Supreme Court of India
CHATTERJEE PETROCHEM (I) PVT. LTD.versusHALDIA PETROCHEMICALS LTD. & ORS.
- Citation
- 2011 INSC 729
- Decided
- 30 September 2011
- Disposal
- Dismissed
- Bench
- ALTAMAS KABIR
Holding
The petitioners failed to establish oppression under s. 397 and the CLB lacked jurisdiction to intervene in the private share‑transfer dispute, so the High Court’s order setting aside the CLB’s directions was affirmed.
Summary
The Chatterjee Group filed a Company Petition under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956 alleging oppression by Haldia Petrochemicals Ltd. (HPL) for failing to register 155 million shares transferred to them and for allotting 150 million shares to Indian Oil Corporation, which they claimed reduced them to a minority shareholder and altered HPL’s private character. The Company Law Board (CLB) had ordered the transfer of the shares to the Chatterjee Group and upheld the allotment to IOC; the Calcutta High Court set aside those orders, holding that the petition was not maintainable as the complainant was not a member of HPL and the alleged breach was a private contract dispute, not oppression under the Act. On appeal, the Supreme Court affirmed that to succeed under s. 397 the petitioner must prove continuous, burdensome oppression, which was not established, and that the CLB lacked jurisdiction to intervene in a private share‑transfer dispute. Consequently, the High Court’s decision was upheld and the appeals dismissed.
Issues considered
- The petitioner must prove that the affairs of the company were conducted in a manner oppressive to a minority shareholder under s. 397 of the Companies Act, 1956.
- Whether a non‑member (CP(l)PL) can maintain a petition under s. 397/398 of the Companies Act.
- Whether the failure to register transferred shares constitutes oppression within the meaning of s. 397.
- Whether the Company Law Board has jurisdiction to pass orders under s. 397, s. 398 and s. 402 for disputes arising from private contracts between shareholders.
- Whether the CLB can direct the transfer of shares without a finding of oppression or mismanagement.
Legislation cited
- Companies Act, 1956s. 397, s. 398, s. 399, s. 402, s. 403, s. 406
- Depositories Act, 1996
- Specific Relief Act, 1963
Subjects
oppressionminority shareholderCompanies Act 1956Section 397Company Law Board jurisdictionshare transfer registrationquasi‑partnershiplegitimate expectationjust and equitable winding‑upprivate contract enforcementgovernment company
Judgment
[2011] 15 (ADDL.) S.C.R. 135
CHATIERJEE PETROCHEM (I) PVT. LTD. A
v.
HALDIA PETROCHEMICALS LTD.& ORS.
(Civil Appeal Nos. 5416-5419 of 2008)
SEPTEMBER 30, 2011
B
[ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]
Companies Act, 1956 - ss. 397, 398 and 402 -
Company petition under - Grievance of applicant-Chatterjee
Group that due to non-registration of transfer of 155 million C
shares in their favour, and, on the other hand, transfer of 150
million shares in favour of IOC, the character of the Company
in question (HPL) was altered from a Private Company into
a Government Company and also reduced the Chatterjee
Group to a minority shareholder, contrary to promises held D
out earlier and as incorporated in the agreements between the
parties - Held: In order to succeed in an action under ss.397
and 398, the complainant has to prove that the affairs of the
Company were being conducted in a manner prejudicial to
public interest or in a manner oppressive to any member or E
members - However, the law has not defined as to what would
amount to •oppressive" for the purposes of s.397 and it is for
the Courts to decide on the facts of each case as to whether
such oppression exists which would call for action under s.397
- The conduct of the majority shareholders should not only F
be oppressive to the minority, but must also be burdensome
and operating harshly upto the date of the petition - On facts,
although, the Chatterjee Group complained of the manner in
which it had been reduced to a minority in the Company in
question, it is also obvious that when the Company was in dire G
need of funds and the Chatterjee Group also promised to
provide a part of the same, it did not do so and instead of
bringing in equity, it obtained a loan from HSBC through the
Merlin Group, which only increased the debt equity ratio of the
135 H
136 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A Company - It is at a stage when there was a threat to the
supply of Naphtha, which was the main ingredient used by
HPL for its manufacturing process, that it finally agreed to
induct IOC into the Company as a member by transferring
150 million shares to it - If in the first place, the Chatterjee
B Group had stood by its commitment to bring in equity and had
subscribed to the Rights Issue, which was a decision taken
by the Company to infuse equity in the running of the
Company, it would neither have been reduced to a minority
nor would it perhaps have been necessary to induct IOC as
c a portfolio investor with the possibility of the same be!ng
converted into a strategic investment - The failure of West
Bengal Industrial Development Corporation (WBIDC) and
Government of West Bengal (GoWB) to register the 155
million shares transferred to CP(l)PL could not, strictly
speaking, be taken to be failure on the part of the Company,
0
but it was the failure of one of the parties to a private
arrangement to abide by its commitments - The remedy in
such a case was not under s.397 of the Companies Act- The
alleged breach of the agreements, was really in the nature of
a breach between two members of the Company and not the
E Company itself- It is not on account of any act on the part of
the Company that the shares transferred to CP(l)PL were not
registered m the name of the Chatterjee Group - There was,
therefore, no occasion for the Company Law Board (CLB) to
make any order either under s.397 or 402 - The appellants
F failed to substantiate either of the two grounds canvassed by
them for the CLB to assume jurisdiction either u/s.397 or
s.402, and it could not, therefore, have given directions to
WBIDC and GoWB to transfer 520 million shares held by
them in HPL to the Chatterjee Group and the High Court
G rightly set aside the same and dismissed the Company
Petition.
Mis Haldia Petrochemicals Ltd. (HPL) was
incorporated for establishing a green field petrochemical
H complex in Haldia in the State of West Bengal to be
,•
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 137
PETROCHEMICALS LTD.
established by the West Bengal Industrial Development A
Corporation (WBIDC) and the R.P. Goenka Group. The
Goenka Group left the Company and Tata Chemicals and
Tata Tea were inducted into the project. However, since
the TATAs were not very keen to continue with the
Project, Dr. Purnendu Chatterjee, a Non-Resident Indian B
industrialist and financier, evinced his interest in
implementing the project. Accordingly, a Memorandum of
Understanding was entered into between WBIDC and the
Chatterjee Petrochem (Mauritius) Company [CP(M)C] and
the Tatas. c
The appellants filed Company Petition before the
Company Law Bo~.rd under Sections 397, 398, 399, 402,
403 and 406 of the Companies Act, 1956 seeking various
reliefs. The main grievance of the appellants was that
having been induced into investing large sums of money D
in establishing the petrochemical complex on various
promises, particularly that the Company would continue
to retain its private character and the Chatterjee group
would have control over its management, such promises,
although, reduced into writing in the form of agreements, E
not only remained unfulfilled, but even the character of
the Company was altered with the transfer and sale of 150
million shares by the Company in favour of IOC, a
Central Government Company. The other grievance of
the appellants was that despite having transferred 155 F
million shares in favour of CP(l)PL, and having received
the full price therefor, the Company had not registered the
same in the Company's Register of Share-holders,
thereby depriving the Chatterjee Group from exercising
its right to vote in respect of the said shares. G
The grievance of the Chatterjee Group was that by
not registering the transfer of the 155 million shares in
their favour, but, on the other hand, transferring 150
million shares in favour of IOC, the character of the
H
138 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A Company was altered from a Private Company into a
Government Company and also reduced the Chatterjee
Group to a minority, despite the promises held out earlier
and as incorporated in the agreements between the
parties.
B
The Company Petition was disposed of by the CLB
by upholding the decision of the Company to allot 150
million shares to IOC. Similarly, the transfer of 155 million
shares by WBIDC to the Chatterjee Group at Rs.10/- per
share was confirmed. A further direction was given to
C GoWB and WBIDC to transfer the 520 million shares held
by them in HPL to the Chatterjee Group.
The Government of West Bengal filed appeal before
the High Court against the said order of the CLB. The
D Single Judge of the High Court held that the agreement
entered into between CP(l)PL and WBIDC for transfer of
shares, being a private contract between two
shareholders, the same could not be the subject matter
of a petition under Section 397 of the Companies Act,
E 1956. On the question of induction of IOC and the
allotment of 155 million shares to the said Company, the
Single Judge held that the induction of IOC was on the
basis of the Debt Restructuring Package and the
Refinancing Scheme, which were to the advantage of
F HPL, and had been decided from time to time at the Board
meetings of the Directors, which had been presided over
by Dr. Chatterjee himself. The Single Judge held that the
order passed by the CLB was contrary to the provisions
of Section 402(e) of the Act, since no relief under the said
G Section could be granted without a finding having been
arrived at that a case of oppression had bee11 made out
with!n the meaning of Section 397 of the aforesaid Act.
Hence the present appeals. ·
Dismissing the appeals, the Court
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 139
PETROCHEMICALS LTD.
HELD:1.1. In order to succeed in an action under A
Sections 397 and 398 of the Companies Act, the
complainant has to prove that the affairs of the Company
were being conducted in a manner prejudicial to public
interest or in a manner oppressive to any member or
members. However, the law has not defined as to what B
would amount to "oppressive" for the purposes of
Section 397 and it is for the Courts to decide on the facts
of each case as to whether such oppression exists
which would call for action under Section 397. The
conduct of the majority shareholders should not only be c
oppressive to the minority, but must also be burdensome
and operating harshly upto the date of the petition. [Paras
93, 94] [194-E-H; 195-G-H; 196-A]
1.2. In order to pass orders under Section 397 of the
Companies Act, 1956, the CLB has to be satisfied that the D
Company's affairs are being conducted in a manner
oppressive to any member or members and that the facts
would justify the making of a winding-up order on the just
and equitable principle, but that such an order would
unfairly prejudice the Applicant before the CLB. Unwise, E
inefficient or careless conduct of a Director cannot give
rise to claim for relief under Section 397 of the Act. For
relief under this Section, the Applicant would have to
prove that the conduct of the majority of the shareholders
lacked probity and was unfair so as to cause prejudice F
to the Applicant in exercising his legal and proprietary
rights as a shareholder. Each complaint under Section
397 will have to be judged on its own merit for the CLB
to arrive at a conclusion as to whether the ingredients of
Section 397 were satisfied and pass appropriate orders G
thereafter. [Para 96] [197-E-H; 198-A]
1.3. The language of Section 397 suggests that the
oppressive manner in which the Company's affairs were
being conducted could not be confined to one isolated H
140 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A incident, but that such acts would have to be continuous
as to be part of a concerted action to cause prejudice to
the minority shareholders whose interests are prejudiced
thereby. [Para 97] [198-B-C]
1.4. It is clear that when Dr. Purnendu Chatterjee
8
expressed his interest in setting up of the Haldia
Petrochemicals Ltd., various incentives had been offered
to him by the GoWB and WBIDC to invest in the Company
and to make it a successful commercial enterprise. Such
investments were, however, contingent upon Dr.
C Chatterjee's bringing in sufficient equity to set up and run
the Company. At the very initial stage all the
understanding between Dr. Chatterjee and GoWB &
WBIDC, both WBIDC and the Chatterjee Group were to
hold 433 million shares each, while Tata was to hold 144
D million shares. The promise extended by WBIDC and
GoWB to the Chatterjee Group to provide at least 60% of
the shares held by WBIDC at Rs.14/- per share to the
Chatterjee Group so as to give the Chatterjee Group the
majority shareholding in the Company, as was indicated
E in the Agreements dated 12th January, 2002, 8th March,
2002 and 14th January, 2005, did not ultimately
materialise and, on the other hand, the Chatterjee Group
was reduced to a minority on account of its decision not
to participate in the Rights Issue, and, thereafter, by
F transfer of 150 million shares by WBIDC in favour of IOC.
[Para 101] [199-E-H; 200-A]
1.5. Although, the Chatterjee Group has complained
of the manner in which it had been reduced to a minority
G in the Company, it is also obvious that when the
Company was in dire need of funds and the Chatterjee
Group also promised to provide a part of the same, it did
not do so and instead of bringing in equity, it obtained a
loan from HSBC through the Merlin Group, which only
increased the debt equity ratio of the Company.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 141
PETROCHEMICALS LTD.
Furthermore, while promising to infuse sufficient equity A
in addition to the amounts that would have been brought
in by way of subscription to the Rights Issue, the
Chatterjee Group imposed various pre-conditions in
order to do so, which ultimately led GoWB and WBIDC
to terminate the agreement to transfer sufficient number B
of shares to the Chatterjee Group to enable it to have
complete control over the management of the Company
and also to retain its private character. It is at a stage
when there was a threat to the supply of Naphtha, which
was the main ingredient used by HPL for its c
manufacturing process, that it finally agreed to induct ICC
into the Company as a member by transferring 150 million
shares to it. It was on Dr. Chatterjee's initiative that it had
been decided to induct the ICC as a member of the
Company at meetings of the Directors which were D
chaired by Dr. Chatterjee himself. If in the first place, the
Chatterjee Group had stood by its commitment to bring
in equity and had subscribed to the Rights Issue, which
was a decision taken by the Company to infuse equity ·
in the running of the Company, it would neither have · E
been reduced to a minority nor would it perhaps have
been necessary to induct ICC as a portfolio investor with
the possibility of the same being converted into a
strategic investment. [Para 102] [200-~-H; 201-A]
1.6. The failure of WBIDC and GoWB to register the F
155 million shares transferred to CP(l)PL could not,
strictly speaking, be taken to be failure on the part of the
Company, but it was the failure of one of the parties to a
private arrangement to abide by its commitments. The
remedy in such a case was not under Section 397 of the G
Companies Act. The alleged breach of the agreements,
was really in the nature of a breach between two
members of the Company and not the Company itself. It
is not on account of any act on the part of the i:;ompany
that the shares transferred to CP(l)PL were not registered H
142 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A in the name of the Chatterjee Group. There was,
therefore, no occasion for the CLB to make any order
either under Section 397 or 402 of the aforesaid Act. [Para
103) [201-B-G]
B 1.7. The appellants failed to substantiate either of the
two grounds canvassed by them for the CLB to assume
jurisdiction either under Section 397 or 402 of the
Companies Act, 1956, and it could not, therefore, have
given directions to WBIDC and GoWB to transfer 520
C million shares held by them in HPL to the Chatterjee
Group and the High Court rightly set aside the same and
dismissed the Company Petition. [Para 104) [202-B]
Shanti Prasad Jain Vs. Kalinga Tubes Ltd. (1965) 2 SCR
720; Needle Industries (India) Ltd. & Ors. Vs. Needle
D Industries Newey (India) Holding Ltd: & Ors. (1981) 3 SCC
333 : 1981 (3) SCR 698; V.S. Krishnan & Ors. Vs. Westfort
Hi-Tech Hospital Ltd. & Ors. (2008) 3 SCC 363: 2008 (3)
SCR 184; Bengal Luxmi Cotton Mills Ltd. (1969) CWN 137;
Sangramsingh P. Gaekwad & Ors. Vs. Shantadevi P.
E Gaekward & Ors. (2005) 11 SCC 314 : 2005 (1) SCR 624;
R. Ramanathan Chettiar Vs. A & F Harvey Ltd. & Ors. 1967
(37) Comp. Case 212; BALCO Employees' Union (Regd.) Vs.
Union of India & Ors. (2002) 2 SCC 333 : 2001 (5) Suppl.
SCR 511; Hanuman Prasad Bagri Vs. Bagress Cereals Pvt.
F Ltd. (2001) 4 sec 420 : 2001 (2) SCR 811; Kilpest Pvt. Ltd.
& Ors. Vs. Shekhar Mehra (1996) 10 SCC 696 : 1996 (7)
Suppl. SCR 239; Hind Overseas Pvt. Ltd. Vs. Raghunath
Prasad Jhunjhunwalla & Anr. (1976) 3 SCC 259: 1976 (2)
SCR 226; Allianz Securities Ltd. Vs. Regal Industries Ltd.
G 2002 (11) CC 764; Howrah Trading Company Vs. CIT AIR
1959 SC 775: 1959 Suppl. SCR 448; Life Insurance
Corporation of India Vs. Escorts Ltd. (1986) 1 SCC 264 :
1985 ( 3) Suppl. SCR 909; Manna/al Khetan Vs. Kadamath
Khetan [(1977) 2 SCC 424) : 1977 ( 2 ) SCR 190; Claude
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 143
PETROCHEMICALS LTD.
Lila Parulekar (Smt.) Vs. Sakal Papers (P) Ltd. (2005) 11 A
SCC 73 : 2005 (2) SCR 1063; J.P. Srivastava & Sons Pvt.
Ltd. Vs. Gwalior Sugar Co. Ltd. (2005) 1 SCC 172 : 2004 \5j
Suppl. SCR 648; Mathrubhumi Printing & Publishing Co.
Ltd. Vs. Vardhman Publishers Ltd. (1992) 73 CC 80 and
Satgur Prasad Vs. Hamarayan Das AIR 1932 PC 89; Dale B
- & Carrington lnvt. P. Ltd. Vs. P.K. Pratl:lapan (2005) 1 SCC
217; Rajahmundry Electric Supply Corporation Ltd. Vs. A
Nageswara Rao & Ors. (1955) 2· SCR 1066; M.S.D.C.
Radharamanan Vs. M. S. D. Chandrasekara Raja & Anr.
(2008) 6 SCC 750: 2008 (5) SCR 182; Sangramsinh P. c
Gaekwad &'Ors. Vs. Shantadevi P. Gaekwad (Dead) through
LRs. & Ors. (2005) 11 sec 314: 2005 (1) SCR 624; Kamal
Kumar Dutta & Anr Vs. Ruby General Hospital Ltd. & Ors.
(2006) 7 SCC 613: 2006 (4) Suppl. SCR 462; New Horizons
Ltd. & Anr. Vs. Union of India & Ors. (1995) 1 SCC 478: 1994 D
( 5) Suppl. SCR 310 - referred to.
O'Neill Vs. Phillips (1999)2 All ER 961; Blisset Vs."
Daniel 68 E.R. 1022; Ebrahimi Vs. Westboume Galleries
(1972) 2 All ER 492; Ebrahimi Vs. Westboume Galleries Ltd
& Ors. (1972) 2 All ER 492 and Saul D Harrison & Sons pie E
(1995) 1 BCLC 14 - referred to.
Case Law Reference:
(1965) 2 SCR 720 referred to Para 22
F
1981 (3) SCR 698 referred to Para 32
(1999)2 All ER 961 referred to Para 36
68 E.R. 1022 referred to Para 36
G
(1972) 2 All ER 492 referred to Para 36
(2005) 1 sec 211 referred to Para 36
(1955) 2 SCR 1066 referred to Para 37
2008 (5) SCR 182 referred to Para 38 H
144 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A 2005 (1) SCR624 referred to Para 39
2006 (4) Sup!"> I. SCR462 referred to Para 39
1994 (5) Suppl. SCR 310 referred to Para 40
(1972) 2 All ER 492 referred to Para 40
B
2008 (3) SCR 184 referred to Para 42
1995 1 BCLC 14 referred to Para 61
1969 CWN 137 referred to Para 64
c
2005 (1) SCR 624 referred to Para 64
1967 (37) Comp. Case 212 referred to Para 64
2001 (5) Suppl. SCR 511 referred to Para 75
D 2001 (2) SCR 811 referred to Para 82
1996 (7) Suppl.· SCR 239 referred to Para 83
1976 (2) SCR 226 referred to Para 83
E 2002 (11) cc 764 referred to Para 84
1959 Suppl. SCR 448 referred to Para 86
1985 (3) Suppl. SCR 909 referred to Para 86
1977 (2) SCR 190 referred to Para 86
F
2005 (2) SCR 1063 referred to Para 86
~004 (5) Suppl. SCR 648 referred to Para 86
(1992) 73 cc 80 referred to Para 86
G
(AIR 1932 PC 89 referred to Para 87
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5416-5419 of 2008.
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 145 .
PETROCHEMICALS LTD.
From the Judgment & Order dated 21.9.2007 of the High A
Court of Calcutta in APO No. 45,46, 73 and 113 of 2007.
WITH
C.A. Nos. 5420 and 5437-5440 of 2008.
B
Falsi S. Nariman, Dr. A.M. Singhvi, Sudipto Sarkar,
Siddharth Mitra, Ashok Desai, Altaf Ahmad, R.S. Suri, K.K.
Venugopal and Ranjit Kumar, Neeraj Sharma, Roopali Singh
Subhash Sharma, Archana Lakhotia (for Dua Associates, H.K.
Puri, Gaurav Duggal, Amit Meharia (for Meharia & Co.), Anuj c
Bhandari, Sanjay Bhat, Amit Wadha, Aniruddha S. Deshmukh,
Sahir Hussain, Yashvardhan Roy, S. Mahendran, Mayank
Mishra, Ananya Kumar, Amar Gupta, Vibha Datta Makhija, Jay
Savla, Meenakshi Ogra, Sanjeev K. Kapoor, Kumar Mihir, S.
Karkrania (for Khaitan & Co.) Nitish Massey, Pinaki Addy, Anu D
Bindra, K.S. Prasad, Chanchal Kumar Ganguly, Amar Gupta,
Ankur Sa1gal, Bina Gupta, Mayank Mishra, V.D. Makhija, Fox
Mandal & Co. and Manik Karanjawala for the appearing
parties.
The Judgment of the Court was delivered by E
· ALTAMAS KABIR, J. 1. Mis. Haldia Petrochemicals Ltd.,
hereinafter referred to as "H.P.L.", was incorporated in 1985
for establishing a green field petrochemical complex in Haldia
in the State of West Bengal to be established by the West F
Bengal Industrial Development Corporation, hereinafter
referred to as "WBIDC", and the R.P. Goenka Group. However,
the Goenka Group left the Company in 1990 and Tata
Chemicals and Tata Tea were inducted into the project between
1990 and 1993. Not much headway was made towards G
implementing the project till June, 1994 when Dr. Purnendu
Chatterjee, hereinafter referred to as "PC", a Non-Resident
Indian industrialist and financier, expressed an interest in the
project. Accordingly, a Memorandum of Understanding was
entered into between WBIDC and the Chatterjee Petrochem H
146 SUPREME COURT REPORTS (2011) 15 (ADDL.) S.C.R.
A (Mauritius) Company, hereinafter referred to as "CP(M)C" and
the Tatas on 3rd May, 1994. According to the said
Memorandum, the initial cost of the project was estimated at
Rs.3600 crores which was to be funded with a debt of Rs.2400
crores and equity of Rs.1200 crores. Initially, equity capital of
B Rs.700 crores was to be contributed by WBIDC, CP(M)C and
the Tatas in the ratio of 3:3:1 respectively. It was also provided
that the Board of the Company would consist of four nominees
each of WBIDC, CP(M)C and two from the Tata group. This was
followed by a Joint Venture Agreement, hereinafter referred to
c as "JVA", between the three parties on 20th August, 1994,
incorporating the terms which had been agreed upon by the
parties. It was decided that both WBIDC and CP(M}C would
invest Rs.300 crores each and the Talas would invest Rs.100
crores, while Rs.500 crores was to be obtained from the public,
including Non-Resident Indians and Financial Institutions,
0
towards equity, keeping the debt equity ratio at 2:1. Certain
other terms and conditions agreed between the parties were
also included in the Agreement, of which one of the specific
terms was that in case of disinvestment by WBIDC, the
disinvested shares would be offered to CP(M)C. One of the
E other terms agreed to by the parties is that they would be entitled
to seek specific performance of the terms and conditions of the
agreement in accordance with the provisions of the Specific
Relief Act, 1963, and the agreement would remain in force as
long as the parties held the prescribed percentage of shares.
F
2. After the said agreement was executed, four other
letters dated 30th September, 1994, 6th October, 1994 and 5th
January, 1995, were exchanged between the parties, whereby
it was agreed that between 24 months of commencement of
G commercial production or within 60 months of the date of the
JVA, whichever was later, at least 60% of the shareholding of
the WBIDC would be offered to CP(M)C at Rs.14/- per share.
It was provided that the role of the Government in the Company
would be limited to its promotion and guidance through the initial
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 147
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
phases of the project and that the nominee of CP(M)C would A
be the Managing Director. In March, 1995, the Articles of
Association of the Company were altered to bring it in line with
the terms of the JVA. An addendum to the JVA was executed
on 3oth September, 1996/4th October, 1996, by which the
project cost was revised to Rs.5170 crores and the equity B
participation was revised to Rs.432.857 crores to be provided
by WBIDC and by CP(M)C, while Talas were to provide
Rs.144.286 crores. The remaining equity participation of
Rs.969 crores was to be from the public.
3. The project started in 1997 and commercial production
c
commenced in August, 2001. Thereafter, further agreements
were entered into between the parties and the first of such
agreements was entered into on 12th January, 2002, whereby
CP(M)C, the Government of West Bengal, WBIDC and HPL,
inter a/ia, agreed on a certain course of action in regard to D
HPL's need of financial and managerial restructuring. The object
and exercise of such restructuring was that CP(M)C would
acquire a controlling interest of 51 % shares in the equity of the
Company and would have complete control over the day-to-day
affairs of the Company, including the right to appoint key E
executives. WBIDC also agreed to vote along with CP(M)C on
all issues in the shareholders meeting and its nominee would
also vote along with the nominee Directors of the CP(M)C. It
was specifically agreed that all other rights and obligations of
CP(M)C in terms of the earlier agreement would continue till F
CP(M)C acquired majority shares in the Company.
4. The aforesaid agreement was followed by another
agreement dated 8th March, 2002, wherein it was recorded that
in terms of the agreement dated 12th January, 2002, G
155,099,998 equity shares of WBIDC had been transferred and
delivered to CP(l)PL, on 8th March, 2002. It was also mentioned
. that the said shares were pledged with WBIDC and,
accordingly, the shares had been duly lodged along with the
share certificates with WBIDC and the pledge had been H
148 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A acknowledged. Certain other agreements in regard to the
shareholding pattern and the management of the Company
were entered into, wherein after allotment of shares to Winstar,
which had been brought in to infuse Rs.127.4 crores towards
equity, the collective shareholding of the Appellants was shown
B to be 58.62% with a rider that 155 million shares transferred
by WBIDC to CP(M)C was subject to registration and lenders'
approval. We may have recourse to refer to some of the said
agreements at a later stage.
C 5. One other agreement which is releva_nt to the facts of
this case was entered into between PC and the Government
of West Bengal, represented by the Respondent No.8, Shri
Sabyasachi Sen, on 14th January, 2005, wherein it was
indicated that the Government of West Bengal would sell its
entire shareholding in HPL to CP(M)C, and that the price of the
D shares would be determined by an independent valuer selected
by the Government of West Bengal from amongst a panel of
firms to be prepared by CP(M)C. It was further declared that
the recommendation of the valuer would be binding both on the
Government of West Bengal and CP(M)C.
E
6. In the months of January and February, 2005, HPL had
approved the issuance and allotment of equity shares worth
Rs.150 crores at par to Indian Oil Corporation (IOC). Objecting
to the proposed allotment of shares to IOC anc also on the
F ground that WBIDC and the Government of West Bengal had
failed to fulfil their commitment to transfer their balance 36%
shares to the Appellants, the Appellants filed Company Petition
No.58 of 2009 before the Company Law Board under Sections
397, 398, 399, 402, 403 and 406 of the Companies Act, 1956,
G inter alia, for the following reliefs :-
"(a) An order be passed directing the company to take
immediate steps for modifying and/or altering and/
or amending the Articles of Association of the
Company to incorporate therein the complete
H agreement by and between the joint venture
CHAITERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 149
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
partners and special rights of the petitioner in A
relation to the Company, as provided in the
Agreements dated 20th August, 1994, 12th
January, 2002, 8th March 2002 and 30th July, 2004.
(b) Appropriate orders be passed directing the entire
B
shareholding of the respondent No.2 in the
Company to be tra11sferred in favour of the petitioner
at the agreed price of Rs.14/- per share in respect
of such number of shares of HPL registered in the
name of Respondent No.2 constituting 60% of the
holding of the respondent No.2 in the Company and c
on such valuation in respect of the balance shares
held by Respondent No.2 as this Hon'ble Board
may think fit and proper;
(c) Declaration that the resolution passed at the EGM D
of the Company held on January 14, 2005, is illegal,
inoperative, null and void and not binding on the
Company or any person connected therewith;
(d) Permanent injunction restraining the respondents
E
whether by themselves or by their servants or
agents or assigns or otheiwise howsoever from
giving any effect or further effect to the resolution
passed on the EGM held by the Company on
January 14, 2005 in any manner whatsoever;
F
(e) Permanent injunction restraining the Company from
receiving any money or encashing any cheque that
may have been issued by the Respondent No.6 to
the Company in pursuance of the Memorandum of
Association and the resolution passed by the EGM G
of the Company held on January 14, 2005;
(f) Permanent injunction restraining the Company and
its Board of Directors from taking any major
decision or policy decision relating to the
H
150 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A management and affairs of the Company before
the majority shareholding and management control
in the Company is effectively established as per th~
Agreements dated 12th January, 2002, arid 3oi~
July, 2004, including the due recognitidn' of the
nominee of petitioner No.? ;:is Director of the
Company pursuanflo the letter of Petitioner No.2
dated 1st ~ugust, 2005;
(g) Permanent injunction restraining the Company-and
its present board from dealing with or disposing of
c or alienating or encumbering any asset or property
of the Company except strictly in the course of the
business of the Company;
(h) Permanent injunction restraining the Company and
D its Board of Directors from taking any decision in
relation to the management and administration of
the Company except with the previous approval of
the petitioner;
(i) Permanent injunction restraining the respondents
E
and each of them from in any manner acting in
derogation of the petitioner's rights as majority
shareholders in the company and the petitioner's
right to control the management of the \.ompany,
including without limitation by way of sale of shares
F of the Company held by any of them to any third
party except the petitioners;
(j)
··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-··
G
(k)
··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-··
(I) Direct the reconstitution of the Board of the
Company to reflect the majority control and the
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 151
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.j
special rights accorded under the Agreements A
between the shareholders to the petitioners;
(m)
(n) •
B
Subsequently, on coming to learn that the shares in
question had already been allotted to IOC, the Appellants filed
an application for amendment of the petition to challenge the
allotment in favour of IOC and seeking cancellation thereof.
7. Before the Company Law Board, hereinafter referred
c
to as "the CLB';, not only was it reiterated by the Chatterjee
Group that PC had to rejuvenate the Company and to
implement the project, for which he was recognized as a
"promoter" in the Memorandum of Understanding entered into D
on 3rd May, 1994, but that there was a clear understanding that
the Chatterjee Group would have management interest in the
Company. Before the CLB it was further contended that the
Company was really a quasi-partnership with each of the three
groups having financial stakes and management participation.
The Chatterjee Group further claimed that the Memorandum of E
Understanding not only provided for the Appellants to hold 3/
7th of the shares of the Company, but also 2/5th of the
Directorship therein. WBIDC was also to have a 3nth share in
the Company so that the Company remain as a private
company. F
8. The Chatterjee Group also reiterated that in the JVA
dated 20th August, 1994, the Chatterjee Group had been given
a right of pre-emption to acquire the shares of WBIDC if it
chose to disinvest its shares. Before the CLB it was also G ·
emphasized that at the time of entering into a Memorandum of
Understanding on 3rd May, 1994, it had been clearly understood
between the parties that the Company would remain in the
private sector. Repeating what has been indicated
hereinbefore, learned counsel for the Chatterjee Group H
152 SUPREME COURT REPORTS (2011) 15 (ADDL.) S.C.R.
A submitted bdore the CLB that in addition to the JVA, 4 letters
had been exchanged between the Chatterjee Group and the
WBIDC/GoWB providing for the Chatterjee Group to acquire
at least 60% of the shares held by WBIDC at Rs.14/- per share
upon the happening of certain events within a particular
B timeframe. Before the CLB the Chatterjee Group also
contended that it was understood by the parties that the role of
the Government would gradually be confined to promotion and
guidance during the initial stages of the project, after which the
control of the management would be in the private sector and
c the nominee of the Chatterjee Group would be the Managing
Director of the Company.
9. In support of its contention of mismanagement and
oppression by the Company towards the Chatterjee Group, it
was alleged that the decision to allot 150 million shares to IOC
D by WBIDC/GoWB had been taken behind its back with the sole
intention of preventing the Chatterjee Group from acquiring the
control of the Company's affairs, as was promised and
understood at the initial stage when PC agreed to participate
in the equity holdings of the Company. One of the major acts
E of oppression complained of by the Chatterjee Group before
the CLB was that despite having received payment in respect
of 155 million shares and having transferred the same to the
Chatterjee Group, it did not complete the trans(er by registering
the transfer with the Company and altering its Register of
F Members accordingly, which effectively deprived the Chatterjee
Group of having the promised majority shareholding in the
Company. Before the CLB it was further contended that had
the said shares been registered in the name of the Chatterjee
Group, the total shareholding of the Chatterjee Group would
G have been 51% which would have given them control of the
affairs of the Company. Hence, a prayer had been made before
the CLB for a direction upon WBIDC/GoWB to complete the
transfer of the 155 million shares in favour of the Chatterjee
Group.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 153
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.)
10. On behalf of the Cnatterjee Group it had also been A
contended before the CLB that it had agreed to induct IOC as
a portfolio investor in the Company at the instance of GoWB.
However, subsequently, by its letter dated 20th September,
2004, the Chatterjee Group had indicated that in view of the
proposed public offer, there was no further necessity of B
inducting any portfolio investor, but the investment of Rs.150
crores by IOC could be considered. A resolution was adopted
by the Company on 2nd November, 2004, to allot shares to
IOC, although the Chatterjee Group was against such allotment.
In order to maintain the private character of the Company, the C
Chatterjee Group called upon WBIDC to sell 60% of its
shareholding to the CP(M)C at the agreed price of Rs.14/- per
share as recorded in the letter dated 30th September, 1994. It
was further submitted before the CLB that upon such demand
being made, discussions were held and it was mentioned that
the GoWB and WBIDC would give in writing, that the entire D
shareholding of WBIDC in the Company would be sold to the
Chatterjee Group. It was, therefore, submitted that pursuant to
such discussions and representations that an Agreement was
reached on 14th January, 2005, between one Dr. Sabyasachi
Sen and PC in the presence of Mr. Tarun Das, wherein they E
agreed to vote in support of the Resolution to allot 150 million
HPL equity shares to IOC at par. The grievance of the
Chatterjee Group before the CLB was that inspite of several
letters written on behalf of the Chatterjee Group, no steps were
taken by the Company to give effect to the Resolution dated F
14th January, 2005.
11. Another major grievance of the Chatterjee Group
before the CLB was that sometime before 15th July, 2005,
doubts regarding IOC's investment in HPL were substantiated G
when the letter dated 10th November, 2004, written by the
WBIDC to IOC was discovered. It was contended before the
CLB that by deliberately suppressing the discussions between
WBIDC and IOC which would give IOC control over the
management of HPL, WBIDC/GoWB wrongly obtained the H
154 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R. ·
A consent of the Chatterjee Group to the Resolution of the Extra-
Ordinary General Meeting held on 14th January, 2005, to allot
shares at par to the Respondent No.6 IOC. The Chatterjee
Group also complained that neither GoWB nor WBIDC had ever
intended to honour the agreement dated 14th January, 2005,
8 and from the letter dated 10th November, 2004, it was clear
that GoWB and WBIDC did not intend to sell the HPL shares
held by the WBIDC to the Chatterjee Group.
12. It was also contended before the CLB by the Chatterjee
Group that since HPL was not in immediate need of funds, the
C allotment of shares to IOC was not warranted despite the fact
that the Chatterjee Group was ready and willing to complete
the share purchase deal at the agreed price of Rs.14/- per
share. By virtue of the superior bargaining power of the WBIDC
and GoWB, the Chatterjee Group could not enforce their special
D rights on account of their continuing minority status in the
Company, nor could it acquire control of the management
thereof.
13. It was also contended that even the Articles of
E Association had not been modified or altered to reflect the
rights which the Chatterjee Group enjoyed and the clandestine
arrangement arrived at between the GoWB, WBIDC and IOC
undermined the very basis on which the request made by
GoWB and WBIDC had been accepted by the Chatterjee
F Group. Accordingly, the said arrangement was required to be
brought to an end for resolving the oppressive acts of the
GoWB and the WBIDC.
14. On the basis of the aforesaid allegations, the Chatterjee
Group contended before the CLB that the affairs of the
G Company were being conducted in a manner which was
prejudicial to the public interest and oppressive to them. It was
further contended that winding-up of the Company would unfairly ·
prejudice the parties but that otherwise ~he facts would justify
the making of a winding-up or9er on just ilfid equitable grounds.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 155
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
15. The aforesaid stand taken by the Chatterjee Group A
was opposed on behalf of the Company on the ground that
inspite of having made several promises to infuse equity into
the Company, it had failed to do so and in view of severe fund
crunch faced by the Company on account of such failure, the
Company had no other alternative, but to transfer the shares in B
question to a party which was willing to do so. In fact; it was
the joint contention of GoWB and WBIDC that since the
Chatterjee Group had failed to abide by its commitments to
infuse equity into the Company and as the affairs of the
Company were at a point of collapse, with creditors, particularly c
the Indian Oil Corporation supplying Naphtha, which was the
essential ingredient in the manufacturing process of the
Company, demanding their outstanding dues even under the
threat of taking appropriate action under the provisions of the
Companies Act, 1956, the Company had no option but to D
transfer the 150 million shares to IOC as per the decision taken
earlier. ·
16. In addition to the above, it was also submitted that the
Chatte~ee Group had agreed to the decision to induct the IOC
in the Company as a portfolio investor. E
17. The Company Petition was disposed of by the CLB
by upholding the decision of the Company to allot 150 million
shares to IOC, ·which would be at liberty to deal with the same
in any manner it thought fit. Similarly, the transfer of 155 million F
shares by WBIDC to the Chatterjee Group at Rs.10/- per share
was confirmed. A further direction was given to GoWB and
WBIDC to transfer the 520 million shares held by them in HPL
to the Chatterjee Group. The Chatterjee Group was also
directed tq purchase the 271 million preference shares held by G
GoWB and WBIDC at par. The CP(l)PL was directed to pay a
sum of Rs.125 crores to WBIDC towards balance consideration
for the 155 million shares on or before 28th February, 2007. It
was further directed that on payment of the said amount, the
shares in question would be deemed to have been /H
156 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R
. A dematerialized and transferred in the name of CP(l)PL, without
any further deed or act or refusal from anyone or production of
any instruction to transfer. Significantly, the Chatterjee Group
was also given liberty as soon as they paid the consideration
for the 155 million shares, to take control of the day-to-day
B management of the Company as they would then be holding
51 % of the equity shares, with the stipulation that no major
decisions would be taken without the approval of the Court. The
CLB also came to a definite finding that the 150 million shares
allotted to IOC had not been so transferred suddenly or
c surreptitiously or with any ulterior motive and the allegation of
a secret agreement between GoWB and IOC, though of very
little significance, has been magnified by the Chatterjee Group
in the Company Petition.
18. The Government of West Bengal, through its Joint
D Secretary in the Department of Commerce and Industry, filed
an appeal before the Calcutta High Court :,;gains! the said order
of the CLB dated 31st January, 2007 under Section 1OF of the
Companies Act, 1956, and the same was numbered as
AP.O.No.45 of 2007. Among the various grounds taken in the
E Appeal, a question was raised as to whether the CLB could
have assumed jurisdiction on the Company Petition filed by
Chatterjee Petrochem (Mauritius) Ltd. Co., Winstar India
Investment Co.mpany Ltd., India Trade (Mau~itius) Ltd. and
Chatterjee Petrochem (India) Pvt. Ltd., to enforce rights under
F private contracts. Another ground taken was that the CLB had
erred in applying the doctrine of legitimate expectation in a
Petition under Section 397 read with 8ections 398 and 402 of
the Companies Act, 1956, and in treating the Company to be
a quasi-partnership. As a corollary to the said question, the
G Government of West Bengal also questioned the jurisdiction of
the CLB to convert the Company Petition into a Suit for Specific
Performance of Contract. It was also contended that the issues
raised in the Company Petition were with regard to the disputes
of a contractual nature between shareholders and the non-
H performance of such contracts between the shareholders could
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 157
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
not be treated to be the "Affairs of the Company". The locus A
standi of the Chatterjee Petrochem (India) Pvt. Ltd. to maintain
a petition under Section 398 of the Companies Act was also
questioned since on the date of filing of the Petition before the
CLB, the said Company was not even a member of the Joint
Venture Company. It was also reiterated that no case for B
mismanagement or oppression had been made out and the
application under Section 398 of the above Act was liable to
be dismissed.
19. Upon hearing the parties, the learned Single Judge held C
that CP(l)P!.. had no locus standi to maintain a petition under
Section 397 of the Companies Act and that CLB could not have
assumed jurisdiction on the Company Petition, in which
CP(l)PL was a petitioner, since CP(l)PL was not a member of
HPL. The learned Single Judge held that such a petition for the
purpose of enforcing rights under private contracts would not D
be maintainable and that the agreement entered into between
CP(l)PL and WBIDC for transfer of shares, being a private
contract between two shareholders, the same could not be the
subject matter of a petition under Section 397 of the
Companies Act, 1956. The learned Single Judge also E
observed that such agreements could not be treated to be
"affairs of the Company" and that, in any event, such a ground
had not also been pleaded in the Company Petition. The
learned Judge held that the order of the CLB, which was based
entirely on the question of transfer of the 155 million shares by F
WBIDC to CP(l)PL, stood vitiated by such jurisdictional error.
20. The learned Single Judge also held that the CLB was
not justified in applying the concept of quasi-partnership, which
had been urged on behalf of the Chatterjee Group, to HPL. G
According to the learned Single Judge, the question as to why
a Limited Company should be considered to be a quasi-
partnership, would have to be decided on the facts of each
case. While, on the one hand, it would be easy to apply the said
concept to a closely-held Family Company or a Private Limited H
158 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A Company, as in cases where a partnership is converted into a
Company, such an assumption could not be arrived at merely
on the ground that the promoters of the Company described
themselves as partners.
21. The learned Single Judge further held that from the
B entire pleagings in the Company Petition no case whatsoever
had been made out that in conducting the affairs of HPL, the
GoWB and WBIDC had oppressed the Petitioners in any way
so as to attract the provisions of Section 397 of the Companies
Act. The learned Single Judge also held that the CLB was not
C right in applying the doctrine of legitimate expectation to the
agreement entered into between WBIDC and CP(l)PL on 8th
March, 2002, thereby converting the Company Petition into a
suit for specific performance of contract. The learned Judge
observed that by granting relief in the name of the doctriAe of
D legitimate expectation, the CLB has actually enforced specific
performance of the contract and agreements, which was beyond
its jurisdiction.
22. Lastly, on the question of the induction of IOC and the
E allotment of 155 million shares to the said Company, the
learned Single Judge held that the induction of IOC was on the
basis of the Debt Restructuring Package and the Refinancing
Scheme, which were to the advantage of HPL, and had been
decided from time to time at the Board meetings of the
Directors, which had been presided over by PC. On the basis
F of his aforesaid findings, the learned Single Judge, relying on
the decision of this Court in Shanti Prasad Jain Vs. Kalinga
Tubes Ltd. [(1965) 2 SCR 720], held that an order granting
relief under Section 397 could be made only after affirming and
recording an opinion on each of the three conditions mentioned
G in Section 397(2)(a) and (b) of the Companies Act, 1956. The
learned Single Judge held that in the instant case, no such
opinion had either been formed or recorded by the CLB relating
to the said three conditions. The learned Single Judge also
rejected the submissions made on behalf of the Petitioners that
H an opinion with regard to the said two conditions would
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 159
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
. automatically follow from the opinion formed by the CLB on A
oppression, or such opinion could be gathered from the order
of the Board itself. The learned Single Judge, accordingly, held
that the order passed by the CLB was contrary to the provisions
of Section 402(e) of the above Act, since no relief under the
said Section could be granted without a finding having been B
arrived at that a case of oppression had been made out within
the meaning of Section 397 of the aforesaid Act.
23. Appearing for the Chatterjee Group, Mr. Fali S.
Nariman, learned Senior Advocate, did not seriously oppose C
the contention that the prayers in the Company Petition were
really for specific performance of the various agreements
entered into by the parties, but that the same were on account
of the acts of oppression and mismanagement on the part of
GoWB, HPL and WBIDC with regard to the non-registration of
the 155 million shares which had already been transferred by D
WBIDC in favour of the Chatterjee Group. Mr. Nariman urged
that although the said shares had been transferred in favour of
the Chatterjee Group and although the price in respect thereof
had been duly received by HPL, the Company had not
registered the said 155 million shares with the Company in the E
name of CP(l)PL and the transfer of the said shares was also
not reflected in its Register of Members. Mr. Nariman contended
that by not registering the 155 million shares in the name of the
Chatterjee Group, which deprived the Chatterjee Group of
being the majority shareholder, and, at the same time, allotting F
150 million shares to IOC, the acts of the Company reduced
the Chatterjee Group from a majority shareholder to a minority
shareholder, which amounted to oppressive treatmen! by the
Company.
G
24. Mr. Nariman submitted that at the time of entry of the
Chatterjee Group through the CP(M)C in 1994, the total issued
share capital of HPL was 1010 million shares of Rs.10/- each
and the shareholding pattern was as under :-
H
160 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A CP(M)C 433 million shares
WBIDC 433 million shares
Talas 144 million shares
B 25. However, on 28th September, 2001, at the Board
Meeting of HPL, a Resolution was taken to offer a Rights Issue
to the existing shareholders so that a further sum of Rs.223
crores could be infused in HPL in the ratio of 107:107:36.
Although, the other shareholders subscribed to the Rights Issue,
c the Chatterjee Group did not on the ground that such equity
could be infused once the financial restructuring of HPL had
been completed. Accordingly, on 8th March, 2002, the
shareholding pattern as per the Register of Members in the
share capital of 1153 million shares was :
D CP(M)C 433 million shares= 37.56%
WBIDC 540 million shares = 46.83%
Tatas 180 million shares = 15.61 %
E 26. Mr. Nariman submitted that in the Agreement dated
30th July, 2004, which was supplemental to the Agreement
dated 12th January, 2002, executed by the GoWB, WBIDC,
CP(M)C and HPL, it was specifically mentioned that GoWB had
caused WBIDC to transfer to CP(l)PL, an affiliate of CP(M)C,
F shares worth Rs.155 crores and that CP(l)PL had become the
beneficial owner thereof. However, the registration of the said
shares in the books of HPL was kept pending till approval was
obtained from the Lenders, being the Banks and Financial
Institutions. Mr. Nariman submitted that as a result, despite the
G transfer by WBIDC of 155 million shares in favour of CP(l)PL,
WBIDC continued to be shown as owner thereof in the Share
Register of the Company. Mr. Nariman submitted that once
clearance had been obtained from the Lenders, WBIDC could
no longer refuse to register the said 155 million shares in the
H name of CP(l)PL, which was an integral part of the Chatterjee
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 161
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
Group. A
27. Mr. Nariman submitted that the number of shares
transferred by WBIDC to CP(l)PL comprised 13.44% of the total
number of shares amounting to 1~53 shares, which meant that
along with the 36.56% of the shares held by the Chatterjee B
Group, the total worked out to 51% and gave the Chatterjee
Group the management control of HPL and reduced the
shareholding of WBIDC from 46.83% to 36.9%.
28. Mr. Nariman submitted that on the same day on which
the Supplemental Agreement had been signed, a Share C
Subscription Agreement was executed by HPL, CP(M)C,
WBIDC and WINSTAR which, inter a/ia, referred to the
agreement entered into by GoWB, WBIDC, CP(M)C and HP-l
on 12th January, 2002 and that WBIDC, CP(M)C and CP(l)PL
had entered into an Agreement on 8th March, 2002, relating D
to the transfer of shares in the Company at Rs.10/- per share
and pursuant to that agreement, CP(M)C came to be in
management control of the Company.
29. Mr. Nariman urged that by signing the Share E
Subscription Agreement dated 30th July, 2004, WBIDC and
HPL had acknowledged the fact that pursuant to the
Agreements of 12th January, -2002 and 8th March, 2002,
155,099,998 shares had gone out of the holding of WBIDC and
were held by CP(l)PL, a part of the Chatterjee Group. However,
F
in the Company Petition filed before the CLB, WBIDC and
GoWB denied the same and ascertained that the 155 million
shares continued to be part of the holding of the WBIDC and a
further stand was taken that at no point of time had the
Chatterjee Group held the majority shares in HPL. In addition
to the above, by transferring 150 million shares to IOC, the G
WBIDC/GoWB had reduced the Chatterjee Group from a
majority to a minority, which clearly amounted to oppressive
treatment by the Company.
30. Mr. Nariman contended that on account of the various H
162 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R
A defaults committed by the Chatterjee Group in failing to infuse
equity into HPL, in breach of the Agreement dated 12th January,
2002, WBIDC and the GoWB were absolved of the application
to register the 155 million shares in favour of CP(l)PL. It was
pointed out that under the aforesaid Agreement, CP(M)C had
B agreed to infuse Rs.107 crores into HPL, of which Rs.53.5
crores was to be paid within 5 working days of signing of the
Agreement, which was executed on 25th January, 2002. Taking
into account the aforesaid sum, CP(M)C was required to
arrange for a minimum amount of Rs.500 cores, either as equity
cor equity-like instruments and/or advance from outside sources,
including strategic partners. The CP(M)C also agreed to
organize Letters of Comfort to be issued within 30 days of
signing of the Agreement for the purpose ·of overall debt
restructuring of HPL which was concluded by 31st March, 2002.
There was a further stipulation that the balance of Rs.53.5
0
crores, out of the sum of Rs.107 crores, was to be inducted by
CP(M)C within 5 days of the acceptance of the Letters of
Comfort.
31. Mr. Nariman further contended that the assurance given
. E in Clause 5 of the Agreement, which assured CP(M)C 51% of
the total paid-up equity of HPL, was not conditional to the
infusion of equity worth Rs.500 crores by the Chatterjee Group.
Such assurance was subject to compliance with the
requirements of providing Letters of Comfort and acceptance
F thereof by the GoWB and upon payment of Rs.53.5 crores as
stipulated. Mr. Nariman urged that since the said conditions had
been fulfilled by the Chatterjee Group, it was incumbent upon
GoWB and WBIDC to transfer the 155 million shares to
CP(M)C which was the beneficial owner thereof. It was
G submitted that the failure of WBIDC to effect such registration
and at the same time, registering 150 million shares in favour
of IOC, thereby reducing the Chatterjee Group to a minority
shareholder, was a positive act of oppression on the part of
the majority shareholder, which was sufficient to attract the
H provisions of Sections 397 and 398 read with Section 402 of
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 163
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.)
the Companies Act, 1956. Mr. Nariman urged that even if the A
. allotment of 150 million shares to IOC was not taken into
consideration, the continuous refusal on the part of the
Company to register the. 155 million shares in the name of
CP(l)PL, not only amounted to breach of the agreement dated
12th January, 2002, by which WBIDC and GoWB had agreed B
to ensure that the Chatterjee Group would remain in majority,
but that the same also attracted the provisions of Section 397
of the Companies Act. Mr. Nariman submitted that the said
promise ccntained in the Agreement dated 12th January, 2002,
formed the very basis on which PC had brought equity worth c
Rs.257 crores into HPL, but for which the Company would not
have been able to restructure its debts. Learned counsel
submitted that for WBIDC and GoWB to contend that the
induction of the Chatterjee Group on an understanding that it
would always have a majority control over the Company's
0
management, was simply an agreement between two
shareholders and not an affair of the Company, was not
acceptable. Mr. Nariman urged that the refusal of the WBIDC
to register the 155 million shares transferred to the CP(l)PL
affected the shareholding pattern of the Company and was,
therefore, directly an affair of the Company, which fact had been E
duly recognized by the CLB. Mr. Nariman submitted that it is
on account of the various assurances given by WBIDC and the
GoWB that the Chatterjee Group had become the owner of the
155 million shares, that it had been the consistent stand of the
Chatterjee Group that they were the majority shareholders of F
the Company.
32. Relying on the decision of this Court in· Needle
Industries (India) Ltd. & Ors. Vs. Needle Industries Newey
(India) Holding Ltd. & Ors. ((1981) 3 SCC 333], Mr. Nariman G
submitted that in determining a question of oppression under
Section 397 of the Companies Act, the Company Law Board
was entitled to take into account facts which had come into
existence after the company petition had been filed. Learned
. counsel gave several instances where despite having given H
164 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A assurances that the shares in question would stand transferred
in favour of CP(l)PL, the GoWB and WBIDC had failed to
complete the transfer on one ground or the other, despite
stating that the GoWB stood committed to the transfer of the
shares to the Chatterjee Group as per the Agreements dated
B 12th January, 2002, 8th March, 2002 and 30th July, 2004.
33. Mr. Nariman submitted that the clandestine manner in
which WBIDC had transferred 150 million shares in favour of
IOC was in complete breach of the agreement between WBIDC
C and PC that the Chatterjee Group would remain the majority
shareholder and would also have the control and management
over the company's affairs. Mr. Nariman submitted that had it
been brought to the knowledge of the Chatterjee Group that
such a secret agreement to transfer 150 million shares to IOC
was being negotiated, it would have never voted at the
D Extraordinary General Meeting of the Company on 14th
January, 2005, in support of the allotment of the said shares to
IOC.
34. Although, Mr. Nariman had made certain submissions
E with regard to the Agreement of 8th March, 2002, read with the
requirements of the Depositories Act, 1996, SEBI
(Depositories and Participants) Regulations, 1996 and the bye-
laws and business rules/operating instructions issued by the
depositories, we shall, if need be, refer to the same 1t a later
F stage of the proceedings.
35. Mr. Nariman submitted that the concept of oppression
for the purposes of Sections 397, 398 and 402 of the
Companies Act had been considered by this Court in various
cases. Learned counsel pointed out that in the Needle
G Industries case (supra), this Court had observed that the
behaviour and conduct complained of must be held to be harsh
and wrongful and in arriving at such a finding, the Court has to
look at the business realities of the situation and not confine
itself to a narrow legalistic view and allow technical pleas to
H defeat the beneficial provisions of the Section. Mr. Nariman
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 165
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
submitted that when the Company was in substance, though not A
in law, a partnership, there had to be utmost good faith between
the members. Mr. Nariman submitted that this Court had gone
even further to indicate that even if no oppression was made
out in a Petition under Section 397 of the Companies Act, the
Court is not powerless to do substantial justice between the B
parties.
36. Learned counsel submitted that Company law had
developed seamlessly from the law of partnership which is
based on mutual trust and confidence, as was observed by the
House of Lords in O'Neill Vs. Phillips [(1999)2 All ER 961], and C
in such a situation, the highest standards of honour had to be
maintained. It was also submitted that the aforesaid decision
of the House of Lords which was based on the earlier decision
in Blisset Vs. Daniel [68 E.R. 1022], was subsequently
reiterated by the House of Lords in Ebrahimi Vs. Westboume D
Galleries [(1972) 2 All ER 492] and also by this Court in the
Needle Industries case (supra). Mr. Nariman urged that in Dale
& Carrington lnvt. P. Ltd. Vs. P.K. Prathapan [(2005) 1 SCC
217], this Court had held that if a Member who holds the
majority of shares in a Company is reduced to the position of E
· a minority shareholder by an act of the Company or by its Board
of Directors, the said act must ordinarily be considered to be
an act of oppression to such Member.
37. Reference was also made to the decision of this Court F
in Rajahmundry Electric Supply Corporation Ltd. Vs. A.
Nageswara Rao & Ors. [(1955) 2 SCR 1066], wherein,
Venkatarama Ayyar, J., as His Lordship then was, while
referring to an equitable and just principle, held that when the
said doctrine specifying the ground of winding-up by the Court G
is not to be construed as ejusdem generis then whether
mismanagement of Directors is a ground for passing of a
winding up order under the Indian Companies Act, 1913,
becomes a question to be decided on the facts of each case.
Mr. Nariman pointed out that in the aforesaid judgment, the H
166 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A learned Judge had referred to the decision in Loch Vs. John
Blackwood Ld. [(1924) AC 783), in which an order for winding-
up of the Company was ordered on the ground of
mismanagement by the Directors and .the law was stated as
follows:-
B
"It is undoubtedly true that at the foundation of applications
for winding up, on the 'just and equitable' rule, there must
lie a justifiable lack of confidence in the conduct and
management of the company's affairs. But this lack of
confidence must be grounded on conduct of the directors,
c not in regard to their private life or affairs, but in regard to
th e company 's busmess.
. ................. . "
38. Mr. Nariman submitted that following the aforesaid
principle, this Court had in M.S.D.C. Radharamanan Vs.
D M.S.D. Chandrasekara Raja & Anr. [(2008) 6 SCC 750),
observed that once the Company Law Board gave a finding
that acts of oppression have been established, an order in terms
of Sections 397 and 402 on the doctrine of winding-up of the
company on just and equitable grounds, becomes automatic.
E Accordingly, the interference by the learned Single Judge with
the order of the CLB was wholly unwarranted.
39. Appearing for Winstar India Investment Company Ltd.,
Mr. Sudipto Sarkar, learned Senior Advocate, while adopting
the submissions made by Mr. Nariman, empha,o;ized Mr.
F t,Jariman's submissi9ns on quasi partnership. In the said
context, he submitted that in dealing with a petition under
Section 3971398 of the Companies Act the Court has to
consider business realities, instead of confining itself to a
narrow legalistic view. Learned counsel argued that in the
G Needle Industries case (supra), this Court, inter a/ia, observed
that technical pleas should not be allowed to defeat the
beneficent provisions of Section 3971398 of the Companies
Act. Mr. Sarkar submitted that the said principle had been
subsequently followed by this Court in (i) Sangramsinh P.
H Gaekwad & Ors. Vs. Shantadevi P. Gaekwad (Dead) through
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 167
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
LRs. & Ors. [(2005) 11 SCC 314]; (ii) Kamal Kumar Dutta & A
Anr. Vs. Ruby General Hospital Ltd. & Ors. [(2006) 7 SCC
613]; (iii) M.S.O.C. Radharamanan's case (supra). Mr. Sarkar
submitted that in Sangramsinh P. Gaekwad's case (supra) this
Court had observed that the jurisdiction of the Court to grant
appropriate relief under Section 397 of the Companies Act is B
of wide amplitude and while exercising its discretion, the Court
was not bound by the terms contained in Section 402 of the
said Act, if in a particular fact situation a further relief or reliefs
was warranted. Furthermore, in a given case, even if the Court
came to a conclusion that no case .of oppression had been c
made out, it could still grant such relief so as to do substantial
JUS!ice to the parties.
40. Mr. Sarkar submitted that a Joint Venture Agreement,
in fact, contemplates a partnership, as was indicated by this
Court in. New Horizons Ltd. & Anr. Vs. Union of India & Ors. D
((1995) t.SCC 478], where the expression "Joint Venture" was
examined. It was noted that the said expression connotes a
legal entity in the nature of a partnership engaged in the joint
undertaking of a particular transaction for mutual profit or an
association of persons or companies jointly undertaking some E
commercial enterprise wherein all contribute assets and share
risks. Mr. Sarkar submitted that the terms and conditions of the
Joint Venture Agreement in the instant case satisfies all the
requisites of a partnership, which made it evident that the Joint
Venture Company was nothing but a quasi-partnership as per F
the tests laid down by the House of Lords in Ebrahimi Vs.
Westbourne Galleries Ltd & Ors. [(1972) 2 All ER 492],
followed in Needle Industries case (supra). Mr. Sarkar
submitted that in Ebrahimi's case, Lord Wilberforce writing the
main judgment indicated that the reliefs prayed for were for a G
direction upon the Respondent No.2 and his son to purchase
the appellant's share in the company. In the alternative, an order
for winding up of the company was sought. The learned Judge
found that some of the allegations made remained unproved
and that the complaint made did not amount to such a course H ·
168 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A of oppressive conduct as to justify an order under Section 210
of the Companies Act, 1948, in furtherance of the first relief.
41. Mr. Sarkar then proceeded to the question of legitimate
expectation and contended that in Company Law there was
8 sufficient room for recognition of the fact that there could be
individuals with rights, expectations and obligations which may
submerge in the corporate structure. Jn this regard, Mr. Sarkar
submitted that the said doctrine of an enforceable expectation
was considered in Re Saul D Harrison & Sons pie [1995] 1
BCLC 14, approved in O'Neil/'s case (supra). Several other
C decisions in this regard were cited by Mr. Sarkar which do not
require elaboration.
42. Mr. Sarkar submitted that when joining the Company
in 2004, Winstar had a legitimate expectation arising from the
D Subscription Agreement dated 30th July, 2004, which indicated
that the Chatterjee Group was in management and control of
the affairs of HPL and that the Company would also have its
private auditors and had it not been for the recitals in the
Subscription Agreement, Winstar may not have invested funds
E in HPL at all. Mr. Sarkar submitted that the conclusion was
inescapable that even if no case of oppression had been made
out in the Company Petition filed by the Chatterjee Group, relief
under Section 397/398 could still be granted under Sections
397 and 398, if it was just and equitable to do so. Referring
a
F and placing reliance on decision of this Court in V.S.
Krishnan & Ors. Vs. Westfort Hi-Tech Hospital Ltd. & Ors.
[(2008) 3 SCC 363], Mr. Sarkar urged that once the conduct
of the management was found to be oppressive under Sections
397 and 398 of the Companies Act, the discretionary power
G given to the CLB under Section 402 of the Companies Act to
put an end to such oppression was very wide. Mr. Sark<ir urged
that the expression "legitimate expectation" had found its place
in Indian Jurisprudence and has been considered by this Court
in Needle Industries case (supra), which was followed in V.S.
Krishnan's case (supra) and several other cases. The
H
, CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 169
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
Agreement of WBIDC to transfer its entire shareholding to the A
Chatterjee Group gave rise to an expectation that such an
expectation would be fulfilled. Mr. Sarkar contended that since
WBIDC did not fulfil its reciprocal promise to sell its entire
•
shareholding in HPL to CP(M)C, it was not open to either
WBIDC or GoWB to contend that the direction given by the CLB B
upholding the allotment of 150 million shares to IOC and
directing WBIDC/GoWB to transfer its entire shareholding to
the Chatterjee Group was contrary to law or without jurisdiction
or erroneous.
43. Mr. Sarkar submitted that having transferred 155 C
million shares in favour of the CP(l)PL it was not open to the
GoWB and WBIDC to refuse to register the same, despite
having received the entire price for the same. Mr. Sarkar also
reiterated that it is such a promise which had been incorporated
in the agreements dated 12th January, 2002 and 8th March:, D
2002 as also 30th July, 2004, that had weighed with Winstar
to invest Rs.147 crores in the Company. Accordingly, even if it
was held that no case of oppression had been made out against
the Company, it would still be open to the learned Company
Judge to grant suitable relief to iron out the differences that might E
appear from time to time in the running of the affairs of a
Company.
44. While considering the submissions made on behalf of
the Chatterjee Group, we might as well refer to the arguments F
advanced by Dr. Abhishek Manu Singhvi, learned Senior
Advocate, appearing for the India Trade (Mauritius) Ltd. (ITML),
which is part of the Chatterjee Group and was the co-Petitioner
No.3 in Company Petition No.58 of 2005 filed by the Chatterjee
Group before the Company Law Board. ITML is also the G
Appellant in Civil Appeal No.5437-5440 of 2008. Incidentally,
Dr. Singhvi also appeared for Dr. Purnendu Chatterjee, who
was made Respondent No.20 therein.
45. Dr. Singhvi contended that ITML had infused a sum of
Rs.107 crores into HPL, which amount, along with Rs.143 H
170 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A crores separately infused in HPL by the Chatterjee Group of
Companies, was vitally necessary for the financial health of
HPL and its revival and prosperity. Dr. Singhvi submitted that
such investments had been made, without any written
agreement or commitment, on the clear understanding al)d
B expectation that it would be a partnership and a commercial
enterprise where the Chatterjee Group would have a controlling·
interest and HPL would, therefore, be a non-government
company. Dr. Singhvi submitted that the subsequent conduct
of GoWB, IOC, Lenders, Chairman and Managing Director of
c HPL had resulted in grave irreversible damage to ITML,
involving breach of fiduciary and corporate obligations which
was clearly oppressive and was sufficient ground for
interference by the CLB in the proceedings initiated by the
Appellants under Sections 397 and 398 read with Section 402
D of the Companies Act, 1956.
46. Dr. Singhvi sul>mitted that despite the attempts of
GoWB and WBIDC to make an issue of the non-infusion of
Rs.107 crores by the Chatterjee Group, at no point of time had
the Chatterjee Group refused to invest the amount in HPL,
E though on certain conditions. Referring to Dr. Chatterjee's letter
dated 4th December, 2001, Dr. Singhvi pointed out that in the
said letter it had been clearly indicated that CP(M)C was
prepared to bring equity into the company in the context of a
comprehensive restructuring of HPL's balance sheet and
F management control in line with the original promise made to
the Chatterjee Group for management control of HPL. A
suggestion was also made to avail of the corporate debt
structuring available under established Reserve Bank of India
procedure. Dr. Singhvi submitted that the entire sum of Rs.107
G crores which CP(M)C had agreed to invest had, in fact, been
infused by the Chatterjee Group, though not by sut1cribing to
the Rights Issue, but by arranging loans for the entire amount.
Dr. Singhvi contended that the entire loan amount which had
been arranged by the Chatterjee Group was also repaid by it
H without any liability to the Company. Even the interest accrued
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 171
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
on the loan of Rs.107 crores from 12th June, 2002, till the date A
of repayment, was discharged by the Chatterjee Group in full,
which was duly acknowledged by HPL. Dr. Singhvi submitted
that subsequently a further sum of Rs.53.5 crores was made
available to HPL through HSBC on the understanding that the
interest accrued on the loan, starting from the date of B
disbursement of the loan until its conversion, would be borne
by CP(M)C.
47. Dr. Singhvi urged that Dr. Chatterjee had been invited
and had come into the project as an equal co-owner, unlike the
other private investors who were neither promised nor given
c
equal partnership. As per the Agreement between GoWB and
WBIDC, the character of HPL was always intended to remain
a private non-Government Company by projecting a
shareholding ratio of 3:1 :1 where four out of the seven parts
would be held by Dr. Chatterjee and the Tatas. D
- 48. Reiterating all that had been said on behalf of the
Chatterjee Group by Mr.· Nariman and Mr. Sudipto Sarkar, Dr.
Singhvi submitted that the induction of IOC into the Company
was contrary to the wishes of the Chatterjee Group since by E
not registering the 155 million shares in favour of the Chatterjee
Group and on the other hand allotting 150 million shares to IOC,
an imbalance was created which led to HPL becoming a
Section 619-B Company under the Companies Act, 1956,
thereby losing its private character. Dr. Singhvi submitted that F
it had been understood by GoWB, WBIDC and the Chatterjee
Group, that IOC would be brought in not as a strategic partner
but as a portfolio investor, but ultimately negotiations were
commenced by GoWB and WBIDC to bring in IOC as a
strategic partner with management control, although such a G
proposal had earlier been categorically turned down by GoWB
on 2nd July, 2002.
49. Dr. Singhvi submitted that the observations contained
in the impugned judgment of the High Court that Dr. Chatterjee .
was not in a position to complete the deal and was trying to H
172 SUPREME COURT REPORTS [2011] '15 (ADDL.) S.C.R.
A delay matters by asking for transfer of the said 155 million
shares to the Chatterjee Group and the IOC's unconditional
withdrawal from HPL, as a condition precedent for completion
of the deal, was without any foundation, since from the records
it would be clear that on 22nd July, 2005, GoWB had indicated
B that it wanted to conclude the transaction by 25th July, 2005.
As a matter of fact, by his Jetter of 25th July, ·zoos, Dr.
Chatterjee had indicated his willingness to conclude the
transaction and provided a letter from the Deutsche Bank, also
dated 25th July, 2005, indicating the availability of funds to the
c tune of 266 million US dollars to conclude the transaction.
50. Dr. Singhvi submitted that it was GoWB and WBIDC
which had fraudulently omitted to disclose the secret
arrangement for the induction of IOC into HPL as a strategic
partner in the Explanatory Statement to the notice for the
D Extraordinary General Meeting issued on 21st December,
2004. Dr. Singhvi urged that there was no need to induct IOC
for effectuating the debt restructuring process, since HPL had
also taken steps for IPO of 300 million shares which would have
fetched at least Rs.540 crores based on the indicated price of
E Rs.18/- per share. Dr. Singhvi submitted that Dr. Chatterjee
objected to the allotment of shares to the JOC as that would
immediately convert the Company into a Section 619-B
Company since 155 million shares transferred by WBIDC in
favour of the Chatterjee Group was yet to be registered.
F 51. Dr. Singhvi submitted that the allegation made against
Dr. Chatterjee that he had moved in a calculated manner to
obtain majority control of the Company and to oppose the
allotment of 150 million shares to IOC, was without any
foundation, since 155 million shares had already been
G transferred to the Chatterjee Group and the same was a
concluded contract. Furthermore, when GoWB made a
commitment to sell to the CP(M)C all the HPL shares held by
WBJDC, there was no reason for Dr. Chatterjee to oppose the
induction of IOC as a portfolio investor. All that Dr. Chatterjee
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 173
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
wanted was that GoWB and WBIDC should effect registration A
of the 155 million shares already transferred and for which the
price had already been paid. Dr. Singhvi submitted that the
observation made by the learned Single Judge was wholly
misconceived since the GoWB and WBIDC had in the
Agreements dated 12th January, 2002 and 8th March, 2002, B
already acknowledged that on account of the transfer of the said
155 million shares, the Chatterjee Group was in management
and control of HPL. The further finding of the learned Single
Judge that IOC had threatened civil and criminal action against
HPL and its Directors for its unpaid dues for supply of Naphtha, c
was also r.ot justified, since Dr. Chatterjee had strongly
supported the refinancing package which had been approved
by the Board of HPL. Dr. Singhvi submitted that Dr. Chatterjee
and the Chatterjee Group had always wanted to act in the
interest of the Company upon the assurance given by GoWB D
and WBIDC that HPL would always remain a private company
and that the Chatterjee Group would always have control over
the management thereof.
52. Dr. Singhvi then submitted that HPL had played an
active role by supporting GoWB and WBIDC in the ongoing E
litigation, contrary to the understanding in terms of the
Agreement dated i 2th January, 2002 and the Share
Subscription Agreement dated 30th July, 2004, which
contemplated that the Chatterjee Group was to be in
management of the Company. By allowing the transfer of 150 F
million shares to IOC and by not registering the 155 million
shares transferred to the Chatterjee Group by WBDIC, the
Company had created a situation in which the Chatterjee
Group, which was admitted to be in control of the Company,
was reduced to a minority. Dr. Singhvi pointed out that the direct G
consequence of the aforesaid acts of GoWB and WBIDC
resulted in decline of profit before tax in 2007-08 and 2008-
09, thereby adversely affecting the interest of the Company and
the shareholders.
53. Dr. Singhvi submitted that the part played by Mr. Tarun H
174 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A Das, the Chairman of HPL, was also partisan and was contrary
to the interest of the Chatterjee Group which, it had been
agreed, was to be in management and control of the Company
and its affairs. Reiterating the submissions made by Mr.
Nariman, Dr. Singhvi submitted that the secret and clandestine
B move to convert HPL into a 619-B Company by the
arrangement entered into between WBIDC and IOC went
against the very grain of the agreements entered into between
the Chatterjee Group and WBIDC/GoWB in that regard.
54. Dr. Singhvi submitted that in the entire exercise, Mr.
C Tarun Das, the Respondent No.7, who was also the Chairman
of the Company, had precipitated the allotment of 150 million
shares to IOC, although, the Re-finandng Package approved
by IDBI on 27th May, 2005, and by the Board of HPL on 28th
May, 2005, did not contemiJiate allotment of shares to IOC. Mr.
D Tarun Das had on his personal initiatives obtained and
circulated an opinion from a senior counsel relating to the issue
of shares to IOC and even the same had not been circulated
to the Members of the Board in full, and they were deliberately
kept in the dark in respect of certain portions of the opinion.
E Dr. Singhvi pointed out that under Section 289 of the Act the
full opinion was required to be circulated to the Members of the
Board and in the absence thereof, the opinion could not be
relied upon. Dr. Singhvi repeated his earlier charge that GoWB/
WBIDC had acted with the sole intention of reducing the
F Chatterjee Group from a majority shareholder in HPL to a
minority, which was sufficient ground for an application under
Sections 397, 398 and 402 of the Companies Act, 1956.
55. Dr. Singhvi contended that despite having
acknowledged the Chatterjee Group as a prime sponsor of
G HPL and that the CDR Package and the Re-financing Package
of HPL had been considered because of Dr. Chatterjee, the
Lenders sacrificed their own interest by permitting the
Chatterjee Group to be ousted from the management of HPL
after the complaint was filed before the Company Law Board
H by the Chatterjee Group.
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 175
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
. 56. Dr. Singhvi submitted that the appointment of Mr. S.K. A
Bhowmick as Managing Director of the Company, after being
appointed as the Additional Director as there was no vacancy
on the Board and his appointment as Managing Director, was
wholly illegal since only a Director could be appointed to the
said post. Dr. Singhvi submitted that the Company played a B
dubious role in disallowing the claim of Winstar to have a
Director on the Board of HPL on the ground that there was no
vacancy, although, a vacancy had .arisen on the resignation of
Mr. Ratan Tata, which vacancy was utilized for regularization of
the irregular appointment of Mr. Bhowmick and his subsequent c
re-appointment in view of the Agreements entered into on 12th
January, 2002 and 30th July, 2004, which provide that CP(M)C
is to be in management and control and the Managing Director
is to be nominated and appointed by the Chatterjee Group. Dr.
Singhvi submitted that the aforesaid acts were sufficient to 0
indicate the manner in which the Company and the majority
shareholders had acted against the interest of HPL in general,_
and had by their acts of oppression and mismanagement,
seriously affected the entire scheme on the basis whereof the
Chatterjee Group h~d agreed to invest large amounts in HPL. E
57. Learned Senior Advocate, Mr. Ashok Desai, appearing
for Haldia Petrochemicals Ltd., the Respondent No.1 in all the
appeals, repeated and reiterated the submissions made on
behalf of the appellants regarding the manner in which the
GoWB conceptualised HPL as a showcase project of the F
GoWB on its coming into existence. Mr. Desai submitted that
apart from equity, for the purpose of starting the project HPL
had planned to avail credit from financial institutions and banks
to the extent of Rs.2,400 crores. The project involved a total
investment of Rs.3,600 crores. Mr. Desai submitted that this G
in itself would indicate that the principle of quasi-partnership,
as urged both by Mr. Nariman and Mr. Sarkar, could not apply
to the Company, both at the time when it was conceived and
during the subsequent period when the shareholdings of the
parties changed periodically. Mr. Desai submitted that, in any H
176 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A event, HPL is today recognized as a deemed Government
Company under Section 619-B of the Companies Act, 1956
and steps have been taken by the Comptroller and Auditor
General of India under Section 619(2). However, since its
incorporation in 1985, HPL was and continues to remain a
B Board-managed Company with 16 Directors on its Board with
equal representation of the two major promoters, namely,
GOWB and the Chatterjee Group having 4 Directors each, 5
Nominee Directors, 2 independent Directors and 1 Managing
Director.
c 58. Mr. Desai submitted that although on behalf of the
appellant it was contended that allotment of shares to IOC was
highly improper and oppressive, such a course of action had
to be resorted to since not only was HPL suffering from severe
financial crunch, but that Naphtha, which is the main raw
D material for production of Polymer and Chemicals, was being
supplied by IOC, which has its refinery by the side of the HPL
plant at Haldia. Mr. Desai submitted that IOC, therefore, had a
strong, commercial and symbiotic relationship with HPL which
had deve:oped over the years and HPL had also started
E procuring Naphtha on credit basis and the dues on such
account had also multiplied. It was, therefore, in the interest of
HPL that when the Chatterjee Group failed to infuse equity into
the Company, 150 million shares were allotted to IOC for
providing such equity.
F
59. Mr. Desai submitted that the case of the Appellants
could be summarised into a few specific issues, namely,
(a) that the Chatterjee Group had all along acted on the
basis of the promise which had been held out by
G GoWB, WBIDC and the Company that the
Company would always remain a private Company
in which the Chatterjee Group would have
managerial control and that it was towards that end
that 155 million shares were transferred by WBIDC
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 177
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
to the Chatterjee Group, though, ultimately it went A
back on its word and refused to register the same;
(b) GoWB, WBIDC and HPL beguiled the Chatterjee
Group into agreeing to the transfer of 150 million
shares to IOC by entering into agreements in which B
it was admitted that upon transfer of the 155 million
shares to the Chatterjee Group its shareholding
was 51% and that the Chatterjee Group was in
management and control of the affairs of the
Company;
c
(c) even if the ingredients of Sections 397 and 398 of
the Companies Act were not proved during the
hearing of the Company Petition, the Company
Law Board had ample jurisdiction to pass
appropriate orders for the benefit of and in the D
interest of the Company, under Section 402 thereof.
60. Mr. Desai submitted that all the aforesaid submissions
made were misconceived and that in order to file. a complaint
under Section 397 of the above Act, the complainant had to
be a Member (emphasis supplied) of the Company, having the E
requisite standing under Section 399 of the Act. It was also
urged that the conduct complained of had to be such as to be
oppressive to the complainant/complainants as shareholders/
members. Inasmuch as, CP(l)PL was not a member of HPL, it
could not have filed and maintained the complaint under F
Section 397 before the Company Law Board. Mr. Desai
submitted that it was no doubt true that upon transfer of the
shares, the transferee became the beneficial owner thereof, but
' in the Company's Share Register
till the shares were registered
and subsequently, in the records of the Registrar of G
Companies, the transferee did not acquire the right to vote at
a meeting of the Company on the basis of'acquisition of the
said shares. Mr. .Desai submitted that for all practical purposes
'
the transferor remained in control of the transferred shares and
also enjoyed the right to vote on the strength thereof. The failure H
178 SUPREME COURT REPORTS [2011] 15 {ADDL) S.C.R.
A of the transferor to have the shares registered with the
Company, did not amount to an act of oppression of the
Company, but was an area of dispute between the transferor
and the transferee and it could not be said that the inaction of
the transferor amounted to oppression within the meaning of
B Section 397 of the Companies Act. Mr. Desai also submitted
that the oppression complained of should be such as would lead
to. a conclusion that it would be just and equitable to wind up
the Company under Section 433(f) of the above Act.
C 61. Referring to the decision of this Court in Shanti Prasad
Jain's case (supra), Mr. Desai submitted that in the said
decision it had been emphasized that the oppression
complained of had to be shown as having been brought about
by a majority of members exercising a predominant voting
power in the conduct of the Company's affairs and must relate
D to the manner in which the affairs of the Company were being
conducted. Such conduct must also be shown as being
oppressive to a minority of the members in relation to the
shareholding in the Company. It was also emphasized that
although, the facts disclosed might appear to furnish grounds
E for the making of a winding up order under the "just and
equitable" principle, such facts must be relevant in disclosing
that the winding up order would unfairly prejudice the minority
members in relation to the shareholders. Referring to the use
of the expression "legitimate expectation· by Lord Justice
F Hoffmann sitting in the Court of Appeal, in the decision rendered
in Ebrahimi's case (supra), Mr. Desai submitted that
subsequently in the case of Saul D Harrison & Sons Pie
(1995) 1 BCLC 14, after referring to the decision in Ebrahimi's
case (supra), Lord Justice Hoffmann held that such an
G expression had been borrowed from public law to describe the
correlative right in the shareholder to which such a relationship
might give rise.
62. Mr. Desai also urged that the decision in Kalinga
H Tubes Ltd. 's case (supra) was also relied upon by this Court
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 179
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
in the Needle Industries case (supra), wherein it was held that Pl.
on a true construction of Section 397, an unwise, inefficient or
careless conduct of a Director in the performance of his duties
cannot give rise to a claim for relief under that Section. The
person complaining of oppression must show that he has been
constrained to submit to a conduct which lacks in probity, B
conduct which is unfair to him and which causes prejudice to
him in the exercise of his legal and proprietary rights as a
shareholder. As to the findings of both the Company Law Board
and the High Court in relation to the applicability of Section 398
of the above Act, Mr. Desai submitted that since both the c
Courts had held that the same was not attracted, there was
really little to add to the observations of both the forums that
there was absolutely no reason to say that GoWB and WBIDC
with their associates were conducting the affairs of HPL in any
manner prejudicial to HPL's interests. The allotment made in 0
favour of IOC was, in fact, in the interest of the Company and
·. the allotment of shares to IOC was part of the terms and
conditions of the debt restructuring package.
63. Regarding the failure of WBIDC to register the 155
million shares in favour of CP(l)PL, Mr. Desai submitted that, E
in fact, there was no pleading in that regard in the Company
Petition filed by CP(l)PL. Accordingly, neither could CP(l)PL
maintain the Company Petition, not being a member of HPL,
nor could any prayer have been made for a direction upon the
Company to register the said shares in the name of CP(l)PL. F
Mr. Desai pointed out that though such a pleading was
subsequently included in the Rejoinder Affidavit, no application
was ever made for amendment of the pleadings and the prayers
in the Company Petition.
G
64. To support his submissions, Mr. Desai referred to the
decision of the Calcutta High Court in Re. Bengal Luxmi Cotton
· Mills Ltd. (1969 CWN 137], Sangramsingh P. Gaekwad & Ors.
Vs. Shantadevi P. Gaekward & Ors. ((2005) 11 SCC 314], R.
Ramanathan Chettiar Vs. A & F Harvey Ltd. & Ors. [967 (37) H
180 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A Comp. Case 212], wherein the principles laid down in the
Needle Industries case (supra) had been followed. Mr. Desai
submitted that the 155 million shares transferred to CP(l)PL by
WBIDC continued to be held by WBIDC and were never lodged
with the Company.
65. Lastly, on the question of allotment of 150 million
shares to IOC, Mr. Desai referred to the observations of the
Company Law Board which recorded that such allotment could
not be questioned by the Chatterjee Group, since the same
was neither clandestine nor surreptitious and was under
C contemplation from 2000 itself and the idea of inducting IOC
was initiated by Dr. Chatterjee himself, as would be evident from
the letter dated 24th March, 2000, addressed to the Chief
Minister, as the Company was in dire need of funds. Mr. Desai
pointed out that the said view was endorsed by the learned
D Single Judge of the High Court by observing that the Chatterjee
Group had failed to produce any evidence with regard to the
allegations that the allotment of shares to IOC was pursuant to
a clandestine agreement to permit IOC to participate in the
management of HPL.
E
66. Mr. Desai submitted that the case made out by the
appellants before the Company Law Board was not only devoid
of substance, but was entirely misconceived, since the same
was not maintainable at the instance of CP(l)PL '<Jhich was not
F a member of HPL. Even the allegations of oppression
remained unproved, since the entire content related to the
transaction between WBIDC and CP(l)PL, which was not the
act of the Company, as contemplated in Section 397, but a
private dispute between two groups of shareholders. Mr. Desai
G submitted that the appeals were liable to be dismissed with
appropriate costs.
67. Mr. Dushyant Dave, learned Senior Advocate,
appearing for the Industrial Development Bank of India (IDBI)
pointed out that a loan agreement had been entered into
H between HPL and IDBI for a sum of Rs.12,500 lakhs and in the
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 181
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
event the borrower defaulted on the loan, the Bank would have A
the right to convert upto 20% of the loan into fully paid up equity
of the Company. The Bank was also given the right to appoint
a Nominee Director on the Board of HPL. Mr. Dave submitted
that in 2003 the question of restructuring of the debt came up
for consideration and in its meeting held on 8th August, 2003, B
the Company agreed to allow IDBI to refer the Company to the
Corporate Debt Restructuring (CDR) Cell with a debt
restructuring proposal. Subsequently, on a 22nd January, 2004,
at a meeting of the Empowered Group, Dr. Chatterjee agreed
for conversion of debt to equity to the extent of Rs.140 crores. c
Thereafter, on 23rd March, 2004, the Board of Directors of HPL
approved a CDR package and Dr. Chatterjee's proposal to
convert debt to equity. Dr. Chatterhee was, in fact, interested
to give effect to the same. Mr. Dave submitted that
subsequently the debt restructuring plan failed to fructify and the D
Bank was informed by the Principal Secretary, Government of
West Bengal, on 27th July, 2005, that the permission which had
been granted in the credit restructuring package, be treated as
annulled.
68. In the pending proceeding before the CLB, Chatterjee E
Petrochemicals Ltd. had got an interim order in its favour
staying further allotment of shares of Rs.135 crores to IDBI.
However, IDBI was neither a party to the proceedings nor was
any relief, either final or interim in nature sought against IDBI.
But by virtue of the interim order of injunction passed by the F
CLB, the allotment of shares to IDBI was stayed, as that would
have reduced the Chatterjee Group to a minority. Mr. Dave
submitted that the application filed by IDBI before the CLB was
kept in abeyance and no order was passed thereupon as it was
likely to hamper the progress of negotiation. Mr. Dave G
submitted that the writ petition filed by IDBI against the said
order before the Delhi High Court was dismissed by the
learned Single Judge and the appeal preferred therefrom was ,
also dismissed by the Division Bench. Ultimately, in its final
judgment dated 31st January, 2007, the CLB gave directions H
182 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A to the effect that Chatterjee Group would purchase 155 million
shares from GoWB/WBIDC at a minimum price of Rs.28.80
per share. It was also directed that the 155 million shares
transferred to the Chatterjee Group would be dematerialized
and registered and that the allotment to the IOC would remain.
B
69. Mr. Dave submitted that the question of CP(l)PL
having any legitimate expectation did not arise and such a case
was not also pleaded before the Board. Furthermore, since
nothing had been proved before the Board that the conduct of
GoWB and WBIDC was such as to justify an order of just and
C equitable winding up, no order could have been passed by the
Board on the Company Petition filed by the appellants and the
learned Single Judge of the High Court rightly allowed the
appeals preferred against the order of the Board.
D 70. Appearing for the Respondent No.16, Mr. Altaf Ahmed,
learned Senior Advocate, submitted that nowhere in the
Company Petition had any allegation been made against the
Managing Director as to his involvement in any manner in the
acts of oppression alleged to have been committed against the
E complainant. Accordingly, as had been held by the CLB in its
final order dated 31st January, 2007, the Company Petition,
though filed under Sections 397 and 398 of the Companies
Act., was essentially one under Sect.ion 397 of the aforesaid Act.
Mr. Ahmed submitted that the said finding of the ..:LB had been
F duly upheld by the High Court.
71. Mr. Ahmed submitted that the question raised by the
Chatterjee Group with regard to the employment of Mr.
Bhowmik as the Managing Committee was without any basis
whatsoever, since he was appointed unanimously by the Board
G of Directors consisting of the nominees of the different
shareholders. Mr. Ahmed also pointed out that the Respondent
No.16 had been responsible for the resurrection of HPL from
the brink of financial disaster which had been occasioned by
the failure of the promoters to infuse equity into the Company.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 183
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
It was only after assessment of his performance during the initial A
two year period of his tenure that the Board of HPL reappointed
him for a further period of 3 years, inspite of the objection from
the Chatterjee Group.
72. Mr. Ahmed submitted that the Respondent No.16 has B
moved l.A.Nos.25-28 of 2009 for a direction upon the Company
to pay his arrears of salary as per the resolution passed by the
Board of Directors on 28th May, 2008, for the period covering
29th March, 2005 to 31st March, 2007. A further prayer has
also been made to fix the pay of the said Respondent for the
period from 1st April, 2007, till 31st March, 2010, at a rate as C
might be deemed just, proper and reasonable.
73. As far as the Talas are concerned, it was submitted
that the Tata Group was one of the original promoters of HPL
and continues to hold more than 2% of the shares in the D
Company. It was submitted that the Tatas were keen to see HPL
flourishing and had, accordingly, between 1994 and 2000 made
significant infusion of funds into HPL, including a sum of
Rs.11.89 crores which was given as an interest free loan. Even
in 2000 when the Company was in dire financial straits, the E
Talas brought in their share of Rs.35. 71 crores along with other
shareholders, except for the Chatterjee Group which failed to
bring in its share of Rs.107.14 crores. It was made clear that
the Tata Group had no faith in the Chatterjee Group since from
the very inception of HPL the Chatterjee Group wanted control F
of HPL, without making any effective contribution at times when
such contributia.n was most needed and had, therefore, worked
against the interest of the Company, its shareholders and the
public at large.
74. Mr. K.K. Venugopal, learned Senior Advocate, who G
appeared for the Government of West Bengal and its officials,
urged that the relief prayed for in the Company Petition for
specific relief, could not be granted under Section 397 of the
Companies Act. Since the said question had been adequately
dealt with on behalf of WBIDC, Mr. Venugopal chose to deal H
184 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A with the directions given by the CLB to the GoWB to disinvest
its entire shareholding in HPL, which was a Company set up
in public interest and for which a huge extent of land had been
acquired for the public purpose of maintaining supplies and
services essential to the life of the community, by setting up a
B Petro Chemical i::0mplex at Haldia. Mr. Venugopal contended
that ii was settled law that the decision of the Government to
disinvest or not to disinvest was not in the realm of public law
and was not, therefore, amenable to challenge or interference,
unless ii amounted to an abuse of power by the Government.
c 75. Mr. Venugopal submitted that the order and directions
of the CLB would exclude the State Government from having
any future role to play in the running and management of HPL.
Learned counsel submitted that in a matter of this nature, the
public interest should have been considered first before such
D directions are given. Mr. Venugopal submitted that the
proceedings under Section 397 of the Companies Act should
not have been allowed to be made a vehicle for relief which
was available to the Chatterjee Group under the provisions of
the Specific Relief Act, 1963. It was also submitted that the
E Company Law Board erred in applying the principles of private
law in the exercise of its jurisdiction under Sections 397/398
and 402 of the Companies Act, since the decision of the State
Government not to disinvest would have to be decided by
applying the public law in appropriate proceedings. In this
F regard, Mr. Venugopal referred to the decision of this Court in
BALCO Employees' Union (Regd.) Vs. Union of India & Ors.
[(2002) 2 sec 333], wherein it was observed that it is neither
within the domain of the courts nor the scope of judicial review
to embark upon an enquiry as to whether a particular public
G policy is wise or something better could be evolved. This Court
also observed that the courts are not inclined to <>trike down a
policy merely because it has been urged that a jifferent policy
was fairer or wiser or more scientific or more logical. This Court
went on to observe that the procedure of disinvestment is a
H policy decision involving complex economic factors and the
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 185
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
courts have consistently refrained from interfering with A
economic decisions, unless it was demonstrated that economic
expediency was so violative of constitutional or legal limits on
power or is so abhorrent to reason, that such interference was
necessary. The Courts would in given cases interfere if it could
be demonstrated that the policy was contrary to any statutory B
provision or the provision of the Constitution or there was
illegality in the decision itself.
76. Mr. K.K. Venugopal submitted that from the very
inception, GoWB had played a major role in conceptualizing C
and setting up of HPL with the primary object of industrial
development of the region in particular, and the State in general
and subserving the underlying public interest. Mr. Venugopal
submitted that HPL had been conceived as a showcase project
of the GoWB. It was only because of the active role of the State
Government that it was also possible to acquire a total of D
1031.305 acres of land for the project at Haldia, without any
trouble and disturbance, from the year 1973 onwards. Mr.
Venugopal submitted that the direction given by the CLB would
be against the very grain of the concept of a Joint VenturP.
between WBIDC, which was owned by GoWB, and the R.P. E
Goenka Group (RPG) and subsequently, with the exit of the
RPG Group, the Tata Group as well as the CP(M)C. It was also
submitted that even the financial institutions, namely, IDBI and
SBI, etc., who had a total stake of Rs.2989 crores in HPL, drew
great comfort from the continued presence of the State F
Government and its active participation in the management of
HPL. On the other hand, on several occasions the very same
financial institutions had expressed their concern regarding the
capability and intentions of the Chatterjee Group in managing
the Company and inducting funds as necessary for the growth G
and development thereof. Mr. Venugopal submitted that the acts
of oppression alleged by the Chatterjee Group and the relief
claimed by them, apart from being based on alleged breach
of contract, aimed at invoking the jurisdiction of the CLB under
Section 397 read with Section 402 of the Companies Act, H
186 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R
A 1956, to compel the Government to disinvest its shareholding
in HPL. Mr. Venugopal submitted that the CLB did not have the
jurisdiction to grant such relief and, in any event, in view of the
overriding public interest, no relief should be granted to the
appellant in the instant appeals.
B
77. Mr. Anil Dewan, learned Senior Advocate, who
appeared for Mr. Tarun Das, who was functioning as the
Chainman of HPL, adopted the submissions made by Mr. Desai
and Mr. Venugopal and urged that the Company Petition Itself
C was not maintainable as it had been filed by a Company which
.was not a member of HPL, despite being the owner of 155
million shares thereof. Mr. Dewan submitted that instead of
assisting the Company in meeting its financial liabilities, the
appellants not only failed to infuse equity into the Company but
also confined their focus on acquiring only 51% of the
D shareholding in order to maintain its control over the
management of the Company. Mr. Dewan submitted that the
judgment of the High Court did not call for any interference in
the instant proceedings.
E 78. In continuation of Mr. Desai's submissions, Mr. C.A.
Sundaram, learned Senior Advocate appearing for the
Respondent No.2, reiterated the factual aspect of the case as
portrayed by Mr. Desai. Mr. Sundaram, however. urged that the
stand now being taken by the Chatterjee Group that the
F induction of IOC into HPL had adversely affected their interest
and had reduced the Chatterjee Group to a minority
shareholder in the Company, it was, in fact, Dr. Chatterjee
himself, who had initiated the idea of allotting 150 million shares
to IOC. Dr. Chatterjee was the Chairman of the Committee
G which prepared and sent the offer of allotment to IOC which was
accepted by its return letter enclosing a cheq1...a for Rs.150
crores in favour of HPL. Between April, 2005 ~rid July, 2005,
eight draft Share Purchase Agreements were exchanged
between the Chatterjee Group and the GoWB regarding sale
H of the shares held by WBIDC to CP(M)C. However, the
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 187
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
Chatterjee Group never seemed to be in a position to complete A
the transaction and repeatedly asked for the inclusion of fresh
conditions, such as a pre-condition that IOC should not be
allotted any shares of HPL. In the meantime, having accepted
the offer of allotment of 150 million shares and having sent the
price for the same to HPL, IOC sent legal notices to HPL calling B
upon the Company to issue and allot the said 150 million shares
to IOC and to credit the same to the account of IOC after
dematerialization.
79. Mr. Sundaram submitted that in the aforesaid cauldron
of events, the GoWB wrote to the Chatterjee Group on 27th C
July, 2005, stating that it had decided to defer its proposal to
disinvest shares in favour of the Chatterjee Group as it was not
in a position to conclude matters. On account of the severe
financial crunch being faced by HPL and in view of the stand
of IOC, which was the main supplier of Naphtha to HPL, on 2nd D
August, 2005, HPL allotted 150 million shares to IOC and a
return of allotment was also filed with the Registrar of
Companies in respect thereof. On 3rd August, 2005, the
cheque given to IOC for Rs.150 crores was encashed by HPL.
E
80. Mr. Sundaram submitted that it was no doubt true that
at the initial stages it had been the intention of GoWB and
WBIDC to involve Dr. Chatterjee and his Group of Companies
as the prime stakeholders in HPL with management control, but
at crucial times when support in the form of equity was required, F
the Chatterjee Group failed to provide the same. Mr. Sundaram
submitted that even when on 3rd June, 1996, GoWB wrote to
Dr. Chatterjee that on account of HPL's financial crunch, all
promoters had been requested to induct 50% of the equity and
the last date for such infusion was 18th June, 1996, the G
Chatterjee Group failed to make such investments, although,
both the Talas and WBIDC brought in their respective equity
· eontributions of Rs.35.5 crores and Rs.117 crores. Once again,
since the Lenders were insisting on immediate infusion of
Rs.581 crores into HPL and HPL was on the threshold of
H
188 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
I
A becorning a Non-Performing Asset, a Ridhts Issue Offer was
made by HPL to the existing shareholders .for subscription of
34,99,99,988·shares at the rate of Rs.'10/- per share. Despite
Dr. Chatterjee's assurance to bring in Rs.53.5 crores
immediately along with additional fund pf Rs.53.5 crores and
B a further sum of Rs.300 crores, the Ch'atterjee Group did not ·
subscri~ to the Rights Issue, thereby depriving the Company
of Rs.10'7 crores at a very crucial time. In order to re-assure
HPL, the Chatterjee Group on 12th January, 2002, agreed to
induct a miryimum of Rs.500 crores and such other further funds
c ·1owards .equity and equity-like instruments to effectuate the
Corporate Debt Restructuring. However, despite such
commitment, till today, the Chatterjee Group has not brought
in the amount of Rs.500 crores c6mmitted by it. On the other
hand, acting on the assurance given by the Chatterjee Group,
D WBIDC agreed to transfer shares worth Rs.360 crores to the
Chatterjee Group to ensure that it controlled 51 % of paid-up
equity to enable it to remain in the majority. Mr. Sundaram
submitted that out of the said number of shares, 155 million
shares were, in fact, transferred to CP(l)CL to maintain a
E shareholding of 51%. However, WBIDC even agreed to transfer
shares beyond the said 155 million shares to ensure that the
51% shareholding of CP(M)C was maintained. It was also
agreed that the transfer would be effected within 10 days of the
acceptance of Letter of Comfort by WBIDC. Mr. Sundaram
submitted that although the shares were transferred in the name
F of CP(l)CL, the said transfers were never completed as they
were not registered either in the Company's books or with the
Registrar of Companies and WBIDC continued to have voting
rights on the said 155 million shares. Mr. Sundaram submitted
that to cap it all, instead of bringing in equity of an amount of
G Rs.53.5 crores, as promised as per the decision taken by the
Company on 3rd June, 1996, to induct 50% of its equity, the
Chatterjee Group brought in only Rs.61.5 crores and that too
as debt and not equity, despite the fact that post-dated cheques
issued to vendors were still bouncing and other commitments
H were not met. In addition, the Corporate Debt Restructuring
-
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 189
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
could not be implemented since CP(M)C could not induct a A
strategic investor. Ultimately, out of sheer compulsion in order
to save the Company from becoming a Non-Performing Asset,
a decision had to be taken to induct IOC as a portfolio investor,
though there may have been discussion to bring in IOC as a
strategic investor. B
81. Mr. Sundaram submitted that one of the questions
which arise in these proceedings is whether the Company Law
Board, acting under Sections 397 and 398, read with Section
402 of the Companies Act, could direCt sale of shares in the C
absence of a finding that there had been oppression by one
body of shareholders against another or mismanagement of the
Company. According to Mr. Sundaram, the second question,
which is directly connected with the first, is whether in the
absence of such a finding the Company Law Board could
direct sale of shares in the absence of a further finding that such D
sale of shares was necessary in the interest of the Company.
The third question posed by Mr. Sundaram was whether in
addition to the findings indicated above, the Company Law
Board could direct sale of shares under Sections 397 and 398
read with Section 402 of the above Act in the absence of a E
finding that without giving such a direction it might be just and
equitable to wind-up the Company.
82. On the aforesaid issues, Mr. Sundaram reiterated the
submissions made by Mr. Desai that the said questions have F
been answered by this Court in Shanti Prasad Jain's case
(supra) and in the subsequent decisions in Sangramsinh P.
Gaekwad (supra), M.S.D.C. Radharamanan (supra), V.S.
Krishnan (supra), the Needle Industries (supra) and in the case
of Hanuman Prasad Bagri Vs. Bagress Cereals Pvt. Ltd. G
[(2001) 4 sec 4201.
83. Mr. Sundaram submitted that the next issue involved
the question as to whether the concept of legitimate expectation
of a body of shareholders would be applicable to a large public
limited company or only in quasi partnerships and family H
190 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A companies and whether in those situations also the sale of
shares could be directed in order to break a deadlock. In this
regard, reference was made to the decision of this Court in
Ki/pest Pvt. Ltd. & Ors. Vs. Shekhar Mehra [(1996) 10 SCC
696) and Hind Overseas Pvt. Ltd. Vs. Raghunath Prasad
B Jhunjhunwal/a & Anr. [(1976) 3 SCC 259]. In Hind Overseas
Pvt. Ltd. 's case, this Court had held that when more than one
family or several friends and relations together form a company
and there is no right as such agreed upon for active
participation of members who are excluded from managemen~
c the principles of dissolution of partnership cannot be liberally
invoked. It was further observed that it is only when shareholding
is more or less equal and there is a case of a complete
deadlock in the running of the company on account of lack of
probity in the management and there is no hope or possibility
of smooth and efficient continuance of the company as a
0
commercial concern, a case for winding up may arise.
However, in a given case, the principles of dissolution of
partnership may apply if the apparent structure of the company
is proved not to be the real structure and on piercing the veil it
is found that in reality it is a partnership. Mr. Sundaram
E submitted that, in any event, the application of the just and
equitable clause would depend upon the facts and
circumstances of each case. A note of caution was also
introduced that even admission of a petition could prejudice and
cause immense injury to a company in the eyes of the investors,
F if ultimately the petition is dismissed. Mr. Sundaram urged that
in a petition under Section 397/398 of the Companies Act, it
was not always incumbent on the CLB to order the winding up
of a company on the just and equitable principle, but in order
/to pass any order under Section 397, the Company Law Board
G would have to arrive at a specific finding that there was just and
equitable reason to order such winding up.
84. The next issue canvassed by Mr. Sundaram is that the
Court would have to examine as to whether the direction given
H for sale of shares was in order to maintain the status quo which
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 191
PETROCHEMICALS LTD. [ALTAMAS KA~IR, J.]
was being disturbed on account of the oppressive measures A
taken. In this regard, Mr. Sundaram referred to the decisions
of this Court in Dale & Carrington lnvt. (P) Ltd. Vs. P.K.
Prathapan & Ors. [(2005) 1 SCC 212] and M.S.O.C.
Radharamanan's case (supra), along with the decision in
Allianz Securities Ltd. Vs. Regal Industries Ltd. [2002 (11) CC B
=
764 (2000) 25 SCL 349 (CLB)]. On the concept of legitimate
expectation, Mr. Sundaram submitted !~at it has to be
considered whether the same should be restricted to
maintaining the state of affairs at the time when the parties
became shareholders or whether any subsequent c
understanding arrived at by private treaty between the
shareholders would fall under the purview of the Company Law
Board to enable it to deal with such questions between private
shareholders.
85. Mr. Sundaram repeated that in this regard it would have D
to be decided as to whether the CLB could direct sale and
transfer of shares to a group to give it majority control on an
application under Section 3971398 read with Section 402 of the
Companies Act and to enforce specific performance of
agreement between the parties whether legitimate or not, E
especially when such specific performance was not necessary
in the interest of the company, or to prevent winding up of the
company. Another question of equal importance in this
connection was whether specific performance could be
directed at the instance of a party whose own conduct had been F
inequitable in failing to carry out its promises, to the severe
prejudice of the company.
86. Another issue raised by Mr. Sundaram, which has a
direct bearing to the facts of this case, is whether a Company G
can effect transfer of shares in the absence of transfer deeds
and a request for transfer, and whether the transfer of shares
is complete only when such transfers are duly registered and
entered in the Register of Members of the Company. In this
regard, Mr. Sundaram referred to the decisions of this Court H
192 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A in Howrah Trading Company Vs. C/T[AIR 1959 SC 775]; Life
Insurance Corporation of India Vs. Escorts Ltd. [(1986) 1 SCC
264], Manna/a/ Khetan Vs. Kadamath Khetan [(1977) 2 SCC
424], Claude Lila Parulekar (Smt.) Vs. Sakal Papers (P) Ltd.
[(2005) 11 SCC 73], J.P. Srivastava & Sons Pvt. Ltd. Vs.
B Gwalior Sugar Co. Ltd. [(2005) 1 SCC 172], Mathrubhumi
Printing & Publishing Co. Ltd. Vs. Vardhman Publishers Ltd.
[(1992) 73 CC 80] and several other decisions to which we
shall shortly refer as they have a bearing on the issue involving
the rights acquired by the Chatterjee Group on the transfer of
c 155 million shares by WBIDC, which were not, thereafter,
registered in the name of the Chatterjee Group in the Register
of Members of the Company, nor was the factum of such
transfer communicated to the Registrar of Companies.
87. Mr. Sundaram also raised another question as to why
D on failure of reciprocal promises in a contract on account of non-
performance of the promises made by one of the parties, the
benefits accrued to such party through part perfonnance should
not be restituted to the other party. In this regard, reference was
made to Sections 51 to 54 of the Contract Act and the decision
E of the Privy Council in Satgur Prasad Vs. Hamarayan Oas
[(AIR 1932 PC 89] and the decision of the Delhi High Court in
Suit No.1481 of 1996, to which reference may be made, if
required.
F 88. Lastly, on the question of allotment of the 150 million
shares by WBIDC to IOC, Mr. Sundaram submitted that on
account of the failure of the Chatterjee Group to bring in equity
when the Company was in dire need of funds, such allotment
was fully justified under the doctrine of Indoor Management.
G However, even if a legitimate dispute could be raised in regard
to such transfer, such transaction could not be avoided by the
Company Law Board as the same was in the interest of the
Company, which would otherwise have been converted into a
Non Performing Asset.
H 89. What emerges from the materials on record and the
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 193
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
submissions made on behalf of respective parties is that HPL A
was incorporated in 1985 by the West Bengal Industrial
Development Corporation and the R.P. Goenka Group, and
their nominees were the subscribers to the Memorandum of
Association. Soon thereafter, in 1990, the Goenka Group left
the Company and Tata Chemicals and Tata Tea were inducted B
into the project between 1990 and 1993. However, since the
TATAs were not very keen to continue with the Project, in June
1994, Dr. Purnendu Chatterjee, a Non-Resident Indian
industrialist and financier, evinced his interest in implementing
the project. Accordingly, a Memorandum of Understanding was c
entered into between WBIDC and the Chatterjee Petrochem
(Mauritius) Company and the Talas on 3rd May, 1994. Certain
assurances were given to Dr. Chatterjee that the Company
would remain a private enterprise with the Chatterjee Group in
control of the management thereof. A further assurance was· D
given to the effect that WBIDC/GoWB would transfer their entire
shares in the Company to the Chatterjee Group, which would
then acquire a complete majority for the purposes of
management and control of the Company.
90. In addition to the above, certain duties and obligations E
to be performed by the Chatterjee Group were also indicated,
mainly confined to the question of bringing in equity in an
otherwise cash-strapped situation then prevailing in relation to
the Company's finances. It also appears that the assurances
given by WBIDC/GoWB were on account of the aforesaid F
assurances given by the Chatterjee Group to bring in equity.
Inasmuch as, the Chatterjee Group failed to abide by its
commitments, the Company had no other alternative, but to
bring in IOC by selling and transferring 150 million shares to
the said Company. G
91. The parties also agreed that they would be entitled to
seek specific performance of the terms and conditions of the
Agreement in accordance with the provisions of the Specific
Relief Act, 1963. Various other terms and conditions were H
194 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A included with the intention of guaranteeing that CP(M)C would
acquire a controlling interest to the extent of at least 51%
shares which would also give it complete control over the day-
to-day affairs of the Company. In addition, it was agreed that
in future the composition of the Board would be altered to reflect
B the revised sharetiolding structure and WBIDC would vote along
with CP(M)C on all issues in the shareholders meeting and its
nominee would also vote along with the nominee Directors of
the CP(M)C.
92. Despite the concessions given and/or afforded to the
C Chatterjee Group, it had failed to take advantage of the same
and a subsequent Agreement dated 8th March, 2002, had to
be entered into for recording the fact that in terms of the
Agreement dated 12th January, 2002, 155,099,998 equity
shares of WBIDC had been transferred/delivered to CP(l)PL
D on the same day. It was also indicated in the Agreement that
all the aforesaid shares which had been transferred and
delivered to the Petitioner No.4 would be pledged with WBIDC
and, accordingly, their shares had been duly lodged along with
their share certificates with WBIDC and such pledge had been
E acknowledged.
93. It is in the aforesaid background that we have to
consider the Petition filed by tl'e Chatterjee group before the
Company Law Board under Sections 397, 398, 399, 402, 403
F and 406 of the Companies Act, 1956, and the reliefs prayed
for therein.
94. The law relating to grant of relief on a petition under
Sections 397, 398 and 402 of the Companies Act, 1956, has
been crystallised in various decisions of this Court, including
G those cited on behalf of the parties. The common refrain running
through all these decisions is that in order to succeed in an
action under Sections 397 and 398 of the Companies Act, the
complainant has to prove that the affairs of the Company were
being conducted in a manner prejudicial to public interest or in
H a manner oppressive to any member or members. For better
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 195
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
appreciation of the above, Section 397 of the above Act is A
extracted hereinbelow :
"397. Application to [Tribunal] for relief in cases of
oppression.-
1) Any member of a company who complains that the 8
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 Tribunal for an order under
this section, provided such members have a right so to C
apply in virtue of section 399.
(2) If, on any application under sub-section (1 ), the Court
is of opinion-
(a) that the company's affairs are being conducted D
in a manner prejudicial to public interest or in a
manner oppressive to any member or members;
and
{b) that to wind up the company would unfairly E
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,
F
the Tribunal may, with a view to bringing to an end the
matters complained of, make such order as it thinks fit.•
However, as was observed by this Court in Shanti Prasad
Jain's case (supra) the law has not defined as to what would
amount to "oppressive" for the purposes of Section 397 and it G
is for the Courts to decide on the facts of each case as to
whether such oppression exists which would call for action
under Section 397. It was also emphasized that the conduct of
the majority shareholders should not only be oppressive to the
minority, but must also be burdensome and operating harshly H
196 SUPREME COURT REPORTS [2011] 15 (ADDL) S.C.R.
A upto the date of the petition.
95. The main grievance of the Appellants appears to be
that having been induced into investing large sums of money
in establishing the petrochemical complex on various promises,
8 particularly that the Company would continue to retain its private
character and the Chatterjee group would have control over its
management, such promises, although, reduced into writing in
the form of agreements, not only remained unfulfilled, but even
the character of the Company was altered with the transfer and
sale of 150 million shares by the Company in favour of IOC.
C Coupled with the above, is the other grievance that despite
having transferred 155 million shares in favour of CP(l)PL, and
having received the full price therefor, the Company had not
registered the same in the Company's Register of Share-
holders, thereby depriving the Chatterjee Group from exercising
D its right to vote in respect of the said shares. The third grievance
of the Chatterjee Group is that by not registering the transfer
of the 155 million shares in their favour, but, on the other hand,
transferring 150 million shares in favour of IOC, the character
of the Company was altered from a Private Company into a
E Government Company and also reduced the Chatterjee Group
to a minority, despite the promises held out earlier and as
incorporated in the Agreements dated 20th August, 1994, 12th
January, 2002 and 8th March, 2002.
F 96. Let us examine as to whether any of the complaints
contained in the Company Petition before the CLB make out
a case 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, which was sufficient
G to justify the passing of a winding-up order on the ground that
it was just and equitable that the Company should be wound-
up, but that to wind-up the Company would prejudice such
member or members. In Shanti Prasad Jain's case (supra),
referred to hereinabove, in a similar situation, it was observed
H by this Court as follows :-
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 197
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
"It is not enough to show that there is just and equitable A
cause for winding up the Company though that must be
shown as a preliminary to the application of Section 397.
It must further be shown that the conduct of the majority
shareholders was oppressive to the minority as members
and this requires that events have to be considered not in B
isolation but as 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 c
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 D
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."
It will be evident that in order to pass orders under Section
397 of the Companies Act, 1956, the CLB has to be satisfied E
that the Company's affairs are being conducted in a manner
oppressive to any member or members and that the facts would
justify the making of a winding-up order on the just and equitable
principle, but that such an order would unfairly prejudice the
Applicant before the CLB. As was discussed by this Court in F
the Needle Industries case (supra), unwise, inefficient or
careless conduct of a Director cannot give rise to claim for
relief under Section 397 of the Act. For relief under this Section,
the Applicant would have to prove that the conduct of the
majority of the shareholders lacked probity and was unfair so G
as to cause prejudice to the Applicant in exercising his legal
and proprietary rights as a shareholder. This, in fact, is the
golden thread of the various decisions in relation to petitions
under Section 397, 398 and 402 of the above Act. All the
various decisions cited by the learned counsel for the various H
198 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A parties are ad idem on this issue and applying the said
principles, each complaint under Section 397 will have to be
judged on its own merit for the GLB to arrive at a conclusion
as to whether the ingredients of Section 397 were satisfied and
pass appropriate orders thereafter.
B
97. As has been indicated in some of the cases cited, the
language of Section 397 suggests that the oppressive manner
in which the Company's affairs were being conducted could not
be confined to one isolated incident, but that such acts would
have to be continuous as to be part of a concerted action to
C cause prejudice to the minority shareholders whose interests
are prejudiced thereby.
98. In the aforesaid context, what do the facts reveal in the
instant case and do they bring the acts of oppression
D complained of within the purview of Section 397 for grant of
relief under Section 402 of the Companies Act?
99. The case of the Chatterjee Group is woven around two
particular issues, namely, that it had been induced to invest in
E HPL so as to make it a successful commercial enterprise on
the promise that the Company would always retain a private
character and the Chatterjee Group would have control over its
management, but such a promise had not been adhered to and,
on the other hand, negotiations were undertaken by WBIDC to
induct IOC, a Central Government Company, with the intention
F ·of ultimately handing over the management of the Company to
IOC. The aforesaid case of the Chatterjee Group is also based
on the grievance that while keeping the Chatterjee Group under
the impression that it intended to ensure that the Chatterjee
Group had the requisite number of shares to allow it to have a
G majority shareholding and thereby control of the Company's
management, the Company carried on clandestine negotiations
with WIBDC to transfer all the shares held by it in the Company
to IOC to give it management and control over the Company's
affairs.
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 199
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
100. The second ground, as made out by the Chatterjee A
Group, was that despite having transferred 155 million shares
in favour of CP(l)PL on 8th March, 2002, it did not register the
same in the name of CP(l)PL, which remained the beneficial
owner, the right to vote on the basis thereof remained with
WBIDC. This was done despite the fact that the price for the B
said shares had been received by way of a private
arrangement and the Lenders and financial institutions had
given their consent to the same. According to the Chatterjee
Group, this one act of omission on the part of the Company was
sufficient to attract the provisions of Section 397 of the c
Companies Act and for the CLB to pass appropriate orders
on account thereof. It is on account of the second ground on
which the Company Petition was filed that a prayer had been
made therein for a direction upon WBIDC and IOC to
iml)lediately register the transferred 155 million shares in the D
nah'l'e of CP(l)PL.
·· 101. From the facts as revealed, it is clear that when Dr.
Purnendu Chatterjee expressed his interest in setting up of the
Haldia Petrochemicals Ltd., various incentives had been
offered to him by the GoWB and WBIDC to invest in the E
Company and to make it a successful commercial enterprise.
Such investments were, however, contingent upon Dr.
Chatterjee's bringing in sufficient equity to set up and run the
Company. As would be seen, at the very initial stage all the
understanding between Dr. Chatterjee and GoWB & WBIDC, F
both WBIDC and the Chatterjee Group were to hold 433 million
shares each, while Tata was to hold 144 million shares. The
promise extended by WBIDC and GoWB to the Chatterjee
Group to provide at least 60% of the shares held by WBIDC at
Rs.14/- per share to the Chatterjee Group so as to give the G
Chatterjee Group the majority shareholding in the Company, as
was indicated in the Agreements dated 12th January, 2002, 8th
March, 2002 and 14th January, 2005, did not ultimately
materialise and, on the other hand, the Chatterjee Group was
reduced to a minority on account of its decision not to H
200 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A participate in the Rights Issue, and, thereafter, by transfer of
150 million shares by WBIDC in favour of IOC.
102. Although, the Chatterjee Group has complained of the
manner in which it had been reduced to a minority in the
B Companfyf, it is also obvious that when the Company was in dire
need o unds and the Chatterjee Group also promised to
provide a part of the same, it did not do so and instead of
bringing in equity, it obtained a loan from HSBC through the
Merlin Group, which only increased the debt equity ratio of the
C Company. Furthermore, while promising to infuse sufficient
equity in addition to the amounts that would have been brought
in by way of subscription to the Rights Issue, the Chatterjee
Group imposed various pre-conditions in order to do so, which
ultimately led GoWB and WBIDC to terminate the agreement
to transfer sufficient number of shares to the Chatterjee Group
D to enable it to have complete control over the management of
the Company and also to retain its private character. It is at a
stage when there was a threat to the supply of Naphtha, which
was the main ingredient used by HPL for its manufacturing
process, that it finally agreed to induct IOC into the Company
E as a member by transferring 150 million shares to it. It may not
be out of place to mention that it was on Dr. Chatterjee's
initiative that it had been decided to induct the IOC as a
member of the Company at meetings of the Directors which
were chaired by Dr. Chatterjee himself. Of course, as explained
F on behalf of the Chatterjee Group, even the induction of the IOC
as a member of the Company is concerned, was part of a
conspiracy to deprive the Chatterjee Group of control of the
Company since GoWB and WBIDC never intended to keep its
promise regarding transfer of at least 60% of its shareholdings
G in favour of the Chatterjee Group. Such a submission has to
be considered in the context of the financial conci1tion of the
Company and the response of the Chatterjee Gro:...p in meeting
such financial crunch. In our view, if in the first place, the
Chatterjee Group had stood by its commitment to bring in equity
H and had subscribed to the Rights Issue, which was a decision
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 201
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
taken by the Company to infuse equity in the running of the A
Company, it would neither have been reduced to a minority nor
would it perhaps have been necessary to induct IOC as a
portfolio investor with the possibility of the same being
converted into a strategic investment.
B
103. The failure of WBIDC and GoWB to register the 155
million shares transferred to CP(l)PL could not, strictly
speaking, be taken to be failure on the !'.Jar! of the Company,
but it was the failure of one of the parties to a private
arrangement to abide by its commitments. The remedy in such C
·a case was not under Section 397 of the Companies Act. It has
been submitted by both Mr. Nariman and Mr. Sarkar that even
if no acts of oppression had been made out against the
Company, it would still be open to the learned Company Judge
to grant suitable relief under Section 402 of the Act to iron out D
the differences that might appear from time to time in the running
of the affairs of the Company. No doubt, in the Needle
Industries case, this Court had observed that the behaviour and
conduct complained of must be held to be harsh and wrongful
and in arriving at such a finding, the Court ought not to confine
itself to a narrow legalistic view and allow technical pleas to E
defeat the beneficial provisions of the Section, and that in
certain situations the Court is not powerless to do substantial
justice between the parties, the facts of this case do not merit
such a course of action to be taken. Such an argument is not
available to the Chatterjee Group, since the alleged breach of F
the agreements referred to hereinabove, was really in the nature
of a breach between two members of the Company and not
the Company itself. It is not on account of any act on the part
of the Company that the shares transferred to CP(l)PL were not
registered in the name of the Chatterjee Group. There was, G
therefore, no occasion for the CLB to make any order either
under Section 397 or 402 of the aforesaid Act. If, as was
observed in M.S.D.C. Radharamanan's case (supra), the CLB
had given a finding that the acts of oppression had not been
established, it would still be in a position to pass appropriate H
202 SUPREME COURT REPORTS [2011J 15 (ADDL.) S.C.R.
A orders under Section 402 of the Act. That, however, is not the
case in the instant appeals.
104. In our view, the appellants have failed to substantiate
either of the two grounds canvassed by them for the CL8 to
8 assume jurisdiction either under Section 397 or 402 of the
Companies Act, 1956, and it could not, therefore, have given
directions to W81DC and GoW8 to transfer 520 million shares
held by them in HPL to the Chatterjee Group and the High
Court quite rightly set aside the same and dismissed the
C Company Petition.
105. Consequently, all the appeals are dismissed. Having
regard to the peculiar facts of the case, the parties shall bear
their own costs.
D 8.8.8. Appeals dismissed.
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