INCABLE NET (ANDHRA) LIMITED & ORS.versusAP AKSH BROADBAND LTD. & ORS.

                       [2010] 6 S.C.R. 444


A          INCABLE NET (ANDHRA) LIMITED & ORS.
                               v.
             AP AKSH BROADBAND LTD. & ORS.
                (SLP (Civil) No. 9110 of 2008)

                          MAY 7, 2010
B
        [ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]

       Companies Act, 1956 - ss. 397, 398, 402 and 403 -
  Companies forming joint venture company for a project -
C Companies entering into Share-holder agreement - Majority
  share-holder company granted turnkey contract - At the
  relevant time Managing Director of the minority share-holder
  company was at the helm of affairs of the joint venture
  company - Company petition by minority share-holder
D company against majority share-holder company - Alleging
  oppression and mismanagement - Dismissed by Company
  Law Board - Appeal uls.10F dismissed by High Court -
  Special Leave Petition - Held: No case of oppression or
  mismanagement made out - The lapse alleged against the
E majority share-holder company would not constitute the
  ingredients of complaint u/ss.397, 398, 402 and 403 - Such
  breach at the most would amount to breach of contract uls.
  73 of Contract Act - Contract Act, 1872 - s. 73.

      Words and Phrases - 'oppression' - Meaning of in the
F context of ss. 397, 398 and 402 of Companies Act, 1956.
      A consortium of Companies (respondent No.1) was
  formed which included petitioner No. 1 and respondent
  No. 5 for a special purpose to undertake and complete a
G project. Respondent No. 5-Company was the majority
  share-holder of the respondent No. 1-Company.
  Respondent No. 1 granted Engineering, Procurement
  and Construction (EPC) Contract to respondent No. 5.

H                             444
  INCABLE NET (ANDHRA) LIMITED & ORS. v. AP            445
           AKSH BROADBAND LTD.
    Petitioner No. 1 filed a petition before Company Law      A
Board u/ss. 397, 398, 402 and 403 of Companies Act,
1956, alleging that respondent No. 5 company (EPC
Contractor) had mismanaged the funds and operations
of the respondent No. 1-company and oppressed
petitioner No.1-company. Company Law Board                    B
dismissed the petition. Appeal u/s. 1OF of the Act was also
dismissed by High Court. Hence the present Special
Leave Petition.

    Dismissing the Special Leave Petition, the Court
                                                              c
     HELD: 1. On an overall analysis of the facts involved
and the part played by the petitioner No.2 (the Director ·
on the Board of petitioner No. 1), in the affairs of the
respondent No. 1 Company at the relevant time, the Court
is not inclined to interfere with the orders of the. High D
Court or the Company Law Board, since the Court is not
satisfied that any act of oppression or mismanagement
within the meaning of Sections 397, 398, 402 and 403 of
the Companies Act, 1956, has been made out by the
petitioners against the majority shareholders of the E
respondent No.1 Company which would justify the
making of a winding up order on the ground that it would
be just and equitable to do so and to pass appropriate
orders to bring to an end the matters complained of. [Para
40] [465-C-E]                                              F

     2. Admittedly, respondent No. 5 is a majority
shareholder in respondent No.1 Company and at the
same time the EPC Contract has also been given by
respondent No.1 Company to respondent No.5, to which
transaction petitioner No.2 was also a party in his           G
capacity as Vice-Chairman of respondent No.1 Company.
Besides being a party to the decision to give the EPC
Contract to the respondent No.5, petitioner No.2 was also
instrumental in payment of large sums of money being
made to respondent No.5 which stops him from alleging         H
    446    SUPREME COURT REPORTS                (2010] 6 S.C.R.

A that respondent No.2 Company had been siphoning off
  the funds of respondent No.1 Company without diligently
  performing its part of the contract. The EPC Contract
  given to respondent No.5 by respondent No.1 was a
  commercial contract and stands outside the ambit of
B Sections 397 and 398 of the Companies Act. Failure to act
  in terms of the contract cannot be said to have amounted
  to either oppression or mismanagement by respondent
  No.1. At best it can be said that respondent No.1 had been
  used as a tool or mechanism by respondent No.5 to
c acquire benefits for itself, which in the instant case, does
  not appear to be so, having regard to the fact that one of
  the petitioners in the Company Petition was himself
  responsible for such payments being made. [Para 33]
  [462-B-F]
D     3. From the facts as revealed, the only conclusion
  that can be arrived at is that respondent No.5 had
  committed a breach of contract in regard to supply of
  materials to respondent No.1 Company in terms of the
  EPC contract. Such lapse, would not constitute the
E ingredients of a complaint under 5.ection 397, 398, 402
  and 403 of the Companies Act, 1956. Such breach could
  give rise to an action of breach of contract u/s. 73 of the
  Contract Act, 1872. [Para 37) [464-B-C]

F      4. Nothing concrete has been established by
  appellants in regard to either oppression or
  mismanagement by respondent No.5 as far as the
  petitioners are concerned. On the other hand, the
                                            a
  conduct of petitioner No.2 provides different picture
G since at the relevant point of time he was at the helm of
  affairs of respondent No.1 Company, despite being a
  Director on the Board of petitioner No.1 Company. [Para
  39) [464-F-G]
      V. S. Krishnan and Ors..vs. Westfort Hi-Tech Hospital Ltd.
H and Ors. (2008) 3 SCC 363, distinguished.
  INCABLE NET (ANDHRA) LIMITED & ORS. v. AP            447
           AKSH BROADBAND LTD.
    Needle Industries (India) Ltd. and Ors. vs. Needle        A
Industries Newey (India) Holding Ltd. and Ors. 1981 (3) SCC
333, held inapplicable.

     Sangramsinh P. Gaekwad vs. Shantadevi P. Gaekwad
2005 (11) SCC 314; Dale and Carrington lnvt. (P) Ltd.& Anr.   B
vs. P. K. Prathapan and Ors. (2005) 1 SCC 212, referred to.

                    Case Law Reference:
    2005 (11) sec 314       referred to.         Para 13
    2005 (1) sec 212        referred to.         Para 26      c
    1981 (3) sec 333         held inapplicable. Para 38
    2ooa (3) sec 363         Distinguished.      Para 39

     CIVIL AP PELLATE JURISDICTION : SLP (Civil) No. 9110     D
of 2008.

    From the Judgment & Order dated 18.03.2008 of the High
Court of Judicature, Andhra Pradesh at Hyderabad in Company
Appeal No. 3 of 2008.
                                                              E
   Jaidep Gupta, S. Ravi, Rana Mukherejee, Sunaina Kumar,
Goodwill lndeevar for the Petitioners.

    K.G. Raghavan, Dharmendra Kumar Sinha, Kamal
Budhiraja, Sidharth Bawa (for Dua Associates), Dr. Manish     F
Singhvi, Devanshu Kr. Devesh, T. Mahipal, Victor Moses &
Associates for the Respondent.

    The Judgment of the Court was delivered by

     ALT AMAS KABIR, J. 1. The Petitioners herein filed       G
Company Petition No.69 of 2006 before the Additional
Principal Bench of the Company Law Board at Chennai under
Sections 397, 398, 402 and 403 of the Companies Act, 1956,
alleging mismanagement and oppression by the majority
                                                              H
    448      SUPREME COURT REPORTS                  [2010] 6 S.C.R.


A shareholders of the first respondent Company. Various reliefs,
  including reconstitution of the Board of Directors of the said
  Company, were prayed for. By its order dated 17th December,
  2007, the Company Law Board, hereinafter referred to as
  "CLB", dismissed the Company Petition against which the
B above-mentioned Company Appeal was filed before the High
  Court under Section 1OF of the aforesaid Act. The said appeal
  was dismissed by the High Court as being misconceived upon
  the finding that the CLB had considered all the materials,
  applied the law and recorded its findings correctly and no
C question of law arose from the said order. This Special Leave
  Petition arises out of the said order of the High Court.

         2. In order to appreciate the submissions made on behalf
    of the respective parties, the facts leading to the filing of the
    Company Petition before the CLB are set out hereinbelow.
D
       3. With the intention of providing broadband network
  connectivity to all Government offices across the State of
  Andhra Pradesh, to connect the State capital with the Districts,
  Mandals, Blocks and Gram Panchayats, the State Government
E with the help of Andhra Pradesh Technology Services,
  hereinafter referred to as "APTS", identified a consortium of
  Companies, led by the Respondent No.5 to form a Joint
  Venture Company under the name of Mis AP AKSH
  Broadband Limited, the Respondent No.1 herein. M/s AP
  AKSH Broadband Limited, hereinafter referred to as
F "APAKSH", was contemplated as a Special Purpose Vehicle
  to undertake and complete the project.

       4. The Petitioner No.1 was one of the companies forming
  the consortium which entered into a Share Holders Agreement
G with the Respondent No.5, Aksh Broadband Ltd. (since merged
  with Aksh Optifibre Limited), hereinafter referred to as 'AKSH'.
  The Petitioner No.1 is the Company and the Petitioner No.2 is
  its Managing Director. The Respondents Nos. 2 to 4 are
  Directors of APAKSH. The Respondent No.5 holds 57% of the
H fully paid up equity shares anu in add1t1on it was allotted
   INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                  449
    AKSH BROADBAND LTD. [ALTAMAS KABIR, J.)
12,41,62,500 partly paid shares, giving the said Company a            A
complete majority control over the affairs ofthe Respondent
No.1 Company.

      5. In terms of the Share Holders Agreement the Petitioner
 No.1 was to acquire 21.10% of equity capital, AKSH was to            B
 acquire 64.80% equity capital and th,e balance 14.30% was to
 be allotted to APTS. On 29.5.2006 the Board of Directors of
                                       1


 APAKSH passed a Resolution to ca:ll upon the share-ho!ders
 of the partly paid shares to pay the ll>alance
                                        I
                                                of the call money
 of Rs.2/- per share on or before 28.2.2006 (Date to be
·confirmed). A second and final notice was issued by the              C
 Respondent No.1 for payment of the call money, but on the
 request of the Petitioner No.2 the time was extended. Ultimately,
 on 25.11.2006, yet another notice was issued by the
 Respondent No.1 for payment of the balance call money of
 Rs.2/- per share on the partly paid shares.                          D

      6. The overall estimated cost of the project was Rs.395
.crores, out of which equity participation by the three constituent
 partners was Rs.175 crores. The balance Rs.220 crores was
 to be mobilized as loan by the Respondent No.1 Company, and,         E
 in the event the Respondent No.1 failed to do so, the deficiency
 was to be met by further equity contribution by the partners .

   . 7. As mentioned hereinbefore, APAKSH was established
as a Special Purpose Vehicle with the sole object of
implementing the connectivity project in accordance with the          F
contract awarded by APTS on 21st April, 2003, apart from
which no other business was to be undertaken by it. On 10th
May, 2005, the Respondent No.1 gave a turnkey contract to the
Respondent No.5 which is one of the principal shareholders
having a controlling interest in the Respondent No.1 Company.         G
The said Engineering, Procurement and Construction contract,
hereinafter referred to as the 'EPC' contract, envisaged the
completion of the infrastructural facilities within a period of 65
weeks at a fixed cost of Rs.370 crores upto the stage of
commission and implementation of the project.                         H
    450     SUPREME COURT REPORTS                 (2010] 6 S.C.R.


A       8. Appearing for the Petitioners, Mr. Jaideep Gupta,
  learned Senior Advocate, submitted that the Schedule of work
  in the Agreement entered into between APTS and APAKSH
  provided that the project was to be completed and
  commissioned within 65 weeks, which was to end on 31st
B December, 2006. It also stipulated that connectivity upto the
  district and all mandal levels was to be completed in a phased
  manner within a period of seven months from the date of
  execution of the contract. Mr. Gupta submitted that towards that
  end the Respondent No.1 placed orders for supply of optic fibre
c cables on its sister concern, AKSH Broadband Limited, the
  Respondent No.5, which subsequently merged with AKSH
  Optifibre Limited, the substituted Respondent No.5,
  represented by the Respondents Nos. 2 to 4, for completion
  of the project. Mr. Gupta submitted that despite the fact that
  over a crore of rupees had been contributed by the Respondent
0
  No.1 to the Respondent No.5 towards the execution of the EPC
  contract, it had not achieved connectivity in any of the 23
  districts of the State in terms of the Agreement dated 21st April,
  2005, executed by APTS. Mr. Gupta submitted that AKSH
  Broadband Limited had used its sister concern, AKSH
E Optifibre Limited, prior to its merger, to dump useless and
  defective cable and to store them as part of the stores of AKSH
  Broadband Limited and siphoned out the monies from
  APAKSH Broadband Limited, purportedly for execution of the
  EPC contract, but without any tangible benefit to the Respondent
F No.1.

       9. Mr. Gupta urged that the Petitioner had been lured by
  the Respondents Nos. 2 to 4 to procure finance for the purpose
  of investment in the Respondent No.1 Company from Elegant
G Capitals Private Limited, the Respondent No.6 herein, which
  had promised to advance a loan of Rs.33 crores to the
  Petitioners towards capital contribution in the Respondent No.1
  Company. Mr. Gupta submitted that taking advantage of their
  stranglehold over the Company and its officers, the
H Respondent Nos. 2 to 5 had by a series of acts mismanaged
        INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                  451
         AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]
      the affairs of the Respondent No.1 Company and rendered the         A.
      Petitioners completely ineffective inspite of their investment,
      thereby attracting the provisions of Sections 402 and 403 of
      the Companies Act, 1956.
•.
             10. Mr. Gupta urged that the Respondent No.5 was involved
       with the turnkey project in two capacities. On the one hand, it    B
     · is the principal shareholder of the Respondent No.1 Company,
       holding and controlling more than 64% equity of the Respondent
       No.1 and, on the other, it is the EPC contractor who is
       responsible for delivering goods and services in accordance
       with the Agreement executed between itself and the                 C
       Respondent No.1 Company on 10th May, 2005. Mr. Gupta
       submitted that it was in this. context that it was necessary for
       the Company Law Board and the High Court to have inquired
       into the conduct of the Respondent No.5 in the matter of
       execution of the turnkey project. Mr. Gupta submitted that such    D
       omission has resulted in grave miscarriage of justice in so far
       as the Petitioners were concerned.
           11. Mr. Gupta submitted that since the Petitioners had not
      been permitted to adduce oral evidence involving events which E
      had occurred during the pendency of the appeal, the only
      course left open to rectify the injustice caused to the Petitioners
      was to remit the matter to the Company Law Board for a proper
      inquiry into the various allegations made by the Petitioners
      regarding the gross misconduct of the Respondent No.5 in F
      executing the turnkey project which was the very substratum of
      the existence of APAKSH Broadband Limited, the Respondent
      No.1 company. Mr. Gupta submitted that the aforesaid acts of
      the Respondent No.1 Company through the Respondent No.5
      herein, taking advantage of its complete control over the G
      management and affairs of the Respondent No.1 already
      established that the Company's affairs are being conducted in
      a manner oppressive to the Petitioners and the facts justified
      the making of a winding-up order on the ground that it was just
      and equitable that the Company be wound up.
                                                                          H
    452       SUPREME COURT REPORTS                  [2010] 6 S.C.R.


A        12. Mr. Gupta also submitted that after holding that they
  lacked jurisdiction under Sections 397 and 398 and 10-F of the
  Companies Act, neither the Company Law Board nor the High
  Court should have commented on the merits of the matter which
  has prejudiced the interests of the Petitioners. It was urged that
B it is in this context that the complaint made about the failure of
  the principles of natural justice before the Company Law Board
  assumes significance. Referring to the decision of this Court
  in Needle Industries (India) Ltd. & Ors. vs. Needle Industries
  Newey (India) Holding Ltd. & Ors. [(1981) 3 SCC 333], Mr.
C Gupta submitted that in the said decision it had been held as
  follows :-

          "63. We appreciate that it is generally unsatisfactory to
          record a finding involving grave consequences to a person
          on the basis of affidavits and documents without asking
D         that person to submit to cross-examination. It is true that
          men may lie but documents will not and often, documents
          speak louder than words. But a total reliance on the written
          word, when probity and fairness of conduct are in issue,
          involves the risk that the person accused of wrongful
E         conduct is denied an opportunity to controvert the
          inferences said to arise from the documents ........... ".

       In the said judgment, this Court also observed that many
  decisions had been cited in support of the contention that issues
F of mala fides and abuse of fiduciary powers are almost always
  decided not on the basis of facts but on oral evidence.

        13. Mr. Gupta also referred to the decision of this Court in
  Sangramsinh P. Gaekwad vs. Shantadevi P. Gaekwad [(2005)
  11 sec 314], in which the question of oppression for the
G purposes of Section 397 and 398 of the Companies Act has
  been dealt with in some detail. Their Lordships held that the
  remedy under Section 397 of the Companies Act is not an
  ordinary one. The cause of oppression had to be burdensome,
  harsh and wrongful and an isolated incident may not be enough
H for grant of relief and continuous course of oppressive conduct
    INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                    453
     AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]
  on the part of majority shareholders was, therefore, necessary         A
  to be proved. It was also observed that the jurisdiction of the
  Court to grant appropriate relief under Section 397 was of wide
· aptitude and in exercise of its powers the Court was not bound
  by the directions contained in Section 402 of the Companies
  Act if in a particular fact situation further relief or reliefs were   B
  warranted. At the same time, a word of caution was introduced
  and it was also held that it had to be borne in mind that when
  a complaint is made as regards violation of statutory or
  contractual rights, the shareholders may initiate proceedings in
  a Civil Court or in a proceeding under Section 397 of the Act          c
  which would be maintainable only when an extra-ordinary
  situation is brought to the notice of the Court keeping in view
  the wide and far reaching power of the Court in relation to the
  affairs of the Company.

       14. Mr. Gupta pointed out that several letters had been           D
 written on behalf of the Petitioner-Company objecting to the
 manner in which the funds of the Company were being
 siphoned off by the Engineering Procurement and Construction
 Contractor, hereinafter referred to as "the EPC Contractor",
 without any progress in the project work. In the first of such          E
 letters dated 22nd August, 2006, addressed by Shri R.V.R.
 Chowdary, Chairman and Ma[laging Director of the Petitioner
 Company, to the Chairman of the Respondent No.1 Company,
 the financial indiscipline on account of payment of commission
 to the EPC contractor was objected to as the same ought to              F
 have been spent in proportion to the funds earmarked for each
 category of expenditure. The next letter referred to by Mr. Gupta
 was the one dated 1st November, 2006, addressed by the
·Vice-Chairman of the Respondent No.1 Company to the
 Respondent No.5 complaining of the fact that despite all the            G
 support received by the Respondent No.5 as the EPC
 contractor and payment of about Rs.100 crores, connectivity
 had not been completed even in one district nor in the State
 Secretariat which was the central hub of the project. Various
 other shortcomings of the Respondent No.5 were also pointed             H
    454     SUPREME COURT REPORTS                 (2010) 6 S.C.R.


A out and it was also stated that A.P. Broadband Project had
  been used by the Respondent No.5 to enrich itself using the
  free right of way granted by the Government of Andhra Pradesh.
  It was also mentioned that no further infusion of funds was
  necessary and the EPC contractor would have to make
B immediate measures to make triple play completely operational
  in at least 4 to 5 districts.

       15. Yet another letter dated 29th September, 2006,
  addressed to Mr. V.K. Dhir, the Chief Executive Officer of the
  Respondent No.5 was referred to by Mr. Gupta from which it
C would be evident that the work had not been completed nor had
  the timelines indicated been followed. A letter on similar lines
  addressed by the Department of Information Technology and
  Communication, Government of Andhra Pradesh, to Dr. Kailash
  Chowdary, Managing Director of the Respondent No.5,
D expressing serious concern with regard to the progress made,
  was also brought to the notice of the Court.

       16. Mr. Gupta submitted that it is only too obvious that the
  Respondent No.5 had .nisused its control over the Respondent
E No.1 Company in not only securing the contract for the project
  which was nothing but the modus operandi of the Respondent
  No.5 in collusion with Respondent No.1 to siphon off the funds
  of the Company, after having induced the Petitioners to invest
  large sums of money in the Respondent No.1 Company and
F rendering the holding of the petitioners in the Respondent No.1
  Company of little or no value. As against the investment of
  Rs.112 crores by the Petitioner Company, no connectivity had
  been achieved even in Hyderabad, let alone in the 23 districts
  and all the mandals and villages of the State or even in at least
G one district.

        17. Mr. Gupta submitted that this was a classic example
  of oppression by majc...rity shareholders having a controlling
  interest, confined to unjust enrichment at the expense of minority
  shareholders of the Company. Mr. Gupta submitted that unless
H appropriate orders were passed on the Petitioners' application
   INCAJ3LE NET (ANDHRA) LIMITED & ORS. v. AP                455
    AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]

under Sections 397, 398, 402 'and 403 of the Companies Act,          A
1956, the Petitioner Company would completely lose its
investment in the Respondent No.1 Company and would also
be made to face continuous litigation and harassment at the
hands of the Respondents Nos.2 to 6.
                                                                     B
     18. Appearing for the Respondent Nos.1, 3, 4 and 5, Mr.
K.G. Raghavan, learned Senior Advocate, submitted that the
conduct of the Respondent No.5 as EPC contractor and a
shareholder in lncable Net has been cited by the Petitioners in
their application under Sections 397 and 398 of the                  C
Companies Act, as acts of oppression on the Petitioner
Company. Referring to the various allegations made against
the Respondent No.5 and its purported control of the
Respondent No.1, Mr. Raghavan pointed out that the
Petitioners had deliberately suppressed the fact that the
payments made to the Respondent No.5 had been done under             D
the signature of the Petitioner No.2. Mr. Raghavan submitted
that having himself participated in the Board meetings as
Director of the Respondent No.1 Company and having chaired
eight Board Meetings between 14.2.2005 and 4.3.2006 and
having been a signatory to the minutes of the meeting dated          E
21st April, 2005, in which the EPC contract had been awarded
in favour of the Respondent No.5, it did not lie in the mouth of
the Petitioner No.2 to attribute acts of oppression by the
Respondent No.1 as far as the Petitioners are concerned. Mr.
Raghavan submitted that apart from the above, the Petitioner         F
No.2 was also a member of the Managing Committee and Audit
Committee of the Respondent No.1 Company and had also
signed the Audit Report and its Balance Sheet for the year
2005-06.
                                                                     G
      19. Mr. Raghavan submitted that during this period, when
 the Petitioner No.2 was not only participating in the affairs of
 the Company, but was taking an active role in its management,
·no allegation as to oppression or even mis-management was
 raised. It was only after the call money for the balance price of   H
    456      SUPREME COURT REPORTS                  {2010) 6 S.C.R.


A the partly paid shares was repeatedly demanded from the
  Petitioners and the Petitioners failed to pay the said amount,
  that all these allegations began to surface for the first time after
  1st November, 2006. Mr. Raghavan submitted that between
  2003 and 2006, ten Board Meetings were chaired by the
B Petitioner No.2 as Chairman. Special reference was made to
  the meeting held on 21st April, 2005, which was chaired by the
  Petitioner No.2, and wherein the EPC contract to be given to
  the Respondent No.5, was approved. Mr. Raghavan submitted
  that at no point of time was any demand made for cancellation
c of the EPC Agreement and even in the Company Petition
  before the CLB no such prayer was made.

          20. Mr. Raghavan submitted that the Director of the
    Company stands in a fiduciary capacity to the Company, but
    the same cannot be equated with his duties towards the
D   shareholders which stood on a different footing and in case of
    conflict between the two interests, the Company's interests had
    to be protected. A Director has to act in the paramount interest
    of the Company. He has no statutory obligation as far as
    individual shareholders are concerned. Accordingly, the duty of
E   the Petitioner No.2 as a Director of the Respondent No.1
    Company was to the Company before his combined interest
    as a Director in the Petitioner No.1 Company, which was a
    shareholder in the Respondent No.1 Company. Mr. Raghavan
    urged that the Company Law Board had quite correctly
F   disallowed the claims of the Petitioners and left it to the
    collective wisdom of the Directors of the Respondent No.1
    Company to take such action as was deemed fit and proper
    in the course of management of the day-to-day affairs of the
    Company, particularly with reference to evaluation of the
G   quantum of work completed by AKSH and the investments
    made by it towards the share capital of the Company,
     realization of the final call money from the shareholders,
     recovery of the security deposits from the Petitioner No.1 ..
     settlement of the pending bills of the Directors, audit of the
H    accounts of the Company, etc. which were within the lawful
  INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                457
  AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]

domain of the Board of Directors.                                  A

     21. In this regard, Mr. Raghavan referred to the decision
of this Court in Sangramsinh P. Gaekwad (supra), which had
also been referred to by Mr. Gupta, in support of his contention
that the duties of a Director to the Company and to the            B
shareholders stand on different levels, but while a Director
stands in a fiduciary capacity to the Company, he does not have
such a duty towards shareholders.

     22. As far as denial by the CLB as well as the High .Court-
to the adducing of oral evid~nce is concerned, Mr. Raghavan C
submitted that Section 1OE(5) of the Companies Act, 1956,
indicates the manner in which the Company Law Board has to·
exercise its powers and to discharge its functions under the Act.

    For the sake of reference, Section 1OE(5) is set out           D
hereinbelow :

    "10E. Constitution of Board of Company Law
    Administration. -

     (1)                                                           E

     (2)

     (3)

     (4)                                                           F

    (5) Without prejudice to the provisions of sub-sections (4C)
    and (4D), the Company Law Board shall in the exercise
    of its powers and the discharge of its functions under this
    Act or any other law be guided by the principles of natural    G
    justice and shall act in its discretion."

     23. Mr. Raghavan submitted that there was no compulsion
on the Company Law Board to record oral evidence, when all
that the Petitioners had to say had already been said by them
on affidavit. The Company Law Board, therefore, did not            H
    458     SUPREME COURT REPORTS                  [2010] 6 S.C.R.


A commit any illegality in disallowing the Petitioners' prayer for
  adducing oral evidence./Mr. Raghavan also referred to the
  relevant portions of the decision of this Court in Needle
  Industries (India) Ltd. (supra), where an argument had been
  advanced that under the Company Court Rules framed by this
B Court, the provisions of the Civil Procedure Code were made
  applicable to proceedings before the Company Law Board
  under Section 397 of the Act. Mr. Raghavan pointed out that in
  paragraph 63 of the judgment this Court had observed that,
  although, it had to be appreciated that it is generally
c unsatisfactory to record a finding involving grave consequences
  towards a person on the basis of affidavits and documents,
  without asking that person to submit to cross-examination, but
  a total reliance on the written word, when probity and fairness
  of conduct are in issue, involved the risk that the person
D accused of wrongful conduct is denied an opportunity to
  controvert the inferences said to have arisen from the
  documents. The said submission was ultimately not acted upon
  on the ground that such a submission was a belated attempt
  to avoid an inquiry into the conduct and motives of one of the
E Directors of the Company.

         24. Mr. Raghavan reiterated his submissions that where
    there was a conflicting interest between the Company and the
    shareholders, the Director's duties would at first always be for
    the benefit of the Company and that in the context of Sections
F   397 and 398 of the Companies Act, the Legislature in its
    wisdom had left the procedure to be adopted in these matters
    to the Company Law Board itself, with special emphasis on
    due compliance with the principles of natural justice.

        25. Mr. Raghavan placed reliance on the decision of this
G Court in V.S. Krishnan & Ors. vs. Westfort Hi-Tech Hospital
  Ltd. & Ors. [(2008) 3 SCC 363], wherein, while considering the
  scope of the expression "oppression" within the meaning of
  Sections 397, 398 and 402 of the Companies Act, it was held
  that in order to establish "oppression" it would have to be shown
H
  INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                459
   AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]
that the conduct of the majority shareholders towards the          A
minority shareholders was harsh, burdensome and wrong and
that such conduct was mala fide and was for a collateral
purpose where although the ultimate objective might be in the
interest of the Company, the immediate purpose would result
in an advantage for some shareholders over others. It was also     B
observed that the action of the majority shareholders was
against probity and good conduct. Once the conduct was found
to be oppressive under Sections 397 and 398, the discretionary
power given to the Company Law Board under Section 402 to
set right, remedy or put to an end such an oppression, is very     c
wide.

     26. Mr. Raghavan submitted that even in the decision of
this Court in Dale & Carrington lnvt. (P) Ltd.& Anr. vs. P.K.
Prathapan & Ors. [(2005) 1 SCC 212], this Court had held that
when a majority shareholder was reduced to a minority              D
shareholder by a mala fide act of the Company or its Board of
Directors, such act would amount to "oppression" against the
minority shareholders.

     It was also submitted that it is only in such circumstances   E
that a decision was taken by the Respondent No.1 Company
to consider the question of forfeiture of the partly paid shares
held by the Petitioner No.1. He also submitted that the call
money amounting to Rs.24,83,25,000/- had already been
deposited by the Respondent Nos.3 to 5.                            F

     27. Except to submit that the project had been undertaken
by the State Government to abridge the digital divide which
existed within the State, Dr. Manish Singhvi, learned Advocate
appearing for the Respondent No.2, had little else to add.
                                                                   G
    28. In reply to the submissions made on behalf of the
respondents, Mr. Jaideep Gupta submitted that the High Court
had not decided the question of jurisdiction under Sections 397
and 398 of the Companies Act. The findings of misconduct by
the High Court against the Petitioners was not only on the         H
    460          SUPREME COURT REPORTS              [2010] 6 S.C.R.


A question of contractual obligation between the Respondent
  No.1 and Respondent No.6, but also with regard to the mala
  fide manner in which the Petitioners were placed on account
  of the close proximity between the Respondent No.1 and the
  Respondent No.5. Mr. Gupta also submitted that the
B participation of the Petitioner No.2 as a Director in the affairs
  of the respondent No.1 Company was prior to the
  implementation of the project.

        29. It was lastly urged that "oppression" is a mixed question
C of law and fact as was beld in the Needle Industries (India)
  Ltd. 's case {supra) and the views expressed by this Court in
  the said case, in fact applies to the case of the Petitioners
  necessitating the setting aside of the orders of the Company
  Law Board as well as the High Court.

D         30. On the allegations contained in the Company Petition
    filed by the Petitioners under Sections 397, 398, 402 and 403
    of the Companies Act, 1956, the reliefs prayed for are as
    follows :-

          "(i)     To direct the 1st respondent company to
E
                   incorporate the Shareholders Agreement dated
                   04.06.2005 in the Memorandum and Articles of
                   Association of the 1st respondent company;

          (ii)     To reconstitute the Board of Directors of the 1st
F                  respondent company and provide that all policy
                   decisions, and all decisions on key matters be
                   decided by a Board of directors at a meeting where
                   at only one nominee from each of the groups viz.,
                   5th respondent, 1st petitioner apart from APTS
G                  nominee are present;

          (iii)    Appoint a Chartered Accountant to investigate into
                   the investments made by the 5th respondent
                   towards the share capital especially keeping in
                   mind the source of funds for investments in share
H
  INCABLE NET (ANDHRA) LIMITED & ORS. v. AP               461
   AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]
            capital of the 1st respondent company;               A

     (iv)   Appoint a team of Chartered Accountants/
            Chartered Engineers to evaluate the quantum of
            work done by the 5th respondent company, and
            declare that the investment of the 5th respondent    B
            company'over and above the said quantum of work
            to have been issued without consideration and
            consequently annul the said shares and direct the
            modification of the shareholding of the 1st
            respondent company;
                                                                 c
     (v)    Vest the day-to-day administration of the 1st
            respondent company in a Committee of Directors
            comprising of a nominee from each group viz.,
            petitioners, APTS and 5th respondent; and pass
            such other order(s) as the Hon'ble Board deems fit   D
            and proper in the circumstances of the case."

     31. The allegation on the basis of which such reliefs have
been prayed for basically is that the EPC Contractor AKSH,
the Respondent No.5, which is also the majority shareholder E
in the Respondent No.1 Company, had mismanaged the funds
and operations of the Company and the work on the project
was delayed on account of the various acts of omission and
commission on the part of AKSH. The reliefs prayed for have
been opposed on behalf of the Respondents contending that
                                                                 F
the contractual obligations under the EPC Contract did not fall
within the scope of Sections 397 and 398 of the above Act and·
the right of the Petitioners as shareholders was in no way
affected, particularly, when the Petitioner No.2 was a Director
and Vice-Chairman and a member of the Managing Committee
constituted to monitor the implementation of work of the project G
and at no point of time had he made any grievance with regard
to the EPC Contract. That apart, he had chaired the meetings
of the Board and operated the bank accounts and payments
made to AKSH by the Respondent No.1 Company had in most
cases been done by him on behalf of the Company.                 H
    462     SUPREME COURT REPORTS                    [2010) 6 S.C.R.


A         32. It is on the said foundation that a case of oppression
    and mismanagement has been attempted to be made out by
    the Petitioners. However, in the facts of the case it becomes
    difficult to take a different view as has been expressed both
    by the CLB as also by the High Court.
B
          33. Admittedly, the Respondent No.5 is a majority
    shareholder in the Respondent No.1 Company and at the same
    time the EPC Contract has also been given by the Respondent
    No.1 Company to the Respondent No.5, to which transaction
C   the Petitioner No.2, Shri R.V.R. Chowdary, was also a party in
    his capacity as Vice-Chairman of the Respondent No.1
    Company. 13esides being a party to the decision to give the
    EPC Contract to the Respondent No.5, the Petitioner No.2 was
    also instrumental in payment of large sums of money being
    made to the Respondent No.5 which estops him from alleging
D   that the Respondent No.2 Company had been siphoning off the
    funds of the Respondent No.1 Company without diligently
    performing its part of the contract. There is substance in Mr.
    Raghavan's submissions that the EPC Contract given to the
    Respondent No.5 by the Respondent No.1 was a commercial
E   contract and stands outside the ambit of Sections 397 and 398
    of the Companies Act. Failure to act in terms of the contract
    cannot be said to have amounted to either oppression or
    mismanagement by the Respondent No.1. At best it can be
    said that the Respondent No.1 had been used as a tool or
F   mechanism by the Respondent No.5 to acquire benefits for
    itself, which in the instant case, does not appear to be so, having
    regard to the fact that one of the Petitioners in the Company
    Petition was himself responsible for such payments being
    made.
G
          34. Both the parties have placed reliance on the decision
    of this Court in Needle Industries (India) Ltd. (supra). Mr. Gupta
    relied on the said decision in support of his submission that
    by denying an opportunity to the Petitioners to adduce oral
    evidence, the CLB had shut out vital evidence which would have
H
i.


       INCABLE NET (ANDHRA) LIMITED & ORS. v. AP                 463
        AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]

     strengthened the case of the Petitioners. The views expressed       A
     in paragraph 63 of the said decision is the expression of a
     general principle of law and only confirms the principle of
     adducing evidence, but does not lay down a hard and fast rule
     that in all cases the Court or the CLB is bound to allow oral
     evidence to be led as otherwise there is a risk that the person     B .
     accused of wrongful conduct is denied an opportunity to
     controvert the inference said to have been arrived at from the
     evidence produced before the Court alone. As a proposition
     of law there can be no disagreement with the same, but the
     question is as to whether the same is required to be applied        c
     in the facts of the instant case.

           35. From the submissions made on behalf of the
     respective parties and the materials on record, the point which
     falls for consideration in this appeal is as to whether a case of
     oppression and mismanagement by the majority shareholders           D
     against the minority shareholders had been established or not.

        36. Whether there is any truth in Mr. Gupta's submissions
  as to the siphoning of funds by the Respondent No.5 Company
  from the Respondent No.1 Company, which had been set up E
   as a Special Purpose Vehicle and in which the Respondent
 · No.5 was a majority sbareholder, holding about 60% of the
  equity shares has not been properly established. On the other
  hand, the materials on record indicate that the Petitioner No.2,
  who is a Director of the Petitioner No.1 Company, which is also F
 ·a shareholder in the Respondent No.1 Company, had
  functioned as a Vice President of the Respondent No.1
  Company and had also chaired 8 of its Meetings including the ·
   Meeting held on 21st April, 2005, in which the decision was
  taken to award the EPC Contract to the Respondent No.5 G
   Company. Further more, the Petitioner No.2 had signed most
   of the cheques by which payments were made to the
   Respondent No.5 Company for supply of materials under the
   EPC contract. It does not lie in the mouth of the Petitioner to

                                                                         H
    464     SUPREME COURT REPORTS                  [2010) 6 S.C.R.


A   now contend that the funds of the Respondent No.1 Company
    had been siphoned by the Respondent No.5.

       37. From the facts as revealed, the only conclusion that can
  be arrived at is that the Respondent No.5 had committed a
B breach of contract in regard to supply of materials to the
  Respondent No.1 Company in terms of the EPC contract. Such
  lapse, in our view, would not constitute the ingredients of a
  complaint under Section 397, 398, 402 and 403 of the
  Companies Act, 1956. Such breach could give rise to an action
  of breach of contract under Section 73 of the Indian Contract
c Act, 1872.

       38. The decisions cited on behalf of the respective parties
  and in particular, the decision in Needle Industries (India) Ltd.
  (supra), in support of the claim of the Petitioners for being
D allowed to lead or(!I evidence, does not really come to the aid
  of the Petitioners, since from the materials on record itself it
  has been established that at best the Respondent No.5 had
  failed to abide by its commitments in the EPC contract
  executed in its favour by the Respondent No.1 Company.
E
       39. We are unable to understand as to how the decisions
  in the above case are of any help to the Petitioners, since
  nothing concrete has been established by them in regard to
  either oppression or mismanagement by the Respondent No.5
  as far as the Petitioners are concerned. On the other hand, the
F conduct of the Petitioner No.2 provides a different picture since
  at the relevant point of time he was at the helm of affairs of the
  Respondent No.1 Company, despite being a Director on the
  Board of the Petitioner No.1 Company. The decision in V.S.
  Krishnan's case (supra) is more apposite to the facts of the
G case. Quoting Halsbury, this Court observed that the expression
  "oppression" within the meaning of the Sections 398, 399 and
  402 of the Companies Act had been interpreted to mean that
  the conduct of the majority shareholders towards the minority
  shareholders was harsh, burdensome and wrong and that such
H conduct was mala fide and was for a collateral purpose which
  INCABLE NET (ANDHRA) LIMITED &. ORS. v. AP                  465
  AKSH BROADBAND LTD. [ALTAMAS KABIR, J.]
would result in an advantage for some shareholders over A
others, although, the ultimate object might be in the interest of
the Company. However, the facts disclosed in this case do not ·
establish such conduct on the part of the Respondent No.5.
Until the conduct of the majority shareholders was found to be
oppressive in terms of the above description, under Sections B
397 and 398 of the Companies Act, 1956, the Company Law
Board was not competent to invoke its jurisdiction under
Section 402 of the said Act to set right, or put an end to such
oppression.

     40. On an overall analysis of the facts involved and the part    C
played b~ the Petitioner No.2 in the affairs of the Company at
the relevant time, we are not inclined to interfere with the orders
of the High Court or the Company Law Board, since we are
not satisfied that any act of oppression or mismanagement
within the meaning of Sections 397, 398, 402 and 403 of the           D
Companies Act, 1956, has been made out by the Petitioners
                                      I
against the majority shareholders Iof the Respondent No.1
Company which would justify the m~king of a winding up order
on the ground that it would be just and equitable to do so and
to pass appropriate orders to bring to an end the matters             E
complained of.

     41. The Special Leave Petition is, accordingly, dismissed.

     42. There will, however, be no order as to costs.
                                                                      F
K.K.T.                      Special Leave Petition dismissed.