Case: S. P. Jain Vs. Kalinga Tubes Ltd

1. These fourteen appeals on certificates granted by the High Court of Orissa raise common questions of law and fact and will be dealt with together. They are a consequence of a fight between two groups of business magnates for the control of Messrs. Kalinga Tubes Limited (hereinafter referred to as the Company). They arise out of an application under Sections 397, 398, 402 and 403 of the Indian Companies Act, No. 1 of 1956 (hereinafter referred to as the Act) made by the appellant in the High Court. Most of the facts are not seriously in dispute and it is necessary to set them out in detail in order to decide the main point raised on behalf of the appellant, namely, that the affairs of the Company were being conducted in a manner oppressive to him and his group of members2. The Company was floated as a private limited company on December 1, 1950 with an authorised capital of Rs. 25 lacs. Originally, the shares were held by two groups of share-holders equally, except a few shares. These groups of share-holders may for our purposes be taken to be represented by Patnaik and Loganathan. The Company raised a sum of Rs. 36 lacs by the issue of two series of debentures which were guaranteed by the Government of Orissa between 1952 to 1954. In 1954, the appellant was approached by Dr. Mohanty, then Secretary to Government of Orissa (Industries Department) which was naturally interested in the Company having guaranteed debentures to the tune of Rs. 36 lacs, for helping the Company which was in financial and administrative difficulties. The appellant was requested to help the Company by providing finance and by arranging loans from banks and other sources and further by providing the necessary administrative guidance. The appellant agreed to do so and consequently on July 27, 1954, an agreement was entered into between the appellant, and Patnaik and Loganathan. To this agreement, the Company was not a party. We shall refer in detail to the various terms of the agreement later. In brief, however, the agreement provided that the appellant would be allotted shares in the Company equal to those held by Patnaik and Loganathan after increasing the share capital of the Company. Thus the Company would have three groups of share-holders represented by the appellant, Patnaik and Loganathan holding equal number of shares, besides a French company and one Rath, who between themselves held shares worth Rs. 4 lacs. These share-holders, however, were not party to the agreement. It was also provided that these three groups of share-holders would have equal number of representatives on the Board of Directors of the Company, namely, two each for the time being. The appellant also undertook to arrange for cash credit facilities to the limit of Rs. 50 locs on the security of raw materials and finished goods of the Company. And finally, the appellant Jain was to be the chairman of the Company. This agreement was followed by certain resolutions passed by the Company on August 16, 1954 by which some of the terms of the agreement were substantially carried out, the authorised capital was increased to rupees one crore (though it was issued later in instalments), and the appellant was made the chairman of the Company. It may, however, be noted that the resolutions did not refer to the agreement in terms and no change was made in the Articles of Association of the Company to bring them in conformity, with all the terms of the agreement. In January 1955, Narayanswami who had been appointed Managing Director resigned and Patnaik was appointed the Managing Director. In April 1955, the Company started production. Sometime thereafter the share capital was further subscribed up to Rs. 61 lacs and the three groups, namely, the appellant Jain, Patnaik and Loganathan held one-third of the shares leaving out shares held by the French company. Mr. Rath had sold his shares numbering 250 and these shares were equally divided between the three groups and the one odd share was held by all the three namely Jain, Patnaik and Loganathan, jointly. In September 1956, a resolution was passed by the Board of Directors referring the question of conversion of the Company to a public limited company to a sub-committee consisting of the appellant, Loganathan and Patnaik. About the same time, an application was made to the Controller of Capital Issues for the sanction of the issue of further shares to the extent of Rs. 39 lacs out of the authorised capital of rupees one crore and for the issue of debentures to the extent of Rs. 64 lacs. In this application it was stated that the shares were intended to be issued privately to the existing share-holders and/or their nominees. In December 1956 a resolution was passed by the Board of Directors for converting the Company into a public limited company and for amending the Articles of Association in consequence at the next annual general meeting. This was necessary as the Company wanted to borrow from the Industrial Finance Corporation which however made advances only to public limited companies. On January 11, 1957,the Company was converted into a public company and the Articles of Association were amended. Even so, no attempt was made to incorporate the terms of the agreement dated July 27, 1954 in the Articles of Association so amended3. Trouble, however, seems to have arisen between the appellant and the other two groups as early as September 1955 in consequence of an advertisement issued by the appellant in newspapers suggesting that his group was engaged in the manufacture of black and galvanised steel tubes and in this advertisement the emblem of the Company was also printed, as if the Company was part of the appellants group. This led to strong protests by Patnaik and Loganathan and eventually the appellant withdrew the advertisement. However, the appellant continued to be the chairman of the Company in spite of growing differences between him and Patnaik and Loganathan. Articles of Association were further amended in November 1957. At that time also nothing was put therein on the basis of the agreement dated July 27, 1954. In December 1957, the Controller of Capital Issues sanctioned the issue of shares of the face value of Rs.39 lacs and debentures of the face value of Rs.64 lacs subject to the provisions of S. 81 of the Act. Real trouble started after this sanction for the issue of fresh shares. We shall have occasion to refer to S. 81 of the Act later; it is enough to say here that that Section provides that the new shares would be offered in the first instance to the existing share-holders in proportion, as nearly as the circumstances admit, to the capital paid up on the existing shares at that date "subject to any direction to the contrary which may be given by the Company in general meeting. So unless the Company decided otherwise at a general meeting, the new issue of shares to the tune of Rs. 39 lacs would have had to be offered under S. 81 of the Act to the existing share-holders in proportion to their existing shares. At that time as already indicated, the appellant group held one-third share and Loganathan and Patnaik groups held two-thirds share except for certain shares held by the French company and, therefore, in the absence of a direction to the contrary at a general meeting the new shares would also have gone in equal shares to the three groups subject to the shares which would go to the French company4. The question of the issue of new shares came up before a meeting of the Board of Directors on March 1, 1958, and the differences between the three groups which had already begun came to the surface at that time. The appellant proposed to the Board of Directors that the new shares should be issued to the existing share-holders as provided in S. 81 of the Act. Patnaik on the other hand proposed that a general meeting should be called for the purpose of passing a resolution for the issue of new shares and for the manner and proportion in which shares were to be offered privately to the share-holders and other persons and for such other incidental matters as provided in the Section. It is apparent from this conflict between the appellant group and Patnaik and Loganathan groups in this meeting that the groups of Patnaik and Loganathan did not want the appellants group to age roughly one-third of the new shares. The fear of Patnaik in this connection was that if shares were offered privatley to the existing shareholders, the appellant might get all of them, for the groups of Patnaik and Loganathan did not have the money to subscribe to the new shares if offered in the first instance to the existing share-holders. Thus if the appellant got all the new shares, his group would become the majority share-holder and would thus get control of the Company. Consequently, Patnaik put forward the resolution already referred to at the meeting of the Board of Directors on March 1, 1958 which provided for calling general meeting for directions as to the issue of new shares, which directions it was hoped would override the provisions of S. 81 of the Act. Patnaiks resolution was passed and the appellants proposal was outvoted for the obvious reason that the Patnaik and Loganathan groups held the majority of shares. In consequence a general meeting of shoreholders was called for the purpose of March 29, 19585. The appellant did not attend the meeting of March 29, 1958 though he was present by proxy. Patnaik presided at that meeting. Two resolutions were put forward at that meeting, one on behalf of the appellants group and the other on behalf of Patnaik and Loganathan groups. The appellants resolution proposed that the new shares should be offered to the existing share-holders of the Company in the proportion of their share-holdings and the offer should remain open for a period of fifteen days with the right to accept or renounce the whole or part of the offer in their names or in the names of their nominee or nominees and if a share-holder did not accept within that period the offer should be deemed to have been declined. The second resolution on behalf of the Patnaik and Logonathan groups proposed that the new share should not be offered or allotted to the existing shareholders or to the public and that they should be allotted privately in the best interest of the Company at the sole discretion of the directors to such persons as might have applied or thereafter apply on the condition that at least 5 per centum of the face value of shares applied for was paid as application money and 10 per centum of the face value was paid on allotment and the balance paid as and when called upon in accordance with the Articles of Association of the Company. As was to be expected, the resolution put forward on behalf of the appellant was lost and the resolutions put forward on behalf of Patnaik and Loganathan groups as to the allotment of new shares were passed. Thus in that meeting there was a complete breach between the three groups6. This was followed on April 18, 1958, by a suit by the appellant and some other share-holders of his group for a declaration that the resolutions dated March 29, 1958 were ultra vires, illegal, void and not binding on the appellant, the Company and its share-holders with a prayer for permanent injunction restraining the defendants in the suit (namely, the other two groups) and their servants and agents from giving effect to or acting in any way in pursuance of the said resolutions and further restraining each of the defendants, their servants and agents from issuing and allotting the new shares in terms of the impugned resolutions. That suit was filed in the Court of the Subordinate Judge, Cuttack. It is necessary here to refer to the details of that suit. It is enough to say that an ex parte interim injunction was obtained on the same day restraining the Company and other defendants from issuing and allotting the new shares to persons other than the existing share-holders and giving effect to the resolutions in that regard passed at the meeting held on March 29, 1958. The Company then made an application for setting aside the ex parte interim injunction. This matter came up before the Court on May 15, 1958. At that time an offer was made on behalf of the Company that in view of the urgent necessity for funds, the Company might be permitted to issue two-thirds of the shares, keeping back one-third which would have gone to the appellant if the shares had been offered to the existing share-holders; but this was not accepted on behalf of the appellant. The hearing of the injunction matter was postponed on several dates and it appears that the Patnaik and Loganathan groups continued to call meetings of the Board of Directors on the dates fixed in the suit, and the agenda always provided for the allotment of the new shares. Eventually on July 30, 1958 the Subordinate Judge delivered judgment and vacated the injunction at about 11 a.m. A meeting of the Board of Directors was being held on the same day from 10.30 a.m. and as soon as a message was received that the injunction had been vacated the new shares were allotted to seven persons who had applied for the same along with the application money. This happened about midday and the return as required by the Act was duly filed with the Registrar of Companies at 12.40 p.m. The same day, an application was made at 12.40 p.m. on behalf of the appellant before the Subordinate Judge praying that the order vacating the injunction be stayed till the appellant obtained orders from the High Court where he wished to appeal. The companys lawyer, however, intimated to the Court that the shares had already bean allotted. Even so, the Court passed an order staying the operation of its judgment order delivered earlier for two days. The matter was then taken in appeal to the High Court by the appellant. The appeal was dismissed in September 1958. There was a letters patent appeal following the dismissal but that was not pressed and was eventually dismissed in November, 19607. The case of the appellant was that the seven persons to whom the new shares were allotted were nominees or benamidars of Patnaik and Loganathan and, therefore, these groups really allotted the new shares to themselves through their benamidars. It was also alleged that these seven persons only paid 5 per centum of the share money and this showed, even though it was said that the Company was in urgent need of money, that the shares were allotted to persons who were not in a position to pay the share money in full. The appellant contended that the allotment of the new shares was made surreptitiously and deliberately with the sole idea of defeating the rights of share-holders represented by him and his group and this amounted to oppression of the minority share-holders8. To continue the narrative, it appears that an extraordinary general meeting of the Company was called on September 21, 1960 to consider increasing the share capital from rupees one crore on which it stood after the increase in 1958 to rupees three crores by issue of additional equity shares numbering one lac of the value of rupees one crore and the issue of another one lac cumulative redeemable income-tax free preference shares of the value of rupees one crore subject to such rights and privilege attaching to such preference shares as might be specified in the new Article to be inserted in the Articles of Association. It was also intended that these new shares should be offered to outsiders (i.e. other than the existing share-holders) with a view to making the Company more broad based. This meeting was called by a notice issued on August 25, 19609. It was the calling of this meeting which led to the application under S.397, etc., on September 14, 1960 by the appellant. It was urged in the application that this issue of new shares was in furtherance of the continuing and continuous process of oppression of the appellant and his group being the minority share-holders and was designed for the purpose of completely excluding the appellant and his group from all control in the affairs of the Company and to deprive the financial advantage to be gained by them by the issue of new shares at par and to retain such advantage exclusively to the Patnaik and Loganathan groups so that the appellant and his group might be forced to sell their holdings to the Patnaik and Loganathan groups at a nominal value. That was why the new shares were being offered to outsiders and not to the existing share-holders, the object being to offer the shares to nominees and / or benamidars of the Patnaik and Loganathan groups and to such persons who would be within their control. The result of this would be that Loganathan and Patnaik groups would acquire more than 75 per centum of the voting strength of the Company and would be in complete control of it and so gain enormous financial advantage for themselves. This would cause irreparable loss and prejudice to the rights of the appellant and his group of minority share-holders. It was alleged that this was being done by the Patnaik and Loganathan groups who were in control of the majority of shares. Finally it was urged that the affairs of the Company were conducted in a manner prejudicial to the interest of the Company by Loganathan and Patnaik groups and there was mismanagement in conducting such affairs. It was further alleged that the conduct of Loganathan and Patnaik groups towards the minority shareholders was oppressive, burdensome, harsh and wrongful and the entire manoeuvre was that these groups should be able to control over 75 per centum of the voting strength in the Company. Further it was alleged that the conduct of these groups involved a visible departure from the standard of fair dealing and violation of the conditions of fairplay to which the appellant and his group as minority share-holders were entitled. In particular the denial to the existing share-holders to subscribe to the new shares in proportion to their respective holdings and the issue of such shares to benamidars of the Patnaik and Loganathan groups was oppressive to the appellant and his group of minority share-holders and also amounted to mismanagement of the affairs of the Company. This was also in breach and violation of the agreement dated July 27, 1954 to which the Patnaik and Loganathan groups were parties. Further it was said that although in form the Company was a public company in reality it was a partnership consisting of the three groups namely, the appellants group, and of Loganathan and Patnaik groups. The last two groups had combined together against the appellant group which had resulted in justifiable lack of confidence on the part of the appellant and his group in the conduct of the affairs of the Company by the other two groups. Such lack of confidence had been caused by lack of probity in the conduct of the affairs of the Company by these two groups, which were acting to benefit themselves personally and were not concerned with the welfare of the Company. The appellant and his group would not get any relief by calling a general meeting of the Company, and the facts and circumstances aforesaid would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound up. Therefore, the appellant prayed for directions under S. 397 of the Act, as the windingup of the Company which was in a prosperous condition would unfairly prejudice the appellant and other members of the minority group and redress against such oppression could be given by the High Court by making suitable directions in that behalf. The affairs of the Company were being conducted in a manner prejudicial to the interest of the Company for reasons already stated and there had been a material change in the management or control of the Company by alteration in its Board of Directors and by fraudulent changes introduced in the ownership of the Companys shares and by reason of the wrongful act and conduct of the Patnaik and Loganathan groups. The appellant, therefore, prayed for the removal of the present Board of Directors, for reconstitution of the Board of Directors with at least two permanent representatives from his group and for ensuring equal representation in the Board of the three groups of share-holders, and for alterations in the Articles of Association to incorporate therein the provisions of the agreement dated July 29, 1954. The appellant also sought a declaration that the resolutions passed by the Board of Directors on March 1, 1958 and at the general meeting dated March 29, 1958, were null and void and were passed in abuse of the power of Patnaik and Loganathan groups and in oppression of the minority share-holders and prayed that the said resolutions be set aside in so far as they related to the issue and allotment of 39,000 new shares. The allotment made on July 30 should be declared illegal and null and void as it was made in abuse of the powers of the Patnaik and Loganathan groups and in oppression of the minority share-holders and was not binding upon the Company, the appellant and his group. It was prayed that directions be given to sell the said 39,000 shares by the allottes to the Company upon payment of the amounts actually paid thereon so far and the Company be permitted to offer the same to the share-holders as on July 29, 1958 in proportion to their respective share-holdings. As injunction was also prayed for restraining the Company from holding the meeting on September 21, 1960. Finally it was prayed that orders be passed for investigation into the conduct of the affairs of the Company by the Loganathan and Patnaik groups and suitable directions be made with a view to regulating the affairs of the Company in future and if necessary an administrator of the Company be appointed for carrying out such directions as the High Court might be pleased to make for purposes of removing the oppression and the acts of misconduct and mismanagement and for regulating the conduct of the affairs of the Company. The seven persons to whom the new shares were allotted in July 1958 were also made parties and injunction was prayed for restraining them from transferring those shares10. The application was opposed on behalf of the Company, and its main contention was that the Company was not a party to the agreement dated July 27, 1954 and was not bound by it. It was further contended that there was no mismanagement and the Company and its affairs were not being conducted in a manner prejudicial to it. It was also contended that there was no oppression on the undisputed facts in the present case. The application was also opposed on behalf of Loganathan and Patnaik groups and their case was that they had not acted in any manner which could be said to be oppressive of the rights of the minority share-holders represented by the appellant. They also contended that the affairs of the Company were not being mismanaged nor were they being conducted prejudicially to the interest of the Company. Further the seven persons to whom the shares had been allotted on July 30, 1958 contended that they were not benamidars of the Patnaik and Loganathan groups. Their case was that they were independent persons of substance and had applied for the new shares themselves and not as benamidars of Loganathan and Patnaik groups. They denied that there was any oppression of the minority share-holders as alleged or that there was any mismanagement of the affairs of the Company or any conduct which was prejudicial to the interest of the Company. They contended that the resolutions of March 1, 1958, March 29, 1958 and July 30, 1958 were perfectly legal and proper and they were entitled to the shares which had been allotted to them11. The application was heard in the first instance by a learned Single Judge of the High Court. He came to the conclusion that the way in which the Patnaik and Loganathan groups had acted in the matter of the issue of new shares was oppressive of the minority share-holders represented by the appellant and the subsequent conduct of the two groups amounted to continuing and continuous process of oppression of the minority share-holders and also amounted to mismanagement likely to be prejudicial to the interest of the Company. He came to the conclusion that the persistent acts of the Loganathan and Patnaik groups showed that their motive was to oust the minority group of share-holders completely and the sole object of convening the meeting of September 21, 1960 and to pass the proposed resolutions was in furtherance of the continuing and continuous process of oppression of the appellant and his group, being the minority shareholders. Finally it was held that in view of the oppression there was just and equitable cause for winding-up the Company. The learned Judge, therefore, allowed the petition and granted certain reliefs to which it is unnecessary to refer,12. This was followed by fourteen appeals to a Division Bench by the Company and the various shareholders. These appeals were consolidated and heard together. The Division Bench came to the conclusion that the agreement of July 27, 1954 was not binding on the public company which came into existence after July 11, 1957, whatever might have been the position under the agreement when it was a private company. It also came to the conclusion that the seven persons to whom the new shares were offered were not benamidars of Loganathan and Patnaik groups but were independent persons of substance, even though they might be friends of the majority group of share-holders. But there was nothing to show that they were under the control of the majority group and, therefore, it could not be said that 75 per centum of the voting strength was concentrated in the hands of Loganathan and Patnaik groups except where these new allottees chose to vote with these groups. On a careful consideration of the facts, the Division Bench came to the conclusion that no such oppression had been established as would justify an order under S. 397 of the Act. As to mismanagement under S.398, the Division Bench came to the conclusion that no case had been made out under that Section. On this view of the matter, the appeals, were allowed and the application of the appellant was dismissed and the parties were ordered to bear their own costs. Thereupon the appellant applied for and obtained certificates to appeal to this Court and that is how the matter has come up before us.

Court's reasoning:
31. Reference then may be made to the proposed increase of shares for which a meeting was called on September 21, 1960 and which gave further cause to the appellant to move the application which he did on September 14, 1960. In that meeting it was proposed to increase the share capital by rupees two crores, one crore of which was to be in equity shares and the other crore in preference shares. It is said that this was part of the design to further reduce the share-holdings of the appellant in the Company so that he may be driven out of it, for after the issue of the new proposed capital the appellants holding of equity shares-would be hardly 10 per centum of the entire equity capital. In the first place, as the meeting of September 21, 1960 was never held because of the injunction obtained by the appellant, we cannot say how the new shares would have been issued and whether they would have been offered to the public for subscription to make the Company even more broad-based than it was then. If that was the intention that could hardly be called oppression of the appellant. Apart from that, we fail to see why the appellant should be driven out of the Company and should be compelled to sell his shares simply because his proportion of equity capital is only 10 per centum of the entire equity capital, for it is not in dispute that the Company is doing well and the appellant will get his dividends as any other share-holder. But if the appellant means that it is not worth his while to invest his money in a company in which he is unable to have an important-if not a controlling-voice, this shows that the real basis for the application in the present case was not the oppression of the appellant as a minority share- holder but the feeling that the appellant who hoped to get control of the Company had been thwarted by what took place in March and July, 1958. If that is the real position, then it cannot be said that the Loganathan and Patnaik groups acted with lack of probity or fair dealing in thwarting the desire of the appellant to get control of the Company; nor can such conduct be said to be oppressive of a minority share-holder. The case of the appellant based on the agreement of July 27, 1954 therefore, must fall and it must be held that even if that agreement was not carried out by the Company, which was not bound by it, there can be no case of oppression of the appellant32. We now come to the case under S. 398. It provides that any members of a company who have rights to apply in virtue of S. 399 may complain (i) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company, or (ii) that a material change has taken place in the management or control of the company and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company. On such application being made, if the Court is of opinion that the affairs of the company are being conducted as aforesaid on that by reason of any material change as aforesaid in the matter of management or control of a company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. This Section only comes into play as the marginal note shows, when there is actual management or apprehension of mismanagement of the affairs of the company. It may be contrasted with S. 397 which deals with oppression in the minority share-holders, whether there is prejudice to the company or not. In the present case, the appellant relies on the following three circumstances to show that the affairs of the Company were being conducted in a manner prejudicial to its interests, namely-(i) that when the new shares worth Rs. 39 lacs were issued in July 1958 only a small part of the share-money was received in the beginning;(ii) that the Patnaik and Loganathan groups removed Rs. 7 lacs from the coffers of the company;(iii) that the Company lost the support of the appellantIt is true that when new shares of the value of Rs. 30 lacs were issued, the Company received only 15 per centum of the share money to begin with, namely, 5 per centum with the application and 10 per centum on allotment. But the evidence shows that though there was some delay in the receipt of 85 per centum of share money, shares Worth Rs. 30 lacs were fully paid up in the financial year 1959-60 and the only amount outstanding in that year was Rs. 9 lacs The slight delay in the payment of the full value of the shares cannot therefore in the circumstances be said to be so prejudicial to the interests of the Company as to call for any action under S. 398 of the Act33. As to the removal of Rs. 7 lacs from the coffers of the Company by the Longanathan and Patnaik groups, it does not appear from the application of the appellant that his complaint was that this sum was wrongfully removed by the two groups and there was any fraud with respect to its removal. The real complaint of the appellant in the connection appears to have been that he was entitled to one-third of this amount of Rs. 7 lacs under the agreement, and his share of this amount was not given to him. This appears from a letter written by the appellant to Patnaik on October 16, 1957 in which he asked that he should be paid his one-third share of this sum of Rs. 7 lacs with interest. It is not in dispute that the sum of Rs. 7 lacs was due from the Company to the Kalinga Industrial Development Corporation Limited and, therefore, the withdrawal of this amount from the Company by the Patnaik and Loganathan groups which controlled the Kalinga Industrial Development Corporation which was the managing agent of the Company before July 1954 cannot be said to amount to conducting the affairs of the Company prejudicially to its interests, whatever may be the rights of the appellant in the matter of getting one-third of this amount from the Loganathan and Patnaik groups. If he has any right under the agreement of July 27, 1954 in this matter he can enforce it in such way as may be open to him; but it cannot be said in the circumstance that this withdrawal from the Company was in any way prejudicial to the affairs of the Company, when it is clear that the Company owed the amount to the former managing agent34. The last point that has been urged in this connection is that the Company lost the support of the appellant in view of the action taken by the Patnaik and Loganathan groups in March and July 1958. Here again it is true that the appellant was dissatisfied with what had happened in March and July 1958 with regard to the allotment of shares worth Rs. 39 lacs and withdrew his support from the Company. If the Company was able to carry on without this support as it apparently was in 1958, it cannot be said that the action which resulted in the loss of the appellants support to the Company was necessarily prejudicial to it. It may be that the appellant was sore inasmuch as he must have felt that his assistance was taken when the Company was in need of such assistance; but later the Patnaik and Loganathan groups acted in the manner in which they did when they felt that the appellants support was no longer necessary to the Company. But if the appellants support was no longer necessary to the Company by 1958 the action of the Patnaik and Loganathan groups which resulted in the loss of such support cannot be said to be prejudicial to the interests of the Company. We, therefore, agree with the High Court that no case has been made out for action under S. 398 on the ground that the affairs of the Company were being conducted in a manner prejudicial to its interests35. Nor is there any ground for holding that because of the change which took place in the management after July 1958 it was likely that the affairs of the Company would be conducted in a manner prejudicial to its interets. The change that took place after July 1958 was that the appellant no longer remained the chairman of the Company and the Patnaik and Loganathan groups practically managed the Company without the appellant. But as the High Court has pointed out there were no facts before the Court to come to the conclusion that the change in management was likely to result in the affairs of the Company being conducted in a manner prejudicial to its interests. In this connection reliance is placed on certain matters which transpired after the application was filed in September 14, 1960. These matters however cannot be taken into account for the application as to be decided on the basis of the facts as they were when the application was made. Besides as the High Court has pointed out, it has not been shown that in view of certain actions taken by the new management without consulting the appellant, the Company was landed in any difficulty and loss of profit which would show mismanagement of its affairs36. Lastly it was stated in the application that accounts had not been shown to the appellant and his group and in consequence of this the appellant was not able to give full particulars of the several acts of fraud, misfeasance and other irregularities committed by the new management. But as the High Court has pointed out, the appellant asked for production of certain documents in April 1961 and those documents were made available for inspection by the appellant and were produced in Court. It was for the appellant to take inspection of those documents if he so desired and the appeal Court was right in pointing out that the learned Single Judge was not correct in drawing an adverse inference against the Company that it had disobeyed the orders of the Court and had not produced the documents called for and had given no opportunity to the appellant for their inspection. It seems to us that the appeal Court was right in the view and no case has been made out even prima facie for action under this part of S. 398 of the Act.