Company Law Board
Delstar Commercial And Financial Ltd. ... vs Sarvottam Vinijaya Ltd. And Ors. on 30 March, 2001
Equivalent citations: [2003]113COMPCAS642(CLB)
ORDER
S. Balasubramanian, Vice Chairman
1. In this order, we are considering all the above 9 petitions together, since the nature of allegations in all these petitions is similar and the relief sought is based on a common premise. A summary of the petitions is as follows: All the petitioners are under the control of one Shri S.K. Somany (SKS). He is one of the members of Somany family which controlled a large number of business entitles. Originally, the family consisted of 6 brothers of which 2 of them separated in 1983 and the other 4 brothers were managing the family businesses including 4 major companies. In 1994, these brothers entered into a family settlement by which two of the brothers were allotted certain companies, each one of the 4 major companies individually while SKS and his eldest brother H.L. Somany (HLS) decided to continue together to manage the companies including the 2 remaining major companies. The division of the business of the family and allocation of the major companies was done on the basis of a valuation done by Price Waterhouse and each brother was to take businesses worth 1/4th of the total value. Two major companies allotted to SKS and HLS were SPL Ltd. (SPL) and Soma Textile Ltd. (STL). It was agreed between SKS and HLS that all the companies in their group would be jointly held and managed. The respondent-companies are investment companies and their main investment is in the shares of SPL and STL and they collectively hold 17% and 36% shares in SPL and STL respectively. SKS and HLS more or less control 50% shares each in these nine respondent-companies. With their individual group holdings in these two companies and together with the shares held by the investment companies, HLS and SKS were having equal percentage of shares in both SPL and STL and thus were in joint control and management of these two companies. SPL has two manufacturing units -- one at Kassar and another at Kadi. Kassar was being managed by HLS while Kadi was managed by SKS. The two units of STL were being managed by SKS. HLS is the Chairman of SPL wherein SKS is also a director. SKS is the Chairman of STL. Some disputes arose between SKS and HLS in regard to the management of SPL in July, 1997. In view of these disputes, HLS tried to take over the control of the nine investment companies by inducting his own family members and associates as directors without notice to SKS in the AGMs of these companies in February and April, 1998. By taking over the management of these companies, which hold substantial shares in SPL and STL, HLS is trying to marginalise SKS in the affairs of SPL and STL, which would be against the agreement of equality and joint management. In addition to this general allegation, in respect of Sarvopari, another allegation relates to further issue of shares and in Sarvottam, the allegation relates sale of shares held by Sarvottam in SPL. Both these actions, according to the petitioners, are prejudicial to the interest of the petitioners and SKS. The main prayer in these petitions is that there should be equality of directors from both SKS and HLS group in these companies and as also an independent Chairman.
2. Shri Sudipto Sarkar, Senior Advocate, appearing for the petitioners, submitted as follows: After the family partition in 1994, SKS and HLS decided to stay together as a group with the understanding that all the businesses in the group would be jointly managed. While it was agreed that SPL would be managed by HLS, STL would be managed by SKS. In addition, it was also decided that all the investment companies which hold shares in SPL and STL would be jointly managed by appointing those mutually agreeable to both as directors. All along, this mutual understanding has been honoured by both the groups and, as a matter of fact, when certain disputes arose in relation to the family settlement, both SKS and HLS have filed a joint Suit No. 35 of 1997 in the Calcutta High Court seeking for implementation of the family settlement. All the respondent-companies are parties to the suit. In the plaint itself, at paragraphs 7 and 8, it has been stated that the brothers had been carrying on the business in co-partnership with each other and that there had been equality in the shares held by the brothers. Therefore, between SKS and HLS, there has always been joint and equal co-partnership, which is now being disturbed by HLS. Even in paragraphs 10 and 11 of the plaint, the equality of shareholding has been highlighted. Further, in paragraph 15, it has also been averred that SPL and STL would be jointly controlled and managed by HLS and SKS. In Annexure-A to the plaint, all these respondent-companies have been shown as being under the control of HLS and SKS. At page number 17 of the rejoinder filed in that suit, an averment has been made by both HLS and SKS that the family settlement of 1994 provided for equal distribution of the assets of Somany family among the four brothers. Thus, the equality in management and shareholding has been established any shadow of doubt. If that is so, SKS should have equality in the Board of directors of all the respondent-companies. Since such equality on the Board would only result in a stalemate, the best option would be that there should be partition of the assets held by SKS and HLS group up in these respondent-companies equally between these two groups. Since SKS has always been managing one of the units of SPL, the same should be allowed to be continued with him and, in respect of STL, which has always been under the control and management of SKS, HLS should also take part. Since this arrangement has been going on for long, the same should be formalised by an order by this Bench.
3. On the nature of the companies, he submitted as follows: all the respondent-companies as also SPL and STL are family companies. The corporate structure of these companies is not the real structure, and once the corporate veil is pierced, it will be obvious that these are all family companies structured in the nature of incorporated companies. Since these respondent-companies control the shares in SPL and STL, and since they are in the nature of family companies, partnership principles could be applied and assets of these companies could be distributed between SKS and HLS equally. In Vijay Krishan Jaidka v. Jaidka Motors Co. Ltd. (1997) 1 Comp LJ 268 (CLB), the Company Law Board had followed the principles of partnership in a family company and divided its assets between the petitioners and respondents. In Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL), the House of Lords had recognised that, in facts of a case, a company could be treated as a partnership and that when there is an understanding that the parties would participate in the management, any breach of such understanding would justify winding up of the company on just and equitable grounds. In K.N. Bhargava v. Trackparts of India Ltd. (2000) 2 Comp LJ 275 (CLB) : (2000) 36 CLA 291, the Company Law Board itself had decided that even though the company was a listed company, yet, in facts of that case, the company could be treated as a family company and could be divided between the two groups.
4. Shri Sen, Senior Advocate appearing for the respondents, submitted as follows: SPL and STL are not parties in these proceedings does not arise. Only the allegations made against the respondent companies could be considered and appropriate relief granted. SKS along with some of the petitioner companies have filed a suit in Calcutta High Court (TS No. 450 of 1998) wherein all the respondent companies are parties, seeking for a declaration that SKS and HLS have joint and equal rights in the management, control and participation in the affairs of SPL and all investment companies including the respondent companies. In those proceedings also, a declaration of 50% shareholding has been claimed. In those proceedings, certain directions have been issued by the High Court. That being the position, the question of the Company Law Board deciding the claim of SKS for a partition or otherwise on the basis of 50% shareholding does not arise and, as a matter of fact, there is no foundation to claim this percentage on any evidence. The Company Law Board has no jurisdiction to determine the issue relating to the claim of 50% ownership, the determination of which is a prayer in the Calcutta proceedings as per the first prayer in that suit. Since SKS has initiated a substantive proceeding prior in time of filing of these petitions, he should seek whatever remedies are available only from the High Court. Further, while in the suit, the prayer is for joint management, in the present proceedings, division of assets is being asked for. Even assuming there is joint management, it would not necessarily mean equal shareholding. As far as the division of the assets between the two groups is concerned, there is no foundation for such a claim inasmuch as there is no deadlock in the management of any of the companies. In view of the pendency of the proceedings in High Court, to avoid any conflict of decisions, the Company Law Board should not consider the claim of equality, and as such, the matter should be left to be decided by the High Court. In a similar case, wherein proceedings were pending before the High Court, the Company Law Board declined to pass any orders in Lopchu Tea Co. Ltd.'s case. Therefore, to avoid any conflicting decisions, the Company Law Board should either stay its proceedings, or in the alternative dismiss these petitions. In the alternative, the respondents are prepared to purchase the shares held by the petitioner companies who complain of oppression.
5. On merits of the case, he submitted as follows: In none of the petitions, there is any allegation relating to either mismanagement or financial impropriety. The only allegation is about alleged non-issue of notices for the general body meetings wherein certain directors were appointed. Thus, these petitions are essentially petitions under Section 397 of the Companies Act, 1956 ('the Act'). This section requires that the facts should justify winding up of the company on just and equitable grounds. Mere non-issue of notices even if established does not justify winding up of a company on just and equitable grounds and the only remedy available to the petitioners is to move the civil court for getting the meetings declared as invalid. As a matter of fact, not only notices for the general body meetings of all these companies were given, notices were also published in newspapers. The complaint of the petitioners is that notices were not served at the Bombay address. Notices have always been served at the address of the petitioners at Calcutta as these are the addresses noted in the register of members. Continuing his arguments, Shri Sen pointed out that there are no record available to show that SKS and AKS each holds 50% shares in these respondent companies to decide about division of the assets of the company. Till such time, such a conclusion is arrived at, which cannot be done with the material placed on record, the question of division will not arise. Further, there is no deadlock in the management of the companies to necessitate division of assets nor application of partnership principles. He further contended that relief under Section 402 of the Act could be granted only if the allegations of oppression and mismanagement are established. Referring to Maharani Lalita Rajya Lakshmi v. Indian Motor Co. AIR 1962 Cal 127, he pointed out that before considering grant of any relief, the court has to form an affirmative opinion in terms of Section 397(2)(a) and (b), i.e., the affairs of the company are being conducted in a manner oppressive to the petitioners and that winding up of the company on just and equitable grounds is warranted. In the present case, the learned counsel pointed out that the relief sought are based on a family settlement to which none of the respondent companies or the petitioner companies were parties. The grievance of the petitioners is more in the nature of a private compliant and not a corporate grievance. The Company Law Board can adjudicate only on corporate disputes. He also pointed out that no shareholders can claim a share on the properties of a company except in case of winding up and, therefore, the claim of the petitioners for division of the assets of the company does not arise.
6. Arguing further, Shri Sen contended that in the joint suit filed by SKS and AKS, the prayer is for specific performance of the family agreement and in case that suit fails, the family agreement on which basis certain declarations have been sought in the present proceedings, would also fail. According to the learned counsel, these petitions are motivated petitions for an ulterior purpose of seeking division of the assets of the company and not for redressal of the grievances made in the petition and, therefore, as decided in Bellador Silk Ltd., In re (1965) 1 All ER 667, these petitions deserve to be dismissed. He also submitted that the petitioners, by filing 9 petitions have sought for certain relief on the basis of consolidation of these petitions. According to him, each petition has to be decided on the basis of the allegations made therein and, therefore, cannot be consolidated for purposes of granting reliefs since each of the petitioner company as well as the respondent companies are separate legal entities. He also pointed out that Sarvottam is a public listed company, and, therefore, the question of equality in the shareholding and joint family company does not arise. He also pointed out that in none of the companies, SKS or the petitioner companies has any representation on the Board and even the articles of this company do not provide for any particular representations. Under these circumstances, no agreement either oral or in writing in regard to the management of the respondent companies could bind these companies. Even otherwise, there is nothing in the pleadings to show that there was any agreement for joint management of these companies. He also pointed out that the main grievance of SKS through these petitions is that by controlling the respondent companies, HLS is trying to control SPL Ltd. and Soma Textiles. Neither of these two companies, however, has been made parties to these proceedings. He also pointed out that in none of these petitions, either the petitioner companies or SKS have shown that either individually or collectively, they hold 50% shares in the respondent companies. Further, none of the respondent companies are subsidiaries of either Soma Textiles or SPL Ltd. so as to rope in these two companies in these proceedings. He also pointed out that the petitioner companies being limited companies cannot advance the cause of SKS who is not a party to these proceedings to claim joint ownership. Referring to Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 1 Comp LJ 193 (SC): AIR 1965 SC 1535, he pointed out that in paragraphs 14, 19 and 32, the Supreme Court has held that there should be actual acts of oppression in terms of Section 397 and mismanagement or apprehended mismanagement in terms of Section 398 for grant of relief under Section 402 of the Act. Referring to Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. (1982) 1 Comp LJ 1 (SC): AIR 1981 SC 1298 wherein the apex court has held that the court is not powerless to grant relief even if no case of oppression is established, he pointed out that the Supreme Court considered 3 appeals by special leave under Article 136 of the constitution. Therefore, the observations of the apex court made in terms of the powers conferred on it by Article 142 of the Constitution is not applicable to the proceedings under Section 397/398 before the Company Law Board, and this Board has no powers to grant any relief unless the allegations in the petitions are established and comes to a conclusion that on just and equitable grounds, the company ought to be wound up which action would not be in the interest of the company. To the proposition that in an SLP under Article 136, the Supreme Court exercises powers under Article 142 -- he referred to Union Carbide Corporation v. Union of India (1991) 3 Comp LJ 213 (SC) : (1991) 4 SCC 584, particularly -- to paragraphs 58 and 59 of that judgment. On the same proposition that under Article 136, the Supreme Court exercises plenary powers he cited East India Hotels Ltd. v. Syndicate Bank (1993) 1 Comp LJ 1 (SC) : (1992) Supp. (2) SCC 29. In view of these decisions, he contended that on the basis of the observations of the apex court in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), no relief can be granted even if oppression is not established. In this connection, he referred to Power Tools & Appliances Ltd. v. Jalandhar Chakraborty 96 CWN 313, wherein, the court held that Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), is not a proportion to grant relief even when oppression is not established.
7. Summing up his arguments, Shri Sen submitted that in all these petitions, the only allegation is non-receipt of notices for the general meetings in 1998 to the allegation of which the respondent companies have shown proof of dispatch of notices. Therefore, the allegation of the alleged oppression is baseless and, therefore, the petitions deserve to be dismissed. Going beyond the allegations and reliefs sought in the petitions, the Company Law Board cannot declare equal ownership and joint management in these companies and order division of the assets as prayed for during the arguments.
8. Shri S.N. Mookherjee, appearing for the 9th respondent, submitted as follows: SPL had never been a family company. It was a joint venture company with foreign collaboration and now it is a listed company. Therefore, the question of application of partnership principles in regard to SPL does not arise. Even in case of respondent companies, this principle cannot be applied as in none of these investment companies, there is equal shareholdings of SKS and HLS. He pointed out in Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. (1997) 1 Comp LJ 268 (CLB), there was equal participation in the Board and that the Board came to the conclusion that there was 45:55 shareholding and, therefore, it ordered for divisions of the assets of the company after a finding that the acts of oppression had been established. Reference to Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwala AIR 1976 SC 565, wherein the apex court has brought out the distinguishing features of Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL), he pointed out that none of these features are present in this case to come to the conclusion that circumstances exist for winding up of the company on just and equitable grounds. Insofar as K.N. Bhargava v. Trackparts of India Ltd. (2002) 2 Comp LJ 275 (CLB) is concerned, he pointed out that in that case, partnership business was taken over the company, that both the sides had equal participation in the company and that the articles had provided for affirmative votes by both the sides and, therefore, the Company Law Board directed for division of assets to avoid any deadlock in the management of the company. In K.N. Bhargava v. Trackparts of India Ltd. (2000) 2 Comp LJ 275 (CLB), the Company Law Board ordered division of assets only because both the groups were in management and continuance of both the groups would result in deadlock in the management of the company. However, in the present cases, the facts are different and, therefore, these cases are not applicable. In many of the respondent companies, SKS in whose favour the reliefs are sought is not a shareholder. He also pointed out that in many of the cases decided by the Company Law Board, directions were given to purchase the shares of the petitioners who had alleged acts of oppression and, therefore, in the present case also, the only order that could be passed is that the petitioners complaining of oppression should be asked to sell their shares held in the respondent companies. As far as the additional allegation relating to sale of SPL shares held in Sarvottam is concerned, the learned counsel pointed out that these shares were pledged and on non-payment, the lessee has sold the shares and not the company. In regard to allotment of shares in Sarvopari, he pointed out that the consideration received was used to invest in Soma Textiles and the share certificates issued thereat were signed by SKS himself. Therefore, now he cannot question about the allotment of shares in Sarvopari.
9. Replying to the arguments of the learned counsel for the respondent, Shri Sarkar argued as follows: The petitioners are not claiming any relief in respect of SPL or STL. Since the respondent companies are investment companies, their main investments being in these two companies, control of these respondent companies would be a major factor in controlling SPL and STL and hence reference has been made about these two companies. The reference to the joint suit in Calcutta High Court was made only to indicate the admitted facts. The suit filed by the petitioner companies in Calcutta High Court does not deal with any of the respondent companies but relates only to one division of SPL which was under the control of SKS all along. He also pointed out that in a civil suit, the court does not have powers to pass an order for selling of shares or partition of the assets of the company while the Company law Board has such power. According to the him the powers of Company Law Board under Section 402 is exclusive and cannot be exercised by any civil court. Even otherwise, in Stridewell Leathers (P) Ltd. v. Shoe Specialities (P) Ltd. (1996) 1 Comp LJ 426 (CLB), the Company Law Board has held that a suit is not a bar to proceed with a petition under Section 397/398 inasmuch as the powers of the Company Law Board in these proceedings are much wider than [those of] the civil court in a suit. Further, in the joint suit, what has been sought is the implementation of the family settlement and this settlement does not cover the nine respondent companies. Further, both SKS and HLS are plaintiffs and the suit cannot decide the disputes between two plaintiffs. Therefore, he contended that the pendency of the civil suit cannot be a ground to reject the prayers of the petitioners.
10. He pointed out that HLS is not denying the family settlement by which two of the brothers parted ways and HLS and SKS decided to continue together on the understanding that all the companies under their control would be jointly managed. Even one of the brothers in the Calcutta suit has admitted joint management. No joint management could exist without equal shareholding. Referring to AIR (1968) 3 SCC 639 (sic), he pointed out that in case of joint management, equality in shareholding could be presumed. All the respondent companies were promoted by two trusted employees of SKS and HLS and these companies always had directors approved by both SKS and HLS. Neither SKS nor HLS, even though were controlling substantial shares in the companies, was a director in these companies. However, in the general body meetings held without notice either to the petitioner companies or to SKS, HLS has gained majority on the Board of these companies by appointing his own relatives or his associates. Since in Section 397/398 petition, the interest of the company is paramount, future disputes should be avoided and any relief granted should be moulded to ensure this. The only way by which the disputes between SKS and HLS could be avoided is to divide the assets of the respondent companies equally. In this connection, he referred to Karedla Suryanarayana v. Sri Ramdas Motor Transport Ltd. (1999) 3 Comp LJ 422 (CLB) wherein the Company Law Board had held that notwithstanding that the acts of oppression and mismanagement had not been established, yet to avoid future disputes, the petitioner's shares should be purchased by the respondents. Likewise, in Atmaram Modi v. ECL Agrotech Ltd. (1999) 4 Comp LJ 379 (CLB) and in Yashovardhan Saboo v. Groz Beckert Saboo Ltd. (1993) 1 Comp LJ 20 (CLB), the same principle was followed by the Company Law Board. He pointed out that in Trackparts of India Ltd.'s case (2000) 2 Comp LJ 275 (CLB), supra, notwithstanding that the company was a listed company, considering the family nature of the company, the Company Law Board ordered division of assets. Thus, when the Company Law Board has recognised grant of relief under Section 402 with a view to avoid possible future conflicts between two groups of shareholders, the same principle should be applied in the present cases also. He also pointed out that the powers of the Company Law Board in the proceedings under Section 397/398 are so wide that it can override the provisions of the Act and the articles. When equality in the management is disturbed by removing common employees and putting the people of one group, it would definitely amount to gross act of oppression. He also pointed out that it is wrong to say that by consolidating all the petitions, common reliefs are sought. These petitions taken together would reveal the totality of the circumstances in which the respondent companies are acting as investment companies to invest shares in SPL and Soma Textiles. Regarding the arguments of Shri Sen in respect of the observations of the Supreme Court in Needle Industries (India) Ltd.s case (1982) 1 Comp LJ 1 (SC), Shri Sarkar pointed out that since the appeals considered by the Supreme Court arose out of a Section 397 petition, the observations made therein are applicable to all proceedings under Section 397. Insofar as the decision of the Company Law Board in Lopchu Tea Co. Ltd.'s case, supra, is concerned, Shri Sarkar pointed out that, in that case, the petitioners approached the Company Law Board for relief after the High Court had already appointed an administrator and, therefore, the Company Law Board decided to stay the proceedings before it. But, in the present case, the suit pending in the Calcutta High Court relates only to a part of SPL. He also pointed out that if the investment companies had not invested in the shares of SPL and STL, the shares held by these respondent companies in SPL and STL could have been held individually in the names of SKS and HLS. He further stated that the very denial of the respondents of the family settlement, joint management and equality of shareholding itself is an act of oppression. Further, the change of composition of the Board of directors of the respondent companies in exclusion one group is also an act of oppression. In this connection, he referred to Vora Exclusives case [Pushpa Prabhudas Vora and Anr. v. Voras Exclusive Tools (P) Ltd. (2000) 3 Comp LJ 271 (CLB)] wherein the Company Law Board has held that change in composition of the Board of directors in a family company could be an act of oppression. He also submitted that for the purposes of seeking division of assets of a company, there is no need to establish that the principles of partnership should be applied and from the shareholding pattern and joint management, such relief could be sought. Since his clients have established that these companies family companies and since they rely on the family settlement, joint suit and also document showing equality, it is abundantly clear that the claim of the petitioners for a declaration that the shareholding in these nine respondent companies is equal is fully justified. Even otherwise, he contended that there should always be a presumption that in a joint family, there is equality in shareholding. He also pointed out that when the bill for Price Waterhouse was to be paid, the same was paid by all the 4 groups equally. Thus, he prayed that the assets of the respondent companies, more particularly, the shares held by the companies in SPL and STL, should be equally divided between SKS and HLS.
11. WE have considered the pleadings and arguments of the counsel. Before we deal with the merits of the case, it is appropriate to record that, on our suggestion that both SKS and HLS should try to resolve their disputes amicably, they agreed to do so. We also appointed a chartered accountant to assist them in their endeavour to settle their disputes amicably. The chartered accounted prepared a report after interacting with them, but neither of them accepted the report and as such, the compromise efforts failed. Since the discussions were without prejudice, we are not detailing the contents of the report of the chartered accountant and also stipulate that the documents exchanged during the efforts towards amicable settlement should not be used in any manner by the other side.
12. Before we deal with the allegations in the petition, we shall first deal with certain legal issued raised by Shri Sen. He pointed out that until and unless this Board is satisfied that the allegations of oppression are established and forms an opinion that the company is liable to be wound up on just and equitable grounds, no order under Section 402 could be passed. On this contention, he submitted that, even in case of a compromise, this Bench cannot approve the same without satisfying itself about the fulfilment of these two conditions. He also pointed out that the observation of the apex court in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), that even when the allegations of oppression are not established, the court is not powerless to do justice between the parties, was made in exercise of the powers of the Supreme Court in terms of Article 136/142 of the Constitution. To substantiate this contention he referred to Union Carbide Corporation's case (1991) 3 Comp LJ 213 (SC), supra, wherein in para 58, the apex court had observed:
"Article 136 vests in the Supreme Court a plenary jurisdiction in the matter of entertaining and hearing of appeals by granting special leave against any kind of judgment or order made by a court or tribunal in any cause or matter and the powers can be exercised in spite of the limitations under the specific provisions for appeal contained in the Constitution or other laws."
Therefore, he contended that the Supreme Court had made the said observation in Needle Industries (India) Ltd.'s (1982) 1 Comp LJ 1 (SC) in exercise of the powers conferred on it by Article 136/142 and, therefore, said observation cannot be applied in a proceeding under Section 397/398 before the Company Law Board. We are not inclined to accept this contention. The appeals by special leave considered by the apex court in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), supra, arose out of the judgment of the Division Bench of the Madras High Court in Section 397/398 petition and both the sides submitted to the court that the petition was essentially one under Section 397 and the court proceeded to consider the appeals as one arising out of a [Section] 397 petition. In para 39 of the judgment, the court examined as to whether the appellant (holding company) was entitled to relief under Section 397 and it has also referred the same in para 43. In paragraphs 44 to 52, the court had examined the meaning and scope of the word 'oppression'. After examining various issues raised in the appeal, the court came to the conclusion in para 170 that the charge of oppression arising out of the central accusation of non-allotment of the right shares to the holding company had failed. Thereafter, in para 172, the court observed:
"Even though the company petition fails and the appeals succeed on the finding that the holding company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties to place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd May were held in accordance with law."
From the above, we are not in a position to view, as contended by Shri Sen, that this observation has been made in exercise of powers under Article 142. The fact that these appeals arose out of a petition under Section 397 and that the court had extensively dealt with the provisions of this section in the judgment and made the above observation, we are of the view that the observation of the apex court that the court is not powerless to do substantial justice between the parties even when acts of oppression are not established, is a proposition made with reference to the powers of a court in dealing with Section 397 petition. This view gets strengthened from para 171, wherein, when it was argued that Coats and Newey who were two of the three main partners were not of one mind and that Newey never complained of oppression, the Supreme Court observed:
"They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act."
Further, it is to be noted that the term used by the Supreme Court in para 172 is not 'this court' but 'the court', further indicating that the Supreme Court was not referring to its own power, but to the power of the court dealing with Section 397 petition. Further, we are also of the view, that if a liberal and beneficial interpretation of the observation of the Supreme Court could advance the cause of justice, then such an interpretation should be preferred to a limited legalistic interpretation. Thus, we do not accept the interpretation of Shri Sen in this regard. Now that the jurisdiction relating to this section is with the Company Law Board, it does have, in exercise of its equitable jurisdiction, the discretionary power to do justice between the parties in the manner it considers fit with a view to protect the interest of the shareholders and the company. The reliance of Shri Sen on the observation of Calcutta High Court in this regard in Power Tools & Appliances Ltd.'s case (1991-92) 96 CWN 313, supra, made is in a different context, we feel, does not support his contention. In that case, when a prayer was made before the Calcutta High Court on the basis of the decision of the Supreme Court in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), supra, that the court could order purchase and sale of shares even where acts of oppression are not established, the High Court held that in the Needle Industries (India) Ltd.'s case (1982) 1 comp LJ 1 (SC), supra, the respondents were earlier willing to purchase the shares and, therefore, the apex court took the same into consideration in directing such a purchase, while in the case before the High Court, the respondents were not willing and, therefore, the court could not order the purchase and sale. The court only observed that the Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), supra is not a proposition to compel the company or the unwilling respondents to purchase the shares of the petitioners when the acts of oppression are not established and it has not observed that no equitable remedy could be considered if the acts of oppression are not established. One more aspect we would like to observe is that, in case we agree with the contention of Shri Sen that the decision of the apex court in an SLP need not be applied in matters before other courts, then the provisions of Article 141 would become redundant, which proposition, we afraid would lead to disastrous results. Further, the decision in Needle Industries (India) Ltd.'s case (1982) 1 Comp LJ 1 (SC), supra, has been repeatedly applied not only by this Board, but also by various High Courts that even when acts of oppression are not established, in facts of a case, appropriate relief/directions could be given. We would not like to deviate from this general proposition applied in various case on the basis of the interpretation given by Shri Sen. Therefore, we are of the view that, depending on the facts of a case, even in cases where oppression is not established, with the view to protect the interest of the company and the shareholders, suitable order could be passed in exercise of the equitable jurisdiction conferred by Section 397. For instance, in Yashovardhan Saboo's case (1993) 1 Comp LJ 20 (CLB), supra, the dismissal of the petition on the ground that the acts of oppression had not been established would have only continued the deadlock in the management resulting in the winding up of the company. This was prevented by directing the petitioners to sell his shares to the respondents at a fair value. Likewise, in a number of cases, this Board has, irrespective of the fact whether acts of oppression have been established or not, either approved compromise proposals or impressed upon the parties to amicably settle the disputes, once it felt that such a course alone would be in the interest of the company and the shareholders. In the same way, purchase and sale of shares or division of assets had also been directed with the view to safeguard the interest of the company and the shareholders. The Board has also, in case where it has felt such a course of action was not warranted, had not done so. Therefore, each case has to be decided on the facts of that case and no single readymade formula can be applied in all cases.
13. As far as the merits of the cases are concerned, in respect of 7 of the respondent companies, the allegation is non-receipt of notices for the AGMs in which certain directors were appointed. In addition to this common allegation, in respect of Sarvarpori, the additional allegation is that by issue of additional shares, the holding of HLS went up from 12.65% to 28.96% while that of SKS Group went down from 13.41% to 3.10%. Likewise, the additional allegation in respect of Sarvottam, is that certain shares held by this company in SPL had been sold.
14. In most of the petition, while the petitioner has alleged non-receipt of notices for the AGM held in 1998, yet, there is also an allegation that in these companies, no AGM had been held in the earlier years also. This general allegation regarding earlier AGMs does not seem to hold any justification inasmuch as in many of the companies, the petitioners themselves have enclosed statements of dividends declared and paid by these companies from which we find that dividends had been paid consecutively for the earlier 4 years. If it is so, the petitioner cannot allege that no AGM had been held inasmuch as without the approval of the general body, no dividend could have been declared. If the allegation of the petitioner is that dividend had been declared without holding the AGM, then, the petitioner should have agitated about this much earlier. Therefore, the only allegation in regard to the AGMs which requires our consideration is the ones held in the year 1998. We find that the AGMs for these companies had been held in the month of August and September, 1998. According to all the respondent companies, notices were issued to the addresses of the petitioners registered with the companies. In respect of two companies, namely, Chakrapani and Brindavan, they have also enclosed copies of the advertisements appearing in the newspapers regarding the AGMs of these companies. Other than this, the respondents have not furnished any proof of dispatch of notices. We find that in most of the companies, 3 additional directors and two directors in casual vacancies had been appointed in earlier Board meetings and in the AGMs held in 1998, they have been appointed as regular directors and most of these directors are common in these companies. Considering the fact that these companies are not doing any substantial business, we find some substance in the allegation of the petitioners that the changes in the Board had been effected only with a view to control the management of these companies by HLS as these directors are found to be either his family members or his associates. But at the same time, we also note that SKS, other than averring that these Boards had earlier had directors approved by both SKS and HLS, nothing to substantiate this has been produced. We also note that neither the petitioner companies nor SKS had any of their nominees on the Board earlier. Unless and until the petitioners and SKS are in a position to establish that if they had participated in the AGMs of the respondent-companies, the appointment of directors would not have been approved, we cannot consider that the appointment of directors in these AGMs is an act of oppression against the petitioners/SKS. However, since the petitioners' grievance is that no notices for the AGMs had been given to them, to put an end to this dispute, we direct that these respondent-companies will convene an EOGM within a month from the date of receipt of this order with a notice to the petitioners and also to SKS in respect of the companies in which he is a shareholder and get the appointments rectified and also all other resolutions carried through in the AGMs held in 1998. In regard to the allegation relating to issue of further shares by Sarvopari, we find that 20,000 shares were issued/allotted in September, 1995, to one Satnaniwala Investment (P) Ltd. and another 90,000 shares in March, 1997, in favour of some of the companies under the control of HLS as well as common companies. The learned counsel for the petitioners did not rebut the submissions of Shri Mookerjee that in respect of both the allotments, SKS had the knowledge and the consideration received was utilised for investment in Soma which is under the control of SKS and that the share certificates had been issued under the signature of SKS. If it is so, then, the respondents are right in claiming that SKS cannot allege oppression in this regard. Insofar as the allegation relating to sale of shares held by Sarvottam in SPL, if the pledgee had sold the shares as averred by the company, then we cannot consider the same as an act of oppression.
15. During the arguments, the learned counsel for the petitioners vehemently argued that the only way by which the disputes between SKS and HLS could resolved on a permanent basis is to declare tem as holders of 50% shares each in each of these respondent companies and thereafter distribute the assets of the companies more particularly, the shares held by these companies in SPL and STL equally between the two. He very heavily relies on the family settlement and also the joint suit filed in the Calcutta High Court, according to which equality and joint management have been thoroughly established. In this connection, Shri Sen referred to the Civil Suit No. 147 of 1998 filed by SKS and his associates in the Calcutta High Court, where in all the 9 respondent companies have been made as parties, for a declaration that SKS and his group have joint and equal right in various companies including these 9 respondent companies. Shri Sarkar cited a number of cases which we have elaborated as a part of his argument to state that, in facts and circumstances of the case, taking into consideration the family settlement and to the fact that there have been joint management of SPL and STL, we should order division of assets of these 9 respondent companies between SKS and HLS.
16. While it is a fact the in cases of family companies, more so when equality in shareholdings and joint management have been established, this Board had ordered division of assets, it is to be noted that, in all these cases, the shareholdings of the parties in the companies were clear and undisputed. For instance in Trackparts of India Ltd.'s case (2000) 2 Comp LJ 275 (CLB), supra, and also in Vijay Krishan Jaidka's case (1997) 1 Comp LJ 268 (CLB), supra, the shareholdings by the parties were clear and definite as also their joint management. In the present case, we find that even though both SKS and HLS groups hold shares in the respondent companies, substantial percentage of the shares in these companies are held by various companies known as common companies. The shareholding pattern of these companies is also complicated. Thus, the cross holding of shares in these companies makes it difficult, if not impossible, to ascertain the real shareholding position in the respondent companies. Unless and until, we make a declaration as sought for by Shri Sarkar, on the basis of the arguments relating to family settlement, that there is equal shareholding and joint management, no order to divide the assets of the respondent companies equally could be made. It is non record that SKS has already filed a suit in the Calcutta High Court for a declaration to that effect wherein all the respondent companies are parties as also some of the petitioner companies. This suit is prior in time to the filing of the petitions before us. Even though Shri Sarkar contended that pendency of a civil suit need not be a bar to consider the prayer of the petitioners, in this case, the prayer could be considered only on a declaration of equality and joint management, the prayer for such a declaration is already before the High Court and the Court has already before the High Court and the court has already passed some interim order. In such a situation, if we were to consider the prayer of the petitioners for division of assets, then, as we have done in Lopchu Tea Co. Ltd.'s case, supra, we have to stay the proceedings before us. The main apprehension of SKS is that by virtue of the control of the respondent-companies by HLS, these companies might exercise voting in respect of the shares held by them in Soma and SLP to the detriment of the interests of SKS. We find that the Calcutta High Court has already protected the interests of SKS in SPL by directing that no decision shall be taken to deprive the SKS group from having joint management of SPL without the leave of the court. As far as Soma is concerned, the learned counsel for the respondents, Shri Sen has made a statement that the control of Soma now with SKS shall not be disturbed. Thus, we find that the interests of SKS in both Soma and SPL are now protected. Therefore, we are of the view that, in view of the pending proceedings before the Calcutta High Court and view of the complicated shareholdings in the respondent companies, we should decline considering the prayer of the petitioners for division of assets and accordingly, we do so. However, we grant liberty to the petitioners to approach us in case the declaration sought by them in the Calcutta High Court is granted by the court.
17. With the above observations, we dispose of all these nine petitions, however, without any order as to cost.