The court clarified the interpretation of section 397 of the Companies Act, emphasizing the need for proof of oppression and the dual requirements for winding up a company.

P. B. MUKHARJI, J.

( 1 ) THIS is an appeal from the judgment of G. K. Mitter, J. dismissing the petitioner's application under sections 397 and 399 of the Indian Companies Act.

( 2 ) THE company is Indian Motor Co. Hazaribagh) Ltd. The petitioner is Maharani Lalita Rajya Laskhmi, a share-holder owning more than thirty per cent of the shares. Her allegation is that the Board of Directors is guilty of certain acts of omission and commission detrimental to the interest of the company and/or to the minority of the share-holders. She sets them out in paragraph 18 of her petition.

( 3 ) BRIEFLY, these allegations amount to this that the income of the company is deliberately shown less by excessive expenditure and many items of such expenditure are not properly vouched or receipted, The other allegation is that there is mismanagement of the affairs of the company attributable to the fact that the head office of the company is at Calcutta whereas the business of the company is in Hazaribagh and that passengers are travelling without ticket, or at prices below the scheduled rates, that buses are purchased at high cost and after heavy depreciations sold to friends and relatives of the Managing Agents and/or their employees, and that the consumption of petrol as reported by the running staff of the company from Hazaribagh is not properly checked by the staff of the Managing Agents and the result is that a great loss is suffered by the company. There are other allegations such as that dividends are not properly being declared or that they are being declared at too low a figure, that she was not given access to and inspection of the books of account of the: company.

( 4 ) THE main defect of this application is that the facts alleged are not proved. It is essential to remember that under section 397 of the Companies Act, the Court has to be satisfied that there ' is oppression. It has to be satisfied that the affairs of the company are being conducted in 3 manner oppresive to any member or members of the company. The acts of oppression, therefore, have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the Court.

( 5 ) IT is also necessary to emphasise that the Court has to form an opinion on two essential points, that are set out in section 397 (2) of the Act. These two points are first, the one that I have already stated, namely that the company's affairs are being conducted in a manner oppresive to any member or members of the company and, secondly, that to wind up the company would unfairly prejudice such member or members but 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. It is imperative that the Court's opinion on both these points must be formed in the affirmative before any order could be made under Section 397 of the Companies Act. If the Court is not satisfied on any one of these points and is of the opinion that either a company is not being conducted in a manner oppressive or that, the facts do not justify the making of a winding-up order, then no further question can arise under Section 397. It is also proper to emphasise that the power of the Court to make such order, as it thinks fit, under Section 397 (2) of the Act is expressly stamped with the purpose of "bringing to an end the matters complained of. " Therefore, wide as the power of the Court is following from the word* of the expression "such order as it thinks fit," it is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed "to bringing to an end the matters complained of. " The marginal note of Section 397 of the Companies Act shows also that the purpose of the order of the Court in this section is to give relief in cases of oppression. "

( 6 ) HAVING stated broadly the interpretation and effect of Section 397 of the Companies A

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