2011 Supreme(Kar) 533

High Court of Karnataka
THE HONOURABLE MR. JUSTICE V.G. SABHAHIT & THE HONOURABLE MR. JUSTICE RAVI MALIMATH
Ultrafilter Gmbh, represented by its Constituted Attorney
Versus
Ultrafilter (India) Private Limited represented herein by its Managing Director & Another
COMPA.6 of 2005
Decided on : 26-08-2011

Headnote:COMPANIES ACT, 1956 - Sections 10F, 397 & 398: [V.G. Sabhahit & Ravi Malimath, JJ] Oppression of Majority shareholders - Appeal against order of Company Law Board directing Petitioner company to purchase shares held by Respondent - Held, There is no prohibition for a majority shareholder to maintain such a petition. Any member of a company can complain of oppression and if the Court were to opine, that there is an oppression to any member, rather than the winding up the company, could pass such orders as it thinks fit and considers just and equitable. Therefore, Section 397 does not postulate a difference between the majority and a minority shareholder. Any member of a company could complain under Section 397. Under Section 398 also, any member could complain with regard to the mismanagement and the Court could deal with it as in Section 397. However, in terms of Section 399, only those members holding not less than 1/10th of the issued share capital, not less than 1/5th of the total number of its members alone have a right to apply under Section 397/398. Therefore the only restriction to maintain a petition under Section 397/398 is as contained in Section 399. If the conditions of Section 399 are fulfilled, not only could such a member maintain a petition under Section 397/398 but has a statutory right to do so. It is not in dispute, that the respondent possessed the required qualification to maintain a petition under Section 397. When a majority complains of oppression, the majority therefore, becomes an artificial minority. Hence, even though the respondent is a minority, they are entitled to maintain a petition under Section 397/398. Under these circumstances, the petition by the respondent is maintainable. It was further contended by the Appellant, that the CLB committed an error in applying the principles of Partnership to the case on hand. That the CLB was misguided by the nomenclature of the document titled as a ’Shareholders Partnership Agreement’. Only because the partnership agreement has been entered into, it cannot be held, that the principles of partnership are applicable to the case on hand. The appellant being a shareholder of the company cannot therefore indulge in deliberate therefore has failed in its duties towards the company. There has been an active, deliberate and negligent act by the appellant towards the company. The interest of the appellant should be only towards the company and none else. By being a shareholder of the company, the appellant cannot act against its interest.

        The communications also reveal hat the appellant was pressurizing the respondent to support the effort of the competitor, which competitor, was taken over by the appellant. It is therefore evident that even though the appellant was a share holder in the company, in view of the fact that it had taken over Sabore, Its interest were only towards Sabore whose products were being sold by Pace Equipment. The object of the appellant is to ensure its own success through Pace Equipment rather than that of the company. Hence, on the face of it, it is evident that the action of the appellant is harsh and burdensome. Therefore, absolute pressure was being exerted by the appellant to ensure the success of its competitor rather than to protect the interests of the company. Hence, the action of the appellant is a clear case of oppression. All these facts, and, circumstances lead to the conclusion that all is not well with the company and its two share holders. In view of the present situation the company cannot be run effectively. That a case of oppression has been made out by the respondent. There are allegations by both the parties against each other. It would mean that both of them have breached the doctrine of utmost good faith towards each other, thus, putting the interest of the company in jeopardy. Hence, it is a case where the majority alleges oppression by the minority and this minority has protective provisions in the Articles. That the relationship between the two parties has become so sour that they cannot carry on the business of the company together and if so that itself would be a very valid ground for winding up of the company on just and equitable ground. Accordingly, the CLB under these circumstances directed the respondent to purchase the shares held by the appellant on a fair value to be determined by the statutory auditors., of the company. The findings recorded by the CLB are based on material and on facts. We do not see any perversity in the findings recorded by the CLB that calls for any interference. The conclusion arrived at by the CLB are just and reasonable and are based on the material, placed on record. Hence, we find no error that calls for any interference. Under these circumstances, the order passed by the Company Law Board is just and proper and does not all for any interference. For the aforesaid reasons the appeal being devoid of merits is dismissed.