Back
2011 Supreme(Cal) 1291
High Court of Judicature at Calcutta
ANIRUDDHA BOSE
Birla Corporation Ltd
Versus
Birla Education Trust & Others
ACO No. 71 of 2011, APOT No. 281 of 2011
Decided On : 16-09-2011
For the Petitioner:Anindya Mitra, Pratap Chatterjee (Sr. Adv.), Abhrajit Mitra, Debanshu Basak, Jishnu Chowdhury, Sarvapriya Mukherjee, Advocates.
For the Respondents:R7, P. C. Sen, R1 & R6, S. K. Kapoor, S. N. Mookerji (Sr. Adv.), Soumya Roy Chowdhury, Jishnu Saha, Ravi Kapoor, Advocates.
The CLB cannot direct an investigation into a company's affairs without finding that there is a prima facie case of mismanagement or oppression.
Headnote:
BIRLA CORPORATION LTD. V. ANURADHA BOSE - COMPANY - SECTIONS 235, 237, 247, 250, 397, 398, 402, 403 - ORDER PASSED BY THE CLB RESTRAINING THE COMPANY FROM ALTERING THE MEMORANDUM OF ASSOCIATION TO ENABLE TRADING IN COMMODITIES AND FINANCIAL PRODUCTS AND DIRECTING AN INVESTIGATION INTO THE COMPANY'S TRANSACTIONS THROUGH CBLO AND MIBOR IS CHALLENGED. THE COURT HELD THAT THE CLB ERRED IN DIRECTING AN INVESTIGATION WITHOUT FINDING THAT THE TRANSACTIONS WERE ILLEGAL.
Fact of the Case:
The applicants, minority shareholders of Birla Corporation Ltd., filed a petition before the CLB alleging mismanagement and oppression by the majority shareholders. They sought various interim reliefs, including an injunction restraining the company from altering its memorandum of association to enable trading in commodities and financial products, and an investigation into the company's transactions through CBLO and MIBOR.
Finding of the Court:
The CLB granted the interim reliefs sought by the applicants. It held that the applicants had made out a prima facie case of mismanagement and oppression, and that the proposed alteration of the memorandum of association would be prejudicial to the interests of the minority shareholders. The CLB also directed an investigation into the company's transactions through CBLO and MIBOR.
Issues: 1. Whether the CLB erred in directing an investigation into the company's transactions through CBLO and MIBOR without finding that the transactions were illegal. 2. Whether the CLB erred in granting the interim reliefs sought by the applicants without considering the balance of convenience.
Ratio Decidendi: 1. The CLB erred in directing an investigation into the company's transactions through CBLO and MIBOR without finding that the transactions were illegal. The CLB had earlier held that the applicants had not made out a prima facie case of mismanagement or oppression. The subsequent events relied on by the applicants did not justify the CLB's change in position. 2. The CLB erred in granting the interim reliefs sought by the applicants without considering the balance of convenience. The CLB did not consider the potential harm to the company if the interim reliefs were granted. The CLB also did not consider the fact that the applicants had not filed a fresh petition alleging the subsequent events on which they relied.
Final Decision: The court allowed the appeal in part. It set aside the CLB's order directing an investigation into the company's transactions through CBLO and MIBOR. The court also directed the company to maintain detailed accounts of all its financial transactions for the period 2008-09 onwards.
ANIRUDDHA BOSE, J.
1. This proceeding arises out of a petition filed by the respondent no. 1 to 6 before the Company Law Board (CLB) under Sections 235, 237, 247, 250, 397, 398, 402 and 403 of the Companies Act 1956. I shall refer to them as the applicants in the later part of this order. The petition has been registered as C.P. No. 1 of 2010 by the CLB. In this petition, various allegations have been made in the operation of Birla Corporation Limited, being the appellant/company which according to the applicants before the CLB constituted mismanagement of the company as well as the acts complained against have been alleged to be oppressive and prejudicial to the interest of the minority shareholders as well as public interest. The allegations are in the nature of siphoning of funds of the company by way of payment of brokerage to undeserved persons and through various other means like payment of freights for doubtful consignments and certain other acts. The applicants have filed the petition before the CLB on the strength of having consent of holders of more than 10% of the shares out of total issued capital of the company as well as having support of more than 100 shareholders numerically. Several applications in the past have been filed alleging mismanagement of the affairs of the company by their existing management. These applications with prayers for interim reliefs were heard earlier but relief was refused by the CLB in those applications in an order passed on 9th February 2011. The petitioners before the CLB have preferred an appeal against this order which is also pending before me for final adjudication. This appeal has been registered as ACO No. 42 of 2011.
2. The order under appeal in this proceeding was passed in a further interlocutory application taken out by the applicants, which was registered as CA No. 302 of 2011. Primary prayer for relief in this application was for restraining the company and other respondents therein from giving any effect to a notice for postal ballot dated 28th April 2011. Through the postal ballot, Special Resolution was sought to be carried through effecting alteration of memorandum of association of the company amending the object clause permitting the company to venture into new business areas, being trading in commodities and financial products. The contention of the applicants opposing such alteration is that if such alteration was allowed, that would have changed the fundamental character of the company’s business, which at present is centered around cement, jute and power generation. In this petition, allegations were also made that the company was already indulging in trading in financial products through business processes known as Collateral Borrowing and Lending Obligations (CBLO) and MIBOR (Mumbai Inter-Bank Offer Rate) linked non-convertible debentures. The case of the applicants is that by borrowing money through these routes and instruments the company had already started indulging in financial trading which they sought to sanctify by expanding the object clause in the memorandum of association of the company. The postal ballot notice was dated 28th April 2011 but the applicants claim to have received them on or after 24th May 2011.
3. The substance of the allegations of the applicants in this interlocutory application as well as in the main petition is that the respondent no. 7, Harsh Bardhan Lodha (HVL) had illegally assumed control of the group of companies and entities who together exercise voting rights to the extent of 62.9% of the shares of the appellant/company. It is complaint of the applicants that HVL had been indulging in siphoning of funds from the said company through various means and money market transactions of the company was also being made through investment companies in which HVL had substantial interest which generated huge sums as commissions. Such activities, according to the applicants, lead to conflict of interest.
4. In the order o
