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High Court of Calcutta
U.C. Banerjee, J.
Bagri Cereals Pvt. Ltd. – Appellant
Versus
State of W.B. – Respondent
Decided On: March 22, 1993
The High Court, while adjudicating upon a petition filed under Sections 397 and 398 of the Companies Act, 1956, held that the petitioner, a minority shareholder in the respondent company, was subjected to oppression and mismanagement by the respondent directors, who formed the majority group in the company. The Court observed that the petitioner was deliberately kept out of the affairs of the company and eventually was not allowed to continue in office as Director of the Company. The Court found that there was total oppression of the minority share-holders, and that the petitioner's grievance in regards to ouster from the management of the company and running of the administration contrary to the normal practice was not only legitimate but justified. The Court further observed that the accounts produced required investigation by experts as there were various infirmities and irregularities, and that the allegation of manipulation of accounts and fictitious nature of the accounts seemed to be justified in the facts and circumstances of the case. The Court held that it was just and equitable that the company should be wound up, and accordingly, passed orders superseding the Board of the Company and appointing an Administrator to take possession of the statutory books, papers and documents and to run the day-to-day business of the company. The Court also appointed an Auditor to investigate into the accounts of the company and to value the shares of the company. The Court further directed that upon investigation of accounts, adjustment of accounts be effected and in the event of any sum found due and payable by one of the directors, the same be paid. The Court also directed that the petitioner no. 1 is directed to sell his shares to the respondents together with the shares of the petitioner no. 1's group members. It was only upon payment of the value of shares by the respondents to the petitioner that the Administrator shall stand discharged.
Fact of the Case:
The petitioner, a minority shareholder in the respondent company, filed a petition under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement by the respondent directors, who formed the majority group in the company. The petitioner alleged that he was deliberately kept out of the affairs of the company and eventually was not allowed to continue in office as Director of the Company. The petitioner also alleged that there was total oppression of the minority share-holders, and that the petitioner's grievance in regards to ouster from the management of the company and running of the administration contrary to the normal practice was not only legitimate but justified. The petitioner further alleged that the accounts produced required investigation by experts as there were various infirmities and irregularities, and that the allegation of manipulation of accounts and fictitious nature of the accounts seemed to be justified in the facts and circumstances of the case.
Finding of the Court:
The Court found that the petitioner was subjected to oppression and mismanagement by the respondent directors, who formed the majority group in the company. The Court observed that the petitioner was deliberately kept out of the affairs of the company and eventually was not allowed to continue in office as Director of the Company. The Court further observed that there was total oppression of the minority share-holders, and that the petitioner's grievance in regards to ouster from the management of the company and running of the administration contrary to the normal practice was not only legitimate but justified. The Court further observed that the accounts produced required investigation by experts as there were various infirmities and irregularities, and that the allegation of manipulation of accounts and fictitious nature of the accounts seemed to be justified in the facts and circumstances of the case.
Issues: 1. Whether the petitioner was subjected to oppression and mismanagement by the respondent directors? 2. Whether there was total oppression of the minority share-holders? 3. Whether the petitioner's grievance in regards to ouster from the management of the company and running of the administration contrary to the normal practice was legitimate and justified? 4. Whether the accounts produced required investigation by experts due to various infirmities and irregularities? 5. Whether the allegation of manipulation of accounts and fictitious nature of the accounts was justified in the facts and circumstances of the case?
Ratio Decidendi: The Court held that the petitioner was subjected to oppression and mismanagement by the respondent directors, who formed the majority group in the company. The Court observed that the petitioner was deliberately kept out of the affairs of the company and eventually was not allowed to continue in office as Director of the Company. The Court further observed that there was total oppression of the minority share-holders, and that the petitioner's grievance in regards to ouster from the management of the company and running of the administration contrary to the normal practice was not only legitimate but justified. The Court further observed that the accounts produced required investigation by experts as there were various infirmities and irregularities, and that the allegation of manipulation of accounts and fictitious nature of the accounts seemed to be justified in the facts and circumstances of the case.
Final Decision: The Court held that it was just and equitable that the company should be wound up, and accordingly, passed orders superseding the Board of the Company and appointing an Administrator to take possession of the statutory books, papers and documents and to run the day-to-day business of the company. The Court also appointed an Auditor to investigate into the accounts of the company and to value the shares of the company. The Court further directed that upon investigation of accounts, adjustment of accounts be effected and in the event of any sum found due and payable by one of the directors, the same be paid. The Court also directed that the petitioner no. 1 is directed to sell his shares to the respondents together with the shares of the petitioner no. 1's group members. It was only upon payment of the value of shares by the respondents to the petitioner that the Administrator shall stand discharged.
1. RELIEF against the oppression of minority in the corporate management has been provided under the provisions of the Companies Act in Sections 397 and 398. The statute provides that in the event of oppression of a member or members. Law courts would be within its jurisdiction to grant such relief or reliefs as the court may deem fit and proper having due regard to the concept of justice.
2. IN the instant matter the petitioner has moved this Court for redressal of such a grievance. Before, however, adverting to the rival contentions, the preliminary point in regard to the maintainability of the application as raised by Mr. Sen ought to be dealt with at this juncture as that goes to the very root of the matter. The preliminary point refers to the non-maintainability of the action before the Court by reason of lack of necessary averments as provided in Section 397 (2) (b) read with Rule 88 of the Companies Court Rules framed under the Companies Act, 1956 and the form prescribed being Form No. 43. For convenience the above-noted provisions are noted herein below:-
"(2) If, on any application under Sub-section (i) the court is of opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) That to wind up the Company would unfairly prejudice such member or members but that otherwise the facts would justify the making of winding up order on the ground that it was just and equitable that the Company should be wound up" rule 88 of the Companies Court Rules provide : (it. . . . . . . . . . . . . . . . . . . . . . . . . a petition under Section 397 shall be in form no. 43. . . . . . . . . From No. 43 as prescribed under the Companies Court Rules after detailing out the other formalities in Paragraph 7 provides : -. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (conclude as follows ). . . . . . . . . . . . . . . . . . . . . . . . . . . . In these circumstances, the petitioner's) submit/submits that the affairs of the Company are being conducted in a manner oppressive to a part of the members of the Company including the petitioner (s) and that while it would be just and equitable that the company should be wound up, to do so would unfairly prejudice the petitioner's) and that part of the members".
Relying on the above-noted provisions it was contended that on a plain reading of Section 397 (2) (b) read with Rule 88 and Form 43 that it is for the petitioner to allege that to wind up the company would be prejudicial to the members of the Company but the facts and circumstances of the case justify the making of the winding up order on the just and equitable ground. Mr. Sen drew attention of the Court that since no case for winding up has at all been made out in the petition and in the absence of pleading of winding up, the petition is liable to be dismissed in limine, as otherwise the petition does not disclose a cause of action.
3. THE issue, therefore, arises for consideration as to whether there is a mandate under Rule 88 that the petitioner in an application under Section 397 must conform to Form No. 43. Incidentally it is to be noted that the companies Court Rules have been framed under the Act and has due statutory sanction, similar is also the position in regard to forms as prescribed under the rules and it is on this basis it is contended that Form no. 43 makes it obligatory to the applicant to make the averments as prescribed in the form as noted above.
4. IT is on this perspective Mr. Sen contended that there must be a formation of opinion on the part of the Court that on the facts alleged an order of winding up would be justified on just and equitable grounds and in the absence of such an averment, question of formation of opinion would not arise by reason where for the question of assumption of jurisdiction under the act to deal with the matter like the present would not arise.
There is no denial of the fact that forms pr
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