Bombay High Court
Enercon Gmbh vs Enercon (India) Limited & Ors on 20 August, 2015
Bench: N.M. Jamdar
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Sequeira
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPEAL NO. 42 OF 2013
IN
COMPANY PETITION NO. 83 OF 2011
1. Enercon GmbH, a company duly
incorporated and existing under
the laws of Germany and having .. Appellant(Original
its registered office at Dreekamp 5, Respondent No.1 in
D26605, Aurich, Germany C.P No.83 of 2011)
Versus
1. Wind World (India) Limited,
a company incorporated under the
laws of India and having its
registered office at Plot No.33, .. (Original Respondent
Daman-Patalia, Bhimpore, No.2 in C.P No.83 of
Daman - 396 210, India 2011)
2. Yogesh J. Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
3. Ajay J. Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
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4. Sudarshan Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
5. Minakshi Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
6. Radhika Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
7. Sitakshi Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w),
Mumbai 400 049
8. Siddharth Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road .. Original Petitioners
No.8, Vile Parle (w), in Company Petition
Mumbai 400 049 No. 83 of 2011.
9. Dr.Aloys Wobben
having his office at Dreekamp 5,
D 26605 Aurich, Germany
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10. Mr.Hans-Dieter Kettwig .. Original Respondent Nos.3
having his office at Dreekamp 5, and 4 in Company Petition
D 26605 Aurich, Germany No.83 of 2011.
ALONG WITH
COMPANY APPEAL NO. 43 OF 2013
IN
CLB / COMPANY PETITION NO. 82 OF 2011.
1. Enercon GmbH, a company duly
incorporated and existing under
the laws of Germany and having .. Appellant (Original
its registered office at Dreekamp 5, Petitioner No.1 in
D26605, Aurich, Germany C.P No.82 of 2011)
Versus
1. Wind World (India) Limited,
a company incorporated under the
laws of India and having its
registered office at Plot No.33, .. (Original Respondent
Daman-Patalia, Bhimpore, No.2 in C.P No.83 of
Daman - 396 210, India 2011)
2. Yogesh J. Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
3. Ajay J. Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
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4. Sudarshan Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
5. Minakshi Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
6. Radhika Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
7. Sitakshi Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049
8. Siddharth Mehra,
Indian, residing at 101,
Hare Krishna Residency Society,
J.V.P.D. Scheme, North South Road
No.8, Vile Parle (w), Mumbai 400 049.
9. Enercon Wind Farms (Karnataka)
Limited
having its office at Plot No.33,
Daman-Patalia Road, Bhimpore,
Daman - 396 210.
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10. Enercon Wind Farms (Krishna)
Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
11. Enercon Wind Farms (Jaisalmer)
Pvt. Ltd., having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
12.
Enercon Wind Farms (Rajasthan)
Pvt.Ltd, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
13. Enercon (India) Power Development
Pvt.Ltd, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
14. Enercon Financial Consultancy,
Pvt. Ltd., having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
15. Enercon Wind Farms (Hindustan)
Pvt.Ltd, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
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Desai Road, Andheri (W)
Mumbai - 400 053, India.
16. Enercon Wind Farms (Chitradurga)
Pvt.Ltd, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
17. Enercon Wind Farms (Prithvi)
Pvt.Ltd, having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
18. Enercon Wind Farms (Nettur)
Pvt.Ltd, having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
19. Enercon Wind Farms (Sai)
Pvt.Ltd, having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
20. Enercon India Infructure Pvt.
Ltd. having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
21. Enercon Lanka Power Development
(Pvt.) Ltd. having its office at
116 3/1 Rt DS Senanayake Mawatha,
P.O. Box 191 Colombo 8, Sri Lanka.
22. EIL South Africa Power Development
(Pty) Ltd. having its office at IS Pearce
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Street, Berea, East London, South
Africa 5241.
23. Enercon Wind Farms (Maharana Pratap)
Pvt.Ltd, having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
24. Enercon Wind Farms (Madhya Pradesh)
Pvt.Ltd, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
25. Enercon Wind Farms (India)
Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
26. Enercon Wind Farms (Tamil Nadu)
Pvt.Ltd, having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
27. Enercon Wind Farms (Kerala)
Pvt. Limited having its office at
Plot No.33, Daman-Patalia Road,
Bhimpore, Daman - 396 210.
28. Enercon Wind Farms (Maharashtra)
Pvt. Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
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29. Enercon Wind Farms (Gujarat)
Pvt. Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
30. Enercon Wind Farms (Uttar Pradesh)
Pvt. Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
31.
Enercon Wind Farms (Andhra Pradesh)
Pvt. Limited, having its office at
Enercon Tower, Plot No.9-A,
Veera Industrial Estate, Veera
Desai Road, Andheri (W)
Mumbai - 400 053, India.
32. Enercon Wind Farms (Tungabhadra)
Pvt. Ltd. having its office at Plot No.33,
Daman Patalia Road, Bhimpore,
Daman - 396 210.
33. Vish Wind Infrastructure Limited
having its office at Enercon Tower,
Plot No.9-A, Veera Industrial Estate,
Veera Desai Road, Andheri (W)
Mumbai - 400 053, India.
34. J.N. Investments & Trading Company
Pvt. Limited having its office at
Kaysons 1, Mehra Estate, LBS Marg,
Vikhroli West, Mumbai.
35. Harekrishna Energy Private Limited
having its office at Enercon Tower,
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Plot No.9-A, Veera Industrial Estate,
Veera Desai Road, Andheri (W)
Mumbai - 400 053, India.
36. Dr.Aloys Wobben
having his office at Dreekamp 5,
D 26605 Aurich, Germany
.. Respondents ( Original
37. Mr.Hans-Dieter Kettwig Respondents Nos.1 to 37
having his office at Dreekamp 5, in C. P. No.82 of 2011.
D 26605 Aurich, Germany
38. Enercon Wind Farms (Saman)
Pvt. Ltd.
39. Enercon Wind Farms (Cauvery)
Pvt. Ltd.
40. Enercon Wind Farms (Gadag)
Pvt. Ltd.
41. Enercon Wind Resources Development
Pvt. Ltd.
Mr.S.U.Kamdar Senior Advocate, a/w Mr.Zubin Behramkamdin,
Mr.Jehangir Jejeebhoy a/w Mr.Vivek Vashi, Ms Kanika Sharma,
Mr.Hrushi Narvekar, Mr.Krishnendu Sayta, Ms Shaheda Madraswala
i/b M/s Bharucha & Partners, for Appellant in COAPP No.42 of
2013.
Mr.Sudipto Sarkar Senior Advocate, Mr.Navroz.H.Seervai Senior
Advocate, Mr.Zubin Behramkamdin, Mr.Jehangir Jejeebhoy a/w
Mr.Vivek Vashi, Ms Kanika Sharma, Mr.Hrushi Narvekar,
Mr.Krishnendu Sayta, Ms Shaheda Madraswala i/b M/s Bharucha
& Partners, for Appellant in COAPP No.43 of 2013.
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Mr.Fredun DeVitre, Senior Advocate a/w Mr.Nikhil Sakhardande
a/w Ms.Swagata Naik a/w Ms Sonali Mathur, Ms.Priyanka A.Shetty
i/b AZB & Partners, for Respondent Nos.2 to 8 in COAPP No.42 and
43 of 2013.
CORAM: N.M.JAMDAR, J.
Judgment- Reserved On : 10 April 2015
Judgment Pronounced On : 20 August 2015
JUDGMENT :
ig INTRODUCTION
These two Company appeals arise from the common order
passed by the Company Law Board, Mumbai bench, Mumbai dated
14 December 2012. The parties and the issues raised in these two
appeals are interlinked. The appeals were argued and heard
together and are being disposed of by this common judgment.
2. Both the Company Appeals are filed by Enercon GmbH. In
Company Appeal No.42 of 2013 - Enercon GmbH has challenged
the order passed by the Company Law Board in Company Petition
No.83 of 2011 (originally numbered as Company Petition No.74 of
2008) filed by Mr.Yogesh Mehra and others. In Company Appeal
No.43 of 2013 - Enercon GmbH has challenged the order passed by
the Company Law Board in Company Petition No.82 of 2011
(originally numbered as Company Petition No.121 of 2007) filed by
Enercon GmbH.
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3. The Company in respect of which the proceedings have arisen
is M/s Enercon (India) Limited, now named Wind World (India)
Ltd. Enercon GmbH holds 56% equity shares in Enercon India Ltd
and 44% shareholding is by the Mehra family. Yogesh Mehra is the
Managing director of Enercon India Limited. His brother Ajay
Mehra is a whole time director. The other directors on the board of
Enercon India are Dr.Aloys Wobben who is also the chairman, and
Mr.Hans-Dieter Kettwig. Dr.Aloys Wobben is 100% share-holder of
Enercon GmbH, the 56 percent shareholder in Enercon (India) Ltd.
4.
The Company Petition No.82 of 2011 was filed by Enercon
GmbH (referred to as EG) against Enercon (India) Ltd. (referred to
as EIL) and the Mehra family (the Mehras) and certain other
subsidiaries on 11 August 2007. The Company petition No.83 of
2011 was filed by the Mehras against EG, Dr. Aloys Wobben and
Mr.Hans-Dieter Kettwig on 3 November 2008. By the impugned
order dated 14 December 2012, the Company Law Board - (the
Board) has dismissed the Company petition No.82 of 2011 filed by
EG and has allowed the Company Petition No.83 of 2011 filed by
the Mehras. The Board has directed EG to sell it's share holding
to Mehras, laying down certain modalities as regarding
appointment of facilitator and for valuation. The Board has held
that a case of oppression made out by the Mehras against EG is
proved and as per provisions of Section 397, 402 and 403 of the
Companies Act, 1956 (the Act), buyout by Mehras of the share-
holding of EG is necessary.
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FACTS
5. EG and Mehras incorporated the Company in question i.e.
Enercon India Ltd.(EIL) for manufacturing and marketing wind
turbine generators and energy converters in India. EG is a
Company registered under the laws of Germany. EG is one of the
pioneers in the field of wind energy. Dr.Alloys Wobben holds many
patents in the field of wind turbine generators. He is the 100%
shareholder of EG. Yogesh, Ajay, Sudarshan, Minakshi, Radhika,
Sitakshi, Siddharth Mehra are members of the Mehra family. EG
holds 56% shares of EIL and Mehras hold 44%.
6. The Mehras and EG entered into a Shareholders Agreement
in respect of EIL on 12 January 1994. A Technical Know-How
Agreement was also entered into between the parties. The
Shareholders Agreement executed on 12 January 1994 was
between Enercon Gesellschaft fur Energieanlagen mbH & Co. i.e.
EG and Mr.Yogesh Mehra, acting for himself and his family
members. The Agreement stated that the Mehras have
incorporated a Company, "Enercon India Limited", having its
registered office at Mumbai, Maharashtra and the Mehras have
requested EG and the EG has agreed to supply technical know-how
and assistance for manufacturing, marketing of Wind Turbine
Generators and components excluding Wind Turbine Controllers
and parts. The authorised share capital of the EIL was to be
22.500.000 Rupees (twenty two million five hundred thousand
Rupees), divided into 2,250,000 Equity shares of 10 Rupees (ten
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Rupees) each. It was provided that the EG will take over 1,020,000
equity shares in EIL being 51% paid up capital at par and the
Mehras would take 980,000 Equity Shares being 49% of the paid-
up capital EIL. The management of the EIL was agreed to vest in
four Directors. So long as EG owned not less than 51% of the
share capital, EG was to have a right to appoint two directors, one
of them would be a non-retiring director. So long as Mehras
owned not less than 49% of the equity shares, the Mehras would
also have right to appoint two directors, one of them a non-retiring
director. Chairman of the board was to be appointed by EG.
Managing director was to be appointed by the Mehras. It was
agreed that in case of deadlock the Chairman would have a casting
vote. It was agreed that 30 days written notice of meeting of
directors would be given to every director in India or outside for
meetings of the board. In case of directors residing outside, notice
of meeting was to be sent by cable, telex or fax. The board of
directors were given certain powers to take decisions. As regards
transfer or sale of shares it was agreed that if any party desired to
dispose of its shares, it would give written notice to the other
party. Agreement contemplated execution of an agreement on the
Transfer of Technical Know-How with the EIL and there were
certain other usual clauses.
7. A Technical Know-How Agreement was executed on 12
January 1994 between EG and EIL. EG was styled as 'the Know-
How Supplier' (KHS) and EIL was styled as 'the Know-How
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Receiver' (KHR). It was stated in the agreement that EG has the
expertise and know-how in mechanical engineering and related
technologies in respect of wind turbine generators and EIL intends
to manufacture, trade and market the same in India. It was stated
that at the request of the EIL, EG has agreed to provide the right
and the license to use the technical know-how to the EIL for
manufacture of E-26 Wind Turbine Generators and if market
conditions are conducive then additionally to produce the E-40
Wind Turbine Generators. The 'Products' were defined as E-26
Wind Turbine Generators and atleast two other ranges / models.
The EG was to supply technical know-how in respect of
manufacturing of the products for the Indian markets only. It was
agreed that EIL would receive exclusive right to market the
products in India. For consideration of supply and technical know-
how, EG was to receive 5 % royalty fee on the sales of wind turbine
generators-WTGs and the components. EG was to make an attempt
to assist EIL in achieving indigenisation. EIL was under obligation
to keep all the information secret and use the same only for the
purpose of the agreement. Period of Technical Know-How
agreement was for 10 years from the effective date or from 7 years
from the commencement of production. In the contingency of EG
withdrawing its shareholding, EIL was to retain right to
manufacture the products in India and the technical know-how
already transferred.
8. The Reserve Bank of India gave its In-principle approval. The
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permission for conversion of loan into equity was received from
Government of India, Ministry of Finance and from Government of
India, Ministry of Industry. A Supplementary Shareholders
Agreement was executed on 19 June 1998. The share capital of EIL
was increased in the year 2000. The general permission from
Reserve Bank of India was received. The EG subscribed additional
1.26 million Equity shares and the Mehras subscribed to additional
0.99 million Equity shares. A further Supplementary share-holding
agreement was executed on 19 May 2000.
9.
One more Agreement was entered into that is Intellectual
Property License Agreement (IPLA) dated 29 September 2006. It
was stated in the recital that the technical know-how agreement of
1994 has since expired this agreement was being entered into.
IPLA agreement is now subject matter of an arbitration
proceedings. The implications of IPLA in respect of consideration
of the subject matter of the present proceedings will be dealt with
at a later stage.
10. This was broadly the arrangement between the parties. The
day to day management of EIL was with the Mehras. Sometime
around the year 2006 negotiations took place between Yogesh
Mehra and Dr.Wobben for sale of 6% shares of Mehras to EG.
Certain price was offered by Dr.Aloys Wobben as a chairman of EG.
However, the transaction could not go through as the parties
differed on price. Thereafter there were disputes between EG and
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EIL in respect of supply of parts. The Mehras negotiated with one
IL & FS to sell its shares of 6% for Rs.220 crores and informed EG
by letter dated 10 August 2007. In view of the intention of the
Mehras to sell its shareholding to an outsider the EG filed a
Company petition No.82 of 2011.
Company Petition No.82 of 2011 by EG
11. The case of EG in the Company petition No.82 of 2011 was as
follows :
(I) EG is the fourth largest wind turbine manufacturer
in the world. It is a pioneer in the invention of
gearless wind turbines. As of April 2007, EG had
installed 11006 wind turbines. It has production
facilities in Germany, Sweden, Brazil, India and
Turkey. Dr.Aloys Wobben founded EG in the year
1984. He holds around 40% of all registered patents
in the field of wind energy technology worldwide.
He pioneered the gearless technology in wind
turbines in the year 1993. He is recipient of the
Federal Cross of Merit the only general State
decoration of Federal Republic of Germany. He is a
longstanding advisor to the Government of Federal
Republic of Germany with respect to the energy
sector. Yogesh Mehra does not have any wind energy
experience or credentials as the family business of
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Mehras was textiles.
(ii) Around the year 2006 basic differences in approach
arose between EG and EIL. EG was interested in
cautious project research and development of wind
turbines, while Mehras were interested in setting up
independent power producing wind farms. Mehras
planned to sell their investment to EG in August
2006 with a view to encash the investments rather
than bringing in more funds. When a valuation of
rupees 1.5 billion Euros ( 8000 crores) was put forth
by Mehras, the EG questioned the same. It was
explained by Mehras that it was based on their
forecast. It is on this valuation that Mehras tried to
sell its shares of 6%. At that time EG realised that
the Mehras were trying to deceive them by inflating
the price of shares of EIL. Mehras concealed vital
information regarding EIL from EG. Management
related information was not given. Inspite of
technical know-how agreements, the finances of EIL
were hidden by the Mehras. The EIL is a joint
venture between EG and Mehras and the foundation
of the EIL was the innovation and inventions of
Dr.Aloys Wobben, the chairman of EG. The relations
between Dr.Wobben and Mr.Yogesh Mehra were
excellent and thus Dr.Wobben put his full trust in
him. By the year 2005, it became apparent that EIL
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was in need of funds and EG was ready to infuse
funds. Mehras however avoided to infuse funds in
EIL. Mehras stated that they would make it a zero
debt Company. Though in the month of May 2006,
Mehras assured that 55 crores of equity would be
put in, Mehras took no steps to increase it.
(iii) The debt burden of EIL increased to about 560
crores. To obtain loans Mehras falsely projected the
balance-sheet of EIL. EIL was being run by
manipulation of accounts so as to project it as
having a lucrative investment and to raise finances
from the open market and borrowings. Instead of
concentrating on manufacturing on wind turbines
generators and its research, Mehras were more
interested in indiscriminately acquiring land and
needlessly created various subsidiary Companies.
The Mehras were responsible for EIL committing
Sales tax and VAT violations and funds of the
Company were also being siphoned of in the
construction of towers etc. Yogesh Mehra was
misusing his position as Managing director and was
not supplying correct information to EG.
(iv) The matters came to head when Mehras denied
Intellectual Property Licence Agreement. The
Mehras, inspite of having received benefit under the
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IPLA, were avoiding to make self assessment of
accounts. On 16 February 2007, EG demanded
information which was kept back from EG relating
to reporting system, financial results, balance and
profit loss, planning, EIPP policy, production
installations, board resolutions etc. Around 20
February 2007, it was decided that the partnership
be terminated. Supplies were stopped. With mutual
consent in February 2007, supplies were resumed.
Stoppage of supply had no effect on production as
120 finished uninstalled machines were being held
by EIL. EG came to know from customers of EIL that
false invoices were issued and the funds of EIL were
siphoned out. Large amount of finances were
diverted to construction work. The Mehras being
managing directors and in control of day-to-day
affairs were mismanaging EIL and were acting
oppressively. The Mehras were sabotaging the
efforts of EG. Huge stock of fully finished products
were lying in the EIL. Under the management of
Mehras, EIL has committed Sales tax and VAT
violations.
(v) The Mehras brazenly questioned the IPLA and
refused to do a self-assessment. They were focusing
on acquiring lands and vesting them in separate
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companies. It is therefore necessary to alter the
Article 171 which conferred day to day management
in the hands of Mehras group. The affairs of the EIL
conducted by Mehras group was oppressive to EG,
and also against the public interest. The Mehras
already voiced their intention to cash out their
investment. A case under Section 397 and 398 of
Companies Act, 1956 was made out. Accordingly EG
is entitled for a direction to remove Mehras from the
position of Managing directors and board of
directors. Article 171 and 128(A) need to be
amended and right of appointment of directors
given to Mehras be deleted. The Mehras should be
directed to transfer their share-holding of 44% upon
independent fair valuation.
12 EG in Company Petition No.82 of 2011 made the following
prayers -
(a) Pass appropriate orders and directions removing the
Respondent Nos.2 and 3 from the positions of
Managing Director and Whole Time Director
respectively of Enercon (India) Limited.
(b) Pass appropriate orders and directions removing the
Respondent Nos.2 and 3 from the positions of
Managing Director and/or Whole Time Director and
respectively of the said subsidiary and associate
companies of Enercon (India) Limited.
(c) Direct that the Articles of Association of Enercon India
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.doc
shall stand amended, in particular Article 171, to the
effect that rights of appointment of directors and
participating in management given to the Mehra
Group (Respondent Nos.2 to 8) shall stand deleted.
(d) Direct that the Articles of Association of Respondents
Nos.9 to 35 being the subsidiary and associate
companies of Enercon India shall stand amended to
the effect that rights of appointment of directors and
participating in management given to the Mehra
Group (Respondent Nos.2 to 8) shall stand deleted.
(e) Direct Respondent Nos 2 to 8 to transfer their entire
shareholding (44%) in Enercon (India) Limited to the
Petitioner at a fair value to be independently arrived
at on the basis of the balance sheet of the Company
giving the true view of the Company.
(f) Direct Respondent Nos 2 to 8 to transfer their entire
shareholding in the subsidiary and associate
companies of Enercon (India) Limited including but
not limited to Respondent Nos.9 to 35 herein to the
Petitioner at a fair value to be independently arrived
on the basis of the balance sheet of each of the said
companies giving the true view of each company.
(g) Direct an investigation to ascertain the conduct of the
Respondent Nos.2 to 8 in dealing with assets,
properties, monies and management of the
Respondent No.1 Company.
(h) Direct Respondent No.1 to take all necessary and
consequential action to the report of the investigation,
including but not limited to tracing out the monies,
property and assets of the Company in the hands of
the Respondent Nos.2 to 8 or any of them and direct
restoration of such monies, properties and assets to
Respondent No.1.
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.doc
(i) Pass such other and further order(s) or direction(s) as
this Hon'ble Board deems fit and proper in the facts
and circumstances of the present case.
13. This was in short the case made out by EG in their Company
petition No.82 of 2011. An application was taken out by EG for
interim relief. The Board by it's order dated 24 September 2007
came to the conclusion that the position of the EIL is critical and
supplies need to be resumed by EG immediately. EG was
authorised to appoint one of its nominees as a joint managing
director, subject to EG resuming the supply. Joint managing
director was to work together with managing director. Status-quo
was directed to be maintained, with regard to all the issues pending
then and no action in relation to the dispute was to be taken. The
Board also gave its suggestions for amicable resolution of the
dispute. It suggested that the Mehras may consider selling their
entire share-holding of 44 % to EG and an auditor be appointed for
that purpose. It was noted in the order dated 13 November 2007
that Mr.Arvind Karnik was appointed as a joint managing director.
The matter was thereafter adjourned from time to time on the
ground that settlement talks were in progress. On 15 May 2008,
the Board noted that the compromise efforts had failed and matter
needed to be heard on merits. By order dated 19 May 2008, the
Board directed that no board meeting to be convened without the
leave of the Board.
Reply by Mehras to the Company Petition
No.82 of 2011
14. On 4 July 2008, a reply came to be filed by the Mehras
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opposing the Company Petition No.82 of 2011. The case of Mehras
in their reply, briefly was as follows :
(i) Since the inception, the work of Mehras has been
very good and EIL has been successfully managed.
The turnover of EIL as on 31 March 2007 is ` 2200
crores. Profit after tax was estimated upto ` 82
crores. It was only since May 2006 that grievances
were started being raised by EG. In fact EG on
various occasions had praised the Mehras for
conducting EIL smoothly.
(ii) In the petition EG has suppressed various material
facts and only with a view to force exit of the
Mehras from EIL. As many as around 35 to 40
important documents have been suppressed. EG
had obtained an exparte temporary injunction
against EIL in the Regional Court at Hamburg,
Germany. This fact was suppressed. The Hamburg
District Court on 9 April 2008 had vacated the
exparte ad-interim order. Even in the proceedings
before the High Court the order passed by the
Hamburg Court was suppressed. Various attempts
have been made by EG to bring the functioning of
EIL at a stand-still so that it can acquire the
shareholding of Mehras at lowest price.
(iii)
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(iii) The supplies of necessary parts was stopped without
reason. Therefore, EIL had to cancel various orders.
Non-availability of components seriously affected
the functioning of EIL and so also the various
agreements EIL had entered into between the other
parties.
(iv) The EG arbitrarily rejected the proposal of Mehras
to access the capital market which would have
enormous benefits to EIL and ensured long term
continuity. The Mehras had not agreed that 44% of
10 million Euros would be put in by the Mehras.
The EG had offered a sum of rupees 40 million
Euros for 6% stock of Mehras from which position
the EG unjustifiably resiled.
(v) There was no question of inflating the valuation nor
any evidence is produced in that regard. The
allegation that Mehras concealed state of affairs
from the EG is baseless. Finances of EIL were never
hidden nor withheld nor there was any window
dressing of the accounts. The accounts were
maintained by one of the most reputed audit firms.
On the other hand, EIL was awarded Best Service
Provider award due to the management of Mehras.
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The EG always had access to the information of EIL
on the SAP server located in Germany. Mehras
gave full cooperation with due diligence team of the
EG. The extensive review was carried out by EG
and all the details were provided. Personal
guarantees of substantial amounts have been given
by Mehras while EG gave only a corporate
guarantee of rupees 34 crores in ABN Amro Bank,
which was withdrawn without notice to Mehras.
(vi)
The wind conditions in India differ from region to
region. Due to the transportation problem and lack
of quality infrastructure and other facilities, there
has been an inventory built-up but that has nothing
to do with the management of the Company. It is
only with a purpose of taking the control of EIL by
reducing the value that EG did not introduce higher
capacity machines in India. The EG was interacting
on regular basis with representative of the
Petitioners and there was a Balanced Score Card
system developed. In affidavit filed on 30 August
2007, the position as regards sub-contractor was
clarified. There was no question of deleting the
Article 171 as there was no case of mismanagement
made out. IPLA was a draft document and was not
a concluded contract. As recent as 2 October 2006,
26 Judgmnt COAPPL42-13 in CP83-11 wt COAPPL43-13 in CP82-11
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letters of oppression were given to Mehras by EG.
There being no mismanagement or oppression,
petition was liable to be rejected.
Company Petition No. 83 of 2011 of Mehras
15. Thereafter the Mehras filed a Company Petition No.83 of
2011 (re-numbered from Company Petition No.74 of 2008). The
case of Mehras, after narrating basic facts, in this petition was in
short as under -
(i)
The EG in its capacity as a majority shareholder
committed various acts of oppression. The EIL was
being managed by Mehras competently and there
was no complaint by EG in respect of the
management by the Mehras. The EG with an
intention to force exit on Mehras made an attempt
when deciding to purchase 6% share-holding of
Mehras at 40 million Euros unilaterally changed over
to purchase 12% of the share-holding at the same
amount. When the Mehras rejected this revised offer,
EG took various steps vindictively to ensure ouster of
Mehras from EIL.
(ii) EG unilaterally and fraudulently stopped supplies of
parts and components and inspite of the interim
orders passed by the Board in EG's petition EG
continued to indulge in these acts of oppression.
27 Judgmnt COAPPL42-13 in CP83-11 wt COAPPL43-13 in CP82-11
.doc
After agreeing that EG would infuse capital in a
meeting with bankers EG backed out from the same.
EG recalled the facility of rupees 34 crores
sanctioned to EIL by ABN Amro Bank. In view of this
withdrawal EIL was placed in serious financial
trouble.
(iii) The EG unjustifiably relied upon a draft IPLA, which
was not a concluded, contract to stop the supplies
which was crucial for existence of EIL. EG instituted
frivolous and vexatious proceedings in the Court at
Hamburg, withholding information important to EIL
in respect of its transfer pricing. EG also stopped the
access of EIL through the SAP system, which was
necessary for its day to day functioning.
(iv) EG addressed malicious correspondence to third
parties including customers and financial institutions
to affect the business of EIL. In view of stoppage of
supplies, the benefit granted under Export
Promotion Capital Goods Scheme to EIL was affected
and exposed directors to threat of criminal
prosecution under relevant acts. The representatives
of EIL did not act in the interest of EIL but in the
interest of EG. Even after supply was directed to be
resumed, EG deliberately supplied the machinery in
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.doc
mismatched manner.
(v) EG unjustifiably used the fact of termination of the
draft IPLA to address correspondence to various
parties to prejudice the interest of EIL inspite of the
position that draft IPLA was not a concluded
contract. EG arbitrarily directed EIL not to proceed
in respect of the export project in Ethiopia resulting
in substantial financial loss and threat to levy being
imposed by the government.
(vi) Inspite of such malicious actions on part of EG, the
efforts of Mehras and morale of the employees
remained unaffected. It was only due to the
reputation of Mehras that the bankers did not recall
the loan facilities. The work of EIL was appreciated
and various awards were conferred.
(vii) In view of such oppressive acts of EG relief needs to
be granted in favour of Mehras. EG should comply
with agreed principles, EG should refrain from
representing to the third parties on the basis that
draft IPLA is terminated, EG should infuse funds.
The Article 171 should be amended to remove the
right of appointment of directors in EG and the
power to casting vote under Article 157, and EG
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.doc
should transfer their entire shareholding to Mehras
at a fair value.
16. Accordingly the Mehras in the Company petition made the
following prayers--
a) Direct that Respondent No.1 be obliged to comply
with the Agreed Principles executed on September 29,
2006 between Petitioner No.1 on behalf of Respondent
No.2 and Respondent No.3 on behalf of Respondent
No.1 in particular continuous supply of parts,
components, raw materials and special components as
per the pricing parameters as had been agreed on;
b) Pass appropriate orders and directions removing
Respondent Nos.3 and 4 from the board of Respondent
No.2 owing to their acts of breach of fiduciary duties
to Respondent No.2 as pointed out in the body of this
petition;
c) Direct that Respondent Nos.1, 3 and 4 be enjoined and
restrained from representing to any third party,
banks, financial institutions and any other lending
agency that the draft IPLA is terminated and not
enforce any rights that it may allegedly accrue from its
termination;
d) Direct that Respondent No.1 act upon its commitment,
as made before the banks on December 20, 2007 to
infuse further capital of Rs. 112 crores into
Respondent No.2;
e) Direct that the accounts of Respondent No.2 for the
financial years 2006-2007 and 2007-2008 be audited
as per past practice and standards and that
Respondent No.1 extend all co-operation to this end;
f) Direct that the Articles of Association of Respondent
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No.2 shall stand amended, in particular Article 171,
to the effect that rights of appointment of directors
and participating management given to Respondent
Nos.3 and 4 shall stand deleted;
g) Direct that the Articles of Association of Respondent
No.2 shall stand amended, in particular Article 157
in as much as the power of the casting vote shall not
be exercised by any director so appointed by
Respondent No.1;
h) Direct that Respondent No.1 transfer their entire
shareholding 56% in Respondent No.2 to the
Petitioners at a fair value to be independently arrived
at on the basis of the valuation carried out by any
person as appointed by this Board;
Reply of EG to the Company Petition No.83 of 2011
of Mehras
17. The EG filed their reply to the Company Petition No.83 of
2011. In the reply EG took various contentions. Most of the
averments in the reply were repetitions of the stand taken by EG in
their petition and for sake of brevity the contentions of reply have
been only briefly adverted to as under-
(i) The petition by Mehras is nothing but a counter-
blast and abuse of process. The petition does not
disclose any cause of action. It is the Mehras who
are the oppressors and mismanaged EIL.
(ii) Issues raised by Mehras in the petition are raised in
the Suit No.2667 of 2007 filed in the Bombay High
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Court. The petition challenges IPLA, which contains
arbitration clause and further the matters under
IPLA are not within the jurisdiction of the Board.
(iii) By order dated 29 January 2009, the Board had
directed valuation, which order has become final.
(iv) The issues raised by Mehras are purely contractual
in nature. The Mehras repudiated the IPLA and
sought to infringe the intellectual property rights of
EG. The Mehras systematically attempted to revoke
the patents held by Dr.Wobben. The Mehras
attempted abuse of SAP system by prying into areas
they were not entitled to and therefore preventive
action had to be taken. The allegations regarding
transfer pricing are totally baseless.
(v) After petition was filed by EG, in review of affairs of
EIL, it transpired that Mehras held more than 15
illegal meetings between April 2007 to October 2007
without notice to EG. Through these illegal meeting
Yogesh and Ajay Mehra assumed wide powers. The
Mehras concealed that certain subsidiaries were
created.
(vi) The Mehras adopted dilatory tactics in respect of the
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.doc
audit. The auditors did not comply with the orders
of the Board. The conduct of the statutory auditor
to EG was not fair and was only to support the
Mehras. The Mehras manipulated accounts to falsify
credit ratings, high inventory of almost 120 fully
finished products was maintained to causing EIL to
commit violations of taxing statutes. The Mehras, by
keeping EG in dark, created huge debts and
committed misappropriation of assets of EIL. The
profits of EIL were artificially increased.
18. The averments made in the petition by the Mehras were dealt
with by EG parawise, and in consonance with their stand
enumerated earlier, denied the contentions. The EG accordingly
sought dismissal of the Company petition filed by Mehras.
Proceeding before the Company Law Board
19. On 27 January 2009, the Company Petition along with
Company Application No.329 of 2008, No.372 of 2008 and No.429
of 2008 were taken up for consideration. The Board noted the
position of the shareholding. It noted that there has been a
complete loss of trust and confidence between two sets of share-
holders which is evident from the fact that each of them have filed
the petitions. There was a complete deadlock due to which board
meetings were not being held, and parting of ways was in interest
of the EIL. The Board suggested that parties to consider parting
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.doc
of ways. Since the parties agreed for appointment of M/s Sharp &
Tannan both the parties were given liberty to make submissions
before the valuer. On 29 January 2009, matters were taken up and
an order was passed superceding the earlier orders. Certain
modalities were laid down for the purpose of valuation for
determination of value of shares. Independent valuation of each of
the Respondent No.9 to 35 was to be carried out. The issue
whether Respondent Nos.33, 34 and 35 were part of the enterprise
was to be considered by the Board. The Mehras and EIL were
directed to maintain status-quo as regards its fixed assets.
20. On 21 April 2009, the earlier order was modified and M/s
Suresh Surana & Associates were appointed as valuers. On 23 July
2009, it was agreed by consent that M/s Ernst & Young, India
would be the valuer. On 19 October 2009, Company Application
Nos.423, 424, 425, 426 of 2009 were taken up by the Board.
Company Application No.423 of 2009 was filed by EG seeking
certain directions to the Mehras. The Board directed the auditors
of EIL to furnish all the information furnished by EIL to the auditors
for the purpose of audit. As regards the allegations of EG that
inspite of status-quo order EIL created charge on the assets by
depositing of title deed and has incorporated subsidiaries, the
Board directed that the subsidiaries i.e. Vaayu companies be made
as Respondents. The Board observed that for the time being it did
not propose to pass any order on the application. On 27 November
2009, the application filed regarding direction to EIL to submit
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information was disposed of and it was directed that an
undertaking be furnished by EG that it will not use the information
for any purpose other than valuation and not use it in the
correspondence with third parties. Company Application No.67 of
2010 was filed by EG in respect of due diligence of EIL, came up for
consideration before the Board on 23 March 2011. The Board
noted the order passed by this Court in Company Appeal No.91 of
2009. It noted that undertaking as contemplated by the order
passed by this Court was not filed in Company petition. The
submission of EG that undertaking was not required was rejected in
view of the order passed by this Court. By order dated 23
November 2011, the Board directed EG to furnish undertaking in
view of the order. The appeal filed by EG challenging the order
dated 23 March 2011 was dismissed. Thereafter EG filed a special
leave petition in the Apex Court, which was also dismissed. The EG
furnished an undertaking, which according to it, was in substantial
compliance of the direction of this Court.
21. Before the Board the petitions were extensively heard. The
EG contended that the Mehras in conducting the affairs of the EIL
had committed acts of oppression and mismanagement and the
Mehras alleged that the EG has acted oppressively against the
interest of EIL. Both the parties thus alleged oppression /
mismanagement on the part of other side and defended their own
action.
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22. It was argued by EG that Mehras held 15 board meetings and
an extra ordinary general meeting without any notice to EG.
Various companies were incorporated to frustrate the valuation
proceedings and profit at the expense of EG and EIL. It was
submitted that Mehras were attempting to render EIL defunct by
siphoning its funds. It was argued that Yogesh Mehra was
interested in setting up independent power wind farms. It was
further contended that Mehras resiled from their duties to infuse
funds. Despite the order of status-quo the Mehras continued
dealing with short term and long term finances keeping EG in dark.
It was contended by EG that its technology was usurped and its
intellectual property rights were infringed. It was submitted that
the proceedings had been brought by EIL against Dr.Aloys Wobben
for revocation of 19 of the patents. Mehras attempted to cause EIL
to wrongfully obtain parts ignoring the patents of EG. It was
contended that EIL abused the SAP server by importing EGs data
and peep into it's global operations. It was contended that the
Mehras filed criminal proceedings and when the representative of
EG visited India, they were questioned by the Police officers at the
Taj Mahal hotel, Mumbai, where they were staying. It was argued
that, by an unauthorised resolution without notice to EG, Yogesh
Mehra conferred himself untrammeled powers to take decisions
without approval of Board. It was further contended that in the
order dated 29 January 2009 there is a clear finding that there is a
loss of trust and deadlock in the Board meetings and the question
cannot be re-opened. It was contended that the EG being majority
36 Judgmnt COAPPL42-13 in CP83-11 wt COAPPL43-13 in CP82-11
.doc
share-holder be permitted to hold a general meeting and change
the composition by removing the Mehras and for modification of
the Articles of Association. As regards the contractual obligation
between EG and EIL, it was contended that those issues need not
be gone into as there are proceedings pending in Civil Courts and
courts of competent jurisdiction.
23. It was further contended by EG that the Company petition
No.83 of 2011 filed by Mehras is liable to be dismissed in limine
because as no cause of action was made out and it was merely a
counter-blast to EG's petition. It was contended that Mehras have
already raised a dispute regarding alleged obligation of EG to
supply components, in Suit No.2667 of 2007 filed in this Court and
in any case these matters were commercial disputes not within the
jurisdiction of the Board. It was also contended that Mehras
petition is not maintainable as no case is made out of oppression
by share-holders via the business and management of EIL and the
complaint made must relate to the affairs of the Company. It was
urged that the acts of oppression complained against EG were not
in the capacity of shareholders and independent acts of EG as
technical know-how provider could not come under the concept of
oppression. As regards the allegation made by Mehras, the EG
contended that the issues regarding transfer pricing and other
contractual disputes are subject matters of dispute before other
forums. It was contended that no share-holder can be forced to
infuse funds. It was further submitted that in view of conduct of
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.doc
Mehras of downloading of data from SAP server that EG had to
take protective action. The Mehras had also withdrawn their
personal guarantees from various banks when EG withdrew its
guarantees, there is no question of any oppression. It was
submitted that the EG's technology is patented and EG has always
retained its exclusive rights and only part of the technology was
licensed to EIL for a limited period which was wrongfully sought to
be taken away by EIL. Various decisions were cited as regards the
rule that the Board should ordinarily direct buy out in favour of
majority. On these and various other grounds EG presented its
case.
24. Mehras contended that none of the prayers in Company
Petition No.82 of 2011 filed by EG, could be granted as the conduct
of EG was unfair and prejudicial. It was contended that the EG had
indulged in acts of oppression of sudden stoppage of supplies,
mismatch of supplies, withdrawal of guarantees, denying access to
SAP server, refusal to infuse capital and refusal to give information
on transfer pricing. It was also contended that inspite of the
direction of this the Board to EG to file an undertaking that the
data sought for will not be misused, EG did not furnish such
undertaking. The charge of EG regarding Vaayu Companies was
denied contending that none of the orders passed prevented the
incorporation of such subsidiaries and no competing business was
done. The Mehras contended that even otherwise they were not
averse to including these Vaayu Companies in valuation exercise.
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It was contended that the role of EG as a technological know-how
provider and the shareholder could not be separated. It was
contended that it could not be that the actions of EG as a know-
how provider, since though being prejudicial to the interest of the
EIL, could be ignored, since they were majority share-holders. It
was contended that the refusal of EG to infuse capital in the EIL
when Company was in need of additional funds, was oppressive as
a majority share-holder. The Mehras contended that the EG
withdrew guarantees pushing EIL towards financial brink as a
majority shareholder. The Mehras placed on record details of
various litigations instituted by EG and contended that the EIL was
involved in spate of litigations by the EG and this conduct as a
majority share-holders could not be ignored. The Mehras
contended that EG consistently was thwarting attempts to get the
valuation done as they were never interested in the same. Mehras
contended that EG never made any complaint regarding the
management of Mehras and only started making complaints as part
of their plan to depress the value of shares to force Mehras to exit.
Mehras contended that the resolutions were passed as the practice
followed by EIL. It was further contended that even if EG exits
from EIL, EIL will not suffer as the technology which is available
can be marketed and the EIL will not be financially affected and
the Mehras are best suitable to carry on with the EIL. These were
broadly the submissions made by the Mehras before the Company
Law Board (the Board) with dismissal of EG's petition and for
grant of relief in their petition.
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Impugned order of the Company Law Board
25. By the impugned order dated 14 December 2012, the Board
dismissed the Company petition No.82 of 2011 filed by EG stating
it as not maintainable. The Company Petition No.83 of 2011 filed
by the Mehras, was allowed with various directions. The Board
found that the Mehras had made out a case of oppression by the EG
and that parting of ways could not be avoided. The Board came to
the conclusion that it would be in the interest of EIL and the share-
holders that EG should go out of EIL. It held that even though
Mehras were in the minority, giving EIL to EG will be rewarding the
wrongdoer. The Board further noted that for parting of ways
valuation was necessary for which EG had refused to give an
undertaking. The Board accordingly directed that one Mr.Hari
Sankar Acharya, Ex-Chief Commissioner of Income Tax be
appointed as Facilitator-cum-observer. He was directed to sort out
the issue of giving requisite information to the valuers. He was
given complete immunity from any civil or criminal proceedings
and all the parties were directed to cooperate with him. The Board
appointed M/s Grant Thornton India Pvt. Ltd. at Mumbai as Valuers
to value EIL and the subsidiaries as on 31 March 2006. The
valuation was to be furnished to EIL with a copy to the Board.
Even if EG failed to give requisite undertaking the valuation was to
continue. On receipt of valuation report, the Mehras were to make
remittances of the dues to EG within three months. The observer
Mr.Acharya was directed to ensure smooth proceedings before the
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Valuers of EIL till the valuation was completed and EG's dues were
cleared. Mr.Acharya was given liberty to mention the matter to
apprise the Board and seek further directions if necessary. The
Company petition No.82 of 2011 filed by EG was accordingly
dismissed as not maintainable. The Company petition No.83 of
2011 filed by the Mehras was allowed. The C.A No.232 of 2012
was disposed of in terms indicated above. All Company
applications stood disposed of except C.A. No.240 of 2012 which
was not pressed.
The Present Appeals
26. The EG thereafter filed the present Company appeals i.e.
Company Appeal No.42 of 2013 challenging the order passed in
Company Petition No.83 of 2011 and Company Appeal No.43/
2013 challenging the order passed in Company Petition No.82 of
2011. By order dated 18 January 2013, the Appeals were admitted.
The order passed by Board dated 14 December 2012 was stayed.
The interim orders dated 29 October 2007, 7 January 2008 and 19
May 2008 were continued. In matters arising out of the IPLA,
proceedings initiated by EG reached the Apex Court and the Apex
Court in SLP No.33252 / 33263 of 2013 on 31 October 2013
expedited the hearing of the present Company appeals.
Accordingly, the Appeals were taken on priority and heard over
various dates. The counsel also submitted their written
submissions.
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27. Mr.Sudipto Sarkar along with Mr.Navroz Seervai, and
Mr.S.U.Kamdar, learned Senior advocates made submissions for the
Appellants-EG and Mr.Fredun DeVitre, learned Senior advocate
appeared for the Respondents-Mehras in both the Appeals.
SUBMISSIONS
28. The primary argument of Mr.Sarkar is that the order of the
Board suffers from complete non-application of mind and the
proceedings need therefore remanded back. Mr.Kamdar, without
prejudice to the submissions of Mr.Sarkar, advanced submissions
on merits in case the prayer of remand was not accepted.
According to him the Mehras petition was liable to be dismissed
and EG's petition needed to be allowed. Mr.DeVitre supported the
impugned decision of the Board to contend that there is no non-
application of Board and there is no need for remand and the order
of the Board was fully justified.
Submissions on behalf of EG.
29. Mr.Sarkar learned Senior Advocate in brief submitted as
under-
(i) The impugned order was passed by the learned
member of the Board in haste. The order suffers
from non-application of mind and having not
addressed itself to the merits of the contentions. The
order is perverse and contains errors on the face of
it. The arguments were closed before the Board on
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27 November 2012. The Written submissions were
filed on 11 December 2012 and the impugned order
was passed on 14 December 2012 running into 171
pages without dealing with various contentions.
The learned member has merely reproduced the
various contentions of the parties. The case laws
cited by the Appellants have not been considered at
all.
(ii) The Board has dismissed the petition of the EG as
not maintainable even though all the ingredients of
Section 399 of the Act were satisfied. Inspite of the
relevant ingredients missing from the Mehras
petition, the same was allowed. The conclusion that
the petition of EG was not maintainable was
contrary to the observations made by the Board
itself in the impugned order. Furthermore, by order
dated 29 January 2009, the Board had observed
that there is complete deadlock in the board and
complete parting of the ways was the only solution
and that Mehras should sell their shareholding.
(iii) The Board could not have dismissed the petition as
not maintainable. In the operative portion of the
impugned order the Board has recorded that the
petition of the Board requires to be thrown out at
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the threshold, despite of observing that the Board
had no option but to dispose of both the petitions on
merits in view of the order of this Court.
(iv) Inspite of demonstrating that the actions of the
Mehras, the minority share-holders, were oppressive
and prejudicial to the interest of majority, the Board
not only gave clean chit to the Mehras but awarded
them the entire EIL. The Board has not considered
the unauthorised alteration of the Articles of
Association by Mehras, criminal complaints filed by
the Mehras incorporation of various Vaayu
Companies, passing of an illegal board Resolution
on 26 April 2007 empowering themselves with
sweeping powers and the wrongful conduct of the
statutory of the auditors of the Company. These
factors clearly indicated the wrongful and
oppressive conduct of the Mehras and most of the
submissions raised by EG raised on these wrongful
acts have not been considered at all.
(v) There is no finding as regards the illegal
modification of Articles of Association; incorporation
of Vaayu companies; CARE ratings; Lack of
Provisioning as per Standard Accounting Practices;
Tax Evasion; Non-compliance with GAAP; meeting
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and interconnection with Consortium of Bankers;
needless financial assistance from various Banks;
refusal by Mehras to infuse capital; artificial
inflation of profits, distortion of financial gains;
diversion of EIL's Resources; vexatious proceedings;
setting up parallel SAP Server; re-engineering EG's
technology; auditors refusal to give information;
Mis-appropriation of assets; inducing EG to
purchase Mehra's shares at inflated prices. Thus
having observed that the petition has to be heard on
merits, non-consideration of all the above grounds
would make the order perverse and liable to be set
aside on the ground of non-application of mind.
(vi) The Company Petition filed by Mehras under Section
398 of the Act was not maintainable against EG, the
share-holders, who were not in active management
of the Company. The requirement of Section 398 of
the Act is that the act of mismanagement must be
attributable to the share-holders who are in
management of the Company and against only such
share-holders that the petition making grievance of
mismanagement can be filed.
(vii) Not only factually EG was never in management and
the Mehras were in management, this position is
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also made clear in the Articles of Association of EIL.
Inspite of raising this point which goes to the root of
the claim made by Mehras the Board did not deal
with the issue. The Mehras also did not establish
that any of the acts of EG were oppressive and no
case for oppression has been made out in the
Mehra's petition.
(viii) The Board completely lost sight of the settled legal
position that in order to succeed in the charge of
mismanagement, the Petitioner has to prove that it
is the affairs of the Company which is conducted by
the shareholders in a manner oppressive to some
part of the members. The conduct must be
burdensome and operate harsh and the position
must continue till the date of the petition. To
constitute an act of oppression there must be actions
on one group of share-holder in respect of the affairs
of the Company. Therefore Mehras had to
demonstrate that the action complained by EG were
in their capacity as a share-holder and those actions
in the capacity of share-holder were oppressive to
Mehras.
(ix) The Board confused between the actions of EG in its
capacity as a share-holder with the actions of EG as
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a technology provider. If at all any act of oppression
is to be alleged, it will have to be established that
the actions of EG as a share-holder were oppressive.
No complaint can be made that the actions of EG as
a technology provider is oppressive as it would be
in the realm of contractual and intellectual property
matters.
(x) The Board, having held that the EG was right in its
contention that the proceedings initiated by EG in
respect of contractual and commercial disputes and
that EG had correctly decided not to argue on issues
which are purely in the nature of commercial and
contractual, proceeded to make observations on
merits regarding the very same dispute which were
to be decided by the competent Courts. The
Board made observations on merits on the validity
of IPLA, the purported transaction of technology,
stoppage of supplies, all three pending in the
concerned courts.
(xi) The grievance and reliefs claimed by Mehras were in
relation to contractual agreements between the
parties and therefore, their petition was not
maintainable. The Board failed to give effect to
legal position that the contractual disputes are
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beyond the scope of Section 397 and 398 of the Act.
Failure to act in terms of the contract would be its
breach and cannot be considered as oppression
and/or mismanagement.
(xii) It is also settled legal position that before case of
Section 397 and 398 can be entertained, it will have
to be established that the case for winding up of the
Company on just and equitable grounds is made
out. The Mehras did not seek winding up of EIL on
just and equitable grounds as they are the ones who
are in management of EIL. The Board did not
address itself to this basic issue, the impugned order
therefore, suffers from non-application of mind.
(xiii) While listing out the proceedings initiated by
Mehras and EG, the learned member of the Board
did not mention the suit for stoppage of supplies,
being Suit No.2667 of 2007, filed by Respondent
No.2 and 3 for very same relief in this Court and
various proceedings instituted by Mehras were
clubbed under one head. The Board passed orders
in the petition filed by Mehras, which are beyond
the scope of Section 402 and 403 of the Act. While
granting relief under Section 402, the Board
recorded findings on validity of the IPLA, transfer of
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technology, stoppage of supplies. Once the Board
itself had agreed that these disputes will not form
part of the proceedings before the Board, the Board
could not have given findings on merits of the same.
(xiv) The Board could not have directed transfer of
technology to Mehras merely because they were
permitted to buy out the shareholding of EG. The
Board had no jurisdiction at all to arrive at such
finding. Further more the issue regarding transfer
of technology is being agitated in various courts and
is sub judice.
(xv) The direction to issue transfer of technology is not
only not within the powers of the Board, the
direction is issued without considering that the EG is
a world leader in production and manufacture of
wind turbines and Mehras were only involved in
textile business earlier.
(xvi) The Board could not, in absence of exceptional
circumstances, direct the Mehras, the minority, to
buy out EG, the majority. The normal rule is that
the majority should buy out the minority. No
exceptional circumstances are shown to order the
buy out by minority of the shares of the majority.
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The Board failed to give effect to settled position of
law and introduced a concept of de jure and de facto
control, concepts which are unknown to law in
respect of buy outs.
(xvii) The Board proceeded on completely erroneously
basis to order the valuation. Principles of natural
justice were violated by the order of the Board by
denying the copy of valuation report to EG and
directing payment of consideration as per valuation
without giving an opportunity to EG. The Board
also gave no justification for choosing the period
and date for valuation, that too without including
the Vaayu Companies atleast on six occasions.
Inspite of Mehras stating that the Vaayu companies
can be included in the valuation exercised, the
Board left the Vaayu companies out of the valuation
process.
(xviii)The Board was not justified in appointing
Mr.Acharya- a observer - cum facilitator under
Section 402 of the Act and giving him unfettered
powers making him exempt from all civil and
criminal liabilities.
(xix) The manner in which Mr Acharya is appointed is
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highly questionable. This particular member of the
Board has appointed Hari Sankar Acharya in various
companies, each time fixing exorbitant fees in his
favour. Mr.Acharya has been appointed by this
particular member of the Board fixing fees from `
73,000/- to ` 3,00,000/- p.m. The Companies on
which he is appointed are located at Bangalore,
Mumbai, Hyderabad, Delhi and Ahmedabad and it is
not possible to believe that when he would be
simultaneously working in all these places.
(xx) The order of the Board is opposed to principles of
natural justice and fairness. It suffers from non-
application of mind and lack of adequate reasons
and non-consideration of various issues raised by
EG. The Board has also dismissed EG's petition is
not maintainable at the threshold. Considering
these facts this is a fit case where the order of the
Board be quashed and the matter be remanded back
for fresh consideration.
30. Mr.Kamdar, learned Senior Advocate on behalf of EG
contended in brief as under -
(i) Firstly, that the impugned orders ought to be
quashed and set aside and the petition filed by the
EG needs to be restored to the file to be heard by the
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Board afresh on merits. If this prayer is not
acceded to, relief be granted in favour of EG as
prayed for in their Company petition as the various
acts of the Mehras constituted oppression and
mismanagement on their part, and Mehras petition
be dismissed.
(ii) The Mehras unauthorisedly altered the Articles of
Association to enable them to run the EIL in a
manner they wanted. The amendments were carried
out unauthorisedly, disregarding the special rights of
EG. The Article 170A of the Articles of Association
was amended without notice to EG and this clearly
constituted an act of oppression against the EG. The
amendment deprived EG of their affirmative vote
on various issues and removed various restrictions
on the powers of Mehras. The amendment
unilaterally increased the limit for short term loan.
This is a clear act of oppression by Mehras against
EG.
(iii) Between April 2007 to October 2007, fifteen illegal
board meetings of EIL were held by Mehras, without
giving notice to EG, which EG came to know first
time in January 2008. The Board resolutions dated
26 April 2007 passed without notice to EG, gave
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sweeping powers to Yogesh Mehra. The powers
were given to buy-back and enter into other
arrangement with customers who were close to
Mehras. Powers were conferred to defend or
institute legal proceedings on behalf of EIL and
authorising themselves to take decision without
approval of board. It has to be held that the illegal
resolutions constituted oppression and
mismanagement.
(iv) These purported Resolutions were passed
empowering Yogesh Mehra and Ajay Mehra to take
various major policy decisions without the approval
of the Board, terming them as day to day activities.
None of the powers conferred by the said resolution
could be termed as day to day activities. These
resolutions purported to be passed were backdated
to circumvent the order of status-quo passed by the
Board on various dates, more particularly the order
dated 29 October 2007.
(v) The Mehras filed a derivative suit in 2007, which
action was in complete contradiction with the
purported powers assumed by them under the
alleged resolution. If the Mehras had allocated
themselves these powers under the resolution then
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there was no need for them to file a derivative suit,
and this clearly indicates that the so-called
resolution is a back-dated and fabricated document.
(vi) The proceedings filed by Mehras on the strength of
the illegal resolutions were not in the interest of EIL.
All these proceedings were vexatious without any
substance and constituted an act of gross oppression
against the EG. The litigations instituted by Mehras
was an act of oppression by the Mehras.
(vii) On 29 October 2007, the Board had directed that
the status-quo in regard to all issues pending in the
proceeding should be maintained and no action
should be taken further. By order dated 19 May
2008, the Board had directed that without leave of
the Board no meeting shall be convened and no
circular resolution would be passed. However, in
and around 2010, the EG came across material on
the internet indicating that the Mehras incorporated
various companies, the 'Vaayu' companies at various
places. Mehras incorporated Vaayu Companies with
similar structure of EIL, with a clear view to defeat
the rights of EG.
(viii) The Mehras fraudulently funded these Vaayu
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Companies with a shareholding pattern as out of
which 11 Vaayu Companies had shares belonging to
Mehra group and not of EG. The Mehras transferred
the benefits to the 11 Vaayu companies in which
they and their family members were the sole share-
holders. The Vaayu companies were established with
a view to siphon out the funds of EIL and to misuse
the technology and disintegrate and destroy the EIL.
These Vaayu companies were incorporate to pervert
the process of valuation and to transfer the
technology without any authority. The act of
incorporating these Vaayu Companies was gross act
of oppression of Mehras.
(ix) When the EG's representation had come to India and
were staying at Taj Mahal hotel, on 1 September
2008, officers of the Economic Offence Wings, in
connection with a complaint filed by Mehras,
interrogated them for six hours. EG's representative
filed Criminal Revision Application in this Court and
the stay was granted to further proceedings.
However, the Mehras continued to press the criminal
matter. All this was done by Mehras to pressurise
EG by exposing its representative to the threat of
arrest. This was also a serious act of oppression by
Mehras.
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(x) The auditors, Deloitte Haskins and Sells, acted in
connivance to defy the order dated 29 October 2009
of the Board the Board refused to provide EG, the
majority share-holder, the requisite information as
required by the EG despite of the order of the
Board.
(xi) The Mehras created various charges on the property
of EIL on the strength of illegal meetings and
resolutions and misappropriated the assets of EIL.
Inspite of orders of The Board dated 29 October
2007 and 19 May 2008 granting interim orders, the
Mehras procured various loans from bank and
encumbered assets of EIL in contravention of the
orders of the Board. Equitable mortgages on all
immovable property for amount of ` 63 crores,
hypothecation of entire assets of the companies for `
25 crores, hypothecation of certain assets for 20
crores and modification of an earlier charge for `
200 crores. These charges were created without any
board meetings and the purported meetings were all
without notice to EG. All these acts would show
that the Mehras committed acts of gross oppression
on the EG, the majority share-holder and the
petition filed by EG needs to be allowed.
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(xii) The petition of Mehras was not maintainable.
Section 398 of the Act formulates that the
shareholder/s against whom a relief is being sought
has to be management of the Company. Since EG
was not in the day-to-day management of the
Company there is no question of entertaining the
petition filed by Mehras against the EG. To maintain
a petition for oppression there must be two or more
groups of share-holders and the acts complained
must be by a group acting against the interest of
another group. The acts complained must be in the
capacity of share-holder and the contractual
disputes between the share-holders out of purview
of the Board. The EG was acting in its contractual
capacity as a technology provider and the acts
complained of are the acts of EG not as a share-
holder but as a technology provider. This settled
position of law has been reiterated time and again
by the Apex Court.
(xiii) The actions of EG in it's capacity as a technology
provider for enforcement of it's contractual and
intellectual property rights does not amount to
oppression under Section 397. The Board, after
holding that such contractual disputes are outside
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the purview of petition under Section 397 and 398,
went on to adjudicate them. The relief sought for by
Mehras in their petition are clearly contractual and
on this reason alone the petition filed by Mehras was
not maintainable and should have been dismissed.
Even assuming that the petition was maintainable,
none of the allegations made by Mehras had any
substance and none of them constituted acts of
oppression on the part of EG.
(xiv) The allegation that EG initiated spate of litigations
against the Mehras to throttle the Company are
baseless. Mehras misused and infringed the patents
and technology license by EG and committed breach
of the Technical Know-How Agreement and in the
circumstances to protect it's contractual and
intellectual property rights EG had to institute
various litigations. EG had, in fact, invoked
arbitration clause, however instead of cooperating
with the same Mehras filed Civil Suit and obtained
certain interim orders. They also filed criminal
proceedings only to harass EG. It was Mehras
therefore, who instituted numerous frivolous and
vexatious proceedings against EG.
(xv) There is no substance in the allegations of Mehras
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that the EG initiated malicious correspondence to
third parties so as to affect the business of EIL.
These letters were written by EG only to protect it's
intellectual property rights and contractual rights
which were being misused by the EIL at the behest
of Mehras and therefore the EG was justified in
addressing such correspondence. The actions of EG
were not as a share-holder and therefore, could not
constitute an oppression. The Board did not
consider this position of law and straightaway
concluded that EG kept it's own interest above the
interest of EIL.
(xvi) The allegation of Mehras that there was stoppage
and mismatch of supplies is also baseless. The
Mehras filed a derivative suit for resumption of
supplies wherein Mehras clearly alleged that these
acts of EG were in violation of their contractual
obligation. Even though the EG was under no
obligation to supply after the expiry of the
agreement, the EG continued to make supplies
under impression that the parties were negotiating a
comprehensive agreement. Inspite of this position,
Mehras continued to commit defaults in payment
and therefore, protective action had to be taken by
EG. The question of allegation of mismatch of supply
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is sub judice in this Court in a Civil suit. The issue
of mismatch of supply is a complex issue.
(xvii) The Mehras refused to provide EG with correct
financial position and manipulated the accounts. EG
suspected that the Mehras were manipulating the
actions, and were justified in withdrawing corporate
guarantee to safeguard it's own financial interest.
The Mehras misused their access to SAP system and
downloaded confidential and proprietary
information of EG. The Mehras filed an Application
No.123 of 2008 for SAP access. A detailed reply was
filed by EG setting out various facts to which there
was no response by Mehras. Not giving access to
SAP did not amount to any oppression.
(xviii) There is no question of jeopardising the fulfillment
of EIL for a project in Ethiopia. License granted to
EIL was restricted to India and EIL was not entitled
to manufacture the turbines outside India. Even
assuming it was permissible under the Export
Promotion Capital Goods Scheme, it could not have
been done without the permission of EG. EG was
prepared to infuse funds in the Company however,
Yogesh Mehra avoided to put funds in the Company
when it was needed. The Mehras mismanaged the
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Company and presented wrong picture to induce EG
to purchase portion of Mehras share-holding at an
inflated value. The allegation of Mehras regarding
transfer pricing was based on speculation and there
was no real impact due to increase in prices. EG had
increased the prices of only one item out of many
that were being supplied that too on account of a
global price rise. The Mehras created various
charges without leave of the Board inspite of the
order passed by the Board. The Mehra's petition
requires to be dismissed and EG's petition be
allowed.
Submissions on behalf of Mehras
31. A summary of arguments of Mr. Fredun DeVitre, on behalf of
the Mehras as under -
(i) The EG has levied unfair allegations against the
learned member of the Board that she misconducted
herself. The Board has reproduced the written
submissions and there is nothing wrong in the same
as it is a matter of convenience. Adequate reasons
have been given and the basic position that there is
lack of trust between two groups is established and
only question was which group should be directed to
buy out the other. The Board with a well-reasoned
decision after giving detailed reasons has directed
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the Mehras to buy out the share of EG. The
petitions were heard at length and the matter has
been dealt with in detail and therefore, there is no
reason to remand the matter which will put the
parties to inconvenience. The EG is only interested
in delaying the matters. The learned member had
taken extensive notes of the arguments. Parties filed
their written submissions and thereafter decision
was given. The submission that the decision was
taken in undue haste is without any basis.
(ii) Though the Board stated that the petition by EG is
not maintainable and deserves to be rejected at
threshold, the Board decided the matter on merits
and the discussion by the Board would demonstrate
this fact.
(iii) The Mehras have at the outset taken a stand that
appointment of Mr.Acharya can be set aside and be
substituted by any fit and qualified person by this
court and no capital can be made out of this
appointment by EG. The Board has provided for
fair process of valuation. Any other fair and
reasonable process of valuation can also be
suggested to by this Court which the Mehras are
agreeable. It is settled law that date of valuation is
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generally taken as date closest to the date of filing
the petition. If the argument of EG is that the
Mehras have refused the valuation of the
contemplated shares then there is no difficulty for
EG to accept valuation on earlier date. Even
otherwise, Mehras are agreeable if any other
appropriate date for determining value of shares can
be determined. Mehras have no objection to
include Vaayu Companies in the valuation.
(iv) The Board, on 29 January 2009, passed an order
regarding a finding that parting of ways between
two groups of share-holders was inevitable however,
the same was an interim order. It was open to the
Board, at the time of final hearing to come to a
conclusion after hearing of the matter and the main
question before the Board at the time of hearing
was, which group can buy out the other and the
reasons for the same.
(v) The EG holds 56% of equity share capital in EIL,
44% is held by independent minority i.e. the
Mehras. EG is solely under and controlled by
Dr.Aloys Wobben who owns 100% share capital.
The parties entered into various agreements such as
Share-holders Agreement, Technical Know-How
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Agreement. The parties agreed that the Board of
Directors would consist of four directors, two
directors from each share-holder group and in case
of deadlock, chairman was to have casting votes.
The EG did not at any time prior to filing of the
petition choose to exercise its rights to appoint any
alternate director and a Joint Managing Director as
it was entitled to under the Articles.
(vi) The day-to-day management was carried on by the
Mehras with the consent and knowledge of EG. The
EG invested amount of ` 3.78 crores for its 56%
equity shareholding. The Mehras invested ` 2.97
crores. There were four relevant time periods.
Firstly, from 1994 to January 2004 i.e. till the
technology transfer agreement expired by efflux of
time. Secondly, February 2004 to January 2007.
Thirdly, from February 2007 to August 2007 when
EG filed it's agreement and fourthly, after August
2007 when Mehras filed the petition. After 1994
when the joint venture was set up there was no
grievance or objection raised by EG in respect of
functioning of EIL. Various subsidiary companies
were set up as the main business of EIL was of
manufacturing and marketing of wind turbines by
undertaking turn-key projects. Accounts of these
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companies was included in the accounts of EIL. A
SAP system was set up and EG had all time access to
the transaction in India. Thus EG was in full
knowledge of the functioning of EIL.
(vii) No objection or any protest was made by EIL
regarding any matter concerning the EIL. The EG
was kept full informed of all the transaction in India
in respect of management of EIL. It was for the first
time in February 2007 that EG, only to create some
dispute, demanded provision for 7.5% of total sales
invoice with full knowledge that all the profits of EIL
would be wiped out.
(viii)There was no structured format for exchanging
information and this would be done by
representatives of EG and some time by visiting
India for exchange of information. Mr.Yogesh Mehra
would also visit Germany atleast twice a year.
Statutory auditors would scrutinise the accounts.
Minutes of the meetings were also sent. This
functioning was recorded in the letter dated 23
February 2007 which was never denied by EG.
(ix) The EG from time to time by addressing letters
acknowledged and appreciated the work done by
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Mehras in regard to EIL. Letters were issued on 1
December 2005, 2 October 2006, 6 October 2006
for the year 2006, thereafter 2007 to 2010. EIL won
Best Service Provider among manufacturers award.
Certificates were also issued appreciating the work.
(x) After the Technology Know-How Agreement expired
in January 2004, the supplies were continued
pursuant to various meetings. The parties entered
into a document called the "Agreed Principles" dated
29 September 2006. The document contemplated
the possible situation in future that if EG divests its
shareholding in EIL. It was contemplated even
though EG would continue to supply technology in
special components. Royalty payable was also fixed.
The meetings were held by the parties in their
capacity as a share-holder. In the various
correspondence that ensued EG described itself as
acting in capacity as a majority share-holder.
(xi) Around 2006, Dr.Wobben, in view of attempt to find
an amicable solution, expressed that he was willing
to consider selling his share-holding to concentrate
more on research. Dr.Wobben had also appreciated
the work of Mehras. The Dr.Wobben offered a sum
of Euros 40 million for the 6% equity shares of
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Mehras. The Mehras took the offer forward and
took steps. Dr.Wobben changed his stand and
sought 12 % shares at the same price. The Mehras
refused to sell at such a low price.
(xii) As a consequence thereafter EG took various steps
to suppress the value of shares. The EG thereafter
as a majority share-holder stopped the supplies to
EIL. There was no prior intimation of stoppage of
supplies. The stoppage of supplies was ordered by
Dr.Wobben as a main share-holder of EIL which is
clear from the correspondence. The Board
therefore, correctly held that stoppage of supplies by
EG was in its capacity as a shareholder. The Mehras
then sent such information which was sought for by
EG. Supplies were resumed in March 2007 since
information sought for was furnished. Again
correspondence received in reference to the
discussions that took place on 24 February, 2007
were as parties had agreed for termination of
partnership in EIL. Due diligence was carried out
and all the information was supplied. On 5 May,
2007, the Mehras wrote a detailed letter setting out
the ill-effects regarding introduction of the E-40
model and according to the Mehras it was not in the
best interest was the Company. In July 2007 again
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supplies were stopped without any reason. These
acts affected EIL and they were done by EG in its
capacity as a share-holder.
(xiii) EG thereafter withdrew corporate guarantees given
on behalf of EIL to ABN Amro Bank. This was
without notice to EIL and Mehras. When EG filed
it's petition there was no mention of withdrawal of
guarantees by EG. Mehras had pointed out that
withdrawal of corporate guarantee without prior
notice did serious damage to the EIL. The Mehras
on the other hand, had given personal guarantees to
the tune of approximately Rs.540 crores. After filing
the petition EG withdrew the SAP access /
connectivity of EIL falsely claiming authorization for
the access. This caused tremendous problems in the
functioning of EIL. The access to SAP was essential
for business operations of EIL. The action of EG was
equivalent to a majority share-holder taking the
books of accounts. The Board has therefore,
correctly held that this action of EG amounted to
oppression.
(xiv) EG filed vexatious proceedings in Hamburg Court
and obtained exparte injunction in respect of the
alleged trademark infringement. The conduct of EG
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.doc
and its directors was in contravention of their
fiduciary duty as share-holders of EIL. EG refused to
provide transfer pricing information after 2005-
2006. EIL being Indian subsidiary of foreign
principal was required to produce material before
tax authorities which was unjustifiably withheld
despite repeated reminders causing problems for EIL
and oppression to minority share-holders. The EG
also refused to infuse capital in EIL. The director
appointed by EG agreed in the meeting dated 20
December 2007 that they would increase the capital,
but EG did not honour the commitment made by it's
own director. Though EG filed an application
seeking permission to infuse capital and they did so
only for the purpose of creating a record, on the
other hand disowning the commitment made by it's
own director. EG went to the extent of denying even
the knowledge of commitment. EG attempted to
depress price of shares to affect the interest of
Mehras.
(xv) EG deliberately delayed the valuation exercise and
saw to it that each valuer would recuse itself. Inspite
of the orders passed by the Courts directing EG to
file an undertaking that they will not use the
information received from Mehras except for certain
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.doc
contingencies specified therein, EG refused to give
such undertaking. When the Board refused to pass
any order regarding appointment of a fresh valuer
since EG refused to give an undertaking, EG filed an
appeal in this Court which was rejected, Special
Leave Petition filed by EG was also dismissed by the
Apex Court. After the completion of hearing EG
made an application calling upon the Board to
accept modified form of undertaking which was
rightly objected to by the Mehras. The entire
conduct of EG was not bonafide and in breach of the
orders passed by the Board and this Court. EG
therefore, is not entitled to any equitable relief.
(xvi) EG misused the information supplied by the Mehras
and entered into correspondence with the suppliers,
vendors, even competitors to discredit EIL and to
create a blockade so as to ensure maximum harm is
caused to EIL to bring the business of EIL to close
and in order to depress the value of the shares.
(xvii) There is no substance at all in EG's allegations of
oppression and mismanagement by Mehras. There
was no unauthorised alteration of Articles of
Association as alleged. Amendment to Article
170(a) was carried out in the year 2003 when there
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.doc
was no dispute between the parties. EG was kept
fully informed of all the meetings. Amended Articles
were forwarded to EG. They were also annexed by
EG to its petition stating that there are amended
articles. There is no grievance regarding the
amendment to Article 170(a) in the petition filed by
EG inspite of being aware of the amendment.
Correspondence entered into between the parties
would clearly show that EG was aware of the
amendment to the Articles throughout. Even in the
suit filed by Mehras in this Court the amended
Articles of Association were annexed. Objection that
no notice was given cannot be raised after such a
long passage of time. In any case, the amendment
cannot be termed as oppressive as powers exercised
by Mehras pursuant to these amendments was for
the benefit of EIL and could not be termed as
oppressive. Similarly, there is no basis for the
allegations that the Board resolutions dated 26 April
2007 were illegal and amounted to oppression. EG
raised a grievance regarding board meeting of 26
April 2007 for the first time in Company application
which was filed on 27 February 2008.
(xviii)The issue regarding the Board resolutions was
concluded by order of the Board dated 19 October
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.doc
2009. Furthermore, the argument of EG of want of
notice is without any basis as for past 13 years
particular practice was followed which was followed
for the meeting in question. There is no pleading
that the resolution was fabricated. The argument
based on filing of derivative suit also is without any
substance. Derivative suit had to be filed in view of
the actions of the nominee directors of EG, in the
interest of EIL.
(xix)The prayer of EG to restrain formation of new
subsidiaries was rejected by the Board. The Vaayu
companies were set up as part of the business of EIL
and the Mehras had offered to include Vaayu
companies in the valuation exercise. No evidence
has been placed on record to show that Vaayu
companies were conducting business in competition
with EIL.
(xx) The EG has made needless allegations against
statutory auditors which were working for 14 years
since inception, without any objection from EG. No
allegations could have been made without making
the statutory auditors a party.
(xxi) There is no breach of any order of the Board in
respect of holding of board meetings. All the
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.doc
charges that were alleged to be created are prior to
19 May 2008 i.e. the interim order of the Board.
The order on 29 October 2007 did not restrain
holding of board meetings as it did not provide for
closure of activities of the Company. There is
absolutely no substance in the allegation that
Mehras instituted vexatious criminal proceedings.
Mehras bonafide pursued remedies available to
them in law.
(xxii)The contention of EG that allegations against EG
were not maintainable as they were not in day to
day management is incorrect. Section 397 does not
have a concept of minority or majority shareholders.
Being in fact in control and in law being in control,
are settled legal propositions. The directors can act
oppressively by doing nothing to defend the interest
of the Company when certain action is warranted.
Section 397 also contemplates a situation where a
shareholder who may not be in active management
of the Company can be guilty of oppressive conduct
against other shareholders. The stand of the EG that
its actions were not in the capacity of majority
shareholder is incorrect. The stoppage of supplies
were in the capacity as majority shareholder,
withdrawal of corporate guarantee and addressing
correspondence to customers, bankers, suppliers
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.doc
were all in capacity of majority shareholders.
Letters sent to competitors were also in capacity of
majority shareholders. The nominee directors of EG
on the board of EIL chose not to further the interest
of EIL. All the actions of Mehras were in the interest
of EIL.
(xxiii) The Mehras have been in day to-day management
of the Company for 20 years. There have been no
objections or protests regarding management of the
Company. Mehras have adopted manufacturing of
turbines to suit Indian conditions. EG has distanced
itself from the Company and did not take part by
appointing nominee directors. EG sought deletion
of the word 'Enercon' and the name of 'EIL' had to be
changed.
(xxiv)It is not a settled proposition that the majority must
buy out the minority even though majority is the
oppressor. Various decisions interpreting Section 402
of the Act relied upon by EG are all distinguishable
on facts. The Board has correctly appreciated the
factual background and has directed that Mehras
should buy out the stock of EG and this finding
substantially subsists, should not be interfered. The
allegations of EG regarding the valuation process is
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baseless. The Board has directed that the
valuation should be done by independent auditor.
(xxv) Even assuming no case of oppression has been
made out there is a severe deadlock and since the
impugned judgment of Board puts an end to the
dispute in an equitable manner it is not necessary to
interfere with the same. Both the appeals therefore,
are without any merit and deserve to be dismissed.
ig DISCUSSION
32. Firstly, the submission of EG that the proceedings need to be
remanded to the Company Law Board will have to be taken up for
consideration. The arguments on behalf of EG on merits have been
advanced, as alternative arguments in case the conclusion is
reached that remand is not necessary. Remand is sought by EG on
the ground that the petition filed by them has been dismissed as not
maintainable at the threshold and various facets urged by them
have not been considered at all. The manner in which the decision
is rendered is opaque and it is given in an extremely hurried
manner. Thus, the decision of the Board is assailed on the ground
of suffering from serious lacunas, and that there is lack of fairness
in decision making process. In the preceding paragraphs the
pleadings of the parties and the submissions made both before the
Board and in this Court have been enumerated which will show
that various complex issues arose for consideration. The grievances
made by EG are serious and cannot be brushed away simplicitor.
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Such grievances ultimately have a bearing on the faith of the
litigants in the decision making of the Board. It is therefore
necessary to consider the various statutory provisions regarding the
role and functioning of the Board and the grant of relief under
Section 397, 398 and 402 of the Act to appreciate the decision
making process of the Board.
33. The Company Law Board is established under the Companies
Act 1956. It was found desirable to set up a Board for convenient
administration of Companies Act. Until 1 February 1975, the Board
functioned as a delegate of the Central government. By the
Companies Amendment Act of 1974, the Board was empowered
with certain functions, which were earlier with the Courts. Later
on it was found necessary to increase the strength of the Board so
that the Board could decide all the matters which were transferred
from the Court, by forming benches. To enable it to discharge the
quasi-judicial functions more effectively, it was found necessary to
empower the Board with powers akin to Civil Court to summon
witnesses, production of documents, etc. It was also felt necessary
to ensure that the members of the Board have adequate
qualifications in law and exposure to discharge their quasi-judicial
function more effectively.
34. The Board was initially under the control of the Central
Government and this control was infringing upon its independence
as a quasi-judicial body. Various changes were brought about by
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the Companies Amendment Act, 1988 as regards the powers and
functions of the Board. This amendment was preceded by setting
up of a committee who submitted its report. The committee noted
that there was need for a quasi-judicial Tribunal, independent of
the executive authority of Central government, not only to ensure
that the affected party is heard but also the decisions are seen to be
taken judiciously and without interference. The committee
recommended that the Board should be an independent quasi-
judicial body similar to Income-Tax Appellate Tribunal, with its
benches at different places. The Act was amended in 1988 to
establish a Company Law Board with independence to exercise
judicial and quasi-judicial functions. This was the background in
which the Board came into existence
35. The Company Law Board constituted under Section 10E of
the Act is empowered to exercise and discharge such powers as
may be conferred upon it under the Act. The Board has powers
which are vested in the courts under the Code of Civil Procedure
1908 while trying a suit, in respect of disclosure and inspection of
documents, enforcing attendance of witnesses, compelling
production of documents, examining witnesses, granting
adjournments and reception of evidence on affidavit. Every bench
of the Board is deemed to be a Civil Court under Section 195 and
the proceedings before it are deemed to be judicial proceedings.
The Board in exercise of its powers and discharge of functions is
guided by principles of natural justice. The Board has power to
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.doc
regulate its own proceeding. Any person aggrieved by the decision
or order of the Board is entitled to file an appeal to the High Court
against it as provided under Section 10F of the Act. Thus, the
proceedings before the Board partake colour of judicial
proceedings and the basic characteristics of a judicial proceedings
apply to proceedings before the Board.
36. Board exercises substantial powers in respect of oppression
and mismanagement within a company. Under Section 397 and
398 of the Act, any member of a company can apply to the Board
in case of oppression and mismanagement in respect of the affairs
of the Company by the other member or members. Under Section
397 any member can approach the Board complaining that the
affairs of the Company are conducted prejudicial to public interest
or causing oppression to any member or members. The Board can
remedy the situation by putting an end to the oppression if it is of
the opinion that the Company's affairs are being conducted
opposed to public interest and oppressive to other member of
members, and though case for winding up of the Company is made
out, it will be unjust to such member or members who is
complaining of oppression to wind up the company. Under Section
398 any member can bring to the notice of the Board that the
affairs of the Company are being conducted prejudicial to public
interest and to the interest of the Company and that there has been
a material change in the management and control of the Company
which is likely to affect the affairs of the Company prejudicially.
The Board, if it is of the opinion that the affairs of the Company are
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being conducted in a manner prejudicial to the interest of the
Company and public interest or any change has been brought
about resulting in prejudice, the Board can pass such orders as it
deems fit. Substantial body of law is developed in England and in
this country regarding the concepts of Oppression and
Mismanagement in a Company. There are various decisions both in
English and of Indian Courts laying down parameters as to what
would constitute oppression and mismanagement and under what
circumstances a relief can be sought.
37.
Section 402 lays down the powers of the Board for dealing
with the situations under Section 397 and 398. On an application
under Section 397 or 398, without prejudice to generality of
powers, the Board can pass orders regulating the conduct of the
affairs of the Company in future. It can direct purchase of share or
interest of member by other members. The Board can, in case of
purchase of shares consequent reduction in share capital,
terminate, set aside and modify any agreement between the
company and it's managing director, director, managing agents,
secretary, treasurer or the manager on equitable terms, after giving
notice to the concerned parties. The Board can set aside any
transfer, delivery of goods, payment, other acts relating to property
by and against the company. The Board has also been given
powers to pass appropriate orders on any other matter, which
according to the Board are just and equitable.
38. Section 402 of the Act read with Rule 9 of Companies (Court)
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Rules 1959, confers substantial powers on the Board to give such
directions as may be necessary for achieving the ends of justice.
The Board is empowered to grant appropriate relief in the larger
interest of the Company, even if there is no prayer to that effect in
the petition. The Board has power to alter and over-write the
articles of association. The Board can appoint an officer of the
Court to look after the affairs of the Company. The appeal to the
High Court under section 10F from the order of the Board is only
on questions of law.
39.
Bare perusal of these provisions would show that the powers
conferred on the Board are very wide. Board can change the
control of the Company by directing buy out of the interest of the
members of the Company. The Act confers substantial powers on
the Board to end disputes and to arrive at amicable settlements.
Extremely wide powers have been conferred on the Board in the
matters relating to a company. Considering such wide powers, it is
axiomatic that they must be exercising in fair, transparent and
judicious manner. Directing a buy-out of a group of shareholders
and ordering their exit from the Companies is serious for such
members. For them it is end of their association with the company.
40. It is obvious, considering the nature of proceedings and the
implications of the outcome, that the litigants expect that they will
be dealt with fairly by the Board. The orders of the Board have
far-reaching effect on the affected parties. The Board which was
once an authority to oversee the provisions of the Act working
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under the supervision of the Central government, is now, by various
amendments, a body with the attributes of a judicial body. The
strict parameters of conduct as applicable to a judicial body are
desirable to be followed by the Board.
41. One of the fundamental attributes of the judicial functioning
is the procedural justice. It requires that view points presented by
either parties are addressed, cogent reasons are given as which
argument and why it is accepted or rejected. Care needs to be taken
that no litigant goes with a feeling that the procedural justice was
not followed. Keeping in mind this statutory frame work, the role
the powers and responsibility of the Board and the expectations of
the litigant from it, the grievances made by the EG needs to be
considered.
42. The first grievance made by the EG is that the Company
petition No.82 of 2011 filed by EG was dismissed as not
maintainable inspite of observing that in view of the directions of
this Court there was no option but to dispose of the petition on
merits. It is the contention of the Mehras that though the Board
did state that the petition is dismissed as not maintainable, but in
fact, the Board has dealt with the petition of EG on merits.
43. There is no doubt that if the petition filed by EG is found to
be dismissed as not maintainable and it is shown that the petition
was indeed maintainable and deserved greater scrutiny, then it will
have serious effect on the outcome of the litigation. There is no
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debate that the Board in the impugned order has stated that the
petition filed by EG 'deserves to be thrown out at the threshold' and
is 'not maintainable'. Three issues therefore arise. First, the
petition was not maintainable in view of any statutory embargo and
deserved to be thrown at threshold and there was no question of
looking at the case on merits. Second, it was dismissed holding that
no pleadings are made in the petition to found a charge of
oppression and mis-management and therefore the petition is not
maintainable as being bereft of any particulars. Thirdly, though it
is mentioned that the petition is not maintainable, it is decided on
merits.
44. There is a specific meaning to the phrase 'not maintainable'
and the learned member is presumed to know the connotation of
the phrase 'not maintainable' as contra distinguished from 'not
proved' or 'not sustainable' or 'without merit'. 'Not maintainable'
refers to a position where a petition as presented, does not even
require scrutiny on merits. As if it was not clear enough to state
that the petition was not maintainable, the learned member
further clarified it stating that the petition of EG 'deserved to be
thrown out at the threshold'. The Board's conclusion on EG's
petition therefore reads that it was 'not maintainable' and 'deserved
to be thrown out at the threshold'. It is not expected of the Board
to use such important phrases casually. It is not expected of the
appeal Court to look for meanings and hear debates on what the
learned member actually meant. Even though the above three
positions cannot co-exist, I will now consider whether the learned
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member was right in any of these respect.
45. First aspect is as to whether the Board was right in holding
that the petition of EG was 'not maintainable' and 'deserved to be
thrown out at the threshold,' taking the phrases as they are used.
Chapter VI of the Act deals with prevention of oppression and
mismanagement. This Chapter contains Section 397 and 398,
which have been referred to earlier, deal with petitions of the
members making a grievance regarding oppression and
mismanagement. The right to approach the Board under Section
397 and 398 is conferred subject to conditions laid down in Section
399 of the Act. In the case of company having share capital, the
right to apply under Section 397, 398 is on not less than 100
members and not less than 1/10th of total number of members
whichever is less, or members holding not less than 1/10 th of issued
share capital. In case of company not having share capital right is
conferred on not less than 1/5th of total number of members. The
Central Government is also empowered to authorise any member of
a company to apply to the Tribunal under Section 397, 398 of the
Act, even if requirements of requisite member are not fulfilled,
subject ofcourse to certain conditions. No other requirement
regarding maintainability of a petition is shown except the one laid
down in Section 399. The EIL is company having share capital.
The EG's share is 56% and therefore, EG clearly fulfilled the
requirement under Section 399. If the requirement under Section
399 was not fulfilled the EG's petition could have been dismissed at
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the threshold, as stated by the Board. The petition therefore was
maintainable and the finding of the Board taken in the first sense
is therefore, completely perverse.
46. Now to the second aspect, that is to examine whether the
petition was not maintainable as no cause of action was pleaded by
EG to invoke section 397, 398 of the Act. It may be possible to not
entertain the petition which is bereft of any particulars whatsoever
and does not even spell out any allegations regarding oppression
and mismanagement. In the petition filed by EG, the EG has made
EIL, Mehras and various companies which were formed
subsequently (Vaayu companies) as party Respondents. Therefore,
the necessary parties were joined to the petition. The petition
contains particulars about the EIL and its main objects. It gives
details about share-holders agreement, supplementary share-
holders agreements and various permissions sought from the
Government. The petition gives particulars of the Petitioners, it
gives the qualifications of the Petitioners to file the petition. It
gives the particulars of Respondents, number of equity shares held
by them and percentage of shareholding. Thereafter the petition
narrates detailed factual background, which led to the dispute
between the parties. It then proceeds to list genesis of cause of
action and allegations of oppression and mismanagement by
Mehras are made in detail. It is pleaded that in and about the year
2005 ,EG became concerned about the financial reserves of the
company and EG decided to take a closer look in the functioning of
the company which was so far left in good faith in the management
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of Mehras. It is pleaded that as EG started making more inquiries
various tactics came to light. It is pleaded that Mehras tried to
justify the poor performance while giving assurance, however none
of the assurances were followed up. It is stated that various issues
arose regarding the financial practices and as a part of ongoing
legal discussions. Mehras offered to sell their share-holding and
thereafter went back on their commitment. It is urged that the
valuation produced by Mehras was highly inflated. The EG further
alleged malafide conduct on the part of Mehras to conceal state of
affairs from it. It is alleged that high inventories and stock in
transit were maintained. Thereafter it is alleged that the Mehras
recklessly proceeded to deny the IPL and take various steps in
contravention of the agreement thereunder. The EG summarised
the acts and oppression and mismanagement. From paragraph 61
to 81 the EG enumerated the grounds on which according to
Mehras committed acts of oppression and mismanagement. It is
with these pleadings that the Mehras filed a petition for oppression
and mismanagement and consequential reliefs in their favour. It is
pertinent to note that the EG's petition was first in time.
47. If the petition presented by EG is to be considered, no
reasonable person would ever come to a conclusion that it had no
particulars whatsoever and therefore it was not maintainable and
required to be rejected at threshold without scrutiny on merits. All
the adequate particulars which would constitute a cause of action
for invoking these sections and the legal requirement of the
Petitioners holding the requisite number were satisfied. The
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petition therefore, could not, in any circumstances be described as
not maintainable for lack of particulars. What is further startling is
that the Board also mentioned in the impugned decision that in
view of the direction of this Court both, the Petitions will have to
be decided on merits. Yet the learned member proceeded to state
that the petition of EG was not maintainable and required to be
dismissed at threshold. This is a completely perverse approach.
48. Now to the third scenario. This is the position urged by
Mr.DeVitre, that mentioning that the petition is not maintainable is
a mere error and in fact the Board has dismissed the petition of EG
on merits. If the petition is dismissed on merits after having
considered all the aspects, then the use of the phrases 'not
maintainable' and 'deserved to be thrown out at the threshold', is
utter casualness. These phrases have a specific meaning in law and
the learned member is expected to know them. Use of these
phrases has brought about vagueness in the impugned decision. If
Mr.DeVitre's submission is to be accepted then the decision of the
Board needs to be scrutinised to ascertain whether the Board did
apply it's mind to all the facets urged by EG and whether the
petition by EG was comprehensively dealt with and dismissed.
49. Since it is urged by Mr.DeVitre that the learned member has
in fact considered the matter on merits and the EG's petition was
rightly dismissed and Mehras petition was rightly allowed, I will
now proceed to consider whether the learned member did decide
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the matter on merits, by analysing the reasoning of the learned
member on the grounds of challenge.
50. It has been highlighted by EG in their submissions that
following grounds were urged by them in support of their case, and
most of them were not adverted to by the Board.
a. Board resolutions passed by Mehras.
b. Modification of Articles of Association.
c. Incorporation of four group companies.
d.
e.
Incorporation of Vaayu companies.
CARE rating.
f. Standard accounting practices.
g. High inventories.
h. Non-compliance with GAAP.
i. Meeting with bankers.
j. Financial assistance from various bankers.
k. Refusal to infuse capital.
l. Inflation of profits
m. Distorted financial picture.
n. Diversion of resources.
o. Breach of security on SAP server.
p. Technology infringement.
q. Attempts to revoke patents.
r. Mis-appropriation and inducing EG to purchase shares at
inflated prices.
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EG's case was based on these grounds. If the learned member has
dismissed the case of EG on merits as urged, then the learned
member is expected to have dealt with these issues.
51. One of the central contention that was raised by EG was that
a petition for mismanagement cannot be filed against the members
who are not in management. It was their contention that the
petition filed by Mehras was under Section 397 and 398 of the Act.
According to them EG was never supposed to be in management of
EIL and also factually EG was not in the management and Mehras
since inception have been managing the Company. Reliance was
placed on the decisions in the cases of Chatterjee Petrochem vs
Haldia Petrochem [(2011) 10 SCC 466]; Incablenet (Andhra) vs
AP Boradband [(2010) 6 SCC 719]; Radha Raman vs Chandra
Sikhar Raja [(2008) 6 SCC 750]; Kamal Kumar Datta vs Ruby
General Hospital [(2006) 7 SCC 613] and Hanuman Prasad
Bagri and Ors. Vs. Bagress Cereal Pvt. Ltd. [(2001) 4 SCC 420].
This ground was taken by the EG in their reply to the petition filed
by EIL as well as in their submissions before the Board. This was
an important point. Surprisingly there is no consideration of this
major argument advanced by EG.
52. EG had urged that Mehras had unauthorisedly altered
Articles of Association and it was one of their main ground to allege
oppression. It was urged by them that alterations were made by
Mehras in the Articles of Association with a sole purpose of
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acquiring more power and reducing the role of EG in EIL. It was
EG's case that they came to know of such unauthorised alteration
only after filing the company petition. EG raised this ground in
their reply to the petition filed by Mehras. Both the parties urged
their rival contentions on this issue and filed rejoinder and written
submissions. According to EG Article 170(a) was amended without
intimation to EG and without their knowledge. It was urged by
them that by the amendment made various conferred substantial
powers on Mehras. This action of Mehras was put forth by EG as
ground of oppression. Serious grievance was made that the
amendment was carried out without notice to EG when Section
31(1) of the Act, mandates that it should be done by special
resolution so also section 189(2) was relied upon. It was urged
on behalf of EG that not only the amendment unilaterally conferred
substantial powers on Mehras but the same was done without
giving notice to EG and following procedural requirements.
Reliance was placed on the decision of the Apex court in the case of
M.S.Madhusoodan and another Vs Kerala Kaumudi (P) Ltd.
and others-[(2004) 9 SCC 204], Claude-Lila Parulekar v Sakal
Papers (P) Ltd. & Ors., [(2005) 11 SCC 73], and on the decision in
the case of Ebrahimi v. Westbourne Galleries Ltd. & Ors., [1972]
2 WLR 1289.
53. On the other hand, on behalf of Mehras it was contended that
the amendment was carried out in the year 2003 when there was
no dispute between the parties and it was a practice followed in EIL
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that EG would be made aware of all meetings and minutes from
time to time and EG was forwarded all the information and
therefore, the grievance made regarding no notice, was without
any substance. The EG had challenged the stand taken by Mehras
as factually incorrect and not contained in the petition. Therefore,
the question that needed to be considered by the Board was
whether the action of Mehras in carrying out the amendment
amounted to oppression as it was without notice and without
following the due mandatory procedure or factually any special
procedure was not necessary in view of the practice and
understanding between the parties. The Board, though referred to
this aspect of the matter, has not dealt with it as required by a
original fact finding body. EG has argued this point on merits in
this Court without prejudice to its' contentions that it is the
Board who at the first instance must decide this controversy. Mr.
DeVitre has also made submission on merits. However the charge
of non-application of mind cannot be brushed aside. The Board
has not addressed itself at all to this head of oppression which is
pressed into service by EG with seriousness.
54. Similarly, another ground of oppression urged by EG has not
met the scrutiny it deserves at the hands of the learned member.
That ground was the assertion of illegality of both resolutions
dated 26 April 2007. According to EG this board resolution passed
without notice to EG gave wide and substantial powers to Yogesh
Mehra. The powers were conferred to defend and institute legal
proceedings and decide various matters, without approval of board
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of directors. Company application No.629 of 2010 was filed by
EG seeking a stay on the resolution. Both the parties submitted
their pleadings and also written submissions on this issue. It was
urged by EG that the board resolutions were illegal as they did not
conform to the statutory requirements and judicial decisions.
Serious allegation was made by EG that the fact that board
resolution was not disclosed made it a suspicious document and the
said purported resolution was backdated to circumvent the interim
order passed by the Board on 29 October 2007.
55.
It was urged by EG that if the board resolution gave powers
to Mehras to institute litigation on behalf of EIL then there was no
need for Yogesh Mehra and Ajay Mehra to file Suit No.2667 of
2007 in a derivative capacity. Mehras countered this allegation by
submitting that notice need not have been given to EG because it
was not a practice followed in the company for various years.
Mehras also sought to explain the reason why suit in derivative
capacity had to be filed. On the other hand it was further
contended by EG that such a resolution which empowered Mehras
with such huge sweeping powers could not have been passed
without notice to EG and there was no question of any past
practice. Again the issue needed deeper scrutiny. Learned member
dealt with this contentious issue by simply stating that since EG did
not bother about the management of EIL, it cannot now complain
about the illegality of the resolution. The learned member also
observed that there is no pleading in respect of the board
resolution in the company petition, even though Company
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Application No.629 of 2010 was pending before it to be decided.
The serious charge levied by EG regarding fabrication of resolution
was rejected in one line that there is no evidence to that effect.
Again the learned member has failed to address herself to a major
issue.
56. One more ground that was raised by EG to levy charge of
oppression was incorporation of Vaayu companies. It was a case of
EG that EG came across that the Mehras incorporated various
companies referred to as Vaayu companies some time in the year
2010. According to them, the incorporation of some of these
companies were in contravention of the interim order of the Board
dated 29 October 2007 and 19 September 2008. EG placed on
record the details of the said Vaayu companies such as the date of
incorporation and shareholding. EG urged that Mehras created
these companies to siphon off the funds and defeat the rights of EG.
According to them this was to misuse the technology which was
previously licensed and sub-licensed the proprietary technology. It
was urged on behalf of Mehras that the prayer made by EG in
Company application No.426 of 2009 not to form any new
subsidiaries without the leave of the Court was rejected. It was
their contention that nothing is shown by EG as to how these
companies are carrying on competing business and Mehras offered
that the Vaayu companies can be included in the valuation
exercises. Thus a serious issue arose as to what was the impact of
incorporation of Vaayu companies as regards charge of oppression.
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That they would be included in valuation exercise was a matter for
the purpose of valuation and that by itself could not provide an
answer to the charge of oppression. The controversy as to whether
the Vaayu companies were incorporated to defeat the rights of EG,
what were their shareholding composition, whether they were
formed to further sub-contract proprietary technology, were some
of the issues which arose for consideration. The learned member
found it not necessary to delve deeper in this controversy as
according to her once Mehras offered that the Vaayu companies be
included in valuation exercise, the issue lost its seriousness.
However, the learned member completely lost sight of the fact that
this was a ground on which oppression was alleged by EG and
therefore, it was incumbent on her to decide this issue considering
in that context.
57. EG had also made a grievance that auditors had refused to
provide requisite information and they had committed contempt of
the Board's order. Company Application No.67 of 2010 and No.68
of 2010 were filed by EG making an allegation that company's
auditors were in collusion with the Mehras to prohibit EG from
obtaining necessary information. The Company applications were
dismissed by the learned member without having dealt with them
on merits. Whether since the auditors not being party to the
proceedings, no allegations could have been made, as contended by
Mehras, was also one of the points for consideration, if detailed
inquiry was held by the learned member. The learned member
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came to the conclusion that EG refused to give undertaking inspite
of the directions of this Court dated 27 November 2009 and
therefore it was dis-entitled from any equitable relief under the Act.
Again this issue is simplistic as that. What was the nature of
undertaking, whether the undertaking was for benefit of EG or it
was for benefit of EIL; what were the consequences of not
furnishing an undertaking; whether not furnishing undertaking
would amount to an oppressive conduct; and whether EG was
trying to seek certain unfair advantage, were some of the points
that arose for consideration. The learned member however
straightaway concluded that because EG did not give an
undertaking as directed they are precluded from claiming any
equitable relief. Both the parties had levied charges against each
other as to who was to blame for delay in valuation exercise,
which aspect was not adverted. Drawing conclusions in favour of
one party without discussion is not decision making.
58. Another grievance made by EG was that Mehras instituted
malicious criminal proceedings against EG's representatives,
employees and independent professionals. EG made a grievance
that these persons were subjected to harassment with a view to
ensure that they did not come to India, this conduct was
oppressive. What was the real impact of the incident of
representative of EG being questioned by the investigating
authorities, was a question which arose for consideration, as it was
one of the grounds of oppression. The learned member again
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simplistically concluded the issue by stating that several
proceedings were taken to take EIL's interest. The application of
mind and reasoning of the learned member is extremely sketchy on
this ground as well.
59. The heads of oppression listed in paragraph 50 were some of
the major heads of oppression alleged by EG, which are
unfortunately dealt with by the learned member in most
perfunctory manner. The grounds raised by EG cannot be stated as
frivolous to deserve the summary treatment meted out by the
learned member. Each of the heads of oppression as alleged,
constitute a serious charge and required a detailed discussion.
What one finds is that the learned member has simply upheld the
explanations of Mehras and has drawn direct conclusion and has
dismissed the petition of EG as 'not maintainable'. EG in it's oral
argument in this Court as well as in written submissions has
advanced submissions on merits without prejudice to their
contentions that the matter needs to be remanded to the Board.
When both the parties have filed their petitions attributing
oppression and mis-management against each other and the
petitions were heard together, then non-consideration of grievance
of one party will vitiate the proceedings, and the relief granted in
favour of other party, which is an outcome of such decision also
therefore, will not be sustainable in law. I therefore find merit in
the claim of EG that its petition was not decided on merits at all.
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60. Now turning to grant of relief in the petition filed by Mehras.
Serious grievance was made by Mr.Sarkar and Mr.Kamdar that not
only the petition filed by EG has been rejected without any
reasoning and without addressing to the vital points, but even
while allowing the petition of Mehras, the learned member has not
considered the defence of EG and has straightaway granted relief to
Mehras.
61. It was urged that the main defence of EG to the petition filed
by Mehras that it was not maintainable has not been dealt with by
the learned member. It was urged by EG that, for a petition to be
maintainable under Section 397 of the Act, it must make out a
case of oppression by members in the affairs of the Company. It
was urged by EG that none of their acts which were alleged as
oppressive by Mehras were not in the capacity as a share-holder but
were in the capacity as a technology provider. It was Mehras
contention that EG stopped supplies, withdrew corporate
guarantees and addressed correspondence to third parties
prejudicial to EIL's interest and these acts according to Mehras were
in the EGs capacity as shareholder and were some of the main
grounds of oppression.
62. I have considered the submission. As regards the stoppage of
supplies was concerned, it was a matter of contractual dispute for
which civil proceedings are pending in the form of civil suit in this
Court. A contempt petition was also filed in this Court on the issue
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of supply. Learned member had reminded herself the position of
law that the contractual disputes between members is not within
the jurisdiction of the Board to decide. Inspite of this position, the
learned member went on to address contractual disputes on merits
and held that the allegation of stoppage of supplies by EG was true
and it was without justification and that EG was obliged to supply
to EIL. The learned member also came to the conclusion that EG
deliberately supplied material which was not required, causing
mismatch which caused substantial loss to EIL. These were clear
findings on the merits of the contractual dispute, which the learned
member had reminded herself not to enter into. This is a clear error
on the part of the learned Member.
63. Main question that arose was whether these acts were in the
capacity as a share-holder or as a technology provider. Learned
member chose to address herself on the merits of the dispute to
hold against EG. Such observations therefore, on merits of
contractual dispute fell outside the jurisdiction of the Board.
64. Withdrawal of bank guarantees by EG was put forth as a
ground of oppression by Mehras. The learned member again
reached direct conclusion that EG, by entering into correspondence
with the bankers attempted to destroy EIL. Various contentious
issues raised by the parties have not been addressed to. It was EG's
contention that EG was not obliged to provide financial support
and the obligation was cast on Mehras and inspite of repeated
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requests critical financial information sought for was not supplied
by Mehras to EG. It was their case that financial status was not
candidly shared with EG. EG believed that the accounts of the
Company were tinkered with to defraud the bankers and Mehras
themselves withdrew their personal guarantee. Thus, a substantial
area opened up for scrutiny as to what was the role of EG in
respect of finances and securing bank guarantees and whether the
parties fulfilled their respective obligations. Instead of undertaking
this scrutiny, learned member summarily concluded that the act of
withdrawal of bank guarantees was for destroying EIL.
65. Same treatment was given to the issue of access to SAP
server. It was the allegation of Mehras that they were blocked from
accessing SAP which severely impaired the ability of EIL to
function. On the other hand, it was EG's contention that they had
to take this preventive measure as Mehras were trying to
unauthorisedly access restricted data. On this issue also there were
various facets, as to whether the data uploaded had a back-up;
whether in fact attempts were made by Mehras to access
unauthorised data; whether EG acted in self defence; and what was
the exact manner in which the information was uploaded and
shared. Instead of undertaking this exercise, learned member
concluded that by not giving access to SAP server EG damaged EIL
in a designed manner. As regards issue of EG writing letters to
third party, it was EG's contention that they were doing so in the
capacity of technology provider. This was another contentious
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issue as to whether EG could have written these letters as share-
holders or they could have only written these letters in the capacity
of technology provider. Again this scrutiny was not undertaken and
a conclusion was reached that the EG has acted oppressively by
addressing correspondence against EIL.
66. The issues which were not dealt with as outlined above were
not minor. Thus, not only the learned member dismissed the
petition of EG in the manner detailed above, but even while
upholding the charge of Mehras of oppression by EG, she did not
take into consideration various grounds raised by EG and
proceeded to draw conclusion without any discussion. This is apart
from the fact that if EG's petition is held to be rejected without
application of mind then even relief in favour of Mehras cannot be
sustained.
67. Further grievance was made by EG that even while granting
relief the learned member has proceeded in completely arbitrary
manner. It was contended that no reason is given why a particular
method of valuation was chosen. Even copy of valuation report is
not given to EG and no opportunity is given to EG to challenge
valuation. Learned member decided the date of valuation as 31
March 2006 and 31 March 2007, as the dates have been nearest to
filing of petition. Reliance was placed on the decision of
Profinance Trust SA v. Gladstone [2001 EWCA CIV 1031] and Re
London School of Electronics [1986] Ch.211. Perusal of these
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cases indicate that it is in the discretion of the court, in the interest
of justice, which date of valuation figures which is fair to both the
parties is to be arrived at. Therefore there had to be discussion on
the date of valuation. No such exercise is carried out by the learned
member. The grievance was also made that Respondent No.33 and
35 have been removed from valuation exercise without any reason.
68. A grievance was also made by EG that the various company
applications, which were pending, were simply disposed of along
with main petition. One finds no specific reasoning as regards
each of the applications, discussion on the reliefs prayed therein
and what would be the resultant consequences of these
applications. Though Mr.DeVitre sought to urge that the impugned
decision has broadly touched all the reliefs claimed in these
Company applications, it is expected of the learned member to deal
with each of the applications which were framed for specific reliefs.
In absence of dealing with the applications individually their
disposal in such a summary manner cannot be accepted and cannot
be considered as a disposal on merits. This is also one of the
grounds on which EG has sought that the matter be reconsidered
by the Board.
69. Now to the serious grievance made by EG. That is regarding
the manner in which the litigation was conducted by the learned
member of the Board. The counsel have taken me through almost
every line of the impugned decision. Various parts were read and
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re-read. The entire judgment proceeds in a casual manner and has
no structure. At many places one finds direct conclusions akin to
one line slogans. There is no manner of reasoning how the
learned member reached these slogan cum conclusions. Based on
these conclusions further conclusions are drawn and thereafter
operative order follows. Large body of material was before the
Board, some issues were outside its jurisdiction to consider, how
the learned member reached these conclusions is not stated.
70. It is clear from what is enumerated earlier that the nature of
dispute is serious. It is not only a dispute between two private
entities but also has larger ramifications. There are issues of cross
border commerce, investor confidence and trust in the business
environment in India. EIL is in the field of generation of wind
energy. In India, production of wind energy, as alternate source of
energy, is an issue of larger public importance. EIL employs a large
work force. It has a huge turnover. The EG is a world leader in
production of wind turbine energy and is the fourth largest wind
turbine manufacturer in the world. Dr.Aloys Wobben, person
behind EG holds more than 40% of all registered patents in the
field of wind energy. The Mehras are also leading businessmen.
The dispute between them over the control of EIL will have bearing
on the production of wind energy in India. This is only to
emphasise that the dispute to be dealt with by the learned member
was not minor but had wider implications. Both the sides had
raised various grounds and submitted voluminous pleadings and
written submissions, with record in running into not less than forty
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volumes. Voluminous written submissions were presented by both
the sides. Arguments were advanced on almost every aspect of the
dispute. Considering at what was at stake at both the sides i.e. the
control of an important segment of the industry and considering
the complexity of the matter one would have expected a thorough
application of mind and a decision rendered with some seriousness.
Unfortunately, the learned member has completely abdicated her
duty to decide judicially and has rendered a decision which is not
befitting a quasi-judicial body.
71.
Before the learned member detailed oral arguments were
advanced by the parties. The parties presented their written
submissions. Submitting the detailed written submissions has now
become a common practice in the matters involving voluminous
record. Generally the hearing, even in this Court, takes place on
adjourned dates, as sometimes it is not possible to give day to day
hearing. Many times at the request of the counsel or for some other
reason, day to day hearing cannot be held. In such a situation the
counsel generally piece together all their oral arguments advanced
in a truncated manner in the form of written submissions. The
presiding officers also find such such written submissions useful
when the hearing takes place over various dates. Generally
therefore, when the written submissions are submitted and the
arguments are closed, it is but natural that the member would take
some time to go through the written submissions and then arrive at
the verdict. This process takes some time if one has to assimilate
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what is narrated in the written submissions.
72. In the present case the learned member closed the arguments
on 27 November 2012. Detailed written submissions were filed on
11 December 2012 at 1.00 p.m. The learned member passed the
impugned order of 130 pages, within 72 hours of filing written
submission, on 14 December 2012 at 10.30 a.m. Having gone now
through the record and considered the various issues raised by the
learned counsel, to my mind it does not seem to be probable that
the impugned decision of 130 pages could be rendered after
reading volumes of written submissions within a span of less than
three days. This is not to say that such efforts are impossible, but
considering the daily pressures of work and the time that is taken
to go through the written submissions, the exercise borders on
being incredulous.
73. Mr.Sarkar submitted that one of the reason that the learned
member has delivered the decision within 72 hours is that the
learned member has simply cut and pasted the submissions of the
parties in the decision. It was contended by Mr.DeVitre that such is
a usual time saving methodology adopted by the Courts and there
is nothing improper about the same. I have perused the impugned
decision along side the comparison table placed on record by
Mr.Sarkar. Perusal of this clearly shows that many places findings
given by the learned member are the same as the written
submissions of Mehras. They indeed seem to be copied and pasted.
The Court may, as a time saving device, while narrating the
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arguments of the parties copy from the written arguments, but it is
not expected that the reasoning part of the judgment is nothing but
a copy of the written submissions of the winning party. This not
only shows complete non-application of mind but also creates
extreme dissatisfaction in the mind of a losing party about the
fairness of decision making.
74 Therefore that the Judgment was pronounced within three
days of filing written submissions is not a ground of challenge in
itself but it is coupled with the submission that this extremely short
time span has resulted in a complete non-application of mind and
has left many of the issues unaddressed. The discussion in the
earlier paragraphs will show that the charge of non-application of
mind is well-founded. The decision does seem to have been
rendered in a hurried manner and liable to be set aside.
75. The structure of the impugned decision is also confusing. The
learned member from paragraph 1 to 11 narrates the facts in brief
in respect of both the petitions and some of the orders passed by
the Board. Paragraph 12 to paragraph 20, the learned member
reproduces the pleadings of EG. From paragraph 21 to 38, the
learned member refers the arguments made on behalf of EG.
Paragraph 39 refers and reproduces passages from the decisions
cited by EG. Again from paragraph 40 to 53 the arguments made
by EG are referred. Paragraph 54 to 84 reference is made to the
arguments made on behalf of EIL and Mehras, the decisions cited
by them and several facts and figures. Sometimes conclusions are
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drawn and operative order follows. It is difficult to ascertain where
the arguments end and where the reasoning starts.
76. Both the parties had relied upon number of judicial
pronouncements interpreting the various positions of law. The
topic of oppression and mismanagement is of cardinal importance
in the field of corporate management and has been subject to
detailed scrutiny by various high courts, the Apex Court and the
English courts. There is a vast body of judge made law which has
laid down intricate nuances of these concepts. The ratio of the
superior courts are binding on the authorities below it and the
observations also provide a guidance to decide the case in hand. It
is for this purpose that the parties cite and rely upon case laws.
The parties advance submissions relying on these decisions to show
that in a particular fact situation a particular decision was arrived
at. They do so by analysing the factual position of the decision so
cited and how to apply the law therein to their case. It is true that
on many occasions the advocates cite more decisions than
necessary, but the judgments of the superior courts, which have
relevance, have to be taken into account while deciding the case.
The learned member has brushed aside the decisions cited in one
line in paragraph 85. The learned member observes-
"I have considered the rival submissions and the case laws
cited. There is no dispute with the case law cited, but each
case turns on its own facts".
Some of the conclusions reached by the learned member are
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contrary to the binding case law relied upon therefore, it was
incumbent upon the learned member to deal with the decision
cited. The learned member simply swept away the decisions in one
single sentence. This is most perfunctory. No tribunal can simply
disregard the decisions of the superior courts having direct bearing
on the case without even attempting to distinguish or to comment
upon the same. If a shareholder is directed to exit from a company,
which is a serious consequence, this is not the way that the board
should treat him. Naturally the counsel for EG have made a serious
grievance and they cannot be faulted for the same.
77. The learned member thereafter tabulated the litigation
launched by Mehras and EG against each other. This tabulation
was for the purpose of ascertaining the impact of litigation and
whether the litigations would such result in acts of oppression. The
learned member listed sixteen proceedings filed by EG against EIL
and Mehras. Then the proceedings initiated by Mehras against EG
are tabulated and six proceedings have been mentioned. Mr.Sarkar
made a grievance that forty seven Revocation petitions filed by
Mehras have been put under one head i.e. "Revocation petition" at
Serial No.5 in the chart. According to Mr.Sarkar, the learned
member by this methodology showed a skewed picture of the rival
litigations. On the other hand, Mr.DeVitre submitted that the
learned member has only reproduced the chart given by the EG.
Had this been a stand alone ground nothing much would turn on
this, as there can be no fault with the presiding officer reproducing
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the table which is already placed on record. But as one goes along
analysing the impugned decision and finds various such seemingly
innocuous lapses falling in a pattern substantiating the charge of
non-application of mind and lack of fairness in decision making,
then this point cannot be ignored. The purpose of this chart was to
highlight the litigation instituted by the rival parties. Allegation of
oppression was on the ground of needless litigations. Thus it was
necessary to have have a balanced picture of the rival litigations.
At a casual glance the reader gets an impression that EG instituted
sixteen proceedings in different courts while Mehras instituted only
six. The proceedings instituted by EG for patent infringement in
different courts have been specifically listed. However when it
came to Mehras chart, 47 Revocation petitions have been clubbed
under one serial number as Revocation petition. It is not the
question of what would be the impact of instituting such litigations
on the charge of oppression, but the point here to note is that the
way the chart has been reproduced by the learned member gives a
completely distorted picture of the cases filed. If filing of cases
against each other was a head of oppression, then the learned
member ought to have emphasised that not one Revocation
petition but forty seven Revocation petitions were filed by Mehras.
It cannot be an excuse to state that this is how chart was given by
EG. The decision making was by the learned member and omission
to specify the number of Revocation petitions reflects on the
application of mind by the learned member. It is also not that the
learned member, though in the chart mentioned only one petition,
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but has explained in the Judgment that there were in fact forty
seven petitions.
78. The learned member then proceeded to reiterate that EG was
right in not arguing issues which are not commercial and
contractual disputes are pending. The member records that the
petitions have been heard in pursuance and compliance with higher
courts order and EG has presented arguments on merits and rightly
except issues which are admittedly commercial and contractual
disputes and which are pending in different forms. Then the
member states that she cannot ignore the acts of sudden stoppage
of supplies, mismatch of supplies, refusal to infuse capital,
withdrawal of bank guarantee, malicious letters. Thereby holding
that these grounds were proved against EG. The learned member
has proceeded as if she had already reached a conclusion that these
charges were established against EG. In the preceding paragraphs
before reaching these conclusions, what is reproduced by the
learned member, are submissions of the rival parties. Though
Mr.DeVitre, in a valiant effort to give a shape and substance to the
reasoning of the learned member, submitted that learned member
has not reproduced the submissions but that is how she has dealt
with the matter. It is not possible to accept this explanation. Each
paragraph opens with referring to a submission of the counsel.
These submissions is simplicitor reproduced from written
submissions. As stated earlier, 'stoppage of supplies', 'mismatch of
supplies', 'refusal to infuse capital', 'withdrawal of bank guarantees'
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are slogans. The learned member thereafter repeatedly refers to
these heads to castigate EG and to arrive at a conclusion that EG
committed acts of oppression. For each of these heads EG had
various points to contend, as demonstrated by Mr.Sarkar and
Mr.Kamdar in great detail.
79. After proceeding to hold that EG committed acts of
oppression, the learned member concluded that Mehras succeeded
in making out a case that EG's hands are unclean and EG's petition
deserves to be thrown out at the threshold. The learned member
rejected the contention of EG based on order dated 29 January
2009 holding that this order was merely interlocutory. The learned
member also held that the Mehras specific allegations remained
uncontroverted and thereafter proceeded to decide who would buy
out the shareholding of the other group and appoint a valuer and a
observer.
80. The appointment and choice of the observer made by the
learned member is rather disturbing. The learned member has
appointed one Mr.Hari Shankar Acharya, Ex- Chief Commissioner
of Income-Tax, with unfettered powers, immunity from all civil and
criminal liabilities. Mr. DeVitre thought it fit to disassociate himself
from the appointment of Shri Acharya stating that at the outset
itself that Mehras are not insisting on Mr.Acharya and any other
suitable observer can be appointed by this Court. This will not be
of much relevance as in any case ultimately the choice has to be
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left to the Court and a party cannot insist on one particular
individual. What is relevant is the suo motu choice of the observer
made by the learned member in the context of the unsatisfactory
decision making. It is based on this choice that the grievance of
being unfairly dealt with is made by EG. Therefore, this deliberate
choice of a particular observer cannot be taken so lightly, as sought
to be done by the Mehras. The learned member, suo motu
appointed Mr.Acharya to assist the functioning of EIL. The learned
member granted immunity to Mr.Acharya from any kind of civil or
criminal proceeding to be launched or already launched against
the Company and for all acts done prior and subsequent with an
additional personal immunity. It directed that no government
agency would initiate any civil or criminal or coercive action
against Mr.Acharya for the acts. EIL was directed to provide
remuneration to Mr.Acharya as per his stature to be fixed by EIL.
EG has produced details, which are not controverted, that this
particular member has appointed Mr.Acharya as an observer on a
Company at Banglore with remuneration of ` 70,000/-, for a
company at Mumbai at ` 1 lakh, for a Company at Hyderabad with
` 3 lakhs, another Company at Hyderabad for ` 2 lakhs and
Company at Ahmedabad for ` 3 lakhs. The grievance has been
rightly made that Mr.Acharya is appointed as facilitator of
Companies situated at Bangalore, Mumbai, Hyderabad, Ahmedabad
on per month basis and it is not possible for him to simultaneously
look at different companies in different situations. All the facts
regarding Mr.Acharya have gone uncontroverted except to state
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11 .doc
that Mehras do not insist on Mr.Acharya. Such kind of repeated sou
motu appointment by the learned member needs lot to be desired.
81. Mr. Sarkar submitted that this is not the first time that the
decisions of this particular learned member have been reversed by
the higher courts on the ground of non-application of mind and
unsatisfactory decision making. He relied upon the observations of
this Court in Shah Pulp & Paper Mills Ltd. v. Pravinchandra Hirji
Shah (Company Appeal No.1 to 2011 in CLB Company Petition
No.60 of 2006 dated 17 May 2013) and the decision of the Culcutta
High Court in Dharam Godha v. Universal Paper Mills Ltd.
(2012) 172 Comp Cas 169, and the decision of Gujarat High Court
in the case of Vraj Integrated Textile Park Ltd. & ors. v Yogesh
Chandrakant Bhavsar, [Company Appeal No.4 of 2013 in Company
Petition No.65 of 2012 dated April 9, 2013.]
82. Therefore, if one takes overall view of the decision, it clearly
appears that the manner in which the learned member has
proceeded to record conclusion and pass the operative order does
not indicate that there was an application of mind and there is
substance in the charge of extreme hurriedness and lack of fairness
in decision making.
83. In light of the above it is contended by Mr.Sarkar that the
matter needs to be considered de novo by the board. It was
contended by Mr.DeVitre that though the learned CLB though has
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11 .doc
stated that petition of EG is dismissed as not maintainable has in
fact dismissed it on merits after considering all aspects. He
submitted that even the petition of Mehras has been considered in
all aspects and an equitable order has been passed. He submitted
that in any case there will have to be parting of ways and therefore,
the only question that would remain is who should buy out whom
and that question can be decided by this Court. He submitted that
it is not necessary to remand the proceedings back to the Board,
since all the record is before the Court and remand will only further
an additional avoidable expenditure. However a resolute stand
has been taken on behalf of EG that the decision making process
has not been fair and their petition has been dismissed in a
summary manner and matter must be remanded back for
reconsideration, to the fact finding authority. EG has made it clear
that all the submissions on merits were without prejudice to their
request for remand. It is not EG's primary contention that
irrespective of the manner the CLB has disposed of their
proceedings, this Court should consider the entire matter on merits.
Remand is the main prayer of EG. Therefore, I will have to
consider the request for remand made by EG and it cannot be
brushed aside merely because the entire record is now available in
this Court.
84. The findings of fact will have to be arrived at by the Board. It
is the Board which is the original authority. Section 10F of the Act
provides an appeal to this Court only on the question of law. The
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11 .doc
scope of Section 10F is limited. If there are no findings of fact
rendered on crucial aspects by the Board, such original and fact
finding exercise cannot be done under 10F merely because the
party who has succeeded insist on it being done. The way the
learned member has merely copied the submissions, drawn direct
conclusions, written a 130 pages judgment in three days with total
non-application of mind to vital issues, cannot be simply be ignored
and the appeal be considered on merits even though there are no
factual finding. Tolerance of such decision making will send a
wrong signal.
85. Furthermore it is not only the question of inter se rights of the
parties but there is a wider angle. That is the perception of a
litigant about the administration of justice. The concern that
justice should be administered in a fair and transparent manner
and after following principles of law, goes beyond an individual
dispute. The manner in which the learned member has proceeded,
raises various questions regarding the confidence of a litigant in
the dispensation of justice by the Board. Company Law Board is
established to exercise functions earlier exercised by the Courts
and the Board is under obligation to follow the principles of natural
justice. Fairness is an integral part of the principles of natural
justice. A litigant coming before the Board has to be dealt with
fairly. This would imply that adequate reasons are given why an
order is passed in favour or against a party. No impression be
given that the issue was pre-determined and something was amiss
113 Judgmnt COAPPL42-13 in CP83-11 wt COAPPL43-13 in CP82-
11 .doc
in the decision making. Though extent to which principles of
natural justice will apply will vary from Tribunal to Tribunal, there
can be no compromise on the adherence to concepts of procedural
justice. One of the cardinal requirement is that the decision
rendered must be a reasoned decision. An unreasoned decision
may ultimately be correct but it is not so to the party which has
lost. Giving adequate reasons in support of the decision removes
unfairness from the decision making process. The adherence to
these principles retains the faith of litigating public in judicial and
quasi-judicial proceedings and in no terms they can be
compromised. There is no reason why the Board is not required to
scrupulously adhere to principles of fairness especially considering
the wide powers it enjoys.
CONCLUSION
86. If all the points taken cumulatively and the entire effect of the
impugned decision and the manner it is rendered is considered,
makes out a case for remand of the proceedings to the Board. In my
opinion, therefore, the impugned order needs to be set aside and
the petitions needs to be reconsidered afresh by Board. It is
however clarified that the above discussion is regarding the need to
remand the proceedings highlighting the issues not considered and
not on the merits of the rival contentions, which will be decided by
the Board independently. Considering the reason for remand, the
Board will give priority to the disposal of the proceedings and
since entire material is already available, the Board will make an
endeavor to dispose the proceeding at the earliest.
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ORDER
87. Accordingly, Company Appeal No.42 of 2013 and Company
Appeal No.43 of 2013 are disposed off as under:
i. The impugned order dated 14 December 2012 passed by the
Company Law Board is quashed and set aside;
ii. The Company Petition No.82 of 2011 and Company Petition
No.83 of 2011 stand restored to the file of the Company Law
Board to be disposed of on merits. The Company Applications
which are disposed by the impugned order dated 14
December 2012 also stand restored to file of the Company
Law Board to be disposed of on merits.
iii. The Company Law Board will dispose of the proceeding
within a period of 8 months from the date the parties shall
first appear before it.
iv. The parties are directed to remain present before the
Company Law Board on 21 September 2015, where upon the
Board will give further directions.
v. Interim order passed in the present appeals on 18 January
2013 shall be continued till the disposal of the company
petitions by the Company Law board.
vi. No order as to costs.
N.M.JAMDAR, J.
