IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 28.8.2009 Coram: THE HONOURABLE MR.JUSTICE P.JYOTHIMANI Company Appeal Nos.11 to 15 of 2009 Probir Kumar Misra .. Appellant in C.A.No.11 of 2009, 6th respondent in C.A.Nos. 13 & 14 of 2009 and 5th respondent in C.A.No.12 and 15 of 2009 vs. 1. Ramani Ramaswamy 2. R.Rangarajan 3. Creative Port Development Private Limited "Mahalakshmi", 1st Floor, New No.290 Peters Road, Gopalapuram Chennai – 600 086 .. Respondents 1 to 3 in all C.As. 4. SREI Venture Capital Limited Investment Manager of Infrastructure Project Development Fund (A Scheme of SREI Venture Capital Trust) both having its Regd. Office at "Vishwakarma", No.86-C Topsia Road (South), Kolkata-700 046. .. 4th respondent in C.A.Nos.11 to 14/2009 and Appellant in C.A.No.15/2009 5. Naveen Bansal .. 5th respondent in C.A.Nos.11, 13, 14 of 2009, 4th respondent in C.A.No.15 of 2009 and Appellant in C.A.No.12/2009 https://hcservices.ecourts.gov.in/hcservices/ 6. Swapan Chakrabarti .. 6th respondent in C.A.Nos.11, 12 and 15 of 2009, Appellant in C.A.No.13 of 2009, and 7th respondent in C.A.No.14/2009 7. SREI Infrastructure Finance Limited "Vishwakarma", No.86-C Topsia Road (South), Kolkata-700 046. .. 7th respondent in C.A.Nos.11 to 13 and 15 of 2009, and Appellant in C.A.No.14 of2009 (Respondents 4 to 7 in all C.As. are given up as not necessary parties) COMMON PRAYER: Appeals filed under Section 10F of the Companies Act, 1956 against the order dated 27.5.2009 in C.P.No.13 of 2008. For Appellant in C.A.No.11/2009 : Mr.P.S.Raman, Senior Counsel for M/s.S.Mukundan For Appellant in C.A.No.12/2009 : Mr.A.L.Somayajee, Sr.Counsel for M/s.Cibi Vishnu For Appellant in C.A.No.13/2009 : Mr.P.Arvind Datar, Sr.Counsel for Mr.P.H.Arvindh Pandian For Appellant in C.A.Nos.14 : Mr.S.N.Mookherji, Sr.Counsel and 15/2009 assisted by Mr.Anil Choudry for Mr.P.Valliappan For Respondents 1 and 2 in C.A.No.11/2009 : Mr.Vedantham Srinivasan, for M/s.K.Moorthy & S.R.Sundar For Respondents 1 and 2 in C.A.No.12/2009 : Mrs.Nalini Chidambaram, Senior Counsel for M/s.K.Moorthy & S.R.Sundar For Respondents 1 and 2 in C.A.No.13/2009 : Mr.V.Raghavachari for M/s.K.Moorthy & S.R.Sundar https://hcservices.ecourts.gov.in/hcservices/ For Respondents 1 and 2 in C.A.No.14/2009 : Mr.T.V.Ramanujun, Sr.Counsel for M/s.K.Moorthy & S.R.Sundar For Respondents 1 and 2 in C.A.No.15/2009 : Mr.Sudipto Sarkar, for M/s.K.Moorthy & S.R.Sundar COMMON JUDGMENT These appeals are filed under Section 10F of the Companies Act, 1956 (for brevity, "the Act") by respondents 2 to 6 before the Company Law Board, Additional Principal Bench, Chennai against the order dated 27.5.2009 passed in C.P.No.13 of 2008 filed by respondents 1 and 2 in all these appeals under Sections 397, 398 and 402 of the Act. 2. While C.A.No.11 of 2009 is filed by the fourth respondent before the Company Law Board, C.A.No.12 of 2009 is filed by the third respondent, C.A.No.13 of 2009 is filed by the fifth respondent, C.A.No.14 of 2009 is filed by the sixth respondent and C.A.No.15 of 2009 is filed by the second respondent. 3. For the purpose of brevity, the parties are referred to in this judgment as shown in the impugned order of the Company Law Board. 4.1. The petitioners before the Company Law Board, who are the professionals, promoted the first respondent-Company, viz., Creative Port Development Private Limited (CPDP), being subscribers to the Memorandum and Articles of Association and are stated to have originally had 100% of shares. The company, having been constituted with an object of development of sea ports, was incorporated on 6.2.2006. 4.2. The second respondent, which is a wholly owned subsidiary of the sixth respondent (SREI), was stated to have been issued 70% of shares of the company by virtue of an Investment Agreement dated 26.5.2006 on an understanding that the second respondent, being an investor, should meet the entire funding requirements in respect of the projects undertaken by the first respondent-Company. Therefore, after the said Investment Agreement, the shareholdings of the petitioners, which was 100%, has come down to 30% in the first respondent-Company and the second respondent was given 70% of equity. The petitioners were to take care of the management in its day-to-day administration, while the second respondent had substantial right of management over the first respondent-Company as 70% shareholder. https://hcservices.ecourts.gov.in/hcservices/ 4.3. It is stated that the fourth respondent, who is the appellant in C.A.No.11 of 2009 was also made as a first and permanent Director of the first respondent-Company in its Articles of Association. The said fourth respondent is a nominee of the second respondent-Investor and is also stated to be a Journalist and a Fellow Member of Institute of Cost and Works Accountants of India and its past Secretary and Vice Chairman. 4.4. The third respondent – Mr.Naveen Bansal, appellant in C.A.No.12 of 2009, who was subsequently made as a nominee Director of the first respondent-Company, nominated by the second respondent- Investor, is having experience relating to infrastructure projects. 4.5. The fifth respondent, who is the appellant in C.A.No.13 of 2009, was also made as a nominee Director of the first respondent- Company by the second respondent-Investor and he was the Chairman of Haldia Port Trust and a retired Civil Services Officer of I.A.S. Cadre of 1969 batch. 4.6. It is stated that in January, 2007, two projects were secured for the first respondent-Company, one from the Government of Andhra Pradesh for Machilipatnam Port Project and another from the Government of Orissa for Subarnarekha Port Project. In respect of the Machilipatnam Port Project awarded by the Government of Andhra Pradesh, the same was awarded in favour of a "Consortium" consisting of Maytas Infra Limited (Maytas), Nagarjuna Company Limited (NCC), SREI and Sarat Chatterjee & Co. (VSP) Private Limited (SARAT). 4.7. It appears that Maytas and NCC, who were pre-qualified to develop Port at Machilipatnam in Andhra Pradesh as per the tender floated by the Government, approached a partnership firm called Creative Infrastructure (Creative) owned by the petitioners to strengthen the technical qualification of the bid. It is stated that since the said partnership firm of the petitioners refused to join the above said Maytas and NCC stating that the same is not possible without SREI, a Memorandum of Understanding was entered on 8.2.2006 between Maytas, NCC, SREI and SARAT in the form of Consortium on the one hand and the partnership firm (Creative) on the other hand by which it was agreed that the Creative of the petitioners shall associate with the Consortium till the award of the project and in the event of such award till the commencement of its commercial operations of the port. As per the agreement, while 51% of the Machilipatnam Port Project would be owned by Maytas and NCC, the remaining 49% should be with SREI and the first respondent-Company and therefore, Maytas-NCC combine and SREI and the first respondent- Company combine were to share in the ratio of 51:49. The 51% on the side of Maytas-NCC was agreed to be shared at the rate of 40% and 11% https://hcservices.ecourts.gov.in/hcservices/ each. In respect of 49% on the side of SREI and the first respondent-company combine, SREI was to have the holding of 38%, while the remaining 11% was to be held by the company. 4.8. A Consortium Agreement was entered into on 25.3.2006. According to the petitioners the name of the second respondent (SREI) was proposed in the consortium, since at that time the first respondent-Company was a new entity which was incorporated only on 6.2.2006. On the other hand, it has been the stand of respondents 2 to 6 that the project was not that of the first respondent-Company. It was the case of the petitioners that the second respondent has not funded for the said project as per the assurance and committed breach of its commitments and also parted its interest over the Machilipatnam Port Project in favour of Maytas-NCC combine for obtaining personal gains at the cost of the first respondent-Company, while, as stated above, it has been the case of respondents 2 to 6 that the first respondent-Company, which was jointly promoted by the petitioners and the second respondent-Group has no stake or interest in the Machilipatnam Port Project. 4.9. While the petitioners have challenged the conduct of the second respondent (SREI) as oppression, the same was defended by the second respondent-Investor and others stating that the second respondent is neither a shareholder nor a Director of the Company and therefore, the petition for oppression in respect of Machilipatnam Port Project is not maintainable. 4.10. In respect of the second project, namely Subarnarekha Port Project of the first respondent-Company, it has been again the case of the petitioners that there was no proper funding by the second respondent and ultimately, it has resulted in a Memorandum of Understanding by which the second respondent has agreed to go out of the company for a price of Rs.52.50 Crores. On the other hand, it has been the case of the second respondent that it has always been ready and willing to extend financial assistance as provided under the Investment Agreement and therefore, they cannot be excluded from the affairs and management of the Company under the guise of the Memorandum of Understanding dated 14.11.2007 and according to the second respondent, the said Memorandum of Understanding is not valid in the eye of law and cannot be enforced in a petition filed under Sections 397 and 398 of the Act. 4.11. After elaborate submissions made by both the petitioners and the respondents, the Company Law Board has disposed of the Company Petition filed under Sections 397, 398 and 402 of the Act by https://hcservices.ecourts.gov.in/hcservices/ granting the following reliefs: "(i) The second respondent shall transfer its shares and all other interests held in the Company to the petitioners at a consolidated price of Rs.52.50 Crores, or at a fair value as at 31.03.2008, whichever is higher. The fair value shall be determined by an independent Expert Valuer, appointed by the Bench. The second respondent shall exercise either of the options, by filing an appropriate affidavit before the Bench Officer, within 30 days of the receipt of the copy of the order, towards due completion of the exit formalities of the second respondent from the Company. (ii) The respondents 2 to 6 shall ensure reimbursement, in favour of the Company, 30% of all benefits enjoyed by SREI from and out of the Machilipatnam Port Project as at 31.03.2008, which shall be ascertained by the Expert Valuer. (iii) The petitioners shall forthwith reconstitute the Board of directors of the Company, in exclusion of the nominees of the second respondent, upon which the Company is at liberty to carry on its business, in terms of the articles of association of the Company. (iv) The petitioners shall keep informed the second respondent of any major developments in the Subarnarekha Port Project every month, within seven days of the following month commencing from June 2009, till completion of the whole of exit formalities of the second respondent from the Company." 4.12. For arriving at such conclusion, the Company Law Board has accepted the contention of the petitioners that the Machilipatnam Port Project was a project of the first respondent-Company and therefore, the petitioners, being 30% shareholders of the first respondent-Company, are entitled to reimbursement of benefits stated to have been enjoyed by the second respondent under the said project. Further, accepting the contentions of the petitioners that the Memorandum of Understanding entered between the petitioners and the second respondent dated 14.11.2007 is binding on the second respondent since under the said agreement the second respondent has agreed to exit from the Company, the Company Law Board directed the https://hcservices.ecourts.gov.in/hcservices/ second respondent to transfer all its shares in the first respondent- Company in favour of the petitioners on the price as fixed, namely Rs.52.50 Crores. 5.1. While the above appeals came up for admission before this Court on 24.6.2009, the learned counsel for the petitioners, who are respondents 1 and 2 in the appeals, has, in fact, submitted that pursuant to the Company Law Board order which is impugned in these appeals, the Board of Directors have been reconstituted, however, he has undertaken that till 9.7.2009, the newly constituted Board of Directors will not convene any meeting. The said undertaking was continued by order dated 9.7.2009 and in addition to that it was made clear that if the time granted by the Company Law Board in the impugned order under paragraph 9(i) for filing an affidavit expires, the same shall not be put against respondents 2 to 6, who are the appellants. The order dated 9.7.2009 is as follows: "The undertaking already given by Mr.T.V.Ramanujun, learned Senior Counsel dated 24.6.2009 shall continue. In addition to that it is made clear that by virtue of the impugned order of the Company Law Board under Clause 9(i), if the time granted for filing affidavit expires, the same shall not put against the appellants." 5.2. Subsequently, the matter was taken up for hearing on 10.7.2009 and the following order was passed by this Court: "In continuation of the earlier orders dated 24.6.2009 and 9.7.2009 made in Company Appeal Nos.11 to 15 of 2009, the following order is passed. 2. Mr.T.V.Ramanujun, learned Senior Counsel appearing for the respondents submits that in the newly constituted Subarnarekha Port Pvt. Ltd., the respondents 1 and 2, namely Mr.Ramani Ramaswamy and Mr.R.Rangarajan are holding 100% shares. 3. While making it clear that the Subarnarekha Port Pvt. Ltd's project as stated to be approved by the Government of Orissa will continue, the respondents 1 and 2 shall maintain status quo in respect of their share holding in Subarnarekha Port Pvt. Ltd. https://hcservices.ecourts.gov.in/hcservices/ 4. The Learned Counsel appearing for respondents are directed to produce all subsequent records to this court during the course of arguments." The said order was passed taking note of the fact that Subarnarekha Port Project is a public project and public interest is involved. 6. Even though under the relief granted by the Company Law Board in paragraph 9(iv) there was a direction against the petitioners to keep informed the second respondent of any major developments in the Subarnarekha Port Project every month, the complaint was that the same was not followed, for which the contention raised on behalf of the petitioners is that if the above said direction is accepted, respondents 2 to 6 must withdraw their appeals. 7.1. Before going into the contentions raised by the respective counsel and merits of the case relating to the impugned order of the Company Law Board, it is relevant to point out some of the factual circumstances to arrive at a proper conclusion in these appeals. 7.2. The scope of this Court in deciding appeals against the order of the Company Law Board under Section 10F of the Act is limited to the extent of deciding on a question of law arising out of the order. Section 10F of the Act is as follows: "Section:10F. Appeals against the order of the Company Law Board.- Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 7.3. The Andhra Pradesh High Court in D.Ramkishore and others v. Vijayawada Share Brokers Ltd. and others, [2008] 144 Company Cases 326 (AP), by referring to a series of judgments of the Apex Court regarding the scope of Section 10F of the Act has held as under: "8. Under Section 10F of the Companies Act, 1956, any https://hcservices.ecourts.gov.in/hcservices/ person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court on any question of law arising out of such order. It is only on a question of law, and not of fact, that an appeal would lie against the order of the Company Law Board to the High Court. There is no jurisdiction to entertain an appeal on grounds of erroneous findings of fact, however gross the error may seem to be, for if the question to be decided is one of fact it does not involve an issue of law. (Deity Pattabhiramaswamy v. S. Hanymayya AIR 1959 SC 57). It is only an error of law which can be corrected by the High Court in exercise of its jurisdiction under Section 10F of the Companies Act. If the finding recorded by the Company Law Board is one of law or of mixed law and fact, the High Court can certainly examine its correctness, but if it is purely one of fact, the jurisdiction of the High Court would be barred. (Mattulal v. Radhe Lal, AIR 1974 SC 1596). A finding on a question of fact is open to attack as erroneous in law only if it is not supported by any evidence, or if it is unreasonable and perverse, but where there is evidence to consider, the decision of the Company Law Board is final even though the High Court might not, on the materials, have come to the same conclusion if it had the power to substitute its own judgment. (Sree Meenakshi Mills Ltd. v. CIT, AIR 1957 SC 49). In between the domains occupied respectively by questions of fact and of law, there is a large area in which both these questions run into each other, forming enclaves within each other. The questions that arise for determination in that area are known as mixed questions of law and fact. These questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on an application of the appropriate principles of law to the facts ascertained. The ultimate finding on the issue must, therefore, be an inference to be drawn from the facts found, on the application of the proper principles of law, and in such cases an inference from facts is a question of law. In this respect, mixed questions of law and fact differ from pure questions of fact in which the final determination, equally with the finding or ascertainment of basic facts, does not involve the application of any principle of law. The proposition that an inference from facts is one of law will be correct in its application to mixed questions of law and fact but not to pure questions of fact. When the finding is one of fact, the fact that it is itself in inference from other basic facts will not alter its character as https://hcservices.ecourts.gov.in/hcservices/ one of fact (Sree Meenakshi Mills Ltd. v. CIT)." 7.4. The scope of Section 10F of the Act, which provides for an appeal against the order of the Company Law Board, has been enunciated by the Apex Court in V.S.Krishnan and others v. Westfort Hi-Tech Hospital Ltd. and others, [2008] 3 SCC 363 as under: "It is clear that Section 10F permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e., the Company Law Board is the final authority on facts unless such findings are perverse based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate Court under Section 10F is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate Court would interfere under Section 10F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) omission to construe relevant materials." 7.5. By virtue of the limited powers of this Court while deciding as an Appellate Court under Section 10F of the Act wherein the question of law has to be considered, the basic questions that are raised before this Court in these appeals are: (i) as to the jurisdiction of the Company Law Board to grant remedy for the breach of Investment Agreement and the Memorandum of Understanding dated 14.11.2007; (ii) when the respondents have given an undertaking to act as per the Investment Agreement, whether in spite of the same the oppression will continue; (iii) whether there was any oppression at all on the factual matrix of the case before the Company Law Board; (iv) whether it was within the power of the Company Law Board in not deciding about the Contempt Application while disposing the Company Petition; (v) as to whether it was lawful for the Company Law Board to permit the petitioners to reconstitute the Board of Directors of the Company without even securing https://hcservices.ecourts.gov.in/hcservices/ the payment of consideration; (vi) as to whether the Company Law Board was right in allowing the reconstitution of the Board of Directors, without the approval of the shareholders and whether the same is within the provisions of the Act; (vii) as to whether the claim on Machilipatnam Port Project, which is based on the Memorandum of Understanding, can be a subject matter of oppression; (viii) as to whether it is proper for the Company Law Board to rely upon the Memorandum of Understanding dated 14.11.2007, which is held by the Company Law Board itself as not enforceable; (ix) as to whether it is within the jurisdiction of the Company Law Board to decide an issue which is referable to arbitration as per the Investment Agreement; (x) as to whether respondents 3 to 5 can be personally made responsible in respect of an amount stated to have been received by the second respondent; and (xi) as to whether the relief granted by the Company Law Board by virtue of the powers conferred under Section 402 of the Act can be sustained. 7.6. The grounds of oppression which are broadly raised by the petitioners before the Company Law Board alleged against respondents 2 to 6 were: (i) the Machilipatnam Port Project is a project of the first respondent-Company and the second respondent, being an Investor under the Investment Agreement dated 26.5.2006, instead of working for the benefit of the first respondent-company has chosen to transfer its shares in the said project in favour of third parties, namely Maytas and NCC, thereby taking away the said project granted by the Government of Andhra Pradesh, which is prejudicial to the interest of the Company; (ii) the second respondent, being an Investor bound under the Investment Agreement dated 26.5.2006, who has to fund the various projects has failed to do the same which is detrimental to the interest of the members as well as the Company; (iii) the second respondent, having agreed under a Memorandum of Understanding dated 14.11.2007 to exit from the first respondent-Company, has chosen to go back from the agreement which is detrimental to the interest of the Company and its members; https://hcservices.ecourts.gov.in/hcservices/ (iv) the second respondent, being the majority shareholder of the first respondent-Company holding 70% of the shares, has frozen the bank accounts which is prejudicial to the interest of the company; (v) the second respondent, in whose premises the registered office of the first respondent-Company was situated, has deliberately locked the premises thereby closing the registered office of the first respondent- Company which is not only detrimental to the affairs of the Company, but it had blocked the entire process of the business of the company. 7.7. On the other hand, it was the contention of respondents 2 to 6 as a defence that: (i) Machilipatnam Port Project is not a project of the first respondent-Company and it was between the Consortium of Maytas, NCC, SREI and SARAT, and therefore, it was never treated as a project of the first respondent-Company. The Investment Agreement dated 26.5.2006 in respect of the Machilipatnam Port Project can at the most be treated as a contractual