Rai Saheb Vishwamitra and ors. Vs. Amar Nath Mehrotra and ors. - Court Judgment

Excerpt:
- - 10. section 397 of the companies act empowers any members of a company, who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right so to apply in virtue of section 399. the court has been empowered to pass any order as it thinks fit with a view to bringing to an end the matters complained of if the court is of the opinion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and also further if the court is of the opinion that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up. 14. the other section on which reliance has been placed is section 398 of the companies act and reliance has been placed on sub-section (2) of section 398. section 398(2) is quoted below :if, on any application under sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.s.d. agarwala, j.1. this is a company petition filed under sections 397 and 398 of the companies act, 1956, in the matter of jhausi electric supply co. ltd. the prayer in the petition is that an order be passed staying the so-called meeting to be held on december 30, 1982.2. jhansi electric supply co. ltd. is a public limited company which was incorporated on august 19, 1937. the business of the company was the supply of electricity to the cities of jhansi and gorakhpur in the state of u. p. both the power houses of the company were taken over by the government. the position, consequently, is that now the company has ceased to carry on its business of supplying electricity.3. it has been stated in the petition that compensation in respect of the taking-over of the power house in jhansi city has already been paid while proceedings are going on before the arbitrators for assessment of the compensation for taking over of the power house in gorakhpur city.4. the last annual general meeting of the company was held on december 26, 1981. all the items in the agenda had been taken for consideration in the said meeting, but the last item in the agenda regarding the appointment of sri amar nath mehrotra as a new director of the company could not be taken. it has consequently been alleged that since the last item in the agenda could not be taken and amar nath mehrotra could not be appointed as a director of the company, he along with other shareholders of the company requisitioned a meeting at a place other than the registered office of the company and, as such, it was alleged that this court should stay the holding of the meeting summoned for december 30, 1982.5. this petition was filed in this court on december 21, 1982. it was admitted on december 23, 1982. on an application made for grant of an ad interim order, it was directed that the meeting scheduled to.be held on december 30, 1982, shall be held, but the resolution passed in the meeting shall not be given effect to until further orders of this court.6. after this order was passed, the meeting was held on december 30, 1982. the petitioner thereafter moved an application on march 8, 1983, again, under sections 397, 398 and 399 of the companies act, 1956, for quashing the proceedings held on december 30, 1982.7. the position, therefore, which emerges from out of the above facts is that, initially, the application was for stay of the proceedings of the meeting scheduled to be held on december 30, 1982, and, thereafter, the quashing of the proceedings held on december 30, 1982, has been sought.8. i have heard the learned counsel for the parties. the main contention of the learned counsel for the respondent is that this petition is not maintainable under sections 397 and 398 of the companies act. the parties also made their respective submissions on the merits of the validity of the meeting held on december 30, 1982. it is not necessary for me to go into the merits of the validity of the meeting held on december 30, 1982, as in my opinion, the objection raised by the respondents is sustain-able, as the application is not maintainable under sections 397 and 398 of the companies act.9. it is admitted by the parties that the petitioners were in actual management of the affairs of the company. shri sunder lal mehrotra was the managing director of the company. he died on may 16, 1981. the other directors of the company were rai saheb vishwamitra, petitioner no. 1, shri shanker lal mehrotra, petitioner no. 7, and shri lalji meh-rotra. all these directors belonged to the petitioners' group. it were actually the petitioners who were managing the affairs of the company. by the resolution passed in the impugned meeting dated december 30, 1982, rai saheb vishwamitra, lalji mehrotra and shanker lal mehrotra have been removed from the directorship of the company and new directors, namely, amar nath mehrotra, shyamji mehrotra and a. n. agrawal, have been appointed as directors. the position consequently is that at the time when the petition was filed and also at the time when the second application, impliedly amending the first petition, was filed, the management of the company was in the hands of the petitioners.10. section 397 of the companies act empowers any members of a company, who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right so to apply in virtue of section 399. the court has been empowered to pass any order as it thinks fit with a view to bringing to an end the matters complained of if the court is of the opinion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and also further if the court is of the opinion that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up.11. on a reading of section 397 of the companies act, it is apparent that it must first be established by the applicant that the affairs of the company are being conducted in a manner prejudicial to public interest and is further oppressive to such a member. here, as i have already found above, the position is that, in fact, the petitioners are conducting the affairs themselves and they have the management of the company in their own hands. the question, therefore, of the petitioners themselves applying under section 397 of the companies act does not arise. on this ground alone, consequently, i am of the opinion that the application is not maintainable under section 397 of the companies act.12. in shanti prasad jain v. kalinga tubes ltd. [1965] 35 comp cas 351 (sc), the hon'ble supreme court has opined, after examining the provisions of section 397 of the companies act, as under (at p. 366):' it must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires thatevents have to be considered not in isolation but as a part of a consecutive story. there must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. the conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder.'13. from the principle laid down above, it is apparent that before a petition under section 397 of the companies act is maintainable, it has to be established by the petitioner that the majority shareholders are conducting the affairs of the company in a manner oppressive to the minority shareholders, and that there are continuous acts on the part of the majority shareholders which would give an indication of the oppressive character of the affairs of the company. in the instant case, the only grievance which has been made is against the meeting held on december 30, 1982. it is the sole act of certain shareholders who requisitioned the meeting which has been challenged by means of the present petition. the petitioners themselves are in the management of the affairs of the company. i do not see how by the mere holding of the meeting dated december 30, 1982, any oppression has been caused to the petitioners who are in control of the company. in the circumstances, on the principles laid down by the supreme court in shanti prasad jain v. kalinga tubes ltd. [1965] 35 comp cas 351 (sc), this petition is not maintainable under section 397 of the companies act.14. the other section on which reliance has been placed is section 398 of the companies act and reliance has been placed on sub-section (2) of section 398. section 398(2) is quoted below :'if, on any application under sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.'15. the argument is that in the meeting dated december 30, 1982, resolutions have been passed by virtue of which three old directors have been removed and three new directors have been appointed and, as such, the management and control of the company will go to the hands of the opposite parties. the resolution which has been passed on december 30, 1982, has not been given effect to because of the interim order passed by this court. the new directors have not yet taken over charge of the affairs of the company. unless the new directors take over charge and they conduct the affairs of the company, it cannot possibly be concluded that their conduct, in any manner, has affected the company or the conduct of the directors is prejudicial to the public interest or prejudicial to the interests of the company. it is only when the directors take over the affairs of the company, they carry on the affairs of the company and then alone it can be judged as to whether an application under section 398 of the companies act should be entertained and a relief granted to the petitioners. in my opinion, so far as section 398 is concerned, the petition is not maintainable at this stage. it is wholly premature.16. in view of the above, i am of the opinion that the petition is neither maintainable under section 397 nor under section 398 of the companies act. in the result, the petition fails and is dismissed. the interim order dated december 23, 1982, is hereby vacated. in the circumstances of the case, i direct the parties to bear their own costs.