KUDAL, J. - (1.) PETITIONERS Anil Kumar, Sundar Lal and Ashok Kumar have filed a petition under secs. 397 and 398 of the Companies Act, 1956 against M/s Bedla Flour Mills & Allied Industries Private Ltd. Kota, B. S Gupta, Parvin Gupta, J. Sriniwas Gupta and. Sudhir Gupta alleging that the affairs of the Company are being conducted in a manner which is oppressive to the petitioners who constitute the minority group in the Company. It was further contended that the affairs of the Company are being conducted in a manner which is prejudicial to the interest of the Company and that material changes have been brought in the management of the Company by passing resolutions in unauthorised and illegal meetings whereby great oppression is being sought to be perpetuated on the petitioners and other shareholders belonging to the minority group It is contended that the management of the Company is divided into two group : One is known as Gupta group and the other is known as Bagai group The Gupta group being in majority is deliberately and intentionally, it was contended, adopting oppressive measures against the minority group.
(2.) AN application under Section 403 of the Companies Act read with Rule 9 of the Companies (Court) Rules was also filed by the petitioners (S. B. Civil Misc. Application No 4/1976 in S. B. Company Petition No. 7/1976 ). On 17/9/1976, an ex parte interim order restraining the non-petitioners from giving effect to any of the resolutions passed in the meeting of the Board of Directors on 27-8-1976 The non-petitioners were further restrained from appointing new directors of the non-petitioners' Company and from transferring any property or assets of the respondents' Company including machinery etc. The non-petitioners have put in appearance, and have opposed the ex parte interim restraint order passed on 17-9-1976. On behalf of the non-petitioners it was contended that the ex parte interim restraint order dated 17-9-1976 was obtained by the petitioners on insufficient grounds and by suppressins the fact that a general meeting of the Company had been held on 19 7-1976. It was contended that the meeting of the Board of Directors held on 27-8 1976 was by way of abundant caution only. As a matter of fact, it was contended that two new directors were elected in the general meeting on 19-7-1976. It was further contended that in the month of October, 1976 the balance in the banks was only Rs. 1,077. 25, while the requirement of money for re starting the Mill was estimated to be 3 lacs It was contended that despite the active non co-operation of Bagai group the non-petitioners are intending to arrange for the money. It was also contended that Bagai group is putting all types of obstructions in the working of the Company with a view to force the non-petitioners to a distress sell at a nominal price to the Bagai group It was further contended that the annual general meeting held on 19-9*1976 was wholly legal and valid. Bagai group did not attend the meeting despite notice and the restrain order of this Court dated 17-9-1976 was conveyed after the business of the meeting has been conducted. It was also contended that it is wrong to allege that any articles of the Company have been sold in a manner which is prejudicial to the affairs of the Company. One Ambassador car it was contended, was purchased as a second hand car in 1974 for a sum of Rs. 19,000/ -. The book value of the car on the date of sale was Rs. 7,680/ -. The car was sold for Rs. 9,600/- to M/s. Manoj Cine Exhibitors (India ). It was also contended that with a view to properly and effectively run the management of the Company an agreement was entered into the Gupta Group and the Bagai group on 13/12/1971 that thereafter the Bagai group absented from participating in the meetings of the Directors resulting in a complete standstill of the affairs of the Company. It was, therefore, contended that Bagai group was responsible for perpetuating oppression over the Gupta group and it is wholly incorrect to say that the Gupta group was acting in an oppressive manner against Bagai group. It was further contended that the loss to the Company was caused for reasons which were beyond the control of the non-petitioners. It was also contended that cash sales were effected by Shri Anurodh Kumar Bagai for Rs. 94,689/-, whereas amount remitted to the Bank was Rs. 15. 000/- only. It was further contended that the continuous operation of the Mill came to a stand still from the month of June 1975, due to the financial crises created by Anurodh Kumar Bagai. The payment of banks outstanding to the extent of Rs. 64,000/- was arranged by the respondents. It was also contended that Anurodh Kumar Bagai left Kota without information and without accounting for a sum of Rs. 18,645. 04. It was further contended that the affairs of the Company were found to be satisfactory according to both the groups till the end of the year 1974 and as such it hardly lies in the mouth of the petitioners to allege that the Company is being run in a manar which is oppressive to the Bagai group. The learned counsel for the petitioners contended that the authorised capital of the Company is 10 lacs divided into 10,000 equity shares of Rs 100/-each The issued subscribed and paid up capital of the Company is Rs. 6,10,500/-divided into 6,104 equity shares of Rs. 100/-each. It was further contended that at the time of incorporation of the Company Shri B. S. Gupta and Shri Pravin Gupta were amongst who were appointed as the first Directors of the Company. Subsequently, Shri Sudhir Gupta, and Shri Shriniwas Gupta, were appointed Directors of the Company. Shri B. S. Gupta was appointed Managing Director of the Company on 6-6-1966. He resigned the office of the Managing Director on 13/12/1971. Shri Rao Manohorsingh Bedla and Shri Sriniwas Gupta also resigned as Directors of the Company on 13/12/1971. On the same day, Shri Anurodh Kumar Bagai was co-opted as a Director of the Company. In the meeting held on 13/12/1971, it was agreed that there shall be, in future, three directors from the group of directors led by Shri Lal Chand Bagai and another three directors from the group led by Shri B. S. Gupta It was also agreed that Shri B. S. Gupta shall be the chairman of the Company for three months, and thereafter the Chairman of the Company shall be from the other group. As such, the Chairman of the Company would change after every three months. It was further contended that the Company is engaged in the business of manufacturing flour and maida, and the said production is sold by the Company in the market. The Company has been running in loss since its very inception. It was further contended that the management of the Company was being managed honestly and efficiently by the non-petitioner No. 2. It was also contended that the non petitioner No. 2 and his associates have been managing the affairs of the Company in a manner so as to derive the personal benefit by themselves to the detriment of the Company and general body of share-holders by way of making unvouched sales in violation of the Government Control Order, It was also contended that the Company invariably failed to file its annual statements of accounts in time as required under the Companies Act. It was further contended that the Company took loan of Rs 7,98,000/- from M/s Rajasthan Financial Corporation and all its assets including land, building, plant and machinery are mortgaged with the State Financial Corporation. With a view to run the Company efficiently loans were arranged and the total amount which is due to Bagai Group and its concerns comes to Rs. 19,07,80929. It was further contended that as per Article 84 A of the Articles of Association of the Company all decisions of the Board of Directors have to be taken by unanimous votes and the Chairman of the meeting was not to have a second or casting vote. It was further contended that the meeting of the Board of Directors was called by Sudhir Gupta on 20-8-1976 but the said meeting was cancelled by another notice dated 17-8-1976, and the meeting was postponed to 27-8-1976. It. was further contended that the endeavour of the non-petitioners is to get complete control over the Company notwithstanding the fact that the Bagai Group has invested much larger money than the Gupta Group. It was further contended that contrary to the Articles of Association and also contrary to the Resolution dated 13-12-1971, some more shares are purported to have been allotted to Shri Ravi Gupta son of Shri B. S. Gupta. These additional shares have been allotted without the receipt of any money and further more the shares which are alleged to have been allotted have never been offered to the excising shareholders. It was further contended that as a result of the aforesaid allotment the members of the Gupta group have secured majority over the Bagai Group and this act by itself amounts to an act of oppression of the Bagai Group. It was further contended that the ex parte order issued on 17-9-1976 deserves to be confirmed. On behalf of the non petitioners reliance was placed on Re Kundle Brothers. Ltd (1), wherein it was held that the petitioner was entitled to a winding up order as being on just and equitable ground, but not entitled to relief under S. 210. It was contended that Section 210 of Companies Act, 1948 in England correspondent Section 397 of the Companies Act, 1916 Reliance was placed on Shanti Prasad vs. Kalinga Tubes Ltd. (2), wherein it has been held as under : - "section 397 gives a right to members of a Company who comply with the conditions of S. 399 to apply to the Court for relief under S. 402 of the Act or such other reliefs as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under S. 397 read with S. 402 as it thinks fit if comes to the conclusion that the affairs of the Company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly pre-judice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The Law, however, has not defined what is oppression for purpose of This section and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this sec. The question in each case is whether the conduct of the affairs of a company by the majority share-holders was oppressive to the minority share-holders and that depends upon the facts proved in a particular case It is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397 It must further be shown that the conduct of the majority share-holders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority share-holders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority share-holders and the minority share-holders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the Company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a share-holder It is in the light of these principles that the Court has to consider the facts in the case with reference to Sec. 397. Mere loss of confidence between groups of share-holders would not come within S. 397 unless it be shown that this lack of confidence sprang from a desire to oppress the minority in the management of the Company's affair and that there was at least an element of lack of probity and fair dealing to a member in the matter of his proprietary right as a shareholder. The share holders of a public limited company originally consisted mainly of two groups A and B. Later on to meet the financial difficulties of the Company, C agreed to supply finances on terms that he be allotted shares equal to those hold by A and B group after in-creasiug the share capital. The Company was not a party to the agreement. Nor were the Articles of Association amended in order to incorporate the agreement Liter on the Com-pany converted itself into a public limited company in order to obtain advances from Industrial Finance Corporation. At this time though the Articles of Association were amen-ded, the agreement was not incorporated therein. After the conversion, fresh shares were issued In the meeting of the Board of Directors, C suggested that the new shares should be issued in accordance with S. 81 to the existing share-holder in proportion to the shares held by them, while A and B suggested that they should be offered privately to those who were not share-holders, for A and B apprehended that if they were allotted to existing shareholders C would purchase most of the shares and thus get controlling hand over the affairs of the Company, they themselves being not in position to purchase them. The suggestion of A and B was accepted at the general meeting and the new shares were sold to outsiders who were neither benamidars nor stooges of A and B. C applied under S. 397, on the ground of oppression by the majority. Held (1) that the agreement between A, B and C did not mean that if in future there was any increase in capital that will be shared-equally by the three. (2) The Company, much less the public limited company when it was formed, not being a party to the agreement was not bound by it. Consequently it was open to the public company in its general meeting to decide that new shares should not be issued to the existing share holders but to others privately. The resolution was in accordance with law as it stood when it was passed. This did not mean oppression of minority share-holders. The matter would have been different if the persons to whom the new shares were eventually allotted were benamidars or stooge of A and B group, for in that case it might be paid that these two groups forming the majority in the general meeting had acted fraudulently and unfairly by depriving C of what he would have got under S. 81. " In Prem Singh vs. Thakur Hotel (Simla) Go. (3), it was held as under :- "for relief under sec. 397 petitioners have to make out that the affairs of the company were being conducted in a manner oppressive to them and, further, that the facts justify the making of a winding up order on the ground that it was just and equitable that it should be wound up though in the circumstances it would unfairly prejudice them if the company were ordered to be Woundup The purpose of this section is not so much to rake up the past as to redeem the future. A conduct is oppressive if it is "burdensome, harsh and wrongful. " Even on the assumption that the petitioners had successfully proved the misconduct of the directors during the earlier three years of the company's incorporation that would not furnish a justification for the winding up of the company for "just and equitable" reasons. Held that the petitioners failed to satisfy the two conditions mentioned above required for taking action under sec. 397. "
(3.) ON behalf of the petitioner reliance was placed on Ramashankar vs. S. I. Foundry (4), in which it has been held as under: - "it is always open to a court to give a plaintiff or an applicant such general or other relief as it deem just to the same extent as if it had been asked for, provided that occasions no pre-judice to the other side beyond what can be compensated for in costs. The case of justice will not suffer by the court arriving at a conclusion on a consideration of all the evidence before it even if the original pleadings were lacking in particulars. "it is true that there are no proper averments appropriate to the relief asked. However what was lacking in the petition has been rilled up by the subsequent affidavits and the court must guide itself by all the evidence before it. ONce all the evidence is before the Court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. Held: It must be said that the petitioners had not made a strong case of oppression or mismanagement in the petition. The only material averment of oppression alleged theee-in was the overthrow of the majority by forcible possession of the factory taken by Kedar Nath Bhagat and others on March 13, 1963 but the evidence now available shows that the respondents had started their campaign some time before that and that their plan was to dethrone the petitioners from the position held by them. If the board meeting of January 21, 1963 relied on by the respondents as also the extraordinary general meeting of February 21, 1952 was motivated by the desire to exclude the petitioners, clearly there was an oppression which could not be neutralised by the petitioners short of coming to court and praying for necessary relief The oppression was not of long duration when the petitioners came to court but it was of such a nature that its effect would have persisted indefinitely and kept the petitioners under the complete merely of the respondents. " Reliance was placed on Raghunath Swarop Mathur vs. Har Swarup Mathur (5); wherein it has been held as under: - "section 397 of the Companies Act, 1956, empowers the court to make such orders "as it thinks fit" but only "with a view to bringing to an end the matter complained of", The matters complained of must be proved to establish " (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) 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 woundup. " In cases falling under sec. 398 (l) (b), action can be taken to prevent even likelihood of injury in future either to the interests of a company or to public interest But, in so far as powers under Section 397 as well as section 398 are discretionary, the principle is equally applicable to both that the exercise of such power should be refused where a more suitable or officacious means of redress is open to a complainant. Another rule, flowing from the very nature of powers under sections 397 and 398 of the Act, is that interference in internal management of companies should take place only on good and compelling grounds The powers of the court under the two sections are designed for removal of an existing and not past oppressive or prejudicial course of conduct of the affairs of the company. They are primarily intended for preventive purposes. The object of the exercise of those powers is either to prevent a winding up or to remove the continuation of harm or reasonable probability of injury to the interests of the company or to the wider public interest. Past acts and transactions may either afford evidence of what may be reasonably apprehended in future or may have to be undone only to prevent or remove what had wrongfully originated in the past but continues to exist and provides a sustainable cause of action at the time when the petition is filed, Purely punitive action, as distinct from preventive remedial action, does not fall directly within the purview of these provisions although certain forms of punitive action, such as those mentioned in Schedule XI, which is applied by sec. 406 of the Act to proceedings under secs. 397 and 398 of the Act may indirectly result from them. Although the amplitude of the remedial powers of the court, under secs, 397 and 398, should not be curtailed in such a way as to hamper the jurisdiction to suppress the mischief aimed at, yet, the court has to be careful and astute enough to prevent a misuse of the provisions of secs. 397 and 398 by a party, lest a remedy proposed and adopted to overcame an alleged mischief becomes a source of graeater oppression and harm than the one sought to be removed or prevented. The petitioners prayed, inter alia, for the removal of opposite party No. 2 from the office of the managing director and of opposite parties Nos. 1 and 3 to 6 from the directorship of the company for various reasons and for appointing petitioner No. 1 as managing director and other directors. The petitioner No. 1, who had been employed as an engineer of the company, also claimed compensation for loss of pay due to illegal termination of his service and the award of gratuity to him "when due for his 25 years or more of service" and also that he should be reinstated in his post: Held, that neither an "oppression" of a minority or circumstances justifying a winding up could be established Therefore, sec. 397 would not apply. And, as the contested charges of some mismanagement in the past, even if proved, are not enough to establish an existing injury to the interests of the company or to public interest, or, the iikelyhood of such injury in the future, no action under sec. 398 of the Act could be taken. Whatever may have been the position in the past, the company was carrying on a profitable business; and, even if some "'bungling" had taken place in the keeping of accounts in the past, it may, not justify a winding up order where the company is a sound profit making concern. " For purposes of disposal of the application under Section 403 of the Companies Act, 1956 read with Rule 9 of the Companies (Court) Rules, it would suffice to say that from the respective contentions of the parties it is abundantly clear that there is a complete lack of confidence between the so-called two groups, that is Bagai group and Gupta group. The Gupta group claims to have a majority of shares while the Bagai group claims to have invested much more money than the Gupta group. The Mill is lying idle since the month of June, 1975. It has been contended that even the day to-day administration of the Mill costs about Rs. 2000/- to Rs. 3,000/-; that as the Mill is lying idle the machinery and plants and other articles are deteriorating and the assets of the Company at present hardly reflects 2/3rd of its liability. The respective contentions of the parties ragardmg the previous management and transactions have been challenged by both the groups. At this stage, it is neither expedient nor just and proper to express any opinion regarding the respective contentions of the parties. At this stage, it is only desirable that such interim order should be passed which may permit the working of the Company without causing any hardship to either of the groups and without entailing further financial liability on either of the group ;