, and the debt restructuring package was showing all symptoms of a non-starter.

This situation led to execution of two agreements both dated July 30, 2004. One was a share subscription agreement for allotting the HPL shares to Winstar in the context of the CP(M)C''s bringing in Rs. 107 crores by taking over the HSBC loan, and the other was a supplementary agreement between the GoWB, WBIDC, the CP(M)C and HPL for modifying and varying certain terms and conditions of the agreement dated January 12, 2002.

It was stated in the supplementary agreement that the CP(M)C relinquished its right created by the agreement dated January 12, 2002, to call upon the WBIDC to sell its entire HPL shareholding to it, but that should WBIDC sell its HPL shares, then, at a price decided by it, it would give the CP(M)C first refusal on them. It was further provided that the GoWB and the WBIDC would be entitled to cause induction of Rs. 150 crores of equity in the HPL through an industrial portfolio investor. In the circumstances the GoWB and the WBIDC started negotiations with the IOC for its induction, since the GAIL had by then decided not to make any investment in the HPL and the lenders had been demanding induction of the IOC. On September 3, 2004, PC met the Chief Minister who told him about the IOC developments. On September 13, 2004, a meeting was held in which all concerned, except the Chatterjee group, participated, and the IOC agreed to participate in the HPL. By a letter dated September 16, 2004 the GoWB informed PC about the matter. By a reply dated September 20, 2004, PC communicated his agreement on the IOC and wanted the GoWB to accommodate loss suffered by the CP(M)C from 1994. On September 24, 2004, the HPL and the IOC entered into a confidentiality agreement. It was stated that the IOC equity investment in the HPL would be not exceeding Rs. 150 crores. Then by a letter dated September 29, 2004, the IOC wanted the GoWB to execute an memorandum of understanding recording that the HPL shares acquired by the GoWB from the Tatas would be sold to it, that in the HPL meetings lenders would vote with it, and that in due course the WBIDC would divest its HPL shares in its favour.

By a reply dated October 12, 2004, the WBIDC informed the IOC about the CP(M)C''s first refusal on all the HPL shares held by it. It said that for enabling the IOC to acquire additional HPL shares, after the IPO it would first offer to the CP(M)C, at the appropriate price decided by it, the HPL shares acquired by it from the Tatas, and that should the CP(M)C decline to purchase them, they would be offered to the IOC at the same price, and that thereafter it would offer its balance HPL shares first to the CP(M)C, and, if possible, then to the IOC ; and further that failing the process, it would buy out the IOC''s HPL holding, should the IOC want that.

By a letter dated October 18, 2004, the IOC wanted the GoWB and the WBIDC to obtain waiver from the CP(M)C of its first refusal on all the HPL shares held by the WBIDC. By a reply dated October 19, 2004, the WBIDC informed the IOC that it was not possible to obtain waiver from the CP(M)C By a letter dated October 21, 2004, the IOC informed the WBIDC that its board would consider the whole matter. On October 23, 2004, the IOC board decided to invest Rs. 150 crore towards the HPL equity at par. Then by a letter dated October 25, 2004, the IOC proposed to the WBIDC that it would make an offer to acquire, at a duly determined fair price, all the HPL shares held by the WBIDC that it would offer its shares first to the CP(M)C, at that price, and that should the CP(M)C decide not to acquire them, then they should be offered to the IOC, and that simultaneously it would acquire fresh 150 million HPL equity shares at par. By a letter dated October 29, 2004, the WBIDC made counter offer suggesting that after the IOC investment and the IPO it would offer its HPL shares first to the CP(M)C. The IOC, writing the last letter dated October 25, 2004, did not respond.

On November 2, 2004, the board of the HPL decided, subject to the approval in a general meeting, to allot 150 million equity shares of face value of Rs. 10 each at par to the IOC ; the Chatterjee group agreed to such allotment; and that same day the letter of invitation with the key terms of offer was sent to the IOC. By a letter dated November 5, 2004, the WBIDC modified its counter offer terms mentioned in its letter dated October 29, 2004. The IOC did not respond, and on the contrary, by a letter dated November 10, 2004, it accepted the HPL''s invitation dated November 2, 2004. Noticing that the IOC accepted the HPL''s invitation, the WBIDC wrote a letter dated November 10, 2004, informing the IOC about further modification of its counter offer terms mentioned in its letter dated November 5, 2004. The IOC did not respond to this as well. By a letter dated December 10, 2004, PC requested the chairman of the HPL to convene a board meeting for recording reasons for the IOC induction and how that was unfavourable to existing and minority shareholders, when with the IOC coming in the HPL was likely to become a Government company. By then with the acquisition of the HPL shares by the WBIDC from the Tatas and allotment of 271 million redeemable preference shares, on conversions of loans of a few of the GoWB companies, the HPL had become a Section 619B company from October 14, 2004. The share capital structure became : equity�WBIDC 47.88 per cent., the Tatas 3.19 per cent., the CP(M)C 30.70 per cent., Winstar 9.03 per cent., IT(M)L 7.60 per cent. and others 1.60 per cent.; and equity plus preference shares - WBIDC 56.28 per cent., the Tatas 2.68 per cent., the CP(M)C 25.75 per cent., Winstar 7.58 per cent., IT(M)L 6.37 per cent. and others 1.34 per cent.

By a letter dated December 17, 2004, to the HPL chairman, with a copy to PC, the GoWB recorded its disappointment that for no valid reason the CP(M)C was withholding consent for convening the general meeting, when the IOC induction was badly needed by December 31, 2004, for meeting the debt restructuring package conditions and also in the interests of the HPL. It was mentioned that the GoWB had committed to transfer the HPL shares to the CP(M)C as would appear from the agreements dated January 12, 2002, March 8, 2002 and July 30, 2004. Under the circumstances on December 21, 2004, the chairman gave notice fixing the extraordinary general meeting for January 14, 2005.

PC was not willing to vote in favour of the proposed special resolution. Bya letter dated January 11, 2005, he wanted the WBIDC to sell its entire HPL shareholding to the CP(M)C. In the circumstances on January 14, 2005, he and Dr. Sabyasachi Sen, as representatives of the CP(M)C and the GoWB respectively, signed a document staring that entire HPL shareholding of the WBIDC would be sold by the GoWB to the CP(M)C at a price to be determined by an independent valuer. On the same day the proposed special resolution was passed in the extraordinary general meeting in which the Chatterjee group voted in favour of the resolution.

For settling the terms and conditions of the offer letter, the key terms wnereof had been communicated by the HPL and accepted by the IOC in November 2004, a committee was constituted. PC and Dr. Sabyasachi Sen were in that committee. On January 28, 2005, the offer letter was sent to the IOC, which, accepting the offer, paid the price for 150 million equity shares by a cheque dated February 17, 2005. The cheque was not encashed, and in connection with steps taken for preparation of the agreements for sale and transfer of entire WBIDC shareholding in the HPL, PC started demanding that as a condition precedent to the share purchase deal in terms of understandings recorded in the document dated January 14, 2005, the IOC must withdraw from the HPL.

The IOC started giving notices threatening civil and criminal actions against the HPL and its directors. The registrar of companies, on receipt of complaint from the IOC, issued notices against the HPL. But PC insisted on the GoWB ensuring that the IOC did not want any allotment of the HPL shares. In the circumstances the GoWB that had already obtained the lenders'' approval to the deal by its letter dated July 27, 2005, informed PC that in view of his conduct and in the interests of the HPL, it decided to defer the proposal to disinvest, and that it would remain in the HPL to extend full support to it. Simultaneously, the chairman of the HPL issued a notice for a circular resolution proposing to allot 150 million equity shares to the IOC. The resolution was adopted and shares were allotted to the IOC. Under the circumstances on August 3, 2005, the company petition was filed.

The allegations made by the petitioners in the company petition are these. At the insistence of the GoWB, they agreed to induct the IOC in the HPL as a portfolio investor. By letter dated September 20, 2004, they pointed out that in view of the proposed initial public offer there was no necessity for inducting any industrial portfolio, but they agreed to consider investment of Rs. 150 crores by the IOC, since the Chief Minister wanted that. On November 2, 2004, a resolution to allot shares to the IOC was adopted without voting, though they objected to the allotment and terms thereof. Their contemporaneous attempts to amend the Articles of association were again thwarted by the GoWB and the WBIDC. They objected to allotment of shares to the IOC at par and also raised the issue of keeping the HPL''s private company status ; they wanted postponement of the extraordinary general meeting.

By a letter dated January 11, 2005, they called upon the WBIDC to sell 60 per cent. of its HPL shareholding to the CP(M)C at the agreed price of Rs. 14 per share, since the agreement had been recorded in a letter dated September 30, 1994. On receipt of the demand, the representatives of the GoWB and the WBIDC called on their representatives and represented that their ultimate right to obtain entire HPL shareholding from the WBIDC would be honoured. In furtherance of such representations those representatives invited PC to an immediate meeting. Those representatives also represented that the GoWB and the WBIDC were agreeable to give in writing a commitment that entire HPL shareholding of the GoWB and the WBIDC would be sold to them. In view of such representation PC met the representatives of the GoWB and the WBIDC.

On January 14, 2005, an agreement was reached between Dr. Sabyasachi Sen and PC, in the presence of Mr. Tarun Das, and in consideration of that agreement they voted in support of the resolution dated January 14, 2005, to allot 150 million HPL equity shares to the IOC at par. In spite of their letters requesting the GoWB and the WBIDC to act in terms of the agreement dated January 14, 2005, nothing was done, though steps were taken to carry out the resolution dated January 14, 2005. During the period from January 23, 2004 to April 20, 2005, various newspapers published reports that the IOC was insisting on its management participation in the HPL. In the course of due diligence carried out by the IOC, the HPL wanted the IOC to confirm in writing that its investment would be purely as an industrial portfolio investor, but the IOC refused to give anything in writing. From the newspaper reports they had reason to apprehend that the GoWB had made commitments to the IOC to allow it to participate in the HPL management. However, they were advised to discount the media reports.

While the GoWB was not saying that it had not made any commitment to the IOC to allow it to participate in the HPL management, the GoWB and the WBIDC were not allowing the CP(I)PL to register shares purchased by it, and to amend of Articles of association of the HPL to reflect the terms of the agreements. Though as many as eight drafts of the share purchase agreements were circulated by them during the period from April 2005 to July 25, 2005, the GoWB and the WBIDC failed to respond officially.

Sometime before July 15, 2005 their misgivings about the IOC''s investment in the HPL were substantiated, when they discovered the letter dated November 10, 2004, written by the WBIDC to the IOC. The GoWB and the WBIDC concealed from them that there had been negotiations between the GoWB and the IOC. The discussions were deliberately "suppressed from the petitioner mala fidely and for the collateral purpose of wrongfully and by misrepresentation obtaining the petitioner''s consent to the resolution at the extraordinary general meeting on January 14, 2005, to allot shares at par to respondent No. 6 and in breach of all the earlier agreements between the parties.

The GoWB and the WBIDC never intended to honour and perform the agreement dated January 14, 2005. From the letter dated November 10, 2004, it was clear that the GoWB and the WBIDC did not intend to sell the HPL shares held by the WBIDC to them, or at the rate agreed with them. The agreement dated January 14, 2005, had been entered just for inducing them to consent to the extraordinary general meeting. On July 22, 2005, they were surprised at the request of the GoWB to conclude the share transaction deal preferably by July 25, 2005. They, however, responded by submitting necessary papers indicating how the deal should be concluded. On July 27, 2005, PC was surprised and shocked to receive a letter from the GoWB that it had decided to defer the disinvestment proposal.

Then, without any valid reason, the GoWB and the chairman of the HPL started taking steps in undue haste. In violation of Section 289 of the Companies Act, 1956 the chairman issued a circular resolution dated July 28, 2005, without disclosing material information that had formed part of agenda circulated for board meeting dated July 29, 2005, when that meeting had been cancelled. In terms of the share subscription agreement dated July 30, 2004, ten days'' notice of the circular resolution was not given to Win-star.

Though the HPL was not in need of fund and allotment of shares to the IOC was totally uncalled for and unwarranted, and when they were ready and willing to subscribe for 150 million equity shares, if were allotted at par, steps were taken for allotting the shares to the IOC on the basis of the circular resolution. They were always ready and willing to conclude the share purchase deal at the agreed price of Rs. 14 per share. For superior bargaining power of the GoWB and the WBIDC they could not implement their special rights regarding majority status in the HPL and management control thereof. The articles of association had not been modified or altered to reflect their special rights. The clandestine arrangement mentioned in the letter dated November 10, 2004, if given effect to, would defeat their existing special rights and would undermine the very basis of their acceding to request of the GoWB and the WBIDC , and hence that arrangement should be brought to an end for resolving the oppressive acts of the GoWB and the WBIDC.

Making these allegations the petitioners in the company petition contended that affairs of the HPL were being conducted in a manner prejudicial to the public interest and oppressive to them. They also alleged that the WBIDC had brought and was likely to bring about material change in the management of the HPL. They claimed that winding up of the HPL would unfairly prejudice them, but that otherwise the facts would justify the making of a winding up order on just and equitable ground. They wanted necessary order cancelling the special resolution dated January 14, 2005, on the ground that they had been induced to consent to that. They wanted order directing the WBIDC to ensure their majority shareholding and management control in the HPL.

They prayed for an order directing amendment of articles of association of the HPL for incorporating their special rights provided in agreements dated August 20, 1994, January 12, 2002, March 8, 2002 and July 30, 2004. In addition to seeking order cancelling the special resolution dated January 14, 2005, they wanted order directing the WBIDC to sell its entire HPL shareholding to them at the agreed price of Rs. 14 per share (for 60 per cent. of the holding) and at the price to be determined, for the balance 40 per cent., in terms of the order of the Board.

The Board disposed of the company petition giving twenty one directions, the relevant ones of which are these : "(1) The allotment of 150 million shares to the IOC is upheld and it is at liberty to deal with these shares in any manner. (2) Likewise, the transfer of 155 million shares by the WBIDC to the petitioners at Rs. 10 per share is confirmed. (3) The WBIDC/ GoWB shall transfer 520 million shares held by them in the HPL to the petitioners.... (5) The petitioners shall purchase the 271 million preference shares held by the GoWB/WBIDC at par. (6) The fourth petitioner shall pay a sum of Rs. 125 crores to the WBIDC towards the balance consideration for the 155 million shares on or before February 28, 2007. (7) On payment of the said amount, without any further deed or act or approval from anyone or production of any instrument of transfer, these shares shall be deemed to have been dematerialised and transferred in the name of the fourth petitioner and the share certificates shall be deemed to have been cancelled. The company shall initiate and complete other legal formalities in this regard immediately thereafter.... (17) The petitioners are at liberty, as soon as they pay the consideration for the 155 million shares to take control of the day-to-day management of the company, (as they would be holding majority equity shares of 52 per cent.) with the stipulation that no major decisions shall be taken without the approval of the Board.

The relevant findings of the Company Law Board are these shares were not allotted to the IOC suddenly, surreptitiously, or with any ulterior motive. The allegation of a secret agreement between the GoWB, the WBIDC and the IOC was a non-issue sought to be magnified by the petitioners in the company petition. Though they were justified in complaining that the HPL directors participating in the discussion on disinvestment by the WBIDC in favour of the IOC were under a duty to keep the board of directors of the HPL informed about the discussions, the failure was of no consequence, since the IOC allotment was made on terms proposed by the HPL, and they did not assert in any manner that in the case of disclosure of the secret agreement their nominee directors would have prevented the passing of the special resolution.

The IOC was inducted as nothing but a mere portfolio investor, and it Was confirmed by the WBIDC and the IOC that there was no secret agreement. There was no merit in the contention that the special resolution was passed without full disclosure of material information in the explanatory statement to the notice. The discussions held by the GoWB and the WBIDC with the IOC had no bearing on the special resolution. The circular resolution was not vitiated by non-compliance with the provisions in Section 289. The allegation that their consent to support the special resolution had been obtained by inducement or by making any false promise was without any substance. There was no reason to cancel allotment of shares to the IOC.

Mr P.C. Sen, counsel for the WBIDC , has said that once the Board found that the IOC allotment affair of the HPL had not been conducted by the GoWB and the WBIDC in any manner oppressive to the petitioners in the company petition, and when that was the only case of oppression alleged in the company petition, the Board ought to have dismissed the company petition. His submission is that when the company petition was to be dismissed, since the allegation of oppression made therein was not established, as found by the Board, it was allowed by the Board on the basis of a case not at all pleaded (and hence there was no scope to prove such case) in the company petition. It is true that the Board instead of dismissing the company petition, though with respect to the allegation of oppression in the conduct of the affair of allotment of 150 million HPL equity shares to the IOC it held against the petitioners in the company petition, made the impugned order granting relief to them u/s 397.

The relevant findings on the basis whereof the Board granted relief are these. The petitioners in the company petition claimed that at the date of filing the petition, having held over 53 per cent., the HPL shares, they collectively held the majority of the HPL shares, and that that position was confirmed by the GoWB and the WBIDC through their counsel, Sri. Shanti Bhusan, whose submissions were recorded in the order dated August 4, 2005.

At the final stage of the proceedings the GoWB, the WBIDC and the HPL took the stand to challenge transfer of the said 155 million shares to the petitioners, and thus the question of transfer of the said 155 million shares, though was not a matter in issue in the company petition, automatically became a matter for decision. The GoWB and the WBIDC in their affidavit against the company petition challenged the ownership of those shares by the Chatterjee group. Consent of the petitioners in the company petition for the IOC allotment had been obtained by misrepresentation that they were owners of the said 155 million shares.

The question of transfer of those shares was an affair of the HPL that was not only a party to the agreement dated January 12, 2002, but had also written letters to the lenders for expeditious approval for their registration. In view of the agreement dated March 8, 2002, transfer of those shares stood concluded at that date. Hence, the petitioners in the company petition were entitled to allege that allotment of shares to the IOC was oppressive on the ground that that amounted to their conversion from the majority into a minority in the HPL.

The stand of the WBIDC that the Board was not competent to question its change of mind not to execute fresh transfer forms, the previous ones having become stale, was not only highly oppressive to the petitioners in the company petition, but also amounted to deliberate misrepresentation of the facts before the Board. It was not acceptable that the petitioners in the company petition did not pay any consideration for the said 155 million shares. They were entitled to get those shares registered in the name of the CP(I)PL, and for putting an end to the controversy appropriate directions should be given.

The question of transfer of the balance shares, though was an issue between two groups of shareholders, the HPL was directly involved in it. It was bound to be concerned, since the transfer was to convert it from a joint sector company into a private sector company. Besides by letter dated December 17, 2004, the GoWB conveyed to the chairman of the HPL its commitment to transfer all shares held by the WBIDC in the HPL. Thereafter, the principal secretary, a nominee director of the WBIDC, signed the agreement on behalf of the GoWB on January 14, 2005. This fact was known to the chairman of the HPL and the managing director of the WBIDC. Thus, four directors of the HPL were aware of the proposed transfer, and their knowledge was the knowledge of the HPL.

It was apparent from the minutes of board meetings dated March 29, 7005 and May 28, 2005, that the other directors of the HPL were also aware of the transfer proposal. The very fact that the board withheld the actual allotment of shares to the IOC, pending resolution of the proposed transfer, was indicative of the fact that the board of the HPL itself considered that the proposed transfer was an affair of the HPL. In agreement dated January 12, 2002, the HPL was a party. In the supplementary agreement dated July 30, 2004, also the HPL was a party. The chairman of the HPL by his letter dated June 30, 2005, informed PC that the IOC allotment was pending resolution of the promoters'' issue. It was therefore evident that the question of transfer of the balance shares by the WBIDC to the Chatterjee group was also an affair of the HPL.

Though in terms of the agreement dated January 14, 2005, that revived the legitimate expectation of the petitioners in the company petition to get all the HPL shares held by the WBIDC, the GoWB took all necessary steps appropriately, it was not clear why after the petitioners in the company petition indicated availability of the requisite fund to purchase the shares, the GoWB issued the letter dated July 27, 2005, deciding to defer the proposed disinvestment. There was nothing to show that the decision was taken in public interest. It was rather taken for the reason that the Chatterjee group was insisting that no shares should be allotted to the IOC. The decision to defer disinvestment was taken because of refusal on the part of the Chatterjee group to honour its commitment. Since, there was no ground to cancel allotment of shares to the IOC, there would be no impediment to the transfer of all shares held by the WBIDC in the HPL to the Chatterjee group, and for giving a right decision it was not necessary to examine who was right and who was wrong.

In their appeals the GoWB and the WBIDC nave questioned the legality, validity and sustainability of the order of the Board based chiefly on a case of oppression in connection with the Chatterjee group''s entitlement to get the said 155 million shares in terms of the agreements dated January 12, 2002 and March 8, 2002 ; and hence that needs close examination. But before that two important questions regarding : (i) formation and recording of opinions on the three conditions mentioned in Section 397(2) and (ii) pleading and proof, raised by Mr. Sen, require examination and decision. He has contended that the order of the Board is vitiated by an incurable jurisdictional error in that without forming and recording the opinion on the conditions mentioned in Section 397(2) of the Companies Act, 1956, it exercised the power to make order granting relief u/s 397.

Therefore, the questions that require decisions are whether the Board was required to form and record any opinion regarding the three conditions mentioned in Section 397(2), and whether the opinions, if required, were formed and recorded by it. Section 397 is as follows:

Application to Company Law Board for relief in cases of oppression.--(1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of Section 399.

(2) If, on any application under Sub-section (1), the Company Law Board is of opinion--

(a) that the company''s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and

(b) that to wind up, the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up, the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

In support of his contention that the Board was under a statutory obligation to form and record opinions about the three things mentioned in Section 397(2), besides relying on the provisions themselves. Mr. Sen has relied on Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, ; Shanti Prasad Jain Vs. Kalinga Tubes Ltd., ; West-bourne Galleries Ltd., In re [1970] 3 All ER 374 (Ch D) ; M/s. World Wide Agencies Pvt. Ltd. and another Vs. Mrs. Margarat T. Desor and others, ; Hanuman Prasad Bagri and Others Vs. Bagress Cereals Pvt. Ltd. and Others, ; Bagree Cereals (P.) Ltd. and Others Vs. Hanuman Prasad Bagri and Others, and Kelkar Trading Corporation and Shri Chintamani Shridhar Kelkar Vs. Commissioner of Central Excise,

In response, Mr. Sudipto Sarkar, counsel for the CP(M)C and the CP(I)PL, has submitted that it is incorrect to say that the Board made the order without forming any opinion on the conditions mentioned in Section 397(2). According to him, once the Board held that the IOC allotment, because of the stand of the GoWB and the WBIDC on the question of transfer of the said 155 million shares to the CP(I)PL, amounted to an act of oppression on the Chatterjee group, the conclusions that winding up of the HPL would unfairly prejudice the Chatterjee group, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the HPL should be wound up, were to follow automatically. His submissions are that not only what was said in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, case in 1962 is now a matter of history, but in view of Kamal Kumar Dutta and Another Vs. Ruby General Hospital Ltd. and Others, reversing the decision of this Court in Ruby General Hospital Ltd. v. Dr. Kamal Kumar Dutta [2006] 129 Comp Cas 1 : Ruby General Hospital Limited and Others Vs. Dr. Kamal Kumar Dutta and Another, , for exercising power and making order granting relief what is to be considered today is the merits of the case, and not whether conditions mentioned in Section 397(2) stood satisfied.

By referring me to Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, ; Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 : [1997] 1 Comp LJ 243 (Mad); Shree Anupar Chemical (India) P. Ltd. v. Dipak G. Mehta [1999] 4 Comp LJ 474 (Bom); Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, ; and Kamal Kumar Dutta and Another Vs. Ruby General Hospital Ltd. and Others, , he has submitted that even if no case of oppression is established, for doing substantial justice appropriate relief u/s 397 can be given, and that no technical pleas are to be entertained and considered, since today Section 397 has no condition precedent. His further submission is that by not recording the opinions, which can definitely be gathered from the order, the Board, exercising jurisdiction akin to the jurisdiction of a High Court, as was held in Stridewell Leathers (P) Ltd. and others Vs. Bhankerpur Simbhaoli Beverages (P) Ltd., , did not commit any jurisdictional error.

While Mr. S.B. Mukherjee, counsel for Winstar, has apparently adopted Mr. Sarkar''s submissions, Mr. Aninda Mitra, counsel for PC, in addition to adopting Mr. Sarkar''s submissions has said that the proposition that even in the absence of a case of oppression relief u/s 397 can be given is supported also by Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp Cas 60 (Delhi). His further submission is that it is unheard of that there can be any statutory requirement that a judgment must aver a particular thing. He has contended that in any case the absence of formal recording of the opinions, though may make the order of the Board vulnerable in appeal, cannot destroy it altogether, and for this he has relied on NEPC Micon Ltd. v. Magma Leasing Ltd. [1999] 1 CHN 617.

I find that the provisions in Section 397 do not say that the Board must form and record any opinion regarding the things mentioned in Sub-section (2) of the section. What they say is that the Board may make order granting relief if it is of the opinion : (i) that the company''s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and (ii) that to wind up the company would unfairly prejudice such member or members ; but (iii) that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. These three things are three different conditions on fulfillment of each of which only the Board, in my reading and understanding of the section, gets jurisdiction to exercise its discretionary power to make appropriate order granting relief for bringing to an end the matters complained of.

The expression "if the Board is of opinion" means that if the Board believes or thinks. It can believe or think that the three facts situations regarding oppression, unfair prejudice, and winding up exist, only if they are established by adducing evidence. It is therefore obvious that it has to form the opinions regarding fulfillment of the three conditions, and that, that it has formed the opinions can be said, only if the opinions are recorded by it in its order. Hence, from a plain reading of the provisions in Section 397 it seems to me that only after forming and recording opinions regarding existence of the three things the Board could consider the question of making order granting relief in the application u/s 397.

The question is whether I am reading the provisions in Section 397 contrary to any authority. I find that Rajya Lakshmi [1962] 32 Comp Cas 207 (Cal) is the authority to say that an order u/s 397 can be made only after forming the opinions, and further that if any one of the conditions is not satisfied, no further question can arise u/s 397. I am simply bound by this Division Bench decision of this Court. In Shanti Prasad Jain Vs. Kalinga Tubes Ltd., the apex court held that power to make order u/s 397 read with Section 402 can be exercised only after coming to the conclusion that the petitioners in the company petition proved the allegation of oppression and showed the just and equitable ground for winding up the company that must unfairly prejudice the member concerned. There is nothing in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, to support the proposition that order granting relief u/s 397 can be made without forming and recording opinions regarding the three things I have noticed in Section 397(2).

On the contrary, as will appear from it (paragraph 46), a decision given noticing specifically what had been said in Shanti Prasad Jain Vs. Kalinga Tubes Ltd., , that satisfaction regarding fulfilment of the conditions mentioned in Section 397(2) (b) is a condition precedent to exercise of power to make order granting relief. It is important to note that in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, the company petition was dismissed on the ground that no case of oppression was made out. That satisfaction regarding fulfilment of the conditions mentioned in Section 397(2)(b) is a must for making order u/s 397, is also apparent from what the apex court said in M/s. World Wide Agencies Pvt. Ltd. and another Vs. Mrs. Margarat T. Desor and others, and Hanuman Prasad Bagri and Others Vs. Bagress Cereals Pvt. Ltd. and Others, . From Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, it is apparent that order u/s 397 can be made only when the three conditions are satisfied. The same appears to be the position of law noticed by the apex court again in Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 : [2006] 5 Comp LJ 511 (paragraph 32.1).

But then, it is for what the apex court said in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, that counsel for the Chatterjee group have said that the position of law has totally changed today from what the Division Bench of this Court said in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, . In Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, the apex court said, "Even though the company petition fails and the appeals succeed on the finding that the holding company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of May 2 were held in accordance with law".

Counsel for the Chatterjee group have picked out the expression "the court" used by their Lordships. Their submission is that by the expression the apex court meant all courts including the Board that subsequently came into existence with jurisdiction akin to the jurisdiction of a High Court, as was held in Stridewell Leathers (P) Ltd. and others Vs. Bhankerpur Simbhaoli Beverages (P) Ltd., . According to them in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, the apex court declared the law that even when no case of oppression is made out, order granting relief u/s 397 can be made for doing substantial justice between the parties, and that in view of Article 141 of the Constitution of India that law is binding on all courts including the Board. They have said that from Krishan Lal Ahuja [1983] 53 Comp Cas 60 (Delhi), Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 : [1997] 1 Comp LJ 243 (Mad) and Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, it is apparent that their contention is right.

I am unable to agree with them. It is apparent from Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , paragraph 172, that the directions were given in exercise of power conferred by Article 142 of the Constitution. Having dismissed the company petition and allowing the appeals on the ground that no case of oppression was made out, their Lordships said that the court (in my understanding the apex court), however, was not powerless to do substantial justice between the parties. Then their Lordships gave certain directions. Hence, in my reading and understanding, Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, ratio rather is that unless the allegation of oppression is established, no order granting relief u/s 397 can be made. Krishan Lal Ahuja [1983] 53 Comp Cas 60 (Delhi), given without considering any of the existing authorities, in my opinion, cannot be considered an authority for holding that order granting relief u/s 397 can be made even when no case of oppression is made out. In that order it was made on the peculiar facts of the case.

In Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 129 : [1997] 1 Comp LJ 243, 261 (Mad) while examining the scope of Section 397 the Division Bench of the Madras High Court referred to Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , and said (in paragraph 33), "In that case, their Lordships said that in a given case even if the case of oppression is not proved, substantial justice must be done between the parries and the parties must be placed as nearly as may be in the same position if they could have been placed". There the question whether Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, declared the law as contended before me did not arise. In any case, with all humility at my command, I say that I am unable to read and understand Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, as was apparently done by their Lordships.

Mr. Sen drew my attention to a single bench decision of this Court in Jatadhar Chakraborty v. Power Tools and Appliances Co. Ltd. [1994] 79 Comp Cas 505 : 96 CWN 313, in which it was said (paragraph 62) (page 527), "I do not read Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , as an authority for the proposition that even in cases where oppression and mismanagement are not found u/s 397 or 398 of the Act, the court can compel the company or the respondents to buy out the dissident shareholders". He also relied on Indian Bank Vs. ABS Marine Products Pvt. Ltd., , saying (in paragraph 26) that what the High Courts should follow is the law declared by the apex court, and not the directions, treating them as the law declared, given by the apex court relaxing the application of the declared law for doing complete justice on the peculiar facts of the case concerned.

While dealing with the subject oppression and mismanagement, in Sang-ramsinh [2005] 123 Comp Cas 566, 635 (paragraph 199) the apex court said, "In a given case the court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties". And this has been strongly relied on to say that today there is no condition precedent for making an order granting relief u/s 397. I do not think that is what their Lordships said the law is. In my view, what was said in that paragraph 199 should not be read out of context. Once the whole judgment is read, to my mind, no doubt can remain that the observations were made keeping in view what had been said in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, regarding power of the supreme court available under Article 142 of the constitution, and not regarding any power of any other court of the country. I am unable to accept that in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, any such law as is visualized by counsel for the Chatterjee group was declared. It is therefore not correct to say that today there is no condition precedent for making an order granting relief u/s 397.

The law has remained the same that was seen in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, and Shanti Prasad Jain Vs. Kalinga Tubes Ltd., . Hence, I find that the view I have already taken regarding the requirement of formation and recording of the opinions on the three conditions mentioned in Section 397(2) for acquiring the jurisdiction and power to make order granting relief u/s 397, is not contrary to any authority. I therefore hold that an order granting relief u/s 397 can be made only after forming and recording opinion on each of the three conditions mentioned in Section 397(2) (a) and (b).

The next question is whether the present case is one in which no opinion at all was formed and recorded by the Board. I find that Mr. Sarkar is right in saying that it is not. The Board was of the opinion that since, after admitting at the admission stage of the company petition that the petitioners therein collectively held the majority of the HPL shares, at the final hearing stage of the case the GoWB and the WBIDC challenged the CP(I)PL''s ownership of the said 155 million shares, the IOC allotment, converting them from the majority into a minority, was oppressive to them. Whether this opinion can be sustained that is a different question, and I will examine it presently. But it cannot be said that the Board did not form and record any opinion at all. The Board, however, did not form and record any opinion on the two other things : (i) unfair prejudice, and (ii) winding up on just and equitable ground, as mentioned in Section 397(2)(b). I am unable to agree with Mr. Sarkar that opinions on these would automatically follow from the opinion formed by the Board on oppression, or that the opinions can be gathered from the order of the Board.

The question of gathering could arise, had the Board said anything about the two things. It did not say anything at all. The opinions were to be formed on the basis of relevant facts, because both the questions were essentially pure questions of fact. When the Board said nothing about them, I do not see how it can be said that, that the Board was satisfied that winding up of the HPL would unfairly prejudice the petitioners in the company petition, but that otherwise the facts and circumstances would justify the making of a winding up order on the ground that it was just and equitable that the HPL should be wound up, can be gathered from the order, or can automatically follow from the opinion formed on oppression.

In Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, it was held that in the absence of satisfaction of all the conditions mentioned in Section 397(2), no question of making order granting relief u/s 397 would arise. As was held in Shanti Prasad Jain Vs. Kalinga Tubes Ltd., it must be shown as preliminary to an application u/s 397 that there is just and equitable cause for winding up of the company. From Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, also it is apparent that order granting relief u/s 397 can be made only when the conditions in Section 397(2)(b) are fulfilled. The same thing was said in M/s. World Wide Agencies Pvt. Ltd. and another Vs. Mrs. Margarat T. Desor and others, and Hanuman Prasad Bagri and Others Vs. Bagress Cereals Pvt. Ltd. and Others, . From Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, and Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 : [2006] 5 Comp LJ 511, it is clear that only on fulfilment of all the conditions mentioned in Section 397(2) order granting relief u/s 397 can be made. Here the Board made order granting relief to the petitioners in the company petition without recording how it was satisfied about the two conditions mentioned in Section397(2)(b). NEPC Micon [1999] 1 CHN 617 holding that failure to give reasons in compliance with the provisions in Order 39, Rule 3, proviso of the Code of Civil Procedure, 1908, would make the order vulnerable in appeal, but not destroy it altogether, relied on by Mr. Mitra, has no application to such a case as this.

Under Order 39, Rule 3 the civil court possesses power to make ex parte order granting injunction, the only thing it is to do is to record reasons in support of the order. That is not the case u/s 397 of the Companies Act, 1956. Under this the Board acquires power to make order granting relief only if it forms and records opinions on all the three things mentioned in clauses (a) and (b) of its Sub-section (2). I therefore hold that Mr. Sen is right in his submission that the order of the Board is vitiated by incurable jurisdictional error.

Another question that has arisen is whether regarding the said 155 mil-lion shares the Board could make any order at all. But before I proceed to examine the question, I think it is necessary to mention that in course of hearing of the case, I was told, on more than one occasion, by counsel for the Chatterjee group that while deciding the appeals filed by the GoWB and the WBIDC, I should not entertain and examine (a) any submission regarding correctness of findings of fact recorded by the Board, and (b) any question of law that does not arise out of the impugned order. I was taken through Section 10F, which is:

10F. Appeals against the orders of the Company Law Board.--Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 61. In support of his contentions that an appeal u/s 10F of the Companies Act, 1956, lies only on a question of law arising out of the order of the Board ; that findings of fact, unless they are perverse, cannot be disturbed ; that evidence is not to be reappraised ; and that the High Court can provide additional grounds to sustain the order, Mr. Mukherjee has relied on Hooghly Jute Mills Vs. Their Employees, ; Shree Anupar Chemical (India) P. Ltd. v. Dipak G. Mehta [1999] 4 Comp LJ 474 (Bom) ; Navaneethammal Vs. Arjuna Chetty, ; Hari Singh Vs. Kanhaiya Lal, : and Dale and Carrington Invt. (P) Ltd. and Another Vs. P.K. Prathapan and Others, . While explaining what the expression "any question of law arising out of such order" used in Section 10F should mean, Mr. Mitra has referred me to Commissioner of Income Tax, Bombay Vs. Scindia Steam Navigation Co. Ltd., .

In that, while deciding the question whether in a reference u/s 66 of the Income Tax Act, 1922, the High Court could consider a question which had not been raised before the Tribunal or dealt with by the Tribunal in its order, even though it would be one of law, their Lordships of the apex court said (in paragraph 31 of the report) (page 611 of 42 ITR):

The result of the above discussion may thus be summed up:

(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is therefore one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order.

It is to be noted that the provisions in Section 66(1) of the Income Tax Act, 1922, conferred on the assessee and the Commissioner a right to apply to the Tribunal in the prescribed form to refer any question of law arising out of its order for decision of the High Court.

with respect to the scope and ambit of the provisions in Section 10F, I do not find any disagreement between the counsel for the parties. It is not disputed that on any question of law arising out of the order of the Board the parties in the case are entitled to prefer an appeal or file a cross-objection before this Court. It is not disputed either that the order can be questioned on the ground that findings recorded and conclusions reached by the Board are perverse.

Here one of the questions that arises out of the order of the Board is whether it had jurisdiction to consider anything connected with the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL. This jurisdictional question arises for two reasons:

(i) the CP(I)PL was not a member of the HPL, and (ii) there was no pleading in the company petition that the question of transfer of the said 155 million shares was an affair of the HPL, and that, that affair had been conducted by any of the respondents in the company petition in a manner oppressive to the petitioners therein.

As to the question whether the CP(I)PL could be joined as a petitioner in the company petition, Mr. Sarkar, its counsel, has argued that since in terms of the agreement dated January 12, 2002, the said 155 million shares were meant for the Chatterjee group that through its other companies took out the company petition, the CP(I)PL, though not a shareholder of the HPL, was entitled to join the others for initiating the proceedings. I am unable to accept his submission. An application u/s 397 can be filed only by a member of the company who has reason to complain about the manner in which the affairs of the company are being conducted. Besides, the member is entitled to file the application only if he has a right so to apply by virtue of Section 399.

It is, therefore, clear that the CP(I)PL was not entitled to take out or join the petitioners in an application u/s 397. This being the position nothing connected with the said 155 million shares to which only the CP(I)PL could, if at all, lay a claim, could be decided by the Board. But the whole foundation of its order under appeal is the question of transfer of the said 155 million shares. In my view, this jurisdictional error also vitiated the order of the Board incurably.

Regarding the question whether any case of oppression was made out in the company petition regarding the said 155 million shares, the Board held that the question of transfer of those shares by the WBIDC to the CP(I)PL was not a matter in issue in the company petition. Relying on such findings of the Board, Mr. Sen has contended that the Board was not competent to make the order on the basis of a case not pleaded and proved. Mr. Sarkar and Mr. Mitra have argued that it is not correct to say that the Board considered any case that was not made out in the pleadings filed by the parties. Their argument is that the Board was required to consider all the issues arising out of the company petition, the counters, and the rejoinders filed by the parties, and not merely by confining itself to the case pleaded in the company petition. In support of their respective contentions, while Mr. Sen has relied on Mohta Bros. P. Ltd. v. Calcutta landing and Shipping Co. Ltd. 73 CWN 425 and Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, , Mr. Sarkar has relied on Ramashankar Prosad and Others Vs. Sindri Iron Foundry (P) Ltd. and Others, and Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 : [1997] 1 Comp LJ 243 (Mad).

The petitioners in the company petition claimed that they collectively held the majority of the HPL shares. Their such claim was based on the agreements dated January 12, 2002, March 8, 2002 and July 30, 2004, terms and conditions whereof were mentioned in the company petition. No allegation was, however, made that regarding transfer of the said 155 million shares by the WBIDC to the CP(I)PL and their registration by the HPL in favour of the CP(I)PL, the respondents in the company petition conducted any affair of the HPL in a manner oppressive to the petitioners therein. To be precise, nothing connected with the said 155 million shares was a matter in issue in the company petition.

In the counter filed by the GoWB and the WBIDC it was stated that according to the HPL register those shares were held by the WBIDC, and not by the CP(I)PL ; and that before allotment of shares to the IOC, the petitioners in the company petition held 48.93 per cent. equity shares of the HPL, and not the majority thereof as claimed by them. It was further stated that the CP(M)C had committed breach of the terms and conditions of the agreement dated January 12, 2002, in compliance wherewith the WBIDC executed the agreement dated March 8, 2002, for transfer of the said 155 million shares to the CP(I)PL. In their rejoinder the petitioners in the company petition said that by falsely maintaining a title to the said 155 million shares, title to which had in fact been transferred by the WBIDC to the CP(I)PL on March 8, 2002, the GoWB and the WBIDC claimed to be the majority in the HPL. They further said that the statutory records of the WBIDC themselves did not claim after March 8, 2002, that title to the said 155 million shares was held by the WBIDC whose balance-sheet did not claim those shares as part of its holding in the HPL, and that they owned and controlled those shares.

The Board was therefore right in saying that the question of transfer of the said 155 million shares was not a matter in issue in the company petition. It is only in course of arguments that the issue was raised. Mr. Sarkar and Mr. Mitra are wrong in saying that the Board did not make the order on the basis of a case not made out in the company petition ; this is contrary to the findings recorded in the order by the Board itself. They are also wrong in saying that from all the materials on record the question of transfer of the said 155 million shares became a matter of issue in the company petition. For this Mr. Sarkar has relied on Ramashankar Prosad and Others Vs. Sindri Iron Foundry (P) Ltd. and Others, . I do not think that says that an order granting relief u/s 397 can be made on the basis of a case not pleaded or made out in the company petition.

In paragraph 53 of the report it was said (page 529) : "What was lacking in the petition has been filled up by the subsequent affidavits and the court must guide itself by all the evidence before it. It must be said that the petitioners had not made a strong case of oppression or mismanagement in the petition". So, that was not a case where no case of oppression regarding the act complained of (overthrow of the majority by taking possession of the factory by force) was made out in the company petition. Only a strong case was not made out initially, and it became strong once further evidence was brought on record by subsequent affidavits. Here absolutely no case of oppression regarding the said 155 million shares was made out in the company petition.

In Mohta Bros. (P.) Ltd. and Others Vs. Calcutta Landing and Shipping Co. Ltd. and Others, , the Division Bench of this Court said (in paragraph 13 of the report), "In our view this question is well-settled namely that in a petition under Sections 397 and 398 of the Act, the court must confine itself to the case as made out in the petition and to the allegations in the petition itself and supporting affidavits, if any, and not look at other evidence with regard to events that might have happened subsequent to the petition".

While taking this view their Lordships referred to a single bench decision of this Court in In Re: Bengal Luxmi Cotton Mills Ltd., . Approving Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, the apex court said (in paragraph 200 of the report) (page 635) : "It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Companies Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary". In the face of such clear proposition of law laid down by the apex court, I am unable to accept Mr. Sarkar''s contention that after considering all materials on record and submissions of counsel for the parties, the Board was competent to give decision regarding the Chatterjee group''s entitlement to get the said 155 million shares.

The contention that in Section 397 proceedings what is to be considered is the case made out in the pleadings taken together, and not a case made out only in the petition, has been clarified by him by saying that the requisite opinions with supporting findings and relief can be given even on the basis of a case made out in the counter or in the rejoinder. The counter cannot make out a case for the petitioner, it denies or disputes or admits his case made out in his petition, and can make out a counter case of the respondent. A rejoinder explains, clarifies, and strengthens the case made out in the petition, it cannot be used to make out a case not made out in the petition. So, when it is said that the case made out by the pleadings is to be considered, it is meant that the case made out in the petition, dealt with in the counter, and explained, clarified, and strengthened by the rejoinder, is only to be considered, not a case not made out in the petition or made out in the rejoinder for the first time.

I therefore find that the impugned order, entirely founded on the question of transfer of the said 155 million shares, is vitiated by a very serious jurisdictional error. When the Board was not competent to consider any case regarding those shares, it made a case argued at the bar the foundation for forming its opinion that the challenge thrown by the GoWB and the WBIDC entitled the petitioners in the company petition to say that the IOC allotment was oppressive to them, and that the stand of the GoWB and the WBIDC that they would not execute fresh share transfer form was highly oppressive. Absolutely, without any basis it held that the GoWB and the WBIDC had obtained consent of the petitioners in the company petition to the IOC allotment by misrepresenting that they were owners of those shares.

Brushing aside all defence and without adjudicating the relevant questions, it abruptly concluded that transfer of the said 155 million shares stood concluded on March 8, 2002, and at the same time gave directions for their transfer. Mr. Sarkar has contended that even assuming no case regarding the question of transfer of the said 155 million shares was made out in the company petition, in view of Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 : [1997] 1 Comp LJ 243 (Mad) in which Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, ratio was indicated as the law declared by the apex court recognising power of all courts to make order for doing substantial justice even when no case of oppression is made out, the Board was competent to consider a case argued before it. I have already said that in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, no such law as was visualised in Shoe Specialities Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 : [1997] 1 Comp LJ 243 (Mad) had been declared. The Board did not possess any such power as seen by Mr. Sarkar.

The Board held that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL was an affair of the HPL, because not only the HPL was a party to the agreement dated January 12, 2002, that was followed up by agreement dated March 8, 2002, between the CP(I)PL, the WBIDC and the CP(M)C, but it had also written letter to the lenders regarding approval for registration of those shares. According to counsel for the GoWB and the WBIDC the Board was totally wrong in holding that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL was an affair of the HPL. Relying on V.B. Rangaraj Vs. V.B. Gopalakrishnan and others, , Mr. S. Pal, counsel for the GoWB, has submitted that disputes arising out of an agreement for transfer of shares between shareholders do not relate to the conduct of the affairs of a company. He has said that the agreement dated January 12, 2002, interfering with the directors'' fiduciary duties and obligations was ultra vires the provisions of the Companies Act, 1956, and for this he has relied on Rolta India Ltd. and another Vs. Venire Industries Ltd. and others, .

Mr. Bimal Chatterjee, counsel for the HPL, has said that simply because the HPL was a party to the agreement dated January 12, 2002, things connected with the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL were not to become affairs of the HPL. He has relied on Leeds United Holdings Plc, In re [1996] 2 BCLC 545, holding (at 559, pl.i) that an expectation that a shareholder will not sell his shares without the consent of some other or other shareholders does not relate in any way to the conduct of the company''s affairs.

On the other hand Mr. Mukherjee has said that the expression "affairs of a company" is to be understood as meaning the business affairs of the company ; that it will include disputes relating to rights of shareholders or groups of shareholders inter se which are contractual in nature ; and that the terms of association of shareholders in a company are contained in the articles of association or in collateral agreements between shareholders and thus the affairs of a company are regulated by rules to which the shareholders have agreed. He has relied on R. v. Board of Trade [1964] 2 All ER 561 (QBD); The Great Outdoors Co. Ltd., In re [1986] LRC (Comm) 549 ; and O''Neill v. Phillips [1999] 97 Comp Cas 807 (HL) : [1999] 2 All ER 961.

In my view, the question is whether regarding the question of transfer of the said 155 million shares by the WBIDC in terms of the agreement dated January 12, 2002, the HPL was competent or supposed to do anything ; and if the answer is in the affirmative, then it must be held that it was one of its affairs. Mr. Bimal Chatterjee, in my opinion, is right in saying that though the HPL was a party to the agreement dated January 12, 2002, it was not competent or supposed to take any decision or to do any other thing regarding the question of transfer of the said 155 million shares by the WBIDC to the CP(M)C, or to its nominee the CP(I)PL that entered into a separate agreement dated March 8, 2002, with the WBIDC. The agreement dated March 8, 2002, was not an agreement between shareholders of the HPL, the CP(I)PL that was deemed to have pledged the deemed transferred and delivered shares was not a shareholder of the HPL. Simply because the HPL subsequently wrote letters seeking confirmation from the WBIDC whether it had transferred those shares, and seeking the IDBI''s decision regarding approval of the transfer, I do not think it can be said that the matter became an affair of the HPL. To my mind, the Board committed an error of law by holding that the question of transfer of the said 155 million shares was an affair of the HPL.

The question of registration of those shares, if lodged by the CP(I)PL, would have no doubt been an affair of the HPL, because in that case it would have been under a duty to decide whether the shares were to be registered in the CP(I)PL''s name. Here that is not the case, since the shares had not actually been delivered with duly executed share transfer forms to the CP(I)PL, and the CP(I)PL had never lodged, rather could never lodge, them with the HPL for registration. The board of directors or the shareholders of the HPL were not competent to direct the WBIDC to transfer those shares to the CP(I)PL, though they were free to take note of the developments regarding the question of their transfer. Simply because the board of the HPL was free to take note of or took note of the developments, it cannot be said that the matter became an affair of the HPL.

For the purpose of making an application for an order u/s 397 the question of transfer of the said 155 million shares by the WBIDC in terms of the agreements dated January 12, 2002 and March 8, 2002, would have been an affair of the HPL, provided the board of the HPL or the WBIDC in the capacity of the holder of the majority of the HPL shares, could decide it in any way by holding meetings of the HPL. It was just not possible, and for not taking any decision regarding the question of transfer of those shares by the WBIDC to the CP(M)C or the CP(I)PL in terms of the agreements in question, the HPL or its directors were not to become responsible in any manner whatsoever. I therefore do not see how the question of transfer of the said 155 million shares could be considered an affair of the HPL. Hence, I hold that the board was not competent to decide anything connected with that question while considering the company petition u/s 397.

Even on merits, I am unable to see how an order could be made by the Board regarding transfer of the said 155 million shares in terms of the agreements dated January 12, 2002 and March 8, 2002. It was not the case of the petitioners in the company petition that regarding transfer of those shares the GoWB and the WBIDC conducted any affair of the HPL in a manner oppressive to them. There is absolutely nothing to show that their any attempt to get those shares transferred and registered in the name of the CP(I)PL was thwarted by the GoWB and the WBIDC or by any other person. In the absence of the litigation and with the IOC allotment going smoothly, perhaps the GoWB and the WBIDC would have transferred them to the CP(I)PL ; for necessary steps that were taken and the CP(I)PL, as will appear from its letter dated November 4, 2004, to the WBIDC, was also fully satisfied with the steps taken.

The question is whether these facts coupled with the possibility could be employed for holding that it was permissible to make an order u/s 397 directing the WBIDC to transfer those shares. The order was not, however, made by the Board for these reasons and the possibility alone. What it held is that the said 155 million shares had stood transferred to the CP(I)PL, and that consequent upon acquisition of those shares the Chatterjee group had acquired the status of holder of the majority of the HPL shares. Having so held, it then held that since the IOC allotment was to be upheld on merits, it was necessary to direct the WBIDC to transfer the said 155 million shares, because otherwise the Chatterjee group would stand converted from the majority into a minority.

In my opinion, counsel for the GoWB and the WBIDC are absolutely right in saying that the findings and conclusions of the Board are perverse. In reality the Chatterjee group never held the majority of the HPL shares. Though the intention behind transfer of the said 155 million shares was to make the group the holder of the majority of the HPL shares, they having not been registered in the CP(I)PL''s name, for all lawful purposes, the WBIDC remained the holder of the majority of the HPL shares. On the facts, at best it can be said that the GoWB and the WBIDC permitted the Chatterjee group to manage the day-to-day affairs and control the management of the HPL in such manner as it could, if it were the majority shareholders in the HPL. It is therefore clear that the findings of the Board that with 150 million shares allotted to the IOC, the group was to stand converted from the majority into a minority are absolutely perverse.

It is not that in the absence of the IOC allotment the group was to remain the majority. For acquiring that status it needed the said 155 million shares from the WBIDC. These shares had nothing to do with the majority/minority status of the group and the IOC allotment. Hence, I am unable to see how the Board could conclude that the petitioners in the company petition established a case of oppression, since with the IOC allotment upheld, the Chatterjee group would stand converted from the majority into a minority, unless it got the said 155 million shares from the GoWB and the WBIDC. 88. In my opinion, counsel for the GoWB and the WBIDC are right in saying that the Board committed a serious error of law by holding that submissions made by counsel for the GoWB and the WBIDC at the time of admission of the company petition confirming that the petitioners therein were holding 53 per cent. of the HPL shares, and stand taken by the GoWB and the WBIDC to challenge transfer of the said 155 million shares at the final stage of the proceedings amounted to oppression. At the time the company petition was moved and interim relief was sought, the prayer was presumably resisted by counsel for the GoWB and the WBIDC arguing that with the IOC allotment the petitioners in the company petition would not stand converted from their claimed majority into a minority.

Counsel for the GoWB and the WBIDC have rightly said that in the final adjudication process the Board was not justified in recording a finding of fact taking exception to the submissions made at the admission stage. Counsel for the GoWB and the WBIDC were entitled to resist the prayer for interim relief on the basis of the case made out in the company petition by the petitioners themselves. Though the said 155 million shares had never actually been acquired by the CP(I)PL and in reality the Chatterjee group was not the majority shareholders in the HPL, the petitioners in the company petition claimed that having acquired those shares they had become the majority shareholders in the HPL. That was an absolutely incorrect statement of fact. They were fully aware of the fact that as from October 14, 2004, the HPL had become a Section 619B company. Whatever may be the effect of the agreements dated January 12, 2002 and March 8, 2002, read with the agreement dated July 30, 2004 (I say so because their enforceability, validity and legality were questioned before the Board and also before me, and I do not think it is necessary for me to examine those aspects), the fact remains that the Chatterjee group never held the majority of the HPL shares.

In my opinion, iris not permissible to substitute submissions of counsel for a party or defence of a party pleaded in the affidavit, for any statutory requirement. When the act of oppression was to be pleaded in the company petition by the petitioners therein and the Board was to decide that complaint, it was not permissible for it to substitute submissions of counsel for the GoWB and the WBIDC and their defence pleaded by them in their counter for the absentee pleadings in the company petition. When there was no case of oppression pleaded in the company petition that unless the said 155 million shares were actually transferred by the WBIDC, with the IOC allotment the petitioners therein would stand converted from the majority into a minority, it was not permissible for the Board to hold that because of counsel''s submissions and defence taken in the counter and the possibility of WBIDC not transferring the said 155 million shares of its own accord, a case of oppression stood established.

The petitioners in the company petition were required to plead and prove the act or acts of oppressions, and an act or case of oppression was not to be searched out somehow by the Board; it was just to be apparent, having been established. I am unable to agree with counsel for the Chatterjee group that the findings of oppression recorded by the Board, tying up the IOC allotment and the question of transfer of the said 155 million shares, being a pure finding of fact cannot be interfered with. I hold that the finding of the Board regarding oppression is perverse, and hence the impugned order entirely based on such finding is liable to be set aside.

Without making out any case of legitimate expectation in the company petition, at the time of arguments the petitioners therein, though their counsel, based their whole case on the doctrine of legitimate expectation. Their counsel argued that the Chatterjee group was entitled to say that it had been legitimately expecting to get management control of the HPL by becoming the majority shareholders therein, and hence it must get the said 155 million HPL shares from WBIDC. The Board accepted it, and, as has rightly been said by counsel for the GoWB and the WBIDC, quite illegally and perversely. Even, if it is assumed that the doctrine of legitimate expectation was applicable to the case, it was not to be applied ignoring the basic facts and the case of the GoWB and the WBIDC.

The origin of the said 155 million shares was the agreement dated January!-!, 2002. They were to be given for a specific reason--the CP(M)C was to ensure investment of a minimum of Rs. 500 crores by March 31, 2002, for survival of the HPL that was, because of severe financial crisis, on the verge of being declared sick. Not a rupee was invested by the CP(M)C by March 31, 2002, and not only it slapped interest burden on the HPL by arranging further loans totalling to Rs. 107 crores that it was to invest by subscribing to the rights issue long ago, it never brought the balance of the minimum of Rs. 500 crores. By taking over the HSBC loan of Rs. 107 crores, and thus releasing the HPL of the interest burden, it indirectly brought in Rs. 107 crores only on July 30, 2004, when equity shares at par for the amount were allotted to Winstar.

If the Chatterjee group was really after management control, it was free to invest suitably in terms of the agreement dated January 12, 2002, for ensuring its absolute majority status, that right was given to it. It is apparent that the group was not interested in attaining majority status by making more investment and getting equity shares issued for that. It rather wanted that WBIDC should become a minority by transferring just the requisite number of shares to it. In terms of agreement dated January 12, 2002, the CP(M)C was free to call upon WBIDC to sell its entire HPL shareholding. It never did that, and instead gave up that right on July 30, 2004. It therefore appears that what the CP(M)C actually wanted was to acquire the majority shareholder status by making the minimum investment and not to permit any strategic investor to come in with funds for the HPL. I wonder how on the facts of the case a person of reasonable prudence can say that the Chatterjee group was entitled to get benefit of the doctrine of legitimate expectation and the GoWB and the WBIDC were not entitled to raise any question regarding compliance with and due performance of the terms of the agreement dated January 12, 2002, by the CP(M)C.

In my view, counsel for the GoWB and the WBIDC are right in saying that the Board should not have made the order directing the GoWB and the WBIDC to sell all shares held by WBIDC in the HPL to the Chatterjee group. The order was not made on the ground that the GoWB and the WBIDC had conducted any affair of the HPL in a manner oppressive to the petitioners in the company petition, and hence an order directing the GoWB and the WBIDC to exit from the HPL was called for. The order was made on the ground that the decision to defer disinvestment had been taken because of refusal on the part of the Chatterjee group to honour its commitment regarding the IOC induction, and since there was no ground to cancel allotment of shares to the IOC, there would be no impediment to the transfer of all shares held by WBIDC in the HPL.

In my view, the Board was not empowered to make the order for the reasons for which it made it. It could make the order only if it was established that the GoWB and the WBIDC by conducting any affair of the HPL in a manner oppressive to the petitioners in the company petition created a situation for making an order, winding up the HPL on just and equitable grounds, and hence instead of making order of winding up that would unfairly prejudice the petitioners, an order should be made directing the GoWB and the WBIDC to exit from the HPL by selling all the HPL shaxes held by them to the Chatterjee group. No such case was established.

For making the order the Board held that the question of sale of the snares in terms of the agreement dated January 14, 2005, though was an issue between two groups of shareholders, was an affair of the HPL that was bound to be concerned, since the transfer was to convert it from a joint sector company into a private sector company. In my opinion the Board was absolutely wrong. True it is that, as noticed by the Board also, the question of transfer of all the HPL shares held by WBIDC to the CP(M)C was noticed by the HPL board, the directors whereof were also aware of the proposed transfer in terms of the understanding dated January 14, 2005.

Simply because the Board was noticing the developments, the directors of the HPL were aware of the events which were happening after the document dated January 14, 2005, was signed, or on the transfer taking place in the HPL was to stand converted from a joint sector company into a private sector company, I do not see how it could be said that the question of transfer of shares by WBIDC to the CP(M)C on the basis of understandings, recorded in the document dated January 14, 2005, did become an affair of the HPL. The HPL had no right or duty or obligation to take any decision regarding that question. It was an absolutely private affair between two shareholders of the HPL.

It is not understood Row on the sale taking place the joint sector company was to become a private sector company. Decision had already been taken to allot shares to the IOC, another public sector company, and even if WBIDC was to exit, the IOC was to remain in the HPL with at least 150 million shares. The Board was also wrong in holding the matter to be an affair of the HPL on the ground that the HPL Board withheld the actual allotment of shares to the IOC pending resolution of the proposed transfer.

The HPL was a party to the supplementary agreement dated July 30, 2004, and this fact was also noticed by the Board for reaching the conclusion that the question of transfer of all shares by WBIDC to the CP(M)C was an affair of the HPL. For the same reasons for which I have already said that the question of transfer of the said 155 million shares by the WBIDC to the CP(I)PL in terms of the agreements dated January 12, 2002 and March 8, 2002, could not be an affair of the HPL, I say that the question of transfer of all the HPL shares held by WBIDC to the CP(M)C or to its nominee in terms of understandings recorded in the document dated January 14, 2005, could not be an affair of the HPL as well.

The Board made the order granting relief on the basis that the document dated January 14, 2005, revived legitimate expectation of the Chatterjee group to get all the HPL shares held by the WBIDC, and for applying the doctrine of legitimate expectation it held that the HPL was in the nature of a quasi-partnership. The questions whether the HPL was in the nature of a quasi-partnership and whether the doctrine of legitimate expectation could be made the foundation for seeking relief u/s 397 arose because the GoWB and the WBIDC contended that the petitioners in the company petition were seeking nothing but specific performance of contracts for which the Board did not possess the requisite power.

It is from this situation that in course of making submissions, and finally in the lengthy written submissions filed before the Board, the Chatterjee group invited the Board to apply the propositions of quasi partnership and legitimate expectation. Though there was absolutely no pleading regarding those things in the company petition, the Board accepted the Chatterjee group''s case that what it was seeking was not specific performance of any agreement, but enforcement of the legitimate expectations arising from the agreements.

The Board proceeded on the basis that it was required to examine, keeping in view the conduct of the parties, the only issues whether the Chatterjee group established that it had any legitimate expectation while joining HPL, and whether such expectation of the group continued. It held as follows : the GoWB and the WBIDC admitted that they, with the CP(M)C and the Tatas, were the promoters of the HPL. PC''s personal relationship with the Chief Minister and the officials of GoWB brought the CP(M)C and its group companies and the WBIDC in association with the HPL. Ninety-five per cent, of the subscribed equity shares were held by the Chatterjee group and WBIDC as the only two dominant groups of shareholders. With their respective four nominees on the board of directors they took all major decisions in consultation and with the consent of each other.

According to articles of association right of pre-emption was conferred on me promoters. Hence, in reality the HPL was a quasi partnership between the Chatterjee group and the GoWB and the WBIDC, and therefore the doctrine of legitimate expectation, consistently applied by the Board to cases involving closely held companies, family companies and companies in the nature of quasi partnership, would apply to the HPL.

The question is whether the Board was right in holding that the HPL was in the nature of a quasi partnership between the GoWB and the WBIDC and the Chatterjee group, and hence the doctrine of legitimate expectation was to apply. I think Mr. Sen and Mr. Pal are right in saying that in the absence of any pleading in the company petition that the HPL being in the nature of a quasi partnership the petitioners therein were entitled to seek application of the doctrine of legitimate expectation in the context of oppressive act or acts of the GoWB and the WBIDC leading to frustration of assurances and commitments given by the agreements for giving management control of the HPL to the Chatterjee group, the Board should not have accepted the arguments made at the bar. Mr. Sundaram''s contention is that what the Board could not do directly, it actually did that indirectly in the sense that by applying the doctrines of quasi partnership and legitimate expectation it granted specific reliefs by enforcing performance of the agreements.

Mr. Sen has relied on Hind Overseas Private Limited Vs. Raghunath Prasad Jhunjhunwalla and Another, to show that principle of quasi partnership has a limited application to companies. By giving me Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra, , he has said that not only the English law is irrelevant, but the quasi partnership principle is also not to be easily applied to companies, as promoters knowingly and voluntarily bind themselves to the provisions of the statute and elect to avail of the advantages of forming a limited company. He has said that the principle of quasi partnership applies to companies managed by members of a family, and for this he cited to me (2005) 123 CompCas 486 Regarding legitimate expectation he has said that the Board wrongly relied on Synchron Machine Tools P. Ltd. v. U.M. Suresh Rao [1994] 79 Comp Cas 868 (Karn) that cannot be treated as an authority for applying the doctrine of legitimate expectation to proceedings under Sections 397 and 398 of the Companies Act, 1956. He has said that as was held in National Buildings Construction Corporation Vs. S. Raghunathan and Others, , a plea of legitimate expectation, an offshoot of promissory estoppel, does not call for any examination at all if not pleaded, and hence the Board should not have undertaken a speculative exercise for deciding the issue of legitimate expectation, essentially a question of fact, since there was no pleading in the petition.

Mr. Pal has said that legitimate expectation, a substantive principle, is to be considered not according to the claimant''s perception, but keeping in view the larger public interest wherein other more important considerations may outweigh what would otherwise have been the legitimate expectation of the claimant. For this he has relied on Food Corporation of India Vs. M/s. Kamdhenu Cattle Feed Industries, . On the strength of A.C. Roy Co. and others Vs. Union of India and others, ; D. Wren International Ltd. and another Vs. Engineers India Ltd. and others, ; Hira Tikkoo Vs. Union Territory, Chandigarh and Others, and Ram Pravesh Singh and Others Vs. State of Bihar and Others, , he has contended that when agreement is alleged no question of legitimate expectation arises. To show the indispensability of pleading he has cited to me Uttar PradeshGram Panchayat Adhikari Sangh and Others Vs. Daya Ram Saroj and Others, .

On the contrary relying on Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , Mr. Sarkar has contended that what is to be seen is the business realities, and that the concept of partnership should be applied in line with Blisset and Daniel (68 ER 1024). His submission is that in Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , the apex court, while saying that a narrow legalistic view should not be taken and technical pleas should not be permitted to defeat an action u/s 397, recognised rights, expectations and obligations outside the company structure and approved Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL) that as an authority to say that the concept of legitimate expectation is not limited to contract and that rights, expectations and obligations outside the corporate structure are also enforceable

He has cited to me Saul D. Harrison and Sons pic, In re [1995] 1 BCLC 14 to show how unfair prejudice requirement of Section 459 of the (English) Companies Act, 1985, was examined in the context of legitimate expectation, and has contented that the concept of legitimate expectation under the English law is the same as under the Indian law. Reading out from O''Neill v. Phillips [1999] 97 Comp Cas 807 (HL) : [1999] 2 All ER 961 he has narrated how the company law seamlessly developed from the law of partnership. He has said that contractual agreements and other understandings can be independently enforceable if unfair prejudice is shown. From Trackparts of India Ltd. v. K.N. Bhargava [2001] 109 Comp Cas 350 (All), he has shown that a partnership is possible even in a quoted company. From Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, he has shown that partnership in a public company is possible.

Mr. Mukherjee has submitted that the term legitimate expectation was borrowed from public law and that in company law it is a label for the correlative right to which a relationship between members of a company may give rise when the exercise of legal right by a member will be subject to equitable principles. He has relied on O''Neill v. Phillips [1999] 97 Comp Cas 807 (HL) : [1999] 2 All ER 961, to show that company law has developed seamlessly from the law of partnership which was treated by equity as a contract of good faith. Mr. Mitra has relied on Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp Cas 60 (Delhi), in support of his submission that closely held companies are in the nature of partnerships, where the holding represents not only investment for gain but also a desire to be directly associated in the course of management

On the basis of Sewkissendas Bhatter and Others Vs. Dominion of India, , he has said that when the Government does anything in pursuance of ventures, which a private individual may undertake in commercial operations, the state is governed by the same principles as that of private individuals in similar matters, and hence it is fully answerable in a court of law for such acts which are distinct from acts done in exercise of Governmental powers. On the basis of New Horizons Limited and Another Vs. Union of India (UOI) and Others, , he has said that the expression joint venture connotes a legal entity in the nature of a partnership engaged in the joints undertaking of a particular transaction for mutual profit wherein all contribute assets and share risks. In support of his submissions that a company, though fully owned by the State, has its own identity and cannot be considered a Department of the Government, and that identity of a Government company remains distinct from the Government, he has relied on Steel Authority of India Ltd. Vs. Shri Ambica Mills Ltd. and Others, and A.K. Bindal and Another Vs. Union of India (UOI) and Others, .

It seems to me that while examining the question whether the HPL was actually a quasi-partnership between WBIDC and the Chatterjee group, the Board proceeded on the basis of a wrong premise. It proceeded on the basis that a personal relationship between PC and the Chief Minister and officials of the GoWB brought the WBIDC and the Chatterjee group in association for working as promoters of the HPL. There is absolutely no evidence to show that there was a personal relationship between the Chief Minister of the State and PC or that the Chief Minister was personally interested in promoting the HPL. It was no doubt a joint venture between public sector and private sector, and not between private sectors or between natural persons having nothing but private interests. Here it was nobody''s case that WBIDC participated in the venture for making profit, but there is no reason to say that the Chatterjee group participated for doing charity. While GoWB through its wholly owned company presumably participated in the project in public interest, i.e., for ushering in rapid industrialization in the state, the Chatterjee group participated for making financial gains, which was absolutely justified from its point of view.

Within years of starting the project and even before commercial production commenced lenders with huge exposure got involved. Lenders exposed themselves in a big way only because of involvement of GoWB as one of the principal promoters of the HPL. The affairs of the HPL continued to be conducted with remarkable presence of the lenders through their nominee directors, as many as five, while WBIDC and the Chatterjee group had four nominee directors each on the board of the HPL.

In 1997 the project was started, and in August 2001 commercial production commenced, but in 2000 the question of debt restructuring had assumed great significance ; and from then the financial institutions were playing vital role. It is true that the Tatas all along remained virtually dormant, and that shares to the extent of around 95 per cent, were held by GoWB and the Chatterjee group. It is also true that in terms of articles of association right of pre-emption was conferred on the promoters. But that was subject to approval of the lenders ; everything was subject to prior approval of the lenders. The debt restructuring proposal was referred to the corporate debt restructuring cell, and that was done by the IDBI as the lead lender, according to guidelines of the Reserve Bank of India. The package was approved with various obligations and restrictions.

In the share subscription agreement dated July 30, 2004, (allotting the HPL shares to Winstar) it was specifically provided (in Clause 18.2) that the parties therein would not be deemed to be partners. In the joint venture agreement dated August 20, 1994, and also thereafter in some documents the expression "partner" was used. The question is whether on these facts it could very safely be said that the HPL was actually in the nature of a quasi partnership between WBIDC and the CP(M)C that actually became the Chatterjee group after shares were allotted to Winstar in July 2004. Then shares were allotted to IT(M)L, which also, as will appear from the CP(M)C''s letter dated March 31, 2004, disagreed to accept the terms, covenants and conditions on which the CP(M)C had participated in the project with WBIDC and the Tatas.

Although quite a number of authorities have been cited to me to show mhen and why a limited company should be considered in the nature of a quasi-partnership between its shareholders, I think the position of law is what was said in Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra, (page 622): "The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi partnership should, therefore, not be easily accepted"

In my view, it is always to be decided on the facts of the case concerned. It may be easy to apply the concept of quasi partnership to a closely held family company or a private limited company. By this I am not saying that the concept cannot be applied to a public limited company. What I mean is that the tests may not be as simple as are applicable to a closely held private limited family company. If a partnership is converted into a company, it may be a case where the concept may be easily applied. But only on the ground that the promoters described themselves as partners, I do not think the concept of quasi partnership can be readily applied to a public limited company such as HPL. The Board applied the concept ignoring many aspects of constitution and functioning of the HPL.

In my judgment, on the facts it is very difficult to apply the concept of quasi partnership to the HPL, and I hold that the Board was not justified in applying the concept, particularly when for deciding the case made out in the company petition it was not necessary to decide whether the HPL was actually in the nature of a quasi-partnership only between the GoWB and the WBIDC and the CP(M)C, since the Tatas did not claim that it was in the nature of a quasi partnership, and it could not be held that the other shareholders, namely, Winstar and IT(M)L, were partners of the existing shareholders, i.e., WBIDC and the CP(M)C.

As to the doctrine of legitimate expectation, I think counsel for the GoWB and the WBIDC are fully justified in saying that in the absence of any case whatsoever made out in the company petition that by conducting any affair of the HPL, the GoWB and the WBIDC had oppressed the petitioners therein, in the sense that the act or acts defeated their legitimate expectation of getting management control of the HPL through transfer of shares by WBIDC to the Chatterjee group, the Board was not competent to apply the doctrine on the basis of mere submissions made by counsel for the Chatterjee group. The Board granted relief u/s 397 on the basis that in view of the assurances and commitments given by the GoWB and the WBIDC from time to time that management control would be given to the Chatterjee group, the petitioners in the company petition were entitled to legitimately expect to get the said 155 million HPL shares from WBIDC.

In my view, the Board was not right in making the doctrine of legitimate expectation as the sole basis for exercising its jurisdiction. Legitimate expectation of the petitioners in the company petition, if there was any, could be considered relevant only for the purpose of making order after the threshold jurisdictional questions were decided in their favour, i.e. only after forming and recording affirmative opinions regarding oppression, unfair prejudice for winding up, and facts justifying a winding up order on just and equitable ground, all required by Section 397(2), the Board could consider the question of existence of legitimate expectations, if any, of the petitioners in the company petition for making an appropriate order in their favour. It was not empowered to permit the unfair prejudice proposition and the legitimate expectation doctrine to eclipse the provisions in Section 397(2), i.e., those two things could not be substituted for the three statutory conditions mentioned in Section 397(2). In none of the authorities given to me it was held that only on the basis of legitimate expectation an order granting relief can be made u/s 397 of the Companies Act, 1956.

Besides, there was no reason for the Board to ignore the fact that in the face of Article 33(a) of the articles of association and the agreements dated January 12, 2002, March 8, 2002 and July 30, 2004, it was not open to the petitioners in the company petition to seek their specific performance in the Section 397 proceedings invoking the doctrine of legitimate expectation, particularly when the GoWB and the WBIDC contended that the CP(M)C, having committed breach of the terms and conditions of the contracts and agreements in more ways than one, was not entitled to enforce any contract for getting any specific relief. It was not a derisory defence.

I think counsel for the GoWB and the WBIDC have rightly said that by granting relief in the name of the doctrine of legitimate expectation what the Board actually did is nothing but granting specific relief enforcing specific performance of the contracts and agreements, when it was not competent to do that. Once the parties entered into agreements giving full expression to their respective expectations, there was no scope for the petitioners in the company petition to get any relief, and that too with respect to a case not pleaded in the petition, on the basis of the doctrine of legitimate expectation. Once agreements are executed there is no scope to rely on the doctrine of legitimate expectation regarding the subject-matter of the agreements.

Even on merits, I do not see how it can be said that the petitioners in the company petition were entitled to get an order directing WBIDC to sell all its HPL shares to them in terms of the understandings recorded in the document dated January 14, 2005. PC first wrote a letter dated January 17, 2005, supplying names of three firms for choosing one from among their number and engaging it for determining the value of the shares held by WBIDC in the HPL. By a letter dated January 28, 2005, the HPL offered 150 million shares to the IOC. Then by a letter dated January 31, 2005, PC complained that the GoWB and the WBIDC were not showing the same haste in transferring shares to the Chatterjee group that had been shown in allotting shares to the IOC, He wanted that the valuer should be nominated by February 1, 2005.

The IOC accepted the offer and submitted the requisite application accompanied by a cheque for the requisite amount. This exercise the IOC completed on February 17, 2005. By a letter dated March 9, 2005, PC requested the Chief Minister to expedite transfer of shares by WBIDC to the Chatterjee group. He wanted the thing to happen immediately for making HPL acquire a position of global eminence through acquisition of Basell, a joint venture between SHELL and BASF. He further said that on the Chief Minister''s assurance and the agreement for divestment of the HPL shares by WBIDC, despite reservations and financial loss, his group facilitated the IOC''s participation in the HPL.

Then by a letter dated April 1, 2005, he wanted GoWB to come up with a fair price of its shares in the HPL, keeping in view its commitment made in 1994 that 60 per cent. of its shareholding would be sold to the CP(M)C at the rate of Rs. 14 per share, and that when 150 million shares had been allotted to the IOC at par, there was no reason why its balance 40 per cent, shares should not be transferred to the Chatterjee group at a fair price which was bound to be less than Rs. 10 per share. In the circumstances the principal secretary, commerce and industries Department of GoWB, the managing director of WBIDC, an adviser from L.B. Tha and Co., the accounting firm engaged by GoWB, and PC held a meeting in order to determine the terms and conditions for transfer of the shares held by WBIDC in the HPL to the Chatterjee group.

They decided, as were recorded in notes dated April 5, 2005, circulated by the firm, that the shares would be transferred at the rate of Rs. 28.80 per share, and that regarding induction of the IOC into the HPL, GoWB would hold talks with PC and the IOC, for finding out a suitable solution acceptable to all parties. PC was to submit the draft agreement for the Government''s approval by April 11, 2005. The draft agreement was found unacceptable by GoWB whose accounting firm gave notes on it on April 19, 2005. The objections were that the agreement was not to put any condition precedent as far as GoWB was concerned, that on the agreement falling through or suffering termination, GoWB would be free to deal with its shares, and that it should be redrawn with all figures stated and the blanks filled in.

Thereafter, sometime in May 2005, the fifth draft agreement was sup- plied by the CP(M)C. The price of the shares was not mentioned and a number of conditions precedent, to be complied with by GoWB, were incorporated, and two of them were that the GoWB and the WBIDC must ensure : (i) that the IOC confirmed in writing that it would not subscribe to 150 million or any share in the HPL and would withdraw all claims relating thereto ; and (ii) that the board and the shareholders of the HPL at a board meeting and a general meeting approved and passed all required resolutions for an investment of Rs. 1,500 crores for the purpose of acquisition of shareholding in Basell N.V. This was one of the objections GoWB had raised after considering a previous draft agreement.

By a legal notice dated May 17, 2005, the IOC called upon the HPL to issue and allot the 150 million shares for which the company had accepted Rs. 150 crores from it. It stated in the notice that if the shares were not issued and allotted within seven days from May 17, 2005, it would be constrained to initiate appropriate proceedings against the HPL and its directors. By a letter dated May 25, 2005, GoWB requested IDBI to permit it to purchase from WBIDC all its HPL shares and then to transfer them to the CP(M)C and one Essex Development Investment (Mauritius) Ltd., a nominee of the CP(I)PL.

By a letter dated May 25, 2005, the IOC informed GoWB that in spite of requests, letters, legal notices, etc., the HPL had chosen to keep quiet on the question of allotting 150 million shares to it for which it had deposited the requisite amount through a cheque as back as February 17, 2005. The IOC requested GoWB to intervene in the matter. The IOC also lodged a complaint with the Registrar of Companies, West Bengal. By a letter dated May 27, 2005, IDBI informed GoWB that it had no objection to the proposed transfer of the HPL shares by WBIDC to GoWB and then by GoWB to the CP(M)C and Essex, subject to the conditions mentioned in the letter. The directors of the HPL in a board meeting held on May 28, 2005, took note of the several letters and legal notices received from the IOC and observed that the issue needed expeditious resolution. The Board also noticed the approvals accorded by IDBI to transfer of the said 155 million shares by WBIDC to the CP(I)PL, and also to transfer of all its HPL shares by WBIDC to GoWB, and then by GoWB to the Chatterjee group.

The Board approved the appointment of the existing managing director (Swapan Bhowmik) as the managing director of the HPL. From the office of the Registrar of Companies, notice dated May 30, 2005, was served on the HPL asking it to give its comments on the IOC complaints. By a letter dated May 31, 2005, the managing director of the HPL sent copies of the complaint and notice from the authority to the principal secretary, commerce and industries Department of GoWB, the chairman of the HPL and PC. By a letter dated June 1, 2005, GoWB told the HPL that cheque issued by the IOC should be encashed and shares should be allotted to it without any further delay so that no regulatory steps were taken by the registrar of companies against the HPL and its directors.

By another notice dated June 7, 2005, the Registrar of Companies directed the HPL to act in terms of his previous notice within seven days, or to face necessary legal consequences. IDBI was accusing the HPL of not allotting the HPL shares to lenders in terms of debt restructuring package followed by refinancing scheme. By a letter dated June 10, 2005, the HPL informed IDBI that upon completion of sale of 520 million HPL shares by GoWB to Essex, the CP(I)PL and the CP(M)C nominee, the HPL would complete allotment of equity to the lenders up to Rs. 135 crores. It also mentioned about the approvals dated May 27, 2005, accorded by IDBI to transfer of the said 155 million shares and the balance around 520 million shares by WBIDC and GoWB to the CP(M)C nominee.

By a letter dated June 29, 2005, the IOC called upon the chairman of the HPL to intervene and advice the management of the HPL to take immediate steps for allotment of 150 million shares to it for which the HPL had not been taking any action in spite of repeated reminders. By a letter dated June 29, 2005, the CP(M)C called upon WBIDC to take steps for dematerialising 3,87,75,000 pledged shares in terms of agreement dated March 8, 2002. By another letter dated June 29, 2005, the CP(M)C called upon the WBIDC to release 7.5 million pledged shares in terms of cl. 2.5 of the agreement dated March 8, 2002, so that it might use them for arranging fund for the proposed buy out of WBIDC shareholding in the HPL. By another letter also dated June 29, 2005, the CP(I)PL called upon WBIDC to release 30 million pledged shares in terms of cl 2.5 of the agreement dated March 8, 2002, so that it might use them for arranging fund for the proposed buy out of WBIDC shareholding in the HPL.

In the circumstances, Mr Tarun Das, the chairman of the HPL, wrote (in his own handwriting) a personal letter to PC dated June 30, 2005, which is:

Thank you for your message of concern regarding my mother''s health. She is making slow progress.

I have been thinking about issues relating to the HPL and, in particular, the HPL''s credibility and reputation in regard to compliance with legal requirements as well as doing what is required.

Let me refer here to the IOC issue.

The sequence of events are known to all of us, especially to you. Till now, pending resolution of inter se promoter issues, the IOC cheque for Rs. 150 crores has not been encashed. Shares to the IOC not allotted.

Meanwhile, legal action notices have been received from the IOC and their solicitors. The Ministry of Company Affairs have also asked for explanations from the HPL.

My informal consultations with legal luminaries indicate that our lack of action is untenable.

Meanwhile, there is no conclusion to the promoter issues. In these circumstances, and to avoid embarrassment to, and legal action against, the HPL, we need to encash the IOC cheque and issue the shares.

I am sure you will agree with this approach because you, most of all, care for the HPL''s credibility and image.

The HPL management need to be advised to conclude the IOC transaction and I am writing to them accordingly. It was, however, important that I keep you advised.

This letter is being faxed to your Mumbai office.

By a letter dated July 6, 2005, the CP(M)C informed the GoWB that before completing the buy out transaction the conditions precedent mentioned in the letter must be fulfilled. The conditions mentioned were:

(a) Indian Oil Corporation Ltd. has confirmed in writing that it shall not subscribe to 150 million or any shares in the HPL and shall withdraw all claims in relation thereto.

(b) The completion of all necessary documentation and receipt of related approvals.

We request you to complete all other agreed and related process in the meantime which inter alia include the following:

(a) Transfer of 155,099,998 shares from the WBIDC to the CP(I)PL as per agreement dated March 8, 2002, entered into with you.

(b) Release of 30 million shares of the CP(I)PL out of 155 million shares in the HPL and 7.50 million of our shares out of 38.775 million shares in the HPL pledged with you as per Clause 2.5 of the agreement dated March 8, 2002 entered into with you.

(c) Signing of tripartite agreement between WBIDC/GoWB, IDBI and ourselves for 290 million shares, draft of which has already been forwarded to you on June 17, 2005, or any modified version of the same as may be suggested by IDBI.

By that letter the CP(M)C asked GoWB to send the formal offer for sale, and informed GoWB that it was willing to enter into a simple share purchase agreement and conclude the transaction expeditiously.

By another letter dated July 15, 2005, the CP(M)C wanted the Chief Minister to give necessary direction for complying with the conditions precedent mentioned in its letter dated July 6, 2005. By yet another letter dated July 15, 2005, the CP(M)C called upon GoWB to take necessary actions particularly regarding the confirmation to be obtained in writing from the IOC that it would not subscribe to any share in the HPL and would withdraw all claims in relation thereto. A copy of a letter of Deutsche Bank dated July 15, 2005, written to PC in relation to the bank''s term sheet dated June 11, 2005, was also supplied to GoWB. By that letter the bank confirmed that it was willing to make available to Essex a sum of up to Rs. 11.10 billion for acquisition of 384,900,002 shares owned by WBIDC in the HPL, on the basis of the terms contained in the term sheet, and that subject to completion of documentation in a form and substance acceptable to the bank, the offer would remain valid till July 22, 2005.

The IOC sent a legal notice dated July 19, 2005, to GoWB. It said that if the 150 million shares were not allotted to it within ten days of receipt of that letter, it would be constrained to take legal action against all concerned. On July 22, 2005, GoWB informed PC that the share transfer transaction should be concluded immediately and preferably by July 25, 2005. In response PC wrote a letter dated July 25, 2005, asking GoWB to take action on the basis of Deutsche Bank''s letter dated July 25, 2005, the draft share purchase agreement, and his advocates'' (Amarchand Mangaldas) observations made in their letter dated July 25, 2005. He further said that he had substantially completed his steps and was awaiting the RBI approval,

In the circumstances, the Principal Secretary, commerce and industries Department of GoWB wrote to PC the letter dated July 27, 2005, which is:

We acknowledge receipt of your letter, and enclosures, of Monday, July 25.

The State Government has been continuously committed to the HPL''s success and, over the years, has extended complete support to HPL especially in times of great difficulty. It is a matter of satisfaction to the Government that the HPL has now achieved profitability and is clearly poised for further growth, expansion and success.

It is in this context that the State Government entered into discussion with you, since January, 2005 to disinvest in your favour. These discussions have continued over several months and, as you are aware, the State Government took several steps in the direction, including application to IDBI for approval to sell shares.

However, the negotiations have not been concluded and the documentation you have sent with your letter of July 25, is unclear in several respects. It is not clear to the State Government from the papers whether you are in a position to conclude the matters. It appears not.

Accordingly, in the best interests of the HPL, and to reflect our continued commitment to the company, we have decided to defer the proposal to disinvest and shall remain in the HPL to extend full support to the company.

We do so because a state of flux is not in the interests of the company.

We look forward to working in co-operation with you for the future prosperity of the HPL.

By another letter also dated July 27, 2005, the Principal Secretary requested IDBI to treat permission granted by it for sale of GoWB''s HPL shares to the Chatterjee group as annulled on the ground that the proposed transfer did not fructify. By a circular letter dated July 27, 2005, the chairman of the HPL informed all its directors about the legal opinion obtained by him regarding the HPL''s failure to allot shares to the IOC. Relevant portion of the opinion was circulated with the comment that the HPL directors would individually face criminal action.

By a notice dated July 27, 2005, the board meeting of the HPL fixed for July 29, 2005, was postponed on the ground that the date did not suit the convenience of many directors. In the circumstances the chairman issued notice dated July 28, 2005, suggesting that the board of the HPL should adopt the proposed resolution through circulation. The proposed resolution was to encash the cheque issued by the IOC and to allot 150 million equity shares to it in terms of decision of the board of directors taken in the meeting held on November 2, 2004. By a letter dated July 31, 2005, Winstar objected to the proposed resolution by circulation on the ground that in terms of agreement dated July 30, 2004, it was entitled to get at least ten days'' notice. Under the circumstances the company petition was filed.

On these facts, I do not see how an order asking the GoWB and the WBIDC to exit from the HPL could be made in the Section 397 application. The Board did not hold that the deal fell through for fault of GoWB. When the facts noted hereinbefore clearly indicate why GoWB took the decision, the Board held that it was not clear why GoWB took the decision to defer disinvestment.

It is more than clear that PC was nowhere near a position to complete the deal. He was, as a matter of fact, asking, as conditions precedent to the deal, for transfer of the said 155 million shares and the IOC''s unconditional withdrawal from the HPL. On the facts, GoWB was absolutely justified in taking the decision. The Board was not right in making the order, when there was nothing wrong with the decision, only because it was upholding the IOC allotment.

The IOC aspect has been argued at length by counsel for the Chatterjee group while pressing the eight cross-objections and one appeal filed by the petitioners in the company petition, challenging mainly the findings of the Board that there was nothing wrong with the allotment of 150 million HPL shares to the IOC. Mr Mukherjee has said that oppression means conduct which is harsh, burdensome and wrongful; unfair dealing or dealing lacking in commercial probity ; unfair conduct causing prejudice to a shareholder in the exercise of such shareholder''s legal and proprietary rights. He has said that oppression can also arise out of inaction. His submissions are that to determine what is oppression a narrow legalistic view should not be taken, but the business realities of the situation must be kept in mind, and that what constitutes oppression will depend on the facts of the case. He has also submitted that in India a liberal view has been taken of the word "oppression" appearing in Section 397, and that one single act can amount to oppression, if it gives rise to a chain reaction. He has relied on Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 : [1959] 29 Comp Cas 1 (HL), H.R. Warmer Ltd., In re [1958] 3 All ER 689 : [1959] 29 Comp Cas 305 (CA), Shanti Prasad Jain Vs. Kalinga Tubes Ltd., ; Ramashankar Prosad and Others Vs. Sindri Iron Foundry (P) Ltd. and Others, ; Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268 (Ch D); Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, ; and Bhubaneshwar Singh and Another Vs. Kanthal India Ltd. and Others, .

(While commenting on fiduciary duty of a director and duty to act in good faith making full disclosures to the shareholders, Mr. Sarkar has cited to me Dale and Carrington Invt. (P) Ltd. and Another Vs. P.K. Prathapan and Others, . He has said that a single act of oppression is enough, and that the oppressor should not get the benefit of his own wrong. Mr. S.N. Mukherjee, counsel for IT(M)L, has given me TSC Industries Inc. et al. v. Northway Inc. [1976] 426 US 438, in support of his contention that an omitted fact is material for the purpose of Section 173 of the Companies Act, 1956, if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. In support of the proposition that if non-compliance with provisions of the statute deprives shareholders of their rights, then it is a just and equitable ground to wind up the company, he has relied on Loch v. John Blackwood Ltd. [1924] All ER 200.

On the basis of Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, Mr. Sen has said that a complaint of lack of particulars in a notice, is not open to a shareholder who is aware of the fact. Placing reliance on Shanti Prasad Jain Vs. Kalinga Tubes Ltd., , he has said that whether an act is oppressive is to be determined on the facts of the case, and that continuous act of oppression of the minority by the majority shareholders is required for getting relief u/s 397. He has relied on Hanuman Prasad Bagri and Others Vs. Bagress Cereals Pvt. Ltd. and Others, in support of his submission that a single isolated act is insufficient to sustain an allegation of oppression. On the basis of Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 Cal (DB)) he has said that the law of oppression and mismanagement is widely different in India and in England, and that in England it is not necessary to prove oppression and just and equitable winding up, it is sufficient to prove unfairness coupled with unfair prejudice. He has given me Kelkar Trading Corporation and Shri Chintamani Shridhar Kelkar Vs. Commissioner of Central Excise, , in support of his submission that unfair prejudice test as developed in England u/s 459 of the (English) Companies Act, 1985 does not apply to a case u/s 397, and that in England unfairly prejudicial conduct was substituted for oppression, but that is not so in India.

(Mr. Pal has relied on Bishundeo Narain and Another Vs. Seogeni Rai and Jagernath, : Afsar Sheikh and Another Vs. Soleman Bibi and Others, ; and Motilal Poddar v. Judhistir Das Teor 20 CWN 310, in support of his contention that without particulars an averment of fraud is not to be noticed at all, since it is a pure question of fact, and that on same facts inconsistent cases cannot be pleaded. For showing what are material facts within the meaning of Section 173 of the Companies Act, 1956, he has relied on Kalinga Tubes Ltd. v. Shanti Prasad fain [1964] 1 Comp LJ 117 and Sitaram Jaipuria and Others Vs. Banwarilal Jaipuria, and the provisions in Unlisted Public Companies (Preferential Allotment) Rules, 2003, Rule 6. By saying that the findings are perverse counsel for the Chatterjee group have invited me to hold that the affair of allotment of 150 million HPL shares to the IOC was conducted by the GoWB and the WBIDC in a manner oppressive to the petitioners in the company petition.

In 2000 when the HPL was in severe financial crisis and funds were urgently needed, by a letter dated April 23, 2000, PC gave certain proposals for streamlining management and in that he mentioned that the IOC was interested in participating in the HPL. By that letter written to the Chief Minister of the State he gave an ultimatum by saying that if his proposals were not acceptable, then he would have no option but to withdraw from the project with all his dues paid up. By a letter dated August 29, 2001, the IOC informed GoWB that it was willing to participate in the HPL provided it was given at least 26 per cent, of the HPL shares and management control. PC was against giving management control to the IOC and he also wanted the HPL to remain a non-Government company

Since the CP(M)C was not investing Rs. 107 crores by subscribing to the rights issue in terms of decision of the HPL board dated September 6, 2000, the HPL was on the verge of becoming a non-performing asset, and this was informed to the persons concerned by the managing director of the HPL by his letter dated October 26, 2001. By a letter dated November 29, 2001, IDBI communicated its positive views on the IOC''s proposal. In view of PC''s objection to giving management control to the IOC, by letter dated November 30, 2001, the GoWB informed him that although it was unlikely that the IOC would invest Rs. 535 crores only for 26 per cent, equity of the HPL without management control, it was continuing negotiations with the IOC.

149 At such stage by a letter dated January 7, 2002, IDBI gave an ultimatum to the GoWB that things should be settled by January 14, 2002. This situation brought into existence the agreement dated January 12, 2002, in terms whereof the CP(M)C was to get management control, and it was to ensure investment in the HPL of a minimum of Rs. 500 crores by March 31, 2002. By a letter dated January 17, 2002, IDBI informed GoWB that the lenders who had committed large exposure because of the Government''s association and active role in the HPL would like the Government to remain associated, since the track record of the CP(M)C was extremely unsatisfactory.

Although the CP(M)C did not ensure investment of any money in the HPL (it only arranged for further loan to make the loan amount Rs. 107 crores), the agreement dated March 8, 2002, came to be executed stating about the deemed transfer and delivery of the said 153 million shares by WBIDC to the CP(I)PL, the deemed payment and acceptance of the price for the transfer, the deemed grant of interest-free loan, repayable in ten years, by WBIDC to the CP(I)PL for an amount equivalent to the price of the shares, the deemed pledge of those shares by the CP(I)PL to WBIDC, etc.

On March 26, 200''� the board of the HPL noted that the IOC was expected to nominate soon a managing director for the HPL, and that the HPL promoters would be expected to go with the IOC on all issues. PC was a party to the meeting. By March 31, 2002, the CP(M)C did not bring in any investment for the HPL, in terms of agreement dated January 12, 2002. GoWB wrote letters alleging breach of terms and conditions of the agreement, and PC disputed correctness of the allegations. By a letter dated July 2, 2002, GoWB informed the IOC that in view of its decision not to modify offer terms for participation in the HPL and the agreement dated January 12, 2002, it would be better to explore the possibility of the IOC entering into a long term naphtha supply arrangement. In reply the IOC wrote a letter dated July 25, 2002, stating that it was still keen to participate in the HPL and was willing to look to the future under the likely scenario. By then the CP(M)C started acting as if it were the holder of the majority of the HPL shares, in reality it was not. As a matter of fact it was only permitted to control the management of the HPL in the manner it could do that qua a majority shareholder ; this is apparent from the letter dated March 30, 2002, written by WBIDC to GoWB.

By a letter dated September 23, 2002, IDBI informed the chairman of the HPL that for debt restructuring package of the HPL its sponsors must infuse substantial interest-free funds and induct a strategic investor ; it wanted infusion of Rs. 500 crores by November 30, 2002, and a further Rs. 200 crores by February 26, 2003. However, on January 13, 2003, it referred the HPL''s debt restructuring proposal to the corporate debt restructuring cell; the reference was made in terms of guidelines issued by the Reserve Bank of India. By letter dated April 16, 2003, it requested GoWB to revive the IOC''s proposal for equity participation in the HPL, since the GAIL''s terms of equity investment had been found unacceptable by the financial institutions. The GAIL had started due diligence in view of initiatives taken by PC for its induction in the HPL as a strategic investor.

By a letter dated April 25, 2003, IDBI alleged that the CP(M)C was unable to instill confidence at all, and that the sponsors of the HPL were not taking necessary steps for induction of the IOC as the strategic investor, though as back as November 2001, the lenders had agreed to extend reliefs and concessions to the HPL with induction of the IOC. It called upon the HPL and its sponsors to act in tandem with the lenders who viewed the IOC''s induction as an important matter for the HPL''s long-term viability. It gave an ultimatum by saying that unless concrete action was taken immediately, the lenders would be constrained to explore other options for safeguarding their interests. By a letter dated June 26, 2003, IDBI expressed the lenders'' apprehensions about the CP(M)C''s capability to meet its commitments, it also conveyed the lenders'' concern that steps were not being taken for induction of the IOC as a strategic investor, and that the CP(M)C not only did not invest Rs. 107 crores, but also slapped an interest burden for a loan of that amount on the HPL.

On February 12, 2004, the debt restructuring package was ultimately approved showing April 1, 2003, as the cut off date. On March 31, 2003, debt was Rs. 3,916 crores. In terms of the package, the GAIL was to infuse Rs. 200 crores by March 31, 2004 ; the CP(M)C was to bring in Rs. 268 crores by June 30, 2004, through the IPO route or otherwise ; it was to replace the HSBC loan of Rs. 107 crore by subscribing to equity within March 31, 2004 ; and the lenders were to get equity at par on account of conversion of rupee loans to the extent of Rs. 140 crores.

The GAIL backed out. This situation brought into existence the two agreements dated July 30, 2004. One was the share subscription agreement in terms whereof Winstar was to get equity shares of the HPL at par on the CP(M)C''s taking over the HSBC loan of Rs. 107 crores, and the other was a supplementary to the agreement dated January 12, 2002. In terms of the supplementary agreement dated July 30, 2004, the responsibility of bringing in an investor was shifted from the CP(M)C to GoWB ; simultaneously the CP(M)C relinquished its special right created by the agreement dated January 12, 2002, to call upon WBIDC to sell its entire HPL shareholding to it on demand. It was stated that GoWB would be entitled to cause induction of Rs. 150 crores of equity through an industrial portfolio investor on normal and customary terms, so that time limit and quantum of cash infusion mentioned in the debt restructuring package might be met.

In terms of the supplementary agreement dated July 30, 2004, GoWB approached the IOC for its participation in the HPL as a portfolio investor. On September 3, 2004, a meeting was held between the Chief Minister of the State and PC, and the Chief Minister told PC about the IOC''s possible induction as an equity participant at par. On September 13, 2004, a meeting was held in which all concerned, except anyone from the side of the Chatterjee group, participated. The question of the IOC''s participation was discussed, and GoWB by a letter dated September 16, 2004, informed PC of the developments. It was mentioned in the letter that the IOC, in addition to equity for Rs. 150 crores, had asked for the HPL shares held by the Tatas that WBIDC was in the process of acquiring. By a letter dated September 20, 2004, PC informed GoWB that he was in agreement with the decision to induct the IOC. On September 24, 2004, the IOC entered into a confidentiality agreement with the HPL. By a letter dated September 29, 2004, the IOC told GoWB that the meeting dated September 13, 2004, had ended with the proposal that it would invest Rs. 150 crores in the HPL provided the HPL shares held by the Tatas were given to it, the financial institutions would vote with it on all matters, and, in due course, GoWB would divest in its favour all its HPL shares.

The IOC''s that letter triggered off a negotiation that kept it in correspondence with the GoWB and the WBIDC till October 25, 2004, when it wrote the last letter. In the process while the IOC wrote further letters dated October 18, 2004, to GoWB and October 21 and 25, 2004, to WBIDC, WBIDC wrote letters dated October 12, 19, and 29, 2004, to the IOC. By its letters the IOC wanted the GoWB and the WBIDC to give it all the HPL shares held by WBIDC after obtaining waiver of first refusal from the CP(M)C. While WBIDC informed the IOC that it was not possible to get any waiver of right from the CP(M)C, it was agreeable to offer all its HPL shares after the IOC''s participation and after giving the CP(M)C the first refusal at a fair price in the determination whereof the IOC''s suggestions would be considered. The IOC was also told that in case it got no additional shares, then its HPL shares would be purchased by WBIDC so that it might exit from the HPL.

In the meantime in its board meeting dated October 11, 2004, the HPL closely examined the question of the IOC''s participation. PC, as deputy chairman of the board, was present. The board pointed out the need for complementarily, maximizing shareholders and other stakeholder value, expeditious completion of the arrangements, adhering to the schedule for the IPO/CDR, etc. Finally, the HPL board in its meeting held on November 2, 2004, in PC''s presence, passed the resolution according approval for issuing, offering and allotting upto 150 million equity shares of Rs. 10 each at par to the IOC. PC, Dr. Sabyasachi Sen, Mr. Swapan Bhattacharyya, director (failing him Mr. S. Chatterjee, director), Mr. Gopal Krishna, director, Mr. Swapan Bhowmik, chief executive and Mr. A. Bose, executive vice president were authorised to complete and issue the letter of offer and other documentation and to complete all other formalities including issuance of share certificates. That decision was, however, subject to approval of the shareholders to be obtained in a general meeting.

On November 2, 2004, itself the letter of invitation annexing the key terms of offer was sent to the IOC. Under the circumstances, WBIDC wrote a further letter to the IOC dated November 5, 2004, stating what it would do if the IOC accepted the offer dated November 2, 2004. The IOC, writing its last letter dated October 25, 2004, did not respond in any manner, and on the contrary it wrote a letter to the HPL dated November 10, 2004, communicating its decision to accept the offer dated November 2, 2004, on the conditions meptioned in the annexure to the invitation letter.

Then WBIDC wrote the letter dated November 10, 2004, modifying the terms and conditions of its offer made by letter dated November 5, 2004. The IOC did not respond in any manner to this as well. In the letter WBIDC said:

Sub: Proposed investment of Rs. 150 crores by the IOC in Equity Shares of the HPL.

Kindly refer to our letter dated 5 November, 2004 and your letter No. BDPC/65.1, dated 10 November, 2004, on the above subject. In part modification of our abovementioned letter we confirm the following:

The entire present shareholding of WBIDC in the HPL will be offered for transfer to the designated company of the Chatterjee group within 30 days from close of IPO.

In case the shares are not accepted by the Chatterjee group within a reasonable time frame at the price at which it has been offered, these shares would be offered to the IOC at the same price.

The price for the transfer of the shares for the purpose of above two offers would be ascertained in the following manner:

The IOC would carry out the valuation of the entire block of equity holding of WBIDC by an internationally reputed independent accounting firm to be selected based on mutual agreement between WBIDC and the IOC.

The draft valuation report would be discussed with WBIDC and the views of WBIDC would be given due consideration.

The IPO price as well as the prevalent market price at the time of valuation would be given due weightage for the purpose of valuation.

In case the above series of transactions do not materialise in acquisition of WBIDC''s stake as of date in the HPL by the IOC, WBIDC will buy back equity of face value of Rs. 150 crores as infused by the IOC at the original price. WBIDC also undertakes to take over the lock in restrictions, laid down by the HPL in their letter referred to above. Suitable modalities will be worked out mutually by the IOC and WBIDC to effect the above buy back by WBIDC from the IOC.

The entire above process would be subject to observance of the SEBI regulations. The appropriate permission from CDR/lenders would also have to be obtained.

By a letter dated December 17, 2004, GoWB, while stating that there was no valid reason why the Charterjee group was withholding consent for extraordinary general meeting, requested the chairman of the HPL to take necessary steps in the matter. On December 21, 2004, the chairman of the HPL gave notice fixing the extraordinary general meeting for January 14, 2005. The special business to be considered was the question/ of offering and allotting 150 million equity shares of Rs. 10 each for cash at par to the IOC. On December 23, 2004, the HPL board, through a circular resolution, decided to take necessary steps, as the HPL had become (as from October 14, 2004) a Government company within the meaning of Section 619B of the Companies Act, 1956. By a letter dated December 30, 2004, PC requested the chairman to adjourn the extraordinary general meeting. He raised objection that the IOC investment would make the HPL a Government company.

By another letter dated January 7, 2005, he asked the chairman to postpone the extraordinary general meeting on the ground that because of short notice it was not possible to obtain authorisation from the CP(M)C board to support the resolution. Then he wrote letter dated January 11, 2005, seeking adjournment of the meeting on the ground that he was discussing with GoWB the inter se promoters'' issues. At the same time he wrote letter dated January 11, 2005, calling upon WBIDC to sell its entire HPL shareholding to the CP(M)C. He mentioned that in terms of letter dated September 30, 1994, WBIDC was to sell 60 per cent, of its HPL shares to the CP(M)C at Rs. 14 per share. He called upon WBIDC to sit for completing the terms and conditions of the transaction

In the circumstances, the document dated January 14, 2005, was signed by Dr. Sabyasachi Sen as representative of GoWB and PC as representative of the CP(M)C. They agreed as follows:

(1) The Government of West Bengal shall sell its entire shareholding in the HPL to the CP(M)C. (2) The price of the shares shall be determined by an independent valuer selected by GoWB from amongst a Panel of Firms prepared by the CP(M)C. (3) The recommendation of the valuer shall be binding on the GoWB and the CP(M)C. (4) Both parties shall endeavour to complete the process expeditiously.

The extraordinary general meeting was held on January 14, 2005, and the special resolution was adopted approving the board resolution dated November 2, 2004.

The allotment of shares to the IOC was questioned on the ground that a clandestine agreement to permit the IOC to participate in the management of the HPL had been concealed. The admitted position is that the petitioners in the company petition failed to produce any such agreement. To be precise, there is no clandestine agreement, and none has seen the light of day till date. In their counters GoWB, WBIDC and the IOC, of their own accord, disclosed all the letters they wrote during the period from September 16, 2004 to November 10, 2004. The September 16, 2004, letter written by GoWB to PC was suppressed in the company petition. Mr. Pal has rightly said that from that letter it is apparent that the IOC, that had previously asked for minimum 26 per cent, equity shares and management control of the HPL, was again asking for something more than just 150 million HPL shares. It wanted GoWB to give it the Tatas'' HPL shares. In his reply letter dated September 20, 2004, PC did not say anything regarding that.

By the letters dated September 29, 2004, October 18, 2004, October 21, 2004 and October 25, 2004�the IOC wanted the GoWB and the WBIDC to make a commitment that they would give it all the HPL shares held by WBIDC. When WBIDC informed the IOC that it was not possible, because it was under an obligation to honour the CP(M)C''s first refusal, the IOC wanted it to obtain a waiver from the CP(M)C. In turn WBIDC informed the IOC that it was not possible to obtain any waiver from the CP(M)C, but it would offer all its shares to the IOC, if the CP(M)C declined to buy them on offer, and that if the IOC was unable to acquire additional shares, then it would buy back the HPL shares acquired by the IOC by investing Rs. 150 crores.

To such modified offers the IOC never responded, and instead it derided just to accept the terms mentioned in the invitation letter dated November 2, 2004. It sent the letter of acceptance on November 10, 2004 and the final allotment offer was also made to it according to the original terms. Mr. Pratap Chatterjee, counsel for the IOC, in my view, is absolutely justified in saying that on the facts there was absolutely no scope to say that GoWB, WBIDC and the IOC entered into any binding arrangement for transfer of all its HPL shares by WBIDC to the IOC on its becoming a member of the HPL. He is right in saying that once the IOC did not write any letter after October 25, 2004, it was to be presumed that the negotiations between GoWB, WBIDC and the IOC regarding the IOC''s acquisition of the HPL shares held by WBIDC ended in a failure, and that the IOC just decided to make a simple investment of Rs. 150 crores.

The whole case in the company petition was based on the alleged discovery of the letter dated November 10, 2004, written by WBIDC to the IOC mentioning the modified terms and conditions. By a coeval letter the IOC had already accepted the terms of invitation to invest Rs. 150 crores in the HPL as an equity participant. The letter of WBIDC dated November 10, 2004, never received the slightest attention of the IOC that chose not to respond. These were the facts disclosed by the GoWB and the WBIDC of their own accord.

Facing with the situation that no clandestine agreement as alleged in the company petition was in existence, the petitioners therein took the plea, though not pleaded, that in the explanatory statement to the notice for extraordinary general meeting dated December 21, 2004, the chairman of the HPL did not disclose the letters written by GoWB, WBIDC and the IOC, though he had full knowledge of them, and hence the notice, vitiated by suppression of material information, being bad in law, the special resolution dated January 14, 2005, was liable to be cancelled.

It has been argued that had the Chatterjee group had knowledge of those letters, it would not have voted in favour of the special resolution. Thus, lack of probity and loss of confidence aspects have been introduced in the case. Mr. Sarkar has argued that when the non-disclosure of correspondence between WBIDC and the IOC was an admitted fact nothing more was necessary for showing that the GoWB and the WBIDC acted with total lack of probity in the conduct of the affair of allotment of 150 million HPL shares to the IOC. His argument is that whether the correspondence amounted to entering into a binding arrangement or whether the arrangement was to affect the petitioners in the company petition in any manner is absolutely irrelevant, because what was relevant was the knowledge of those letters, and not how the petitioners in the company petition would have reacted on their disclosure. On the facts, I must say that these are arguments in desperation. Mr. Sarkar even went to the extent of saying that PC was entitled to be unreasonable. I do not think a member of a company is entitled to allege oppression by saying that the other members conducted an affair of the company without giving him an opportunity of opposing the resolution unreasonably.

Mr. Pratap Chatterjee, in my view, is right in saying that there was absolutely nothing in the letters exchanged between WBIDC and the IOC to affect the CP(M)C in any manner whatsoever, and that when there was no agreement between WBIDC and the IOC regarding acquisition of any HPL shares by the IOC, other than the 150 million shares for which it accepted the invitation, it was not necessary for anyone to give any publicity to the failure of negotiations between the IOC and WBIDC. As a matter of fact after October 25, 2004, the IOC did not respond to the modified offers made by WBIDC by its letters dated November 5, 2004 and November 10, 2004, and on the contrary by letter dated November 10, 2004, it unconditionally accepted the invitation issued by the HPL on November 2, 2004. He has rightly pointed out that by the letter dated October 25, 2004, the IOC had offered to acquire 150 million equity shares and the HPL shares held by WBIDC simultaneously, but ultimately it decided to go only for the 150 million shares. It is therefore evident that the negotiations between WBIDC and the IOC ended in a failure. In my opinion, such failure was not a material thing to be communicated to all the directors of the HPL or to the shareholders thereof who were to consider the question of voting in the extraordinary general meeting fixed for January 14, 2005.

The case of the petitioners in the company petition that for insistence of GoWB they agreed to induct the IOC in the HPL as a portfolio investor cannot be accepted. GoWB took the steps in terms of the supplementary agreement dated July 30, 2004, whereby responsibility of inducting an investor with Rs. 150 crores was given by the CP(M)C to GoWB. The investment was needed for complying with the terms and conditions of the corporate debt restructuring package. In terms thereof and also in terms of agreement dated January 12, 2002, the CP(M)C was under an obligation to bring in a strategic investor. The idea of bringing in the IOC in the HPL was introduced by PC himself at a point of time when the HPL was collapsing for want of fund.

From September 2000 till July 30, 2004, the CP(M)C did not bring in its share of Rs. 107 crores against the rights issue, WBIDC and the Tatas duly subscribed their shares. The lenders were making repeated requests for infusion of fund and bringing in a strategic investor. When the IOC was willing to come in a big way, the CP(M)C brought into existence the agreement dated January 12, 2002, and that brought the ongoing negotiations for bringing in the IOC to an end. There was nothing wrong in PC''s trying to get majority and management control. But the absolute fact is that he was not trying to get those things by making investment, when he was at liberty to bring in equity up to the permissible limit.

Nothing prevented him from bringing in Rs. 500 crores that was men-tioned in the agreement dated January 12, 2002, and thus getting majority status in the HPL and its management control. It seems that instead of bringing in funds what he really wanted was to keep any other investor out of the HPL and to ensure that the CP(M)C attained the majority status in the HPL by acquiring only the requisite number of shares from WBIDC by making the minimum investment, and to reduce WBIDC into a minority.

According to the conditions of the corporate debt restructuring package. for which he has claimed full credit, and I do not think it is necessary to decide who should get credit for the package, the CP(M)C was to arrange Rs. 268 crores and the GAIL, the strategic investor, was to bring in Rs. 332 crores. The package was approved on January 22, 2004. The GAIL backed out. Nothing was done by the CP(M)C for arranging and bringing in those funds within the periods mentioned in the package. The lenders started giving warnings and this was the need for bringing in the IOC as early as it was possible. The need for a strategic investor was a crying one, the responsibility was taken up by the CP(M)C, as will appear from the agreement dated January 12, 2002. The CP(M)C having failed to bring in the strategic investor, the responsibility was taken over by GoWB, and after starting negotiations with the IOC, the developments were made known to PC on September 3, 2004. It therefore cannot be said that PC was merely accepting the wish of the Chief Minister who even wanted to know clearly whether PC would remain in the HPL.

The allegations of misrepresentation and fraud were made without giving any particulars whatsoever. Who made the misrepresentation and when and how it was made-nothing was said in the company petition. It has been rightly said that such a bald and vague allegation of fraud as was made in the case is not to be noticed at all. Admittedly, after discovering the alleged fraud PC did not disclose his reaction, and he rather took steps for getting the benefit of the fraud. Mr. Sarkar has explained this by saying that even after discovering the fraud PC did not react, because he was not bothered at all when the IOC was going out and the balance HPL shares of WBIDC were almost in his pocket. I am unable to say that Mr. Pal was unjustified in saying that such a mind boggling story of fraud should be rejected outright.

The foundation of the case in the company petition is that if the terms and conditions mentioned in the letter of WBIDC dated November 10, 2004, were enforced, existing special rights of the petitioners therein would stand defeated. This immediately raises the question what was the special right, if any, existing ? In fact there was none. The right given by Article 33(a) was not special in any sense, because that was the general right given to both WBIDC and the CP(M)C. The special right of the CP(M)C was, however, created by agreement dated January 12, 2002, in terms whereof it enjoyed the right to call upon WBIDC to sell all its HPL shares to it. That right the CP(M)C never exercised, because it wanted only to get the bare majority by making the minimum investment only for getting the requisite number of shares from WBIDC. That special right was abandoned by it while entering into the supplementary agreement dated July 30, 2004.

By then it got the agreement dated March 8, 2002, executed. Very probably, it was of the view that since it had already made certain arrangements for acquisition of the said 155 million shares, and thus advanced towards its goal of attaining the bare majority, there was no need to keep the special right alive. This seems to be the reason why the petitioners in the company petition, in support of their case regarding special right, referred to the letter dated September 30/October 6, 1994, written by GoWB. By that letter GoWB informed the CP(M)C that in due course GoWB would divest 60 per cent, of total HPL shares held by WBIDC at the rate of Rs. 14 per share. The petitioners in the company petition described that letter as an agreement. Even if that is accepted to be a binding agreement or commitment, it is not understood how the terms and conditions mentioned therein could override the provisions in Article 33(a).

The IOC by its first letter dated September 29, 2004, wanted GoWB to make a commitment that on its participation in the HPL, all the HPL shares held by WBIDC would be offered to it. WBIDC expressed its inability on the ground that the CP(M)C had an existing right to get first offer. That was the real position, since in terms of provisions in Article 33(a) the CP(M)C had the first right of purchase and then the Tatas. Overlooking the right of the Tatas WBIDC said that on refusal to purchase by the CP(M)C only, it would offer its HPL shares to the IOC. The anxiety on the part of the GoWB and the WBIDC to make the IOC invest in the HPL was reflected in the letters written by WBIDC. In my view, there is absolutely no reason to say that by suggesting ways and means to ensure acquisition of more shares by the IOC, WBIDC in any manner wanted to affect any existing right of the CP(M)C. Thus, it is apparent that the case of any existing special right getting defeated sought to be made in the company petition was absolutely baseless,

PC was objecting to allotment of shares to the IOC on the ground that fund was no longer needed, and that on its induction the HPL would become a Government company. Both these objections, in my view, to his knowledge, were of no substance. The fund was very much needed. The petitioners in the company petition said that they were ready to bring in Rs. 150 crores. It is not the case that till the date of filing the company petition, and particularly till January 14, 2005, they ever said that the fund likely to be invested by the IOC would be brought in by them. But then the IOC was not to be brought in only for the funds. In the board resolution dated October 11, 2004, the reasons for bringing in the IOC were noted ; they were connected with the HPL''s overall interests. In terms of conditions of the debt restructuring package loans given by a number of companies owned by GoWB were converted into redeemable preference shares, and as a result, with effect from October 14, 2004, the HPL became a Section 619B company; it was deemed to be a Government company for limited purposes. There was absolutely no reason to say that the HPL, on induction of the IOC, only a wholly owned central Government company, was to become a Government company within the meaning of Section 617 of the Companies Act, 1956. Thus, the objection raised by PC that on induction of the IOC, the HPL would become a Government company, and that that would adversely affect the initial public offer, it seems to me, he himself knew, was of no substance at all.

From his conduct and activities it is apparent that PC was proceeding in a calculated way. It is evident that initiatives taken by the lenders and the GoWB and the WBIDC to induct the IOC in the HPL were not to his liking, but he was unable to resist the IOC induction that was essentially required in the interests of the HPL. It seems to me that he wanted to create a situation in which he could ensure the IOC out of the HPL, and at the same time get just the said 155 million shares which, in ordinary course, were not to be at his disposal, even if everything what was said in the agreement dated March 8, 2002, was acted upon by the parties concerned. After agreeing to the decision dated November 2, 2004, for allotment of 150 million shares to the IOC, he started raising objection to the IOC''s coming in�on absolutely unsustainable grounds. Dr. Sabyasachi Sen requested the chairman of the HPL to ascertain why he had been withholding consent for the extraordinary general meeting. He wrote to WBIDC asking for all its HPL shares.

In the company petition it was alleged that some unidentified representatives made certain commitments that if the petitioners therein supported the special resolution, then GoWB would give them all the HPL shares held by WBIDC. These allegations are not supported by any documentary or oral evidence. By referring me to the provisions of the Indian Contract Act, 1872, Sections 13, 14, 17 and 18 and to the statements made in the company petition, counsel for the Chatterjee group have forcefully argued that the consent in question was obtained by exercising fraud. Not that PC was not in the habit of writing letters, he was rather writing letters for everything. I think Mr. Pal has rightly questioned the worth of the allegations ; they were made just to build a case.

GoWB made commitment to sell to the CP(M)C all the HPL shares held by WBIDC. Offer letter to the IOC was sent and after the IOC made payment, instead of encashing the cheque and allotting and issuing the shares to the IOC, PC started demanding that the IOC must withdraw from the HPL. The IOC was giving notices threatening legal actions against the HPL and its directors. The chairman of the HPL personally requested PC to encash the IOC cheque and allot shares to it. The Registrar of Companies issued notices against the HPL. The lenders were demanding immediate resolution of the problem. But nothing could move PC who wrote the letter dated July 6, 2005, putting the conditions precedent, inter alia, that balance shares of WBIDC would be purchased by the CP(M)C, only if GoWB obtained written commitment from the IOC that it would withdraw unconditionally from the HPL. He also wanted that before entering into the deal GoWB must ensure transfer of the said 155 million shares by WBIDC to the CP(I)PL. This situation led to the decision of GoWB dated July 27, 2005, to defer the disinvestment, though by then it had obtained approvals from the lenders to transfer the shares to the company nominated by the CP(M)C.

Steps taken by PC were nowhere near conclusion of the transaction, he-rather very calculatedly created a very complicated situation. On these facts, I have been invited by counsel for the Chatterjee group to hold that it was GoWB, WBIDC, the chairman of the HPL, the financial institutions, and all other persons who had knowledge of the letters exchanged between WBIDC and the IOC, that collectively committed a fraud. I agree with counsel for the parties who are contesting the cross-objections and the appeal of the petitioners in the company petition that such a case of fraud as has been pressed into service must meet an inevitable rejection.

Regarding the circular resolution the findings of the board are these. Since the necessary paper, viz., the legal opinion (though in part), connected with the circular resolution proposal was already with the directors, the resolution was not vitiated on the ground of non-compliance with the provisions of Section 289 of the Companies Act, 1956. In the circumstances in which the chairman issued the circular resolution, it could not be said that he acted mala fide, though on the facts that route should have been avoided and the matter should have been discussed in the regularly convened meeting of the board.

In view of the minutes of the board meetings held on March 29, 2005 and May 28, 2005, the board was entitled to know the reasons for the failure of negotiations going on between GoWB, WBIDC and the Chatterjee group. The board was entitled to know whether issues mentioned in the minutes of the meeting dated March 29, 2005, were resolved. By resolutions dated November 2, 2004 and January 20, 2005, no shares were allotted to the IOC, only decisions were taken to invite it to subscribe and to make a formal offer. The shares were actually allotted through the circular resolution. The circular resolution route was adopted apprehending initiation of proceedings by the Chatterjee group to challenge the allotment. Though the method adopted to pre-empt a legal action was not necessarily illegal and mala fide, as a measure of good corporate governance the allotment issue should have been decided in a regular board meeting.

According to counsel for the Chatterjee group the Board ought to have held that the circular resolution was adopted in a manner oppressive to the petitioners in the company petition, when the Board found that the circular resolution route should not have been followed. On the basis of Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, Mr. Sarkar has said that it was not necessary for the petitioners in the company petition to show that the circular resolution route was adopted mala fide. According to Mr. Divan and Mr. Jayanta Mitra what the Board did is that after finding that there was nothing wrong with the circular resolution (that was not necessary at all), it made certain uncalled for observations of advisory nature regarding good corporate governance. They have said that it was apparent on the face of the resolutions dated November 2, 2004 and January 14, 2005, that not only the HPL decided to allot 150 million shares to the IOC, but the persons named in the resolutions were also duly authorized to allot the shares and issue the certificates. Their contention is that when accepting the offer letter dated January 28, 2005, the IOC submitted the requisite application and papers accompanied by a cheque for Rs. 150 crores, the only thing that was to be done was to encash the cheque and issue the share certificates.

I do not find any reason to say that the circular resolution amounted to an act of oppression. It has been rightly said that the resolution, strictly speaking, was not necessary. Once the board decision dated November 2, 2004, was approved by the special resolution dated January 14, 2005, and the offer made by letter dated January 28, 2005, was accepted by the IOC, the only thing that was to be done was to issue the share certificates. PC was obstructing that, and for no valid reason. Although his activities exposed all concerned to threatened civil and criminal actions, he remained unmoved. The HPL''s interests were at stake. Hence it cannot be said that the chairman was unjustified in proposing the circular resolution. I find no merit in the argument that the legal opinion with connected papers were not disclosed with the proposed resolution. The relevant part of the opinion was circulated, and anyone needing the whole of it was at liberty to have it. I agree with Mr. Divan that the Board should not have made any: comments on good corporate governance. That was not a matter in issue.

As to the case u/s 398, Mr. Sarkar has submitted that the Boad wrongly proceeded on the basis that the petitioners in the company petition did not press their case of mismanagement of the affairs of the HPL by the GoWB and the WBIDC. His contention is that by taking steps to cause material change in the management and control of the HPL causing serious prejudice to the HPL''s interests in furtherance whereof the Chatterjee group led by PC made the debt restructuring package, followed by the refinancing scheme, a real success, GoWB, WBIDC and their associates acted in contravention of the provisions in Section 398. I do not find any merit in the arguments.

In the company petition no noticeable case of mismanagement was made but. There is absolutely no reason to say that the GoWB and the WBIDC with their associates, if there were any, were conducting the affairs of the HPL in any manner prejudicial to the HPL''s interests. Whatever changes the IOC allotment and allotment of shares to the lenders in terms of the debt restructuring package and the refinancing scheme were to bring about were in the HPL''s interests, as had been decided by its board of directors from time to time. The IOC came in according to terms and conditions of the debt restructuring package. It seems to me that without any real basis for making any complaint the petitioners in the company petition referred to the provisions in Section 398. There is absolutely no reason to make any order granting relief under that section. Hence the Board was fully justified in not making any order by making any reference to the provisions in Section 398.

The appointment of the managing director in the HPL, it seems to me was made a matter in issue in the proceedings before the Board without any valid reason. It as been contended that the Board was wrong in not granting relief to the petitioners in the company petition holding that the appointment of the managing director was liable to be set aside, since decision to appoint him was taken in the meeting held on March 29, 2005, when not only there was no vacancy for a director, but there was also no item on the agenda proposing to appoint him. By referring me to the provisions in Section 291 of the Companies Act, 1956, Mr. Sarkar has contended that in view of the illegality in the exercise of power by the board of directors of the HPL, the managing director was not entitled to function.

I do not find any reason to say that the Board was wrong in its opinion on the question of validity of appointment of the managing director. I agree with Mr. Bimal Chatterjee that having participated in the meeting dated March 29, 2005 and voted in favour of appointment of the managing director, the petitioners concerned in the company petition were not entitled to question the appointment. As rightly said by Mr. Chatterjee, the concept of ultra vires, legality or illegality does not apply to interpretation of articles of association which are mere terms of contract and to which law of estoppel applies with full force, and if at all, question of prejudice or non-performance of contract can arise. In my opinion, the Board was justified in not interfering with the matter chiefly on the ground that the petitioners concerned in the company petition being some of the creators of the situation were estopped from questioning the appointment. In any case, I do not see how order granting relief u/s 397 could be made, even if the HPL board acted illegally in appointing the managing director ; for that could not be considered an act of oppression.

The Industrial Development Bank of India has filed an appeal. Mr. Pratap Chatterjee, its counsel, has argued that the order of the Board is liable to be set aside for the simple reason that it was made in clear contravention of the provisions in Section 402(e). According to him the Board gave extraordinary directions modifying the terms and conditions of various agreements, including the master restructuring agreement, without giving any notice to IDBI, the lead lender, when it was a mandatory statutory requirement.

Facing with the situation Mr. Sarkar has argued that admittedly IDBI of its own accord, had approached the Board by filing an application in which appropriate order was made during pendency of the proceedings, and hence for giving directions regarding transfer of shares by WBIDC to the Chatterjee group no further notice to IDBI was necessary, though in terms of the agreements shares could be transferred only with prior approval of the lenders. Though it has been argued by Mr. Chatterjee with vehemence that in the course of hearing of the company petition for its final disposal IDBI that had made an application at the initial stage of the proceedings and which was kept pending, was not heard, Mr. Sarkar has advanced his argument by saying that the order of the Board will show that IDBI was heard.

I am unable to agree with Mr. Sarkar. What the Board mentioned was actually the order made by it at the earlier stage of the proceedings. There is nothing to show that in the course of hearing of the Section 397 application for its final disposal or before making the order giving the directions, IDBI was actually noticed and heard. The Board rather presumed that IDBI would not raise any objection to the order, since before filing of the company petition it had signified its consent in writing to the transfer of the said 155 millions and all other HPL shares held by WBIDC to the CP(I)PL, the CP(M)C or its nominee. To my mind, there was no valid reason for the Board to proceed on the basis of a presumption. Hence I agree with Mr. Chatterjee that the Board made the order in clear contravention of the provisions in Section 402(e). The order of the Board is liable to be set aside on this ground as well. But then there is no reason to remit the matter, since I have found that the company petition itself is liable to be dismissed on the ground that the petitioners therein failed to make out and establish any case of oppression, a must for getting relief u/s 397 of the Companies Act, 1956.

Mr. Pal has argued a point that the Board adopted an unfair and impermissible procedure in that numerous documents which never formed part of any pleading, but produced by the parties in the course of arguments, were taken on the record and considered by the Board. He has said that with the voluminous written arguments the parties produced a large number of documents. I only say that that was an improper procedure followed by the Board. In view of the rules governing the proceedings, the Board was supposed to consider only those documents which were brought on record as part of the pleadings of the parties. It has also been said that the case of the petitioners in the company petition stated in their written argument was completely different from the one made out in their pleadings. I do not think these questions require any further close examination, since I have found that on merits the order of the Board cannot be sustained.

For these reasons, I hold that the order of the Board is liable to be set aside and the company petition should be dismissed. Accordingly, I allow the three appeals filed by GoWB, WBIDC and lDBI, and dismiss all the eight cross-objections and the appeal filed by the petitioners in the company petition. The order of the Board See Chatterjee Petrochem (Mauritius) Co. v. Haldia Petrochemicals Ltd. [2008] 143 Comp Cas 726. is set aside and the company petition is hereby dismissed. All the pending interlocutory applications shall be deemed to be disposed of. There shall be no order for costs in the proceedings.