Case: Incable Net(Andhra) Limited  Vs. Ap Aksh Broadband Ltd

estops him from alleging that the Respondent No.2 Company had been siphoning off the funds of the Respondent No.1 Company without diligently performing its part of the contract. There is substance in Mr. Raghavans submissions that the EPC Contract given to the Respondent No.5 by the Respondent No.1 was a commercial contract and stands outside the ambit of Sections 397 and 398 of the Companies Act. Failure to act in terms of the contract cannot be said to have amounted to either oppression or mismanagement by the Respondent No.1. At best it can be said that the Respondent No.1 had been used as a tool or mechanism by the Respondent No.5 to acquire benefits for itself, which in the instant case, does not appear to be so, having regard to the fact that one of the Petitioners in the Company Petition was himself responsible for such payments being made.34. Both the parties have placed reliance on the decision of this Court in Needle Industries (India) Ltd. (supra). Mr. Gupta relied on the said decision in support of his submission that by denying an opportunity to the Petitioners to adduce oral evidence, the CLB had shut out vital evidence which would have strengthened the case of the Petitioners. The views expressed in paragraph 63 of the said decision is the expression of a general principle of law and only confirms the principle of adducing evidence, but does not lay down a hard and fast rule that in all cases the Court or the CLB is bound to allow oral evidence to be led as otherwise there is a risk that the person accused of wrongful conduct is denied an opportunity to controvert the inference said to have been arrived at from the evidence produced before the Court alone. As a proposition of law there can be no disagreement with the same, but the question is as to whether the same is required to be applied in the facts of the instant case.35. From the submissions made on behalf of the respective parties and the materials on record, the point which falls for consideration in this appeal is as to whether a case of oppression and mismanagement by the majority shareholders against the minority shareholders had been established or not. 36. Whether there is any truth in Mr. Guptas submissions as to the siphoning of funds by the Respondent No.5 Company from the Respondent No.1 Company, which had been set up as a Special Purpose Vehicle and in which the Respondent No.5 was a majority shareholder, holding about 60% of the equity shares has not been properly established. On the other hand, the materials on record indicate that the Petitioner No.2, who is a Director of the Petitioner No.1 Company, which is also a shareholder in the Respondent No.1 Company, had functioned as a Vice President of the Respondent No.1 Company and had also chaired 8 of its Meetings including the Meeting held on 21st April, 2005, in which the decision was taken to award the EPC Contract to the Respondent No.5 Company. Further more, the Petitioner No.2 had signed most of the cheques by which payments were made to the Respondent No.5 Company for supply of materials under the EPC contract. It does not lie in the mouth of the Petitioner to now contend that the funds of the Respondent No.1 Company had been siphoned by the Respondent No.5.37. From the facts as revealed, the only conclusion that can be arrived at is that the Respondent No.5 had committed a breach of contract in regard to supply of materials to the Respondent No.1 Company in terms of the EPC contract. Such lapse, in our view, would not constitute the ingredients of a complaint under Section 397, 398, 402 and 403 of the Companies Act, 1956. Such breach could give rise to an action of breach of contract under Section 73 of the Indian Contract Act, 1872.38. The decisions cited on behalf of the respective parties and in particular, the decision in Needle Industries (India) Ltd. (supra), in support of the claim of the Petitioners for being allowed to lead oral evidence, does not really come to the aid of the Petitioners, since from the materials on record itself it has been established that at best the Respondent No.5 had failed to abide by its commitments in the EPC contract executed in its favour by the Respondent No.1 Company.39. We are unable to understand as to how the decisions in the above case are of any help to the Petitioners, since nothing concrete has been established by them in regard to either oppression or mismanagement by the Respondent No.5 as far as the Petitioners are concerned. On the other hand, the conduct of the Petitioner No.2 provides a different picture since at the relevant point of time he was at the helm of affairs of the Respondent No.1 Company, despite being a Director on the Board of the Petitioner No.1 Company. The decision in V.S. Krishnans case (supra) is more apposite to the facts of the case. Quoting Halsbury, this Court observed that the expression "oppression" within the meaning of the Sections 398, 399 and 402 of the Companies Act had been interpreted to mean that the conduct of the majority shareholders towards the minority shareholders was harsh, burdensome and wrong and that such conduct was mala fide and was for a collateral purpose which would result in an advantage for some shareholders over others, although, the ultimate object might be in the interest of the Company. However, the facts disclosed in this case do not establish such conduct on the part of the Respondent No.5. Until the conduct of the majority shareholders was found to be oppressive in terms of the above description, under Sections 397 and 398 of the Companies Act, 1956, the Company Law Board was not competent to invoke its jurisdiction under Section 402 of the said Act to set right, or put an end to such oppression.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]31. The allegation on the basis of which such reliefs have been prayed for basically is that the EPC Contractor AKSH, the Respondent No.5, which is also the majority shareholder in the Respondent No.1 Company, had mismanaged the funds and operations of the Company and the work on the project was delayed on account of the various acts of omission and commission on the part of AKSH. The reliefs prayed for have been opposed on behalf of the Respondents contending that the contractual obligations under the EPC Contract did not fall within the scope of Sections 397 and 398 of the above Act and the right of the Petitioners as shareholders was in no way affected, particularly, when the Petitioner No.2 was a Director andand a member of the Managing Committee constituted to monitor the implementation of work of the project and at no point of time had he made any grievance with regard to the EPC Contract. That apart, he had chaired the meetings of the Board and operated the bank accounts and payments made to AKSH by the Respondent No.1 Company had in most cases been done by him on behalf of the Company.32. It is on the said foundation that a case of oppression and mismanagement has been attempted to be made out by the Petitioners. However, in the facts of the case it becomes difficult to take a different view as has been expressed both by the CLB as also by the High Court.33. Admittedly, the Respondent No.5 is a majority shareholder in the Respondent No.1 Company and at the same time the EPC Contract has also been given by the Respondent No.1 Company to the Respondent No.5, to which transaction the Petitioner No.2, Shri R.V.R. Chowdary, was also a party in his capacity asof the Respondent No.1 Company. Besides being a party to the decision to give the EPC Contract to the Respondent No.5, the Petitioner No.2 was also instrumental in payment of large sums of money being made to the Respondent No.5 which estops him from alleging that the Respondent No.2 Company had been siphoning off the funds of the Respondent No.1 Company without diligently performing its part of the contract. There is substance in Mr. Raghavans submissions that the EPC Contract given to the Respondent No.5 by the Respondent No.1 was a commercial contract and stands outside the ambit of Sections 397 and 398 of the Companies Act. Failure to act in terms of the contract cannot be said to have amounted to either oppression or mismanagement by the Respondent No.1. At best it can be said that the Respondent No.1 had been used as a tool or mechanism by the Respondent No.5 to acquire benefits for itself, which in the instant case, does not appear to be so, having regard to the fact that one of the Petitioners in the Company Petition was himself responsible for such payments being made.34. Both the parties have placed reliance on the decision of this Court in Needle Industries (India) Ltd. (supra). Mr. Gupta relied on the said decision in support of his submission that by denying an opportunity to the Petitioners to adduce oral evidence, the CLB had shut out vital evidence which would have strengthened the case of the Petitioners. The views expressed in paragraph 63 of the said decision is the expression of a general principle of law and only confirms the principle of adducing evidence, but does not lay down a hard and fast rule that in all cases the Court or the CLB is bound to allow oral evidence to be led as otherwise there is a risk that the person accused of wrongful conduct is denied an opportunity to controvert the inference said to have been arrived at from the evidence produced before the Court alone. As a proposition of law there can be no disagreement with the same, but the question is as to whether the same is required to be applied in the facts of the instant case.35. From the submissions made on behalf of the respective parties and the materials on record, the point which falls for consideration in this appeal is as to whethera case of oppression and mismanagement by the majority shareholders against the minority shareholders had been established or not.Whether there is any truth in Mr. Guptas submissions as to the siphoning of funds by the Respondent No.5 Company from the Respondent No.1 Company, which had been set up as a Special Purpose Vehicle and in which the Respondent No.5 was a majority shareholder, holding about 60% of the equity shares has not been properly established. On the other hand, the materials on record indicate that the Petitioner No.2, who is a Director of the Petitioner No.1 Company, which is also a shareholder in the Respondent No.1 Company, had functioned as a Vice President of the Respondent No.1 Company and had also chaired 8 of its Meetings including the Meeting held on 21st April, 2005, in which the decision was taken to award the EPC Contract to the Respondent No.5 Company. Further more, the Petitioner No.2 had signed most of the cheques by which payments were made to the Respondent No.5 Company for supply of materials under the EPC contract. It does not lie in the mouth of the Petitioner to now contend that the funds of the Respondent No.1 Company had been siphoned by the Respondent No.5.37. From the facts as revealed, the only conclusion that can be arrived at is that the Respondent No.5 had committed a breach of contract in regard to supply of materials to the Respondent No.1 Company in terms of the EPC contract. Such lapse, in our view, would not constitute the ingredients of a complaint under Section 397, 398, 402 and 403 of the Companies Act, 1956. Such breach could give rise to an action of breach of contract under Section 73 of the Indian Contract Act, 1872.38. The decisions cited on behalf of the respective parties and in particular, the decision in Needle Industries (India) Ltd. (supra), in support of the claim of the Petitioners for being allowed to lead oral evidence, does not really come to the aid of the Petitioners, since from the materials on record itself it has been established that at best the Respondent No.5 had failed to abide by its commitments in the EPC contract executed in its favour by the Respondent No.1 Company.39. We are unable to understand as to how the decisions in the above case are of any help to the Petitioners, since nothing concrete has been established by them in regard to either oppression or mismanagement by the Respondent No.5 as far as the Petitioners are concerned. On the other hand, the conduct of the Petitioner No.2 provides a different picture since at the relevant point of time he was at the helm of affairs of the Respondent No.1 Company, despite being a Director on the Board of the Petitioner No.1 Company. The decision in V.S. Krishnans case (supra) is more apposite to the facts of the case. Quoting Halsbury, this Court observed that the expression "oppression" within the meaning of the Sections 398, 399 and 402 of the Companies Act had been interpreted to mean that the conduct of the majority shareholders towards the minority shareholders was harsh, burdensome and wrong and that such conduct was mala fide and was for a collateral purpose which would result in an advantage for some shareholders over others, although, the ultimate object might be in the interest of the Company. However, the facts disclosed in this case do not establish such conduct on the part of the Respondent No.5. Until the conduct of the majority shareholders was found to be oppressive in terms of the above description, under Sections 397 and 398 of the Companies Act, 1956, the Company Law Board was not competent to invoke its jurisdiction under Section 402 of the said Act to set right, or put an end to such oppression.