HANUMAN PRASAD BAGRI Vs. BEGRESS CEREALS PRIVATE LIMITED

JUDGEMENT

(1.) A petition under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as 'the Act') was filed before the Calcutta High Court on grounds of oppression and mismanagement. The learned Company Judge held that the Petitioners grievance in regard to ouster from the management of the company is legitimate and justified; that respondent No. 3 had manoeuvred the matters in such a manner to result in the ouster of the Petitioner No. 1 from the management of the Company. The learned Company Judge further directed the Petitioner No. 1 and his group members to sell their shares to respondents at a value to be determined by a Valuer as on 16-5-1988, that is, the date of the petition and also held that the Petitioner No. 1 had been illegally removed as an Executive Director of the Company. Appeal was preferred on behalf of the Company by respondent No. 2 and also on his own behalf. The Petitioners also claimed in that appeal that the learned Company Judge should have given guidelines for valuation of the shares on the market value and should have also provided for payment of interest on the amount receivable by them both on account of share value and remuneration. The Division Bench of the Calcutta High Court allowed the appeal by the order made on 25-8-2000 Reported in (2000) Cal HN 798 holding that one of the conditions precedent for granting relief under Section 397 of the Act is that the Petitioners should prove that winding up of the company would unfairly prejudice the Petitioners who are claiming of oppression, that otherwise the facts will justify the making of a winding up on just and equitable grounds. Contesting the correctness of this view, this special leave petition is filed.

(2.) Relying upon the decision in Needle Industries (India) Pvt. Ltd. vs. Needle Industries New (India) Holding Ltd., AIR 1981 SC 1298 it is claimed that even if a case of oppression is not made out by the Petitioners, the Court is not powerless under Section 397 of the Act to do substantial justice between the parties and, therefore, on the facts available in the case the order made by the learned Company Judge should have been maintained. It is pleaded that it is not possible for the Petitioners and respondents to carry on business of the company together and the only solution is that one group shareholders should purchase the shares of the other group and that the Petitioners have no objection in selling shares of their group at a proper value.

(3.) Section 397(2) of the Act provides that an order could be made on an application made under sub-section (1) if the Court is of the opinion - (1) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; and (2) that the facts 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, and (3) that the winding up order would unfairly prejudice the applicants. No case appears to have been made out that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the company would unfairly prejudice the mem- bers of the company who have the grievance and are the applicants before the Court and that otherwise the facts 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. In order to be successful on this ground, the Petitioners have to make out a case for winding up of the company on just and equitable grounds. If the facts fall short of the case set out for winding up on just and equitable grounds no relief can be granted to the Petitioners. On the other hand the party resisting the winding up can demonstrate that there are neither just nor equitable grounds for winding up and an order for winding up would be unjust and unfair to them. On these tests, the Division Bench examined the matter before it.