DELSTAR COMMERCIAL & FINANCIAL LTD V/S SARVOTTAM VINIJAYA LTD. & ORS.

Briefcased.in Case Name: DELSTAR COMMERCIAL & FINANCIAL LTD V S SARVOTTAM VINIJAYA LTD & ORS Case Year: 2001 They may or they may not. That is beside the point. Some technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act" DELSTAR COMMERCIAL & FINANCIAL LTD V S SARVOTTAM VINIJAYA LTD. & ORS. Case name: Delstar Commercial & Financial Ltd. v s Sarvottam Vinijaya 2003 113 CompCas 642 CLB Company law board A.K. BANERJI By CHAIRMAN S. BALASUBRAMANIAN By VICE CHAIRMAN Decided on: MARCH 30 2001 Section 397 398 398 402 in the Companies Act 1956 Article 136 141 142 in the Constitution of India 1950  BRIEF FACTS AND PROCEDURAL HISTORY: 1. The petitioner is {SKS} which seeks to highlight the plight of division of business between him and his brothers. All the petitioners are under the control of one Shri S.K. Somanydecided to continue together to manage the companies including the 2 remaining major companies. 2. The division of the business of the family and allocation of the major companies was done on the basis of a valuation done by Price Waterhouse and each brother was to take businesses worth 1 4th of the total value. Two major companies allotted to SKS and HLS 1 | P a g e Briefcased.in Case Name: DELSTAR COMMERCIAL & FINANCIAL LTD V S SARVOTTAM VINIJAYA LTD & ORS Case Year: 2001 were SPL Ltd.and Soma Textile Ltd.Ltd. s case1 Comp LJ 1that even when the allegations of oppression are not established the court is not powerless to do justice between the parties was made in exercise of the powers of the Supreme Court in terms of Article 136 142 of the Constitution. 3 | P a g e Briefcased.in Case Name: DELSTAR COMMERCIAL & FINANCIAL LTD V S SARVOTTAM VINIJAYA LTD & ORS Case Year: 2001 2. The court opined that these appeals arose out of a petition under Section 397 and that the court had extensively dealt with the provisions of this section in the judgment and made the above observation we are of the view that the observation of the apex court that the court is not powerless to do substantial justice between the parties even when acts of oppression are not established is a proposition made with reference to the powers of a court in dealing with Section 397 petition. This view gets strengthened from wherein when it was argued that Coats and Newey who were two of the three main partners were not of one mind and that Newey never complained of oppression the Supreme Court observed: "They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act." 3. The counsel pointed out that HLS is not denying the family settlement by which two of the brothers parted ways and HLS and SKS decided to continue together on the understanding that all the companies under their control would be jointly managed. Even one of the brothers in the Calcutta suit has admitted joint management. No joint management could exist without equal shareholding. Referring to AIR3 SCC 639 sic) he pointed out that in case of joint management equality in shareholding could be presumed. All the respondent companies were promoted by two trusted employees of SKS and HLS and these companies always had directors approved by both SKS and HLS. Neither SKS nor HLS even though were controlling substantial shares in the companies was a director in these companies. 4. The court observed that the main apprehension of SKS is that by virtue of the control of the respondent companies by HLS these companies might exercise voting in respect of the shares held by them in Soma and SLP to the detriment of the interests of SKS. The court find that the Calcutta High Court has already protected the interests of SKS in SPL by directing that no decision shall be taken to deprive the SKS group from having joint management of SPL without the leave of the court. As far as Soma is concerned the learned counsel for the respondents Shri Sen has made a statement that the control of Soma now with SKS shall not be disturbed. Thus the court find that the interests of SKS in both Soma and SPL are now protected. 4 | P a g e Briefcased.in Case Name: DELSTAR COMMERCIAL & FINANCIAL LTD V S SARVOTTAM VINIJAYA LTD & ORS Case Year: 2001 5. Therefore the court is of the view that in view of the pending proceedings before the Calcutta High Court and view of the complicated shareholdings in the respondent companies we should decline considering the prayer of the petitioners for division of assets and accordingly the court do so. However the court grant liberty to the petitioners to approach in case the declaration sought by them in the Calcutta High Court is granted by the court. 6. The court said that in the present case court find that even though both SKS and HLS groups hold shares in the respondent companies substantial percentage of the shares in these companies are held by various companies known as common companies. The shareholding pattern of these companies is also complicated. The main apprehension of SKS is that by virtue of the control of the respondent companies by HLS these companies might exercise voting in respect of the shares held by them in Soma and SLP to the detriment of the interests of SKS. Court find that the Calcutta High Court has already protected the interests of SKS in SPL by directing that no decision shall be taken to deprive the SKS group from having joint management of SPL without the leave of the  DECISION HELD BY COURT: 1. The court dispose of all these nine petitions however without any order as to cost. 2. The court observed that pending proceedings before the Calcutta High Court and view of the complicated shareholdings in the respondent companies court should decline considering the prayer of the petitioners for division of assets and accordingly court do 3. However court grant liberty to the petitioners to approach us in case the declaration sought by them in the Calcutta High Court is granted by the court. so. 5 | P a g e 

Summary: “They may or they may not. That is beside the point. Some technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act” The petitioner is {SKS} which seeks to highlight the plight of division of business between him and his brothers. All the petitioners are under the control of one Shri S.K. Somany (SKS). He is one of the members of Somany family which controlled a large number of business entitles. Originally, the family consisted of 6 brothers of which 2 of them separated in 1983 and the other 4 brothers were managing the family businesses including 4 major companies. In 1994, these brothers entered into a family settlement by which two of the brothers were allotted certain companies, each one of the 4 major companies individually while SKS and his eldest brother H.L. Somany (HLS) decided to continue together to manage the companies including the 2 remaining major companies.  The division of the business of the family and allocation of the major companies was done on the basis of a valuation done by Price Waterhouse and each brother was to take businesses worth 1/4th of the total value. Two major companies allotted to SKS and HLS were SPL Ltd. (SPL) and Soma Textile Ltd. (STL). It was agreed between SKS and HLS that all the companies in their group would be jointly held and managed. The respondent-companies are investment companies and their main investment is in the shares of SPL and STL and they collectively hold 17% and 36% shares in SPL and STL respectively. SKS and HLS more or less control 50% shares each in these nine respondent-companies. With their individual group holdings in these two companies and together with the shares held by the investment companies, HLS and SKS were having equal percentage of shares in both SPL and STL and thus were in joint control and management of these two companies. SPL has two manufacturing units — one at Kassar and another at Kadi. Kassar was being managed by HLS while Kadi was managed by SKS. The two units of STL were being managed by SKS. HLS is the Chairman of SPL wherein SKS is also a director. SKS is the Chairman of STL. Some disputes arose between SKS and HLS in regard to the management of SPL in July, 1997. In view of these disputes, HLS tried to take over the control of the nine investment companies by inducting his own family members and associates as directors without notice to SKS in the AGMs of these companies in February and April, 1998. By taking over the management of these companies, which hold substantial shares in SPL and STL, HLS is trying to marginalise SKS in the affairs of SPL and STL, which would be against the agreement of equality and joint management. In addition to this general allegation, in respect of Sarvopari, another allegation relates to further issue of shares and in Sarvottam, the allegation relates sale of shares held by Sarvottam in SPL. Both these actions, according to the petitioners, are prejudicial to the interest of the petitioners and SKS. The main prayer in these petitions is that there should be equality of directors from both SKS and HLS group in these companies and as also an independent Chairman.PROCEDURAL HISTORY:When certain disputes arose in relation to the family settlement, both SKS and HLS have filed a joint Suit No. 35 of 1997 in the Calcutta High Court seeking for implementation of the family settlement. All the respondent-companies are parties to the suit. In the plaint itself, at paragraphs 7 and 8, it has been stated that the brothers had been carrying on the business in co-partnership with each other and that there had been equality in the shares held by the brothers. Therefore, between SKS and HLS, there has always been joint and equal co-partnership, which is now being disturbed by HLS. In those proceedings also, a declaration of 50% shareholding has been claimed. In those proceedings, certain directions have been issued by the High Court. That being the position, the question of the Company Law Board deciding the claim of SKS for a partition or otherwise on the basis of 50% shareholding does not arise and, as a matter of fact, there is no foundation to claim this percentage on any evidence.ISSUE BEFORE THE COURT:Whether there should be equality of directors from both SKS and HLS group in these companies and as also an independent Chairman?RATIO OF THE COURT:The court observed that both SKS and HLS should try to resolve their disputes amicably, they agreed to do so. The court also appointed a chartered accountant to assist them in their endeavour to settle their disputes amicably. The chartered accounted prepared a report after interacting with them, but neither of them accepted the report and as such, the compromise efforts failed. Since the discussions were without prejudice, the court is not detailing the contents of the report of the chartered accountant and also stipulate that the documents exchanged during the efforts towards amicable settlement should not be used in any manner by the other side. Before the court deal with the allegations in the petition, we shall first deal with certain legal issued raised by Shri Sen. He pointed out that until and unless this Board is satisfied that the allegations of oppression are established and forms an opinion that the company is liable to be wound up on just and equitable grounds, no order under Section 402 could be passed. On this contention, he submitted that, even in case of a compromise, this Bench cannot approve the same without satisfying itself about the fulfilment of these two conditions. He also pointed out that the observation of the apex court in Needle Industries (India) Ltd.’s case (1982) 1 Comp LJ 1 (SC), that even when the allegations of oppression are not established, the court is not powerless to do justice between the parties, was made in exercise of the powers of the Supreme Court in terms of Article 136/142 of the Constitution. The court opined that these appeals arose out of a petition under Section 397 and that the court had extensively dealt with the provisions of this section in the judgment and made the above observation, we are of the view that the observation of the apex court that the court is not powerless to do substantial justice between the parties even when acts of oppression are not established, is a proposition made with reference to the powers of a court in dealing with Section 397 petition. This view gets strengthened from wherein, when it was argued that Coats and Newey who were two of the three main partners were not of one mind and that Newey never complained of oppression, the Supreme Court observed: “They may or they may not. That is beside the point. Such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act.” The counsel pointed out that HLS is not denying the family settlement by which two of the brothers parted ways and HLS and SKS decided to continue together on the understanding that all the companies under their control would be jointly managed. Even one of the brothers in the Calcutta suit has admitted joint management. No joint management could exist without equal shareholding. Referring to AIR (1968) 3 SCC 639 (sic), he pointed out that in case of joint management, equality in shareholding could be presumed. All the respondent companies were promoted by two trusted employees of SKS and HLS and these companies always had directors approved by both SKS and HLS. Neither SKS nor HLS, even though were controlling substantial shares in the companies, was a director in these companies. The court observed that the main apprehension of SKS is that by virtue of the control of the respondent-companies by HLS, these companies might exercise voting in respect of the shares held by them in Soma and SLP to the detriment of the interests of SKS. The court find that the Calcutta High Court has already protected the interests of SKS in SPL by directing that no decision shall be taken to deprive the SKS group from having joint management of SPL without the leave of the court. As far as Soma is concerned, the learned counsel for the respondents, Shri Sen has made a statement that the control of Soma now with SKS shall not be disturbed. Thus, the court find that the interests of SKS in both Soma and SPL are now protected. Therefore, the court is of the view that, in view of the pending proceedings before the Calcutta High Court and view of the complicated shareholdings in the respondent companies, we should decline considering the prayer of the petitioners for division of assets and accordingly, the court do so. However, the court grant liberty to the petitioners to approach in case the declaration sought by them in the Calcutta High Court is granted by the court. The court said that in the present case, court find that even though both SKS and HLS groups hold shares in the respondent companies, substantial percentage of the shares in these companies are held by various companies known as common companies. The shareholding pattern of these companies is also complicated. The main apprehension of SKS is that by virtue of the control of the respondent-companies by HLS, these companies might exercise voting in respect of the shares held by them in Soma and SLP to the detriment of the interests of SKS. Court find that the Calcutta High Court has already protected the interests of SKS in SPL by directing that no decision shall be taken to deprive the SKS group from having joint management of SPL without the leave of the court.DECISION HELD BY COURT:The court dispose of all these nine petitions, however, without any order as to cost.The court observed that pending proceedings before the Calcutta High Court and view of the complicated shareholdings in the respondent companies, court should decline considering the prayer of the petitioners for division of assets and accordingly, court do so.However, court grant liberty to the petitioners to approach us in case the declaration sought by them in the Calcutta High Court is granted by the court.