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i) P.P. Bardeskar.

ii) P.V. Wandrekar.

iii) L.N. Godbole.

iv) Dipak Mehta.

v) Devan Mehta.

Thus, there were three Directors from Group B and 2 Directors from Group A. Disputes arose between Group A and Group B as a result thereof the plant of the Company was closed. It is further pleaded that the first respondent with a view to create deadlock submitted false Resolution to the bankers purporting to be the Resolution of the Board meeting thereby providing the first respondent to be one of the signatories to the Bank Account. By letters dated 5th April, 1997, 9th April, 1997 and 20th April, 1997, the first respondent asked the Bank to stop operations of the account and a sum of Rs. 12 lakhs of the Company has been blocked. Apprehending that the first respondent will fabricate the records with a view to convert the share moneys into share capital, these facts were placed on the record by letter dated 9th April, 1997. Respondent Nos. 1 to 5 are stated to have fabricated the Board Resolution and purported to file return in Form No. 2. A meeting of the Board of Directors was held on 18th April, 1997 but no business was transacted. This fact was also recorded by letter dated 19th April, 1997 addressed by Group B to Group A. On 12th April, 1997 respondent No. 1 lodged a police complaint making several false allegations. A statement was made before the police signed by the respondent and the second appellant. In April, 1998 respondent Nos. 6 to 8 decided to transfer their shareholding in favour of appellant Nos. 7 to 20. Notice of the intended transfer of the shares was given to the Company. On 13th April, 1998 notice of the Extraordinary General Meeting to be held on 29th April, 1999 was sent to all the shareholders. The Board at its meeting held on 13th April, 1998 gave its approval in principle for the proposed transfer. On 29th April, 1998 the Board duly approved the transfer in favour of appellant Nos. 7 to 20. At the same Extraordinary General Meeting i.e. 29th April, 1998, respondent Nos. 1 to 4 (Group A) were removed as Directors of the Company. Appellant Nos. 3 to 6 were appointed as Additional Directors. It was also decided to repay the share application moneys paid by various persons in 1995-96. Accordingly a sum of Rs. 18,10,000/- was refunded to respondent Nos. 6 to 8. Respondent Nos. 1 to 5 were also offered the share application money which was not accepted. On 8th May, 1998 and 20th May, 1998 appellant No. 1 further allotted 58,660 and 11340 shares respectively making a total of 7 lakh shares. Thus the first respondent was now holding only 10000 shares out of 1,20,000 shares. By an agreement dated 8th May, 1998 manufacturing of chemical Imidazole was being carried out by the Company for Aarti Drugs Limited, appellant No. 19. Another statement was recorded by the police on 4th June, 1998 wherein appellant No. 2 had stated that his statement before the police was not admissible since his mental condition at that time was not proper and the Board of Directors earlier consisted of appellant No. 2, Godbole, Wandrekar, Dipak Mehta and Devan Mehta. Group A filed Company Petition No. 515 of 1998 under section 433(f) of the Companies Act, hereinafter referred to as "the Act". In the pleadings before the High Court, Group A specifically admitted that Company had not allotted shares of the amount of Rs. 29 lakhs. It was further specifically admitted that respondent Nos. 2 to 5 were never shareholders of the appellant No. 1 Company. It was stated that the acts of mismanagement complained of were in their capacity as Directors of the Company who were not members. Therefore, it was stated that the remedy under sections 397 and 398 of the Act would not be available. This Court by order dated 24th July, 1998 dismissed the Company petition. It is pleaded that this Court came to the conclusion that respondent Nos. 6 to 8, appellants herein, were holding 60 per cent of the shares and were in majority. It was also held that respondent No. 1 had only 20 per cent shares and was in minority. After the dismissal of the Company petition, respondent Nos. 1 to 5 filed the petition before the C.L.B. under sections 397 and 398 of the Act. The petition has been allowed by the C.L.B. Hence two appeals by Group B and the third appeal by Group A.

3. Mr. Dwarkadas the learned Counsel has submitted that there can be no oral agreement which would supercede the Memorandum of Articles of Association. There is no provision that the shareholding are on equal footing as pleaded by the respondents. In fact, the Articles of Association provided on the contrary that shares can be only transferred to a person named by the Directors. In other words, shares can only be transferred to a person whom the Directors nominate. Furthermore, this was a pre-existing Company which had been acquired. Thus the Memorandum of Articles of Association in existence continued to hold the field. Therefore, Group A is only 20 per cent shareholder. If a quota of shareholding was to be provided, the same could have been done only by amendment of the Articles of Association. It is submitted that C.L.B. has wrongly set aside the transfer of the shares in favour of appellant Nos. 7 to 20. Even then the shareholding of the first respondent remained at 20 per cent at all material times. According to Mr. Dwarkadas, the C.L.B. has committed serious factual errors which would amount to errors of law. Admittedly petitioner No. 1 i.e. respondent No. 1 alone was a shareholder of the Company. Petitioner Nos. 2 to 5 admittedly did not hold any shares in the Company and could not have complained and did not have any locus standi to file a petition by virtue of section 397. Thus Group A consisted only of one individual i.e. petitioner No. 1. Majority shareholding i.e. 80 per cent was held by Group B. This group comprised of appellant No. 2 and respondent Nos. 6 to 8 prior to 29th April, 1998 and thereafter comprised of appellant Nos. 2 and 7 to 20. Except for a short period during January, 1996 and September, 1996 Group A never enjoyed a majority on the Board. Thus the findings of the C.L.B. to the contrary cannot be upheld. It is further submitted that there was no glorified partnership between members of Group A and Group B. This has been held to be so by Justice Deshmukh in the order dated 24th July, 1998 while dismissing the winding up petition. No appeal having been filed against the said order, the issue is clearly res judicata between the parties. Equally the finding that there was no deadlock and the petitioner No. 1 alone held shares in the Company representing 20 per cent of the paid up capita! was also conclusive final and binding and, therefore, res judicata. The finding to the effect that the petitioners had failed to make out a case of just and equitable winding up of the Company is binding not only on the parties but also on the C.L.B. In the face of the above, it is submitted that the C.L.B. has given completely perverse, erroneous and inconsistent findings. The C.L.B. has wrongly held that Group A held 50 per cent share capital and/or was entitled to 50 per cent share capital and a majority on the Board. The findings rendered by the C.L.B. that the transfer of the shares by respondent Nos. 7 to 9 in favour of appellant Nos. 7 to 20 being contrary to Article 12, is contrary to findings rendered by the High Court. Equally the findings with regard to removal of petitioner Nos. 1 and 4 as Directors at the Extraordinary General Meeting held on 29th April, 1998, the allotment of shares to appellant Nos. 7 to 20 at the Extraordinary General Meeting and the appointment of respondent Nos. 3 to 6 as Additional Directors at the Board meeting held on 29th April, 1998 are based on the earlier findings which are wholly inconsistent with the findings recorded by the High Court. He further submitted that the C.L.B. has erred in law in holding that violation of the statutory provisions would result in oppression if the actions result in tilting the balance in favour of any particular group. It is submitted that commission of illegality by the majority cannot be termed as an act of oppression. It is further submitted that the C.L.B. has wrongly held that there was an agreement as pleaded. The finding of equality of shareholding and majority of Group A on the Board is stated to be perverse. It is further submitted that no relief could have been granted to non-members. According to Mr. Dwarkadas, paras 2, 4 and 7 of the operative part of the order beside being incorrect findings in law are wholly inconsistent. On the one hand C.L.B. has held that petitioner No. 1 alone was the shareholder of the Company and petitioner Nos. 2 to 5 were not shareholders. On the other hand whilst passing the final order, the C.L.B. has granted relief to the very same parties. This, according to Mr. Dwarkadas, discloses total non-application of mind on the part of C.L.B.. Granting of relief to any non-member renders the order without jurisdiction or in excess of jurisdiction. According to Mr. Dwarkadas, the correct position in law is that any private agreement which is contrary to the Articles of Association is not binding either on the shareholder or on the Company. Since the oral agreement has not been incorporated in the Articles of Association it was not binding on the shareholders or on the Company. He has further submitted that the provisions of the Contract Act are incorporated in the Companies Act. Thus, unless there is an offer and acceptance there can be no allotment of shares. The relief which is granted by C.L.B. is in excess of its powers under section 402 of the Companies Act as it does not have any nexus with the object of sections 397 and 398 of the Act. Thus, it is submitted that the C.L.B. has exceeded its powers. The implication of the order is that instead of bringing to an end the conduct complained of in the petition, the majority has been reduced to a nominal minority. It is submitted that the majority has been punished for acts of oppression that may have been committed. Mr. Dwarkadas has submitted that in construing any agreement, the conduct of the parties is very important. Applying this test it is submitted that the agreement could not have been implemented without increasing the capital. Execution of an agreement and contents therein are sought to be justified by an agreement entered into at the Police Station on 12th April, 1997 and on the basis of a certificate issued by a Bank. The statement made before the police cannot he used as a foundation for establishment of an agreement. Similarly the certificate issued by the Bank cannot be relied upon as it is issued at the instance of the respondents herein. It is submitted that C.L.B. has committed errors at every step. He submits that the C.L.B. has ignored all the events which took place prior to 1998. The events of 1998 ought to have been judged by taking into consideration the entire circumstances. On 21st May, 1995 second appellant was appointed as an Additional Director at a Board meeting held on 21st May, 1995. On 30th September, 1995 respondent No. 7 and appellant No. 2 were elected as Directors at the Annual General Meeting. On 15-1-1996 first to fourth respondents and respondent No. 6 were appointed as Additional Directors by a Board Resolution. Thus from 21st May, 1995 to 15th January, 1996 none representing Group A was on the Board of Directors. On 30th September, 1996 AGM was held when respondent Nos. 2 and 3 were not re-elected as Directors and, therefore, they ceased to be Directors. Accordingly with effect from 30th September, 1996 the following 5 persons were Directors.

4. Mr. Mehta, the learned Counsel, has reiterated the submissions made by Mr. Dwarkadas. He has stressed that the order passed by the C.L.B. does not have any nexus with the object sought to be achieved. Thus he submits that the order is contrary to law. He submits that the C.L.B. could only make such an order as it thought fit for the purpose of enforcing the agreement between Group A and Group B. Thus the C.L.B. could only have passed orders to ensure that the shareholdings of Group A and Group B in the Company were equal and that Group A would have 4 Directors and Group B would have 3 Directors on the Board of Directors of the Company. Instead of this, the C.L.B. has passed an order which is in total violation of the alleged agreement. The Board has increased the shareholding of Group A to 88 per cent and reduced the shareholding of Group B to mere 12 per cent. Thus Group A would have 6 Directors on the Board of Directors whilst Group B would have only one Director. Thus the C.L.B. has exceeded its jurisdiction under section 397 of the Act. He further reiterated that once the petition for winding up filed by respondent Nos. 1 to 5 was dismissed by the High Court with a finding that it was not just and equitable to wind up a Company, no relief could be granted to Group A in the petition filed by virtue of section 397 of the Act. He submits that before any relief can be granted under section 397 of the Act, the petitioners therein had to establish that it was just and equitable to wind up the Company. The facts pleaded in the Company petition were the same as the fact pleaded before the C.L.B. The High Court had given a finding that it was not just and equitable to order winding up of the Company. This finding was res judicata. The C.L.B. committed an error of law in considering the whole issue de novo for coming to a contrary conclusion to the High Court. According to Mr. Mehta, C.L.B. was also not justified in holding that the High Court had suggested that the petitioners therein had a remedy under section 397 of the Act. The High Court merely held that the minority can approach the C.L.B. for remedying their grievances. The High Court, therefore, merely stated the legal position. The winding up petition having been dismissed on merits, the alternative remedy under sections 397 and 398 was not available. It is further submitted that the C.L.B. has not at all understood the scope and meaning of the expressions "oppression" and "just and equitable". According to Mr. Mehta, in order to establish oppression, it must be shown that the conduct of the majority shareholders was burdensome, harsh and wrongful and that there were continuous act on the part of the majority shareholders showing that the affairs of the Company were being conducted in a manner oppressive to some part of the members. He further submits that such an oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. Even if these acts may amount to oppression, they do not necessarily make it just and equitable to wind up the Company. It is further submitted that the concept of "just and equitable" on the basis of a complaint about the ouster from the management and the principle of dissolution of partnership can only be invoked when shareholding is more or less equal and there is a complete deadlock in the Company. For this proposition the learned Counsel has relied upon Hind Overseas Pvt. Ltd. v. R.P. Jhunjhunwalla, A.I.R. 1975 S.C. 565 para 32. Thus it is submitted that oppression and the ground of just and equitable for winding up are separate and distinct and both have to be independently established before any relief can be granted under section 397 of the Companies Act. The ground of "just and equitable" to wind up the Company is to be established in addition to "oppression". Thus the finding of the Board that the oppressive conduct was itself a ground for winding up of the Company is erroneous. He submits that the C.L.B. has misunderstood the observations of the Supreme Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd., 35 Company Cases 351 at 366. He submits that the C.L.B. has misunderstood the following observations of the Supreme Court.

7. Coming to the maintainability of the petition, it is held that only petitioner No. 1 could maintain the petition. This is held on the basis that the share allotment in favour of the other member of Group A has been held to be invalid. However, since the petitioner No. 1 therein was holding more than 10 per cent shares, the petition was held to be maintainable. On the relevant date the petitioner held 20 per cent of the shares. The C.L.B. has held that the one point programme of both the Group seems to have been to gain control of the Company at the cost of the other, irrespective of the fact whether the provisions of the Act/Articles are followed or not. The C.L.B. has noticed that both the groups did not seem to have bothered about the interest of the Company. The Company was kept locked. The Bank accounts were frozen and no activity was being carried on, except finding ways and means to oust the other group from the Company. The C.L.B. notices that the foundation of the petition is that the Company was to be run on partnership principles and that there was an agreement relating to the shareholding and directorship. The C.L.B. also noticed the submissions that the petitioners have not established that grounds exist for winding up of the Company on "just and equitable" grounds. Strong reliance was placed on the findings of the High Court in the order passed in the winding up petition. The C.L.B., however, differentiated between a winding up proceedings and a proceeding under section 397. It is held that in a winding up proceedings on "just and equitable" grounds, the Court may order winding up once the grounds are established. However, in a 397 petition which is alternative to a winding up petition, first one has to establish that there is oppression. Without the element of oppression being established, the question of grant of relief does not arise. The C.L.B. held that the High Court had decided against the petitioners on the ground that there was no deadlock in the management. Thus it was held that it would not be just and equitable to order winding up of the Company. The C.L.B. observed that the High Court did not examine whether the allegations of oppression had been established. Thereafter the C.L.B. examined the various issues to find out whether there has been oppression by Group B of Group A. Thereafter the C.L.B. has come to the conclusion that the grounds of oppression have been made out. In my view these findings cannot be overruled on the ground of res judicata as submitted by Mr. Dwarkadas and Mr. Mehta. A perusal of the order of the High Court clearly shows that the relief has been denied to the petitioners relying on the judgment of the Supreme Court in Hind Overseas Pvt. Ltd. v. R.P. Jhunjhunwalla, . The learned Judge has relied on the observations to the effect that winding up of the Company on the ground that it is just and equitable to do so, is to be done only when shareholdings were more or less equal and when there is a case of complete deadlock in the Company on account of lack of probity in the management of the Company and there is no hope or possibility of smooth and efficient continuance of the Company as a commercial concern. Having held so, the High Court has observed that under sections 397(2) and 402 of the Act, the C.L.B. has ample powers to make appropriate orders remedying the grievance of petitioner No. 1. In such circumstances it is not possible to hold that the C.L.B. was pre-