1. Shri Krishnadas Pal, petitioner in C. P. No. 33 of 1998, claiming to hold along with his associates, 25.77 per cent, of the issued capital of M/s. Calcutta Chemicals Company Limited (company) has filed this petition under Sections 397, 398, 399, 402 and 406 of the Companies Act, 1956 (Act), alleging acts of oppression and mismanagement in the affairs of the company. When Shri Sarkar, senior advocate on behalf of the petitioner, mentioned this petition on June 24, 1998, he also sought for certain interim orders. Shri P. C. Sen, senior advocate and Shri S. N. Mookherjee, counsel appearing for respondents Nos. 1 and 11, respectively, raised a preliminary objection on the maintainability of the petition on various grounds. While granting the limited interim prayer relating to the proposed extraordinary general meeting of the company scheduled for June 26, 1998, we adjourned the matter for hearing the preliminary objections. At the same time, we also allowed M/s. Henkel Spic India Limited to be impleaded as a respondent. The hearing of the preliminary objections was fixed at Chennai. In the meanwhile, the petitioner filed another petition, viz., C. P. No. 37 of 1998 in terms of the same sections as of C. P. No. 33 of 1998 (second petition). The petitioner also filed an application for consolidation of both the petitions or in the alternative, prayed for treating the second petition as an amendment to the first petition. When the maintainability of the petition was heard at Chennai, we formed a prima facie opinion that the maintainability could not be decided in isolation without considering the facts of the case and accordingly, fixed the hearing on the applications for consolidation/amendment and also the petition at Calcutta.
2. When the matter was taken up for hearing at Calcutta on August 24, 1998, we advised counsel to argue on the maintainability of the petition, consolidation/amendment and also on the merits of the case so that a composite order could be issued. Agreeing with our suggestion, counsel argued on all the matters.
3. Before detailing the arguments of counsel, it is necessary to sum up certain facts which have led to the filing of these petitions. The subsidiaries of M/s. Shaw Wallace Limited (SWC) hold about 55 per cent.
of the issued capital of CCL. CCL became a sick company some time in 1990 and was referred to the BIFR. It came out of sickness due to waiver by SWC of about Rs. 8.5 crores owed by CCL to SWC. In 1995 SWC had proposed to disinvest all these shares along with its other interests in CCL, more particularly in view of its financial difficulties. Originally, it had entered into an MOU with M/s. Henkel by which the latter was to buy the interest of SWC in CCL together with the consumer product division of SWC for a sum of Rs. 42 crores, which included a price of Rs. 2.5 per equity share held by it in CCL. In a petition under Section 397/398 filed in the matter of SWC (C. P, No. 30 of 1996), when this matter came before the Company Law Board, it passed an order that there should be complete transparency in the sale of the shares held by SWC/its subsidiaries in CCL and that any proposed sale should have the approval of the Company Law Board nominees on the board of SWC. In compliance with our directions, with the approval of the Company Law Board nominees, SWC issued a public notice inviting offers to buy majority shares held directly or indirectly by SWC together with certain other interests in CCL and certain assets and liabilities of its Consumer Products Division (DIL). The notice also specified that the sale would be conducted through an invitation of sealed tender and would be evaluated as per norms listed in the tendered documents. M/s.
Prudential Capital Markets Limited were appointed as the manager for sale of assets. In pursuance of this invitation, 11 parties including M/s. Henkel and Shri Krishnadas Paul (the petitioner herein) purchased the tender documents. In the tender documents, the assets proposed to be sold were classified into two groups, group A relating to CCL and group B relating to DIL. In group A relating to CCL, there were five sub-groups as follows : A-2 : 14,497, 9 per cent. cumulative preference shares and 15,681, 7 per cent. cumulative second preference shares of CCL.
A-4 : The right and/or benefit to distribute CCL products which are otherwise available to SWC.4. In the same way group B also had five sub-groups with which we are not concerned in the present proceedings. The tender document also specified that the reserve price for group A was Rs. 30 crores and that the persons desirous of bidding would submit a preliminary bid along with a bid deposit of Rs. 10 lakhs. It further provided that after the preliminary bids were received, the first five bidders would be entitled to conduct a limited due diligence test before submitting the final and binding bid. The final and binding bids were to be evaluated purely on a price criterion. It is also stipulated in the tender that the winner of the bid for each group would have to deposit 10 per cent.
of the bid amount in escrow. It is also mentioned in the tender that M/s. S. B. Billimoria and Co. have been appointed as expert valuers inter alia to allocate the final bid price as between the five bloc of assets in group A and group B.5. During the proceedings in C. P. No. 30 of 1996, M/s. SWC made an application before the Company Law Board stating that M/s. Henkel had been declared as the winner of the bids in respect of CCL and DIL and sought for our permission to sell the assets to M/s. Henkel for a consolidated consideration of Rs. 51.09 crores. The Company Law Board, in its order dated November 28, 1997, permitted the same subject to the approval of the Calcutta High Court. Later the said High Court also allowed the same vide its order dated May 8, 1998, subject to depositing the entire amount towards discharging the liabilities of SWC. Later Henkel deposited 10 per cent. of the bid amount in an escrow account as stipulated in the tender. Thereafter, by a letter dated-May 26, 1998, SWC wrote to CCL enclosing therewith a draft notice for convening an extraordinary general meeting of CCL to pass the following resolution : "Resolved that in consequence of Henkel SPIC India Limited (HSI) being declared as the winning bidders in respect of the tender for the sale of various assets, as set out in the aforesaid tender, including shares held by SWC through its subsidiaries in the share capital of this company and pending acquisition of such assets and shares, HSI be and is hereby authorised with immediate effect to nominate such number of nominees of HSI as it may deem fit, as directors of the company constituting majority of the directors so as to confer control over this company to HSI, all appointments of directors pursuant to such nomination to be made in accordance with the provisions of the Companies Act, 1956".
"Resolved further that the board of directors of the company be and is hereby authorised to appoint such nominees of HSI as directors to effect such change in control over this company and pass on such control to HSI with immediate effect".
6. The board of directors in its meeting held on May 30, 1998, passed a resolution convening the extraordinary general meeting on June 26, 1998, wherein in spite of the opposition by the petitioners the above said resolutions were carried through.
7. The first petition was filed before the date of the extraordinary general meeting and the second after the resolutions were passed in the extraordinary general meeting. The petitioner in the first petition, has stated that while Henkel entered into an MOU with SWC earlier, Henkel likewise entered into an MOU with the petitioner to purchase the equity shares held by him and his group at Rs. 205 per share and Henkel also made an offer through public advertisement in newspapers to purchase the equity shares held by the public in CCL at Rs. 205 per share. This was done by Henkel with a view to take management and control of the company. Since, the BIFR did not give its approval for this proposal, the MoU entered into by Henkel with SWC and the petitioner fell through. The petition also gives the details of the tender issued by SWC and declaration of Henkel as the winning bidder and also states "the above mentioned offer for sale of assets owned by Shaw Wallace and its subsidiaries were made through the system of tender in conformity with the directions given by the Company Law Board". However, the petitioner has complained in the petition that while SWC has attempted to sell its bloc holding through invitation of offers, yet, it has not made any corresponding arrangement for taking over the shareholding of the petitioner and his associates and that SWC has not disclosed the exact price separately at which it proposes to sell its shareholding to Henkel. The petitioner has also expressed a doubt as to whether SWC would receive any amount other than the bid amount of Rs. 51.05 crores from Henkel and accordingly, has expressed an apprehension that the petitioners' group might be denied of comparable benefits in terms of the price for the shares held by them.
According to the petitioner, the payment against sale of majority shareholding in CCL has been restructured under five heads in order to show a lesser amount against sale of majority shareholding as the right to distribute the company's products is illegal as distribution agreement is not transferable and the non-competition agreement is only a camouflage to reduce the price for the shares with a view to deny the right price to the minority shareholders. According to him, the price of the equity share should be at lest Rs. 750 in view of the present financial position of CCL.
8. Further, according to the petitioner, the petitioner wrote a letter to CCL with a copy to all the directors on May 21, 1998, seeking their support to stop illegal means and ways of transferring control and management of the company by SWC to Henkel. However, SWC sought convening of an extraordinary general meeting of CCL to pass a resolution to authorise Henkel to nominate such number of nominees of Henkel as directors of CCL to constitute a majority of the directors so as to confer control over CCL and in the explanatory statement it has been stated that the take over regulations do not apply to any change in control which takes place in pursuance of a resolution passed by the shareholders in a general meeting. According to the petitioner, the letter by SWC seeking convening of an extraordinary general meeting does not spell out the details of payment towards equity shares and that there is no confirmation from Henkel that it would make a public offer to acquire shares from the minority shareholders and that CCL has not taken any legal advice in regard to the suggestion of SWC in taking recourse to the proviso to regulation 12 of the SEBI Take Over Regulations. Even though the petitioner along with Shri N. Chowdhury opposed the move to convene an extra- ordinary general meeting to consider the proposal of SWC, in the board meeting held on May 30, 1998, the proposal was approved by majority directors' and the extraordinary general meeting was being convened on June 26, 1998.
9. In view of this, the petitioner has expressed his grievance of being insecure and oppressed by the proposal of SWC to hand over the management of the company to Henkel without disclosing the arrangements made by SWC with Henkel to the petitioners, being minority shareholders. Accordingly, the petitioner has sought for full disclosure of the arrangement of SWC with Henkel and till such time as the full disclosure is made, the extraordinary general meeting should not be held and as such the company should be restrained from convening the said extraordinary general meeting. In addition to the above, the petitioner has sought the following major reliefs : Mandatory injunction restraining the company from registering transfer of shares held by the subsidiaries of SWC ; restraining the company from inducting any director on its board including any nominee of Henkel ; restraining the subsidiaries of SWC from selling their shares without making corresponding sale of the shareholdings of the petitioners' group ; investigation into the deal between SWC and Henkel ; appointment of a special officer to take charge of the records of the company, etc.
10. In the second petition, the petitioner, while narrating most of what has been stated in the first petition in relation to the proposed acquisition of group A assets by Henkel and his opposition to the convening of the extraordinary general meeting, has in this petition, additionally questioned the legal validity of the resolutions passed in the extraordinary general meeting empowering Henkel to nominate directors on the board of CCL. According to him, the petitioner has the power to nominate two directors on the board of CCL by virtue of Article 100 of the articles of association of CCL and the affairs of the company are being conducted on mutual trust between the petitioner and SWC and the decision of SWC to hand over the control and management of the company to Henkel by keeping the petitioner in the dark about the arrangement between SWC and Henkel is a serious breach of trust.
Further, according to him, the resolutions passed in the extraordinary general meeting are bad in law being repugnant to Section 263(1) of the Act according to which, through a single motion not more than one director can be appointed, but, in the extraordinary general meeting, through a single motion, shareholders' approval has been taken to permit Henkef to nominate majority directors on the board without disclosing the names of such directors. This would amount to thrusting upon the minority shareholders, without their approval, directors of the choice of Henkel which is against the spirit of corporate democracy. Even otherwise, Henkel, not being a shareholder, cannot be conferred this power which is also against the provisions of the articles. In addition, according to the petitioner, by getting the resolution passed in the extraordinary general meeting, the board of directors of the company has bypassed the provisions of the SEBI (Substantial Acquisition of Shares and Take Overs) Regulations, 1997, according to which public announcement to acquire the shares in the company should have been made in terms of regulation 12. These acts are not only unlawful but also oppressive to the minority shareholders including the petitioner. It is further stated that such oppressive acts would justify winding up of the company on just and equitable grounds but it would be prejudicial to the interest of the minority shareholders. According to the petitioner, he is not seeking any relief against Hen-kel or any other respondent except in relation to the affairs of the company. Accordingly, he has sought for the following reliefs : to declare null and void the extraordinary general meeting held on June 26, 1998, and the resolutions passed therein ; to direct the board of directors of the company not to appoint any director as nominated by Henkel ; to order maintenance of status quo with regard to the shareholding of the company ; to restrain the company from registering any transfer of shares held by the subsidiaries of SWC in the name of Henkel, etc.
11. Shri Sarkar, senior advocate for the petitioners, initiating his arguments on consolidation of the petitions/amendment, submitted that the respondents should not have any objection to consolidation of the petitions/amendment to the first petition inasmuch as the second petition contains allegations which are germane to the first petition and such consolidation would enable the Company Law Board to adjudicate on all the allegations in respect of the respondent-company with a view to put an end to the matters complained of. He relied on Order 6, Rule 17 of the Code of Civil Procedure in this regard. Further, relying on Ganesh Trading Co. v. Moji Ram, AIR 1978 SC 484, he stated that to promote the ends of justice, amendment should be allowed in terms of Order 6, Rule 17. He also relied on Jai Jai Ram Manohar Lal v. National Building Material Supply, Gurgaon, AIR 1969 SC 1267, wherein the court held that leave to amend pleadings should be given unless the court is satisfied that the party applying was acting mala fide. According to Shri Sarkar, the second petition consists of certain subsequent events after filing of the first petition, which are detrimental to the interest of the petitioners and shareholders and as such the prayer for consolidation/amendment be allowed. He also relied on Haridas Aildas Thadani v. Godrej Rustom Kermani, AIR 1983 SC 319, wherein it was held that the court should be extremely liberal in granting the prayer of amendment of pleadings unless serious injustice or irreparable loss is caused to the other side. According to Shri Sarkar, allowing the amendment/consolidation will not cause any injustice to the respondents. He also relied on Ahmed Hossain v. Mst Chemvelli [1981] 85 Cal LJ 213 wherein the court observed that the making of amendment is not really a matter of power of a court but its duty which has been cast upon the court so that substantial justice may be done for which alone the court exists. Referring to Bengal Waterproof Ltd. v. Bombay Waterproof Manufacturing Co. [1997] 1 SCC 99 he' submitted that in that case the Supreme Court held that in a case of continuing or recurring wrong there would be corresponding continuous or recurring cause of action and for each such cause of action, one can file a separate suit.
According to him, while in the first petition, the convening of the extraordinary general meeting was impugned, in the second petition, the decisions taken in the extraordinary general meeting have been impugned and as such consolidation or amendment has been sought for adjudication of the entire dispute. He also referred to Mahamad Fazal v. Mahkumar Mahton, AIR 1922 Patna 566, wherein it was held that the court has inherent jurisdiction to consolidate suits without the consent of the parties. For the same proposition, he also relied on P. P. Gupta v.East Asiatic Co., AIR 1960 All 184, wherein it was held that a court has inherent power to consolidate suits in appropriate cases provided there is similarity or identity of the matter in issue in different suits between the same parties which should be decided by the court once for all so as to avoid multiplicity of litigation between the same parties. According to Shri Sarkar, the Company Law Board has such inherent powers by virtue of regulation 44 of the Company Law Board Regulations.
12. In regard to the stand of the respondents that the alleged non-disclosure of cause of action or other infirmities in the petitions should be tried first as a preliminary issue, he stated that the same cannot be treated as a preliminary issue, as, in a Section 397/398 petition, the preliminary issues could cover only issues relating either in terms of Section 399 or in terms of the jurisdiction of the Company Law Board. All other objections will have to be considered only along with the merits of the case. For this proportion, he relied on the Company Law Board decision in (C. P. No. 29 of 1996, order dated December 30, 1997 by the CLB) (since reported in Satish Chand Sanwalka v. Tinplate Dealers Association Pvt. Ltd. [1998] 93 Comp Cas 70 (CLB).
Shri Sarkar referred to the objection of the respondents that the first petition does not contain any averment that it is just and equitable that the company should be wound up and that such winding up would be prejudicial to the interest of the petitioners, to argue, that the omission of such an averment is not fatal to the petition as the Calcutta High Court has held in Bagri Cereals Pvt. Ltd. [1994] 98 CWN 617 that such averment is not mandatory. In view of the above decision, he stated that there is no bar in the Company Law Board either consolidating both the petitions or treating the second petition as an amendment to the first petition.
13. Dealing with the merits of the case, he submitted that his complaint in the petition is twofold : one is that CCL has agreed to the proposal of SWC to hand over the control and management of the company to M/s. Henkel without the latter having complied with the provisions of the Take Over Regulations and that the board of directors have obtained the consent of the general body to give the power of nomination to M/s. Henkel to nominate directors on the board of the company in contravention of the provisions of the Act, While in the first petition, he stated that the decision of the board to convene an extraordinary general meeting in this regard has been impugned, in the second petition, the decision in the extraordinary general meeting has been impugned.
14. In regard to the resolutions passed by the general body in the extraordinary general meeting held on June 26, 1998, Shri Sarkar stated that as per Article 100 of the articles of association of the company, the petitioner has the right to appoint two non-retiring directors on the board while there is no provision in the articles for anyone for nominating a director. In other words, according to him, any act by way of nomination of a director, without any enabling provision in the articles, is ultra vires. Further, as per the explanatory statement annexed to notice of the extraordinary general meeting, it has only been stated that M/s. Henkel may consider the proposal to proceed with the acquisition of shares and there is no definiteness of their acquiring the shares and if it is so the proposal to allow them to nominate a controlling number of directors on the board cannot be held to be in the interest of the company or the shareholders. Even otherwise, Shri Sarkar stated that as per the provisions of Section 255(1)(b), directors can be appointed in the general meeting and the board cannot appoint any person nominated as a director, the exception being that certain financial institutions have, under their own Acts, the power to nominate directors on the board of companies in certain circumstances. While, according to him, the board has the power to appoint additional directors by virtue of the provisions of Section 260, the same could be done overriding the provisions of Section 255 only if the articles of the company so provide. In the same way, the board has power to fill up casual vacancies subject to the provisions in the articles by virtue of the provisions of Section 262. However, there is absolutely no provision either in the Act or in the articles empowering the board to appoint a director nominated by some one.
According to Shri Sarkar it is the prerogative of the shareholders to appoint directors after assessing their suitability to hold the position of directors in the company and it could be done only when the names proposed in the resolutions are considered by the members in the general body meeting. Referring to the provisions of Section 263, he stated that with a view to ensure that each individual name be considered by the general body separately, there is a specific provision in this section that there shall not be any motion for appointment of two or more persons as directors by a single resolution.
He submitted that in Raghunath Swamp Mathur v. Raghuraj Bahadur Mathur [1967] 37 Comp Cas 304 (All), the Allahabad High Court has held that any motion proposing a resolution appointing more than one director in contravention of Sub-section (1) of Section 263 would be void.
According to Shri Sarkar, the board of directors owes fiduciary duties towards the company and the shareholders and they cannot hand over the management of the company to outsiders by giving them controlling interest on the board especially when the shareholders would not know the identity of the persons so appointed. Shri Sarkar pointed out that there is an agreement between SWC and Henkel that the majority control of the company would be handed over to Henkel and that Henkel would have majority directors on the board of the company. Relying on Alfred A James v. William E [1973] 4 English and Irish Appeals 335 he submitted that such an agreement to appoint directors is illegal and as such void. According to Shri Sarkar the resolutions passed in the extraordinary general meeting vesting the power with the board to appoint majority directors on the board as nominated by M/s. Henkel are not only in violation of the provisions of the Act as well as articles and is also oppressive to the petitioner as a shareholder he has been denied the right of voting on the election of directors which is a very valuable right as decided in Life Insurance Corporation of India v.Escorts Ltd. [1986] 59 Comp Cas 548 (SC). He also stated that in the extraordinary general meeting, the resolutions were passed as ordinary resolutions instead of being special resolutions in which case, all the resolutions would have been defeated by the petitioner holding more than 25 per cent. shares.
15. With regard to the violation of the provisions of the Take Over Regulations, Shri Sarkar submitted that the stand of the company that the resolutions in the annual general meeting have been passed in line with the provisions of the proviso to regulation 12 of the Regulations is not tenable inasmuch as the provisions of the Regulations cannot override the provisions of the Companies Act which clearly lays down, in various sections, the mode and the method of appointing directors and the authority by whom the same could be done as he has already elaborated earlier. He stated that as per regulation 2(l)(b) of the Regulations, M/s. Henkel is an acquirer and, therefore, all the obligations imposed by the Regulations on an acquirer are applicable to M/s. Henkel. As per regulation 14, M/s. Henkel is bound to make a public announcement for acquisition of shares from the public within four days of entering into an agreement to acquire shares. In the present case, not only M/s. Henkel decided to acquire the shares held by the SWC group, M/s. Henkel have already deposited 10 per cent. of the bid amount in an escrow. Even otherwise, by virtue of regulation 14(3), the acquirer is bound to make the public announcement not later than four days after any change is decided to be made that would result in the acquisition of control over the targeting company. In the present case, since Henkel has sought for authority from the extraordinary general meeting for nominating majority directors on the board, it would mean that they have already decided to take control over CCL and as such they should have made the public announcement immediately which they have failed to do. Further, drawing our attention to regulation 22(7), Shri Sarkar stated that during the offer period, the acquirer shall not be entitled to be appointed on the board of the targeting company and as per regulation 22(9), if a director on the board of the targeting company has any interest in the acquirer, he cannot participate in any proceedings relating to the offer made by the acquirer and in view of this position, if M/s. Henkel were to have the majority directors on the board, the board will not be in a position to take any steps in the proposal of Henkel in regard to further acquisition of shares by Henkel. He also submitted that regulation 23, casts certain obligations on the board of CCL being the target company.
One is provided in regulation 23(3), according to which no one representing the acquirer can be inducted into the board once a public offer has been made. To overcome all the obligations imposed on the acquirer, once a public offer is made, M/s. Henkel has conveniently got the extraordinary general meeting approval for nominating majority directors on the board before making a public offer, by surreptitiously resorting to a proviso to regulation 12. According to Shri Sarkar, a strict interpretation of this proviso would reveal that what is contemplated in this proviso as change in the management is that the same should take place in a general body meeting and not by appointment by the board on being nominated by the acquirer.
16. Shri Sarkar further submitted that CCL, which is to strictly adhere to the provisions of the Regulations, has miserably failed to adhere to the same as CCL is acting in concert with Henkel and SWC. Since the board of directors of CCL stands in a fiduciary position with regard to the affairs of the company and the members and since the petitioner holds more than 25 per cent. shares in CCL, the handing over of the majority control of the board to M/s. Henkel is a gross act of oppression against the minority shareholders. Further, he stated that there has been no transparency in the deal between SWC and Henkel. Even though a composite figure of over Rs. 39 crores has been agreed between SWC and Henkel, yet, a substantial amount of about Rs. 17 crores has been allocated towards distribution rights of CCL products by SWC.Presenting a copy of the distribution agreement between CCL and SWC, Shri Sarkar pointed out there is a specific provision in the agreement that the distribution rights are not transferable and are in violation of this provision, SWC has transferred this right to Henkel. He also submitted that there is no indication that the distribution agreement was placed before M/s. Billimoria and if it had been placed before them, perhaps, the allocation of such a substantial amount would not have taken place. The allocation of Rs. 17 crores towards distribution rights has been made only with a view to bring down the real price of the shares so that Henkel would be in a position to acquire these shares from minority shareholders at a low price. CCL, being a signatory to the distribution agreement cannot now recognise the transfer of the distribution rights.
17. In regard to the stand of the respondents that earlier the petitioner had agreed to sell his shares to Henkel at Rs. 205 per share, Shri Sarkar submitted, that immediately after this agreement and on coming to know that Henkel had agreed to pay further amounts to SWC, the petitioner had already written a letter on this matter to Henkel indicating therein that the amount of Rs. 205 per share was agreed without knowing the exact deal between SWC and Henkel. Even in the present case, Shri Sarkar stated that till the Company Law Board directed Henkel to hand over a copy of the valuation report prepared by M/s. Billimoria, the petitioner was not aware of the allocation of the total consideration on various heads. Only on going through the report, the petitioner has come to know that a large sum of money has been allocated towards distribution rights and that the value of the shares has been computed at Rs. 269 per share while the actual value should be more than Rs. 750 per share.
18. Shri Sarkar also submitted that the Company Law Board has full jurisdiction to look into the complaint relating to violation of the provisions of the Regulations in a petition filed under Section 397/398 in which the power of inquiry by the Company Law Board is wide enough to cover the allegations relating to violation of the provisions of any law. More so, unlike the SEBI, the Company Law Board is a judicial body and an appeal against its order lies before the High Court. In the case of the SEBI, it is not a judicial body and the orders of the SEBI are appealable to the Central Government. In this connection, he also referred to Section 111A(3) in which specific power has been conferred on the Company Law Board to look into allegations relating to the violations of the provisions of the SEBI Act and the Regulations made thereunder. Since, the Regulations have been made under the SEBI Act, the Company Law Board can look into this matter. Further, he also submitted that the petitioner has already filed a civil suit in the Calcutta High Court on matters covered under these two petitions and on a specific mention made before the Calcutta High Court that the petitioner was willing to withdraw the cases before the Company Law Board, counsel for the respondents objected to such withdrawal and as such the Company Law Board should pass suitable orders on both the petitions inasmuch as what the petitioner is agitating in these petitions is to protect the interest of all the minority shareholders with a view to ensure that their interests are protected and definitely not for the purpose of achieving any collateral object as alleged by the respondents.
19. Shri Mookherjee, advocate for SWC, initiating the arguments submitted that neither of the petitions discloses any cause of action and as such they are not maintainable. Going through the averments in C. P. No. 33 of 1998 (first petition), he stated that the entire petition relates to the arrangement between SWC and Henkel and does not make any allegation that the affairs of CCL are being conducted in a manner either oppressive to the petitioner or that there has been mismanagement in the affairs of CCL. He submitted that as per the averments in the petition itself, the petitioner is fully aware of the attempt by SWC to dispose of its interests in CCL and how Henkel happens to become the winning bidder and that the entire transaction relating to disposal of the interests of SWC in CCL has been done transparently and that the deal between SWC and Henkel has been approved by the Company Law Board as well as the Calcutta High Court.
His complaint in this petition is that Henkel has not made any corresponding arrangement to purchase the shares of the petitioner and that SWC and Henkel are guilty of non-disclosure of the exact price that has been agreed to be paid for the shares held by SWC and this way there has been an attempt to deny rightful benefit to the petitioner's group for the shares held in CCL. The only averment relating to oppressive conduct is that of non-disclosure of the details with regard to the arrangement with Henkel. As far as the affairs of CCL are concerned, Shri Mukherjee submitted that it only relates to the notice issued by CCL for convening an extraordinary general meeting. Even in this connection, he submitted that the petitioner has not challenged either the board meeting in which the decision to call for an extraordinary general meeting was taken or the notice issued for the extraordinary general meeting. Since the proposed resolutions were to be considered by the general body, the petitioner could have raised whatever objection he had on the resolutions in the meeting and not through this petition. Shri Mukherjee submitted that other than questioning the wisdom of the directors to convene the extraordinary general meeting, the petitioner has not averred, nor has he been able to show that the affairs of the company are being conducted in a manner either oppressive to the petitioner or prejudicial to the interest of the company or the public. He has also not pleaded, Shri Mukherjee contended, that mere exist just and equitable grounds for the winding up of the company ; such pleading of which is mandatory in terms of Section 397. From the entire averments in the petition, learned counsel submitted, it is apparently clear that the main ground of the petitioner is about the share price and he has no objection to Henkel acquiring majority control of CCL. Further, according to learned counsel, the petitioner has no interest in the affairs of CCL as is evident from the fact that earlier he entered into an MOU with Henkel to sell his shares at Rs. 205 per share and even in the present petition, he has evinced interest to sell his shares to Henkel on proper consideration as is evident from the averment in page 27 of the petition. From this, learned counsel stated, the motive behind the petition is clear that the petitioner wants to extract the maximum price for his shares and not with an intention of getting any other relief. In other words, the petition has been filed for a collateral purpose and as such cannot be entertained as decided in Re Bellador Silk Ltd. [1965] 1 All ER 667 (Ch. D.).
20. As far as the second petition is concerned, Shri Mukherjee stated that the same is more or less identical to the first petition except that certain additions and deletions have been made compared to the first petition. In the second petition, in view of the stand of the respondents that the first petition deals mostly with the arrangement between Henkel and SWC and has been filed for an oblique motive, the petitioner has conveniently omitted the same in the second petition as also the averment that the price of the share should be around Rs. 750.
The second petition contains certain additions alleging infirmities in the resolutions passed in the extraordinary general meeting on account of non-compliance with the provisions of Section 263 and also the provisions of the articles of association. In addition, it also alleges that the provisions of the Take Over Regulations have not been complied with by Henkel.
21. Learned counsel submitted that a perusal of the averments in both the petitions would show that no case of oppression or mismanagement has" been made out in either of these petitions nor any case has been made out for winding up of the company under just and equitable grounds. Further, relying on Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. [1962] 32 Comp Cas 207; AIR 1962 Cal 127, he stated that an attempt to get majority in a company by lawful means is not a ground for winding up of the company and a profitable company cannot be wound up under just and equitable grounds. He also submitted that in a Section 397/398 petition it is essential that the petitioners should plead and prove that there are grounds for winding up of the company on just and equitable grounds as decided in [1967] 71 CWN 38.
In the first petition, there is no such averment. In regard to the submission of Shri Sarkar, relying on Bagri Cereals Pvt. Ltd. [1994] 98 CWN 617, Shri Mukherjee stated that in this case, the court has not considered the earlier decision in [1967] 71 CWN 38. He also stated relying on Five Minute Car Wash Service Ltd., In re [1966] 36 Comp Cas 566; 1 All ER 242 (Ch. D.) that to invoke the provisions of Section 397/398, it must be shown that the company has acted harshly, unfairly or with lack of probity towards any member. In the present case, no such allegation has been made in either of the petitions.
22 In regard to the prayer for consolidation/amendment, Shri Mukherjee submitted that the cases cited by Shri Sarkar, namely, Ganesh Trading Co. v. Moji Ram, AIRJai Jai Ram Manohar Lal v. National Building Material Supply, Gurgaon, AIRHaridas Aildas Thadani v. Godrej Rustom Kermani, AIR 1983 SC 319 and Ahmed Hossain v.Mst Chemvelli [1981] 85 Cal LJ 213, all deal with cross suits and as such are not directly applicable in the present case. Here the same petitioner under the same sections of the Companies Act has filed both the petitions. He submitted that in Kalicharan Datt v. Suraj Kumar Mandal [1913] 17 CWN 526 it has been held that the court will not consolidate several suits filed by the same plaintiff as it would amount to an abuse of the process of the court. Since, the first petition does not disclose any cause of action in terms of Section 397/398, in the garb of amendment the petitioner cannot improve his case through the second petition. As held in Ganesh Trading Co. v. Moji Ram, AIR 1978 SC 484, the facts appearing in the amendment petition should be antecedent to the first petition and subsequent facts cannot be agitated through an amendment to the first petition. In other words, the validity of the petition has to be judged on the basis of the date of filing of the same. Therefore, Shri Mukherjee submitted that there is absolutely no scope for consolidation or amendment as prayed for by the petitioner.
23. Dealing with the merits of the case, Shri Mukherjee stated that the complaint of the petitioner is twofold--one is relating to the resolutions passed in the extraordinary general meeting and the other is relating to the alleged non-compliance with the Take Over Regulations. In regard to the resolutions passed in the extraordinary general meeting, he stated that there is no violation of the provisions of Section 263 in passing these resolutions inasmuch as the provisions of Section 263 are applicable only when more than one director is appointed on the board through a single resolution. In the present case, the general body has only authorised the board to appoint the nominees of Henkel in accordance with the provisions of the Companies Act. So far no actual appointment has taken place and the petitioner cannot presume that the board will not follow the provisions of law at the time of appointment of the nominees of Henkel. Even assuming that there has been violation of the provisions of this section, learned counsel submitted that such a violation cannot constitute a ground to invoke the provisions of Section 397/398 as held in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and ]ute Mills Co. Ltd. [1964] 34 Comp Cas 777 ; AIR 1965 Guj 96. Further, he stated that since the petitioner has two nominees on the board of CCL, they would be in a position to ensure that the provisions of law are adhered to whenever nominees of Henkel are appointed on the board. He also submitted that the case law relied on by Shri Sarkar, i.e., Raghunath Swamp Mathur v.Raghuraj Bahadur Mathur [1967] 37 Comp Cas 304 (All) wherein four directors were re-elected as directors through a single resolution is not applicable to the facts of the case before the Company Law Board as no such resolution appointing any director on the board has been passed in the extraordinary general meeting. The resolutions are only enabling resolutions empowering the board of directors to appoint the nominees of Henkel after following the provisions of the Companies Act. Any way, learned counsel submitted that, as decided in Bentley-Stevens v. Jones [1974] 2 All ER 653 (Ch. D.) and Browne v. La Trinidad [1887] 37 Ch D 1, any irregularity committed in passing the resolution could be cured by going through the due process. Therefore, he submitted that the prayer for declaring the resolutions as null and void should not be granted.
24. In regard to the violation of the Regulations, he submitted that the Company Law Board should not adjudicate on this issue as the petitioner has, prior to the filing of these petitions, approached the SEBI in this regard and since the SEBI Act and the Take Over Regulations provide a self-contained and exhaustive Regulations relating to such matters, the same should be left to the SEBI for necessary action and the Company Law Board should not entertain any complaint relating to violation of the Take Over Regulations. For the proposition that when the statute prescribes certain authority to decide matters contained in the statute, the court should not interfere, Shri Mukher-jee relied on Sitaram Jaipuria v. Banwarilal Jaipuria, AIR 1972 Cal 105, para. 18, in which the court held that as per the MRTP Act, the whole scheme and procedure is through the Central Government and the Monopolies Commission in the first instance and not through the court. He also relied on M. R. Goyal v. Usha International Ltd. [1998] 93 Comp Cas 634 (Delhi) wherein the court took a prima facie view that in matters of violation of guidelines issued by the SEBI, the jurisdiction of the court is barred. Therefore, learned counsel submitted that the Company Law Board should not entertain any complaint relating to the violation of the provisions of the Take Over Regulations. He further submitted that even otherwise Henkel would definitely carry out its obligations under the regulations as soon as final decision to acquire the shares or any agreement to take over the control of the company is reached in terms of the Regulations. Further, he submitted that the petitioner has not at any time questioned the valuation made by M/s. Billimoria and he has not alleged any bias on their part in valuing the shares and, therefore, the allegation that the value of the snares should be more than what has been computed by them has no basis.
25. Shri P. C. Sen, senior advocate appearing for CCL while adopting the arguments of Shri Mookherjee submitted that the arrangement between Henkel and SWC was a private arrangement with which CCL is not concerned and even otherwise the entire arrangement had been supervised by the nominees of the Company Law Board and later cleared both by the Company Law Board and the Calcutta High Court. He further submitted that the petitioner does not allege, in either of the petitions, that the acquisition of controlling interest by Henkel is against the interest of CCL but he is only questioning the allocation made towards distribution rights/non-competition. As such, according to Shri Sen, the petition has been filed for collateral purpose to bring pressure on Henkel to agree for a higher price for the shares held by the petitioner. He also submitted that but for SWC waiving its dues of Rs. 8.36 crores, CCL could not have come out of the purview of the BIFR and if the BIFR had given the permission for disposal of the shares as per the MoU between Henkel and the petitioner, the latter would have got only Rs. 205 per share as against the present offer of Rs. 269 per share. He reiterated the submission of Shri Mookherjee that both the petitions do not disclose any cause of action, no case of winding up on just and equitable grounds has been made, the alleged violation of law can be rectified, the petitioner has not questioned the valuation made for these shares by M/s. Billimoria and that after initiating the present proceedings, the petitioner has sought to offer to purchase the impugned shares from SWC at Rs. 300 per share. Accordingly, Shri Sen submitted that none of the reliefs sought in both the petitions could be granted under the provisions of Section 397/398.
26. Shri Venkatesh Dhond, advocate appearing for Henkel going through the first petition pointed out that the entire petition talks about the deal between Henkel and SWC and that there is nothing in the petition to indicate that there have been acts of oppression and management in the affairs of CCL. Only at page 29 there is some mention about the alleged oppression against the minority shareholders that too only in relation to the non-competition agreement between SWC and Henkel.
Further, he pointed put that in page 35 (a) there is an averment to the effect that non-disclosure of the arrangement between SWC and Henkel amounts to oppression. Further, he submitted that Henkel, being an outsider, participated in the open tender floated by SWC in accordance with the directions given by the Company Law Board and having become the winning bidder, Henkel is bound by the terms of the tender according to which the price allocation was to be made by M/s.
Billimoria. The entire scheme of the tender was prepared by the board of director's of SWC consisting of nominees of the Company Law Board and in their wisdom, they had classified the assets in group A in five categories and the price allocation between the various categories was done by a reputed firm, viz., M/s. Billimoria. He also pointed out that nowhere the petitioner has questioned the methodology or the legitimacy of the allocation made by this firm. He also submitted that, to establish the bona fides of his clients, he had handed over a copy of the allocation report to the petitioner during these proceedings and other than pointing out that a large amount has been allocated towards the non-competition agreement, the petitioner has not been able to find fault with the valuation done for the shares. He also submitted that if Henkel has to pay a large amount towards the non-competition agreement together with distribution agreement, assuming that the distribution agreement is not transferable as contended by Shri Sarkar, it is Henkel which is going to be affected and not the petitioner.
27. He further submitted that his clients would definitely comply with the obligations imposed on them as acquirer in terms of the regulations by making public announcement and whatever value has been computed by M/s. Billimoria for the shares would be offered to all the other shareholders including the petitioner. He further submitted that at the time when the petitioner entered into an MoU for sale of his shares at Rs. 205 per share, there was classification of the assets and the petitioner was fully aware of the same. Even in. the present tender, counsel submitted, that the petitioner was one of the parties to obtain a copy of the tender in which the classification of assets held by SWC in CCL has been prominently indicated and that the offer for the assets was to be a consolidated sum subject to allocation later by M/s.
Billimoria. The tender was issued in the middle of 1997 and the petitioner has chosen to challenge the same only in the middle of 1998 indicating very clearly that the motive behind the petition is to put pressure on Henkel to agree for a higher price for the shares.
28. In regard to the second petition and dealing with the allegation that Henkel has not complied with the provisions of the regulations, learned counsel submitted that the Company Law Board cannot look into this allegation inasmuch as Section 20A of the SEBI Act, specifically excludes the jurisdiction of the civil courts in matters covered by the said Act. Since the Regulations have been framed under the SEBI Act, the jurisdiction of civil courts including the Company Law Board in respect of matters covered under the Regulations is barred. According to him, Chapter V of the Regulations vests with the SEBI, the powers of investigation and action thereon and any complaint relating to non-compliance with the provisions of the Regulations will have to be investigated and action taken by the SEBI and no other judicial body can adjudicate on this issue. Relying on Premier Automobiles Ltd. v.Kamlakar Shantaram Wadke, AIR 1975 SC 2238 ; [1976] 1 SCC 496 wherein the Supreme Court held, in relation to the Industrial Disputes Act, that the civil court will have no jurisdiction to try and adjudicate upon an industrial dispute if it concerned enforcement of certain right or liability created only under that Act and that in such cases the civil court will have no jurisdiction even to grant a decree or exemption if the same is covered under the Industrial Disputes Act, counsel submitted that since the matter complained of is covered by the Regulations, only the authority under the Regulations could examine this complaint and not the Company Law Board. Since the petitioner had already complained to the SEBI in this regard, he should not agitate this matter before the Company Law Board. In this connection, he also relied on M. R. Goyal v. Usha International Ltd. [1998] 93 Comp Cas 634 wherein the Delhi High Court has taken a prima facie view that civil court has no jurisdiction to deal with the matters covered under the Regulations.
29. As far as the resolutions passed in the extraordinary general meeting are concerned, counsel submitted that the petitioner having prosecuted the present two petitions before the Company Law Board, has surreptitiously filed a civil suit in the Calcutta High Court just a day before the final hearing by the Company Law Board wherein he has impugned the resolutions passed in the extraordinary general meeting and as such is guilty of forum shopping. Further, he stated that through the resolutions, no directors have been actually appointed and as such the question of violations of the provisions of Section 263 does not arise. He also submitted that Henkel would ensure that the appointment of its nominees on the board of CCL would be in accordance with law and there will be no violation. He further submitted that, even assuming that there has been certain infirmity in the resolutions passed in the extraordinary general meeting, it does not mean that it is an act of oppression unless otherwise the petitioner is able to establish that there has been lack of probity as decided in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC).
30. We have considered the pleadings and arguments of counsel. Before we deal with the prayer for consolidation/amendment, we would like to record, as is evident from the petitions as well as from the arguments, that the main grievance of the petitioner is about the valuation of the shares and the petitioner has not put form any arguments that taking over of the company by Henkel is against the interest of CCL. It is also apparently clear that once a proper price as desired by him is paid for his shares, he would also sell his shares to Henkel. As far as the determination of price for the shares is concerned, it is on record that the petitioner knew pretty well, as he himself purchased a tender form, that the shares held by SWC comprised only one segment of the assets specified in group A and the offer of SWC was for the entire group and that the allocation of the consolidated amount offered for the group would be made by a reputed firm of chartered accountants.
This firm has allocated the sum of Rs. 39 crores offered by Henkel for the group A assets as follows : (Rs. in lakhs) equity shares--1,180 : Preference shares--2 : Ara-musk brand--17 : Distribution rights--1,773 and non-compete agreement--928 : total--3,900. The petitioner, questions the allocation of such substantial amounts towards distribution agreement and non-compete agreement on the ground that such allocation has suppressed the value of the equity shares and if Henkel were to offer the same value to other shareholders, then it would greatly prejudice the shareholders. As rightly pointed out by counsel for the respondents, the petitioner has not found fault with the price determined by M/s. Billimoria for the shares nor has he alleged that the valuation has been vitiated by some external influence. Moreover the price at which one sells the shares is of no concern of CCL, against which this petition has been filed. Under these circumstances, we shall refrain ourselves from expressing any opinion on the allocation made by M/s. Billimoria on different heads in group A especially when the arrangement between SWC and Henkel is a private one with which CCL is not concerned. In other words, our considering this issue is beyond the purview of the present petitions which have been filed against the affairs of CCL.
31. The next issue that we consider should be dealt with is the stand of the respondents that both the petitions do not disclose any cause of action. The term "cause of action" denotes an act or omission to do an act, occurrence or non-occurrence of an event and the like that lays the foundation for one to claim a right to seek remedy. May be that no relief can be granted in the facts of a claim, but one cannot be shut from making the claim. If we view the cause of action in these two petitions, as far as the affairs of CCL are concerned, in the first petition, it is the action of the board of CCL to call for the extraordinary general meeting to pass certain resolutions and in the second petition it is the passing of these resolutions by the general body. Thus there have been certain occurrences upon which the petitioner has certain grievances, for which he seeks reliefs in these petitions. Since the fact of occurrences of these events has been admitted, the petitions disclose cause of action. It is a different issue whether the cause of action gives rise to a claim of oppression and whether the same justifies winding up of the company on just and equitable ground. This issue has to be examined on the merits. Thus, we are not in a position to agree with the submissions of counsel for the respondents that the petitions do not disclose any cause of action.
32. Now about the prayer for consolidation/amendment. C. P. No. 33 of 1998 was filed on June 10, 1998, and C. P. No. 38 of 1998 was filed on July 9, 1998. The application for consolidation/amendment was filed on August 7, 1998. In the said application the main prayer is for consolidation of both the petitions and alternatively it has also been prayed that C. P. No. 33 of 1998 be amended in the manner indicated in C. P. No. 37 of 1998. In para. 3 of the application, the ground for consolidation/amendment is stated to be as follows : "The applicant states that on the last date of hearing, respondents Nos. 1, 11 and 20 filed separate applications challenging the maintainability of both the Company Petition No. 33 of 1998 and the instant petition. The applicant therefore states that the two petitions be consolidated and heard together so that the two petitions be heard and disposed of together.
The applicant states that the consolidation of the two petitions is necessary to decide the real controversy between the parties. Such consolidation will also clarify the disputes between the parties.
Alternatively, Company Petition No. 33 of 1998 be amended in the manner indicated in the instant company petition".
33. The very fact, that this application was filed much later after the second petition was filed and that as the petitioner himself avers in the application that the prayer for consolidation/amendment has been the off-shoot of the respondents' having filed applications challenging the maintainability of both the petitions shows that, at the time when the petitioner filed the second petition, he had no intention that the second petition was to be consolidated with the first petition, or that the second one was an amendment to the first petition. Thus, the prayer for consolidation/amendment is an afterthought. Under these circumstances, without going into the various case law cited by counsel for the petitioner in support of his prayer and the arguments of counsel for the respondents against this prayer, we have decided to treat both the petitions independent of each other.
34. As far as the first petition is concerned, as rightly pointed out by counsel for the respondents, most of the allegations are in relation to the arrangement between Henkel and SWC and not with reference to the affairs of CCL in respect of which this petition has been filed. The only allegation in respect of CCL is with regard to the proposed convening of the extraordinary general meeting and the petitioner's grievance with regard to the same is that he was feeling greatly insecure and oppressed being kept in the dark as to the arrangement between SWC and Henkel and the ground on which the petition has been filed as is evident from para. 5 and para. 6 at pages 35A and 36 is that the proposed extraordinary general meeting should be stayed till the disclosure regarding the arrangement is made. Even though there are further prayers in the petition for restraining CCL from registering the transfer of shares, inducting any of the nominees of Henkel into the board, investigation into the deal between SWC and Henkel, etc., not only has the petitioner not given any justifiable grounds to grant these prayers but some of them are beyond the purview of the Company Law Board, as they are not connected with the affairs of CCL. Even the prayer to permanently restrict CCL from holding extraordinary general meeting is based only on the allegations relating to the arrangement between SWC and Henkel. Even though during the arguments, at the time of seeking interim prayers, Shri Sarkar argued to state that the resolutions proposed in the extraordinary general meeting were against the provisions of Section 263 of the Act, yet no such pleading has been taken in the petition. Even in the event that we are not considering the various objections raised by counsel for the respondents that the first petition suffers from various legal infirmities as already recorded as a part of the arguments of counsel for the respondents, in view of the fact that the resolutions passed in the extraordinary general meeting which is the only allegation in respect of CCL and which has already been covered in the second petition, nothing survives as far as the first petition is concerned.
35. In the second petition, the resolutions carried through in the extraordinary general meeting have been assailed on two grounds which, according to the petitioner, result in acts of oppression against minority shareholders or/and constitute acts of mismanagement in the affairs of CCL. The first ground relates to alleged violations of the provisions of Section 263 of the Companies Act. According to the petitioner, by authorising the board to appoint the nominees of Henkel, the democratic right of the shareholders to appoint directors has been delegated to the board which is an act of grave oppression against the shareholders. These resolutions were admittedly passed in the extraordinary general meeting sought by SWC which holds about 55 per cent. shares in CCL. As per Section 169 of the Act, SWC is entitled to requisition an extraordinary general meeting and the company is bound to convene such a meeting within a stipulated time failing which the requisitionist himself/itself can convene the meeting and consider the resolutions proposed. In this case, SWC sought convening of such a meeting, even though not under Section 169, which the board of CCL agreed and accordingly the extraordinary general meeting was held. It is the prerogative of a requisitionist to propose whatever resolution he desires and it is for the general body to decide on the resolutions and unless otherwise the resolutions carried through are ultra vires the Act or the articles, the same are binding on the company. In the present case the gist of the first resolution is that the Henkel has been authorised to nominate such number of its nomi-nees as directors on the board of CCL to constitute majority of directors so as to confer control over CCL. The second resolution authorises the board of CCL to appoint the nominees of Henkel. There is a caveat in the first resolution that all the appointments of directors pursuant to such nomination were to be made in accordance with the provisions of the Companies Act. Keeping this in mind, if we examine the first resolution in terms of Section 263, which states that, through a single motion, more than one director cannot be appointed, we find that by this resolution which provides for appointment of the nominees of Henkel on the board of CCL so as to constitute majority of the directors, no appointment of any director has actually taken place. As rightly pointed out by counsel for the respondents, it is only an enabling provision to Henkel to nominate directors and since the caveat clearly provides that the provisions of the Companies Act will have to be followed in the appointment of the nominees of Henkel, as long as nothing has been shown that CCL has not followed the provisions of the Companies Act in the appointment of the nominees of Henkel, we consider that the action of the petitioner to challenge the resolution is premature. Therefore, the reliance of Shri Sarkar on Raghunath Swarup Mathur v. Raghuraj Bahadur Mathur [1967] 37 Comp Cas 304 (All) in which case, through a single resolution, four directors were appointed by name for a period of three years, is not relevant in the present case before us.
36. Shri Sarkar also raised an issue regarding the concept of "nomination" of directors, a concept which is not provided either in the articles or in the Act and as such, he submitted that, the resolutions should be declared as invalid. He referred to the provisions in the Acts constituting certain financial institutions in which there is a provision for nomination of directors on the board of a company. It should be borne in mind that in case of financial institution nominees, they are to be appointed as such and neither the board nor the general body has any say in the appointment of such nominees. But, in the present case, the nominees of Henkel are to be appointed in accordance with the provisions of the Companies Act. Shri Sarkar elaborately dealt with the provisions relating to appointment of directors in terms of the provisions of the Companies Act. While the board has the power to appoint additional directors and is authorised to fill up casual vacancies, it is the prerogative of the general body to appoint directors on a regular measure. Even the additional directors can hold office only up to the next general body meeting.
These stipulations are not applicable in the case of nominees of the financial institutions. In other words, the term "nominee" as used in the resolutions will have to be differentiated with the usage of the term "nominee" as is used with reference to nominees of the financial institutions in view of the caveat. Perhaps, because of the caveat as stipulated in the resolution that the appointments are to be made in accordance with the provisions of the Companies Act, the word "nominees" will have to be interpreted as "persons proposed".
Therefore, we feel that, just because the word "nominee" has been used in the resolutions, it cannot be construed the resolutions are in violation of the articles or the Act.
37. Shri Sarkar also, relying on Alfred A James v. William E [1973] 4 English and Irish Appeals 335 and 4 Ch. App 682 submitted that a private agreement between two parties on appointment of directors is not valid, as, in the present case SWC and Henkel have agreed among themselves to change the composition of the board of directors. In the first case, the directors of two contracting companies, viz., C and W entered into an agreement by which C was to carry out certain works for W. The agreement also provided that C would induct three of its directors on the board of W with immediate effect and that a fourth director would be appointed on the happening of certain events. The Court of Appeal held the agreement to appoint directors invalid on the ground that it is the general body which has, according to the Companies Act, the power to appoint the directors (Lord Chelmsford) and that by being in the board of W, the directors of C would be in a position to influence the contract to be executed by C, which is against all principles (Lord Cairns). In the second case, in an agreement for amalgamation it had been provided that the board of the amalgamated company would consist of five directors of the purchasing company and seven of the selling company. The articles of the purchasing company provided that any agreement relating to amalgamation was to be ratified by the general body. However, without the agreement so ratified, directors, as agreed between the parties were appointed and as such, the Court of Appeal declared the appointments as invalid.
In the present case before us, the resolution specifically provides that the appointments are to be made in accordance with the provisions of the Act, and that the Regulations specifically prohibit the directors of the acquirer, if on the board of the target company, from participating in the decisions of that company in relation to the public offer. Therefore, we are of the view that the decisions cited by Shri Sarkar are not applicable to the facts of this case.
38. Therefore, we are of the view that there are no legal infirmities in passing the first resolution either in terms of the articles or the provisions of the Companies Act as we consider that this resolution is only an enabling resolution. Unless the board of directors acts upon the same without following the provisions of the Act in implementing the resolution, we do not think that the passing of this resolution could be declared as invalid. In this connection, we specifically asked counsel for the respondents as to whether without passing this resolution in the extraordinary general meeting, the board could have appointed the persons proposed by Henkel as additional directors as per Section 260 of the Act, he fairly submitted that it could have been done but both SWC and Henkel desired absolute transparency in this matter and accordingly brought forward for consideration of the general body, this resolution. Had the board of CCL appointed the nominees as additional directors, the petitioner could not have claimed any legal infirmities. As far as the second resolution is concerned, this has to be subordinate to the first one according to which all appointments will have to be in accordance with the provisions of the Act, without complying with the same, the second resolution cannot be acted upon.
39. The other grievance of the petitioner is that the resolution vesting the majority of the board to Henkel is in violation of the provisions of the Regulations. Arguments were advanced by counsel for the respondents that the Company Law Board should not look into this grievance for reasons already recorded as a part of their arguments, and Shri Sarkar's submission was that the Company Law Board has the jurisdiction to adjudicate on this grievance. Counsel for the respondents relied on Premier Automobiles Ltd. v. Kamlakar Shantaram Wadke, AIR 1975 SC 2238 ; [1976] 1 SCC 496 and Sitaram Jaipuria v.Banwarilal Jaipuria AIR 1972 Cal 105, to state that when a statute creates certain rights and liabilities and also provides a particular remedy for enforcement, then the jurisdiction of the civil court is barred. This proposition holds good in cases where the claim before the civil court is for enforcement of a remedy in terms of the statute which has created the rights and liabilities. M. R. Goyal v. Usha International Ltd. [1998] 93 Comp Cas 634 (Delhi) cited by Shri Dhond, however deals with a suit wherein, the allegation was that the respondent-company had not complied with the provisions of Section 173 of the Act and also the requirements of the regulations in convening an extraordinary general meeting to consider preferential issue to the promoters and as such sought for restraining the holding of the extraordinary general meeting as an interim relief. The learned judge of the Delhi High Court observed (p. 642) : "In my opinion too, prima facie it appears that in view of the provisions contained in Section 15Y and Section 20A of the SEBI Act the jurisdiction of the civil court in the present proceedings appears to be barred. However, since this court is not dealing with the matter finally and at this stage is only dealing with interlocutory applications filed by both the parties, no final view on the above point is being expressed by this court and only a tentative view on the basis of submissions made by learned counsel for both the parties is being expressed ... for the purposes of disposal of the ... two applications . . .". In other words, there is no categorical finding that in a matter covered under the Regulations, the civil court has no jurisdiction. The petition before us has been filed under Section 397/398 and violation of the provisions of the Regulations has been alleged with the grievance that such violation would be an act of oppression against the shareholders. In a petition under Section 397/398 of the Act, the Company Law Board has the power to pass such order as it thinks fit to bring to an end the matters complained of or prevent the matters complained of or apprehended. To pass any such order, unless and otherwise the Company Law Board examines the issues before it, it cannot form an opinion on the allegations made. The examination of the issue would be for forming a prima facie opinion with reference to the reliefs to be granted in terms of Section 402 of the Act, and not for enforcing a right that may have been provided in the regulations or for giving a final and binding decision on the issue. Therefore, we are of the view that in a Section 397/398 petition, the violation of any law/regulations can be gone into for the purposes of moulding relief under Section 402 of the Act.
40. In the present case, the allegations in regard to the regulations are, that the respondents have misinterpreted the proviso to regulation 12 to induct the nominees of Henkel on to the board of CCL and that Henkel has also failed to comply with the requirements of the Regulations by not having made a public announcement. Regulation 12 reads as follows : "Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over a company, unless such persons make a public announcement to acquire shares and acquire such shares in accordance with the Regulations : Provided that nothing contained herein shall apply to any change which takes place in pursuance of a resolution passed by the shareholders in a general meeting." 41. 'Control' has been defined in Section 2(l)(a) of the Regulations to include the right to appoint majority of the directors. In getting the resolutions passed, Henkel would be in a position to gain control of the company, once its nominees are appointed as directors. Therefore, in line with regulation 14(3), Henkel would have been bound to make a public announcement but in view of the right having been conferred by the general body, by virtue of the proviso, which says that nothing contained herein shall apply if the control is in pursuance of a resolution passed in a general, meeting, a strict interpretation would mean that Henkel is not bound to make a public announcement. Any way this has become academic as Henkel has made a categorical statement that it would make a public offer as soon as final decision to acquire or agreement is made in terms of the Regulations. In other words, Henkel is not taking shelter under the proviso to avoid making a public announcement. Even otherwise, when the provisions of the Regulations, which the petitioner alleges, have been violated, themselves provide for a gateway to get an exemption from public announcement, we do not think that resorting to such a gateway could be challenged. In view of this, we may be right in not further examining the alleged failure to adhere to the time limit prescribed for making a public announcement, but since elaborate arguments were advanced, we shall deal with the same.
42. Regarding the timing of making the public announcement to acquire shares, according to the petitioner, Henkel should have made the public announcement in terms of regulation 14 which reads as follows : "14. (1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein .....
(3) The public announcement referred to in regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer." 43. Sub-regulation (1) contemplates two situations in computing four days for making the public announcement in terms of regulations 10 and 11. (Since Henkel is acquiring more than 51 per cent. shares, the provisions of regulation 11(2) are applicable). One is--entering into an agreement and the other is--deciding to acquire. Perhaps the first relates to a friendly acquisition and the second to a hostile acquisition. In case there is an agreement, there would be no difficulty in computing the time limit of four days from the date of the agreement. However, even if there is an agreement, the same has to be preceded by a decision to acquire as no agreement can come into being without a prior decision. It is always difficult, if not impossible, to pinpoint the time at which one decides to acquire shares for the purposes of computing the four days as it is purely a state of mind, unless there is a perceivable overt act by the acquirer. In the present case, in the facts of the case, it is much more difficult to pinpoint the time when Henkel decided to acquire the shares. Is it when it bought the tender documents or when it submitted its offer, or when it was declared as the winning bidder, or when it deposited 10 per cent. of the bid money Further, since the entire process was subject to the approval of the Company Law Board and the High Court, can we say that the four days time limit started when the High Court gave its approval In this connection, it is necessary to refer to the explanatory statement enclosed with the notice for the extraordinary general meeting wherein it is stated "After completion of legal due diligence and on obtaining the clearance order from Calcutta High Court and other statutory clearances, HSI may consider the proposal to proceed with the acquisition of shares". Thus, when acquisition of shares is subject to various clearances, to put a cap on the time limit with reference to "deciding to acquire", we are of the opinion, would only throw up disputes as in the present case. In the present case, even after depositing 10 per cent. of the bid money and getting certain approvals, Henkel states that it is yet to decide on the acquisition as is evident from the explanatory statement. Shri Sarkar raised an argument as to how, when Henkel is yet to decide on the acquisition, the control of the company could be handed over to it and how a non-shareholder could have majority in the board. We feel that the answer is available in regulation 12 itself, according to which even without acquisition of shares or voting rights, acquisition of control over a company has been envisaged. Further, we also note that no share qualification has been stipulated in the articles for a director. In regard to computing four days from entering into agreement, nothing has been placed on record to show that in addition to the tender and the offer made by Henkel, there is any agreement between SWC and Henkel.
44. Therefore, in view of the indefiniteness in the provisions relating to "deciding to acquire" in Regulation 14(1) and in the absence of any agreement on record and in view of the peculiarities in the case, we do not propose to express any opinion on whether Henkel has violated the provisions of regulation 14(1).
45. Regulation 14(3) stipulates that public announcement is to be made not later than four working days after any changes are decided to be made as would result in the acquisition of control over the target company. Here again, the timing of whose decision from which the time limit is to be computed, whether the decision of the acquirer to acquire control over the company or the decision of the present management to hand over the control, is not clear. In this sub-regulation there is no mention of any agreement, unlike in Sub-regulation (1). As far as this issue is concerned, since the general body route, as provided in the proviso to regulation, has been adopted, by which public offer has been dispensed with, we feel no opinion is necessary to be offered. However, we note that Henkel has undertaken to make the public offer and in terms of regulation 20(2), Henkel is bound to offer the same price of Rs. 269 at which M/s.
Billimoria has valued the shares held by SWC since it is much higher than the quoted price of the share.
46. Another argument was advanced by Shri Sarkar, relating to the obligations of CCL and the fiduciary duties of the directors that they should conform to the requirements of the Regulations. He referred to regulations 22(7), 22(9) and 23(3). The provisions of regulations 22 and 23 come into operation only when a public announcement is made and in the present case, no public announcement has yet been made.
Therefore, the question of conforming to these regulations does not arise.
47. Having dealt with the two grounds raised in the second petition on the resolutions passed in the extraordinary general meeting, we shall now examine, notwithstanding our finding that the resolutions passed in the extraordinary general meeting do not suffer from legal infirmities and that regulation 14(3) is not applicable in the facts of this case, whether passing of these resolutions could be termed as an act of oppression against the petitioner. In Needle Industries (India) Ltd. v.Needle Industries Newey (India) Holding ltd. [1981] 51 Comp Cas 743, the Supreme Court has held that illegal acts need not be oppressive and even legal acts could be oppressive. Therefore, in this case, even assuming that the resolutions passed in the extraordinary general meeting are in violation of the provisions of the Act or the Regulations, whether the same could be termed as oppression. The resolutions authorise Henkel to acquire control of CCL by which SWC would lose control. The attempt by SWC to hive off its controlling interest in CCL for quite some time is known to every one, more particularly the petitioner. As a matter of fact, in the MOU that he entered into with Henkel earlier, there is a specific mention that acquisition of his share by Henkel was subject to its acquisition of shares held by SWC. (Clause 2.3 of the MoU), SWC is in dire need of funds and the bona fides of its desire to sell its shares is not questionable. To get the best price for its interest in CCL it had issued a public notice and as per the information available there were two bidders and Henkel became the winner. As we have already pointed out, SWC being qualified in terms of Section 169 could always requisition an extraordinary general meeting and could get any resolution passed as it has more than 50 per cent. shares. When it has decided to hive off its shares, naturally its control over CCL has to cease. Nowhere has it been alleged that, its desire to hive off its shares is with a view to oppress the minority shareholders. Its decision to hive off its shares, as has been established in more than one forum is because of its needs for funds. In a petition under Section 397, the petitioner should be in a position to show that the majority shareholders are oppressing the minority shareholders. Sale of one's shares to an outsider for bona fide purposes, even if the shares constitute the majority percentage, can never be termed as oppressive, as long as there is no pre-emptive clause in the articles in favour of the other shareholders. In the articles of CCL, there is no such pre-emptive clause. As we have pointed out earlier, the grievances of the petitioner are about the price computed for the shares, which is a private arrangement between SWC and Henkel and has nothing to do with the affairs of CCL and, therefore, even if we assume that the petitioner's grievance relating to the value of the shares is valid, the same cannot be an act of oppression in the affairs of CCL.
49. Supposing that we are wrong in our conclusion that no act of oppression has been established in the affairs of CCL, let us examine whether the acts complained of justify winding up of the company under just and equitable grounds. Counsel for the respondents cited some cases to stress that a profitable company cannot be wound up on just and equitable grounds. This proposition cannot hold in all circumstances. If it is established, in the facts of a case that partnership principles should be applied, or that there is a deadlock in the management, even a profitable company can be wound up on just and equitable grounds. In the present case, even though the petitioner has averred in para. 4 of the second petition that the affairs of the company are being conducted on mutual trust between the petitioner and SWC, he has not invoked the principles of partnership, which, of course, he cannot do, in view of the company being a public listed company, he has not shown that there is a deadlock in the management.
Whether SWC is in control or Henkel, the petitioner can always have two of his nominees as directors on the board by virtue of Article 100 and nowhere has the petitioner alleged that it would not be in the interest of the company if Henkel takes over the management. In other words, we are not satisfied that the acts complained of justify the making of a winding up order on just and equitable grounds.
50. In fine, we conclude, that, in view of the averments in the second petition, the first petition has become infructuous, that in passing the impugned resolutions, there has been no violation of the provisions of either the Act or the Regulations, and that the passing of the resolutions cannot be termed as an act of oppression and that the acts complained of do not justify making an order of winding up on just and equitable grounds.
51. Accordingly both the petitions are dismissed and interim orders vacated. No order as to costs.