1. The second petitioner holding 51.82 per cent shares in M/s Ultrafilter (India) Private Limited ("the Company") has filed this petition alleging acts of oppression and mismanagement against the respondent holding 26 per cent shares in the Company. The facts of this case are that this Company was incorporated by the first petitioner in December, 1985 for manufacture of filter equipment. The Company and the respondent entered into a 'Technical Collaboration Agreement' on 17^th February, 1986 by which the respondent was to provide technical know how and assistance for manufacture of industrial filters by the Company. Thereafter a 'Shareholders Partnership Agreement' was entered into between the respondent and the second petitioner by which the respondent was to subscribe to 26 per cent shares in the Company for a sum of Rs. 7.8 lakhs. This agreement also provide that the Company would enter into a 'Name Protection Agreement' a 'Distributor Agreement', a 'Trade Mark Registered User Agreement' It also provided for amendment to the Articles of the Company. Pursuant to this agreement, Articles were amended providing for requirement of special resolution on certain matters, appointment of one-third of the directors by the respondent, requirement of affirmative votes by the nominees of the respondent in the board meeting on certain matters, providing for quorum only in the presence of at least one nominee of the respondent in the Board meeting. The respondent acquired 26 per cent of the shares in the Company. While 'Distributors Agreement' was entered into, the other two agreements, namely, 'Name Protection Agreement' and 'Trade Mark Registered User Agreement' were not entered into. The 'Technical Collaboration Agreement' provided for expiry of the agreement by 16.02.1991 with a provision for premature termination by either of the parties. The Company started manufacturing ultrafilter int he name and style of "Ultrafilter" which is a trade mark of the respondent. Since the concept of using ultrafilter developed gradually into the use of filters along with dryers, the Company started manufacturing Dessicant type dryers to be sold along with the filters manufactured by it. As far as the other type - Fridge Dryers are concerned, they were being imported. For the purposes of selecting a suitable fridge dryer, the Company consulted the respondent and on its recommendation, the Company started importing Fruilair dryers of Italy for being sold along with the filters manufactured by the Company. A competitive dryer manufactured by Sabore was being marketed by one M/s Pace Equipment, Bombay. Thus there was a competition between the Company using its own filter along with Sabroe dryers. In the meanwhile, the respondent acquired M/s Sabroe. The respondent also evinced interest in acquiring controlling interest in the Company and certain negotiations had been taking place between the parties, but without any fruitful result. By a letter dated 20^th October, 1997 (Annexure-17) the respondent advised the Company that the 'Technical Collaboration Agreement' had come to an end on 16^th February, 1991 and as such Company should not use the word "Ultrafilter" in any of the products manufactured by the Company under the 'Technical Collaboration Agreement'. Through this letter, the respondent also issued a notice of termination of 'Trade Mark Registered User Agreement' as on 1st December, 1998. Thereafter, certain negotiations had been going on between the parties without any fruitful results and hence this petition has been filed by the petitioner seeking to restrain the respondent from interfering with the affairs of the Company, restraining the respondent from any act which would be in competition directly or indirectly with the business of the Company, restraining the respondents for claiming any right or do any business in India under the name and style of "Ultrafilter" either as a trade mark as a part of corporate name in India and also for deletion of the Articles which were inserted by virtue of the Shareholders Agreement.
2. Shri Raghavan, Advocate appearing for the petitioners submitted that the relationship between the second petitioner and the respondent is in the nature of a partnership and it is not a relationship between a shareholder and a shareholder. Since the Company is in the nature of a partnership, each partner owes a higher degree of duty not only to the other partner but also to the Company. Only by piercing the corporate veil, the real relationship between the parties would emerge and it will show that the association between the petitioner and the respondent is nothing but a pure partnership. this being the case, neither in law nor in equity, a partner can commence or carry on competing business with the Company. Even the title of the Agreement between the parties at Annexure A-4 is styled as 'Shareholders Partnership Agreement'. A reference to Annexure R-13 would indicate that even while considering amendment to the Articles, the stand taken by the respondent was that its interest should be protected as a partner in the joint venture company. All these facts would squarely indicate that the principles of partnership be applied in deciding the disputes between the parties in the present petition. He further argued that having successfully implemented the project and finding that the Company was doing well, the respondent decided to gain control of the Company by seeking to increase its shares to 51 per cent as is evident from Annexure R-1, wherein a threat had been given to the second petitioner that in case the respondent is not allowed to increase its share of 51 per cent, it would be constrained to form a new company to manufacture the products presently manufactured by the Company. Since the second petitioner was not inclined to agree for increasing the shareholding percentage of the respondent, it has started putting spokes in the functioning of the Company. One way of doing was to force the Company to sell Sabroe dryers along with filters manufactured by the Company. This is notwithstanding the fact that M/s Pace Equipment who are competitors to the Company is having collaboration with M/s Sabroe. Unfortunately, since the respondent has acquired M/s Sabroe, it has started supporting Pace not only in spirit, but also in deed as conveyed in its letter at Annexure A-13. The respondent being a partner should be more interested in the better performance of the Company than supporting M/s Pace Equipment with which the respondent does not have any capital commitment. This will be in complete violation of the fiduciary duties that the respondent owes to the Company and the shareholders. As a matter of fact, the respondent even cautioned the second petitioner not to compete with Pace Equipment in taking part in tenders as is evident from Annexure A-15. The second petitioner vide his letter dated 23^rd October, 1997 (Annexure A-18) brought to the notice of the respondent that the Company started marketing Friulair dryers only on the recommendation of the respondent and that since Sabroe dryer was very expensive it would not be in a position to market the dryer. However, with a view to put an end to the statement, the second petitioner wrote a letter to the respondent on 20^th November, 1997 (Annexure A-21) suggesting that while the Company would market filters along with Sabroe dryers, the Pace Equipment should also market only the filter manufactured by the Company along with Sabroe dryers.
This suggestion was not acceptable to the respondent. Instead the respondent informed the second petitioner by its letter dated 19^th May, 1998 (Annexure A-22) that it would establish, in India, a strong "Ultrafilter made in Germany" by 1st January, 1999, whatever effort and cost it may take. Thus, it is very clear that the respondent is more interested in furthering its own interest rather than the interest of the Company. Under these circumstances, the second petitioner wrote a letter to the respondent bringing out the various acts of dereliction of fiduciary duties by the respondents and suggested that to put an end to the disputes the petitioner would be willing to purchase the shares held by the respondent on a value to be determined in terms of Article 10(g) of the Articles of Association of the Company. However, the respondent was not agreeable to this suggestion.
3. Though the parties have resolved to end the controversy at the Board meeting held on 12.10.98, the respondent started to enter into competition with the Company. The respondent by its letter dated 20.10.98 (Annexure A-25) has clearly expressed its intention to establish its own subsidiary in India so as to market its products including filters made in Germany. This act of the respondent, according to Shri Raghavan is contrary to its obligations of good faith and fair dealings and not justified by a partner. He pointed out that the dispute in relation to trade mark issue is the subject matter of a civil suit at Bangalore. In spite of the interim order passed by the CLB, the respondent caused advertisements inviting distributors in India for its products. Shri Raghavan emphasised that the conduct of the respondent in having business dealings with a competitor of the Company, insisting the Company to promote the business of the competitor and persuading the customers of the Company not to have business dealings with the Company are harsh, wrongful and burdensome acts of oppression by the respondent and attracting the provisions of 397/398. He further emphasised that the respondent should not pursue its business in competition with the Company, unless it ceases to be a member of the Company. Shri Raghavan, has, therefore, sought for the reliefs sought in the petition. Shri Raghavan, in support of his above contentions, relied on the following decisions:- (i) In Re: London School of Electronics Limited -- (1985) BCLC 273 - "While granting the remedy in favour of the petitioners against oppression of minority shareholders, the Court ordered purchase of shares by the petitioner for the value as of the date of the presentation of the petition." (ii) Boyle & Birds' Company Law III Edition -- "There is a school of thought that the Courts should regard their jurisdiction under Section 459 (corresponding to Section 397 of the Indian law) in the widest possible way, but that they should preserve a unfettered discretion in deciding, in particular cases, whether the interests of a petitioning member have in fact being unfairly prejudiced. In a quasi-partnership type company, the Court may take account of legitimate expectations of members." (iii) Scottish Co-operative Wholesale Society Ltd. v. Meyer and Anr.
-- (1959) XXIX CC 1 - "The Court will grant appropriate remedies when the affairs of the Company are conducted in a manner oppressive to the members, if the Court is of the opinion-- (a) that the company's affairs are being conducted as aforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that is was just and reasonable that the company should be wound up, the court may, with a view to bringing to an end the matters complained of, make such order as it things fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company, or by the company, and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise." (iv) Jaldu Anantha Raghurama Arya v. East Coast Transport and Shipping Co. (Private) Ltd. - (1958) XXVII CC 20 -- "The Court came to the conclusion that it was just and equitable to wind up the Company in view of the fact that one of the shareholders was actively engaged in promoting interests of a firm which was conducting a similar rival business." (v) Lindley on Partnership (14^th Edition) -- "The utmost good faith is due from every member of a partnership towards every other member; and if any dispute arises between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour."Needle Industries (Indian) Ltd. v. Needle Industries Newey (India) (vii) In Re Elgindata Ltd.: [1991] BCLC 595 -- "In general members of a company have no legitimate expectations going beyond the legal rights conferred on them by the constitution of the Company, i.e., to say its memorandum and Articles of Association. Nonetheless legitimate expectations super imposed on a member's legal rights may arise from agreements or understandings between the members.
(viii) Re a company (No. 005685 of 1988), ex parte Schwarez (No. 2) and Re a company (No. 002015 of 1996) "The Court will grant appropriate reliefs where an abuse of the rules was established on the fats and the court would exercise its discretion to make what order it thought was fair and just in all the circumstances of the case." (ix) Chander Kishan Gupta v. Mannalal Giridhar Lal (1984 55 CC 702) -- It has been held that the affairs of the Company must be carried on in a manner which would held the Company prosper. The infighting among the directors would adversely affect the company's business.
This would attract Section 398.Atmaram Modi v. ECL Agrotech (1999 98 CC 463) it is held that a partner should not carry on any business in competition with the firm. In the course of business of a partnership, a partner is entitled to have certain legitimate exceptions as has been held in Elgindata Ltd. (1991 BCLC 959) and Re a Company (1997 2 BCLC 1).
(xi) The Partnership Act, 1932 provides that a partner has a duty to carry on the business of a firm to its common advantage and if a partner carries on the same nature of business shall account for the profits made by him in such business.
(xii) Yendije's case, 1916 2 Ch 426 - "If a private Company could be fairly called a partnership in the guise of a private Company then the things which might be a ground for dissolution of a partnership will apply also in the case of a private Company and that in this connection deadlock will not be material." 4. Shri S.S. Naganand, Advocate appearing for the respondent submitted: Even though the complaints of the petitioner relate to trade mark, attempt of the respondent to gain control of the Company, allegation of carrying on competing business in India and termination of the 'Technical Collaboration Agreement' etc. the real issue is regarding use of the trade name and mark "Ultrafilter" by the Company. In regard to this the respondent has already initiated a civil suit in OS 54 of 1999 in Bangalore. Therefore, no effective decision in this controversial issue could be given by the CLB.5. On merits of the case, he submitted: As far as the complaint of the second petitioner regarding attempt of the respondent to gain control of the Company is concerned, it is to be noted that the increase in the shareholding was being discussed between the parties right from 1992.
As a matter of fact a telex sent by the second petitioner to the respondent on 1.3.92 reads: "I am pleased to inform you that we are agreeable to give you 51 per cent shareholding in Ultrafilter (India) Private Limited generally in accordance with the terms agreed to on 21.02.92. Later he informed the respondent that due to difference of opinion among his family members he could not take further action in increasing the share capital of the respondent. Therefore, it is wrong to suggest that the respondent, on its own, tried to force the petitioner to offer 51 per cent shares in the Company. A reference to the letter of the respondent dated 20.04.1993 (Annexure R-41) would indicate that the intention of the respondent even after getting 51 per cent shares in the Company was to continue as a partner with the second petitioner with a common objective rather than being a competitor. The letter at Annexure A-17 is not a threat given to the second petitioner, but with a view to promote the Company with a higher shareholding.
Therefore, the allegation that in view of the second petitioner refusing to allow the respondent to acquire 51 per cent shares has caused the termination of the agreements, is not correct.
6. In regard to the allegation that the respondent has started competing with the business of the Company is concerned, a perusal of the sequence of events would show that the second petitioner has been adamant, without any justification in not selling Sabroe dryers with the filters manufactured by the Company. Since even though the respondent suggested Friulair dryers earlier, since it had acquired Sabroe, it advised the second petitioner to market these dryers along with the filters manufactured by the Company. The second petitioner had not adduced any reason as to why this proposal could not be accepted.
Further, seeking the Company to market a product could never be considered to be competing business of the Company since the respondent has not sought the Company to market filters produced in Germany, in which case, the second petitioner could have a grievance. Further, the second petitioner never brought this issue before the Board, as it is for the Board to decide, taking into consideration the available source for dryers and take a commercial decision on the basis of the viability. Instead, without bringing the matter before the Board, the second petitioner has been acting on his own to decide as to which dryers should be used with the filters manufactured by the Company.
Therefore, there is no basis for this allegation that the respondent is competing with the business of the Company and thus acted in breach of its fiduciary duties.
7. As far as termination of the agreement is concerned, Shri Naganand submitted: The 'Technical Collaboration Agreement' entered into on 17^th February, 1986 had a currency of only five years. Further the agreement also provides for termination of the agreement by giving 90 days notice. Therefore, the currency of the terms of this agreement came to an end in 1991. The petitioner never questioned the terms of agreement till this petition was filed. As a matter of fact, when the 'Name Protection Agreement' was terminated by the letter dated 20^th October, 1997, the second petitioner never questioned this in his letter dated 23^rd October 1997 (Annexure A-18). This has been challenged only in the petition. Further, the second petitioner himself has started another company to manufacture filters which are presently manufactured by the Company and as such it is the second petitioner who has acted in breach of his fiduciary duties to the Company. Presently, after the dispute started, the respondent has started manufacturing filters but not those which are being manufactured by the Company.
8. In regard to the claim of the petitioners that the Company is in the nature of a quasi partnership, Shri Naganand submitted that this principle is to be applied only in case of dissolution of a partnership and not to a Company. In the present case, just to get out of contractual obligation, the petitioner had filed this petition involving the principles of partnership when the respondent had acted in terms of the contract, such exercise can never be oppressive to a shareholder. Even though, the petitioner has contended that the respondent has veto powers in terms of Articles, yet so far the respondent has not used the veto power. None of the cases cited by the learned counsel for the petitioner in relation to application of partnership principles could apply in the present case since the respondent being in minority could never oppress a majority shareholder who is actually in control of the Company. In Kilpest Private Limited v. Shekhar Mehra (1996 87 SC 615), the Supreme Court has held that the principles of partnership can be invoked only in rare cases and the Delhi High Court in Smt. Abnash Kaur v. Lord Krishna Sugar Mills Limited (1974 44 CC 391) has held that the principles of partnership could be applied only in cases of deadlock. The Gujarat High Court also in Re: Atul Drug House Limited (1971 41 CC 352) has held likewise. In the present case, the petitioner has not either averred or established that there had been deadlock in the management of the Company.
9. Shri Naganand has also submitted that in deciding a Section 397 petition, the conduct of the parties has also to be taken into account.
It was the petitioner who agreed for 51 per cent shares for the respondent, yet when the respondent sought for increasing the shareholding, the petitioner has sought to make a complaint of the same in the petition. Since the relief under Section 397 is equitable in nature, the conduct of the parties are also to be taken into account as held in Srikanta Dutta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprise (Pvt.) Ltd. (1991 71 CC 211 Karnataka). On the same proposition he also relied on Jagannath Gupta & Company Private Limited v. Mulchand Gupta (39 CC 262).
10. He pointed out that the second petitioner holds majority shares in the Company and therefore he should have settled the dispute in the domestic forum rather than coming before the CLB. In regard to Trade Mark, he referred to the decision of Delhi High Court Baker Hughes Limited v. Hiroo Khushalani (1998 PTC (18) Delhi). In that case, as per the agreement, the Trade Mark could be used only as long as the petitioner held 40 per cent shares in the Company. When the petitioner had reduced its shareholding below 40 per cent and when the Company continued to use the trade mark, the Delhi High Court granted injunction against using the trade mark by the Company. In the present case, since the agreement stands terminated and has come to and end, the petitioner cannot use the trade mark "Ultrafilter" in any of its product.
11. Summing up his arguments, Shri Naganand submitted that the petitioners have not made out any ground which would justify the winding up of the Company on just and equitable grounds, which is a mandatory in the light of the decision of Apex Court in Anuman Prasad Bagri case -- 2001 (105) CC 493. The petitioner being majority shareholder cannot invoke any remedy under Section 397/398, especially when the remedies are available only to the minority shareholders. In this connection, he referred to the decision of Delhi High Court in Suresh Kumar Sanghi v. Supreme Motors Ltd. -- (1983) 54 CC 235. He further referred to various decisions where right of majority to apply under Section 397/398 has been recognised, which according to him are not applicable to the facts of the present petition. He further submitted that the petition is bad for non-joinder of necessary parties, namely M/s Pace Equipment and Sabroe. The respondent called upon the petitioners by its letter dated 20.10.97 not use the name "ultra filter" whereas the petition has been filed in October, 1998.
The petition has been filed after a delay of one year of notice of termination issued by the respondent. He further pointed that the petitioners deliberately fudged the Articles of Association omitting recitals having bearing on the petition, which disentitles the petitioners who claim equitable remedy before the Company Law Board.
Shri Naganand pointed out that the petitioners have not proved any act of oppression by the respondent. According to him, no act of oppression has either be alleged or proved. The only controversy is in regard to the use of trade name "ultra filter" in respect of which a civil suit is already pending. He further pointed out that there is no mismanagement alleged against the respondent. Moreover, the second petitioner and his group holding majority of shares are in the management of the Company. The action of respondent in having terminated the "Name Protection Agreement" cannot be construed as an act of oppression or mismanagement. The respondent exercised his right envisaged in the "Name Protection Agreement". Merely because the Name Protection Agreement has not been signed, it cannot be construed that there has been no concluded contract as has been held in AIR 1968 SC 1028 -- Kallipora Sriramulu v. Aiswatha Narayana. Further, there is no prohibition on the part of a director to compete with the business of the Company for which he placed reliance on the decision of the Court of Chancery in England in London and Mashoraland Exploration Co. Ltd. reported in (1891) WN 165. He further referred to Article 4.1 of the Shareholder Partnership Agreement which only regulates the transfer of shares held by the respective shareholders. Articles do not restrain the shareholders from carrying on competing business in India. Even otherwise such an agreement cannot be enforced by virtue of Section 27 of the Indian Contract Act. He, therefore, sought for dismissal of the petition.
12. In his reply, Shri Raghavan submitted that Article 43 of the Articles of Association refers only to the "Shareholder Agreement" which was entered into on 16^th October, 1986 and not to the "Name Protection Agreement" entered into on 17^th February, 1986. Therefore, as o]long as the 'Shareholders Agreement" is not terminated, the Company can continue to use the trade mark "Ultrafilter". He also pointed out that as per the recent Government Guidelines, no foreign collaborator can start a competing business against the joint-venture company without government approval and that too without the consent of the Indian partner. Therefore, as long as the 'Shareholders Agreement' continues, the respondent cannot start any competing business in India.
In regard to the contention that partnership principles can be applied only incase of a deadlock, Shri Raghavan pointed out that in Needle Industries case, the Court has held that a partnership can be dissolved once it is established that there is a breach of utmost good faith by a partner. Therefore, when a company is established based on mutual trust and confidence, which is breached, then the principles of partnership could be applied. In regard to the decision of the Supreme Court in Bagress Cereals Private Limited case cited by the Counsel for the respondents, Shri Raghavan submitted that in Needle Industries case (AIR 1981 SC 1298) which was decided by a three-judge Bench, at paragraph 171, it was held that even if acts of oppression are not established such technicality cannot be permitted to defeat the exercise of equitable jurisdiction conferred by Section 397. Therefore, the decision in Bagress Cereals by a division bench cannot over rule a decision of a three-judge bench and therefore the principle of share decision would be applicable . Further, in the present case, the petitioner has clearly established acts of oppression and therefore, the Company Law Board can, in exercise of its equitable jurisdiction, pass appropriate orders to put an end to the acts of oppression complained of.
13. We have considered the pleadings and arguments of the Counsel. This is a peculiar case wherein the Company itself has been arrayed as a petitioner. In terms of Sections 397/398, it is only the members fulfilling the requirements of Section 399 have the right to allege oppression and mismanagement and the Company can never file a petition in terms of these Sections. As a matter of fact, we also find that there is a no board resolution authorizing the Company to file this petition. Therefore, we are considering this petition as one filed by the second petitioner alone.
14. The petitioner has invoked the principles of partnership to advance his case of oppression and mismanagement in the affairs of the Company.
There is no readymade yardstick to determine as to when a company could be considered to be in the nature of a partnership. Normally, when two or more persons join together to form a company, the presumption is that they have agreed to abide by the discipline applicable to a company in terms of the provisions of the Act and the Articles and very rarely the principles of partnership could be applied as has been held by the Apex Court in Kilpest case (supra). The learned Counsel for the respondent submitted that deadlock is one of the important criteria to consider a company as that of a partnership. In Vijay Kishan Jaitka v.Jaitka Motor Company Limited (1977) 1 CLJ 268, this Board, after examining various cases, came to the conclusion that to treated a company as that of a partnership, there is no need for equality in shareholding, deadlock etc. These aspects were also considered by this Board in Deepak Mehta v. Shree Anupur Chemicals Private Limited case and it was held that if the facts and circumstances would show, on piercing the corporate veil, that the real structure of a company is that of a partnership, then the principles applicable to dissolution of partnership could be applied in case of a company also. This Board has been taking a view that in closely held family companies where there are a few identical groups of shareholders with a right to participate in the management, the principles of partnership could be applied. In the present case, admittedly there are only two groups of shareholders and both have joint management in terms of the Articles. As a mater of fact, even though the respondent holding only 26% shares is in the minority, it has veto powers in the board meetings. Further, as rightly pointed out by Shri Raghavan, even the shareholder agreement has been termed as "Shareholder Partnership Agreement", evidencing the fact that the intention of the parties had been to carry on the business of the Company as that of a partnership. Therefore, we have no hesitation to hold that the Company is nothing but a glorified partnership between the petitioner and the respondent.
15. Once we have held that the company is in the nature of partnership, we have to examine, on the basis of the allegations, as to whether the respondent has breached its duty of utmost good faith towards the other partner and whether its conduct is of the highest standards expected of a partner.
16. The complainants of the petitioner relate to the attempt of the respondent to gain majority shares in the Company, forcing the Company to deal with Sabroe dryers and their putting fretters in the free commercial functions of the Company, termination of the "Name Protection Agreement" and entering into competing business with the Company.
17. In regard to the alleged demand of the respondent that its shareholding should be increased to 51 per cent and beyond, we find that the negotiations in this regard had been going on from 1992 onwards and it appears that even the petitioner was willing to give 51 per cent shares in the Company to the respondent which offer it appears had been withdrawn later. We find from Annexure R-41 which is a letter dated 20.4.93, that the respondent had expressed its disappointment over the refusal of the petitioner to increase the respondents' holding to 51 per cent and in the same letter we also find that the respondent had cautioned the petitioner that in view of this the respondent might have to establish a new company. However, in the last paragraph of the letter, the respondent has also indicated that reconsideration of the proposal by the petitioner would bring out a strong bond between them.
For about five years, it appears, that neither of the parties had raised the issue again. By a letter dated 20^th March, 1997 (Annexure A-11) the respondent had indicated that if no agreement was reached for the respondent to increase the share capital to 51 per cent, new agreement should be proposed, discussed, agreed and signed. Then, again by a letter dated 29^th October, 1997 (Annexure A-19), the respondent suggested that it could acquire 76 per cent shares in the Company. By the time the disputes relating to marketing of Sabroe dryers had started. From the sequence of events, even though the respondent had cautioned that it would start a separate company as early as in 1993, yet its initiation of proposal of majority control in 1997 appears as a fall-out of disputes relating to marketing of Sabroe dryers. In other words, we do not find support to the allegation of the petitioners that the termination of the agreement is a fall-out of the petitioner's refusal to allow the respondent to acquire majority in the Company. Any way as things stand today, there have been no change in the shareholding in the Company and mere expression of desire to gain control of the Company cannot be considered to be an act of oppression, especially when the sequence of events show that an issue which was dormant for five years gained momentum only after other disputes had started between the parties.
18. In so far as the allegation of the petitioner that the respondent, unmindful of the commercial interest of the Company, insisted on marketing Sabroe dryers is concerned, we find from letter dated 14^th March, 1996 (Annexure A-8) that the respondent, while informing the petitioner that since M/s Sabroe of Germany had established production facilities in India for manufacture of dryers, the Company may not be in a position to compete with them for dryers and as such had given a list of alternate resources and the Company has chosen to market the dryers manufactured Fruilair of Italy. Between this period and February, 1997, the respondent is stated to have acquired M/s Sabroe of Germany. From the letter of the petitioner dated 18^th February, 1997 at Annexure A-10, we find that the petitioner had expressed his apprehension that the acquisition of Sabroe which has a collaboration with Pace Equipment which is competing with the Company would give an advantage to M/s Pace Equipment. Again, by another letter 22^nd March, 1997 (Annexure A-12), the petitioner has advised the respondent not to enter into any other business association with Pace Equipment, which if done so, would be detrimental to both the petitioner and the respondent. In its letter dated 19^th March, 1997 (Annexure A-13), the respondent had stated that it would honour the agreement between Sabroe and Pace not only in spirit but also in deed and it had also suggested that the Company should instruct its staff to support the efforts of Pace rather than enter into competition on fridge dryers. Again, by a letter dated 9^th April, 1999 (Annexure A-15), the respondent had expressed its commitment to M/s Pace Equipment and has also advised the petitioner not to compete against Pace with fridge dryers.
19. While, after having acquired Sabroe, the respondent who was reluctant earlier to promote Sabroe dryers, could not be faulted for insisting the Company to market Sabroe dryers, yet, we feel, by doing so, the respondent has given certain advantage to M/s Pace which was marketing some other filter along with Sabroe dryers. Even though, the Company is not manufacturing dryers and as such asking the Company to market Sabroe dryers cannot be considered to be against the interest of the Company, in all fairness, respondent should have also ensured that the filters manufactured by the Company are also marketed by M/s Pace.
By this, not only the respondent would have been benefited as it had acquired Sabroe, the Company also could have benefited by the marketing of the filters manufactured by the Company by M/s Pace. The respondent has not adduced any justification as to why it could not have requested Pace to market the filters manufactured by the Company along with Sabroe dryers. As a matter of fact, we find from the letter of the Petitioner at Annexure A-21 dated 20.11.97 that he himself had suggested that while the Company would market Sabroe dryers along with the filters manufactured by the Company, the respondents should also ensure that Pace also marketed Sabroe along with the filters manufactured by the Company. Even though, it may appear that there will two competitors for the same product yet such a competition for the same product is not something unknown. While it is a fact that the Company has not been in any way affected by the insistence of the respondent to market Sabroe dryers, the reluctance on the part of the respondent to ensure that Pace also marketed the filters manufactured by the Company has deprived the Company of part of the benefit. Under these circumstances, we are of the view that the petitioner is justified in complaining that the respondent has not acted in a manner which is beneficial to the interest of the Company. However, we also note that the contention of the Counsel for the respondent that the petitioner should have placed this matter before the Board of Directors for taking a commercial decision on this issue. However, considering the relationship between the parties and their attitude in this regard, we do not consider this lapse as a material. Reliance of the learned Counsel for the petitioner on Lindley on Partnership (14^th Edition) that a partner cannot seek benefit at the instance of the firm cannot be straight away applied in this case, in as much as the petitioner has not given any details as to how the respondent sought to derive benefit at the cost of the Company in seeking marketing of Sabroe dryers of the Company.
20. Even though there was no allegation in the petition that the respondent had started a business in competition with the Company, yet when CA 253/98 was filed with certain documents indicating that the respondent was intending to start competing business with the Company, this Bench passed an order on 27.10.98 restraining the respondent from doing any act which would be in competition with the business of the Company either in filter business or in dryer business, either singly or through any other agency. Even now this order continues. While the learned Counsel for the petitioner produced certain documents to show that the respondent is directly participating in tenders for products manufactured by the Company, the stand of the respondent is that since the term of the "Shareholders Agreement" has come to and end, the respondent is not bound by the terms of the agreement, but even otherwise, the respondent is not engaged in the business of any of the products manufactured by the Company. The reliance of the Counsel for the respondents on London and Mashoraland Exploration Co. Ltd. case does not assist the respondent in as much as in the present case we are examining the conduct of the respondent as a partner. The respondent having veto powers in major decisions of the Company cannot compete with the business of the Company. However, we also note that allegation of the respondent that the petitioner himself has started another company to manufacture products similar to that of the Company. If the allegations of both the parties against each other is correct, it would mean that both of them have breached the doctrine of utmost good faith towards each other, thus, ultimately putting the interest of the Company to jeopardy.
21. Now that we have hold that insistence of the respondent that the Company should market Sabroe dryers is against the interest of the Company and that by starting competing business with the Company by both the sides, the interest of the Company has been affected, the relief to be granted should protect the interest of the Company. In case of a partnership, all the partners should exhibit utmost good faith not only to each other, but also in case of a quasi-partnership company to the Company also. The proceedings before us have brought out very clearly that in view of the strained relationship between the parties, as is evident from the fact that in spite of having given sufficient time to the parties to resolve the disputes amicably they have not been able to arrive at a settlement that they cannot see eye to eye on any issue concerning the affairs of the Company. This is a case wherein a majority alleges oppression against the minority and this minority has protective provisions in the Articles. The learned Counsel for the respondent heavily relied on Bagress Cereals case to contend that to seek any relief, the petitioner should be in a position to show that the Company is liable to be wound up on just and equitable grounds and that such winding up would be prejudicial to his interest.
It is to noted that in that case, the Supreme Court finding that no act of oppression had been established also held that for a relief under Section 397, the petitioner should satisfy the Court that the Company is liable to be wound up on just and equitable ground and such a winding up would not be in its interest. In that case, the issue relating to quasi partnership was not before the Court. The ground for dissolution of partnership on just and equitable grounds are wider than those for winding up of a company on just and equitable grounds. This aspect has been examined in detail in Anupar Chemicals case. In the present case, we have already held that the principles of partnership could be applied. The relations between the two parties has become so sour that they cannot carry on the business of the Company together and if so that itself would be a very valid ground for winding up of the Company on just and equitable ground. Therefore one of the parties has to go out of the Company. In the present case, as has been held in number of cases, it is the minority shareholder, being the respondent, who should go out of the Company on receipt of fair consideration for its shares. Accordingly, in terms of Section 402 of the Act, we direct the petitioner/Company to purchase the shares held by the respondent on a fair value to be determined by the statutory auditors of the Company on the basis of the Balance Sheet as on 31.3.1999 being the proximate date of the petition. The statutory auditor will compute the fair value of the shares within a period of three months from the date of this order and the value so computed shall be binding on both the parties.
On determination of the value, in case the second petitioner/his group is willing to purchase the shares held by the respondent, they should pay the consideration within six weeks thereafter. Otherwise, the Company will purchase the shares and reduce the share capital of the Company to the extent of the face value of the shares.
22. With the above directions, this petition is disposed of with no order as to cost.