IMPORTANT POINT
Failure to act in terms of the contract cannot be said to have amounted to either oppression or mismanagement.

JUDGMENT

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 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.

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 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 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 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 Respo