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CALCUTTA HIGH COURT
Indra Prasanna Mukerji, J.
Murlidhar Ratanlal Exports Ltd. - Appellant
Versus
Bijay Kumar Kajaria & Ors. - Respondents
A. C. O. No. 55 of 2012 With A. P. O. No.104 of 2012
Decided on : March 22, 2013
COMPANY LAW - Maintainability of Company Petition - Rights Issue - Oppression and Mismanagement - Family Company - Equitable Rights and Legitimate Expectations of Shareholders - Balancing Interests of Shareholders - Interpretation of Relevant Provisions of the Companies Act, 1956.
Fact of the Case:
Bijay Kumar Kajaria and his group (petitioners) filed a company petition under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement by Ajay Kumar Kajaria, Sanjay Kajaria, and their group (respondents) in the family-owned company, Murlidhar Ratanlal Exports Ltd. (MREL). The petitioners sought various reliefs, including a declaration of oppression and mismanagement, an injunction restraining the respondents from issuing rights shares, and a direction to the respondents to purchase their shares at a fair value.
Finding of the Court:
The court held that the point of maintainability of the company petition was a delicate issue that could not be easily decided as a demurrer or a pure question of law. It observed that the disputes between the parties were not purely private but involved acts of oppression and mismanagement that could be adjudicated by the Company Law Board under Sections 397 and 398 of the Companies Act, 1956.
Issues: 1. Whether the company petition was maintainable, considering that the disputes between the parties were alleged to be purely private. 2. Whether the proposed rights issue by the respondents would be oppressive to the petitioners and adversely affect their rights as shareholders in the family company.
Ratio Decidendi: 1. On the issue of maintainability, the court held that the question of whether disputes between parties are purely private or not is a mixed question of law and facts that should be decided along with the merits of the disputes. It observed that it was not easy to draw a line separating an impersonal company from the disputes of persons who control or want control of the company, regarding shares, management, and so on. 2. On the issue of the rights issue, the court recognized the financial difficulties faced by the company and the need to raise capital to improve its debt equity ratio and credit rating. However, it emphasized that the rights issue should not be used as an engine of oppression against the petitioners and should not adversely affect the rights of members of the family company, especially considering the pending company petition. The court relied on the principles laid down in the cases of Ebrahimi V. Westbourne Galleries Ltd. and Others, Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., and Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad to support its decision.
Final Decision: The court allowed the appeal and set aside the order of the Company Law Board dismissing the respondents' application for vacation of the status quo order and dismissal of the company petition. It directed the Company Law Board to dispose of the company petition within six months and granted permission to the respondents to proceed with the rights issue, subject to certain conditions. The conditions included offering rights shares to the petitioners as if their claim for 9,66,638 shares was true, subject to the results of the Company Law Board petition, and allowing the petitioners to exercise the option of provisionally taking the rights shares without making any payment for them, for the time being.
In this appeal the parties will be described in the same way as in the Company petition (C.P. 7/2009) before the Company Law Board, which is under Sections 397 and 398 of the Companies Act, 1956. The reference to petitioners means Bijay Kumar Kajaria and his group, whereas the reference to Respondents means Ajay Kumar Kajaria, Sanjay Kajaria and their group.
2. It appears that at quite a mature stage of hearing of the company petition before the Board, the first respondent made an application (C.A. No. 366 of 2011) before it. They wanted dismissal of the petition on the ground of maintainability. To be more specific, according to them the disputes which were before the Board were purely private disputes between shareholders. They did not involve any act of the company or of mismanagement or oppression of shareholders or a body of them. They also wanted, in the alternative, vacation of the status quo order passed by the Company Law Board on 24th March, 2009. The status quo order was with regard to the share capital, shareholding, composition of the board and fixed assets of the company Murlidhar Ratanlal Exports ltd. (MREL).
GROUNDS:
3. There were several grounds urged to seek this order.
4. First, comes the point of maintainability. In the application (C.A. No. 366 of 2011) before the Company Law Board by the first Respondent, they pleaded as follows in paragraph 35:
"35. The subject matter of the main 397 petition is also beyond the scope of the proceedings under Sections 397 and 398 of the Companies Act, 1956. Issues raised in the said petition cannot be decided in exercise of powers under Sections 397 and 398 of the Companies Act, 1956. This Hon'ble Board does not have jurisdiction to entertain the said petition. For this purpose the petitioners crave leave to refer to Section 397 petition at the time of hearing. On this ground C.P. No.7 of 2009 should be dismissed and the interim orders passed therein vacated."
5. During the time of hearing of this application I asked the learned Counsel for the respondents whether the point of maintainability had been taken in the rejoinder or counter affidavit to the main company petition. The answer was in the affirmative. I was shown passages from the rejoinder.
6. It is an undisputed position that the Company Law Board made a mistake in the order dated 29th February, 2012 which is before me in appeal. It recorded that it was not deciding the point of maintainability because it was decided before. The point of maintainability was never decided before.
7. Mr. Mitra for the respondents urged that I should decide the question of maintainability.
8. On the other hand Mr. Mookerji, learned Senior Advocate appearing for the petitioners said that for 2½ years since they approached the Company Law Board by way of the above petition, the respondents had not .asked the Board to decide the question of maintainability, as a preliminary decision, by making an application before it or otherwise. Of course, the point had been taken in the counter affidavit. Quite lengthy arguments on merits were made as to why the point of maintainability had no substance and equally lengthy arguments in aid of the contention.
9. The submissions on the merits of the dispute in the above application C.A. 366 of 2011 were as follows:
The debt equity ratio of the company was going up. Unsecured loan liability rose from Rs.14 crores as on 31st March, 2009 to Rs.34.58 crores as on 31st March, 2011. Secured loan liability went up from Rs. 27.7 crores to Rs.48.2 crores in the same period. The sales of the company were increasing. The turnover rose from Rs. 230 crores in 2008-2009 to Rs. 556.8 crores in 2010-2011. The company needed more working capital to manufacture goods and sell them. The debt servicing charge in the shape of interest payable on loans obtained by the Company was Rs.3 crores in 2010-2011.
10. The credit rating agency (CRISIL) had downgraded the credit rating of the company.
11. There was another justific
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