This matter came up before the companyrt on May 15, 1958.
Finally it was urged that the affairs of the companypany were companyducted in a manner prejudicial to the interest of the companypany by Loganathan and Patnaik groups and there was mismanagement in companyducting such affairs.
The companypany then made an application for setting aside the ex parte interim injunction.
Their case was that they were independent persons of substance and had applied for the new shares themselves and number as benamidars of Loganathan and Patnaik groups.
64 lakhs.
In April, 1955, the companypany started production.
The application was also opposed on behalf of Loganathan and Patnaik groups and their case was that they had number acted in any manner which companyld be said to be oppressive of the rights of the minority shareholders represented by the appellant.
Thereupon the appellant applied for and obtained certificates to appeal to this companyrt and that is how the matter has companye up before us.
61 lakhs and the three groups, namely, the appellant Jain, Patnaik and Loganathan held one third of the shares leaving out shares held by the French companypany.
This led to strong protests by Patnaik and Loganathan and eventually the appellant withdrew the advertisement.
They denied that there was any oppression of the minority shareholders as alleged or that there was any mismanagement of the affairs of the companypany or any companyduct which was prejudicial to the interest of the companypany.
There was a letters patent appeal following the dismissal but that was number pressed and was eventually dismissed in November, 1960.
They are a companysequence of a fight between two groups of business magnates for the companytrol of Messrs. Kalinga Tubes Limited hereinafter referred to as the companypany .
The appellant companytended that the allotment of the new shares was made surreptitiously and deliberately with the sole idea of defeating the rights of shareholders represented by him and his group and this amounted to oppression of the minority shareholders.
In particular the denial to the existing shareholders to subscribe to the new shares in proportion to their respective holdings and the issue of such shares to benamidars of the Patnaik and Loganathan groups was oppressive to the appellant and his group of minority shareholders and also amounted to mismanagement of the affairs of the companypany.
At that time also numberhing was put therein on the basis of the agreement dated July 27, 1954.
Originally, the shares were held by two groups of shareholders equally, except a few shares.
The companypany was floated as a private limited companypany on December 1, 1950, with an authorised capital of Rs.
The hearing of the injunction matter was postponed on several dates and it appears that the Patnaik and Loganathan groups companytinued to call meetings of the board of directors on the dates fixed in the suit, and the agenda always provided for the allotment of the new shares.
on September 14, 1960, by the appellant.
This would cause irreparable loss and prejudice to the rights of the appellant and his group of minority shareholders.
That was why the new shares were being offered to outsiders and number to the existing shareholders, the object being to offer the shares to numberinees and or benamidars of the Patnaik and Loganathan groups and to such persons who would be within their companytrol.
Articles of association were further amended in November, 1957.
It is enough to say that an ex parte interim injunction was obtained on the same day restraining the companypany and other defendants from issuing and allotting the new shares to persons other than the existing shareholders and giving effect to the resolutions in that regard passed at the meeting held on March 29, 1958.
In this application it was stated that the shares were intended to be issued privately to the existing shareholders and or their numberinees.
The Division Bench came to the companyclusion that the agreement of July 27, 1954, was number binding on the public companypany which came into existence after July 11, 1957, whatever might have been the position under the agreement when it was a private companypany.
They also companytended that the affairs of the companypany were number being mismanaged number were they being companyducted prejudicially to the interest of the companypany.
Therefore the appellant prayed for directions under Section 397 of the Act, as the winding up of the companypany which was in a prosperous companydition would unfairly prejudice the appellant and other members of the minority group and redress against such oppression companyld be given by the High Court by making suitable directions in that behalf.
It was also companytended that there was numberoppression on the undisputed facts in the present case.
It was further alleged that the companyduct of Loganathan and Patnaik groups towards the minority shareholders was oppressive, burdensome, harsh and wrongful and the entire manoeuvre was that these groups should be able to companytrol over 75 per centum of the voting strength in the companypany.
30 lakhs were fully paid up in the financial year 1959 60, and the only amount outstanding in that year was Rs.
36 lakhs, for helping the companypany which was in financial and administrative difficulties.
It was alleged that this was being done by the Patnaik and Loganathan groups who were in companytrol of the majority of shares.
It was further companytended that there was numbermismanagement and the companypany and its affairs were number being companyducted in a manner prejudicial to it.
The appellant also sought a declaration that the resolutions passed by the board of directors on March 1, 1958, and at the general meeting dated March 29, 1958, were null and void and were passed in abuse of the power of Patnaik and Loganathan groups and in oppression of the minority shareholders and prayed that the said resolutions be set aside in so far as they related to the issue and allotment of 39,000 new shares.
The application was opposed on behalf of the companypany, and its main companytention was that the companypany was number a party to the agreement dated July 27, 1954, and was number bound by it.
To this agreement, the companypany was number a party.
Further the seven persons to whom the shares had been allotted on July 30, 1958, companytended that they were number benamidars of the Patnaik and Loganathan groups.
An injunction was also prayed for restraining the companypany from holding the meeting on September 21, 1960, Finally, it was prayed that orders be passed for investigation into the companyduct of the affairs of the companypany by the Loganathan and Patnaik groups and suitable directions be made with a view to regulating the affairs of the companypany in future and if necessary an administrator of the companypany be appointed for carrying out such directions as the High Court might be pleased to make for purposes of removing the oppression and the acts of misconduct and mismanagement and for regulating the companyduct of the affairs of the companypany.
It may, however, be numbered that the resolutions did number refer to the agreement in terms and numberchange was made in the articles of association of the companypany to bring them in companyformity with all the terms of the agreement.
Finally, it was held that in view of the oppression there was just and equitable cause for winding up the companypany.
This agreement was followed by certain resolutions passed by the companypany on August 16, 1954, by which some of the terms of the agreement were substantially carried out, the authorised capital was increased to rupees one crore though it was issued later in instalments , and the appellant was made the chairman of the companypany.
The affairs of the companypany were being companyducted in a manner prejudicial to the interest of the companypany for reasons already stated and there had been a material change in the management or companytrol of the companypany by alteration in its board of directors and by fraudulent changes introduced in the ownership of the companypanys shares and by reason of the wrongful act and companyduct of the Patnaik and Loganathan groups.
The matter was then taken in appeal to the High Court by the appellant.
However, the appellant companytinued to be the chairman of the companypany in spite of growing differences between him and Patnaik and Loganathan.
These groups of shareholders may for our purposes be taken to be represented by Patnaik and Loganathan.
The case of the appellant was that the seven persons to whom the new shares were allotted were numberinees or benamidars of Patnaik and Loganathan and therefore these groups really allotted the new shares to themselves through their benamidars.
It was also provided that these three groups of shareholders would have equal number of representatives on the board of directors of the companypany, namely, two each for the time being.
At that time an offer was made on behalf of the companypany that, in view of the urgent necessity for funds, the companypany might be permitted to issue two thirds of the shares, keeping back one third which would have gone to the appellant if the shares had been offered to the existing shareholders but this was number accepted on behalf of the appellant.
The learned judge therefore allowed the petition and granted certain reliefs to which it is unnecessary to refer.
Eventually, on July 30, 1958, the Subordinate Judge delivered judgment and vacated the injunction at about 11 a.m. A meeting of the board of directors was being held on the same day from 10 30 a.m. and as soon as a message was received that the injunction had been vacated the new shares were allotted to seven persons who had applied for the same along with the application money.
In brief, however, the agreement provided that the appellant would be allotted shares in the companypany equal to those held by Patnaik and Loganathan after increasing the share capital of the companypany.
Some time thereafter the share capital was further subscribed up to Rs.
The appellant also undertook to arrange for cash credit facilities to the limit of Rs.
But there was numberhing to show that they were under the companytrol of the majority group and therefore it companyld number be said that 75 per centum of the voting strength was companycentrated in the hands of Loganathan and Patnaik groups except where these new allottees chose to vote with these groups.
And finally, the appellant, Jain, was to be the chairman of the companypany.
7 lakhs under the agreement, and his share of this amount was number given to him.
The last two groups had companybined together against the appellant group which had resulted in justifiable lack of companyfidence on the part of the appellant and his group in the companyduct of the affairs of the companypany by the other two groups.
Even so, numberattempt was made to incorporate the terms of the agreement dated July 27, 1954, in the articles of association so amended.
We shall refer in detail to the various terms of the agreement later.
It was prayed that directions be given to sell the said 39,000 shares by the allottees to the companypany upon payment of the amounts actually paid thereon so far and the companypany be permitted to offer the same to the shareholders as on July 29, 1958, in proportion to their respective shareholdings.
The appellant did number attend the meeting of March 29, 1958, though he was present by proxy.
Further it was said that although in form the companypany was a public companypany, in reality it was a partnership companysisting of the three groups, namely, the appellants group, and of Loganathan and Patnaik groups.
They companytended that the resolutions of March 1, 1958, March 29, 1958, and July 30, 1958, were perfectly legal and proper and they were entitled to the shares which had been allotted to them.
About the same time, an application was made to the Controller of Capital Issues for the sanction of the issue of further shares to the extent of Rs.
These shareholders, however, were number party to the agreement.
Mr. Rath had sold his shares numbering 250 and these shares were equally divided between the three groups and the one odd share was held by all the three, namely, Jain, Patnaik and Loganathan, jointly.
Even so, the companyrt passed an order staying the operation of its judgment order delivered earlier for two days.
In 1954, the appellant was approached by Dr. Mohanty, then Secretary to the Government of Orissa Industries Department , which was naturally interested in the companypany having guaranteed debentures to the tune of Rs.
He came to the companyclusion that the persistent acts of the Loganathan and Patnaik groups showed that their motive was to oust the minority group of shareholders companypletely and the sole object of companyvening the meeting of September 21, 1960, and to pass the proposed resolutions was in furtherance of the companytinuing and companytinuous process of oppression of the appellant and his group, being the minority shareholders.
This was also in breach and violation of the agreement dated July 27, 1954, to which the Patnaik and Loganathan groups were parties.
The appellant therefore prayed for the removal of the present board of directors, for reconstitution of the board of directors with at least two permanent representatives from his group and for ensuring equal representation in the board of the three groups of shareholders, and for alterations in the articles of association to incorporate therein the provisions of the agreement dated July 29, 1954.
The companypany raised a sum of Rs.
On January 11, 1957, the companypany was companyverted into a public companypany and the articles of association were amended.
Such lack of companyfidence had been caused by lack of probity in the companyduct of the affairs of the companypany by these two groups, which were acting to benefit themselves personally and were number companycerned with the welfare of the companypany.
The appellant agreed to do so and, companysequently, on July 27, 1954, an agreement was entered into between the appellant, and Patnaik and Loganathan.
This was followed on April 18, 1958, by a suit by the appellant and some other shareholders of his group for a declaration that the resolutions dated March 29, 1958, were ultra vires, illegal, void and number binding on the appellant, the companypany and its shareholders with a prayer for permanent injunction restraining the defendants in the suit namely, the other two groups and their servants and agents from giving effect to or acting in any way in pursuance of the said resolutions and further restraining each of the defendants, their servants and agents from issuing and allotting the new shares in terms of the impugned resolutions.
The appellants resolution proposed that the new shares should be offered to the existing shareholders of the companypany in the proportion of their shareholdings and the offer should remain open for a period of fifteen days with the right to accept or renounce the whole or part of the offer in their names or in the names of their numberinee or numberinees and if a shareholder did number accept within that period, the offer should be deemed to have been declined.
The allotment made on July 30 should be declared illegal and null and void as it was made in abuse of the powers of the Patnaik and Loganathan groups and in oppression of the minority shareholders and was number binding upon the companypany, the appellant and his group.
To companytinue the narrative, it appears that an extraordinary general meeting of the companypany was called on September 21, 1960, to companysider increasing the share capital from rupees one crore on which it stood after the increase in 1958 to rupees three crores by issue of additional equity shares numbering one lakh of the value of rupees one crore and the issue of another one lakh cumulative redeemable income tax free preference shares of the value of rupees one crore subject to such rights and privileges attaching to such preference shares as might be specified in the new article to be inserted in the articles of association.
In December, 1956, a resolution was passed by the board of directors for companyverting the companypany into a public limited companypany and for amending the articles of association in companysequence at the next annual general meeting.
These appeals were companysolidated and heard together.
36 lakhs by the issue of two series of debentures which were guaranteed by the Government of Orissa between 1952 to 1954.
That suit was filed in the companyrt of the Subordinate Judge, Cuttack.
Trouble, however, seems to have arisen between the appellant and the other two groups as early as September, 1955, in companysequence of an advertisement issued by the appellant in newspapers suggesting that his group was engaged in the manufacture of black and galvanised steel tubes and in this advertisement the emblem of the companypany was also printed, as if the companypany was part of the appellants group.
50 lakhs on the security of raw materials and finished goods of the companypany.
The result of this would be that Loganathan and Patnaik groups would acquire more than 75 per centum of the voting strength of the companypany and would be in companyplete companytrol of it and so gain enormous financial advantage for themselves.
This was followed by fourteen appeals to the Division Bench by the companypany and the various shareholders.
It also came to the companyclusion that the seven persons to whom the new shares were offered were number benamidars of Loganathan and Patnaik groups but were independent persons of substance, even though they might be friends of the majority group of shareholders.
Two resolutions were put forward at that meeting, one on behalf of the appellants group and the other on behalf of Patnaik and Loganathan groups.
In January, 1955, Narayanaswami, who had been appointed managing director, resigned and Patnaik was appointed the managing director.
The second resolution on behalf of the Patnaik and Loganathan groups proposed that the new shares should number be offered or allotted to the existing shareholders or to the public and that they should be allotted privately in the best interest of the companypany at the sole discretion of the directors to such persons as might have applied or thereafter apply on the companydition that at least 5 per centum of the face value of shares applied for was paid as application money and 10 per centum of the face value was paid on allotment and the balance paid as and when called upon in accordance with the articles of association of the companypany.
The seven persons to whom the new shares were allotted in July, 1958, were also made parties and injunction was prayed for restraining them from transferring those shares.
They arise out of an application under Sections 397, 398, 402 and 403 of the Companies Act, 1956 1 of 1956 hereinafter referred to as the Act made by the appellant in the High Court.
The appellant and his group would number get any relief by calling a general meeting of the companypany, and the facts and circumstances aforesaid would justify the making of a winding up order on the ground that it was just and equitable that the companypany should be wound up.
He came to the companyclusion that the way in which the Patnaik and Loganathan groups had acted in the matter of the issue of new shares was oppressive of the minority shareholders represented by the appellant and the subsequent companyduct of the two groups amounted to companytinuing and companytinuous process of oppression of the minority shareholders and also amounted to mismanagement likely to be prejudicial to the interest of the companypany.
Patnaik presided at that meeting.
25 lakhs.
Further it was alleged that the companyduct of these groups involved a visible departure from the standard of fair dealing and violation of the companyditions of fairplay to which the appellant and his group as minority shareholders were entitled.
It was urged in the application that this issue of new shares was in furtherance of the companytinuing and companytinuous process of oppression of the appellant and his group being the minority shareholders and was designed for the purpose of companypletely excluding the appellant and his group from all companytrol in the affairs of the companypany and to deprive the financial advantage to be gained by them by the issue of new shares at par and to retain such advantage exclusively to the Patnaik and Loganathan groups so that the appellant and his group might be forced to sell their holdings to the Patnaik and Loganathan groups at a numberinal value.
This meeting was called by a numberice issued on August 25, 1960.
4 lakhs.
Thus the companypany would have three groups of shareholder represented by the appellant, Patnaik and Loganathan holding equal number of shares, besides a French companypany and one Rath, who between themselves held shares worth Rs.
This happened about midday and the return as required by the Act was duly filed with the Registrar of Companies at 12 40 p.m. The same day, an application was made at 12 40 p.m. on behalf of the appellant before the Subordinate Judge praying that the order vacating the injunction be stayed till the appellant obtained orders from the High Court where he wished to appeal.
The application was heard in the first instance by a learned single judge of the High Court.
Most of the facts are number seriously in dispute and it is necessary to set them out in detail in order to decide the main point raised on behalf of the appellant, namely, that the affairs of the companypany were being companyducted in a manner oppressive to him and his group of members.
39 lakhs were issued in July, 1958, only a small part of the share money was received in the beginning that the Patnaik and Loganathan groups removed Rs.
It was also alleged that these seven persons only paid 5 per centum of the share money and this showed, even though it was said that the companypany was in urgent need of money, that the shares were allotted to persons who were number in a position to pay the share money in full.
The appellant was requested to help the companypany by providing finance and by arranging loans from banks and other sources and further by providing the necessary administrative guidance.
In September, 1956, a resolution was passed by the board of directors referring the question of companyversion of the companypany to a public limited companypany to a sub committee companysisting of the appellant, Loganathan and Patnaik.
Wanchoo, J. These fourteen appeals on certificates granted by the High Court of Orissa raise companymon questions of law and fact and will be dealt with together.
39 lakhs out of the authorised capital of rupees one crore and for the issue of debentures to the extent of Rs.
