important Points
Once the acts of oppression have been established, winding up of the company on just and equitable grounds becomes automatic.
Company Law Board in a winding up application may refuse to do so, if any other remedy is available.

judgment

S.B. Sinha, J. —

1.Leave granted.

2.M/s. Shree Bhaarathi Cotton Mills Private Limited is a company registered and incorporated under the Companies Act, 1956 (For short, ‘the Act’). Out of the 2,84,000 equity shares in the company of Rs.10/- each, 2,83,999 shares are held by the first respondent and his son (appellant herein). The remaining one share is held by M/s. Visva Bharathi Textiles Private Limited, shares in which again is held equally by the first respondent and the appellant. Thus, for all intent and purport, all shares of the company are held by the appellant and the first respondent.

3.Whereas the first respondent is the Managing Director of the Company, the appellant is the Director thereof. Indisputably the parties are not on good terms.

4.Respondent No.1 filed an application purported to be under Sections 397 and 398 of the Act alleging several acts of oppression on the part of appellant herein before the Company Law Board, Additional Principal Bench, Chennai. The said application was registered as C.P. No. 2 of 2004. By reason of an order dated 16th August, 2004, the Company Law Board while opining holding there was no act of mala fide or oppression on the part of the appellant, opined that there exists a deadlock in the affairs of the company. It directed the appellant to purchase 2,84,000 shares held by the first respondent at a value to be determined by a chartered valuer.

5.An appeal was filed thereagainst by the appellant before the High Court of Judicature at Madras under of Section 10F of the Act which was registered as C.M.A. No. 174 of 2004. By reason of the impugned judgment dated 11th October, 2006 a Division Bench of the High Court dismissed the same opining that the Company Law Board could very well look into the justifiability of the situation and was, thus, right in arriving at its conclusion that there existed a deadlock situation. It was opined that in such a situation it would be impossible for both of them to pull on together as there was incompatibility between them. The High Court noticed that the appellant herein even intended to file a criminal complaint against his father, the first respondent for alleged mis-appropriation of a sum of Rs.8,15,000/-. A suit for partition, it was furthermore noticed, was pending. It was directed :

“77. –.. However, if there is any dispute regarding the method of valuation of the shares and the ultimate valuation arrived at by the valuer, it is open for either parties to approach the Company Law Board for getting the valuation finalised. Thereupon, at the first instance, the second respondent shall purchase the shares of the petitioners, within six months from the date of finalisation of such valuation and on his failure to do so, the petitioner in C.P., shall purchase the shares of the second respondent, within six months thereafter. In the event of both the alternatives failing, the purchase of shares of either the petitioner or the second respondent could be transferred to third parties depending upon the exigency. The Company Law Board is at liberty to pass such further orders under Section 402 of the Companies Act, in commensurate with the views expressed by this court, for the smooth running of the company.

78.In view of the reasons given for deciding the aforesaid point this civil miscellaneous appeal is partly allowed by modifying the order passed by the Company Law Board. The submission made by learned Counsel for the petitioner is recorded as aforesaid.”

6.Mr. C.A. Sundaram, learned Senior counsel appearing on behalf of the appellant, in support of the appeal, submitted :

1.The Company Law Board was not justified in issuing the impugned direction in purported exercise of its jurisdiction under Section 402 of the Act directing him to purchase the shares of the respondent despite arriving at a finding of fact that no act of oppression has been committed by the appellant.

2.The condition precedent for exercise of such power being oppression on the p