Calcutta High Court
Manohar Rajaram Chhabaria vs Union Of India & Ors. on 18 May, 2000
Equivalent citations: (2000)3CALLT434(HC), [2002]110COMPCAS162(CAL)
Author: Satyabrata Sinha
Bench: Satyabrata Sinha
JUDGMENT M.H.S. Ansari, J.
1. These five appeals are all directed against the judgment and order of the Company Law Board dated 27th July, 1998 and have, therefore, being heard analogously and are being disposed of by this common judgment and order.
2. Brief facts leading to the filing of the instant appeals are that; proceedings were instituted by the Employees' Federation i.e. employees-shareholders under sections 235. 237, 397 and 398 of the Companies Act, 1956 before the Company Law Board; the Central Government also supported the said petition by filing an affidavit; in the said affidavit filed on behalf of the Central Government, reference was also made to the Company Petition No. 46 of 1996 filed by Central Government before the Company Law Board under section 408 of the Companies Act, 1956. The Central Government had earlier conducted an inspection under section 209A and this report allegedly brought out certain financial mismanagement in the affairs of the M/s. Shaw Wallace Co. Ltd.
3. The petition under sections 397/398 and the Central Government's petition under section 402 of the Companies Act were heard together by the Company Law Board and disposed of by an order dated 27th July, 1998 which has been impugned in the present appeals.
4. By its impugned order, the Company Law Board (CLB) directed the Board of Shaw Wallace Company Ltd. (SWC) to be frozen to be 9 (nine) members with 4 (four) Directors nominated by CLB; two on the petition filed under sections 397/398 and the other two on the petition filed under section 408 of the Companis Act. Certain other directions regarding investigation to be made by the Board of SWC itself the charges of mismanagement were also given.
5. Four (4) sets of appeals were filed on behalf of the SWC and Manohar Rajaram Chhabria (MRC) assailing the impugned order. SWC filed two appeals one against the order of CLB under section 408 petition and the other appeal against the petition under sections 397/398, Likewise MRC filed two appeals.
6. Also, the Employees' Federation filed an appeal against the said order of CLB (APOT No. 770 of 1998) in relation to the petition filed by them under sections 397/398. The Memorandum of appeal filed by the Employees' Federation was not accompanied by a certified/true copy of the order appealed against. Only a xerox copy thereof was annexed to the Memorandum of appeal. The original true copy of the impugned order of CLB as made by the CLB was, however, tendered in Court at the time of the hearing of the appeal on 9th February, 2000.
7. By an order dated 23.12.1998, directions were given for filing affidavits in the stay petition filed by SWC and MRC in respect of sections 397/398 matter. An ad-interim order dated 23.12.1998 was also passed by the Division Bench of this Court staying the operation of the impugned order passed by CLB. A Special Leave Petition was preferred by the Employees' Federation from the ad-interim order to the extent that the ad-interim order stayed the nomination of the Directors appointed in the 397/398 matter. Such Special Leave Petition, we are informed, was dismissed.
8. By another order dated 23.12.1998, directions were given for filing of affidavits in the stay petition preferred by the Employees' Federation. However, unlike the two appeals preferred by MRC and SWC which were admitted, the appeal filed by the Employees' Federation was not admitted but the question of admission was left for a subsequent date. Thus, in so far as the appeal preferred by the Employees' Federation being APOT No. 770 of 1998 is concerned, the question as to the maintain ability of the appeal filed under section 10F of the Companies Act is for consideration.
9. At this stage, it would be appropriate to refer to the allegations on which the petition of the Employees' Federation under sections 397/398 was founded. CLB has summerised the allegations in para '4' of its order under appeal which are as under:
"The entire control of the management of the company is in the hands of MRC. The assets and funds of the company are being used for his personal benefit. Many of the companies under his control have become sick. The company is not in a position to repay fixed deposits on maturity. MRC allowed his brother Shri K.R. Chhabria who was earlier the Managing Director of SWC to take companies which were under the control of SWC, which included BDA Breweries Ltd., one of the most profitable companies for a meagre consideration. The Company had dealings with certain other companies of MRC, like Orson TV, Genelec Limited etc. by which company had incurred huge losses. Further, the distribution charges for the products of the company was increased manifold and this way funds were diverted through the medium of distributors for the personal benefit of the promoters. A sum of Rs. 10 crores was paid to Golden Tobacco Limited (GTC) for purported advertisement of Company's products while no such advertisement was actually done. The company also manipulated the accounts in relation to a transaction of purchase and sale of certain software, from Dunlop India Limited at a price of Rs. 30 crores and reported as if the same software had been sold to Jumbo Global Limited, a company belonging to MRC for Rs. 47 crores. Actually, neither the purchase price was paid nor the sale price was realised. The company has purchased jewellery worth Rs. 50 lacs and booked the same in the name of other Chabbria companies.
In the year 1993, the company announced a strategic plan known as "Vision 2000" and a lot of expenditure was incurred to give a wide publicity for the same. To implement this plan, given though proposals were initiated for issue of GDR and public/right issues, nothing came out and instead, other profitable businesses of the company were sold. Tezpore Tea Company Limited was reportedly sold for a sum of Rs. 23 crores while the actual price was much higher; and the difference had been siphoned of. In the process a huge sum was paid to respondent No. 45 as his service charges, even though the sale of shares was effected through a stock broker. In addition, at the behest of MRC, many other business entitles were sold out. Likewise the occupancy right of very valuable premises at Bombay and Calcutta was given up for an unknown consideration. Without the approval of the Board, a large amount of inter corporate deposits (ICD) have been raised at a very high rate of interest and MRC has siphoned of a substantial amount. More than Rs. 300 cr. have been diverted to subsidiaries and no interest is being charged on this amount. The performance of the subsidiaries does not commensurate with such inflow of funds. A perusal of the annual accounts of the company shows that there is an alleged profit of Rs. 29 crs. from the sale of shares of Maharashtra Distilleries Limited. Actually, no such sales had been place to outsiders but only with other subsidiaries. Therefore, this transaction is purely for the purposes of window dressing the profitability of the company. The accounts also show that statutory payments like provident fund, ESI etc. have not been paid and are outstanding. A large number of winding up petitions have been filed against the company for non payment of dues to creditors. In view of the very bad financial position of the company, the financial institutions have categorised the company as a non performing asset and thus have stopped all financial assistance. In the' guise of restructuring the organisation, MRC has initiated action to shift the headquarters of the company from Calcutta to Mumbai.
Inspite of such a bad financial state. It is seen from the accounts that the company has invested about Rs. 100 cr. in six Gauhati companies, which are, even though claiming to be public limited companies are nothing but paper companies. This investment has been made by way of lending money to subsidiaries which in turn, are reported to have invested in these companies. The acquisition of these companies is reported to be through one Mr. N.C. Jain (Res. No. 45), a stock broker registered with Gauhati Stock Exchange. There have been press reports that this money has been siphoned by MRC through "hawala route". This investment was done without the knowledge/permission of the Board, it is also seen that some of these companies were shown to have ceased to be subsidiaries. Another bad investment made by the company is in Charminar Breweries in Andhra Pradesh wherein prohibition was going to be introduced. The investment in this company is of the order of Rs. 14 crores. Over 400 executives have been sent out of service in the year 1995 since they were not towing the line of MRC in his nefarious activities of siphoning of funds. A large amount of money is being spent on MRC out of the company funds. The company had advanced money to another company namely, Jumbo (Res. 50) for purchase of the shares of the company, thus, violating the provisions of section 77 of the Act. To avoid detection. MRC has arranged to transfer the shares from the name of Res. No. 50 to Res. No. 51.
It is also averred in the petition that ever since MRC came into the picture by acquiring a large percentage of shares in the company, the company is being systematically freezed, bringing the company to a position where it is unable to pay its debts. Such acts are harsh, oppressive and prejudicial to the interest of the company as well as public. It is also submitted in the petition that the petitioners are not in a position to provide the details of the illegal transactions and siphoning of funds and as such an order of investigation be passed to bring to ling the various acts committed by the MRC."
10. The petitioners in the 397/398 matter before the CLB are employees of SWC who were allotted shares from the employees quota and their percentage of holding in the company is about 0.07%.
11. The CLB has in para '5' of its order under appeal has summarised the grounds on which the Central Government sought for appointment of Government Directors in its petition filed under section 408 as under;
"The summary of the grounds on which the Central Government has sought for appointment of Government Directors in the second petition is as follows : The Central Government had carried out an inspection of the books and accounts of the company under section 209A of the Companies Act and this report has brought out a series of financial mismanagement in the affairs of the company running into crores of rupees. This financial mismanagement relates to various aspects of financial transactions inter alia including the borrowing of the intercorporate deposits at high rates; lending of money to subsidiaries without interest or waiving of interest, writing of huge amount as bad debts, payment of unnecessary and exorbitant non-competition fee, exorbitant sales promotion expenses, unwarranted payments of consultancy and brokerage fee etc., it is further alleged in the petition that due to its inability to pay its dues, a large number of winding up petitions have been filed in Calcutta High Court; the company has not been able to refund public deposits; while borrowing the funds at high rates ranging between 26 to 30%, the said amounts have been lent to the subsidiaries at a lower rate of interest ranging to 22-28%; further, in many of the cases accrued interest had been waived; huge amount is found to have been paid as financial charges and brokerage for the borrowings made by the company; the company also incurred heavy losses on trading in T.Vs. manufactured by M/s. Orson Electronics, a company belonging to MRC group; there have been violations of the provisions of section 211(2), 209[2), 143 and 303 of the Companies Act; The loans raised by the company stood at Rs 353.62 crores as on 30.6.1995 and the company has given loans and advances to the tune of Rs. 280.51 crs. The amounts shown above are exponentially higher than what was in the previous many years. Therefore, it is alleged in the petition that the practice of borrowings of short term funds and lending the same for long term is against the principles of prudent financial management; the interest burden has gone up by 859% in the last three years and it has had the effect of crippling the company; even the stand of the company that funds were given to subsidiaries for acquiring shares in other companies does not stand to scrutiny, in as much as, against Rs. 124.63 crores lent to the subsidiaries during 1994-95. the subsidiaries purchased shares in other companies only to the extent of Rs.20 crores: the turnover of the new subsidiaries for the year 1993-94 and 1994-95 do not commensurate with the investments made to acquire the new subsidiaries the company is in the practice of having to profitable subsidiary companies like Tezpore Tea Company Ltd. and Maharashtra Distillery Limited and acquiring new companies like Gauhati Companies which are only paper companies; the company has not been paying statutory dues like PF. PSI etc. due to financial crunch: there has been enormous increase in the expenses relating to publicity incurred in connection with procurement of short term funds and huge sums of money have been paid in terms of restrictive convenants while acquiring new breweries/distilleries; white the operating profits of the company has been coming down over a period of time, the company is showing profits only on account of other non trading extraordinary incomes or by showing the expenditure as deferred revenue expenditure; for debentures worth of Rs.5 crores issued in the year 1991-92, the company has paid 1.58 crores as finance charges, consultancy charges and brokerage and commitment charges when the entire debentures were issued to M/s. Peerless General Finance & Investment Company Limited: an inspection conducted in respect of Niagra Investment Limited to which the company paid Rs. 30 lacs as loan processing fees for these debentures and it was found that this company had neither any employee nor any whole time director and SWC is not in a position to explain as to whom an amount of Rs.30 lacs was paid and it is nothing but a scheme designed to divert the funds of the company; further, in the year 93-94, the company had borrowed Rs. 11.9 crores from Peerless at 21% interest for which the company incurred an expenditure of Rs. 1.6 crores as one time service charges paid to Peerless and Rs. 51.75 lacs to Raj Laminates Private Ltd. at 4.5% brokerage. The company was not able to justify this payment of brokerage; likewise the company also paid Rs. 83.48 lacs to one P.L. Mittal as service charges in connection with disposal of the shares of Tezpore Tea Company Ltd. even though the shares were sold through a registered broker, Shri. Shyam Sunder on payment of usual brokerage; the payment of the service charges is not only unjustified but it is a way of squandering the company funds; the company has been, year after year, writing of huge amounts as bad debts indicating that it has not been prudent in lending money after verifying the bonafides of the borrowers; the Income Tax authorities have conducted various raids on premises of the company as also in the residential premises of directors. Summing up these allegation, the Central Government has averred that there has been continuous gross financial mismanagement against sound business principles resulting in the affairs of the company being conducted in a manner oppressive to the shareholders and prejudicial to the interest of the company and public interest. Accordingly, it has sought for appointment of 8 Government directors for a period of three years to safeguard the interest of the respondent company, shareholders and the public interest"
12. We should first dispose of the question as to the maintainability of the appeal being APOT No. 770 of 1998 preferred by the Employees' Federation.
13. It has been contended by Mr. Mukherjee, learned senior counsel on behalf of the SWC that as the appeal filed under section 10F of the Act without a true copy/certified copy of the order appealed against, is not maintainable. In other words, it is contended, that non-compliance with the provisions of Order 41 Rule 1 of the Code of Civil Procedure, a mandatory provision, the appeal is not maintainable. The Court, it was further contended, has no power to waive this requirement.
14. The above contentions are sought to be countered by Mr. Banerjee, learned counsel appearing for the appellant (Employees Federation) by submitting that the appeal preferred being one by virtue of a right conferred under section 10F of the Act, there is no requirement under the said section 10F to file a certified copy/true copy of the order appealed against with the Memorandum of Appeal. The appeal, itself, it was urged, has been filed within the period of limitation as envisaged under section 10F i.e. within 60 (sixty) days with a xerox copy of the order under appeal as made available to the Employees' Federation was annexed with the memorandum of appeal. Leave was sought to tender the true copy of the order as made over to the appellants by the Company Law Board. Mr. Banerjee, learned counsel for the appellant further submitted that filing of a certified copy in connection with an appeal is not mandatory and in any event under Order 41 of the Code of Civil Procedure, the Appellate Court has the power to dispense with the filing of the certified copy of the judgment appealed against
15. Mr. Banerjee further submitted that there are no rules framed by this Court in respect of appeals under section 10F of the Companies Act and that appeals are entertained without certified copies of the order appealed against, particularly in cases of urgent matters. Some of such appeals are also disposed of at the ad-Interim stage and at the time of disposal of the appeal, any undertaking given to file certified copy of the impugned order is also discharged.
16. Section 10F of the Act confers statutory right of appeal to any person aggrieved by any decision or order of the Company Law Board. Such appeal in terms of section 10F has to be filed within 60 days from the date of communication of the decision or order of the Company Law Board to the concerned party. The section also gives power to the High Court only, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period of 60 (sixty) days to allow it to be filed within a further period of not exceeding 60 days. In terms of section 10F of the Act, an appeal would lie only on a question of law arising out of the decision or order appealed against.
17. The Companies (Court) Rules. 1959, apply to all proceedings in the High Court as defined in the said Rules. Therefore, the Company Court Rules, 1959 would apply to all appeals under section 10F of the Act. Rule 6 of the Companies (Court) Rules, 1959 makes the procedural provision of the Civil Procedure Code, 1908 applicable to the appeal filed under section 10F of the Act. It is thus clear that only procedural and not the substantive provisions of the Code of Civil Procedure alone would apply. For the said reasons, the High Court Rules of the Original Side of this High Court will have no application to an appeal under section 10F of the Act.
18. Order 41 Rule 1 of the Code of Civil Procedure is a procedural provision and would, therefore, apply to all appeals under section 10F of the Act. Under the said Rule, every appeal has to be preferred in the form of Memorandum signed by the appellant or his pleader and has to be accompanied by a copy of the decree appealed from and of the judgment on which it is founded. Rule 1 empowers the Appellate Court to dispense with the filing of the judgment but there is no jurisdiction in the Appellate Court to dispense with the filing of the decree. In Jagat Dhish Bhargava v. Jawahar Lal Bhargava & Ors., , it was held "in law the appeal is not so much against the judgment as against the decree; that is why Article 156 of the Limitation Act prescribes a period of 90 days for such appeals and provides that the period commences to run from the date of the decree under appeal. Therefore, there is no doubt that the requirement that the decree should be filed along with the memorandum of appeal is mandatory, and in the absence of the decree, the filing of the appeal would be incomplete, defective and incompetent."
19. In that case, the Supreme Court has noticed that the certified copy of the judgment as well as the decree in trial Court had been applied for but a copy of the decree was not given for the simple reason that no decree was drawn up. What they were given was a copy of the judgment. These documents, the appellant (respondent before the Supreme Court) filed with their Memo of Appeal. The appeal was rejected by the High Court registry on the ground that no copy of the decree had been filed, the presentation of the appeal was defective. The same was represented with the explanation that no decree had been drawn up. This explanation was treated as satisfactory by the Registry of the High Court and the appeal was registered. At the hearing of the appeal, preliminary objection was raised as to the competency of the appeal. The High Court directed that one months time be allowed for the purpose of getting a decree draw up in proper form by the Lower Court and obtain a copy thereof. The Supreme Court observed that appropriate orders have to be passed having regard to the circumstances of each case but the most important step to take in cases of defective presentation of appeals is that they should be carefully scrutinised at the initial stage soon after they are filed and the appellant be required to remedy the defects. It was further observed that the question about the competency of appeal has to be judged in each case on its own facts and appropriate orders must be passed at the initial stage soon after the appeal is presented in the Appellate Court.
20. From the above observations, it appears that while provisions of Order 41 Rule 1 of Code of Civil Procedure are mandatory, what is required to be filed along with the Memorandum of Appeal is the decree. In the absence of the decree, the filing of the appeal would be incomplete, defective and incompetent. However, the appellant should be afforded an opportunity to comply with the defect and if any question of limitation arises, the same would also require to be adjudicated upon. In the instant case, no decree has accompanied the filing of the memorandum. Though the Memorandum of appeal has been preferred within the statutory period of limitation prescribed for filing an appeal. There does not appear to be any practise in the CLB with regard to drawing up of a decree. It was accompanied by a xerox copy of the order appealed against. It is not in dispute that the xerox copy of the order has been made from the true copy of the order of CLB which was made available to it by the CLB. When the objection was taken as to the competency of the appeal, the original true copy of the order was tendered in Court at the time of hearing of the appeal on 9th February. 2000.
21. Apart from Rule 6 of the Companies Rules also in terms of Clause 37 of the Letters Patent of this Court the procedures laid down under the Code of Civil Procedure would apply. Order 41 Rule 1 of the Code of Civil Procedure mandates that a Memorandum of Appeal should be accompanied by a judgment and decree. There is no provision for drawing up of a decree by the Company Law Board. In such a situation, under the provisions of the Code of Civil Procedure the operative portion of the judgment itself can be construed to be a decree. It was, therefore, obligatory on the part of the appellant to file at least the certified copy of the operative portion of the judgment. In any event, no prayer has been made by the appellant for condonation of delay and/or for dispensation of the filing of the certified copy of the judgment. Unless such a prayer is made, this Court cannot exercise its jurisdiction to entertain the appeal filed under section 10F of the Act.
22. Under the Code of Civil Procedure, the Civil Court is enjoined with a duty to draw up a Decree as provided for under section 33 of the Code of Civil Procedure. Order 20 Rule 6 of the Code of Civil Procedure specifies as to what should be contained in a Decree, an order of the Company Law Board would not be an appeal from a decree and would only be on appeal from Order. No reasons nor any explanation has been furnished as to why impugned order of CLB was not filed along with the Memorandum of Appeal.
23. However, there cannot be any doubt whatsoever, that even if no appeal has been preferred by the applicants, recourse can be had to the provision of Order 41 Rule 33 of the Code of Civil Procedure which reads thus;
"Power of Court of Appeal--The Appellate Court shall have power to pass any decree and make any order which ought to have been passed or made and to pass or make such further or other decree or order as the case may require, and this power may be exercised by the Court notwithstanding that the appeal is as to part only of the decree and may be exercised in favour of all or any of the respondents or parties, although such respondents or parties may not have filed only appeal or objection (and may, where there have been decrees in cross-suits or where two or more decrees are, passed in one suit, be exercised in respect of all or any of the decrees, although an appeal may not have been filed against such decrees;) Provided that the Appellate Court shall not make any order under section 35A, in pursuance of any objection on which the Court from whose decree the appeal is preferred has omitted or refused to make such order."
24. In Anil Kumar Gupta v. Municipal Corpn. of Delhi, , the apex Court while holding that although a cross objection in terms of Order 41 Rule 22 is not maintainable, Order 41 Rule 33 would apply.
25. In Superintending Engineer & Ors. v. B. Subba Reddy, . It has been held;
"From the examination of these judgments and the provisions of section 41 of the Act and Order 41 Rule 22 of the Code, in our view, the following principles emerge;
(1) Appeal is a substantive right. It is a creation of the statute. Right to appeal does not exist unless it is specifically conferred.
(2) Cross-objection is like an appeal. It has all the trappings of an appeal. It is filed in the form of memorandum and the provisions of Rule 1 of Order 41 of the Code, so far as these relate to the form and contents of the memorandum of appeal apply to cross objection as well.
(3) Court fee is payable on cross-objection like that on the memorandum of appeal. Provisions relating to appeals by an indigent person also apply to cross-objection.
(4) Even where the appeal is withdrawn or is dismissed for default, cross-objection may nevertheless be heard and determined.
(5) The respondent event though he has not appealed may support the decree on any other ground but if he wants to modify it, he has to file cross-objection to the decree which objections he could have taken earlier by filing an appeal. Time for filing objection which is in the nature of appeal is extended by one month after service of notice on him of the day fixed for hearing the appeal. This time could also be extended by the Court like in appeal.
(6) Cross-objection is nothing but an appeal, a cross-appeal at that. It may be that the respondent wanted to give a quietus to the whole litigation by his accepting the judgment and decree or order even if it was partly against his interest. When, however, the other party challenged the same by filing an appeal the statute gave the respondent a second chance to file an appeal by way of cross-objection if he still felt aggrieved by the judgment and decree or order."
26. The appeals being A.C.O. No. 88 of 1998 (Manohar Rajaram Chhabria v. All India Shaw Wallace Employees' Federation & Ors.) and A.C.O. No.89 of 1998 (Shaw Wallace & Co. Ltd. v. All India Shaw Wallace Employees' Federation & Ors.) preferred by the appellant will have to be considered in that light.
27. In Ravinder Kumar Sharma v. State of Assam & Ors., , the apex Court approved the Division Bench decision of this Court in Nishambhu Jana v. Sova Guha, reported in 86 CWN 685 and Madhya Pradesh High Court in Tej Kumar Join v. Purushottam, held;
"In our view, the opinion expressed by Mookherjee, J. of the Calcutta High Court on behalf of the Division Bench in Nishambhu Jena case (86 CWN 685) and the view expressed by U.N. Bachawat, J. in Tej Kumar case in the Madhya Pradesh High Court reflect the correct legal position after the 1976 Amendment We hold that the respondent-defendant in an appeal can, without filing cross-objections attack an adverse finding upon which a decree in part has been passed against the respondent, for the purpose of sustaining the decree to the extent the lower Court had dismissed the suit against the defendant-respondent. The filing of cross-objection, after the 1976 Amendment is purely optional and not mandatory. In other words, the law as stated in Venkata RAO Case (AIR 1943 Md 698) by the Madras Full Bench and Chandre Prabhuji case by this Court is merely clarified by the 1976 Amendment and there is no change in the law after the amendment.
The respondents before us are, therefore, entitled to contend that the finding of the High Court in regard to the absence of reasonable and probable cause or malice-(upon which the decree for pecuniary damage in B and C Schedules was based) can be attacked by the respondents for the purpose of sustaining the decree of the High Court refusing to pass a decree for non-pecuniary damages as per A Schedule. The filing of cross objections against the adverse finding was not obligatory. There is no res judicata. Point 1 is decided accordingly in favour of the respondent defendants."
28. In the appeals being A.C.O. No. 87 of 1998 (Shaw Wallace & Co. Ltd. v. Union of India) and A.C.O. No.86 of 1998 (Manohar Rajaram Chhabrla v. Union of India), the following questions arise for consideration;
"(i) Whether past and concluded transactions can form the basis of proceedings under section 408 of the Act;
(ii) Can proceedings under section 408 of the Act proceed along with a petition under sections 397 and 398 of the Act, particularly when the proceedings under section 408 of the Act was instituted subsequent to the proceedings under sections 397 and 398 of the Act and was instigated by the petitioners therein, and
(iii) When there is a prior civil suit in respect of similar allegations pending in a competent Court which is a representative suit, would proceedings under section 408 of the Act lie on the self-same allegations before the CLB?"
29. The questions which have been raised before us in the appeals being A.C.O. No.89 of 1998 (Shaw Wallace & Co. Ltd. v. All India Shaw Wallace Employees Federation & Ors.) and A.C.O. No.88 of 1998 (Manohar Rajaram Chhabria v. All India Shaw Wallace Employees Federation & Ors.) and the contentions in relation thereto would be;
"(i) In case of prior pending suit on similar allegations, whether the CLB ought not to have proceeded with matters under sections 397 and 398 proceedings.
Relying upon 35 Com. Cases 187 and AIR 1979 SC 1033, it was contended that as there is no appeal from a finding of facts by the CLB and such finding would adversely affect SWC and MRC and they would be deprived of the right of appeal therefrom and challenge the same in the suit.
(ii) Whether parallal proceedings under sections 397/398 of the Act and section 408 of the Act should not be proceeded with simultaneously.
(Reliance has been placed upon 69 CC769)
(iii) Whether past and concluded transaction could not form the basis for grant of reliefs under section 402 of the Act.
(Reliance has been placed upon 33 Com. Cases and 40 C.C. 119.)
(iv) Findings of CLB are based on surmises and conjectures and cannot be sustained.
(Reference made to 26 ITR 736 at 739. 740; 37 ITR 288 at 290, 299; 26 ITR 775 at 782; 37 ITR 151 at 162, 169 and 170; 37 ITR 271 at 277)
(v) The CLB has tranvelled beyond the pleadings in relying upon the Annual Report which it is not permited to do in proceedings under sections 397 and 398 of the Act.
(Reference made to 40 Com. Cases 119; 1995(1) CLJ 266; 1965(2) All ER 693, 699; 1971(1) All ER 923).
(vi) Proceedings under section 397 and 398 of the Act have been filed with improper motive and has been financed by competitors.
(Reliance has been placed upon 1965(1) All ER 667)."
30. AGO No.86 of 1998 and A.C.O. No.87 of 1998 are appeals against the orders passed by C.L.B. under section 408. As noticed supra, by the orders under appeal, C.L.B. gave directions for appointment of two directors by the Central Government in the Company in question.
31. In Paragraph '5' of the order under appeal, CLB has set out the summary of grounds on which the Central Government had sought for appointment of Government Directors (extracted supra).
32. As CLB is the final fact finding authority, the conclusions arrived at have to be given due weight and unless the same are held to be perverse, no interference with the same is warranted. It would, therefore, be convenient to first record the conclusions arrived by CLB with respect to the various charges levelled against the company in its petition filed by the Central Government,
(i) Sales promotion expenses :--The allegations of the Central Government was that sales promotion expenses increased from 4.7 crores in 1989-90 to Rs. 21.8 crores in 1993-94; remuneration paid to sales promoters went up from Rs. 23 lakhs to Rs.11 lakhs during the corresponding period. It was observed that from the report of inspector appointed under section 209A, he had come to the conclusion that there was no adnormality in such higher sales promotion expenses and also with regard to the payment made to sales promoters. The CLB accepted the same. However, on the issue whether there have been any kick backs, the CLB observed as follows;
"......We find that certain other authorities have already been looking into this matter and as such we do not propose to make any comment on the same on the basis of certain interim reports filed by these authorities."
(ii) Payments made by the Company to subsidiaries :--It is not in dispute that huge amount of money has been paid to subsidiaries both as incorporate deposit as well as advances. The ICDs stood at Rs. 153.8 crores in 1994-95 and the advances at Rs. 16.4 crores. Upto 1994-95, the company had raises ICDs worked Rs. 410.9 crores. The ICDs were raised at the interest fates ranging from 26% to 32% maturing between 90 days to 180 days. Two issues -were raised in this connection viz., one was with regard to the need for lending money to the subsidiaries out of the monies borrowed by the company; the second related to charging a lesser rate of interest to the subsidiaries than the rate at which the money was borrowed and in certain cases waiving of interest payable by the subsidiaries altogether. The CLB held that it did not find any reasonable grounds to object to the method adopted by the company. The purpose of lending the money to the subsidiaries was either to acquire new breweries/distilleries or to increase the capacity of the manufacturing facilities of the subsidiaries. In regard to bearing of interest, it was observed that no interest has been waived. In regard to charging of interest on funds given to subsidiaries, it was observed that no single practise prevailed in holding companies. In some cases, the holding companies charged normal rates of interest on the money advanced to subsidiaries and in some cases no interest was charged. It was also held that when a subsidiary is not a wholly owned subsidiary, then the question of either not charging the interest or waiving the interest does not arise. It was further held as follows:
"..... From the details furnished we are not in a position to know as to how many subsidiaries which are not wholly owned by SWC have been lent money. In case the company has not charged adequate rate of interest on loans given to subsidiaries which are not wholly owned or if the company has waived interest in respect of these companies, SWC should take immediate remedial action to ensure that adequate rate of interest is charged and interest waived is recovered."
33. We have only referred to those charges and the findings supra of the CLB which have gone. In our view, against the company and its management. We did not consider it necessary to refer to the various others charges levelled by the Central Government in its petition as no appeal has been preferred by the Central Government itself. Some of the charges being common the other charges shall be considered while dealing with the other appeals.
34. In giving the directions, CLB has observed and in our view rightly so that the underlying purpose of section 408 is to safe guard the interest of the company or its shareholders or the public interest by appointment of Government Directors with a view to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interest of the company or public interest
35. CLB was dealing with the two matters analogously. One filed under sections 397/398 of the Companies Act and the other by the Central Government under section 408. The CLB has also considered and examined whether the affairs of the company are being carried on in a manner prejudicial to the interest of the company or public interest or oppressive to the members of the company and if so how the same could be prevented and how their interest should be safe guarded.
36. CLB considered the questions of supersession of the Board and after observing the present composition of the Board, it was found that there are only two Directors presently on the Board viz., Shri Narshiman and Monohar Raja Ram Chabbaria (MRC) against whom allegations can be established warranting action. It did not and in our opinion rightly so pass orders with regard to supersession of the Board.
37. Apart from the findings and conclusions arrived at (noted supra), the CLB in its order under appeal noted certain disturbing factors with respect to financial management of the company in the following terms;
"..... There does not seem to have been any transparency in mobilising such huge ICDs loans or in giving loans and advances to the subsidiaries. This is evident from the member of the Board Meeting held on 24.1.1996 where the Board has decided not to rectify the ICDs accepted or given. In other words, the company has accumulated a huge debt without the knowledge and approval of the Board. While acceptance of high cost short term funds is normally resorted to for working capital needs, it is rather surprising that the company should have mobilised such a huge funds of hundreds of crores for long term investment purposes. No doubt, there are some valid reasons for doing so as explained by Shri. Diwan, yet, the amount involved is so high, that we feel such mobilisation of large amount for long term investment is definitely against all norms of financial propriety. The present state of the company is obviously due to the ambitious plan of the company to reach the height of success at the shortest possible span of time, but unmindful of the cost it has to pay. Further, there has been heavy turnover of directors on the Board during the last few years. In such a large company like SWC which is a multi unit, multi product company, continuity of directors is a must and this type of turnover of directors is highly undersirable."
38. Further disturbing fact noticed by the CLB was with respect to the disqualification made by the auditors in the last two annual reports. CLB held as under;
"..... According to the autidors, many of the assets were not ascertainable nor the liabilities and the perusal of the qualifications show that such unascertainable amounts run into crores of rupees. May be as suggested by Shri. Ganesh, due to the largeness and the complexities of the business of the company, collation and collection has become difficult, but in times of communication revolution, we cannot accept this excuse. The company has also indulged in manipulating the accounts to show artificial profits through fictitious transactions. Further, from the periodical reports on statutory compliance, copies of which were filed during the hearing, we find that in this area also a lot is to be done."
The CLB has further held as follows:
".....The company has also proposed certain measures of raising finance. All these attempts to be successful, which would put the company back on rails without any impediment, it is essential that the creditors, lenders and the public at large repose faith and confidence in the management of the company, which unfortunately is at the lowest ebb today. The effect of whatever happened earlier continues as on date and is likely to continue for some more time, which will be against the interest of the company. The main object of sections 397/398 and 408 is to safeguard a company by suitable remedial measures. Thus, we find that there is a every justification to restructure the Board of Directors of the company so that the interest of the company is safeguarded."
39. We shall now take up for consideration the conclusions and findings arrived at by CLB in the matter relating to application under sections 397/398.
40. The CLB upheld the contention of the company that the petition filed by the employees shareholders is essentially one under section 398. There are no allegations in the petition as observed by CLB which can be classified to fall in the nature of acts of operation against members of the company. The allegations made relate to the alleged acts of mismanagement and with particular reference to the irregularities and illegalities with respect to financial management of the company. The CLB rightly, in our view, restricted its scrutiny in the matter only with respect to the provisions of section 398.
41. What according to the respondents (employees share holders) are the principal charges on defalcation, mismanagement, acts of illegalities conducted, which are prejudicial to the interest of the company (SWC) its share holders and prejudicial to public interest are said to be the following;
"(i) Diversion of nearly Rs.100 crores through Guwahati companies;
(ii) SWC funds used for financing Jumbo (controlled by MRC) for acquiring shares in SWC to bolster MRC ultimate control over SWC;
(iii) Rs. 14 crores given ostensibly to GTC by SWC without any consideration;
(iv) Intercorporate deposits in excess of Rs.400 crores obtained by SWC without reference to its board. Only Rs.170 crores was attempted to be shown to have been utilised. There is no explanation for the balance Rs. 230 crores.
(v) Manipulation of SWC accounts and window-dressing the same through fictitious transactions.
(vi) Large scale sale of properties and assets of the SWC over a short period of time without the company being in apparent need of such funds immediately.
(vii) Large scale payments on account of alleged sales promotion expenses, the same being a decoy for diversion of funds to MRC.
(viii) Purchase of useless software from Dunlop at an inflated price and subsequent booking of profits by showing sale thereof without consideration being actually received:
(ix) Illegal payments and/or commissions to ostensible third parties.
(x) Investment in Guwahati companies made and large scale loans obtained by company without reference to the board of directors.
(xi) Admitted failure to comply with mandatory statutory reqlrements. (xii) Defrauding the Revenue by failing to pay statutory dues.
(xiii) Fraudulent conduct by company in failure to repay its creditors and even small individual depositors.
(xiv) Useless expenditure incurred including buying ladles jewellery."
42. With regard to the Guwahati companies, CLB examined the questions and rejected the contention that these companies are paper companies or they are not in existence. However, on the issues whether any investment was actually made and whether the same was a smoke screen designed to siphon of money, it was observed that the fact of purchase of shares is not disputed by any one and was in fact the foundation of the allegations. CLB observed that the petitioners have not furnished the full particulars and the company also did not produce full details. The statutory auditors of the subsidiaries companies which had invested in these shares, it was observed, have stated that the certificates were not available for physical verification as they were reported to have been sent for consultation. As regards the prospectus issue by the said companies which was produced during the hearing, no documents have been produced before the CLB to show that these companies have gone in for additional issues of shares to enable investment in such large number of shares. The CLB also observed that the transactions of purchase of shares had not gone through the floor of the stock exchange and the explanation that the same was to avoid brokerage was not found convincing. CLB referred from taking cognizance of report of the ED and Revenue Department which are based on certain statements made by Shri. Narshiman which he had later retracted that substantial money had been siphoned of. The CLB observed that substantial money has been invested in a short span of about 18 months. None of them was in the core area of business of the company. There is commonality of Shrl Jain being on the Board of all these companies at the time of acquisition of the shares. It was also held that there was no Board approval for such substantial investment even though the Board had noted that those companies became subsidiaries of SWC in their meeting held on 26.5.1994 and 28.5.1994. In the Board of Directors' meeting held on 16th December, 1996, it was noted vide an item No.32 that the investments made in these companies had not been placed before the Board for their approval and that the Board was of the opinion that the investment was commercially bad decision apart from irregularities.
(iii) Purchase of softwere from Dunlop :--The CLB observed that it was un-understanable as to how the company (SWC) could have agreed to purchase softwere from Dunlop for Rs.30 crores. When the cost of acquisition by Dunlop is Rs.3 crores and within a short period sold it to a holding company for Rs.47 crores. It was also observed that the very fact that Jumbo had resold the softwere after some time i.e. after the financial year is over, the conclusion arrived at by CLB was that the entire transaction was purely for the purpose of showing a glossy picture about the performance of Dunlop and SWC the CLB held it to be the grave act of manipulating the accounts of the company to show artificial profits.
(iv) MDPL Sales :--The Company (SWC) agreed for GTC advertising the brands of SWC at the rate of Rs.1/- per pack on which slickers highlighting the brands of SWC would be fixed. GTC obtained the money from the company (SWC) without having advertised the products of the company. CLB concluded that the internal control system and supervisory system in the company are not at a desirable level.
43. Mr. Banerjee, learned counsel for the respondents, however, contended that the CLB was required to give its conclusions on the material available on record. It was the submissions of Mr. Banerjee that in holding that the CLB cannot go into the allegation of mismangement when other authorities have started investigations into the matter, CLB failed to exercise the jurisdiction vested in it by law.
44. In view of observations of CLB quoted supra, the contention of Mr. Banerjee is without substance. It is not a case of failure to exercise of jurisdiction by CLB, The inferences that could have been drawn from the material on record have been so drawn. It is based thereon inter alia that certain directions have been issued to the Board of directors apart from appointment of Directors.
45. We have taken into consideration only those allegations as relevant to the matter under sections 397 and 398 on which a conclusion has been arrived at by the CLB against the company SWC. We have not gone into those contentions and allegations in respect whereof no final conclusion or finding against the company has been arrived at. This was for the reason that the CLB was dealing with the matters under section 398 and section 408 of the Companies Act. The jurisdiction of CLB was, therefore, restricted to ascertaining and examining whether the affairs of the company are being carried on in a manner prejudicial to the interest of the company or public interest and if so how the same could be prevented and how their interest could be safeguarded.
46. Let us now examine in details the various contentions urged by the learned counsels.
47. The foremost contention raised by Mr. Mukherjee was that the allegations made in the application under section 408 of the Companies Act had not been proved and, therefore, directions by CLB are unwarranted.
48. Next, it was sought to be contended that the past and concluded transactions could not have formed the basis of proceedings under section 408 of the Act.
49. CLB as noticed (supra) was dealing with the two matters analogously, one, under sections 397-398 and the other, under section 408. The CLB has considered and examined whether the affairs of the company are being carried on in a manner prejudicial to the interest of the company or public interest and if so, how the same could be prevented and how the interest should be safe guarded. With regard to the financial management of the company, it was found, has also indulged in manipulating the accounts to show artificial profits, and, thus, arrived at a finding that there was every justification to restructure the Board of Directors of the company so that "the interest of the company is safe guarded. The conclusions arrived at by CLB cannot be characterised as perverse or based on no evidence or material on record.
50. Therefore, in the instant case. It cannot also be said that the Company Law Board had appointed the Directors without satisfying the condition precedent laid down in the Act or that the power exercised by it was in excess of its jurisdiction.
51. In the matter under sections 397-398, the substantive relief claimed was for supersession of the Board, removal of M.R. Chhabria from the Board and for ordering an investigation into the affairs of the company. The allegations on which the application is founded was in respect of alleged acts of mismanagement. The Company Law Board, rightly in our view, considered the same as one under section 398, and, therefore, restricted its enquiry to the extent of the provisions contained in section 398. Under that section, the grievance to be made out is that the affairs of the company subject matter of enquiry, are being conducted in a manner prejudicial to the public interest or in a manner prejudicial to the interest of the company. If the Company Law Board arrived at such conclusion, then it can take recourse to the provisions of section 402 to mould the relief. The jurisdiction and powers under section 402 are two fold. Firstly, CLB has the power to set right the wrongs and secondly, it has power to issue directions to prevent occurance of such wrongs in the future. CLB thus is competent to pass orders or issue directions both corrective and preventive in nature.
52. CLB has considered in detail the questions of supersession of the Board. It was noticed that when the petition was filed, there were 10 Directors, all of whom have been impleaded; two whole time Directors and two part-time Directors had resigned. Thereafter, the composition of the Board was five (5) Directors and one nominee of CLB One Ravi Jain was inducted into the Board some time in April, 1995. There was no direct allegations against him in either of the petitions. As the allegations contained therein related to the period before Shri Ravi Jain had joined the Board. The CLB considered the credentials of the Directors on Board and the allegations made against them respectively and it was noticed that there are only two Directors viz., Shri Narsimhin and MRC against whom allegations can be established warranting action. In that view of the matter, the question of supersession of the Board, it was held by CLB, did not arise. We find no illegality or irregularity with the said conclusion of CLB
53. With regard to MRC, it was noticed that he is controlling 39% of share of the company in question. A finding of fact was arrived at by the CLB that the active involvement of MRC cannot be held against him. The routine day to day administration of the Company was under supervision of control of Board of Directors. CLB opined that there was not sufficient material to establish that MRC has utilised his commanding share controlling position to either act against the interest of the company or to enrich himself at the cost of the company. Needless to reiterate that a Tribunal cannot base its findings on mere suspicion, surmises and conjectures.
54. The CLB in the instant case has given the directions based upon the material on record. It found irregularities on financial management. It was found that the company had accumulated huge debt without the knowledge and approval of the Board. Continuity of Directors was lacking and the turnover of Director as noticed was held to be highly undersirable. The CLB has based its orders and issued directions to prevent occurance of such events in future. Thus to our mind, the directions issued by CLB are preventive in nature. The CLB observed that the effect of whatever happened earlier continued and was likely to continue, the same would be against the interest of the company. As noticed supra, the object of sections 398 and 408 is to safe guard the company, the directions issued were remedial measures. The Company Law Board did not base its conclusions in issuing such directions on the data based on events of mismanagement or failure of business decision or imprudent acts. CLB merely took note of the fact that the company's affairs are being conducted in a manner prejudicial to the interest of the company. The findings arrived at by CLB cannot be characterised as perverse or based on no material. The conditions precedent for taking action must show that the affairs are being conducted in a manner which are either oppressive or prejudicial to the company or public interest. The condition precedent for exercising the power is satisfied in the instant case.
55. In South India Viscose Ltd. v. Union of India (Delhi), reported in 1982 (52) Company Cases 247, the Company Law Board in that case assumed that if there was some contravention of some provisions of the Act, it was sufficient by itself to establish that the said actions were prejudicial to the interest of the company. In that case, the directions were issued by the CLB on arriving at a conclusion that the certain transactions were not wise or that certain transactions were not prudent or that they did not comply with the requirements of certain provisions of the Companies Act. The Supreme Court quashed and set aside the order of the Company Law Board. The said case is distinguishable on the facts of the instant case and the conclusions arrived at CLB in the present case. It is significant that the Supreme Court in that case observed as follows;
"...... But section 408 permits the appointment of a director on the board only if first it is found that it is necessary to make the appointment in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest, meaning that such a conduct must be burdensome, harsh and wrongful. We are clear that this power must be exercised sparingly and only in a clear case where the affairs of the company are being conducted so as to leave no manner of doubt that no taking action will be prejudicial to public interest..."
56. In Peerless General Finance and Investement Co. Ltd, v. Union of India, reported in 1991(71) Company Cases 300, the orders of the Company Law Board were quashed on the ground that section 408 could not be invoked either for regqulating the scheme when there is a special statute conferring power upon Reserve Bank of India to issue directions in such matter of public interest, "by necessary implications the general power of the Company Law Board under section 408 is excluded to that extent." The said judgment is, therefore, of no assistance to the appellants in the facts and circumstances of the case.
57. In Re : Simla Company Pvt. Ltd., reported in 1963(33) Company Cases 1029, was a case under section 397, it was observed that the mismanagement and/or misconduct of Directors during earlier years is no ground for winding up the company under the just and equitable clause or making an order under section 397 if the mismanagement had ceased at the time of the application. The object of section 397 it was held is not to take up the past but to redeem the future.
58. A Division Bench of this Court in Mohta Bros. (P) Ltd. & Ors. v. Calcutta Landing & Shipping Co. Ltd. & Ors., reported in 1970(40) Company Cases 119, held that when an uncertain allegations of oppression or mismanagement do not entitle a petitioner to ask the Court to embark upon an investigation into the affairs of the Company in the hope that in consequences of such investigation something will turn up which will enable the Court to grant relief to the petitioner. The inability on the part of the share holders who have no access to the books of company to furnish full particulars is not a ground for directing an investigation into the affairs of the company or for giving any other relief. Such is not found in the instant case. CLB rejected the prayer for investigation but granted relief under sections 402 and 408 based upon the conclusions arrived at by it and referred to supra.
59. The case in point is Shakti Trading Company v. Union of India, reported in 52 Company Cases 789, wherein it was held as follows;
"......The power of Central Government under sections 408/409 are preventive in nature. The powers are excised in order to see that in future the affairs of the company are conducted in a manner which are not prejudicial to the interest of the company, it members and to the public interest. An order under section 408 may not cure the illegal or prejudicial acts which may have already been performed by the company and its directors, but it can try and prevent repetition of such acts in future by appointment of directors on the Board."
60. The power under section 408 is extra ordinary admits of no doubt and the same can be exercised only upon satisfaction that the affairs of the company are grossly mismanaged or where it is felt that quick action is needed. The power under section 408 is both remedial and preventive in nature. The instant case is one where the CLB has exercised the power to prevent mismanagement. The same can be exercised only if the Company Law Board is satisfied that it is necessary to appoint Directors in order to prevent the affairs of the company from being conducted contrary to the interest of the company or to public interest. In other words, the appoint-
ment of Directors must be necessary to prevent continuance of mismanagement. We find that in the instant case, the Company Law Board has proceeded on the above settled principles. It has come to certain conclusions with regard to financial mismanagement. It also found that whatever happened earlier continues as of date and is likely to continue for some more time which will be against the interest of the company. The materials on record before the Company Law Board and the inferences that needed to be drawn, having been drawn by it, the Company Law Board found every justification to restructure the Board so that the interest of the company is safe guarded. While refraining from taking cognizance of the reports of the Enforcement Directors and Revenue Department, the Company Law Board delt that there are certain circumstances which cloud the transactions. A substantial sum of money had been invested by the company in a short span of about 18 months none of the investments made by the company was in the core area of the business of the company. The transactions with respect to purchase of shares had not gone thorugh the floor of the Stock Exchange. Then again the Company Law Board has analysed various charges levelled against the Company with regard to its financial mismanagement. It found that there was no transparacy in mobilising such huge ICDs/Loans or in giving loans and advances by the Company to its subsidiaries. The Board of Directors were not even aware of the hudge debt accumulated by the Company. The acts of commission and omission. It was noticed, have been going on in the matter of financial management of the company, and the effect of the same was all pervasive. The very existene of the company, it was noticed, is under threat due to a large number of winding up petitions. We concur with the view of CLB that it was a fit case where intervention of Company Law Board was warranted to safe guard the interest of a company as well as the interest of the members of the company and also the public interest. It is in those circumstances that certain directions had been issued also to the restructured Board to investigate into matters and to set right the same. We, therefore, also for this reason reject the arguments advanced by Mr. Banerjee, learned counsel for the employees-respondents that the Company Law Board was not justified in entrusting to the Board certain functions to investigate which it should have itself either investigated or superseeded the Board in its entirely.
61. It was next contended that the proceedings under section 408 of the Act and the proceeding under sections 397/398 could not have been investigated simultaneously. The statutory power which vested in the Central Government to appoint Directors had been delegated under the Act to the Company Law Board under section 408. Likewise under provisions of section 398 a forum has been provided to the shareholders. By hearing both matters analogously the statutory rights of the respective parties have been recognised and to avoid multiplicity of proceedings or conflict in the decisions in the two matters, the same have been heard analogously and disposed of. It cannot be contended based upon any principle of law that merely because a group of shareholders initiate proceedings under sections 397/398, the CLB would be denuded of its power to entertain proceedings if initiated under section 408 of the Act by the Central Government or vice versa.
62. Mr. Mukherjee, the learned senior counsel then contended that there was a prior suit in respect of similar allegations pending in a Civil Court filed in a representative capacity and, therefore, the proceedings under section 408 and sections 397-398 could not have been initiated on the ground that the parties cannot be allowed to carry on parallal proceedings.
63. The reference in this behalf has been made to a suit being No.360 of 1995 filed by D. A. Ltd. in a repesentaitve capacity and said to be pending in the High Court. Admittedly, the petitioners before the CLB are not the plaintiffs in that suit. If it was a case of election, the argument advanced by Mr. Mukherjee would have meritted consideration for the reasons that the petitioners before the CLB having elected to availing the remedy of a Civil Suit should not be allowed to proceed under sections 397/398 and/ or 408 of the Act. Such is not the case in the matter on hand. Merely, because certain persons have filed a Civil suit though in a representative capacity, the statutory rights available to the shareholders of the Company or the Central Government cannot be taken away. It is not a case of parallal proceedings having been initiated by the petitioners before the Company Law Board.
64. We also reject the contention of Mr. Mukherjee that the findings of the CLB are based on surmises and conjectures. The conclusions arrived at by the Company Law Board, in our considered view, are based on the material on record and the inferences that could have been drawn, have been rightly drawn by the Company Law Board.
65. We also find no force in the submission that the proceedings under section 397 and 398 of the Act had been filed with improper motive or that the same had been financed by competitors. There is no material on record to substantiate the said contentions. The only record relied upon by the learned counsel and reference to which had been made is to certain bills of lawyers during stay at Delhi. From the same, it cannot be inferred that the lawyers had been financed by the competitors when it has been explained that on these dates the lawyers had attended to various other matters of other clients pending before the Delhi High Court.
66. Lastly, it was sought to be urged by Mr. Sen, learned senior counsel for the appellants that the contesting respondents are an insignificant minority in the share holding of SWC. In proceedings under sections 397/398 of the Act, it was conended, are best settled by directing the minority group to sell its share holding. It was urged that the directions issued by CLB in the matter under sections 397/398 was erroneous besides being untenable. If at all, the only direction that could have been issued by CLB was to direct the minority share holders to sell their shares and for the majority share holders to purchase the same. Reliance for the said proposition has been placed upon the judgments of this Court in Bajrang Prasad Jalan & Ore. v. Mahabir Prasad JaEan, & Ors, and Mahabtr Prasad Jalan & Anr. v. Bajrang Prasad Jalan & Ors, reported in 1999(2) Company Law journal 171 (Cal.), The said two cases relied upon by Mr. Sen are of no assistance in the facts and circumstances of the case on hand. The matters in these cases pertain to two rival groups of a family holding shares in the various companies. In that case, it was found that there had been acts of "operation by the majority share holders on the minority share holders." It was observed that the Court in proceedings under sections 397/398 of the Companies Act may in a given situation apart from the direction of sale of shares in favour of the majority share holders pass an order which sub-serve the public interest or the interest of the parties concerned (See :--Mahabir Prasad Jalan). In Bajrang Prasad Jalan's case (supra), it was held;
"......There cannot be any doubt whatsoever that the power conferred upon the Court in terms of section 402 of the Companies Act is very wide. The Court can, pass different orders in different cases keeping in view of the nature of the allegations and the facts and circumstances of the each case."
The said two decisions are, therefore, of no assistance to the appellants in the facts and circumstances of the matter on hand. The CLB in the instant case has issued directions preventive in nature.
For the reasons aforestated, all the appeals must be dismissed and are accordingly dismissed with costs. On set of cost in each case which we estimate at 500 G.Ms, shall be paid by the appellants to the respondents-employees. The APOT No. 770 of 1998 is, however, dismissed but in the circumstances without costs.
Interim orders shall stand vacated forthwith. All applications and the appeals, accordingly, stand disposed of, as above.
S.B. Sinha, J.
67. I agree.
A prayer for stay has been made by Mr. Mukherjee which has been opposed by Mr. Banerjee.
Having regard to the fact that vacation has started in the apex Court and also keeping in view the fact that interim stay has been granted by this Court, we grant stay of operation of the judgment for a period of 30 days from date.
Xerox certified copy of this judgment and order be made available to the parties on a priority basis.
68. Appeal dismissed