K. Venugopal Reddy, Hyd vs M/S Nectar Laboratories Limited, Hyd ... on 26 September, 2025

[Cites 38, Cited by 0]

Telangana High Court

K. Venugopal Reddy, Hyd vs M/S Nectar Laboratories Limited, Hyd ... on 26 September, 2025

Bench: K. Lakshman

             HON'BLE SRI JUSTICE K. LAKSHMAN

               COMPANY APPEAL No.14 OF 2014

JUDGMENT:

Heard Dr. P. Bhaskara Mohan, learned counsel for the appellant, Mr. Vikram Pooserla, learned Senior counsel, representing Mr. Malipeddi Abhinay Reddy, learned counsel appearing for respondent No.1, Mr. N. Jeevan Kumar, learned counsel appearing for respondent Nos.2 and 3 and Mr. Maneesh Mahinwith, learned counsel appearing for respondent No.9. There is no representation on behalf of respondent Nos.4, 6, 8, 10 to 17. Notice served on respondent No.5 returned un-served with an endorsement 'addressee left'.

2. The present appeal is filed under Section 10F of the Companies Act, 1956 (hereinafter referred to as 'the Act') challenging the order dated 24.02.2012 passed by the Company Law Board (herein after 'CLB'), Additional Principal Bench, Chennai, in Company Petition No. 19 of 2008 filed by the appellant herein, who is the founder-Director of respondent No.1 Company, under Sections 397 and 398 of the Act, seeking relief 2 KL, J C.A. No.14 of 2014 against alleged acts of oppression and mismanagement by respondents Nos.2 to 7.

3. FACTS OF THE CASE:

i) The appellant, a founder director of M/s. Nectar Laboratories Limited (herein after Company), instituted Company Petition No. 19 of 2008 before the CLB under Sections 397 and 398 of the Act, alleging acts of oppression and mismanagement on the part of respondents Nos. 2 to 7. Allegedly majority group led by respondent No. 2 systematically excluded the appellant from the management of the company, diverted funds, and misappropriated proprietary technology. According to the appellant, notices for Board meetings were deliberately issued belatedly or post-facto, thereby denying him participation, and resolutions were passed in his absence to establish complete dominance by respondent No. 2 and his family members.

ii) It was further alleged that respondent No. 2, along with his family, floated a parallel partnership firm SAS, which was used as a vehicle to siphon off the assets of the company and 3 KL, J C.A. No.14 of 2014 clandestinely transfer its proprietary technology to respondent No. 9 through a Memorandum of Understanding dated 10.05.2001. The consideration received for such transfer was stated to have been diverted into the personal account of respondent No. 2, causing unlawful enrichment and prejudice to the shareholders. The appellant also contended that the respondents had undertaken an illegal increase in paid-up share capital from Rs. 2.5 crores to Rs. 3.07 crores without convening a general meeting or giving notice to shareholders, thereby diluting his shareholding. He was further purportedly removed from the Board under Section 283(1)(g) of the Act on the false pretext of absence from three consecutive Board meetings, despite his actual attendance, which removal was alleged to be in contravention of the interim order of the CLB dated 30.05.2008 directing the parties to maintain status quo.

iii) Upon consideration of the pleadings and material on record, the CLB, by order dated 24.02.2012, dismissed the petition and held that there was no oppression and mismanagement done by the respondents furtherthe CLB also recorded that the original license for the know-how had been granted to respondent No. 2 4 KL, J C.A. No.14 of 2014 personally by the IICT in 1994, prior to the incorporation of the company, and that subsequent sublicensing arrangements through SAS could not be held illegal. It further held that the amounts received from respondent No. 9 had been deposited into the company's accounts and applied towards discharge of debts, and that allegations of siphoning of funds or mala fide intent had not been substantiated.

iv) Aggrieved thereby, the appellant has preferred the present appeal under Section 10F of the Act, contending that the CLB failed to consider material evidence, particularly the audit report prepared by M/s. Y. Raghuram & Co., Chartered Accountants, which disclosed financial irregularities, statutory violations, and non-production of records by the respondents,And clear proof of mismanagement by the respondent .The appellant seeks restoration of his directorship, setting aside of the impugned order, and such other reliefs as may be deemed appropriate in the interests of justice.

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4. CONTENTIONS OF THE APPELLANT:

i) The appellant has assailed the order of the CLB order dated 24.02.2012 as being vitiated by grave legal infirmities, contrary to settled principles of company law, and resulting in a miscarriage of justice. It is contended that the CLB overlooked material documentary and oral evidence which, according to the appellant, clearly established a continuous pattern of oppression, exclusion, misappropriation, and mismanagement on the part of respondent Nos. 2 to 7.

ii) It is urged that the company's financial decline and sustained losses were directly attributable to gross mismanagement, diversion of funds, and suppression of material records by the said respondents. Notices for Board meetings were allegedly issued post-facto, thereby denying the appellant participation in governance and rendering the resolutions illegal.

The appellant submitted that respondent No. 2, along with respondent Nos. 3 to 7, breached fiduciary obligations by floating a parallel firm, SAS, which was used as a vehicle to siphon off company assets, particularly proprietary technology clandestinely 6 KL, J C.A. No.14 of 2014 transferred to respondent No. 9 under the MoU dated 10.05.2001. The consideration therefor was alleged to have been diverted into the personal HSBC account of respondent No. 2, causing unlawful enrichment and prejudice to the company and its shareholders.

iii) It is further contended that the CLB failed to give due weight to the audit report prepared by M/s. Y. Raghuram & Co., Chartered Accountants, which had been commissioned pursuant to the Board's own order and which disclosed discrepancies, financial irregularities, and manipulation in the accounts by respondent Nos. 2 and 7. Despite the serious nature of its findings, no remedial action was taken. The appellant argued that the original records of the company, which remained in the exclusive possession of respondent Nos. 2 to 7, were never produced before the CLB, and adverse inference ought to have been drawn. Attention was also invited to the illegal increase in paid-up capital from Rs. 2.5 crores to Rs. 3.07 crores without convening an Annual General Meeting or giving notice to existing shareholders, resulting in dilution of the appellant's shareholding.

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iv) The appellant, being a founder director, further submitted that his removal from the Board was affected illegally, without proper notice, and in violation of Sections 193 and 194 of the Act. Respondents, it was argued, also failed to comply with statutory requirements relating to balance sheets, registers, minutes, and other obligations under company law. The appellant emphasized that even legally permissible acts, if carried out in an oppressive or mala fide manner, fall within the ambit of Section 397 of the Act. The CLB, however, merely issued advisory directions to explore settlement, instead of exercising its wide powers under Section 402 of the Act, to grant substantive reliefs.

v) In continuation, the appellant also impugned the respondent's submissions dated 31.12.2024 which alleged a dilution of his shareholding from 4.57% in 2012-13 to 1.14% in 2023-24. He asserted that such a statement was factually incorrect and misleading, pointing out that at the time of filing of the petition in 2008, the paid-up capital stood at RS. 2,35,42,000, which was subsequently reduced to Rs. 1,29,42,000 after the buy-back of IDBI's equity shares on 27.11.2014. Against this revised capital, 8 KL, J C.A. No.14 of 2014 his 10,750 equity shares constitute 8.40%, and not 1.14% as claimed. It was further contended that no notice of any fresh issue of shares was ever served, and that any such issue, if undertaken, was illegal for want of compliance with the statutory requirement of a rights offer. Accordingly, the appellant prayed that his shareholding be correctly reckoned at 8.40% and that the impugned increase in paid-up capital, allegedly undertaken without notice or consent, be declared void and illegal.

vi) The appellant enumerated specific oppressive acts, including diversion of proprietary technology to third parties, unauthorized operation of a rival business from company premises, inflation of expenses, introduction of outsiders into management without due process, and unilateral operation of bank accounts in contravention of Board resolutions. Such conduct it was argued, eroded the value of shares, created deadlock in management, and destroyed the substratum of the company. The CLB, by failing to call for records, to draw adverse inference, and to appreciate the fiduciary breaches of respondents, is said to have abdicated its responsibility.

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vii) On the above basis, the appellant framed substantial questions of law for consideration, namely:

a) whether the CLB erred in not verifying the original documents and failing to draw adverse inference;

b) whether its findings were perverse and based on irrelevant considerations;

c) whether it failed in its statutory duty to appreciate relevant and material evidence;

d) whether such failure resulted in miscarriage of justice.

Accordingly, the appellant prayed that the impugned order dated 24.02.2012 be set aside in its entirety, and that the reliefs sought in Company Petition No. 19 of 2008including restoration of the appellant as director and setting aside of unauthorized share issuancesbe granted in the interest of justice and equity.

5. CONTENTIONS OF THE APPELLANT BEFORE CLB:

i) The appellant filed Company Petition No. 19 of 2008 under Sections 397 and 398 of the Act, alleging oppression and mismanagement by respondent Nos. 2 to 7. Along with the petition, an interlocutory application was moved under Regulation 44 read with Regulation 17 of the CLB Regulations, 1991, seeking urgent interim reliefs. The CLB, by interim order dated 10 KL, J C.A. No.14 of 2014 30.05.2008, directed both parties to maintain status quo with respect to shareholding and to ensure that any revival decisions were taken only in duly convened Board meetings after notice to all directors, including the appellant.

ii) The appellant alleged that in defiance of these directions, respondent No. 2, acting with mala fides, sought to unlawfully remove him from the office of director by resorting to Section 283(1)(g) of the Act. It was asserted that notices of Board meetings were deliberately delayed or misleading, thereby creating false records of absence. A notice dated 10.03.2008 fixed a meeting at TGV Towers, Hyderabad, but when the appellant attended, no company representatives were present, indicating that no meeting was held.

iii) Further, the appellant issued legal notices on 12.04.2008 and after receipt of a belated notice dated 26.04.2008 regarding a purported meeting on 25.04.2008. The same manipulation recurred with the meeting of 05.09.2008, which the appellant attended and signed the attendance register, but where no agenda was discussed and no minutes were maintained. On 08.09.2008, the appellant 11 KL, J C.A. No.14 of 2014 addressed a letter to respondent No. 2 recording objections and specifically sought copies of resolutions relating to shifting of the registered office and disclosure of transactions with M/s. Brilliant Industries and its Chairman, Mr. T.G. Venkatesh, but these requests were ignored.

iv) The appellant maintained that despite his actual presence in meetings on 10.03.2008, 25.04.2008 and 05.09.2008, the respondents falsely portrayed him as absent in three consecutive meetings and, on that basis, declared that he had vacated office under Section 283(1)(g) of the Act. A communication dated 15.09.2008 was issued to this effect, which the appellant contended was illegal, arbitrary, and in blatant violation of the CLB's interim order dated 30.05.2008.

v) Accordingly, the appellant prayed for a declaration that the letter dated 15.09.2008 removing him as director with effect from 05.09.2008 be quashed as illegal and without authority of law, and for restoration of his directorship. He contended that the respondents' conduct was mala fide, amounted to oppressive 12 KL, J C.A. No.14 of 2014 exclusion from management, and was contrary to statutory obligations and principles of natural justice

6. COUNTER FILED BY RESPONDENT No.8 BEFORE CLB:

i) Respondent No. 8, Stressed Assets Stabilization Fund (SASF), constituted by the Government of India under a Trust Deed dated 24.09.2004 for acquisition and management of stressed assets of IDBI, filed its reply before the CLB asserting its role as a secured creditor with substantial financial interest in the affairs of respondent No. 1 Company. It was stated that the account of respondent No. 1 had become a Non-Performing Asset (NPA).

ii) SASF submitted that IDBI had earlier sanctioned loans of Rs. 240 lakhs under the Venture Capital Fund Scheme on 29.12.1994, subscribed to equity shares worth Rs. 90 lakhs, and later sanctioned a further Rs. 59 lakhs to cover cost overruns, bringing the total equity exposure to Rs. 1.06 crores and debt exposure to Rs. 2.83 crores. Under the loan agreement, IDBI had the first charge on all assets of the company, including its intellectual property.

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iii) It was contended that under Clause 3.1 and Clause 3.5 of the Venture Capital Fund Scheme, the company was bound to obtain IDBI's prior written permission before assigning or alienating any intellectual property, and that any royalty or lump sum consideration was to be shared equally between IDBI and the company. The respondents, however, failed to seek such consent in transferring know-how and intellectual property to third parties such as Dr. Reddy's Laboratories and Johnson & Johnson, thereby rendering such transactions null and void. SASF also pointed out that while a One-Time Settlement proposal for Rs. 164 lakhs wasapproved on 26.09.2007, the company defaulted in its payments, and attempts to conduct a Special Investigative Audit failed due to non-cooperation.

iv) SASF supported the allegations of mismanagement and prayed that any unlawful transfer of intellectual property be set aside and the proceeds restored to the company, reserving its right to take action against the defaulting directors. It clarified that though IDBI had appointed a nominee director in 1998, he attended only two meetings and had no role in day-to-day affairs or the acts 14 KL, J C.A. No.14 of 2014 complained of. Accordingly, SASF sought that its interests as a secured creditor be safeguarded through appropriate orders

7. CONTENTIONS FILED BY RESPONDENT No.9 BEFORE CLB.

i) Respondent No. 9, in its reply before the CLB, raised a preliminary objection on the ground of non-joinder of a necessary party, namely the partnership firm SAS, which had entered into an MoU with it for transfer of vial technology developed by respondent No. 1. On this basis, it urged that the petition was not maintainable. Respondent No. 9 categorically denied the allegations, asserting that the appellant had suppressed material facts and had not approached the CLB with clean hands.

ii) It was submitted that in 1997, Dr. C.C. Sahadev, Managing Director of respondent No. 1, represented himself as having proprietary rights over a bio-adhesive technology branded "Nectacryl," pursuant to which respondent No. 9 entered into a marketing agreement dated 14.08.1997. Later, an Assignment Agreement dated 26.09.2001 was executed, whereby the trademark "Nectacryl" and related know-how were formally assigned to respondent No. 9 for Rs. 125 lakhs. A No Objection Certificate 15 KL, J C.A. No.14 of 2014 dated 01.08.1997 was also obtained from the IICT, the original developer of the technology. The initial agreement was revised on 05.05.1999, but despite full payment, respondent No. 1 failed to deliver products of requisite quality, leading to rejection in the market and reputational loss.

iii) Respondent No. 9 further contended that in 2001, Dr. Sahadev, acting through SAS, again offered to transfer the technology, resulting in a fresh MoU dated 10.05.2001. Initial payments were made in good faith, but obligations were not fulfilled, and a subsequent proposal dated 03.02.2003 was rejected due to past adverse experience. Ultimately, the product was withdrawn from the market, causing heavy financial and reputational losses to respondent No. 9 despite significant marketing expenditure. It maintained that it had no role in the internal affairs or management of respondent No. 1 and denied any involvement in the induction or removal of directors.

iv) It was argued that the prayers in the petition, particularly those seeking to declare the transfer of know-how illegal, were vague and did not articulate specific relief against 9th respondent. 16

KL, J C.A. No.14 of 2014 Asserting that it had been unnecessarily impleaded without cause of action, respondent No. 9 prayed for dismissal of the petition insofar as it related to it, and further sought damages equivalent to twenty times the consideration paid, in view of the fraud, misrepresentation, and commercial harm suffered

8. ORDER PASSED BY CLB IN C.P. No 19 OF 2008

i) The CLB, by its order dated 24.02.2012 in Company Petition No. 19 of 2008, dismissed the petition filed under Sections 397 and 398 of the Act, alleging oppression and mismanagement in the affairs of M/s. Nectar Laboratories Ltd. The CLB noted that the primary grievance of the appellants related to the alleged unauthorized transfer of proprietary bio-adhesive technology to respondent No. 9 through the partnership firm SAS, said to have been floated by respondent No. 2 and his family without authorization.

ii) On examining the pleadings and documents, the CLB found that the technology in question was originally licensed to respondent No. 2 personally by the IICT under an agreement dated 21.01.1994, prior to the company's incorporation on 10.03.1994. 17

KL, J C.A. No.14 of 2014 The company only received a non-exclusive sub-license under an MoU dated 15.02.1994, later formalized on 11.01.1995 and extended in 2000. On this basis, the CLB held that respondent No. 2, being the original license holder, was legally entitled to use or sub-license the know-how, and the formation of SAS with subsequent agreements to Dr. Reddy's Laboratories were steps necessitated by the licensing framework. It further noted that the appellants were aware of SAS's role as early as 2004 and had even acknowledged it as part of the Nectar Group, making their challenge belated.

iii) With regard to financial transactions, the CLB recorded that the monies received from respondent No. 9 had been duly deposited into the company's accounts and applied towards discharging liabilities, particularly servicing institutional debts. Allegations of siphoning or personal enrichment were held unsubstantiated. The Board also rejected the plea that respondent No. 2 was disqualified from managing directorship, noting that his conviction under Section 138 of the Negotiable Instruments Act, 1881 had been set aside by the Sessions Court on 17.03.2008. 18

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iv) Addressing the financial crisis, the CLB attributed it to commercial setbacks, poor market reception, labour unrest, and quality control issues. It acknowledged bona fide revival steps taken by the respondents, including negotiation of a One-Time Settlement with IDBI for Rs. 1.64 crores in full satisfaction of dues of about Rs. 9 crores. Objections raised by respondent No. 10, impleaded belatedly, were not entertained as they introduced issues outside the scope of the original petition and lacked cogent evidence.

v) In conclusion, the CLB held that no acts of oppression or mismanagement were established to warrant relief under Sections 397 and 398, nor was winding up justified on just and equitable grounds. While some procedural irregularities may have occurred, no mala fide or oppressive conduct was proved. Accordingly, all reliefs sought by the appellant were rejected. However, in the interest of transparency and shareholder rights, the CLB directed the company to convene a general meeting to address grievances. With this direction, the petition was dismissed. 19

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9. AUDIT REPORT

i) Pursuant to the order dated 31.07.2009 of the CLB, the appellant caused a special audit undertaken by M/s. Y. Raghuram & Co., Chartered Accountants. The said audit, restricted to the period from 01.04.2000 to 31.07.2003 on account of the company's refusal to produce records beyond the said period. It was conducted between 18.08.2009 and 02.10.2009 and culminated in a report submitted on 15.10.2009.

ii) The audit report, after noting the denial of access to crucial documents such as ledgers, production data, tax audit reports, and records relating to SAS, observed that such lack of transparency itself was indicative of mismanagement and concealment. The auditors further recorded that large volumes of payments, including fuel and labour charges, were made in cash without supporting documentation, being backed only by handwritten or internally prepared vouchers. Payments to contractors such as RSR Enterprises were affected without deduction of tax at source, invoices were issued on plain paper lacking statutory particulars, and no PF/ESI challans were 20 KL, J C.A. No.14 of 2014 produced, thereby casting doubt on the genuineness of the workforce.

iii) It was additionally noticed that salaries of senior management and directors were disbursed in cash without records, while travel, carriage, and raw material expenses were similarly incurred in cash without corroborative ledger entries or third-party confirmations. The auditors also pointed to statutory contraventions, including violation of Section 40A(3) and Section 43B of the Income Tax Act, 1961, as also Section 209 of the Act. Though the restricted scope of inspection precluded a conclusive validation of accounts, the report nonetheless highlighted significant deficiencies in financial governance, systemic non- compliance, and potential misappropriation of funds.

iv) The appellant contended that the audit findings established a clear pattern of financial mismanagement by the majority group, the exclusion of minority shareholders from effective participation and access to records, and diversion of funds through related-party transactions. It was urged that the refusal of the CLB to consider the report in its entirety amounted to a 21 KL, J C.A. No.14 of 2014 miscarriage of justice and a failure to exercise statutory powers under Section 402 of the Act.

v) Respondents did not file any objection disputing the contents or findings of the audit report, thereby lending weight to its evidentiary value.

10. CONTENTIONS OF RESPONDENT No.1 BEFORE THIS COURT:

i) Respondent No.1, in its detailed affidavit opposing the appeal under Section 10F of the Companies Act, 1956, raised a preliminary objection as to maintainability. It was contended that the present appeal had been filed by only one of the eight original petitioners and that the appellant presently holds a mere 1.14% of the shareholding. Such a marginal shareholder, it was urged, had no locus to invoke the appellate jurisdiction of this Court.

ii) It is further contended that the CLB had delivered a comprehensive and well-reasoned order dated 24.02.2012 after hearing the parties extensively and considering all relevant documents. The findings, it was contended, were in accordance 22 KL, J C.A. No.14 of 2014 with settled legal principles and supported by the record, and therefore, no substantial question of law arose for consideration under Section 10F of the Act.

iii) Dealing with the specific reliefs sought before the CLB, respondent No.1 submitted that the prayer for declaring the formation of SAS and transfer of know-how to respondent No.9 as illegal was misconceived, inasmuch as the appellant himself, by letter dated 19.01.2004, had acknowledged SAS as part of the Nectar Group. It was further pointed out that the consideration received from respondent No.9 had been duly credited to the company's accounts and substantiated by vouchers and deposit slips. As to the prayer for reconstitution of the Board and appointment of the appellant as Managing Director, it was contended that such relief was without foundation, particularly when the company had entered into a One-Time Settlement with IDBI Bank for Rs. 154 lakhs and had resumed operations after a temporary closure.

iv) With respect to the appellant's challenge to the Board meetings dated 10.03.2008 and 25.04.2008, it was argued that no 23 KL, J C.A. No.14 of 2014 procedural irregularity or prejudice was shown. The meetings were convened to formulate a revival scheme and the service of notice upon the appellant had not been disproved. Regarding the prayer for removal of respondent No.2 as Managing Director owing to conviction under Section 138 of the Negotiable Instruments Act, 1881, it was emphasized that the conviction had already been set aside by the Sessions Court on 17.03.2008, rendering the foundation of such allegation non-existent.

v) Respondent No.1 also placed before the Court a detailed chronology of relevant corporate events, commencing with the licensing agreement between respondent No.2 and IICT on 21.01.1994, followed by the incorporation of the company on 10.03.1994, execution of agreements with Dr. Reddy's Laboratories in 1997 and 1999, the Assignment Agreement of 26.09.2001, the financial crisis of 2001-2002, the filing of the Company Petition on 26.05.2008, and culminating in the CLB's order dated 24.02.2012 dismissing the petition.

vi) In response to allegations raised in the appellant's synopsis, respondent No.1 contended that delays in filing balance 24 KL, J C.A. No.14 of 2014 sheets between 2003 and 2008 were attributable to cessation of production, and that the Registrar of Companies had accepted the filings without objection. It was also pointed out that the OTS with IDBI was duly completed and a No-Dues Certificate was issued on 31.01.2020. On the issue of SAS and the MoUs with Dr. Reddy's Laboratories, it was reiterated that the appellant had acknowledged SAS in prior correspondence and that the belated challenge was devoid of merit.

vii) Respondent No.1 further furnished updated financial and shareholding information for FY 2023-24, showing that the company had 86 shareholders, paid-up capital of Rs. 9,40,240/-, turnover of Rs. 7,77,86,000/-, and 12 employees. The appellant continued to hold 10,750 shares, and the reduction of his percentage shareholding was attributed to valid capital restructuring. It was emphasized that the shares held by IDBI were bought back on 27.11.2014, and a general meeting of shareholders was held on 25.05.2012 to apprise stakeholders. Moreover, respondent No.2 had resigned from the Board on 10.11.2020, and 25 KL, J C.A. No.14 of 2014 independent directors were inducted in 2021 and 2022, thereby ensuring an entirely independent management structure.

viii) Accordingly, respondent No.1 contended that the impugned order of the CLB called for no interference, and prayed that the appeal be dismissed in limine.

11.CONTENTIONS OF RESPONDENT Nos. 2 & 3 BEFORE THIS COURT:

i) In their joint affidavit, respondents No.2 and 3 reiterated and supported the submissions of respondent No.1. They emphasized that the appeal under Section 10F of the Act, was confined to substantial questions of law and did not allow for a reappraisal of factual findings already examined by the CLB. They further contended that the allegations raised by the appellant were either too remote, had already been adjudicated, or lacked credible evidence.

ii) It was contended that the appellant had failed to prove mala fide intent, any serious prejudice to shareholder rights, or breach of fiduciary duties. It was highlighted that the appellant had 26 KL, J C.A. No.14 of 2014 been aware of SAS and its functioning since at least 2004 and had even referred to it as part of the Nectar Group. The shareholding of the appellant had remained constant at 10,750 shares and any dilution was due to lawful capital restructuring.

iii) The respondents concluded that the present appeal was merely a collateral attempt to regain control over a company that had recovered under new management. They asserted that no legal infirmity had been demonstrated in the CLB's findings, and in the absence of any substantial question of law, the appeal deserved to be dismissed.

iv) Appellant and respondents cited judgments of the Apex Court and different High Courts, which will be considered and discussed in the below mentioned paragraphs.

12. ANALYSIS AND FINDINGS OF THE COURT:

i) In view of the aforesaid rival submissions, Sections 397 and 398 of the Companies Act, 1956 are relevant and the same are extracted below:-

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

399.

(2) If, on any application under sub-section (1) the Tribunal is of opinion-

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

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

398. Application to [Tribunal] for relief in cases of mismanagement (1)Any members of a company who complain-

(a) that the affairs of the company [are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or

(b) that a material change (not being a change brought about by, or in the interests of, any creditors (including debenture holders, or any class of 28 KL, J C.A. No.14 of 2014 shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of Directors, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest in a manner prejudicial to the interests of the company, may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

ii) At the outset, and for clarity, it is pertinent to reiterate the settled legal standard regarding the meaning and scope of 'oppression' and 'mismanagement' under Sections 397 and 398 of the Companies Act, 1956. In Shanti Prasad Jain v. Kalinga Tubes Ltd1., the Hon'ble Supreme Court held that even where the conduct of the majority is technically legal, it may still amount to oppression if it is burdensome, harsh and wrongful, or violates the 1 . AIR 1965 SC 1535 29 KL, J C.A. No.14 of 2014 legitimate expectations of minority shareholders. The Court clarified that the jurisdiction under Section 397 is not confined to illegal acts but extends to conduct that is lacking in probity and fair dealing towards minority shareholders.

iii) Relevant paragraphs of the judgment are extracted below "17. In Harmer's case a, it was held that "the word 'oppressive' meantburdensome, harsh and wrongful". It was also held that "the sectiondoes not purport to apply to every case in which the facts would justifythe making of a winding up order under the 'just and equitable' rule,butonly to those cases of that character which have in them the requisiteelement of oppression." It was also held that "the result of applicationsunder section 210 in different cases must depend on the particularfacts of each case, the circumstances in which oppression may arisebeing so infinitely various that it is impossible to define them withprecision." The circumstances must be such as to warrant theinference that " there has been, at least, an unfair abuse of powers andan impairment of confidence in the probity with which the company'saffairs are being conducted, as distinguished from mere resentment onthe part of a minority at being outvoted on some issue of domesticpolicy". The phrase "oppressive to some part of the members"suggests that the conduct complained of "should at the lowest involvea visible departure from the standards of fair dealing, and a violation ofthe conditions of fairplay on which every shareholder who entrusts hismoney to a company is entitled to rely. .. But. apart from this, thequestion of absence of mutual confidence per se between partners, orbetween two 30 KL, J C.A. No.14 of 2014 sets of shareholders, however relevant to a winding up,seems to me to have no direct relevance to the remedy granted bysection 210. It is oppression of some part of the shareholders by themanner in which the affairs of the company are being conducted thatmust be averred and proved. Mere loss of confidence or pure deadlockdoes not. .. come within section 210. It is not lack of confidencebetween shareholders per se that brings section 210 into play, but lackof confidence springing from oppression of a minority by a majority inthe management of the company's affairs and oppression involves ...at least an element of lack of probity or fair dealing to a member in thematter of his proprietary right as a shareholder."

18. These observations from the four cases referred to above apply tosection 397 also which is almost in the same words as section 210 ofthe English Act, and the question in each case is whether the conductof the affairs of a company by the majority shareholders wasoppressive to the minority shareholders and that depends upon thefacts proved in a particular case. As has already been indicated, it isnot enough to show that there is just and equitable cause for windingup the company, though that must be shown as preliminary to theapplication of section 397. It must further be shown that the conductof the majority shareholders was oppressive to the minority asmembers and this require that events have to be considered not inisolation but as a part of a consecutive story. There must becontinuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the companywe're being conducted in a manner oppressive to some part of the members.The conduct must be burdensome, harsh and wrongful and mere lackof confidence between the majority shareholders and the minorityshareholders would not be enough unless the lack of confidencesprings from oppression of a minority by a majority in 31 KL, J C.A. No.14 of 2014 themanagement of the company's affairs, and such oppression mustinvolve at least an element of lack of probity or fair dealing to amember in the matter of his proprietary rights as a shareholder. It isin the light of these principles that wehave to consider the facts inthis case with reference to section 397."

iv) In this context, reliance may be placed on the decision of the Apex Court in Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao 2, wherein it was held that mere misconduct or misappropriation of funds by the directors, standing alone, may not warrant an order for winding up, but where such conduct is accompanied by circumstances rendering it just and equitable in the interests of shareholders, the Court is not powerless to intervene. The Apex Court further clarified that the expression 'just and equitable' is not to be read ejusdem generis with the preceding grounds of winding up, but is of wide amplitude, enabling the Court to step in where probity and fair dealing in the affairs of the company are lacking.

v) Further guidance is drawn from the judgment of the Apex Court in Ram Parshotam Mittal v. Hotel Queen Road Pvt. 2 . 1956 AIR 213 32 KL, J C.A. No.14 of 2014 Ltd 3., reiterating what was said in the V.S. Krishnan vs Westford Hi-Tech hospitals .Ltd wherein the Court established the meaning of Sections 397 and 398 of the Companies Act, 1956 is not confined to whether an act is legally permissible, but whether such conduct is burdensome, harsh, lacking in probity, or undertaken for a collateral purpose. It was clarified that even technically valid or lawful acts may amount to oppression if they unfairly prejudice the interests of shareholders or undermine confidence in the company's management. The Court emphasized that the remedy under Section 397/398 is designed to curb such inequitable conduct without resorting to the extreme step of winding up. This principle, when read with the ratio of Rajahmundry Electric Supply Corporation Ltd. (supra), underscores that a consistent course of diversion of resources, and exclusion of members from participation in the company's affairs would constitute oppression within the meaning of Section 397 of the Act, and mismanagement within the meaning of Section 398 of the Act, thereby inviting corrective jurisdiction of this Court.

3 . (2019) 20 SCC 326 33 KL, J C.A. No.14 of 2014 v-a) Relevant paragraphs are extracted below:-

69.Reliance has also been placed on V.S. Krishnan [V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd., (2008) 3 SCC 363] in which this Court has observed: (SCC pp. 372-73, para 14) "14. In a number of judgments, this Court considered in extenso the scope of Sections 397 and

398. The following judgments could be usefully referred to:

(a) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333] ,

(b) M.S. Madhusoodhanan v. Kerala Kaumudi (P) Ltd. [M.S. Madhusoodhanan v. Kerala Kaumudi (P) Ltd., (2004) 9 SCC 204] ,

(c) Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan [Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212] ,

(d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, (2005) 11 SCC 314] ,

(e) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [Kamal Kumar Dutta v. Ruby General Hospital Ltd., (2006) 7 SCC 613] From the above decisions, it is clear that oppression would be made out:

(a) Where the conduct is harsh, burdensome and wrong.

(b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-à-vis the others.

(c) The action is against probity and good conduct.

(d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is 34 KL, J C.A. No.14 of 2014 otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398.

(e) Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide.

(f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact."

70. It was also urged that by inter se transfer between Moral and Mr. R.P. Mittal, no oppression could be caused to Mr. Ashok Mittal. The finding as to undervaluation is also not correct. HQRL could not have raised any objection regarding the aforesaid transaction between Moral and Mr. R.P. Mittal. The claim made by Hillcrest that they were entitled to vote on resolution dated 10-5-2005 is not correct proposition of law. In this regard, reliance has been placed upon Section 205 of the Companies Act. The learned counsel has also urged that position of shareholders in a company is analogous to that of partners inter se, is wholly inaccurate. Company is a separate juristic entity from shareholders. For this purpose, he has relied upon a decision of this Court in Bacha F. Guzdar v. CIT [Bacha F. Guzdar v. CIT, AIR 1955 SC 74]

vi) In L. Rm. K. Narayanan v. Pudhuthotam Estates Ltd 4, the Madras High Court while construing Sections 397 and 398 of the Companies Act, 1956, held that once a petition is validly 4 . 191 SCC Online Madras 445 35 KL, J C.A. No.14 of 2014 presented, its maintainability must be judged at the time of presentation and is not defeated by subsequent events. It was further observed that even a shareholder who by himself may not meet the threshold of Section 399(1)(a) of the Act, is entitled to seek substitution and continue the proceedings, as the requirement of share qualification is relevant only at the inception. The Court also clarified that since a petition under Sections 397-398 of the Act, partakes the character of a representative proceeding, it cannot be compelled to dismissal merely because the original petitioners withdraw or decline to prosecute it; the Court retains jurisdiction to proceed on merits to safeguard the interests of the company and its shareholders.

vii. Relevant paragraph is extracted below:-

"14. Before adverting to the above judgments, it has to be considered whether a shareholder whoseconsent was obtained for filing petition under section 397 of the Act, etc., can ask for substitutinghimself as a petitioning creditor even though his shareholding is less than 10 per cent. as provided in section 399(1)(a). In this connection, the principal contention of Mr. G. Subramaniam is that such a person cannot ask for substitution and his only remedy is to file a separate petition. No direct authority has been brought to my notice on this aspect of the matter. In my considered opinion,when once a 36 KL, J C.A. No.14 of 2014 petition is validly presented, it is well open to a shareholder to ask for substitution andprosecute the proceedings even though such a shareholder by himself could not have presented apetition under section 397 for want of required share qualification. The court has to only consider whether the petition was a valid petition at the time of its presentation. If a valid has beenpresented, any shareholder can ask for substituting himself as the petitioning creditor. In thisconnection, the ratio laid down by the highest court in Rajahmundry Electric Supply CorporationLtd. v. A. Nageswara Rao [1956] 26 Comp Cas 91, is of great importance. In very clear terms, it hasbeen laid down that the validity of a petition must be judged on the facts as they were at the time ofits presentation. When once there is a valid petition, the shareholder who seeks to substitute himself wants to merely continue such a valid petition and such a shareholder need not hold ten per cent. Of the share capital. The requirement as to the share qualification is relevant and material only at the time of institution of the proceedings. Therefore, I am unable to countenance the argument of Mr. G. Subramaniam, learned senior counsel appearing for the respondents in both the company applications.

15. Further, it is not incumbent upon the court to dismiss a petition because a proceeding undersection 397 or 398 of the Act is a representative proceeding. Even if the original petitioner does notwant to continue the proceedings, the court cannot be compelled to dismiss the action. Even then, it is open to the court to consider the merits of the case without dismissing the petition."

viii) In M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja 5, the Hon'ble Apex Court held that the burden to prove acts of oppression or mismanagement rests upon the applicant, who must establish by cogent material that the affairs 5 . (2008) 6 SCC 750 37 KL, J C.A. No.14 of 2014 of the company are being conducted in a manner oppressive to the minority. The Court emphasized that while each instance need not be proved in isolation, the petitioner must discharge the initial burden of showing a consistent course of conduct that is burdensome, harsh, and lacking in probity.

ix) Paragraph No.43 is relevant and the same is extracted below:-

"43. It was opined that the burden to prove oppression or mismanagement is upon the applicant. The Court, however, will have to consider the entire materials on record and may not insist upon the applicant to prove each act of oppression. It was furthermore observed that an action in contravention of law may not per se be oppressive, whereas the conduct involving illegality and contravention of the Act may be suffice to warrant grant of any remedy."

x) On next issue concerning continuous exclusion from management, the Apex Court reiterates the principles laid down in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad6 in the following paragraph:

"180. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also 6 . (2005) 11 SCC 314 38 KL, J C.A. No.14 of 2014 beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warranted. (See Bennet Coleman & Co. Vs. Union of India and Others [(1977) 47 Comp. Cases 92] and [AIR 1958 Madras 587]. But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of Directors. Reliefs must be granted having regard to the exigencies of the situation and the court must arrive at a conclusion upon analyzing the materials brought on records that the affairs of the company were such that it would be just and equitable to order winding up thereof and that the majority acting through the Board of Directors by reason of abusing their dominant position had oppressed the minority shareholders. The conduct, thus, complained of must be such so as to oppress a minority of the members including the petitioner's vis- `-vis the shareholders which a fortiorari must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members."

xi) It is not possible for the section alone to provide remedy to every act of oppression or mismanagement as citied in the above case law, the court is at the liberty to recognize that denial of participation and exclusion from management in closely-held companies constitutes oppression. The petitioner's exclusion from Board meetings, denial of documents, and systematic 39 KL, J C.A. No.14 of 2014 marginalization are evident from the record and supported by this precedent.

xii) Further, whether the dilution of the petitioner's shareholding through an alleged rights issue amounted to oppression, this Court relies on the principle laid down by the Apex Court in Chatterjee Petrochem (Mauritius) Co. v. Haldia Petrochemicals Ltd7.

xiii) Paragraph No.150 is relevant ,it is extracted below:-

"150. No doubt, in the Needle Industries case, this Court had observed that the behavior and conduct complained of must be held to be harsh and wrongful and in arriving at such a finding, the Court ought not to confine itself to a narrow legalistic view and allow technical pleas to defeat the beneficial provisions of the Section, and that in certain situations the Court is not powerless to do substantial justice between the parties, the facts of this case do not merit such a course of action to be taken. Such an argument is not available to the Chatterjee Group, since the alleged breach of the agreements referred to hereinabove, was really in the nature of a breach between two members of the Company and not the Company itself. It is not on account of any act on the part of the Company that the shares transferred to CP(I)PL were not registered in the name of the Chatterjee Group.There was, therefore, no occasion for the CLB to make any order either under Section 397 or 402 of the aforesaid Act. 7 . (2011) 10 SCC 466 40 KL, J C.A. No.14 of 2014 If, as was observed in M.S.D.C. Radharamanan's case (supra), the CLB had given a finding that the acts of oppression had not been established, it would still be in a position to pass appropriate orders under Section 402 of the Act. That, however, is not the case in the instant appeals."

xiv) In Dale and Carrington Invt. Pvt. Ltd. v. P.K. Prathapan8, the Apex Court clarified the ambit of Section 10F of the Act. It was held that although an appeal lies only on a question of law, a finding of fact rendered by the CLB can be interfered with if such finding is perverse or based on no evidence, as the perversity itself constitutes a question of law. The Court emphasized that where the Board has given a cursory or cavalier judgment without adverting to issues germane to the controversy, the High Court is well within its jurisdiction under Section 10F of the Act, to examine the matter in depth. Thus, it was concluded that the High Court did not exceed its appellate powers in scrutinizing the allotment of additional shares and in affirming the finding of oppression with stronger reasoning.

xv) Relevant paragraph is extracted below:- 8

. (2005) 1 SCC 212 41 KL, J C.A. No.14 of 2014 "36. Section 10-F refers to an appeal being filed on a question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board.

It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and, therefore, the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for the appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter. As already stated, the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujam and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same." xvi) The Apex Court in S.P. Chengalvaraya Naidu v. Jagannath9, authoritatively held that fraud vitiates all judicial acts and that a litigant who withholds vital documents or suppresses material facts in order to secure an advantage is guilty of playing 9 . (1994) 1 SCC 1 42 KL, J C.A. No.14 of 2014 fraud on the court and the opposite party, and such proceedings are a nullity.

xvii) Similarly, in Lalit Kumar Jain v. Jaipur Traders Corporation Pvt. Ltd. 10, the Apex Court reiterated that a party seeking equitable relief must come to court with clean hands and cannot be permitted to take advantage of its own misconduct or lack of bona fides. Read together, these decisions underscore that in proceedings under Sections 397 and 398 of the Companies Act, the petitioner bears a corresponding duty of candour and fairness, and any party found to have suppressed material facts, manipulated records, or acted with ulterior motives disentitles itself to equitable relief from this Court xviii) In Bachhaj Nahar v. Nilima Mandal 11, the Apex Court emphasized that the relief to be granted in a civil suit must be confined to the pleadings and prayers made therein. It was categorically held that the facts necessary to establish title are entirely different from those required to make out an easementary 10 . (2002) 5 SCC 383 11 . (2008) 17 SCC 491 43 KL, J C.A. No.14 of 2014 right, and that a court cannot assume or infer an alternative case not pleaded. Further, theApex Court clarified that in the absence of any specific claim or pleadings regarding easementary rights, and without affording the opposite party an opportunity to contest such a claim, the High Court erred in converting a suit for declaration of title into one for enforcement of easement. The ruling thus reiterates the fundamental principle that courts cannot travel beyond the pleadings, and any relief granted must strictly flow from the issues framed and the case put forward by the parties."

xix) On the next question, whether the appellant's removal under Section 283(1)(g) of the Act, was valid, the Court finds that the petitioner's alleged absence from Board meetings was recorded despite his physical attendance and submission of objections. The decision in Sri Shivaji Balaram Haibatti v. Sri Avinash Maruthi Pawar12,underlines the importance of proper procedure and evidentiary scrutiny in appellate review.

xx) Relevant paragraph No.28 is relevant, it is extracted below:-

. MANU/SC/1460/2017 44 KL, J C.A. No.14 of 2014 "28. It is these issues, which were gone into by the two Courts and were concurrently decided by them against the respondent. These issues, in our opinion, should have been examined by the High Court with a view to find out as to whether these findings contain any legal error so as to call for any interference in second appeal. The High Court, however, did not undertake this exercise and rather affirmed these findings when it did not consider it proper to frame any substantial question of law. It is a settled principle of law that the parties to the suit cannot travel beyond the pleadings so also the Court cannot record any finding on the issues which are not part of pleadings.

In other words, the Court has to record the findings only on the issues which are part of the pleadings on which parties are contesting the case. Any finding recorded on an issue de hors the pleadings is without jurisdiction. Such is the case here."

Applying that reasoning, the mechanical reliance by the CLB on fabricated attendance records, without examining the context or the petitioner's objections, vitiates the finding and warrants remand.

13) Whether the CLB erred in law by failing to consider material evidence, including the audit report of M/s Y. Raghuram & Co. This Court finds that the CLB indeed failed in its statutory duty under Section 397/398 of the Act, proceedings. The audit report, commissioned by order of the CLB itself, highlighted significant irregularities such as cash transactions without 45 KL, J C.A. No.14 of 2014 vouchers, non-production of statutory challans, and evidence of siphoning of funds.

14) In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd13., the Apex Court observed that oppression involves at its core a visible departure from standards of fair dealing and a violation of the conditions of fair play on which every shareholder is entitled to rely. Mismanagement, on the other hand, is characterized by persistent and unjustifiable financial irregularities, diversion of assets, or conduct endangering the sustainability of the company. These principles form the bedrock of the judicial understanding of corporate oppression and mismanagement, and they directly govern the assessment of facts in the present matter.

14-i) Relevant paragraphs are extracted below:-

"49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by one of us, Bhagwati, J., in a decision of the Gujarat High Court in Seth Mohanlal Ganpatram v. Sayaji Jubilee Cotton & Jute Mills Co. Ltd. [(1964) 34 Com Cas 777 : AIR 1965 Guj 96 :

(1964) 5 Guj LR 804] that "a resolution passed by the 13 . (1981) 3 SCC 333 46 KL, J C.A. No.14 of 2014 directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company". On this question. Lord President Cooper observed in Elder v. Elder [1952 SC 49] :

"The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the "just and equitable"

jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the "just and equitable" jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy." Neither the judgment of Bhagwati, J. nor the observations in Elder [1952 SC 49] are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder [1952 SC 49] a complaint was made that Elder had not received the notice of the Board meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present, no complaint of oppression could be entertained merely on the ground that the failure to give notice of the Board meeting was an act of illegality. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by 47 KL, J C.A. No.14 of 2014 reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands.

52. It is clear from these various decisions that on a true construction of Section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word "oppression" in Section 210 of the English Act by the words "unfairly prejudicial" in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower's Company Law, 4th Edn., p. 668). But that recommendation was not accepted and the English law remains the same as in Meyer [1959 AC 324 :

(1958) 3 All ER 66 (HL)] and in Re H.R. Harmer Ltd. [1959 WLR 62 : (1958) 3 All ER 689 (CA)] as modified in Re Jermyn St. Turkish Baths [(1971) 3 All ER 184 (CA)] . We have not adopted that modification in India."

15. In Bajrang Prasad Jalan v. Mahabir Prasad Jalan 14, the Calcutta High Court underscored that in proceedings under Sections 397 and 398 of the Act, the Court is empowered to pierce 14 . AIR 1999 Cal. 156 48 KL, J C.A. No.14 of 2014 the corporate veil where the affairs of the company are being conducted in a manner that is unfair, prejudicial, or oppressive to the minority shareholders. It was observed that the interlinking and interweaving of shareholdings in family companies cannot be used as a shield to perpetuate mismanagement or to oust a group from participation in management. The Court emphasized that in such circumstances, the equitable jurisdiction of the Company Court is wide enough to regulate the affairs of the company, prevent abuse of power by the majority, and secure fairness in corporate governance.

15-i) Relevant paragraphs are extracted below:-

"98. In Scotish Co-operative Wholesale Society Ltd. v. Mayer reported in 1958 (3) All ER 66 Lord Denning, J., held:--

"One of the most useful orders mentioned in the section which will enable the Court to do justice to the injured shareholders is to order the oppressor to buy their shares at a fair price, and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive."

99. Similar direction had been passed in Combust Technic Pvt. Ltd. In Re. reported in (1986) 60 Com Cas 872 and an unreported judgment of T.K. Basu, J. 49

KL, J C.A. No.14 of 2014 in Re: Asiatic Oxygen Limited disposed of on 10th January, 1986 which has been followed by U.C. Banerjee J. In Re: Bagri Private Ltd. reported in (1993-1994) 98 CWN 617. Reference in this connection may also be made to AIR 1966 Cal. 512.

100.In Re: Jermyn Street Turkish Baths Ltd. reported in 1970 (3) All ER 57, Pennycuick, J. following Scottish Co-operative Wholesale Society Ltd. v. Meyer reported in 1958 (3) All ER 66 observed:--

"If I may say so, I find that a most helpful passage."

101. Furthermore, proceedings under Section 397/398 of the Companies Act provide for break down a machinery and in view of the fact that the applicants herein did not make an attempt whatsoever to take part in the management of the Companies for all these years and further in view of the fact that the accounts maintained by the respondents herein have not been questioned; in our opinion, proper exercise of the jurisdiction would be to direct the appellants to sell their shares in favour of the respondents. However, the value of such share may be fixed as on the date of passing of the judgment keeping in view the fact that the property in question is an immovable property and during course of the pendency of the proceedings the value might have gone up. Such valuation may be made by one of the Chartered Engineers nominated by the Registrar, Original Side of this Court."

16. This Court finds support for such a course in the judgment of the Division Bench in MS Rangareddy amp Associates Hyd vs Dewan Bahadur Ramagopal Mills and Ors 15 15 W.A. No.391 of 2008 (decided on 29.12.2023) 50 KL, J C.A. No.14 of 2014 wherein it was held that when the original authority failed to consider material objections and evidence, the proper remedy is to set aside the order and remit the matter for fresh consideration. Applying the same principle, since the CLB has failed to consider and evaluate the special audit report and has overlooked vital records, the impugned order dated 24.02.2012 cannot be sustained and must be remanded for reconsideration in accordance with the law prevailing under the Act.

16-i) Relevant paragraph of the judgment is extracted below:-

20. However, this Court is conscious of the fact that during the pendency of the instant appeal, the BIFR was dissolved on account of The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (for short 'Repealing Act of 2003'), notified on 25.11.2016 vide notification No.S.O. 3568(E), & 3569(E) and brought into force with effect from 01.12.2016. Further, since the matter could not be pursued by the parties on account of the operation of stay during the pendency of the instant appeal, this Court deems it appropriate to grant liberty to the company to take appropriate steps in accordance with the Repealing Act of 2003, the Companies (Transfer of Pending Proceedings) Rules, 2016 passed vide G.S.R. 1119(E). dated 09.12.2016 read with the Insolvency and Bankruptcy Code (Removal of Difficulties) Order, 2017 passed vide S.O. 1683(E). dated 24.05.2017.

KL, J C.A. No.14 of 2014

17. Upon a comprehensive evaluation of the record, pleadings, audit findings, and applying the legal principles emerging from the cited case laws, this Court is of the considered view that the impugned order of the CLB suffers from material non-consideration of relevant evidence and amounts to a miscarriage of justice. The refusal to draw adverse inference despite admitted non-production of original records, the failure to evaluate the audit report commissioned under its own direction, and the acceptance of procedural irregularities without due scrutiny, particularly the appellant's removal under Section 283(1)(g) of the Act, all point to a flawed appreciation of law and fact.

18. Moreover, the factual matrix established through documentary evidence, including the minutes, audit report, and affidavits, demonstrates a consistent pattern of exclusion and mismanagement by the majority shareholders, akin to the oppression .The conduct of respondent Nos.2 to 7 in unilaterally increasing share capital, transferring proprietary technology through a partnership entity controlled by them, and denying the 52 KL, J C.A. No.14 of 2014 petitioner access to statutory records, as pointed out by the auditor, falls squarely within the parameters of oppressive behavior delineated under Sections 397 and 398 of the Act. The continued denial of information and the resultant erosion of trust and confidence between the petitioner and the majority management group justifies judicial intervention.

19. On a cumulative appraisal of the record and section 397 and 398 of the Act, and the principle laid down in the judgments referred supra, as discussed supra, the audit report of M/s. Y. Raghuram & Co. has brought to light systemic irregularities, unvouched cash transactions, and siphoning of funds, which were deliberately suppressed from consideration by the CLB. In fact, vide order dated 31.07.2009, CLB directed to conduct audit and accordingly, M/s Y.Raghuram & Co, conducted audit of 1st respondent company and submitted its report dated 15.10.2009 pointing out certain irregularities committed by the Board of 1st respondent company. Even then, CLB failed to consider the said report.

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20. CONCLUSION:

i) Having considered the pleadings, documents, submissions and the impugned order dated 24.02.2012 passed by the CLB, this Court is of the considered view that the said order suffers from material infirmities. The CLB failed to discharge its statutory duty of considering evidence of probative value, most notably the special audit report dated 15.10.2009 of M/s. Y. Raghuram & Co., Chartered Accountants, which was commissioned pursuant to its own order dated 31.07.2009. The non-consideration of such a report, coupled with the failure to draw adverse inference from the deliberate suppression of records, vitiates the impugned order and constitutes an error of law warranting interference under Section 10F of the Act.

ii) On a cumulative appraisal of the record, this Court finds that the appellant has placed material to demonstrate a consistent course of conduct suggestive of oppression and mismanagement.

However, as the CLB has failed to properly evaluate such material and to apply the correct principles of law, the findings recorded therein cannot be sustained.

KL, J C.A. No.14 of 2014

iii) In these circumstances and also the principle laid down in M/s Rangareddy amp Associates Hyd (supra), this Court is of the opinion that the matter requires reconsideration on merits by the appropriate forum. Since, under the present statutory regime, the jurisdiction formerly vested in the CLB now stands transferred to the National Company Law Tribunal (NCLT), the impugned order dated 24.02.2012 passed in C.P. No. 19 of 2008 by CLB is hereby set aside.

21. In view of the aforesaid discussion, this Company Appeal is disposed of, the impugned order dated 24.02.2012 passed in C.P. No. 19 of 2008 is hereby set aside and the matter is remanded to the NCLT Bench, for fresh consideration in accordance with law, with the following directions:-

i. The matter shall be dealt with in accordance with the legal regime prevailing at the time of institution of the petition, namely the provisions of the Companies Act, 1956, and not under the subsequent Companies Act, 2013. The NCLT shall, while rehearing the matter, duly take into account the special audit report dated 15.10.2009, the objections and 55 KL, J C.A. No.14 of 2014 evidence placed by the parties, and the legal principles governing oppression and mismanagement under the 1956 Act. All contentions of the parties are left open to be urged afresh.

ii. Having regard to the protracted nature of the litigation, it is directed that the National Company Law Board (NCLT), shall make an endeavor to dispose of the matter expeditiously, preferably within a period of Three (03) months from the date of receipt of this order. Consequently, miscellaneous petitions, if any, pending in this Company Appeal shall stand closed.

__________________ K. LAKSHMAN, J 26th September, 2025 Mgr/vvr

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