T: Yash

Vardhman
Pradyumna
Pranjal

Before
THE HONBLE COMPANY LAW BOARD
In the Matter of

MR. D & ORS.-

- PETITIONERS

- RESPONDENTS

v.

ABC & SONS PVT. LTD. & ORS.

MEMORANDUM FOR THE RESPONDENTS

-Table of Contents-

-Respondents-

TABLE OF CONTENTS
TABLE OF CONTENTS -

LIST OF ABBREVIATIONS

II

INDEX OF AUTHORITIES

III

STATEMENT OF JURISDICTION

VII

STATEMENT OF FACTS

VIII

STATEMENT OF ISSUES

IX

SUMMARY OF PLEADINGS

PLEADINGS

I. THIS PETITION IS NOT MAINTAINABLE U/ 397 AND 398 OF THE COMPANIES ACT, 1956 1
(A) Impugned acts have been done with the knowledge and consent of the Petitioners

(B) Acts complained were the acts of directors inter se and not the conduct of the affairs of
the company.

(i) Oppression is not caused due to issue of rights shares.

(ii) Issue of rights shares is for benefit of the company.

(iv) Issuance of rights shares was not for disturbance of shareholding.

(C) The Petition is barred under Limitation Act, 1963.

II. THE ACTS OF THE RESPONDENTS DID NOT AMOUNT TO OPPRESSION.

(A) Denial to buy the shares does not amount to oppression.

(iii) Benefits to Respondents does not amount to oppression.

(B) There are no just and equitable grounds for a winding up order.III. THAT

THE ACTS OF

RESPONDENTS

398 OF THE COMPANIES ACT, 1956.

PRAYER

DO NOT CONSTITUTE MISMANAGEMENT AS UNDER

XI

-MEMORANDUM FOR THE RESPONDENTSI

-List of Abbreviations-

-Respondents-

LIST OF ABBREVIATIONS
Abbreviations

Full Forms

&

And

AIR

All India Reporter

AoA

Articles of Association

BoD

Board of Directors

CLA

Company Law Advisor

Co.

Company

Com Cases

Company Cases

Comp LJ

Company Law Journal

Ed.

Edition

Honble

Honourable

Ltd.

Limited

Ors.

Others

Pvt.

Private

Section

S.C.

Supreme Court

SCC

Supreme Court Cases

u/s

Under Section

v.

Versus

Vol.

Volume

-MEMORANDUM FOR THE RESPONDENTSII

-Index of Authorities-

-RespondentsINDEX OF AUTHORITIES

CASE NAME

PAGE

A Venkatramana v AKR Minerlas Pvt. Ltd., (1999) 35 CLA 8 (CLB).

10

A. Ravishankar Prasad, A. Sai ... vs Prasad Productions Pvt. Ltd., 2007 135

12

CompCas 416 CLB.

Akbarali Kalvert v. Konkan Chemicals P. Ltd., [1997]88 Comp Cases 245.

Allianz Securities Ltd. v. Regal Industries Ltd., [2001] 4 CLJ 314 (CLB).

12

Amrit Lal Seth v. Seth Hotels Pvt. Ltd., (2009) 95 SCL 161.

Ashok Kumar Oswal v. Panchsheel Textile Mfg. & Trading Co. Pvt. Ltd.,

(2002) 110 Com Cases 800.

Ashoka Betelnut Company P. Ltd. v. M.K. Chandrakanth, 1997-1-L.W. 616.

B.N Jain and Sons Co. Pvt. Ltd. v. Bombay Cable Car Co. Pvt. Ltd. [2001] 30

SCL 140 (CLB).

B.V. Thirumalai v Best Ventures Trading P. Ltd., (2004) 63 CLA 118 (CLB).

C.P. Gnanasambandam v. Tamil Nadu Transports (Coimbatore) Private Ltd.,

[1971] 41 Comp Cas 26 (Mad).

Central Government v. Kopran Ltd. [2004] 56 SCL 428 (CLB).

13

Dale & Carrington Investment (P.) Ltd. v. Prathapan, AIR 2005 SC 1624.

G. Haranadh v. Shri Laxmi Durga Paper Products Ltd., (2006) 129 Com Cases

501.
Gyan Dev Sadh v. Parmeshwar Exports Pvt. Ltd. (2012) 107 CLA 265 (CLB).

Hansraj Gokuldas Ved v. Nitin Dyeing and Bleaching Mills Pvt. Ltd., [2004] 55

SCL 600 (CLB).

-MEMORANDUM FOR THE RESPONDENTSIII

-Index of Authorities-

-Respondents-

Hanuman Prasad Bagri v. Bagrees Cereals P. Ltd. (2007) 138 Com Cases 542.

5, 7

Hardip Kaur v. Thinlac Enterprises P. Tld., (2004) 122 Com Cases 444.

Hari Kumar Rajah v. Sovereign Dairy Industries, (2001) 2 Comp LJ 504.

5, 7

Hetal Alpesh Muchchar v. Adityaesh Educational Institute Pvt. Ltd. (2009) 149

Comp Cases 241.

Hunger Ford Investment Trust Ltd. v. Turner Morrison and Co. Ltd., ILR 1 Cal.

286.
In Re Clive Mills Co. Ltd., (1964) 34 Com cases 731 (Cal).

10

Incable Net (Andhra) Ltd. v. AP Aksh Broadband Ltd., [2010] 6 SCC 719.

Jaladhar Chakraborty v. Power Tools & Appliances Co. Ltd., [1994] 79 Comp.

12

Cas. 505.
Jiwan Mehta v. Emmbros Metals Pvt. Ltd., (2008) 84 CLA 206.

K Varadan v. The Ambattur Saswatha Nidhi Ltd, (2007) 135 Comp Cas 322

10

(CLB).
KRS Mani v. Anugraha Jewellers Ltd. [1999] 19 SCL 145.

13

Laxmi Narayan Rawat v. RT Udyog P. Ltd., (2005) 3 Comp LJ 342.

Lt. CDR. D.K. Chatterji v. Rapti Supertronics Pvt. Ltd, [2003] 114 CC 265.

MM Dua v. Indian Dairy & Allied Services P. Ltd., [1996] 86 Comp Cases 657.

Mr. Mehool Bhuva v. M/s. Indo-Nippon Chemical Co. Ltd. & Ors, CP No. 99 of

13

2013, CLB Mumbai.

Mrs. M R Shah v. Vardhman Dye-Stuff Industries P. Ltd, (2005) 128 Comp

10,13

Cases 710 (CLB).

Needle Industries v. Needle Industries Newey, AIR 1981 SC 1298.

Pahlaj Dhajandas Bajaj v. Microedge Technologies Pvt. Ltd, (2000) 27 SCL

12

-MEMORANDUM FOR THE RESPONDENTSIV

-Index of Authorities-

-Respondents-

473.
Raghunath Swarup Mathur v. Har Swarup Mathur(1970) 1 Com LJ 35.

Ramesh Bhajanlal Thankur v. Sea Side Hotels Pvt. Ltd., (2000) 100 Com Cases

12

117
Ravi Shankar Taneja v. Motherson Triplex Tools (P.) Ltd., [2001] 4 CLJ 102

11

(CLB).
Sanderson and Ward Ltd. v. Word, The Financial Times, October 18, 1985

(U.K)
Seetharaman v. Stick Fast Chemicals Pvt. Ltd., 1998] 18 SCL 399.
Shanti Prasad v. Kalinga Tubes, AIR 1965 SC 1535.
Sheth Mohanlal Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. Ltd.,

8
4,8
9

(1964) 34 Comp Cas 777 (Guj.).

Shiv Nath Bajaj v. Nafabs India P. Ltd., (2002) 108 Com Cases 642.

Shri Kishan Khariwal v. Gangasagar Industries Ltd, (2004) CLC 241.

Smt. Namita Gupta v. Surma Valley Stock Ltd., [2002] 35 SCL 700(CLB).

Subhas Ch. Agarwal v. Associated Limestone Ltd., [1998] 16 SCL 212.

Tech Corporation v. Millar, (1972) 33 DLR (3d) 282

Tushar Clothing Pvt, Ltd. and Ors. v. Ramesh D Shah, CLB, Mumbai, C. P. 28

12

of 2014, Decided on: 30.04.2015.

STATUTES REFERRED
S. No.

BIBLIOGRAPHICAL INFORMATION

1.

The Companies Act, 1956.

2.

The Contract Act, 1872.

-MEMORANDUM FOR THE RESPONDENTSV

-Index of Authorities3.

-Respondents-

The Specific Relief Act, 1963.

BOOKS REFERRED
1.

RAMAIYA, Guide To The Companies Act, LexisNexis Butterworths Wadhwa Nagpur

(17th ed., 2010)

2.

RAMAIYA, Guide To The Companies Act, LexisNexis Butterworths Wadhwa Nagpur

(18th ed., 2015)

3.

POLLOCK & MULLA, Indian Contract And Specific Relief Acts (13th ed., 2006)

4.

TAXMANN, Company Law, (3rd ed., 2014)

DATABASES REFERRED
1.

http://www.manupatra.com

2.

https://www.scconline.in/default.aspx

3.

http://www.claonline.in/

-MEMORANDUM FOR THE RESPONDENTSVI

-Statement of Jurisdiction-

-Respondents-

STATEMENT OF JURISDICTION
The counsels on behalf of the Respondent have endorsed their pleadings in response to the
Petition filed by the Petitioner under the aegis of Sections 397 and 398 of the Companies
Act, 1956. The respondent will humbly contest the grounds that have been invoked under
the aegis of Sections 397 and 398 of the Companies Act, 1956.

-MEMORANDUM FOR THE RESPONDENTSVII

-Statement of Facts-

-Respondents-

STATEMENT OF FACTS

A. ABC and Sons Pvt. Ltd. was previously a partnership firm converted under the Companies
Act 1913. It is in the business of preparing food products with restriction on transfer of its
shares only to male descendants of the family who were Mr A, B C D and E.
B. After death of Mr A., Mr. B, C, D and E became the directors of the company.
C. In 1985-86 difference started arising between Petitioner and Respondents. The Petitioner
offered his 25% stake to respondents and resignation from directorship which was accepted
by the latter. As promised petitioner stepped down from management however, the
respondents did not purchase his stake. There were negotiations afterwards also but no
conclusion reached.
D. Further the company issued rights shares to all members which diluted the share of
Petitioner from 25% to 7.5 % losing any say in management as well as affairs of the
company.
E. In the meantime the performance of company was deteriorated and was in financial distress.
The management comprising of the respondents did not have the skills to manage the affairs.
They selling the assets of the company and raising huge loans.
F. The money so raised was siphoning off to their own companies and used for huge drawings.
They also outsourced core business opportunity of the company to their own companies set
in ancillary business.
G. The Petitioners have filed the present petition seeking relief under 397and 398 of the
Companies Act, 1956.

-MEMORANDUM FOR THE RESPONDENTSVIII

-Statement of Issues-

-Respondents-

STATEMENT OF ISSUES
The following issues are presented before the Honble Company Law Board:Q1. WHETHER THE PETITION FILED UNDER 397 AND 398 OF THE COMPANIES ACT, 1956 IS
MAINTAINABLE?

Q2. WHETHER

THE ACTS OF THE

RESPONDENTS

ARE PREJUDICIAL TO INTEREST OF

PETITIONERS AND AMOUNTED TO OPPRESSION ON THE PETITIONERS?

Q3. WHETHER

ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ACTS OF THE

RESPONDENTS AMOUNTED TO MISMANAGEMENT OF THE COMPANY?

-MEMORANDUM FOR THE RESPONDENTSIX

-Summary of Pleadings-

-Respondents-

SUMMARY OF PLEADINGS

I.

The Respondents most humbly submits before the Honble Board that this petition is
not maintainable under S. 397 and S. 398 of the Companies Act, 1956. That the
impugned acts of the Respondents have been done with the knowledge and consent of
the Petitioners. Further, the Petition has been filed with undue delay and latches which
defeats the equity. The impugned acts does not fall within the ambit of conduct of the
affairs of the company.

II.

It is humbly submitted before this Honble Board that the acts of the Respondents were
not oppressing in nature. To substantiate the same, firstly, the counsels humbly plead
that the Petitioners raising its argument on the base of breach of contract, on which this
Honble Board does have the jurisdiction. Secondly, the Respondents are also
contending that issuance of rights shares of the Respondent Company was not malafide
in nature and did not prejudice the interest of the Petitioners as the shareholder of the
company.

III. It is most humbly submitted before this Honble Board that the acts of respondents do
not amount to mismanagement as alleged by the Petitioner. That the allegations of such
nature which are vague and general without any substance does not disclose a case
falling under section 398 of the Companies Act,1956. Further it is submitted that the
acts undertaken were for the interest of the company and nowhere prejudices its
interest.

-MEMORANDUM FOR THE RESPONDENTSX

-Pleadings-

-Respondents-

PLEADINGS
I.

THIS PETITION IS NOT MAINTAINABLE U/ 397 AND 398 OF THE COMPANIES ACT, 1956.
(A). Impugned acts have been done with the knowledge and consent of the Petitioners.

1.

It is humbly submitted before the Honble board that the impugned act of allotment of shares and
vacation of office as a director took place with full knowledge, consent and acquiescence of the
petitioner, the petition is not maintainable.1 The Petitioner Mr. D himself did not offer himself
for re-appointment in the Annual General Meeting of 1986.2 Further, when Rights Shares were
issued, the petitioner Mr. D in spite being given option to subscribe to the new shares being
issued, did not subscribe.3

2.

When the petitioner files the petition under 397 and 398 of the Companies Act, 1956 with
undue delay and latches, the petition is not maintainable.4 It is an essential prerequisite for a
petitioner under 397 of the Companies Act, 1956 to prove that, apart from any prejudice to the
interest of the members, a winding up order would be justified in equity. Delay, if considerable
and unexplained, is enough to defeat equities and to justify a refusal to exercise discretionary
powers.5 The principal of equity was also upheld in a company which was of a nature of
partnership.6 All the impugned acts of the Respondents have occurred in 1986 and the period

Jiwan Mehta v. Emmbros Metals Pvt. Ltd., (2008) 84 CLA 206.

Moot Proposition, 3.

Id at, 4.

Amrit Lal Seth v. Seth Hotels Pvt. Ltd., (2009) 95 SCL 161.

Raghunath Swarup Mathur v. Har Swarup Mathur, (1970) 1 Com LJ 35.

Hansraj Gokuldas Ved v. Nitin Dyeing and Bleaching Mills Pvt. Ltd., [2004] 55 SCL 600 (CLB).

- MEMORANDUM FOR THE RESPONDENTS 1

-Pleadings-

-Respondents-

near to it.7 Therefore considerable delay has occurred in filing of the petition which would defeat
the equities.
(B). Acts complained were the acts of directors inter se and not the conduct of the affairs of
the company.
3.

Mere exclusion from management participation would not necessarily found a petition under
459 (Same as 397 of the Companies Act, 1956) since what was being complained of was the
act of the directors inter se and not the conduct of the affairs of the company.8 Therefore, such
acts would fall outside the ambit of the 397 of the Companies Act, 1956.

4.

Petition under 397 and 398 is maintainable only in respect of affairs of the respondent
company and cannot extend to the affairs of individual respondents.9
(C). The Petition is barred under Limitation Act, 1963.

5.

Section 137 of the Limitation Act, 1963 applies to the application under 397 and 398 of the
Companies Act, 1956 and accordingly a petitioner cannot rely upon events more than three years
prior to the date of the filing of the petition.10

II.

THE ACTS OF THE RESPONDENTS DID NOT AMOUNT TO OPPRESSION.

6.

It is humbly submitted before this Honble Board that none of acts of the Respondents amounted
to oppression on the Petitioners. The counsel would plead the same on two grounds, firstly,
breach of contract to buy shares of the Petitioners did not amount to oppression and secondly,
that the rights issue was not for oppressing the Petitioner, but for, the benefit of the Respondent
company.

Supra Note 2 at, 3.

Sanderson and Ward Ltd. v. Word, The Financial Times, October 18, 1985 (U.K).

Smt. Namita Gupta v. Surma Valley Stock Ltd., [2002] 35 SCL 700 (CLB).

10

Hunger Ford Investment Trust Ltd. v. Turner Morrison and Co. Ltd., ILR 1 Cal. 286.

- MEMORANDUM FOR THE RESPONDENTS 2

-Pleadings-

-Respondents-

(A). Denial to buy the shares does not amount to oppression.

7.

It is most respectfully submitted before this Honble Board that the breach of the contract to buy
the shares of the Petitioners herein did not resulted to oppression of the Petitioners. The denial to
purchase the shares was not related to the appointment of the Petitioner as the Director in the
Respondent company. The Honble Supreme Court in the case of Incable Net (Andhra) Ltd. v.
AP Aksh Broadband Ltd.11 had stated that breach of contract would not constitute the ingredients
of a complaint u/ 397, 398, 402 and 403 of the Companies Act, 1956.

8.

Further, no right of the Petitioners in the capacity of shareholder guaranteed by AoA has been
breached in the instant case, but a mere contractual right of the Petitioners in individuals
capacity has been infringed. Thus, this is not a case where petition for oppression can be made.12
Furthermore, the Honble Board previously has also held that as breach of any agreement
between the parties does not give any cause of action to file a petition u/ 397 and 398, thus, no
specific performance of it can be prayed by the petitioners.13 The same was also held by the
Honble Board in the case of MM Dua v. Indian Dairy & Allied Services P. Ltd.14 This has also
been stated true in the case where agreement in question is in regard to purchase and sale of
shares.15
(i) Oppression is not caused due to issue of right shares.

9.

It most respected respectfully submitted before this Honble Board that as the issue of rights was
done by the BoD for the sole purpose of benefitting the company and not for oppressing the

11

(2010) 6 SCC 719.

12

B.N Jain and Sons Co. Pvt. Ltd. v. Bombay Cable Car Co. Pvt. Ltd., [2001] 30 SCL 140 (CLB).

13

Gyan Dev Sadh v. Parmeshwar Exports Pvt. Ltd., (2012) 107 CLA 265 (CLB).

14

[1996] 86 Comp Cases 657.

15

Akbarali Kalvert v. Konkan Chemicals P. Ltd., [1997] 88 Comp Cases 245.

- MEMORANDUM FOR THE RESPONDENTS 3

-Pleadings-

-Respondents-

minority herein. Further, the right to subscribe the shares to new shares was also given to the
Petitioners to which they did not subscribe.16
(ii). Issue of rights shares is for benefit of company.
10.

In the instant case, the rights shares had been issued gradually to the existing shareholders of the
Respondent company including the Petitioners for the need of the company. It is also to be noted
here that as the companys profit had reduced and the borrowings made,17 increasing the capital
was need of the hour for company.

11.

It was held in a leading case by the Honble Supreme Court of Shanti Prasad v. Kalinga Tubes,18
that for constituting oppression, there should be an element of lack of probity and fair dealing to
a member in the matter of his proprietary rights as a shareholder, however, in the present case,
there were no such elements involved in the conduct of the Respondents as the issue was for sole
purpose of raising the capital of the company.

12.

When rights shares were issued for the benefit of the company, it was permitted. 19 Further,
where rights shares were issued by the company being in the need of capital to avail further avail
loan facilities, it was decided that it* did not amounted to oppression.20

13.

It was held the Honble Board in the case of Hari Kumar Rajah v. Sovereign Dairy Industries21
that when no new majority is created, and the increase is necessary in interest of company to
enable it to repay its loans or debt, the conduct is not oppressive. It should be noted that, in the
present case too, no new majority has been created by the issue of rights shares, as at the time
16

Supra Note 2 at, 4.

17

Supra Note 2 at, 6.

18

AIR 1965 SC 1535.

19

Hanuman Prasad Bagri v. Bagrees Cereals P. Ltd. (2007) 138 Com Cases 542: (2009) Comp LJ 237.

20

Hetal Alpesh Muchchar v. Adityaesh Educational Institute Pvt. Ltd., (2009) 149 Comp Cases 241.

21

(2001) 2 Comp LJ 504.

- MEMORANDUM FOR THE RESPONDENTS 4

-Pleadings-

-Respondents-

when disputes arose, the Respondents were already in majority and were in the controlling
position of the company. Thus, there has been no substantial change in the pattern of the
company which is against the interest of the Petitioners.
14.

Also, there was no illegality involved in this case while issuing the rights shares, rather, the same
rights shares were also offered to the Petitioners for subscription. There is no illegality in the
making a further issue of shares when the company needed money for payment.22
(iii). Benefits to Respondents does not amount to oppression.

15.

This is not in dispute that shareholding of the Respondents has increased substantially over of
time, however, there has been no such benefit derived by the Respondents after the rights issue
as before issuing such rights shares, the Respondents were already in majority and in control of
the Respondent company.

16.

However, the Honble Courts over the period has held that even if the majority is benefitted from
such issue, this is no ground that oppression has been done against the Petitioners.23 Further, it
should be noted that rights were issued in good faith, and for addressing the need of the
company.

17.

It was held in the case of Laxmi Narayan24 that if in a quasi-partnership, the shares are issued to
meet the financial needs of the company, then even if one group is benefitted, the other group
cannot complain of oppression. The directors cannot be charged with breach of trust or can be
said to have acted mala fide merely because in promoting the interest of the company they have
also promoted their own interest.25

22

Hardip Kaur v. Thinlac Enterprises P. Tld., (2004) 122 Com Cases 444, G. Haranadh v. Shri Laxmi Durga
Paper Products Ltd., (2006) 129 Com Cases 501.

23

Tech Corporation v. Millar, (1972) 33 DLR (3d) 282.

24

Laxmi Narayan Rawat v. RT Udyog P. Ltd., (2005) 3 Comp LJ 342: (2005) 127 Com Cases 687.

25

Needle Industries v. Needle Industries Newey, AIR 1981 SC 1298.

- MEMORANDUM FOR THE RESPONDENTS 5

-Pleadings-

-Respondents-

(iv). Issuance of rights shares was not for disturbance of shareholding.

18.

When the rights shares were issued by the Respondent company over the period, same right was
also given to Petitioners to subscribe. However, such subscription was not made by the
Petitioners. In the landmark judgement delivered by the Honble Supreme Court in the case of
Dale & Carrington Investment (P.) Ltd. v. Prathapan,26 it was held that in a quasi-partnership
company or a company in which an agreement or understanding between or among the
shareholders regarding proportion of shareholding held by the shareholders, or if the disturbance
of that proportion has been done with the consent of all shareholders, would not be
objectionable.

19.

Further, in the case of Hari Kumar Rajah,27 it was held that the rights shares issued cannot be
held to be motivated when the petitioner did not subscribe to the rights offered on the plea that
the rights issue is unnecessary. In the case of Ashok Kumar28 where the further issue of shares of
a family company was alleged to be oppression, it has held that when there is knowledge and
consent of all the parties, it is not a case of oppression.

20.

Furthermore, where the minority had full knowledge of issue of shares, which was for to satisfy
the dues to banks, it was held that the petitioner in this case cannot complain of oppression.29
(B). There are no just and equitable grounds for a winding up order.

21.

Justification30 of winding up is a precondition for admission of a petition under 397(2)(b),31 for

relief against oppression. This condition is not getting satisfied by the petitioner in the present
case as mere allegations are being made without any substantial proof.
26

AIR 2005 SC 1624.

27

Supra Note 21.

28

Ashok Kumar Oswal v. Panchsheel Textile Mfg. & Trading Co. P. Ltd., (2002) 110 Com Cases 800.

29

Shiv Nath bajaj v. Nafabs India P. Ltd., (2002) 108 Com Cases 642.

- MEMORANDUM FOR THE RESPONDENTS 6

-Pleadings22.

-Respondents-

Where a company is in a sound financial position the mere fact that the petitioner says that he
has no confidence in the respondents, is not a sufficient ground to hold that it is just and
equitable that the company should be wound up especially when nothing is proved to justify the
apprehension of the petitioner that the respondents are likely to do anything to the prejudice of
the company or its shareholders.32

23.

In the case of S. Seetharaman v. Stick Fast Chemicals Pvt. Ltd.33 It was held that mere fact that a
substantial shareholder is excluded from management would not be termed as a just and
equitable cause for winding up.

24.

There are differences34 that have arisen between the two parties but they do not constitute35 just
and equitable ground for a winding up order until and unless the desire to oppress the minority
has been shown by the other party. Which the petitioner in the present case have failed to
substantiate.

25.

In the case of Lt. CDR. D.K. Chatterji v. Rapti Supertronics Pvt. Ltd.36 it was held that:
The petitioner could not on one hand file a petition under Section
397/398 and on the other hand seek a direction to wind up the
company. Thus, what is required is the satisfaction of the CLB that
circumstances exist which would justify the making of a winding up
order on just and equitable grounds and that there need not be any
specific pleadings to that effect.

30

Subhas Ch. Agarwal v. Associated Limestone Ltd., [1998] 16 SCL 212 See also Hanuman Prasad Bagri v.
Bagress Cereals (P.) Ltd. (2001) 33 SCL 78 (SC); Ashoka Betelnut Co. P. Ltd. v. MK Chandrakanth 1997-1L.W. 616.

31

The Companies Act, 1956 No. 1 of 1956.

32

C.P. Gnanasambandam v. Tamil Nadu Transports (Coimbatore) Private Ltd., [1971] 41 Comp Cas 26 (Mad).

33

[1998] 18 SCL 399.

34

Supra Note 2 at 3.

35

Supra Note 18.

36

[2003] 114 CC 265.

- MEMORANDUM FOR THE RESPONDENTS 7

-Pleadings-

-Respondents-

Hence, applying the above laid down legal principles in the present case it is very well
established that the petitioner have no such just and equitable ground for satisfying the
precondition of the Honble board can make a winding up order.
III. THAT THE ACTS OF RESPONDENTS DO NOT CONSTITUTE MISMANAGEMENT AS UNDER 398 OF
THE COMPANIES ACT, 1956.

26.

It is humbly submitted before this Honble Board that the acts of Respondents do not constitute
mismanagement. It is settled position that no case of oppression and mismanagement was made
out as alleged sale of land was with authority of general body in EGM and sale price was
approved by board of directors.37

27.

In Sheth Mohanlal Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. Ltd.38 the court
recognised that where the sale of assets was done by proper mechanism and for the necessity of
the company then such past and concluded acts cannot be set aside under the garb of 398.39
Thus, is submitted that in the present case also the sale of immoveable property was done by the
BoD40 to overcome the company from existing financial turmoil.

28.

It was held that allegation of diversion of companys business in favour of proprietary concerns
of the Managing Director without the support of corroborating evidence could not be a cause of
action.41

29.

Wherein the allegation of diversion of business was alleged, but it was seen that the company
was benefitting from such arrangement, it was held that there was no wrong being done to the

37

Shri Kishan Khariwal v. Gangasagar Industries ltd, (2004) CLC 241.

38

(1964) 34 Comp Cas 777 (Guj).

39

Id.

40

Supra Note 2 at 7.

41

B.V. Thirumalai v. Best Ventures Trading P. Ltd., (2004) 63 CLA 118 (CLB).

- MEMORANDUM FOR THE RESPONDENTS 8

-Pleadings-

-Respondents-

company.42 It is humbly submitted that though activities were outsourced to ancillary business
but being sold in the name of company only thereby not prejudicing its interest.
30.

In Re Clive Mills Co. Ltd.43, the court has well established that in a case under 397-398 of the
Act, if vague and general charges are made without giving any particular or setting out any
material facts, this court shall ignore charges and not proceed to investigate them. That such
nature of charges be it related to misappropriation, misapplication of funds, mismanagement or
other improper conduct in the companys affairs do not justify the court in making any order on
such allegations.44

31.

It is humbly submitted that in a case wherein the allegations were similar to those as alleged by
the Petitioner such as relating to illegal sale of companys land, raising loans and siphoning off
funds from company, the Board held that none of them were substantiated in facts thus does not
make a case under present 45.

32.

Further, it has been held by the Board at Chennai in the case K Varadan v. The Ambattur
Saswatha Nidhi Ltd.46. that
The mere alleged irregularities in the loan portfolio of the Company
cannot be the basis for the present company petition. A careful analysis of
the grievances of the petitioners would show that they either constitute
past and concluded transactions or transactions lacking substance or
details, which cannot be the basis for a petition under section 398. Any
general charges of misappropriation of funds, mismanagement or other
improper conduct in the management of the Company's affairs do not
justify this Board in making any order as such vague allegations.

42

Mrs, M R Shah v. Vardhman Dye-Stuff Industries P. , (2005) 128 Compcas 710 (CLB).

43

(1964) 34 Com cases 731 (Cal) See also, M.M. Dua v Indian Dairy and Allied Services P. Ltd, (1996) 86
Com cases 657 (CLB).

44

Id.

45

A Venkatramana v. AKR Minerlas Pvt. Ltd., (1999) 35 CLA 8 (CLB).

46

(2007) 135 CompCas 322 (CLB).

- MEMORANDUM FOR THE RESPONDENTS 9

-Pleadings-

-Respondents-

That in the present petition also the Petitioner has claimed relief on the basis of vague and
general allegations which does not fall under 398.
33.

Funds of the company have not been siphoned off by the respondents in any manner as it is
being alleged by the petitioner. Such, allegations of the petitioner are baseless and do not come
with any substantial proof from their side. These financial transactions are being carried out so as
to assist the company in its hard time as the performance of the same is deteriorating.47

34.

Petitioner have only alleged the respondents regarding various acts in which one such act is of
siphoning off funds. However, they have failed to provide the Honble Board with any
substantial proof in order to prove the same and have thus caused harm to the Respondents
image.

35.

The Honble Board has held in the case of Ravi Shankar Taneja v. Motherson Triplex Tools (P.)
Ltd.48 that to show that in case of allegations of mismanagement, siphoning off of funds without
giving any particulars or details, no adjudication on these issues is possible on the basis of
suspicion and surmises. A mere allegation that there was siphoning of funds will not unless the
allegation is supported by a statement of particulars.49

36.

The Honble board cannot take the cognizance50 of such alleged acts of oppression until and
unless they are being backed by valid particulars. Even, after such sufficient particulars the
satisfaction51 of the court is of prime importance so as to take cognizance of such alleged acts.

47

Supra Note 2 at 6.

48

[2001] 4 CLJ 102 (CLB).

49

Ramesh Bhajanlal Thankur v. Sea Side Hotels Pvt. Ltd., (2000) 100 Com Cases 117. See also, Pahlaj
Dhajandas Bajaj v. Microedge Technologies Pvt. Ltd, (2000) 27 SCL 473.

50

Allianz Securities Ltd. v. Regal Industries Ltd., [2001] 4 CLJ 314 (CLB).

51

Jaladhar Chakraborty v. Power Tools & Appliances Co. Ltd., [1994] 79 Comp. Cas. 505.

- MEMORANDUM FOR THE RESPONDENTS 10

-Pleadings37.

-Respondents-

Hence, it should always be taken into consideration that proper evidence 52 is always required to
establish such alleged acts of oppression and mismanagement and the authorities cannot take
action just on the basis of mere suspicion by one of the minority shareholders owing to the fact
that there were differences with the majority sect. In absence of a concrete material the boards
interference cannot be called upon.53

38.

The decision that was being taken by the respondent is a completely internal matter of the
company and the petitioner action to approach the Honble board is a frivolous one as no such
interference can be done by the board in internal matters of the company.

39.

The Honble Board laid down the principle in the case of Mr. Mehool Bhuva v. M/s. IndoNippon Chemical Co. Ltd. & Ors.54 that court determine question of law and adjudicate the
questions of facts and not the questions related to any of companys business decisions.

40.

Also, the courts should recognize the corporate democracy of a company in managing its affairs
and should not restrict powers of the board of directors of the company and should not interfere
in day to day affairs of the company. Thus the company should have discretion to use its funds in
their own way unless it is palpably wrong.55 As, commercial misjudgment cannot be treated as
oppression/mismanagement.56

41.

Even, in the case of Mrs. M.R. Shah v. Vardhman Dye-Stuff Industries,57 it was held that
concerned authority like Registrar of Companies will take care if any omission as per companies

52

Tushar Clothing Pvt, Ltd. and Ors. v. Ramesh D Shah, Company Law Board, Mumbai, C. P. 28 of 2014,
Decided on: 30.04.2015.

53

A. Ravishankar Prasad, A. Sai v. Prasad Productions Private, 2007 135 CompCas 416 CLB.

54

CP No. 99 of 2013 Company Law Board, Mumbai.

55

KRS Mani v. Anugraha Jewellers Ltd. [1999] 19 SCL 145

56

Central Government v. Kopran Ltd. [2004] 56 SCL 428 (CLB).

57

Supra Note 42.

- MEMORANDUM FOR THE RESPONDENTS 11

-Pleadings-

-Respondents-

act is being done but just because of the reason that the relationship between the two parties are
sour and some wrongful action has been taken by one party does not call for interference.
42.

Therefore, on mere suspicion or allegation by one party without any substantial proof the
Honble board cannot interfere in the internal business decision making process of the company.

- MEMORANDUM FOR THE RESPONDENTS 12

-Prayer-

-Respondents-

PRAYER
Wherefore, in the light of facts presented, issues raised, arguments advanced and authorities
cited, counsels on behalf of the Respondents humbly submit that the Honble Board to kindly
declare and adjudge that:
I.

The acts of Respondents do not amount to oppression to the Petitioners and

mismanagement of the Respondent Company, and;

II.

The present Petition filed by the Petitioner is dismissed.

And pass any other order which this Honble Board may deem it fit in the light of justice, equity
and good conscience.
And for this act of kindness of your lordship the Respondents shall as duty bound ever pray.

On behalf of
TCSd/Counsels for the Respondents

- MEMORANDUM FOR THE RESPONDENTS XI