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Judgment
K. Govindarajan, J.—The appellants, being aggrieved by the order dated May 21, 2000, passed by the Company Law Board, Principal
Bench at Chennai in C. P. Nos. 68 and 69 of 1998 which was confirmed by the learned judge in C.M.A. Nos. 923 and 924 of 2000, on the file
of this court, in the judgment dated May 21, 2002 (since reported in Micrometrics Engineers Pvt. Ltd. v. S. Munusamy [2003] 116 Comp Cas
465), filed the above Letters Patent Appeals.
The issue relates to the two companies which are the first appellant in the respective appeals, Micromeritics Engineers Private Ltd., the first
appellant in L. P. A. No. 109 of 2002, was incorporated on September 8, 1986, and the second appellant, the respondent in L. P. A. No. 108 of
2002 and one Chandrasekaran were holding ten shares each in the said first appellant-company. Subsequently, on August 7, 1990, the said first
appellant-company allotted 1,470 shares to all the above-said three shareholders equally thereby each of them were holding 500 shares. The said
Chandrasekaran sold his 500 shares to the other two shareholders equally and he resigned from the post of director of the said first appellant-
company. According to the appellants, in the board meeting held on February 24, 1997, the said first appellant-company was authorised to issue
7,500 shares and on April 14, 1997, the said 7,500 shares were allotted to appellants Nos. 3 to 5 who are none other than the wife, brother and
father-in-law of the second appellant, and subsequently they were made directors.
Similarly, the first appellant-company in L. P. A. No. 108 of 2002 was incorporated on January 13, 1992. Only ten shares each (total 30
shares) were allotted to the second appellant and one Munusamy the husband of the respondent in L. P. A. No. 109 of 2002 and
Chandrasekaran. Subsequently, the said Munusamy transferred his ten shares in favour of the respondent, his wife and Mr. Chandrasekaran
transferred his ten shares in favour of his wife Nalini. In the meeting held on September 15, 1992, the said first appellant-company was authorised
to allot 2,970 shares and accordingly, Soundar, Senthamarai and Nalini, the three shareholders were allotted 990 shares each, in addition to the
ten shares each originally allotted to them. Nalini Chandrasekaran transferred her 1,000 shares to the other two shareholders equally thereby the
other two shareholders got 1,500 shares each. According to the appellants therein, on March 20, 1997, a resolution was passed by the board
authorising the said company to allot 900 shares and the said shares were allotted on April 14, 1997, in favour of appellants Nos. 3 to 5, who are
none other than the wife, brother and father-in-law of the second appellant. Subsequently, they have been made directors. It is also the case of the
appellants in both the appeals that in the meeting held on May 2, 1998, the board has accepted the resignation of the respondent in both the
appeals.
Stating that the action of the second appellant allotting shares to their own persons and making them directors is an act of oppression and
mismanagement, C. P. Nos. 68 and 69 of 1998 were filed by the respondents herein under sections 397, 398 and 402 of the Companies Act,
1956, hereinafter called ""the Act"", seeking to supersede the board of directors of the company, to appoint an administrator to take charge of the
affairs of the company, to set aside the allotment of shares to appellants Nos. 3 to 5 in each company and for a declaration that appellants Nos. 3
to 5 herein have not been validly elected as directors of the company, etc.
Since the facts are similar in both the cases, the Company Law Board took the matter together and decided the same in a common order.
Though the Company Law Board found that there are acts of oppression justifying winding up of the companies, instead of restoring status quo
ante, passed orders setting aside the allotment of shares in favour of appellants Nos. 3 to 5 and also inclusion of respondents Nos. 4 and 5 as
directors of the companies and setting aside the resolutions, removing the respondents from the office of directors of the companies and thereby
reconstituting the board of directors consisting the second appellant and the respondents. Taking into consideration the interest of the first
appellant-companies it was further ordered that either one of the respondents and the second appellant herein shall taken one company each and
manage its affairs independently and the same should be done by a lot and the value of the shares of both the companies has to be decided on the
basis of the net worth of the companies and monetary adjustments would be made to the extent required. Aggrieved against the same, the
appellants have preferred appeals in C. M. A. Nos. 923 and 924 of 2000. The learned judge also confirmed the order passed by the Company
Law Board dismissed those appeals. Hence the above Letters Patent Appeals.
Learned senior counsel appearing for the appellants submitted that in the board resolutions dated February 24, 1997, and March 20, 1977, the
respondents attended the same and the said resolutions were carried out to allot the shares for the benefit of the company and so it cannot be said
as oppression. According to him, without even considering the validity of the said resolutions, the Company Law Board was not correct in holding
that there is an oppressive action taken on the said resolutions. Learned senior counsel further submitted that the allotment of shares and making
the shareholders directors cannot be said to be a chain of events to come to the conclusion that such acts are oppressive in nature. According to
him, each resolution is consequential to the earlier resolution and so it cannot be said that each act is an independent one to say that it is a chain of
events. Learned senior counsel also submitted that the Company Law Board has no jurisdiction to direct the shareholders to take one company
each, though the shareholders are not common, except the second appellant. Referring to sections 3(1), 397, 398 and 402 of the Companies Act,
learned senior counsel submitted that the Company Law Board can deal with issues raised with reference to an individual company and the same
cannot be decided jointly merely because one of the shareholders is common in both the cases.
Per contra, learned counsel for the respondents submitted that with respect to the validity of the resolutions, the appellants have not even raised
the same in the counter. Only in the written submission, the same has been referred to and so there is no occasion for the Company Law Board to
deal with the said issue with respect to the correctness of the resolutions. Learned counsel further submitted that in spite of the same, the learned
judge, while disposing of the civil miscellaneous appeals, has also discussed about the genuineness and reliability of the said resolutions. Learned
counsel also has relied on the findings given by the learned judge in this regard. Learned counsel also pointed out that the resolutions in question are
passed only with a view to get rid of the respondents from the management and so they are a chain of events. Even if it is not a chain of events, a
single action itself can be construed as an act of oppression as it has a long-term effect. It is his further submission that both the Company Law
Board and the learned judge factually found that there are chain of actions to send the respondents out of the management and so the said factual
findings may not be interfered with.
With respect to the jurisdiction of the Company Law Board to give a direction in the impugned order, learned counsel appearing for the
respondents relying on sections 397, 398(2) and 402(g) and 402(h) submitted that the Company Law Board is having wide power to pass orders
as it thinks fit for the purpose of smooth running of the companies and also with a view to bringing to an end the matters complained of. So
according to him, the order passed by the Company Law Board which has been confirmed by the learned judge need not be interfered with.
From the above-said arguments, the following points arise for determination in these appeals :
(1) Whether the Company Law Board is having jurisdiction to give direction as it has been given under the order impugned ?
(2) Whether any chain of events is available to hold that the resolutions passed by the appellants are oppressive in nature ?
(3) Whether the Company Law Board is justified in holding that the acts of oppression and mismanagement have been established without even
considering the resolutions passed by the appellant-companies regarding the acts referred to ?
The Company Law Board held that the allotment of shares by the appellant-companies on April 14, 1997, induction of additional directors on
May 1, 1998, and removal of the respondents as directors on May 2, 1998, in the respective company constitute a chain of acts of oppression
against the concerned respondent. The Company Law Board also found that the said acts of oppression justifies winding up of the companies viz.,
M/s. Microparticle Engineering Private Ltd., and M/s. Micromeritics Engineers Private Ltd., on just and equitable grounds and so they could pass
the following order :
(a) setting aside the allotment of shares impugned in these petitioners in favour of respondents Nos. 3 to 5 and rectify the register of members of
the companies ;
(b) setting aside inclusion of respondents Nos. 4 and 5 as directors of the companies ;
(c) setting aside the resolutions dated May 2, 1998, removing the petitioners from the office of director of the companies ; and
(d) reconstituting the board of directors of the companies with immediate effect with the petitioners and the second respondent as directors of the
companies.
But the Company Law Board felt that restoring the status quo ante could only result in deadlock in the affairs and management of the
appellant-companies in view of the fight between the two directors in each company and neither of the parties could be benefited by virtue of such
an order,
In consonance with the power given u/s 397 of the Act and to put an end to the matters complained of, an appropriate order was passed by
the Company Law Board, which is as follows :
We are of the view that the petitioners and the second respondent each should take exclusively one company each and run the same
independently, which, in our view, is feasible and will meet the ends of justice. Accordingly, it is hereby ordered that the petitioners and the second
respondent each shall take one company and manage its affairs independently. Towards this end, a lot will be taken in the presence of this Bench
on August 2, 2000 at 2,30 p. m., in order to allot companies in favour of the petitioners and the second respondent respectively. Since the value of
the shares of both the companies may not be the same once the lot is decided on the basis of net worth of the companies, share value will be
computed on the basis of the original shareholding and monetary adjustments will be made to the extent required.
It is not disputed before us by both learned counsel that the Company Law Board is having wide power to pass orders under sections 397,
398(2) and 402 of the Act. But, according to the learned senior counsel appearing for the appellants, the Company Law Board should pass such
orders only with respect to ""the company"" and should not pass a combined order with respect to two different companies. Learned senior counsel
pointed out the phrase ""the company"" and ""a company"" as mentioned in the above-said provisions.
u/s 397 of the Act, the phrase ""the company"" is used only to emphasise that the members of that company alone can give a complaint with
reference to the affairs of that company. It is nothing to do with the powers of the Company Law Board. Even u/s 398(2) of the Act, if the
Company Law Board on any application filed u/s 398(1) of the Act is of the opinion that the affairs of the company are being conducted as
mentioned u/s 398(1) of the Act or that by reason of any material change mentioned in the said provisions in the management and control of the
company, it is likely that the affairs of the company will be conducted as stated u/s 398(1) of the Act, the Company Law Board may with a view to
bring to an end or preventing the matters complained of, make such order as it thinks fit. The said provision no doubt deals with the power of the
Company Law Board with respect to a particular company. Even Section 402(b) of the Act gives special power to the Company Law Board to
order providing for the purchase of shares or interests of any members of the company by other members thereof or by the company.
On a reading of sections 397, 398(2) and 402(b) of the Act, it is clear that the Company Law Board has to deal with the affairs of a particular
company and also give liberty to purchase of shares by other members of the said company or by the same company ; otherwise, the Company
Law Board cannot permit the third parties to purchase shares of the company u/s 402(b) of the Act. In the present case, the Company Law Board
found that the acts of oppression have been established in each company separately. From the above-said direction given by the Company Law
Board, it is clear that the Company Law Board is not permitting any third parties to purchase the shares. In Microparticle Engineers Private Ltd.,
Soundar and Senthamarai, wife of Munusami are equal shareholders, pursuant to the order passed by the Company Law Board. Similarly, in
Micromeritics Engineers Private Ltd., the said Soundar and Munusami are equal shareholders. If the order of the Company Law Board is
implemented, either Munusami or Senthamarai should go out of the respective company and the outgoing person should sell his shares to the
remaining shareholder. Soundar also should go out of any one of the said companies by selling his shares of that company, if he is going out of
Microparticle Engineer Private Ltd., to Senthamarai or if he is going out of Micromeritics Engineers Private Ltd., he has to sell his shares of that
company to Munusami. Soundar can run any one of the companies and manage the affairs independently. Either Munusami or Senthamarai can run
the other company by virtue of purchasing the shares of Soundar by adopting the above method.
If by virtue of lot, Munusami has to sell his shares to Soundar in Micromeritics Engineers Private Ltd., Soundar has to sell his shares in
Microparticle Engineers Private Ltd., to Senthamarai and thereby Soundar will take the entire shares and management of Micromeritics Engineers
Private Ltd., and Senthamarai will take the entire shares and management of Microparticle Engineers Private Ltd. On the other hand, by virtue of
lot, Senthamarai has to sell her shares in Microparticle Engineers Private Ltd., to Soundar, Soundar will have the entire shares and management of
that company and Soundar has to sell his shares in Micromeritics Engineers Private Ltd., to Munusamy and Munusami will have the entire shares
and management in that company.
Without giving option to the parties with reference to a particular company to take, the Company Law Board adopted lot method. Even with
respect to the value of the shares, the Company Law Board found that the share value will be computed in the name of original shareholding and
monetary adjustments will be made to the extent required. Even with respect to monetary adjustments, one shareholder of the company who
purchased the shares is going to pay the differential amount only to the other shareholder of that company and not to the shareholder of the other
company.
From the above, it is clear that the Company Law Board is not permitting any third parties to purchase the shares and the direction is to sell the
shares to the existing shareholder of a particular company, and the above method is also adopted only on the basis of complaint given by the
shareholder of a particular company and not on the basis of complaint of third parties. Hence, it cannot be said that the Company Law Board has
exceeded its jurisdiction as contemplated under the above-said provisions. So we are not inclined to accept the said submission made by the
learned senior counsel appearing for the appellants in this regard.
With respect to the next question regarding the acts of oppression, learned senior counsel appearing for the appellants submitted that the
resolutions passed on April 14, 1997, May 1, 1998 and May 2, 1998 are only consequential and so it cannot be said to be separate proceeding
to come to the conclusion that it is a chain of events. Both the Company Law Board and the learned judge found that it is a chain of events with the
intention to deprive the rights of the other shareholders. We need not go into the question whether the said acts constitute a chain of events in view
of the decision of the Division Bench of the Calcutta High Court in Tea Brokers (P.) Ltd. v. Hemendra Prosad Barooah [1998] 5 Comp LJ 463,
in which it is held that even a single event can be taken as an act of oppression. It is further held therein as follows (pages 521 and 522) :
There is no sum due and payable by Barooah on the shares held by him in the company on account of call or otherwise. Before, however, the
court can exercise its powers, the court must be satisfied that the requirements of Section 397 are fulfilled and the said requirements are that on an
application u/s 397 of a member who has right to apply in virtue of Section 399, the court has to be of the opinion :
(a) that the company''s affairs are being conducted in a manner oppressive to the member or members of the company, 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 court therefore, can pass appropriate orders u/s 397 read with Section 402, if it comes to the conclusion that the affairs of the company are
being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or
members, but the facts would otherwise 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 Legislature in its wisdom has thought it fit not to define what is oppression for purpose of this section and it is left to
courts to decide on the facts of each case whether there is any act of oppression justifying action under this section. It is, however, to be borne in
mind that the oppression to the member has to be in its capacity as a member of the company and not otherwise. If a member who holds the
majority of the shares in a company is reduced to the position of minority in the company by an act of the company or by its board of directors
mala fide the said Act, in my opinion, must ordinarily be considered to be an act of oppression to the said member. The member who holds a
majority of the shares in the company is entitled by virtue of his majority to control, manage and run the affairs of the company. This is a benefit or
advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the
affairs of the company by electing his own men to the board of directors of the company and by refusing to elect person whom he does not want to
be on the board by exercising his majority voting right in the matter of such election and also in other matters where the views of the majority are to
prevail in accordance with the provisions of the company law and administration. This is undoubtedly, a right and privilege which a member enjoys
in his capacity as a member of the company. It will ordinarily be an act of oppression on the member if he is deprived of his privilege and right.
Such an act will undoubtedly be harsh, burdensome and wrongful and will necessarily be an act of oppression to the member concerned. Such an
act may be even a single act done on one particular occasion, if the effect of such an act will be of a continuing nature and the member concerned
is deprived of his rights and privileges for all time to come in future. If the affairs of the company are so conducted as will result in this kind of
oppression to any member or members, the affairs of the company must be considered to be as ''being conducted in a manner oppressive to any
member or members'' as laid down in Section 397 of the Act. This view, on a proper construction of Section 397 of the Act, to my mind, is clearly
supported by decision of the Division Bench of the court in the case of Ramashankar Prosad and Others Vs. Sindri Iron Foundry (P) Ltd. and
Others, , where a single act which was persistent and. persisting as also continuous and continuing was held to constitute an oppression. In the
instant case, I have already held that the allotment was not made by the board bona fide in the interest of the company and the allotment had been
made mala fide with the only intention of reducing Barooah into a minority and thereby depriving him of his rights and privileges as the majority
shareholder of the company by increasing voting strength of Khaund and consequently diminishing the voting power of Barooah as the existing
majority shareholder of the company. At that very meeting on January 14, 1971, Khaund and Mitra had removed Barooah from the board of
directors by seeking to take recourse to the provisions contained in Section 283(1)(g). Their position in charge and management of the affairs of
the company would still, however, not be safe, because Barooah, as the majority shareholder, could assert his position, and if necessary, remove
Khaund and Mitra from the board in accordance with law. To consolidate their position and power and to grab effectively the control of the
company, Khaund and Mitra found it necessary to reduce Barooah into a minority and with that sole intention the said 1,000 shares were allotted
to Khaund. The said allotment, as I have already held, is mala fide, improper and invalid. The said allotment, in the facts of the instant case, has an
effect which is persistent and persisting as also continuous and continuing and clearly constitutes an oppression on Barooah. The said allotment
which constitutes an act of oppression on Barooah establishes that the company''s affair are being conducted in a manner oppressive to Barooah.
In the present case, as stated already, Soundar and Senthamarai were holding equal shares in one of the companies and Soundar and
Munusami were holding equal shares in another company. By a resolution dated April 14, 1997, certain shares were allotted in each company in
favour of one Vasanthakumari wife of Soundar, Siddarthan, brother of Soundar, Velayutham, the father-in-law of Soundar. The Company Law
Board and the learned judge factually found that in the said meeting, either Senthamarai or Munusami was not present. The Company Law Board
and the learned judge also factually found that no notice was issued to Senthamarai or Munusami for the meeting alleged to have been held on
April 14, 1997, and no such meeting was held on April 14, 1997 and so the resolution dated April 14, 1997, is not valid. The said concurrent
finding of fact, we are not inclined to interfere with. In view of the said finding, the learned judge further found that the meeting convened on May 1,
1998, is not valid as there is no valid notice for the said meeting. Apart from the said fact, if we are able to come to the conclusion that no meeting
was held on April 14, 1997, in which it is alleged that the shares were allotted to third parties in both the companies, the decision taken in the
meeting convened on May 1, 1998, to induct the said three persons as additional directors cannot be taken as a valid one. The Company Law
Board and also the learned judge held that the meeting held on May 2, 1998, is invalid as there was no quorum for the said meeting. So the
question of acceptance of the resignation given by the first respondent does not arise. But, it is further factually found that the copies of the
resignation letters have not been produced before the Company Law Board and the signatures have not been proved. On the basis of the above-
said factual findings, it is held by the Company Law Board and the learned judge that the resignation letters of the first respondent in each of the
said companies were not validly accepted as there was no valid meeting held on May 2, 1998.
Though learned senior counsel appearing for the appellants submitted that the findings given by the Company Law Board with reference to the
said resolutions cannot be sustained as the Company Law Board has not dealt with the validity of the said resolutions, it is not in dispute in this
case that the appellants have not mentioned about the said resolutions dated April 14, 1997, May 1, 1998 and May 2, 1998 and the details about
the same in the counter filed before the Company Law Board. Only in the written arguments, the same has been mentioned and so the Company
Law Board is not expected to deal with the same. But, on the other hand, the learned judge, in view of the arguments advanced regarding the
validity of the said resolutions, went into and discussed elaborately on the said issue and gave a finding as stated above. No acceptable materials
are produced before us warranting interference with the factual findings given by the learned judge in this regard based on evidence available. Even
the presumption regarding meetings as mentioned u/s 193 of the Act does arise only if the original minutes book is produced. In this case, no
minutes book was produced. As found by the learned judge though on March 20, 1997, there was a resolution authorising the company to allot
shares, for the meeting dated April 14, 1997, in which shares were allotted to third parties no notice was given to Senthamarai or Munusamy as
the case may be. Hence we are constrained to confirm the findings given by the learned judge with reference to the resolutions dated April 14,
1997, May 1, 1998 and May 2, 1998.
If such findings are confirmed, consequently, the finding regarding the act of oppression has to be confirmed. Even if it is a single act, the
above-said act of the appellants creating records as if they passed the said resolutions for the purpose of allotting the shares for the above-said
three persons and making them additional directors and removing the first respondent in the respective cases as directors clearly establishes the act
of oppression, as it has been done only to send the first respondent in each case, out of the management of the said companies.
In view of the foregoing discussion, the act of oppression by the appellants has been established with reference to the above-said companies
separately and the order of the Company Law Board is within the powers stipulated by the Act especially when such order is passed with a view
to bringing the stalemate in the companies to an end. Hence we are not interfering with the judgment of the learned judge dated May 21, 2002.
Accordingly, these appeals are dismissed. No costs.