REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION NO.9110 OF 2008

INCABLE NET (ANDHRA) LIMITED & ORS. .. PETITIONERS Vs.

AP AKSH BROADBAND LTD. & ORS.      .. RESPONDENTS

J U D G M E N T

ALTAMAS KABIR, J.   

1. The Petitioners herein filed Company Petition  

No.69 of 2006 before the Additional Principal Bench  

of the Company Law Board at Chennai under Sections  

397, 398, 402 and 403 of the Companies Act, 1956,  

alleging  mismanagement  and  oppression  by  the  

majority  shareholders  of  the  first  respondent  

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Company.  Various reliefs, including reconstitution  

of the Board of Directors of the said Company, were  

prayed for.  By its order dated 17th December, 2007,  

the Company Law Board, hereinafter referred to as  

“CLB”, dismissed the Company Petition against which  

the above-mentioned Company Appeal was filed before  

the High Court under Section 10F of the aforesaid  

Act.  The said appeal was dismissed by the High  

Court as being misconceived upon the finding that  

the CLB had considered all the materials, applied  

the law and recorded its findings correctly and no  

question of law arose from the said order.  This  

Special Leave Petition arises out of the said order  

of the High Court.  

2. In order to appreciate the submissions made on  

behalf  of  the  respective  parties,  the  facts  

leading to the filing of the Company Petition  

before the CLB are set out hereinbelow.

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3. With  the  intention  of  providing  broadband  

network connectivity to all Government offices  

across the State of Andhra Pradesh, to connect  

the State capital with the Districts, Mandals,  

Blocks  and  Gram  Panchayats,  the  State  

Government  with  the  help  of  Andhra  Pradesh  

Technology Services, hereinafter referred to as  

“APTS”, identified a consortium of Companies,  

led  by  the  Respondent  No.5  to  form  a  Joint  

Venture Company under the name of M/s AP AKSH  

Broadband Limited, the Respondent No.1 herein.  

M/s  AP  AKSH  Broadband  Limited,  hereinafter  

referred to as “APAKSH”, was contemplated as a  

Special  Purpose  Vehicle  to  undertake  and  

complete the project.

4. The Petitioner No.1 was one of the companies  

forming  the  consortium  which  entered  into  a  

Share  Holders  Agreement  with  the  Respondent  

No.5, Aksh Broadband Ltd. (since merged with  

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Aksh Optifibre Limited), hereinafter referred  

to  as  ‘AKSH’.   The  Petitioner  No.1  is  the  

Company and the Petitioner No.2 is its Managing  

Director.   The  Respondents  Nos.  2  to  4  are  

Directors of APAKSH.  The Respondent No.5 holds  

57% of the fully paid up equity shares and in  

addition  it  was  allotted  12,41,62,500  partly  

paid shares, giving the said Company a complete  

majority  control  over  the  affairs  of  the  

Respondent No.1 Company.

5. In terms of the Share Holders Agreement the  

Petitioner No.1 was to acquire 21.10% of equity  

capital,  AKSH  was  to  acquire  64.80%  equity  

capital  and  the  balance  14.30%  was  to  be  

allotted to APTS. On 29.5.2006 the Board of  

Directors of APAKSH passed a Resolution to call  

upon  the  share-holders  of  the  partly  paid  

shares to pay the balance of the call money of  

Rs.2/- per share on or before 28.2.2006 (Date  

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to be confirmed). A second and final notice was  

issued by the Respondent No.1 for payment of  

the  call  money,  but  on  the  request  of  the  

Petitioner  No.2  the  time  was  extended.  

Ultimately, on 25.11.2006, yet another notice  

was issued by the Respondent No.1 for payment  

of the balance call money of Rs.2/- per share  

on the partly paid shares.

6. The overall estimated cost of the project was  

Rs.395  crores,  out  of  which  equity  

participation by the three constituent partners  

was Rs.175 crores.  The balance Rs.220 crores  

was to be mobilized as loan by the Respondent  

No.1 Company, and, in the event the Respondent  

No.1 failed to do so, the deficiency was to be  

met  by  further  equity  contribution  by  the  

partners.

7. As  mentioned  hereinbefore,  APAKSH  was  

established as a Special Purpose Vehicle with  

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the  sole  object  of  implementing  the  

connectivity  project  in  accordance  with  the  

contract awarded by APTS on 21st April, 2003,  

apart from which no other business was to be  

undertaken  by  it.   On  10th May,  2005,  the  

Respondent No.1 gave a turnkey contract to the  

Respondent No.5 which is one of the principal  

shareholders having a controlling interest in  

the  Respondent  No.1  Company.   The  said  

Engineering,  Procurement  and  Construction  

contract, hereinafter referred to as the ‘EPC’  

contract,  envisaged  the  completion  of  the  

infrastructural facilities within a period of  

65 weeks at a fixed cost of Rs.370 crores upto  

the stage of  commission and implementation of  

the project.

8. Appearing  for  the  Petitioners,  Mr.  Jaideep  

Gupta, learned Senior Advocate, submitted that  

the Schedule of work in the Agreement entered  

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into between APTS and APAKSH provided that the  

project was to be completed and commissioned  

within  65  weeks,  which  was  to  end  on  31st  

December,  2006.   It  also  stipulated  that  

connectivity upto the district and all mandal  

levels was to be completed in a phased manner  

within a period of seven months from the date  

of  execution  of  the  contract.   Mr.  Gupta  

submitted that towards that end the Respondent  

No.1  placed orders for supply of optic fibre  

cables on its sister concern, AKSH Broadband  

Limited,  the  Respondent  No.5,  which  

subsequently  merged  with  AKSH  Optifibre  

Limited,  the  substituted  Respondent  No.5,  

represented by the Respondents Nos. 2 to 4, for  

completion of the project. Mr. Gupta submitted  

that  despite  the  fact  that  over  a  crore  of  

rupees had been contributed by the Respondent  

No.1  to  the  Respondent  No.5  towards  the  

execution  of  the  EPC  contract,  it  had  not  

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achieved  connectivity  in  any  of  the  23  

districts  of  the  State  in  terms  of  the  

Agreement dated 21st April, 2005, executed by  

APTS.  Mr. Gupta submitted that AKSH Broadband  

Limited  had  used  its  sister  concern,  AKSH  

Optifibre Limited, prior to its merger, to dump  

useless and defective cable and to store them  

as part of the stores of AKSH Broadband Limited  

and  siphoned  out  the  monies  from  APAKSH  

Broadband Limited, purportedly for execution of  

the  EPC  contract,  but  without  any  tangible  

benefit to the Respondent No.1.

9. Mr. Gupta urged that the Petitioner had been  

lured by the Respondents Nos. 2 to 4 to procure  

finance for the purpose of investment in the  

Respondent No.1 Company from Elegant Capitals  

Private  Limited,  the  Respondent  No.6  herein,  

which had promised to advance a loan of Rs.33  

crores  to  the  Petitioners  towards  capital  

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contribution  in  the  Respondent  No.1  Company.  

Mr. Gupta submitted that taking advantage of  

their  stranglehold  over  the  Company  and  its  

officers, the Respondent Nos. 2 to 5 had by a  

series of acts mismanaged the affairs of the  

Respondent  No.1  Company  and  rendered  the  

Petitioners completely ineffective inspite of  

their  investment,  thereby  attracting  the  

provisions  of  Sections  402  and  403  of  the  

Companies Act, 1956.

10. Mr. Gupta urged that the Respondent No.5 was  

involved  with  the  turnkey  project  in  two  

capacities.   On  the  one  hand,  it  is  the  

principal  shareholder  of  the  Respondent  No.1  

Company, holding and controlling more than 64%  

equity  of  the  Respondent  No.1  and,  on  the  

other,  it  is  the  EPC  contractor  who  is  

responsible for delivering goods and services  

in  accordance  with  the  Agreement  executed  

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between itself and the Respondent No.1 Company  

on 10th May, 2005. Mr. Gupta submitted that it  

was in this context that it was necessary for  

the Company Law Board and the High Court to  

have  inquired  into  the  conduct  of  the  

Respondent No.5 in the matter of execution of  

the turnkey project. Mr. Gupta submitted that  

such omission has resulted in grave miscarriage  

of justice in so far as the Petitioners were  

concerned.

11. Mr. Gupta submitted that since the Petitioners  

had not been permitted to adduce oral evidence  

involving events which had occurred during the  

pendency of the appeal, the only course left  

open to rectify the injustice caused to the  

Petitioners  was  to  remit  the  matter  to  the  

Company Law Board for a proper  inquiry into  

the various allegations made by the Petitioners  

regarding  the  gross  misconduct  of  the  

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Respondent  No.5  in  executing  the  turnkey  

project which was the very substratum of the  

existence  of  APAKSH  Broadband  Limited,   the  

Respondent  No.1  company.  Mr.  Gupta  submitted  

that the aforesaid acts of the Respondent No.1  

Company  through  the  Respondent  No.5  herein,  

taking advantage of its complete control over  

the management and affairs of the Respondent  

No.1  already  established  that  the  Company’s  

affairs  are  being  conducted  in  a  manner  

oppressive  to  the  Petitioners  and  the  facts  

justified the making of a winding-up order on  

the ground that it was just and equitable that  

the Company be wound up.

12. Mr.  Gupta also  submitted  that  after  holding  

that  they  lacked  jurisdiction  under  Sections  

397  and  398  and  10-F  of  the  Companies  Act,  

neither  the  Company  Law  Board  nor  the  High  

Court should have commented on the merits of  

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the matter which has prejudiced the interests  

of the Petitioners.  It was urged that it is in  

this context that the complaint made about the  

failure of the principles of natural justice  

before  the  Company  Law  Board  assumes  

significance.   Referring  to  the  decision  of  

this Court in Needle Industries (India) Ltd. &  

Ors. vs.  Needle  Industries  Newey  (India)  

Holding Ltd. & Ors. [(1981) 3 SCC 333], Mr.  

Gupta submitted that in the said decision it  

had been held as follows :-

“63. We  appreciate  that  it  is  generally  unsatisfactory  to  record  a  finding  involving grave consequences to a person  on the basis of affidavits and documents  without  asking  that  person  to  submit  to  cross-examination. It is true that men may  lie  but  documents  will  not  and  often,  documents speak louder than words. But a  total reliance on the written word, when  probity  and  fairness  of  conduct  are  in  issue, involves the risk that the person  accused of wrongful conduct is denied an  opportunity  to  controvert  the  inferences  said to arise from the documents………..”.

  In the said judgment, this Court also observed  

that many decisions had been cited in support of  

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the contention that issues of mala fides and abuse  

of fiduciary powers are almost always decided not  

on the basis of facts but on oral evidence.  

13. Mr. Gupta  also referred to the decision of  

this Court in Sangramsinh P. Gaekwad vs. Shantadevi  

P.  Gaekwad [(2005)  11  SCC  314],  in  which  the  

question of oppression for the purposes of Section  

397 and 398 of the Companies Act has been dealt  

with in some detail. Their Lordships held that the  

remedy under Section 397 of the Companies Act is  

not an ordinary one.  The cause of oppression had  

to  be  burdensome,  harsh  and  wrongful  and  an  

isolated incident may not be enough for grant of  

relief and continuous course of oppressive conduct  

on  the  part  of  majority  shareholders  was,  

therefore, necessary to be proved.  It was also  

observed  that  the  jurisdiction  of  the  Court  to  

grant appropriate relief under Section 397 was of  

wide aptitude and in exercise of its powers the  

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Court was not bound by the directions contained in  

Section 402 of the Companies Act if in a particular  

fact  situation  further  relief  or  reliefs  were  

warranted.  At the same time, a word of caution was  

introduced and it was also held that it had to be  

borne in mind that when a complaint is made as  

regards  violation  of  statutory  or  contractual  

rights, the shareholders may initiate proceedings  

in a Civil Court or in a proceeding under Section  

397 of the Act which would be maintainable only  

when an extra-ordinary situation is brought to the  

notice of the Court keeping in view the wide and  

far reaching power of the Court in relation to the  

affairs of the Company.

14. Mr. Gupta pointed out that several letters had  

been written on behalf of the Petitioner-Company  

objecting to the manner in which the funds of the  

Company were being siphoned off by the Engineering  

Procurement  and  Construction  Contractor,  

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hereinafter referred to as “the EPC Contractor”,  

without any progress in the project work.  In the  

first  of  such  letters  dated  22nd August,  2006,  

addressed  by  Shri  R.V.R.  Chowdary,  Chairman  and  

Managing Director of the Petitioner Company, to the  

Chairman  of  the  Respondent  No.1  Company,  the  

financial  indiscipline  on  account  of  payment  of  

commission to the EPC contractor was objected to as  

the same ought to have been spent in proportion to  

the  funds  earmarked  for  each  category  of  

expenditure.  The next letter referred to by Mr.  

Gupta  was  the  one  dated  1st November,  2006,  

addressed by the Vice-Chairman of the Respondent  

No.1 Company to the Respondent No.5 complaining of  

the fact that despite all the support received by  

the  Respondent  No.5  as  the  EPC  contractor  and  

payment of about Rs.100 crores, connectivity had  

not been completed even in one district nor in the  

State Secretariat which was the central hub of the  

project.  Various  other  shortcomings  of  the  

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Respondent No.5 were also pointed out and it was  

also stated that  A.P. Broadband Project had been  

used by the Respondent No.5 to enrich itself using  

the free right of way granted by the Government of  

Andhra  Pradesh.   It  was  also  mentioned  that  no  

further infusion of funds was necessary and the EPC  

contractor would have to make immediate measures to  

make triple play completely operational in at least  

4 to 5 districts.  

15. Yet another letter dated 29th September, 2006,  

addressed  to  Mr.  V.K.  Dhir,  the  Chief  Executive  

Officer of the Respondent No.5 was referred to by  

Mr. Gupta from which it would be evident that the  

work had not been completed nor had the timelines  

indicated been followed.  A letter on similar lines  

addressed  by  the  Department  of  Information  

Technology and Communication, Government of Andhra  

Pradesh, to Dr. Kailash Chowdary, Managing Director  

of the Respondent No.5, expressing serious concern  

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with regard to the progress made, was also brought  

to the notice of the Court.

16. Mr. Gupta submitted that it is only too obvious  

that the Respondent No.5 had misused its control  

over  the  Respondent  No.1  Company  in  not  only  

securing  the  contract  for  the  project  which  was  

nothing but the modus operandi of the Respondent  

No.5 in collusion with Respondent No.1 to siphon  

off the funds of the Company, after having induced  

the Petitioners to invest large sums of money in  

the  Respondent  No.1  Company  and  rendering  the  

holding of the petitioners in the Respondent No.1  

Company of little or no value.   As against the  

investment  of  Rs.112  crores  by  the  Petitioner  

Company, no connectivity had been achieved even in  

Hyderabad, let alone in the 23 districts and all  

the mandals and villages of the State or even in at  

least one district.

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17. Mr. Gupta submitted that this was a classic  

example  of  oppression  by  majority  shareholders  

having a controlling interest, confined to unjust  

enrichment at the expense of minority shareholders  

of the Company.  Mr. Gupta submitted that unless  

appropriate orders were passed on the Petitioners’  

application under Sections 397, 398, 402 and 403 of  

the  Companies  Act,  1956,  the  Petitioner  Company  

would  completely  lose  its  investment  in  the  

Respondent No.1 Company and would also be made to  

face continuous litigation and harassment at the  

hands of the Respondents Nos.2 to 6.

18. Appearing for the Respondent Nos.1, 3, 4 and 5,  

Mr.  K.G.  Raghavan,  learned  Senior  Advocate,  

submitted that the conduct of the Respondent No.5  

as EPC contractor and a shareholder in Incable Net  

has  been  cited  by  the  Petitioners  in  their  

application  under  Sections  397  and  398  of  the  

Companies  Act,  as  acts  of  oppression  on  the  

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Petitioner  Company.   Referring  to  the  various  

allegations made against the Respondent No.5 and  

its purported control of the Respondent No.1, Mr.  

Raghavan  pointed  out  that  the  Petitioners  had  

deliberately suppressed the fact that the payments  

made to the Respondent No.5 had been done under the  

signature  of  the  Petitioner  No.2.   Mr.  Raghavan  

submitted that having himself participated in the  

Board meetings as Director of the Respondent No.1  

Company  and  having  chaired  eight  Board  Meetings  

between  14.2.2005 and 4.3.2006 and having been a  

signatory to the minutes of the meeting dated 21st  

April, 2005, in which the EPC contract had been  

awarded in favour of the Respondent No.5, it did  

not lie in the mouth of the Petitioner No.2 to  

attribute acts of oppression by the Respondent No.1  

as  far  as  the  Petitioners  are  concerned.   Mr.  

Raghavan submitted that apart from the above, the  

Petitioner No.2 was also a member of the Managing  

Committee  and  Audit  Committee  of  the  Respondent  

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No.1 Company and had also signed the Audit Report  

and its Balance Sheet for the year 2005-06.

19. Mr. Raghavan submitted that during this period,  

when the Petitioner No.2 was not only participating  

in the affairs of the Company, but was taking an  

active role in its management, no allegation as to  

oppression or even mis-management was raised.  It  

was only after the call money for the balance price  

of the partly paid shares was repeatedly demanded  

from the Petitioners and the Petitioners failed to  

pay  the  said  amount,  that  all  these  allegations  

began  to  surface  for  the  first  time  after  1st  

November,  2006.   Mr.  Raghavan  submitted  that  

between  2003  and  2006,  ten  Board  Meetings  were  

chaired  by  the  Petitioner  No.2  as  Chairman.  

Special reference was made to the meeting held on  

21st April,  2005,  which  was  chaired  by  the  

Petitioner No.2, and wherein the EPC contract to be  

given to the Respondent No.5, was approved.  Mr.  

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Raghavan submitted that at no point of time was any  

demand made for cancellation of the EPC Agreement  

and even in the Company Petition before the CLB no  

such prayer was made.

20. Mr. Raghavan submitted that the Director of the  

Company  stands  in  a  fiduciary  capacity  to  the  

Company, but the same cannot be equated with his  

duties towards the shareholders which stood on a  

different footing and in case of conflict between  

the two interests, the Company’s interests had to  

be  protected.   A  Director  has  to  act  in  the  

paramount  interest  of  the  Company.   He  has  no  

statutory  obligation  as  far  as  individual  

shareholders are concerned.  Accordingly, the duty  

of  the  Petitioner  No.2  as  a  Director  of  the  

Respondent No.1 Company was to the Company before  

his  combined  interest  as  a  Director  in  the  

Petitioner No.1 Company, which was a shareholder in  

the Respondent No.1 Company.  Mr. Raghavan urged  

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that  the  Company  Law  Board  had  quite  correctly  

disallowed the claims of the Petitioners and left  

it to the collective wisdom of the Directors of the  

Respondent No.1 Company to take such action as was  

deemed fit and proper in the course of management  

of  the  day-to-day  affairs  of  the  Company,  

particularly with reference to evaluation of the  

quantum  of  work  completed  by  AKSH  and  the  

investments made by it towards the share capital of  

the Company, realization of the final call money  

from  the  shareholders,  recovery  of  the  security  

deposits from the Petitioner No.1,, settlement of  

the pending bills of the Directors, audit of the  

accounts of the Company, etc. which were within the  

lawful domain of the Board of Directors.    

21. In this regard, Mr. Raghavan referred to the  

decision of this Court in  Sangramsinh P. Gaekwad  

(supra), which had also been referred to by Mr.  

Gupta, in support of his contention that the duties  

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of  a  Director  to  the  Company  and  to  the  

shareholders stand on different levels, but while a  

Director  stands  in  a  fiduciary  capacity  to  the  

Company,  he  does  not  have  such  a  duty  towards  

shareholders.

22. As far as denial by the CLB as well as the High  

Court  to  the  adducing  of  oral  evidence  is  

concerned,  Mr.  Raghavan  submitted  that  Section  

10E(5) of the Companies Act, 1956, indicates the  

manner  in  which  the  Company  Law  Board  has  to  

exercise its powers and to discharge its functions  

under the Act.   

For the sake of reference, Section 10E(5) is  

set out hereinbelow :

“10E. Constitution of Board of Company Law  Administration.- (1) …………………… (2) …………………… (3) …………………… (4) …………………… (5) Without prejudice to the provisions of  sub-sections  (4C)  and  (4D),  the  Company  Law  Board  shall  in  the  exercise  of  its  powers and the discharge of its functions  

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under this Act or any other law be guided  by the principles of natural justice and  shall act in its discretion.”

23. Mr.  Raghavan  submitted  that  there  was  no  

compulsion on the Company Law Board to record oral  

evidence, when all that the Petitioners had to say  

had already been said by them on affidavit.  The  

Company Law Board, therefore, did not commit any  

illegality in disallowing the Petitioners’ prayer  

for  adducing  oral  evidence.   Mr.  Raghavan  also  

referred to the relevant portions of the decision  

of  this  Court  in  Needle  Industries  (India)  Ltd.  

(supra), where an argument had been advanced that  

under the Company Court Rules framed by this Court,  

the  provisions  of  the  Civil  Procedure  Code  were  

made applicable to proceedings before the Company  

Law  Board  under  Section  397  of  the  Act.   Mr.  

Raghavan pointed out that in paragraph 63 of the  

judgment this Court had observed that, although, it  

had  to  be  appreciated  that  it  is  generally  

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unsatisfactory to record a finding involving grave  

consequences  towards  a  person  on  the  basis  of  

affidavits  and  documents,  without  asking  that  

person to submit to cross-examination, but a total  

reliance  on  the  written  word,  when  probity  and  

fairness of conduct are in issue, involved the risk  

that  the  person  accused  of  wrongful  conduct  is  

denied an opportunity to controvert the inferences  

said to have arisen from the documents.  The said  

submission  was  ultimately  not  acted  upon  on  the  

ground that such a submission was a belated attempt  

to avoid an inquiry into the conduct and motives of  

one of the Directors of the Company.

24. Mr.  Raghavan  reiterated  his  submissions  that  

where there was a conflicting interest between the  

Company and the shareholders, the Director’s duties  

would at first always be for the benefit of the  

Company and that in the context of Sections 397 and  

398 of the Companies Act, the Legislature in its  

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wisdom  had  left  the  procedure  to  be  adopted  in  

these matters to the Company Law Board itself, with  

special  emphasis  on  due  compliance  with  the  

principles of natural justice.

25. Mr. Raghavan placed reliance on the decision of  

this Court in V.S. Krishnan & Ors. vs. Westfort Hi-

Tech  Hospital  Ltd.  &  Ors. [(2008)  3  SCC  363],  

wherein,  while  considering  the  scope  of  the  

expression  “oppression”  within  the  meaning  of  

Sections 397, 398 and 402 of the Companies Act, it  

was held that in order to establish “oppression” it  

would have to be shown that the conduct of the  

majority  shareholders  towards  the  majority  

shareholders was harsh, burdensome and wrong and  

that  such  conduct  was  mala  fide  and  was  for  a  

collateral  purpose  where  although  the  ultimate  

objective might be in the interest of the Company,  

the immediate purpose would result in an advantage  

for some shareholders over others.  It was also  

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observed  that  the  action  of  the  majority  

shareholders was against probity and good conduct.  

Once the conduct was found to be oppressive under  

Sections 397 and 398, the discretionary power given  

to the Company Law Board under Section 402 to set  

right, remedy or put to an end such an oppression,  

is very wide.         

26. Mr.  Raghavan  submitted  that  even  in  the  

decision of this Court in  Dale & Carrington Invt.  

(P) Ltd.& Anr. vs. P.K. Prathapan & Ors. [(2005) 1  

SCC 212], this Court had held that when a majority  

shareholder was reduced to a minority shareholder  

by a mala fide act of the Company or its Board of  

Directors, such act would amount to “oppression”  

against the minority shareholders.   

It was also submitted that it is only in such  

circumstances  that  a  decision  was  taken  by  the  

Respondent No.1 Company to consider the question of  

forfeiture of the partly paid shares held by the  

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Petitioner No.1.  He also submitted that the call  

money  amounting  to  Rs.24,83,25,000/-  had  already  

been deposited by the Respondent Nos.3 to 5.

27. Except  to  submit  that  the  project  had  been  

undertaken by the State Government to abridge the  

digital divide which existed within the State, Dr.  

Manish Singhvi, learned Advocate appearing for the  

Respondent No.2, had little else to add.

28. In reply to the submissions made on behalf of  

the respondents, Mr. Jaideep Gupta submitted that  

the  High  Court  had  not  decided  the  question  of  

jurisdiction  under  Sections  397  and  398  of  the  

Companies Act.  The findings of misconduct by the  

High Court against the Petitioners was not only on  

the question of contractual obligation between the  

Respondent No.1 and Respondent No.6, but also with  

regard  to  the  mala  fide  manner  in  which  the  

Petitioners  were  placed  on  account  of  the  close  

proximity  between  the  Respondent  No.1  and  the  

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Respondent No.5.  Mr. Gupta also submitted that the  

participation of the Petitioner No.2 as a Director  

in the affairs of the respondent No.1 Company was  

prior to the implementation of the project.   

29. It  was  lastly  urged  that  “oppression”  is  a  

mixed question of law and fact as was held in the  

Needle Industries (India) Ltd.’s case (supra) and  

the views expressed by this Court in the said case,  

in fact, applies to the case of the Petitioners  

necessitating the setting aside of the orders of  

the Company Law Board as well as the High Court.  

30. On  the  allegations  contained  in  the  Company  

Petition filed by the Petitioners under Sections  

397, 398, 402 and 403 of the Companies Act, 1956,  

the reliefs prayed for are as follows :-

“(i) To  direct  the  1st respondent  company  to  incorporate  the  Shareholders  Agreement  dated  04.06.2005  in  the  Memorandum  and  Articles  of  Association  of  the  1st  respondent company;

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(ii) To reconstitute the Board of Directors of  the 1st respondent company and provide that  all policy decisions, and all decisions on  key  matters  be  decided  by  a  Board  of  directors at a meeting where at only one  nominee from each of the groups viz., 5th  respondent, 1st petitioner apart from APTS  nominee are present;

(iii) Appoint  a  Chartered  Accountant  to  investigate into the investments made by  the  5th respondent  towards  the  share  capital  especially  keeping  in  mind  the  source of funds for investments in share  capital of the 1st respondent company;

(iv) Appoint a team of Chartered Accountants/  Chartered  Engineers  to  evaluate  the  quantum of work done by the 5th respondent  company, and declare that the investment  of  the  5th respondent  company  over  and  above  the  said  quantum  of  work  to  have  been  issued  without  consideration  and  consequently  annul  the  said  shares  and  direct  the  modification  of  the  shareholding of the 1st respondent company;

(v) Vest the day-to-day administration of the  1st respondent company  in a  Committee of  Directors  comprising  of  a  nominee  from  each group viz., petitioners, APTS and 5th  respondent; and pass such other order(s)  as the Hon’ble Board deems fit and proper  in the circumstances of the case.”

31. The  allegation  on  the  basis  of  which  such  

reliefs have been prayed for basically is that the  

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EPC Contractor AKSH, the Respondent No.5, which is  

also  the  majority  shareholder  in  the  Respondent  

No.1  Company,  had  mismanaged  the  funds  and  

operations  of  the  Company  and  the  work  on  the  

project was delayed on account of the various acts  

of omission and commission on the part of AKSH.  

The reliefs prayed for have been opposed on behalf  

of the Respondents contending that the contractual  

obligations  under  the  EPC  Contract  did  not  fall  

within the scope of Sections 397 and 398 of the  

above  Act  and  the  right  of  the  Petitioners  as  

shareholders was in no way affected, particularly,  

when the Petitioner No.2 was a Director and Vice-

Chairman  and  a  member  of  the  Managing  Committee  

constituted to monitor the implementation of work  

of the project and at no point of time had he made  

any  grievance  with  regard  to  the  EPC  Contract.  

That  apart,  he  had  chaired  the  meetings  of  the  

Board and operated the bank accounts and payments  

made to AKSH by the Respondent No.1 Company had in  

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most  cases  been  done  by  him  on  behalf  of  the  

Company.

32. It is on the said foundation that a case of  

oppression and mismanagement has been attempted to  

be made out by the Petitioners.  However, in the  

facts of the case it becomes difficult to take a  

different view as has been expressed both by the  

CLB as also by the High Court.  

33. Admittedly, the Respondent No.5 is a majority  

shareholder in the Respondent No.1 Company and at  

the same time the EPC Contract has also been given  

by the Respondent No.1 Company to the Respondent  

No.5,  to  which  transaction  the  Petitioner  No.2,  

Shri  R.V.R.  Chowdary,  was  also  a  party  in  his  

capacity as Vice-Chairman of the Respondent No.1  

Company.  Besides being a party to the decision to  

give the EPC Contract to the Respondent No.5, the  

Petitioner No.2 was also instrumental in payment of  

large sums of money being made to the Respondent  

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No.5  which  estops  him  from  alleging  that  the  

Respondent No.2 Company had been siphoning off the  

funds  of  the  Respondent  No.1  Company  without  

diligently  performing  its  part  of  the  contract.  

There is substance in Mr. Raghavan’s submissions  

that the EPC Contract given to the Respondent No.5  

by the Respondent No.1 was a commercial contract  

and stands outside the ambit of Sections 397 and  

398 of the Companies Act. Failure to act in terms  

of the contract cannot be said to have amounted to  

either  oppression  or  mismanagement  by  the  

Respondent No.1.  At best it can be said that the  

Respondent  No.1  had  been  used  as  a  tool  or  

mechanism  by  the  Respondent  No.5  to  acquire  

benefits  for  itself,  which  in  the  instant  case,  

does not appear to be so, having regard to the fact  

that one of the Petitioners in the Company Petition  

was  himself  responsible  for  such  payments  being  

made.   

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34. Both the parties have placed reliance on the  

decision of this Court in Needle Industries (India)  

Ltd. (supra).   Mr.  Gupta  relied  on  the  said  

decision  in  support  of  his  submission  that  by  

denying an opportunity to the Petitioners to adduce  

oral evidence, the CLB had shut out vital evidence  

which  would  have  strengthened  the  case  of  the  

Petitioners.  The views expressed in paragraph 63  

of the said decision is the expression of a general  

principle of law and only confirms the principle of  

adducing evidence, but does not lay down a hard and  

fast rule that in all cases the Court or the CLB is  

bound to allow oral evidence to be led as otherwise  

there is a risk that the person accused of wrongful  

conduct is denied an opportunity to controvert the  

inference said to have been arrived at from the  

evidence produced before the Court alone.  As a  

proposition  of  law  there  can  be  no  disagreement  

with the same, but the question is as to whether  

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the same is required to be applied in the facts of  

the instant case.  

35. From  the  submissions  made  on  behalf  of  the  

respective parties and the materials on record, the  

point which falls for consideration in this appeal  

is  as  to  whether  a  case  of  oppression  and  

mismanagement by the majority shareholders against  

the minority shareholders had been established or  

not.

36. Whether  there  is  any  truth  in  Mr.  Gupta’s  

submissions as to the siphoning of funds by the  

Respondent No.5 Company from the Respondent No.1  

Company, which had been set up as a Special Purpose  

Vehicle  and  in  which  the  Respondent  No.5  was  a  

majority  shareholder,  holding  about  60%  of  the  

equity shares has not been properly established.  

On the other hand, the materials on record indicate  

that the Petitioner No.2, who is a Director of the  

Petitioner  No.1  Company,  which  is  also  a  

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shareholder  in  the  Respondent  No.1  Company,  had  

functioned as a Vice President of the Respondent  

No.1 Company and had also chaired 8 of its Meetings  

including the Meeting held on 21st April, 2005, in  

which  the  decision  was  taken  to  award  the  EPC  

Contract to the Respondent No.5 Company.  Further  

more, the Petitioner No.2 had signed most of the  

cheques  by  which  payments  were  made  to  the  

Respondent  No.5  Company  for  supply  of  materials  

under the EPC contract.  It does not lie in the  

mouth of the Petitioner to now contend that the  

funds  of  the  Respondent  No.1  Company  had  been  

siphoned by the Respondent No.5.

  37. From the facts as revealed, the only conclusion  

that can be arrived at is that the Respondent No.5  

had committed a breach of contract in regard to  

supply of materials to the Respondent No.1 Company  

in terms of the EPC contract.  Such lapse, in our  

view,  would  not  constitute  the  ingredients  of  a  

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complaint under Section 397, 398, 402 and 403 of  

the Companies Act, 1956.  Such breach could give  

rise  to  an  action  of  breach  of  contract  under  

Section 73 of the Indian Contract Act, 1872.

38. The decisions cited on behalf of the respective  

parties and in particular, the decision in  Needle  

Industries (India) Ltd. (supra), in support of the  

claim of the Petitioners for being allowed to lead  

oral evidence, does not really come to the aid of  

the Petitioners, since from the materials on record  

itself it has been established that at best the  

Respondent  No.5  had  failed  to  abide  by  its  

commitments  in  the  EPC  contract  executed  in  its  

favour by the Respondent No.1 Company.

39. We  are  unable  to  understand  as  to  how  the  

decisions in the above case are of any help to the  

Petitioners,  since  nothing  concrete  has  been  

established by them in regard to either oppression  

or mismanagement by the Respondent No.5 as far as  

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the Petitioners are concerned.  On the other hand,  

the  conduct  of  the  Petitioner  No.2  provides  a  

different picture since at the relevant point of  

time  he  was  at  the  helm  of  affairs  of  the  

Respondent No.1 Company, despite being a Director  

on the Board of the Petitioner No.1 Company.  The  

decision in  V.S. Krishnan’s case (supra) is more  

apposite  to  the  facts  of  the  case.  Quoting  

Halsbury, this Court observed that the expression  

“oppression”  within  the  meaning  of  the  Sections  

398, 399 and 402 of the Companies Act had been  

interpreted  to  mean  that  the  conduct  of  the  

majority  shareholders  towards  the  minority  

shareholders was harsh, burdensome and wrong and  

that  such  conduct  was  mala  fide  and  was  for  a  

collateral  purpose  which  would  result  in  an  

advantage  for  some  shareholders  over  others,  

although,  the  ultimate  object  might  be  in  the  

interest  of  the  Company.  However,  the  facts  

disclosed  in  this  case  do  not  establish  such  

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conduct on the part of the Respondent No.5.  Until  

the conduct of the majority shareholders was found  

to be oppressive in terms of the above description,  

under Sections 397 and 398 of the Companies Act,  

1956, the Company Law Board was not competent to  

invoke its jurisdiction under Section 402 of the  

said  Act  to  set  right,  or  put  an  end  to  such  

oppression.

40. On an overall analysis of the facts involved  

and the part played by the Petitioner No.2 in the  

affairs of the Company at the relevant time, we are  

not inclined to interfere with the orders of the  

High Court or the Company Law Board, since we are  

not  satisfied  that  any  act  of  oppression  or  

mismanagement within the meaning of Sections 397,  

398, 402 and 403 of the Companies Act, 1956, has  

been  made  out  by  the  Petitioners  against  the  

majority  shareholders  of  the  Respondent  No.1  

Company which would justify the making of a winding  

39

up order on the ground that it would be just and  

equitable to do so and to pass appropriate orders  

to bring to an end the matters complained of.

41. The  Special  Leave  Petition  is,  accordingly,  

dismissed.

42. There will, however, be no order as to costs.

 …………………………………………J.

(ALTAMAS KABIR)

…………………………………………J. (CYRIAC JOSEPH)

New Delhi Dated:07.05.2010   

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