Case: M.S.D.C. Radharamanan Vs. M.S.D.Chandrasekara Raja

2. M/s. Shree Bhaarathi Cotton Mills Private Limited is a company registered and incorporated underthe Companies Act, 1956 (For short, the Act). Out of the 2,84,000 equity shares in the company of Rs.10/- each, 2,83,999 shares are held by the first respondent and his son (appellant herein). The remaining one share is held by M/s. Visva Bharathi Textiles Private Limited, shares in which again is held equally by the first respondent and the appellant. Thus, for all intent and purport, all shares of the company are held by the appellant and the first respondent.3. Whereas the first respondent is the Managing Director of the Company, the appellant is the Director thereof. Indisputably the parties are not on good terms.4. Respondent No.1 filed an application purported to be under Sections 397 and 398 of the Act alleging several acts of oppression on the part of appellant herein before the Company Law Board, Additional Principal Bench, Chennai. The said application was registered as C.P. No. 2 of 2004. By reason of an order dated 16th August, 2004, the Company Law Board while opining holding there was no act of mala fide or oppression on the part of the appellant, opined that there exists a deadlock in the affairs of the company. It directed the appellant to purchase 2,84,000 shares held by the first respondent at a value to be determined by a chartered valuer.5. An appeal was filed thereagainst by the appellant before the High Court of Judicature at Madras under of Section 10F of the Act which was registered as C.M.A. No. 174 of 2004. By reason of the impugned judgment dated 11th October, 2006 a Division Bench of the High Court dismissed the same opining that the Company Law Board could very well look into the justifiability of the situation and was, thus, right in arriving at its conclusion that there existed a deadlock situation. It was opined that in such a situation it would be impossible for both of them to pull on together as there was incompatibility between them. The High Court noticed that the appellant herein even intended to file a criminal complaint against his father, the first respondent for alleged mis-appropriation of a sum of Rs.8,15,000/-. A suit for partition, it was furthermore noticed, was pending. It wasHowever, if there is any dispute regarding the method of valuation of the shares and the ultimate valuation arrived at by the valuer, it is open for either parties to approach the Company Law Board for getting the valuation finalised. Thereupon, at the first instance, the second respondent shall purchase the shares of the petitioners, within six months from the date of finalisation of such valuation and on his failure to do so, the petitioner in C.P., shall purchase the shares of the second respondent, within six months thereafter. In the event of both the alternatives failing, the purchase of shares of either the petitioner or the second respondent could be transferred to third parties depending upon the exigency. The Company Law Board is at liberty to pass such further orders under Section 402 of the Companies Act, in commensurate with the views expressed by this court, for the smooth running of the company.

Reasoning: 14. The deadlock in regard to the conduct of the business of the company has been noticed by the Company Law Board as also the High Court. Keeping in view the fact that there are only two shareholders and two Directors and bitterness having crept in their personal relationship, the same, in our opinion, will have a direct impact in the matter of conduct of the affairs of the company.It is now a well settled principle of law that the Courts should lean in favour of such construction of statute whereby its jurisdiction is retained enabling it to mould the relief, subject of course, to the applicability of law in the fact situation obtaining in eachin the grounds of appeal before us, a contention has been raised that it was the 1st respondent, who is the oppressor. We have noticed hereinbefore that, rightly or wrongly, appellant also intended to file a criminal case against the 1st respondent alleging that he had misappropriated a huge amount as a Director of the company.In regard to the first ground, admittedly, A. Jayakumar, son-in-law of the 1st respondent being the brother-in-law of the appellant was nominated as a Director of the company. Appellant indisputably did not agree in that behalf. However, the first respondent left it to the discretion of the Company Law Board to appoint a third Director, but we are informed at the bar that even the same was objected to by the appellant.25. It is in the aforementioned situation the Company Law Board has opined that such an impasse could have been removed by resorting to appointment of an additional Director. What the Board failed to notice was that when the appellant himself intended to become the Managing Director, he would like to have his own man in the Board which was not acceded to by the 1sthave referred to the views taken by the Company Law Board as also the High Court, not being oblivious of the objection of Mr. Sundaram, that in relation to those findings, the 1st respondent did not prefer any appeal.30. Without going into the legal issue, however, we are of the opinion that the same is only evidence of the instances as to how a dead lock in the affairs of the company was viewed. Both the Company Law Board as well as the High Court have arrived at a concurrent finding that as there was no mutual trust and confidence between the parties and, thus, it would be impossible for the company to run the same smoothly. We are not again oblivious of the observations made by this Court in S.P. Jain case that the same by itself would not be a ground of winding up; but the ground of lack of mutual trust and confidence cannot be taken into consideration in isolation. The same has to be considered having regard to large number of other factors, the cumulative effect thereof would be extremely significant to arrive at one or the other conclusion.In a case of this nature, it is necessary to take a holistic approach of the matter. What might not be permissible for the affairs of a public limited company or even a private company having large number of shareholders and Directors, may be permissible in a case of this nature where a company for all intent and purport a quasi partnership concern. The Parliament, while enacting a statute, cannot think of all situations which may emerge in giving effect to the statutory provision. The situation obtaining in the present case in that sense is a pathetic one. Both the Company Law Board as also the High Court has no doubt that the acrimony between the parties is resulting in mismanagement of the conduct of affairs of the company. Therefore, a conclusion as regards the dead lock in the affairs of the company cannot be faulted with.It was opined that the burden to prove oppression or mismanagement is upon the applicant. The Court, however, will have to consider the entire materials on record and may not insist upon the applicant to prove each act of oppression. It was furthermore observed that an action in contravention of law may not per se be oppressive, whereas the conduct involving illegality and contravention of the Act may be suffice to warrant grant of any remedy.Submission of Mr. Sundaram that the appointment of an additional Director could be a sufficient relief which the court may grant cannot be accepted. Appellant rejected such an offer. At this stage bitterness and acrimonious between the parties have ensued. In a recent decision of J.K. Paliwal and Others vs. Paliwal Steels Ltd. and others [(2007) 5 Comp LJ 279 (CLB)], on the role of the directors in terms of Section 397 and 398, the Company Law Board held that the role of the directors was well settled and they were the trustees of the company. It was thus opined that the directors were required to act on behalf of the company in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the company.39. In Girdhar Gopal Dalima and others vs. Bateli Tea Co. Ltd. and others : (2007) 1 Comp. LJ 450 (CLB) the Company Law Board held that once the Company Law Board gives a finding that acts of oppression have been established, winding up of the company on just and equitable grounds becomessuch a principle is applied in a case of winding up of a company, we do not see any reason not to invoke the said principle in a case under Section 397 of the Act, subject of course to the applicability of the well known judicial safeguards.Section 443 of the Act provides for the powers of Company Law Board in a winding up proceeding. Sub-section (2) thereof provides that a company may be directed to be wound up when a petition is presented for winding up on the ground that it is just and equitable. The Company Law Board may refuse to do so, if in its opinion some other remedy is available to the petitioners and that they are acting unreasonably. The applicant, thus, in a given case, when it would not be in the interest of the company to be wound up, may take recourse to other remedies available in law. Making out a case of oppression is one of them.