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CASE NO.: Special Leave Petition (civil) 17137  of  2000

PETITIONER: HANUMAN PRASAD BAGRI & ORS.

       Vs.

RESPONDENT: BAGRESS CEREALS PVT. LTD. & ORS.

DATE OF JUDGMENT:       27/03/2001

BENCH: S. Rajendra Babu & K.G. Balakrishnan

JUDGMENT:

RAJENDRA BABU, J. : L...I...T.......T.......T.......T.......T.......T.......T..J

   A  petition  under Sections 397 & 398 of  the  Companies Act,  1956 [hereinafter referred to as the Act] was  filed before  the Calcutta High Court on grounds of oppression and mismanagement.   The  learned  Company Judge held  that  the Petitioners   grievance  in  regard  to  ouster  from   the management of the company is legitimate and justified;  that respondent  No.3 had manoeuvred the matters in such a manner to  result  in  the ouster of the Petitioner No.1  from  the management  of  the  Company.   The  learned  Company  Judge further  directed the Petitioner No.1 and his group  members to  sell  their  shares  to respondents at  a  value  to  be determined by a Valuer as on 16.5.1988, that is, the date of the petition and also held that the Petitioner No.1 had been illegally  removed as an Executive Director of the  Company. Appeal  was preferred on behalf of the Company by respondent No.2  and  also  on his own behalf.   The  Petitioners  also claimed in that appeal that the learned Company Judge should have  given  guidelines for valuation of the shares  on  the market  value  and should have also provided for payment  of interest on the amount receivable by them both on account of share  value  and remuneration.  The Division Bench  of  the Calcutta  High Court allowed the appeal by the order made on 25.8.2000  holding that one of the conditions precedent  for granting  relief  under Section 397 of the Act is  that  the Petitioners  should  prove  that winding up of  the  company would unfairly prejudice the Petitioners who are claiming of oppression, that otherwise the facts will justify the making of  a winding up on just and equitable grounds.   Contesting the correctness of this view, this special leave petition is filed.

   Relying  upon the decision in Needle Industries  (India) Pvt.   Ltd.  v.  Needle Industries New (India) Holding Ltd., AIR  1981  SC  1298, it is claimed that even if  a  case  of oppression  is not made out by the Petitioners, the Court is not powerless under Section 397 of the Act to do substantial justice  between  the parties and, therefore, on  the  facts available  in the case the order made by the learned Company

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Judge should have been maintained.  It is pleaded that it is not possible for the Petitioners and respondents to carry on business  of  the company together and the only solution  is that  one  group shareholders should purchase the shares  of the  other group and that the Petitioners have no  objection in selling shares of their group at a proper value.

   Section  397(2) of the Act provides that an order  could be  made on an application made under sub-section (1) if the court is of the opinion  (1) that the companys affairs are being  conducted in a manner prejudicial to public  interest or in a manner oppressive of any member or members;  and (2) that  the  facts  would justify the making of a  winding  up order  on the ground that it was just and equitable that the company  should  be  wound up, and (3) that the  winding  up order  would  unfairly  prejudice the applicants.   No  case appears to have been made out that the companys affairs are being  conducted in a manner prejudicial to public  interest or  in  a  manner  oppressive  of  any  member  or  members. Therefore,  we have to pay our attention only to the  aspect that  the winding up of the company would unfairly prejudice the  members  of the company who have the grievance and  are the applicants before the court and that otherwise the facts would justify the making of a winding up order on the ground that  it  was just and equitable that the company should  be wound  up.   In order to be successful on this  ground,  the Petitioners  have  to make out a case for winding up of  the company  on  just and equitable grounds.  If the facts  fall short  of  the  case  set out for winding  up  on  just  and equitable   grounds  no  relief  can   be  granted  to   the Petitioners.   On  the  other hand the party  resisting  the winding  up can demonstrate that there are neither just  nor equitable grounds for winding up and an order for winding up would be unjust and unfair to them.

   On  these tests, the Division Bench examined the  matter before  it.   It  was noticed that the shareholding  of  the Petitioners  is well under 20% while that of those  opposing the  winding up is more than 80%.  Therefore, the  adversary group  has  sufficient majority shareholding even to pass  a special resolution.

   The  grievances  made  by  the  Petitioners  before  the Division Bench of the High Court are as follows:@@                            JJJJJJJJJJJJJJJJJJJJJ

   1.   That  the  registered  office of  the  company  was shifted  from the congested Posta area to the multi-storeyed building  called  Chatterjee Polk on Jawaharlal Nehru  Road, and then again shifted back from there.

   2.  That a certain amount of wheat quota for which above Rs.17  lakhs  was  deposited  by the  company  was  allowed, contrary to control orders to be lifted by a sister concern.

   3.  That a certain loan payable to the Petitioner No.1 a little  under  Rs.6 lakhs was sought to be paid back by  the company by seeking to make a book adjustment, trying to show a payment to another company Sumati in extinguishment of the liability  of  the  Petitioner No.1 to Sumati  on  the  oral instruction  of Petitioner No.1 that the debt to him be paid instead to Sumati.

   4.   That certain roller boxes, about 14 in number  were sold  off  at  an aggregate price of  Rs.96,000/-,  although

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those  had  been acquired in 1980 at a cost of  Rs.75,000/-. The  complaint  was  that the boxes were  still  usable  and unnecessarily sold.

   5.   That a large amount of commission, of the order  of Rs.20  lakhs  or so, although receivable by respondent  No.3 and/or his son, was got paid by Mitsubishi to the company so as  to  avoid tax incidence to respondent No.3 himself,  who utilised  the  losses of the company for setting off of  the profit,  treating  the company as the respondent No.3s  own company.

   6.   That the continuing directorship of Petitioner No.1 was  sought to be terminated without giving him  appropriate notices  of  the  Board  meetings;   the  terminations  were alleged  to be of no effect and the stoppage of remuneration and of directorial benefits, improper and illegal.

   The Division Bench was neither impressed with the merits of  the  case  nor  with the legal position  and  reached  a conclusion  that  the  company  petition  is  liable  to  be rejected  on  the  ground that there is no  finding  by  the learned  Company  Judge  that the winding up  will  unjustly prejudice  the  company, therefore, the order of the  nature appealed  had been passed and also concluded that the it  is impossible  for them to arrive at a finding in favour of the Petitioners.   So  far as shifting of the registered  office from  Posta  area to Chatterjee Polk and back to Posta,  the Division  Bench  was  of  the  view  that  shifting  of  the registered  office by itself may not be a reason or a ground to  be raised in a petition under Section 397 or 398 of  the Act  as  long  as the company did not suffer  much  loss  on account  of  the shifting and shifting back and no case  was made out to show that such exercise was undertaken to put an oppressive  pressure  and pain upon the Petitioners.  It  is not  clear  that  such  a course was adopted  by  way  of  a wasteful expenditure so as to amount to mismanagement and on that rejected the first contention.

   As  regards the second contention that a certain  amount of  wheat quota for which above Rs.17 lakhs was deposited by the  company  was allowed, contrary to control orders to  be lifted  by  a  sister concern, it was found as a  fact  that there  is neither disclosure of oppression or mismanagement. The  company in question during the relevant time was  under lock  out and, therefore, wheat quota worth Rs.17 lakhs  was allowed  to  be lifted by a sister concern.  It  is  alleged that  such an act amounted to violation of control order and that  as  the wheat quota was lifted by the sister  concern, the  company in question was shown to be having an asset  by way  of  debt as against that sister concern and it  is  not clear  how the company suffered a loss by taking a debt  and giving the wheat quota to sister concern.  On this basis the second contention was also rejected.

   On  the  third  point  about  certain  loan  payable  in extinguishment  of the liability of the Petitioner No.1  the case put forth was that the company owed money to Sumati and upon  instruction of Petitioner No.1, money was paid by  the company  to Sumati so that Petitioner No.1 does not have  to pay  to  Sumati  and  the  company  does  not  have  to  pay Petitioner  No.1.   During the course of the proceedings  in this matter, Petitioner No.1 filed separate company petition for  winding  up  against   another  sister  concern,  Bagri Synthetics Ltd.  However, a suit was ordered to be filed and

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a  sum  of  Rs.5,74,662/-  was  directed  to  be  deposited. Thereafter,  the  suit was decreed by a judgment  which  was upheld  by  the appellate court and, therefore, it was  held that  if  a debt remained owing to Petitioner No.1 from  the company  it would be unreasonable for the Petitioner No.1 to ask  for  a just and equitable winding up of the company  on the  other hand filing a suit would be proper as it had done in the other case and, therefore, did not enter into further details of the facts of the case in that part of matter.

   The  fourth  contention is in regard to  certain  roller boxes about 14 in number were sold off at an aggregate price of  Rs.96,000/-, although those had been acquired in 1980 at a  cost  of Rs.75,000/-.  The complaint was that  the  boxes were  still  usable and unnecessarily sold.  On  this  point also  the  Division  Bench  did   not  find  any  ground  of oppression or mismanagement as provided under Section 397 or 398 of the Act.

   The  Division  Bench found that Mitsubishi commision  of Rs.23 lakhs could hardly be a matter of mismanagement of the company  to bring into its till money which is not even  its due.   No loss is shown to accrue to the company because  of the  bringing  in of this commission and, therefore, it  was found that the mismanagement was not established.

   The last and the most important point urged is in regard to  continuation  of directorship of the  first  petitioner. The first Petitioner joined the company in or about 1971 and he  is  a  director.   It was noticed that  the  last  Board meeting  which  he  appears  to have attended  was  held  on 19.8.1985  but  apparently he did not thereafter attend  the meeting  of 16.11.1985.  Thereafter there was no material to show  that  he went to the corporate office or attended  any board  meeting.   The  petitioner   No.1  pleaded  that  the respondents  could  not have treated him as ceased to  be  a Director  in terms of Section 283(1)(g) of the Act.  Form 32 had  been  filed  by  the  company  with  the  Registrar  of Companies  on 15.1.1988 showing that the Petitioner No.1 had ceased  to  be  a Director with effect from  21.12.1987  and since  then it is maintained throughout that Petitioner No.1 ceased  to be in the office of the Director of the  Company. The Division Bench noticed that the position that Petitioner No.1  ceased to be a Director is seriously disputed and  the Division  Bench ultimately concluded that the termination of directorship  would  not  entitle  such person  to  ask  for winding  up on just and equitable grounds inasmuch as  there is  an  appropriate remedy by way of company suit which  can give  him  full relief if such action had been taken by  the company on inadequate ground.  The Division Bench found that if  a Director even if illegally terminated cannot bring his grievance  as  to termination to winding up the company  for that  single  and  isolated act, even if it was  doing  good business  and  even  if the Director could obtain  each  and every adequate relief in a suit in a court.

   In this background, the appeal having been dismissed, we do not find any good reason to interfere with such an order. However, Sri Dipankar Gupta, learned Senior Advocate for the Petitioners,  sought  to urge the legal question as  to  the interpretation  placed  by  the Division Bench that  if  the facts  fall  short  of a case upon which the  company  court feels  that  the  company  should be wound up  on  just  and equitable  grounds in that event no relief can be granted to

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the  Petitioners  in regard to Section 397 of the  Act.   We find  adequate  support  to the view taken by  the  Division Bench  and  we cannot read the provisions of Section 397  of the  Act in any other manner than what has been done by  the Division  Bench.   Therefore  we  find   no  merit  in  this petition.  The same shall stand dismissed.  No costs.