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.
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 Company, the appellant and his group.
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.
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 Company.
It was also companytended that there was numberoppression on the undisputed facts in the present case.
V. Gupte, Solicitor General and Rajinder Narain, Co. for respondent No.
Their case was that they were independent persons of substance and had applied for the 7 32 new sham themselves and number as benamidars of Loganathan and Patnaik groups.
It was alleged that this was being done by the Patnaik and Loganathan groups who were in companytrol of the majority of shares.
That suit was filed in the companyrt of the Subordinate Judge, Cuttack.
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.
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 ,Company.
The result of this would be that Loganathan and Patnaik groups would acquire more than 75 per centum of the voting strength of the Company and would be in companyplete companytrol of it and so gain enormous financial advantage for themselves.
Niren De, Additional Solicitor General and Rajinder Narain Co. for respondent No.
This meeting was called by a numberice issued on August 25, 1960.
The appellant therefore prayed for the removal ,of the present Board of Directors, for re constitution 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.
In particular the denial to the existing share holders to subscribe,.
Appeals from the judgment and order dated April 18, 1963 of the Orissa High Court in A.H.O. No.
This was followed by fourteen appeals to a Division Bench by the Company and the various shareholders.
The matter was then taken in appeal to the High Court by the appellant.
An injunction was also prayed for restraining the Company from holding the meeting on September 21, 1960.
The Judgment of the Court was delivered by 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.
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 Company.
On January 11, 1957, the Company was companyverted into a public companypany and the Articles of Association were amended.
2 to 14 of 1962.
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 Company .
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.
This matter came up before the companyrt on May 15, 1958.
At that time also numberhing was put therein on the basis of the agreement dated July 27, 1964.
These appeals were companysolidated and heard together.
G. S. Pathak, B. Dutta and J. B. Dadachanji, for respondent No.
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 fair play to which the appellant and his group as minority shareholders were entitled.
In January 1955, Narayanswami who had been appointed Managing Director resigned and Patnaik was appointed the Managing Director.
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 Patniak and Loganathan groups and to such persons who would be within their companytrol.
It was further companytended that there was numbermismanagement and the Company and its affairs were number being companyducted in a manner prejudicial to it.
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 Company 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.
It was the calling of this meeting which led to the application under s. 397 etc.
36 lacs by the issue of two series of debentures which were guaranteed by the Government of Orissa between 1952 to 1954.
Eventually on July 30, 1958 the Sub ordinate 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.
734 747 of 1964.
It was prayed that directions be given to sell the said 39,000 shares by the allottees to the Company upon payment of the amounts actually paid thereon so far and the Company be permitted to offer the same to the shareholders as on July 29, 1958 in proportion to their respective shareholdings.
However, the appellant companytinued to be the chairman of the Company in spite of growing differences between him and Patnaik and Loganathan.
Ranadeb Chaudhurl and J. B. Dadachanji, for respondent No.
Finally it was held that in view of the oppression there was just and equitable cause for winding up the Company.
In 1954, the appellant was approached by Dr. Mohanty, then Secretary to Government of Orissa Industries Department which was naturally interested in the Company having guaranteed debentures to the tune of Rs.
Finally it was prayed that orders be passed for investigation into the companyduct of the affairs of the Company by the Loganathan and Patnaik groups and suitable directions be made with a view to regulating the affairs of the Company in future and if necessary in administrator of the Company 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 Company.
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.
To companytinue the narrative, it appears that an extraordinary general meeting of the Company 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 lac of the value of rupees one crore and the issue of another one lac cumulative 7 29 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.
They arise out of an application under ss.
The appellant also undertook to arrange for cash credit facilities to the limit of Rs.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
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.
C. Setalvad, A. V. Viswanatha Sastri, Ranadeb Chaudhri, K. Banerjee, J. B. Dadachanji, O. C. Mathur and Ravinder Narain for respondent No.
Sachin Chowdhury, B. Sen, Dipak Dutta Chowdhury, for res pondent No.
This was also in breach and violation of the agreement dated July 27, 1954 to which the Patnaik and Loganathan groups were parties.
Even so, the companyrt passed an order staying the operation of its judgment delivered earlier for two days.
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 Company 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.
They denied that there was any oppression of the minority shareholders as alleged or that there was any mismanagement of the affairs of the Company or any companyduct which was prejudicial to the interest of the Company.
Therefore the appellant prayed for directions under s. 397 of the Act, as the winding up of the Company 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.
25 lacs.
V. Viswanatha Sastri and J. B. Dadachanji, for respondent No.
The appellant was requested to help the Company by providing finance and by arranging loans from banks and other sources and further by providing the necessary administrative guidance.
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 Company by the other two groups.
We shall refer in detail to the various terms of the agreement later.
Such lack of companyfidence had been caused by lack of probity in the companyduct of the affairs of the Company by these two groups, which were acting to benefit themselves personally and were number companycerned with the welfare of the Company.
Originally, the shares were held by two groups of shareholders equally, except a few shares.
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 Company were being companyducted in a manner oppressive to him and his group of members.
The Companys lawyer however intimated to the companyrt that the shares had already been allotted.
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 opposed on behalf of the Company, and its main companytention was that the Company was number a party to the agreement dated July 27, 1954 and was number bound by it.
The appellant did number attend the meeting of March 29, 1958 though he was present by proxy.
9, 10, and 12.
on September 14, 1960 by the appellant.
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 Company was also printed, as if the Company was part of the appellants group.
4 lacs.
36 lacs, for helping the Company which was in financial and administrative difficulties.
It is enough to say that an ex parts interim injunction was obtained on the same day restraining the Company 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.
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 Company to bring them in companyformity with all the terms of the agreement.
And finally, the appellant jain was to be the chairman of the Company.
The appellant and his group would number get any relief by calling a general meeting of the Company, 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 Company should be wound up.
The affairs of the Company were being companyducted in a manner prejudicial to the interest of the Company for reasons already stated and there had been a material change in the management or companytrol of the Company by alteration in its Board of Directors and by fraudulent changes introduced in the ownership of the Companys shares and by reason of the wrongful act and companyduct of the Patnaik and Loganathan groups.
The appellants resolution proposed that the new shares should be offered to the existing shareholders of the Company in the proportion of their share 7 27 holdings 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.
In brief, however, the agreement provided that the appellant would be allotted shares in the Company equal to those held by Patnaik and Loganathan after increasing the share capital of the Company Thus the Company would have three groups of shareholders 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.
Finally it was urged that the affairs of the Company were companyducted in a manner prejudicial to the interest of the Company by Loganathan and Patnaik groups and there was mismanagement in companyducting such affairs.
The learned Judge therefore allowed the petition and granted certain reliefs to which it is unnecessary to refer.
Further it was said that although in form the Company 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.
1 of 1956, hereinafter referred to as the Act made by the appellant in the High Court.
Sachin Chowdhury, S. N. Andley, Rameshwar Nath and P. Vohra,for the respondent Nos.
The Company was floated as a private limited companypany on December 1, 1950 with an authorised capital of Rs.
This agreement was followed by certain resolutions passed by the Company 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 Company.
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.
It was also provided that these three groups of shareholders would have equal number of representatives on the Board of Directors of the Company, namely, two each for the time being.
Even so, numberattempt was made to incorporate the terms of the agreement dated July 27, 1954 in the Articles of Association so amended.
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.
The appellant agreed to do so and companysequently on July 27, 1954, an agreement was entered into between the appellant, and Patnaik and Loganathan To this agreement, the Company was number a party.
This led to strong protests by Patnaik and Loganathan and eventually the appellant withdrew the advertisement.
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 Company and its shareholders with a prayer for permanent injunction restraining the defendnats 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 alloting the new shares in terms of the impugned resolutions.
It was also intended that these new shares should be offered to outsiders i.e. other than the existing shareholders with a view to making the Company more broad based.
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.
The application was heard in the first instance by a learned Single Judge of the High Court.
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 company pletely 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,.
At that time an offer was made on behalf of the Company that in view of the urgent necessity for funds, the Company 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.
They also companytended that the affairs of the Company were number being mismanaged number were they being companyducted prejudicially to the interest of the Company 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.
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 transfering those shares.
Two resolutions were put forward at that meeting, one on behalf of the appellant s group and the other on behalf of Patnaik and Loganathan groups.
The Company raised a sum of Rs.
50 lacs on the security of raw materials and finished goods of the Company.
The Company then made an application for setting aside the ex parte interim injunction.
Articles of Association were further amended in November 1957.
K. Daphtary, Attorney General, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for respondent No.
There was a Letters Patent appeal following the dismissal but that was number pressed and was eventually dismissed in November 1960.
These shareholders however were number party to the agreement.
These groups of shareholders may for our purposes be taken to be represented by Patnaik and Loganathan.
13 of 1961 and A.H.O. Nos.
This would cause irreparable loss and prejudice to the rights of the appellant and his group of minority shareholders.
The second resolution on behalf of the Patnaik 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 Company at the sole discretion of the directors to such persons as might have applied or there after apply on the companydition that atleast 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 Company.
C. Chatterjee, S. Roy Chowdhury, M. L. Jhunjhunwala, Murty and B. P. Maheshwari, for the appellant in all the appeals .
Patnaik presided at that meeting.
