Caparo India Ltd. (U.K.) and Machino Plastics Ltd. Vs. Caparo Maruti Limited and ors. - Court Judgment

Excerpt:
- - jindal claims that this quantum jump was because of his efforts and good reputation in the market which he enjoys. the board meeting dated 18th january, 2002 itself was bad in law as it was held without complying with articles 146 and 149 of the articles of association of the company i. at pitampur, madhya pradesh with the same objection as that of the company, joint venture company starting and running parallel business by the same group which has financial and other interest in the company as well amounts to breach of fiduciary relationship between caprao group and the company. the board observed that as interest charged from the companies was 14 per cent per annum whereas borrowing rate charged by icici bank from the company was 12.6 per cent it was a commercially wise and prudent decision and mere keeping of monies in other companies in term deposit cannot be stated to be a bad business practice. it merely records the submissions but has not dealt with the same and, thereforee, it has failed to discharged its statutory function. the mere keeping of monies in the company in a term deposit cannot be stated to be a bad business practice as relied on the judgment of power tools and application pvt. similarly, the board of directors of a limited company are required to act in the best interest of a company and there is nothing contrary in exercising the discretion by board of director as held in the judgment of m. but tenor of the language clearly suggests that the board has found merit with the arguments of the caparo group on this aspect and while accepting the same, it did not feel it necessary to repeat the same extensively as its own reasons. jindal had, in fact, replied to the said notice and made suggestions that interest rate should be kept at 13 to 13.5%. this suggestion was clearly accepted and the interest rate kept was even still higher i. jindal in his reply had never complained about the short notice or postponing of the meeting. reported as 96 cwn 313 in support of the proposition that mere keeping of monies of the company in a term deposit cannot be stated to be a bad business practice. 11. it is clear that the board accepted the plea that the decision to grant loan at 14% which was even higher than the borrowing rate was a prudent decision and taken in the best interest of the company. in fact, he had given tacit consent to the grant of loan to those companies if interest rate was going to be 13% or 13.5%. in the wake of these facts, it is clearly impermissible on the part of the jindal group to turn around and raise a plea that grant of loan to those companies was not in the company's interest of was given to the companies doing competing business. and that being the case, if the affairs of cml were being conducted contrary to the interests of its members, clearly maruti udyog having 20% stake in cml would have certainly raised their voice. thereforee, in these circumstances, i am satisfied that the petitioners should be relieved from the consequence of default as there is no longer any default which had been made good as soon as the same was brought to the notice of the petitioners. (supra) was misapplied would not hold good. a) it cannot be stated that the mere keeping of monies of the company in a term deposit is bad business practice or in any event such management as would warrant interference of section 397 of the act. it cannot be stated without more that the mere keeping of the moneys of the company in a term deposit is bad business practice or in any event such mis-management as would warrant interference under section 398 of the act. it is essential to remember that under section 397 of the companies act, the court has to be satisfied that there is oppression. it has to be satisfied that the affairs of the company are being conducted in a manner oppressive to any member or members of the company. caparo maruti limited is doing the excellent business and no quarrel is even raised by jindal group. however, where petition is found to be meritless and the petitioner has failed to established any allegation of oppression or mismanagement, in such a situation the board is not competent to issue such directions as, otherwise it would amount to giving freedom to such parties by filing frivolous petitions and getting such orders even the petitions are found to be meritless. 24. referring to the provisions of section 397 of the act, it was argued that the board could make such order as it thinks fit with a view to bring to an end the matters complained of only if it is of the opinion that :(a) 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 (b) to wind up would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding order on the ground that it was just and equitable that the company should be wound up. 25. submission was that only when `the court is of the opinion' that aforesaid two conditions are established that it gets jurisdiction to pass `such order as it thinks fit' with the purpose of `bringing to an end the matters complained of'.thus, there was no power to make such an order in case the court did not record the opinion about the company's affairs being in a manner prejudicial to public interest or in oppressive manner and when the case of winding up was not made out on just and equitable grounds. in my view having held that there was no ground of oppression or mismanagement, there is no question of the court passing any order for bringing to an end any matter complained of either under section 397 or 398. the substratum for passing any order under section 397 or 398 is not available. again as observed in maharani lalita rajya lakshmi (supra) it is also proper to emphasise that the power of the court to make such order, as it thinks fit, under section 397(2) of the act is expressly stamped with the purpose of `bringing to an end the matters complained of'.thereforee, wide as the power of the court is following from the words of the expression `such order as it thinks fit' it is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed `to bringing to end the matters complained of'.the marginal note of section 397 of the companies act shows also that the purpose of the order of the court in the section is to give `relief in case of oppression'.(ii) hanuman prasad bagri and ors. it was argued that it can be inferred from this order that while withdrawing the appeal, the caparo group made a categorical statement that it was satisfied with the impugned judgment dated 19th august, 2004 and, thereforee, it was not open to the caparo group to now challenge directions contained in para 24 of that judgment. his submission was that in the facts of this case when the company was incorporated as a joint venture of three groups of which the two warring groups were the main stake holders and when systematic efforts were made by the caparo group to oust jindal group from managing the affairs of the company or from having any say in the management of the company, such a judgment was perfectly valid. 53 comp cas 60 29. he also submitted that subsequent to the filing of these appeals, the company which is controlled by caparo group had taken the decision to cancel the shares of jindal group and make payment which would clearly demonstrate that as far as caparo group is concerned, it did not want jindal group to remain in the company. this was precisely the direction of the board also. cas 193 .he also submitted that judgment of the calcutta high court in bagri (supra), as cited by learned senior counsel for the caparo group was no longer good law. 31. when a petition is filed under section 397 of the act alleging oppression, language of this provision clearly suggests that the petitioner has to make out a case for just and equitable winding up of a company. this is clear from the following discussion in needle industries (supra): even though the company petition fails and the appeals succeed on the finding that the holding company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd may were held in accordance with law. having had the benefit of that stance, they must now make it good. thereafter, the learned judge proceeded to examine the matter in the light of provisions of section 398 of the act, namely, whether `the affairs of the company are being conducted in a manner prejudicial to the interest of the company or a material change has taken place in the management and control of the company and it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company and observing that if such a case is made out then the court would be entitled to pass an order which would bring to an end the matters complained off, the court found following justification in that case for giving appropriate directions: in the present case the company had been functioning like a rudderless ship. the management of the company has miserably failed in protecting the company's records and this failure results in prejudice being caused to the company. in that case the supreme court had specifically come to the conclusion that the petitioner had failed to make out a case of oppression. jindal as chairman and also alleging certain other acts of oppression as well as mismanagement. jindal was removed from the chairmanship on 7th february, 2003. thereforee, there is a valid reason for arriving at valuation based on balance sheet as on 31st march, 2002. 42. both the appeals, accordingly fail and are hereby dismissed without any orders as to costs.a.k. sikri, j.1. the company involved in the imbroglio is caparo maruti ltd. (hereinafter referred to as `the company') . it was set up as a joint venture of three parties, namely, m/s maruti udyog limited (mul), caparo india limited (u.k.) (hereinafter referred to as ` caparo group') and mr.m.d.jindal (jindal group). the entire shareholding is with these three groups. the authorized share capital of the company is rs.20 crores comprising 2,00,00,000 equity shares of rs.10/- each. however, entire authorized share capital is not subscribed. the issued, subscribed and paid up capital of the company is rs.12.50 crores divided into 1,25,00,000 equity shares of rs.10/- each. the disputes have erupted between the caparo group and jindal group and the mul is a silent spectator. caprao group is having its registered office in london and holds 75 lacs equity shares of rs.10/- each thus, constituting 60% of total paid up equity share capital. jindal group has investment in this company through two companies, namely, machino plastics limited (machino group) and machino finance private limited. machino group is a joint venture of maruti udyog limited (mul), sujuki motor corporation and jindal group. m/s machino finance private limited is also controlled by jindal group. these two companies together are holding 20% of paid up share capital of the company. remaining 20% is held by mul. thus caparo group is the holding company of caparo maruti limited with 60% share capital and jindal groups are having 20% equity stakes. it may also be noted at this stage that caparo group is controlled and managed by lord swaraj paul and family members of jindal group. mr.m.d.jindal is the head of jindal group. mr.jindal is the husband of lord swaraj paul's sister. these two groups are closely related to each other. it is a different matter that today, unfortunately, the two groups are at loggerheads and there are number of litigations between the parties. 2. coming to the present litigation, jindal group through machino group and machino finance private limited (shareholders of the company ) filed, as joint petitioners, cp no.17/2003 before the company law board (for short `the board'), principal bench, new delhi under sections 397, 398 and 399 read with sections 402 and 403 of the companies act, 1956 (hereinafter called as `the act') alleging oppression and mismanagement on the part of the caparo group. the company was arrayed as the respondent no.1 and caparo group as the respondent no.2 and the directors as the respondents no. 3 to 6. various acts of oppression and mismanagement were attributed to the caparo group. 3. the matter culminated in the impugned judgment dated 19th august, 2004. the board rejected most of the contentions/allegations of the jindal group and thus did not find it to be a case of mismanagement and oppression. however, even while dismissing the petition, the board still observed that mr.m.d.jindal who was founder, promoter and chairman for number of years, feels oppressed and thus gave the direction that in case he is willing to part with his shares, then the company/respondent should purchases the shares on valuation to be made by an independent valuer. jindal group is dissatisfied with those findings of the board whereby it is held that there is no oppression and mismanagement. the caparo group also feels agitated so far as the direction of the board to it to purchase shares of jindal group is concerned. obvious move of both the parties, thereforee, was to challenge the impugned judgment dated 19th august, 2004 and consequently both have filed appeals. co.a(b) no.24/2004 is filed by caparo group challenging the directions contained in last para i.e. para 24 of the impugned judgment. co.a(sb) no.25/2004 is filed by jindal group challenging the findings of the board on merits of their petition. since these cross-appeals are against the same judgment, i propose to dispose of both the appeals by this common judgment.4. as mentioned above, in view of close relation between lord swaraj paul and mr.m.d.jindal, in happier times, they decided to incorporate the company as a joint venture. the company was thus incorporated on 6th april, 1994 under the act. mr.m.d.jindal was a founder director and one of the promoters of the company. he is also the chairman and the founder director of machino techno sales ltd. which was appointed as a dealer of maruti vehicles in kolkata in 1985 and at that time this company was the only dealer of maruti vehicles in kolkata. he boasts that because of his close contact with the mul, the joint venture in the form of the company was envisioned and given shape due to his efforts with the objective to manufacture and supply heavy sheet metal parts for the maruti range of vehicles. all efforts for incorporation of this company, namely, acquiring land, appointing contractors arranging loans from idbi bank and operating bank accounts etc.were made by mr.jindal and his family members. in fact, the caparo group came into picture a year after the incorporation of the company when the company had already passed through the take off stage. mr.jindal became chairman of the company. persons from caparo group were also appointed as directors. as the chairman, mr.jindal had been managing the affairs of the company. the turnover of the company rose from rs.19.57 crores in the year 1997-98 to rs.56.62 crores in the year 2001-2002. mr.jindal claims that this quantum jump was because of his efforts and good reputation in the market which he enjoys. however, mr.jindal was removed as the chairman on 7th february, 2003 and replaced by a non-resident mr.angad paul although he was the founder chairman and continued as the chairman till that date. he perceived this removal as illegal and unlawful. this was the starting point of disputes in so far as the company in question is concerned. jindal group also felt that the caparo group was mismanaging the company siphoning off the company's funds by granting loans to sister concern and starting parallel business. this led the jindal group to file the aforesaid company petition primarily with three allegations, as already indicated above which may be noted specifically now:(i) removal of mr.jindal from the post of chairman of the company on the ground that there was an unwritten understanding between the groups that he would remain chairman of the company throughout his life and for this reason he was appointed as the chairman since inception and was managing the affairs of the company in that capacity till his illegal removal on 7th february, 2003.(ii) siphoning off the company's funds by granting loans to sister concern of the caparo group. m/s caparo india limited was given an inter-corporate loan to the tune of rs.2.07 lacs and another loan of rs.450 lacs was given to caparo india development pvt.ltd.by the company without fixing any terms and conditions of the loans. mr.angad paul was authorized to finalize the loan terms which was in violation of sections 295 and 372a of the act as he was an interested director. a further loan of rs.295 lacs was granted only for a period of six months but this amount had not been paid back to the company. in this way the caparo group had siphoned away rs.952 lacs from the company to other companies owned and controlled by the caparo group. on 18th january, 2002 a loan of rs.655 lacs was sanctioned at the hearing of meeting of the company inspire of the fact that earlier loan had not been refunded. the board meeting dated 18th january, 2002 itself was bad in law as it was held without complying with articles 146 and 149 of the articles of association of the company i.e. without giving sufficient notice and without the knowledge of mr.jindal. mr.jindal objected to the insufficiency of notice and suggested that in case the company was having surplus funds it should repay its liabilities to icici bank and reduce its debt burden rather than lending money to companies owned by nris. he came to know about the sanction of the loan only from the minutes of the board meetings which were received subsequently. when he started asking for details of the loans granted along with details of investments and demanded that it be placed in the board meeting on 14th december, 2002, plans to remove him as the chairman were started by the caparo group and in the meeting held on 31st december, 2002 he was even given this threat and was asked to resign. as he refused to resign, the nri directors called another board meeting again without consulting the chairman. notice for this meeting was issued on 4th february, 2003 to be held on 7th february, 2003 and he was removed as chairman of the company. in the petition the jindal group also raised allegation about holding of other board meetings in illegal manner without consulting the chairman and without giving sufficient notice. there were some other allegations of incurring certain expenditure. however, these were the allegations of trivial nature and were not pressed at the time of arguments and , thereforee, not taken note of. (iii) the caparo group has incorporated a company in the name of caparo engg.india p.ltd.at pitampur, madhya pradesh with the same objection as that of the company, joint venture company starting and running parallel business by the same group which has financial and other interest in the company as well amounts to breach of fiduciary relationship between caprao group and the company. thereforee, this would be an act of oppression and mismanagement and would also constitute grave offence of criminal nature as it contravenes sections 283, 295 and 372(a) of the act. 5. it may be noted at this stage that on receiving the notice of this petition, caparo group had filed an application under section 8 of the arbitration and conciliation act, 1996 submitting that in case of disputes between the parties, the same were required to be adjudicated through arbitration as provided in the joint venture agreement dated 7th january, 1994. this application of the caparo group was dismissed by the board vide order dated 10th november, 2003. caparo group filed appeal against that order under section 10f of the act before this court. during the pendency of this appeal the board decided the main petition itself by passing the impugned judgment dated 19th august, 2004. in view thereof, the caparo group withdrew the said appeal on 3rd september, 2004. the necessity to note this fact has arisen as the maintainability of the appeal filed by caparo group against the impugned judgment is challenged by jindal group on the basis of the order passed in the said appeal. the nature of the order, however, shall be noted while dealing with this submission of jindal group. 6. coming back to the impugned judgment, the board has held that the petitioner/jindal group has not been able to make out any case of oppression or mismanagement. it is held that there was no such understanding or agreement between the parties to the effect that mr.jindal shall continue to be the chairman of the company throughout his life and that it was the inherent right of the shareholders to elect the directors and if the majority by valid resolution elected somebody else as chairman in place of mr.jindal, it would not constitute oppression. in regard to allegations of siphoning off funds, the board noted that loans were sanctioned by the company to other companies, may be of caparo group, with the knowledge and consent of mr.jindal; no breach had been caused to jindal group by sanctioning of these loans and the entire amount had been repaid to the company by the loaners with interest which was given at the rate of 14 per cent per annum as against suggestion of mr.jindal that interest rate should be between 13 per cent to 13.5 per cent. the board observed that as interest charged from the companies was 14 per cent per annum whereas borrowing rate charged by icici bank from the company was 12.6 per cent it was a commercially wise and prudent decision and mere keeping of monies in other companies in term deposit cannot be stated to be a bad business practice. allegation of diversification of business/conduct of parallel business by caparo group has also been brushed aside by the board on the ground that there is no competing business by m/s caparo udyog engg.co.pvt.ltd. which supplies parts in respect of light commercial vehicles and other heavy commercial vehicles where the technology employed is different from the one employed by the company and further that the specification of components manufactured by both the parties are completely distinct and cater to different categories of customers. the board did not find any substance in the allegation against mr.asthana for being a director of m/s caparo udyog engg.co.pvt.ltd on the ground that section 316 of the act provides that a public company or private company, which is a subsidiary of a public company, may appoint or employ a person and its managing director or manager of one, other company provided that such an appointment or employment is made or approved by a resolution passed by the board of directors. the board also opined that by the appointment of mr.asthana rights of the jindal group as shareholders were not affected in any manner, more so, when mul had also no objection to either grant of loans or to appointment of mr.asthana. on the basis of aforesaid discussion, the board dismissed the petition but gave certain directions, as noted above, in the last para of the judgment. these directions read as under:24. accordingly, the petition is dismissed. however, the petitioner having invested a substantial amount in the company and having remained as chairman for number of years, feels oppressed. i am of the view that the petitioner should be given an option, in case he desires, to go out of the company on return of his investment in shares of the company. in case the petitioner is willing to part with his shares, then the company/respondent should purchase the shares on valuation to be made by an independent valuer. the valuation will be based on the balance sheet as on 31.3.2002 after which date he was removed from the chairmanship on 7.2.2003. in case the petitioner desires to go out of the company, then on an application made by him, a suitable valuer will be appointed by this board in consultation with both the parties. with the above directions, the petition is disposed of. there are no order as to cost.7. in so far as appeal of the jindal group is concerned, the submissions broadly are that decision of the board does not deal with the submissions of the jindal group. it merely records the submissions but has not dealt with the same and, thereforee, it has failed to discharged its statutory function. in other words, according to the jindal group, no reasons are given for the alleged findings. 8. i may state at the outset that though one of the acts of oppressions alleged by the jindal group is that mr.jindal was entitled to remain permanent chairman of caparo maruti litd.,in the course of submissions before this court, the appellants gave up this contention and, thereforee, it is not necessary to deal with the same. suffice is to state that the board's decision on this aspect is free from any flaw. 9. other allegation of the jindal group was that the caparo group had caused the company losses by making advances to sister concerns which were under the control of the caparo group and, thereafter, in turn, utilized by another company under the control of caparo group which had identical objects clause as that of the company and these allegations have not been examined by the board at all though it was the specific case of the jindal group that such loans made by the company were used solely for the benefit of the caparo group. in this respect, it was the submission of learned senior counsel that those submissions are noted in paras 3 to 7 of the impugned judgment they are not dealt with at all. however, while giving its finding rejecting this contention, the board has merely lifted the arguments advanced by the caparo group and noted in earlier part of the judgment. i am unable to agree with this submission of the learned senior counsel. for this, let me first reproduce para 22 of the impugned judgment where aspect is dealt with:the second allegation is regarding siphoning of company funds by granting loan to sister concerns needs to be examined. the learned counsel for petitioner submitted that the money invested by caparo group in the respondent company to the tune of rs. 7,15,20,30 as equity participation has already been diverted to its sister concerns m/s. caparo india ltd. was given an inter-corporate loan to the tune of rs. 2/07 lakhs and another loan of rs. 450 lakhs was given to caparo india development pvt. ltd. without fixing any terms and conditions of the loan. a further loan of rs. 295 lakhs was granted only for a period of six months but no principal has come back to the company till date and the total funds siphoned off are rs. 952 lakhs to the companies owned and controlled by non resident directors. mr. jindal had started asking for the details of the loan granted along with details of investment in the board meeting of 14.12.02 and these facts came to the petitioner's knowledge. in reply, the respondents have stated that the allegation of sanction of loan to caparo india pvt. ltd. and caparo india development pvt. ltd. are completed wrong and unfounded. in any event, the alleged allegations do not constitute any oppression. the loans were granted to caparo india ltd. for its business by following the proper procedure and with the consent of board of directors in its meeting held on 28.10.2000, where mr. jindal was also present. in fact, mr. jindal presided over the said meeting. all loans are duly disclosed in the audited annual accounts of the company. the interest rates on the loans granted to cipl and cidpl are competitive as compared to borrowing rates of the respondent company. the interest rate charged from the companies was 14% whereas borrowing rate charged by icici for respondent company was 12.6%. the company has followed commercially wise and prudent decision. there is no default till date either in the payment of interest or otherwise by these companies. the mere keeping of monies in the company in a term deposit cannot be stated to be a bad business practice as relied on the judgment of power tools and application pvt. ltd. and ors v. jaladhar chakraborty and ors. similarly, the board of directors of a limited company are required to act in the best interest of a company and there is nothing contrary in exercising the discretion by board of director as held in the judgment of m.l. thukral and anr. v. krone communications ltd. and ors 86 comp cas 648 (kar.). it is settled law that in the case of allegation of fraud, siphoning of funds etc, full details should be furnished and mere suspicion cannot substitute proof as relied in the case of karedla suryanarayan and ors. v ramdas motor transport ltd. and ors 98 comp cas 18. the only point of contention in the whole issue is that the board meeting dated 18.1.2002 was held without complying with the provisions of article 146 and 149 of the articles of association and no clear notice of three days was given and the meeting was called without the knowledge of mr. m.d. jindal, managing director. the respondents have submitted that this board meeting dated 18.1.02 in which the loan was sanctioned was held in full compliance of the provisions of the article 146 of the articles of association by the company by giving three days notice which does not exclude the date of issuance or receipt of notice in reckoning three days period as relied on the case of smt. shanti devi pratapsingh gaekwad and others v. sangram singh p. gaekwad and ors. (1996) 1 comp lj 72 (guj). it is true that no clear three days notice was given but there was no question of any prejudice to mr.jindal as he had replied to the notice with certain suggestions that interest should be between 13% or 13.5%. he did not complaint for short notice or postponement of the meeting, although it appears that notice had been issued by company secretary when he was fully aware that mr.jindal was not in town. however, this being an isolated instance in which mr.jindal had participated by making some suggestions. no prejudice seems to have been done to mr.jindal by this single and isolated instance. i am, thereforee not inclined to accept the arguments of the petitioner that on this ground itself the board meeting of 18.1.2002 be declared null and void.10. it is misconceived to say, on the reading of the aforesaid para, that the findings are not supported by any reasons. no doubt the board has recorded the caparo group's reply to the jindal group's arguments. but tenor of the language clearly suggests that the board has found merit with the arguments of the caparo group on this aspect and while accepting the same, it did not feel it necessary to repeat the same extensively as its own reasons. there may not be anything wrong with this approach. it is clear that the following factors weighed with the board:-(a) the company had surplus funds and, thereforee, there was no wrong in allotting these funds by way of loans to other companies and earn there from.(b) the loans were granted after following the proper procedure with the consent of the board of directors in the meeting held on 28th october, 2000 when mr.jindal was also present. he in fact presided over the said meeting. (c) the loans were granted at rates of interest which were competitive as compared to borrowing rates of the company. the company earned 14% on these loans whereas at the borrowing from icici it was paying 12.6% per annum. thus the company had followed commercially wise and prudent decision. (d) the contention of the jindal group that the board meeting dated 18th january, 2002 wherein decision was again taken to grant these loans was held without complying with the provisions of articles 146 and 149 of the articles of association as no clear notice of three days' was given did not cut ice with the board on the ground that even if there was no clear three days' notice, no prejudice was caused to mr.jindal. mr.jindal had, in fact, replied to the said notice and made suggestions that interest rate should be kept at 13 to 13.5%. this suggestion was clearly accepted and the interest rate kept was even still higher i.e. 14%. mr.jindal in his reply had never complained about the short notice or postponing of the meeting. on the contrary, suggestion of mr.jindal that interest should be between 13 to 13.5% would indicate that he had no objection to the grant of loans but was only concerned with the proper returns on the loans which were to be granted. (e) the board also referred to the judgment of power tools and appliances co.ltd.and ors. v. jaladhar chakraborty & ors. reported as 96 cwn 313 in support of the proposition that mere keeping of monies of the company in a term deposit cannot be stated to be a bad business practice. 11. it is clear that the board accepted the plea that the decision to grant loan at 14% which was even higher than the borrowing rate was a prudent decision and taken in the best interest of the company. thereforee, i do not find any fault with the finding of the board on this count. 12. mr.jindal, who was chairman of the company, presided over the meeting held on 28th october, 2000 in which decision was taken to grant the loans to sister concerns of caparo india pvt.ltd. (cipl), caparo india development pvt.ltd. (cidpl) (stated to be the group companies of the caparo group). the jindal group, thus, had clear knowledge that loan is to be given to these companies of the caparo group. with open eyes they agreed, without any objection, that such a loan be granted. even when decision was taken in the board meeting dated 18th january, 2002 when mr.jindal was not present, he had sent a letter in which he did not at all stated that loan to these companies be not given. in fact, he had given tacit consent to the grant of loan to those companies if interest rate was going to be 13% or 13.5%. in the wake of these facts, it is clearly impermissible on the part of the jindal group to turn around and raise a plea that grant of loan to those companies was not in the company's interest of was given to the companies doing competing business. the board has rightly observed that there are no details of the allegations of fraud, siphoning off funds etc.which cannot be looked into for want of these details and on mere suspicion in view of the law laid down in the case of karedla suryanarayana and ors. v. ramdas motor transport limited and ors. reported as (1999) 98 comp.cas.518. it is, thereforee, an after thought plea raised, when the relation between the parties became sore. in view of this, the board rightly did not deem it necessary to go into various allegations that such loans were given to certain companies which were prejudicial to the interest of the company. there is nothing wrong in the approach of the board to reject such a plea at demurer. our own high court in the case of boiron v.. sbl ltd. & ors. co.a.no.2/1998 decided on 16th december, 1998 has, in similar situation, observed as under:the aforesaid transactions were entered into with the full knowledge of all concerned and were duly disclosed in the annual accounts of the company which would be disclosed from the accounts for the years ending 31.3.1995, 31.3.1996 and 31.3.1997 and the balance sheet of the year 1994-95 was also signed by the nominee director of the appellant wherein the said advances were disclosed. the balance sheet for the concerned year was also stated to have been sent to the appellant. since the company law board has also found that company had the benefit of the premises without payment of rent and, thereforee, there was no case of mismanagement and oppression, no objection could be taken to such a finding and, thereforee, the grievance of the appellant on that count is found to be baseless and without merit.13. be as it may, the board has also found that the two companies to whom the loan was granted were not doing any competing business. it may be noted in this respect that main business of caparo maruti limited is `to manufacture and supply sheet metal parts and components to maruti udyog limited which is manufacturer of passenger cars and light passenger commercial vehicle'. on the other hand, m/s caparo india engg.pvt.ltd. (ciepl) manufactures and supplies parts in respect of light commercial and other heavy commercial vehicles where the technology employed is different from the one employed by the company. learned senior counsel for the jindal group could not deny that the specification of the components manufactured by ceipl and cml are completely distinct and they cater to different category of customers. whereas cml manufactures for light motor vehicles of mul alone, ceipl manufactures for heavy commercial vehicles to eicher. thereforee, there is no competition involved at all. in addition, following aspects which have come on record also need to be specifically highlighted:(i) in terms of article 158 and article 159(11) of the articles of association of cml, the board of cml has been vested with the general and specific powers to grant loans etc from the funds of cml. (ii) maruti udyog limited who is also a 20% shareholder in cml and party to the jva is an active participant in the affairs of cml. in the board meeting dated january 18, 2002 the representative of maruti udyog was present and he has not objected to the grant of loans in the. according to the appellants the dominant policy maker is maruti udyog ltd. and that being the case, if the affairs of cml were being conducted contrary to the interests of its members, clearly maruti udyog having 20% stake in cml would have certainly raised their voice. this has never happened and on the contrary maruti udyog has been always supportive of the management and the affairs of cml and the contributions of the respondent no.2.(iii) all the loans to cipl and cidpl are also duly disclosed in the audited annual accounts of cml throughout which has been approved by all the members of cml including the appellants. (iv) there has not been any default by the borrowing companies, either in the payment of interest or otherwise during the entire tenure of the loans. (v) in any event, the entire loan amount inclusive of principal and interest has now been returned back by the cipl and cidpl to cml and currently there are no amounts outstanding or payable to the cml. infact cml had gainfully utilized and earned total interest of rs.2,22,19000/- on the loans advanced over the last four years and has benefited by and earned an amount of approximately rs.97,85,000/- from these loan transactions. this fact, recorded in the minutes of the board meeting dated 17.1.2005, is even confirmed by the independent and professional chartered accountants while certifying that all the loans along with interest have been repaid back to cml. it is settled that when the substratum of an issue stand addressed, technicalities cannot be looked into in the larger interest of justice. it would be apt, in the circumstances, to quote following observations of calcutta high court in in re: hindustan wire & metal products [ca no.133/1980 decided on 25/2/1981]:there is no dispute that the petitioners have already repaid the loan and the person concerned, being a common director, also resigned which was accepted. thereforee, in these circumstances, i am satisfied that the petitioners should be relieved from the consequence of default as there is no longer any default which had been made good as soon as the same was brought to the notice of the petitioners.14. when the facts are filtered in the manner indicated above, argument of the learned senior counsel for the jindal group that judgment of the calcutta high court in the case of power tools and appliances co.ltd.& ors.(supra) was misapplied would not hold good. following principles are laid down by the calcutta high court in the said case:a) it cannot be stated that the mere keeping of monies of the company in a term deposit is bad business practice or in any event such management as would warrant interference of section 397 of the act. b) in deciding an application under section 397 and 398 of the companies act the court has to bear in mind the principle of particularities and proof.c) acts of oppression must be a continuous one. d) there must be evidence that on the facts stated the company was otherwise liable to be wound up. 15. it is stated at the cost of repetition that the board of the company had taken a normal business decision and exercise of power and, thereforee, such a decision cannot be subject matter of action under sections 397/398 of the act, more particularly when there is no allegation of lack of probity or fair play. in power tools and appliances co.ltd.& ors.(supra) the calcutta high court had observed:secondly the respondents have stated that the deposit was necessary in order to obtain bank guarantees and security deposits to enable the company's to participate in tenders and contracts and also to provide margin money for issuance of letters of credit for the purpose of import of machinery from the foreign principal for a stock and sale. it is further stated that the management thought that utilisation of money from the cash credit or overdraft account of the company for the purpose of furnishing case security would be unsound business practice as interest would have been payable on the same at the rate of 17.%% p.a.it cannot be stated without more that the mere keeping of the moneys of the company in a term deposit is bad business practice or in any event such mis-management as would warrant interference under section 398 of the act.16. at this stage, i may point out that in this judgment, the high court also laid down four considerations which are to be borne in mind while dealing with such a petition raising allegations of oppression and mismanagement. this discussion is contained in paras 21 to 24 of the judgment and it would be appropriate to reproduce the same:para 21: before considering the allegations of oppression and mismanagement made by the petitioners it is necessary to bear in mind the nature of the enquiry that the court is to conduct in dealing with cases under sections 397 and 398 of the act. this has been aptly summarized in re.jermyn street turkish baths ltd. reported in (1971) 3 all er 184 by buckley, lj: we are not concerned in this case to consider whether the minority shareholders could succeed either in misfeasance proceedings against the directors or in a minority shareholders' action in the name of the company. we are concerned only to consider whether the affairs of the company were, when the petition was presented being conducted in a manner oppressive to some part of the members of the company. what does the word `oppressive' mean in this context? in our judgment, oppression occurs when shareholders, having a dominant power in a company, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs or (2) procure by an express of implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs; and when such conduct is unfair or, to use the expression adopted by viscount simonds in scottish cooperative wholesale society ltd. v. mayar `burdensome, harsh and wrongful' to the other members of the company or some of them, and lacks that decree of probity which they are entitled to expect in the conduct of the company's affairs; see scottish co-operative wholesale society ltd. v. mayor and re. h.r.harmer ltd.although this case related to acts of oppression, the observations are equally applicable to cases under section 398. para 22: the second consideration which has to be borne in mind is the principle of particularity and proof. as held in maharani lalita rajya lakshmi m.p. v. indian motor co. (hazaribagh) ltd. and ors:the main defect of this application is that the facts alleged are not proved. it is essential to remember that under section 397 of the companies act, the court has to be satisfied that there is oppression. it has to be satisfied that the affairs of the company are being conducted in a manner oppressive to any member or members of the company. the acts of oppression, thereforee, have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the court.para 23: the third principle that has to be kept in mind that the acts of oppression or mismanagement must be continuing ones. as stated in s.m.ganpatram v. sayaji jubilee cotton & jute mills co. (supra) at p.813: the general principal manifest from the language of section 397 and 398 is that the power of the court under both the sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the court cannot make an order setting aside or interfering with past and concluding transactions which are no longer continuing wrongs.para 24: the fourth aspect of the matter both under section 397 and 398 is that there must be evidence that on the facts stated the company was otherwise liable to be wound up.17. once the matter is considered in the aforesaid perspective, various judgments relied upon by learned senior counsel for the jindal group may not have any bearing in this case. it is not even necessary to refer to all the judgments which were cited by learned senior counsel for the jindal group. however, i may deal with those discussion relating to which becomes necessary. in the case of aberdeen rail co. v. blaikie brothers reported as 1843 60 all er 249 cited by learned senior counsel for the jindal group was the case where there was evidence of personal conflict of interest between the company and directors. that has not been found in the instant case. in the case of scottish co-operative wholesale society ltd. v. meyer and another reported as 1858 (3) all er 66, the court held that the majority shareholders had adopted a policy of starving the company and supplies of rayon cloth from the mill, on which the company was dependent. the nominee directors of the company adopted a policy of passive support of the appellants by inactively allowing the company's trading activity to decline or vanish. this fact situation does not bear any resemblance with the present case. caparo maruti limited is doing the excellent business and no quarrel is even raised by jindal group. another case relied upon by learned senior counsel for the jindal group was ebrahimi v. west bourne galleries ltd. and ors reported as 1972 (2) all er 490. this english case came up for discussion before our supreme court in the case of kilpest (p) ltd.and ors. v. shekhar mehra reported as (1999) 2 comp.l.j.261 and principles of ebrahimi (supra) were distinguished in the following manner: the promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. they voluntarily and knowingly bind themselves by the provisions of the companies act. the submission that a limited company should be treated as a quasi-partnership should, thereforee, not be easily accepted. having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 & 398.18. likewise as the allegations of lack of probity on the part of the directors of the company have not been established, judgment in the case of re print, loch v. john blackwood limited reported as 1942 all er 200 would have no application. 19. i am, thereforee, of the opinion that the manner in which the board has dealt with allegations of oppression and mismanagement leveled by the jindal group cannot be faulted with. 20. in this appeal which is filed under section 10f of the act, against the order of the board, the appeal is only on substantial question of law. it is a statutory remedy provided to the aggrieved party and such a remedy is circumscribed by the limitations imposed in the provision. the jurisdiction of this court under section 10f of the act is limited. in gordon woodroffe and company ltd., uk v. gordon woodroffe limited and ors. reported as (1999) 1 comp.l.j.243, the madras high court explained the scope of the jurisdiction of high courts under section 10f of the act in the following manner:the jurisdiction of this court under section 10f of the act is limited. it can go into the question of law arising out of such an order. when the board has not discussed the issue in detail and given a decision on the transfer, this court acting as an appellate authority under section 10f of the act, having limited jurisdiction with reference to law, cannot as a court of law embark upon the consideration of evidence with reference to the transfer of shares.21. law is also expounded by our own high court in the case of mohd.jafar v. nahar industrial enterprises ltd. reported as (1997) 4 comp.l.j.201 in the following manner:a bare provision of section 10f of the companies act,1956 make it crystal clear that an appeal lies before the high court from a decision of the company law board. a question of law can be said to arise from the clb only if it is dealt if by the clb or is raised before it though no decided by the clb and question of law not raised before the clb and not dealt with it in its order cannot be said to arise out of its order, even if, on the facts of the case stated in the order, the question fairly arises. in other words when a question of law was neither raised before the clb nor considered by it, it would not be a question arising out of its order notwithstanding that it might arise in the findings given by it.22. other submissions would be considered along with the appeal of caparo group as they relate to the direction given by the board in para 24 of the judgment against which the caparo group has filed the appeal. let me now turn to the appeal of caparo group.23. neat submission made by the learned senior counsel appearing for caparo group in support of this appeal is that this direction is not only without jurisdiction but uncalled for in the facts of this case when the board itself had concluded that there was no act of oppression or mismanagement on the part of the caparo group. in such petition when the board comes to the conclusion that there were certain acts of oppression or mismanagement, in order to resolve the disputes once for all, many times directions of the nature given by the board are passed allowing one group to buy out the other group to give quietus to such disputes for all times to come and put an end to continuous bickering between the two warring groups. such a course is, however, admissible only when some acts of oppression or mismanagement are found to have been established. however, where petition is found to be meritless and the petitioner has failed to established any allegation of oppression or mismanagement, in such a situation the board is not competent to issue such directions as, otherwise it would amount to giving freedom to such parties by filing frivolous petitions and getting such orders even the petitions are found to be meritless.24. referring to the provisions of section 397 of the act, it was argued that the board could make such order as it thinks fit with a view to bring to an end the matters complained of only if it is of the opinion that :(a) 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 (b) to wind up would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding order on the ground that it was just and equitable that the company should be wound up.25. submission was that only when `the court is of the opinion' that aforesaid two conditions are established that it gets jurisdiction to pass `such order as it thinks fit' with the purpose of `bringing to an end the matters complained of'. thus, there was no power to make such an order in case the court did not record the opinion about the company's affairs being in a manner prejudicial to public interest or in oppressive manner and when the case of winding up was not made out on just and equitable grounds. it was submitted that as in the present case the board had, on the contrary, recorded that the company's affairs were not conducted in a manner prejudicial to public interest or oppressive to jindal group, there was no question of making such an order and the only course open was to dismiss the petition without proceeding further and giving directions. it was also argued that section 402 of the act gave some specific powers to the board to make an order of the nature provided for in the clauses (a) to (g) thereof but again the very language of the said sections would suggest that those directions could be given only when the case of oppression under section 397 or mismanagement under section 398 was made out. in support of this plea, learned senior counsel relied upon the following judgments: (i) power tools and appliances co.ltd.and ors.v. jaladhar chakraborty and ors. 96 cwn 313 para 59: the last question to be decided in this matter is whether the court can compel the company or the respondents to purchase the shares of the petitioner. as noted above the petitioners are willing to sell their shares in the company at market value. the offer is not acceptable to the company or the respondents. in my view having held that there was no ground of oppression or mismanagement, there is no question of the court passing any order for bringing to an end any matter complained of either under section 397 or 398. the substratum for passing any order under section 397 or 398 is not available. as observed by buckley lj in re.jermyn street turkish baths ltd. reported in 1971 all er 184 : if this could be regarded as an act of oppression, which in our opinion it cannot, it would not, we think, justify and order that one side should buy the shares of the other. so drastic a remedy would go far beyond what is necessary to put an end to this particular form of oppression.again as observed in maharani lalita rajya lakshmi (supra) it is also proper to emphasise that the power of the court to make such order, as it thinks fit, under section 397(2) of the act is expressly stamped with the purpose of `bringing to an end the matters complained of'. thereforee, wide as the power of the court is following from the words of the expression `such order as it thinks fit' it is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed `to bringing to end the matters complained of'. the marginal note of section 397 of the companies act shows also that the purpose of the order of the court in the section is to give `relief in case of oppression'.(ii) hanuman prasad bagri and ors. v. bagress cereals pvt.ltd. and ors. : [2001]2scr811 :para 3: section 397(2) of the act provides that an order could be made on an application made under sub-section (1) if the court is of the opinion -(1) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members ; (2) that the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; and (3) that the winding-up order would unfairly prejudice the applicants. no case appears to have been made out that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. thereforee, we have to pay our attention only to the aspect that the winding up of the company would unfairly prejudice the members of the company who have a grievance and are the applicants before the court and that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up. in order to be successful on this ground, the petitioners have to make out a case for winding up of the company on just and equitable grounds. if the facts fall short of the case set out for winding up on just and equitable grounds no relieve can be granted to the petitioners. on the other hand the party resisting the winding up can demonstrate that there are neither just nor equitable grounds for winding up and an order for winding up would be unjust and unfair to them. on these tests, the division bench examined the matter before it.26. mr.mukherjee, learned senior counsel for the jindal group challenged the maintainability of this appeal on the ground that the impugned judgment was accepted by caparo group, as would be clear from the order dated 3rd september, 2004 passed in co.a(b) no.3/2004 by this court. in the appeal where earlier order of the board dismissing the application of caparo group under section 8 of the arbitration and conciliation act, 1996 was challenged. the operative portion of the order dated 3rd september, 2004 may be reproduced at this stage: in view of the aforesaid order dated 19th august, 2004 learned counsel for the appellant herein fairly submits that it is not necessary to now pursue the present appeal as the main petition itself has been decided in favor of the appellant herein and the appellant, thereforee, seeks to withdraw the present appeal. without prejudice to appellant's rights and contentions to the observations made in the impugned order the present appeal is accordingly dismissed as withdrawn. it is clarified that this order is passed in view of the subsequent event namely disposal of the company petition itself by the company law board and no observations are made on the merits. it was argued that it can be inferred from this order that while withdrawing the appeal, the caparo group made a categorical statement that it was satisfied with the impugned judgment dated 19th august, 2004 and, thereforee, it was not open to the caparo group to now challenge directions contained in para 24 of that judgment. 27. without prejudice to this plea, mr.mukherjee submitted that the board was competent to give such directions even when charge of oppression was rejected as it had necessary powers to do substantial justice. his submission was that in the facts of this case when the company was incorporated as a joint venture of three groups of which the two warring groups were the main stake holders and when systematic efforts were made by the caparo group to oust jindal group from managing the affairs of the company or from having any say in the management of the company, such a judgment was perfectly valid. it was submitted that such a power of the board is recognized by the judiciary and can be found in the judgment of the supreme court in the case of needle industries (india) ltd. and ors. v. needle industries newey (india) holdings ltd. and ors. reported as : [1981]3scr698 wherein the supreme court specifically approved such course of action which could be adopted by the board even when charge of oppression was rejected. 28. learned senior counsel also relied upon the following two judgments where needle industries was followed adopting same course of action:(i) chander krishan gupta v. pannalal girdhari lal private ltd. and ors. 55 comp cas 702 (ii) krishan lal ahuja and ors. v. suresh kumar ahuja and ors. 53 comp cas 60 29. he also submitted that subsequent to the filing of these appeals, the company which is controlled by caparo group had taken the decision to cancel the shares of jindal group and make payment which would clearly demonstrate that as far as caparo group is concerned, it did not want jindal group to remain in the company. this was precisely the direction of the board also. however, the board had adopted the right course in ensuring that jindal group gets fair price of the shares which move caparo group wanted to thwart although it had intention to achieve the same. he , thus, justified the direction of the board and submitted that direction to ensure fair value to the company was in consonance with the similar course of action adopted by the andhra pradesh high court in the case of sri ramdas motor transport ltd.and ors. v. karedla suryanarayana and ors. (2002) 110 comp.cas 193 . he also submitted that judgment of the calcutta high court in bagri (supra), as cited by learned senior counsel for the caparo group was no longer good law.30. let me first deal with the legal position which emerges from the reading of the judgments cited by both the parties.31. when a petition is filed under section 397 of the act alleging oppression, language of this provision clearly suggests that the petitioner has to make out a case for just and equitable winding up of a company. it is also to be established that although the facts are such if just and equitable winding up of the company is called for, order for winding up would unfairly prejudice the petitioner and, thereforee, instead of having recourse to the winding up of the company under section 433(f) of the act, remedy under section 397 is resorted to, to seek appropriate directions to remedy the situation created by the respondents/adversary group. normally, if such a case is not made out, the court would not give relief under section 397 of the act. this is the position of law stated in the case of bagree cereals (p) ltd and ors v. hanuman prasad bagri and ors. reported as (2001) 105 comp.cas.465 which decision is upheld by the supreme court in the case of hanuman prasad bagri and ors. v. bagress cereals pvt.ltd. and ors. reported as : [2001]2scr811 . however, reading of the case of needle industries (india) pvt.ltd.(supra) would give an impression that even if section 398 of the act which entitles affected persons to file a petition on the ground of mismanagement by adversary group, does not contain such a stringent requirement to proved i.e. it is not necessary to form an opinion, in these proceedings, about the appropriateness of just and equitable winding up. the calcutta high court in bagree cereal's case itself recognized this distinction. pointing out that generally the company petitions are filed joining the provision of sections 397 and 398, it is to be borne in mind that section 397 seeks to prevent oppression and section 398 seeks to prevent mismanagement. the court demonstrated this distinction by taking the allegation, in that case, of shifting of registered office from postal to chatterjee polk and back to postal and remarked that :be that as it may, the shift of registered office itself might be, where there are materials, a complaint primarily under section 397 or a complaint primarily under section 398. if the company suffered not much loss because of the shifting and the shifting back, but it was undertaken to put oppressive pressure and pain upon the petitioner, the complaint would sound in a section 397 grievance. if on the other hand the shifting and the loss to the company by way of wasted expenditure and loss of business , then and in that event the complaint would sound more in the nature of a section 398 grievance. we make it clear that in company matters it is not always easy to maintain a strict distinction and categories complaints either under section 397 or under section 398; very often the same complaint has both the aspects. but the essential difference between the two sections must be borne in mind. the difference between the two sections does not stop there. it has further legal and historical differences. the primary legal distinction between section 397 and section 398 in founding the jurisdiction of the company court is this, that before granting relief for complaints which sound in oppression, the court must form an opinion of the appropriateness of a just and equitable winding up. not so with section 398.it is not an easy matter to prove circumstances requiring a just and equitable winding up of the company. that section 398 does not contain this stringent requirement as a jurisdictional condition, must be borne in mind if the company court is to apply the correct law to the facts and circumstances of a particular case.32. the division bench in that case further pointed out that the single judge had not attempted to determine as to whether allegations fall under the oppression head of section 397 of under the mismanagement head of section 398. further discussion in the judgment would show that primarily the allegations were to found in the realm of section 397 and there was no finding as to why winding up will be unjust to the complainants. this was the main reason for upsetting the judgment which approach is affirmed by the supreme court in appeal. 33. on the other hand, in needle industries (supra), the supreme court held that even if the allegations of oppression and mismanagement are not established, the court can in appropriate cases exercise its discretion in giving the direction that stakes of minority group be purchased by other group to avoid any further bickering between the two groups. this is clear from the following discussion in needle industries (supra):even though the company petition fails and the appeals succeed on the finding that the holding company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd may were held in accordance with law. there is no reason why we should not call upon the indian shareholders to do what they were always willing to do, namely, to pay to the holding company a fair premium on the shares which were offered to it, which it could neither take nor renounce and which were taken up by the indian shareholders in the enforced absence of the holding company. the willingness of the indian shareholders to pay a premium on the excess holding or the rights shares is a factor which, to some extent, has gone in their favor on the question of oppression. having had the benefit of that stance, they must now make it good. besides, it is only meet and just that the indian shareholders, who took the rights shares at par when the value of those shares was much above par, should be asked to pay the difference in order to nullify their unjust and unjustifiable enrichment at the cost of the holding company. we must make it clear that we are not asking the indian shareholders to pay the premium as a price of oppression. we have rejected the plea of oppression and the course which we are now adopting is intended primarily to set right the course of justice, in so far as we may.34. in this context, judgment of our own high court in the case of krishan lal ahuja (supra) becomes relevant. that was a case decided by this court before the decision of needle industries (supra). the court found, in that case, that the two warring groups had irretrievably fallen from each other and their continued collaboration in the management of the company was out of question. in these circumstances, the court was of the opinion that one group should be asked to go. in the facts of that case, the court proceeded to decide as to exit of which group was warranted and issued directions in this behalf. in other case, namely, chander krishan gupta (supra) was decided by this court after the judgment in needle industries (supra) and this judgment is specifically discussed by the court. legal position as stated in needle industries (supra) was quoted to the effect that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a malafide intention or that such violation was burdensome,harsh and wrongful and to make a case of oppression series of such illegal acts should be proved. on the touch stone of this test laid down in needle industries (supra), the court concluded that the petitioner had filed to make a case under section 397 of the act. thereafter, the learned judge proceeded to examine the matter in the light of provisions of section 398 of the act, namely, whether `the affairs of the company are being conducted in a manner prejudicial to the interest of the company or a material change has taken place in the management and control of the company and it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company and observing that if such a case is made out then the court would be entitled to pass an order which would bring to an end the matters complained off, the court found following justification in that case for giving appropriate directions:in the present case the company had been functioning like a rudderless ship. it is not denied that for quite some time the company had been incurring losses. the directors of the company are carrying on their other personal business. the disputes amongst the directors of the company have resulted in the records of the company not being available at the present moment. the petitioner and respondent no. 3 blame each other for taking away the company's records. both of them are directors of the company and it was their duty to ensure that the records of the company are available whenever they are required. the management of the company has miserably failed in protecting the company's records and this failure results in prejudice being caused to the company. moreover, the constant fight amongst the directors who were also the shareholders of the company had certainly an adverse effect on the conduct of the company's business with the result that the company started incurring losses. to my mind, thereforee, this by itself would justify appropriate orders being passed under s. 398 of the companies act. another factor which gives the court jurisdiction to pass an order under s. 398 is that, at least on paper, the management and control of the company was required to be with the managing director of the company. it is an admitted fact that the managing director had, during the pendency of these proceedings, purported to sell his shares to respondent no. 3 and he also authorised him to look after the affairs of the company. the result of this was that the control of the company changed hands from the managing director to respondent no. 3. this change has seriously antagonized the other shareholders and directors of the company and there is a likelihood that the affairs of the company may in future be carried on in a manner prejudicial to its interests. none of the shareholders and directors have any interest in the company prospering, their sole interest being as to how much money they can realise for their own personal benefit.35. after noticing the aforesaid facts, the court observed that necessary directions can be given in view of the judgment in needle industries (supra) even if case under section 397 was not made out as would be clear from the following observations: even if no case had been made out under s. 397 of the act, the effect of the decision of the supreme court in the needles' case would be that technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by the companies act. in that case the supreme court had specifically come to the conclusion that the petitioner had failed to make out a case of oppression. in the exercise of its equitable jurisdiction the supreme court nevertheless did grant relief. similar is the case here. i cannot lose sight of the fact, and this is an admitted case of the parties, that the two sets of shareholders, namely, respondents nos. 3 and 5 on the one side and the others on the other, cannot do business together. they have been fighting litigation for years. there is a complete lack of probity amongst the parties. the dismissal of the petition will not solve the problems and, thereforee, as far as possible, a permanent solution has to be found which would enable the company, thereafter, to function smoothly.36. the harmonious reading of the two sets of cases bagree cereals (p) ltd by calcutta high court as upheld by the supreme court on the one hand and needle industries (supra) as interpreted by this court in chander krishan gupta and krishan lal ahuja would suggest the following legal position:(a) before any direction can be given or relief can be granted under section 397 of the act, the petitioner has to prove the acts of oppression and that too of a nature which would normally make out a case of winding up of the company under just and equitable clause. however, winding up is not resorted to as it would prejudicially affect the interest of the petitioner and, thereforee, recourse to section 397 of the act. if case of this nature is not made out then directions under section 397 cannot be issued.(b) normally, the petitions are filed invoking provisions of the sections 397/398 of the act and in such petitions duty of the court is to see the distinction between the two provisions and examine the position i.e. to see as to whether a particular allegation is oppression under section 397 or of the mismanagement under section 398.(c) even if case under section 397 is not made out and the allegations are such as which would bring the case under section 398, appropriate directions under section 398 read with section 402 can be issued.(d) even if a case of oppression is not made out, in exercise of its equitable jurisdiction, the court can grant relief and pass the necessary orders. this would normally be in those cases where to sets of shareholders cannot do business together and have been fighting litigation for years and there is lack of probity amongst the parties and the court is of the opinion that a permanent solution has to be found.37. applying these tests in the present case, i now proceed to examine whether case of exercising this equitable jurisdiction is made out or not.38. caparo maruti limited, the company in question, was incorporated as a joint venture between maruti udyog limited, caparo group and mr.m.d.jindal. in this company, 60% shareholding is held by caparo india ltd.(uk) [it is the company which is controlled and managed by lord swaraj paul]; 20% shares are held by maruti udyog limited and 20% shares are held by m/s machino plastics ltd., machino finance (p) ltd.(two petitioners who filed petitions under sections 397/398 before the clb). although maruti udyog limited holds 20% shares, the company had all along been run and managed by the two groups, namely, caparo group and jindal group (which has major and controlling stakes in m/s machino plastics ltd., machino finance (p) ltd. mr.m.d.jindal was one of the promoters and even director of the company. m/s machino plastic ltd.is a joint venture of maruti udyog limited, sujuki motor corporation and jindals group. case of the jindal group is that his group was in close contact with maruti udyog ltd., with efforts of mr.jindal, caparo maruti ltd. was incorporated as a joint venture wherein maruti udyog litd. also associated and agreed to give the business to this company for manufacture and supply of heavy sheet metal parts for the maruti range of vehicles. mr.m.d.jindal is the husband of sister of lord swaraj paul, controlling caparo group. mr.jindal was made chairman of the company because of close family relations between the two groups. 39. as already noted above, over a period of time some differences arose between the two groups and mr.jindal was removed as the managing director. the relationship has worsened over a period of time. there are even criminal cases filed against each other. in these circumstances, petition was filed before the clb challenging the removal of mr.jindal as chairman and also alleging certain other acts of oppression as well as mismanagement. no doubt the clb did not find any substance in these allegations and those findings are affirmed by me in the discussion recorded above. allegations also relate to mismanagement, namely, giving of loans by the company to the sister concerns of caparo group although it is found that the company earned appropriate interest on such loans and the loans have already been repaid, the clb has in fact mentioned that there is a non-compliance of articles 146 & 149 of the articles of association. in these circumstances and particularly going by the relationship between the two parties, exercise of equitable jurisdiction by the clb appears to be justified. it is not possible for the two groups to remain together because of worsening acrimony. subsequent events as highlighted by the jindal group also justify this course of action. thereforee, keeping in view the principles laid down in needle industries (supra) and the manner in which they were followed by this court in chander krishan gupta (supra), i am of the view that direction of the clb to the effect that shares of jindal group be purchased by the caparo group should not be interfered with. the judgments cited by learned senior counsel for the caparo group on the scope of section 10f of the act opposing the appeal of jindal group would be equally applicable while considering this appeal of caparo group. once it is found that the clb, in the given circumstances, was within its power to exercise equitable jurisdiction and it so exercised, it would not be proper to interfere with the said equitable discretion in an appeal under section 10f of the act. thereforee, without going into the maintainability of the appeal filed by caparo group, the same is dismissed on merits.40. the only question that now remains to be considered is the grievance of the jindal group about the modalities for purchase of these shares. the argument of jindal group is that direction of the clb that the valuation of the shares will be based on the balance sheet as at 31st march, 2002 after which date he was removed from the chairmanship on 7th february, 2003 is not proper. 41. however, i find that the clb has fixed the date of 31st march, 2002 because after this date mr.m.d.jindal was removed from the chairmanship on 7th february, 2003. thereforee, there is a valid reason for arriving at valuation based on balance sheet as on 31st march, 2002. 42. both the appeals, accordingly fail and are hereby dismissed without any orders as to costs.