Holding

The Court held that the Company Law Board’s jurisdiction under Sections 397, 398 and 402 includes ordering the purchase of shares to resolve a deadlock even where no oppression is proved, and therefore the appeal is dismissed.

Summary

The appellant, a director of a private limited company, challenged an order of the Company Law Board (CLB) that, despite finding no oppression, directed him to purchase the managing director's shares to resolve a deadlock between the two directors/shareholders. The Supreme Court examined whether Sections 397, 398 and 402 of the Companies Act, 1956 permit the CLB to grant such relief without a finding of oppression, and whether a deadlock in a two‑director company justifies the exercise of its jurisdiction. Relying on the wide‑ranging jurisdiction of the CLB and the need to protect the interests of the company as a whole, the Court held that the CLB could order a share purchase to avert mismanagement even absent oppression. Consequently, the appeal was dismissed, affirming the CLB and High Court decisions.

Issues considered

Whether Sections 397 and 398 of the Companies Act, 1956 require a finding of oppression or mismanagement before the CLB can exercise powers under Section 402 to order a share purchase.
Whether a deadlock between two directors/shareholders in a private limited company justifies the CLB’s intervention under Section 402.
Whether the Supreme Court may interfere with the CLB’s discretionary order under Article 136 of the Constitution.
Whether appointment of an additional director would constitute an adequate remedy in place of a forced share purchase.

Legislation cited

Companies Act, 1956s. 397, s. 398, s. 402, s. 433, s. 443, s. 459
Constitution of Indias. 136

Subjects

Companies Actoppressiondeadlockshare purchaseCompany Law BoardSection 402quasi‑partnershipcorporate governancejust and equitableArticle 136

Judgment

[2008] 5 S.C.R. 182

,,
~
A M.S.D.C. RADHARAMANAN
v.
M.S.D. CHANDRASEKARA RAJA AND ANOTHER
CIVIL APPEAL NO. 2006 OF 2008
MARCH 14, 2008
B
[S.B. SINHA AND V.S. SIRPURKAR, JJ.] -,..-

Companies Act, 1956 - ss. 397, 398 and 402 - Power of
Company court to grant relief uls 402 when no case for
c oppression made out - Application u/ss 397 and 398 by
Managing Director of Company alleging oppression on the
part of Director - Company Law Board holding no act of
malafide or oppression on part of Director - On account of
deadlock in affairs of Company, directions to Director to
purchase shares of MD - Upheld by High Court - On appeal
D
held: There being two Directors, non-cooperation by one of
them would affect thei smooth management of the affairs of r
the company, thus, CL.B and High Court rightly exercised their
;urisdiction - Conclusion regarding the dead lock in the affairs
of the company cannot be faulted with - Company being a
E private limited company, which is in nature of quasi partnership
concern, the court should take a holistic view - Interest of
sharnholders of company as a whole is important - Also,
appointment of additional Director not a sufficient relief- Thus,
on facts, interference under Article 136 not called for -
F Constitution of India, 1950 -Article 136.

The first respondent and his son-appellant held -4

2,83,999 equity shares of the SBC Company and the
remaining one sham was held by VB Company. The first
respondent and the appellant also equally held shares in
G
VB Co. The first respondent is the Managing Director of
the Company and the appellant is the Director. They are
not on good terms. The respondent No.1 filed application
before the Company Law Board under ss. 397 and 398 of
..,....

H 182
....
M.S.D.C. RADHARAMANAN v. M.S.D. 183
CHANDRASEKARA RAJA AND ANR.

4 the Companies Act, 1956 alleging several acts of A
oppression on the part of appellant. The Company Law
Board held there was no act of mala fide or oppression
on the part of the appellant; and that there exists a
deadlock in the affairs of the company. It directed the
appellant to purchase 2,84,000 shares held by the first B
·-.,.- respondent. Appellant filed an appeal. The Division Bench
of the High Court held that the CLB could very well look
into the justifiability of the situation and was thus, right in
.... arriving at its conclusion that there existed a deadlock

• situation in which it was impossible for both of them to c
pull on together as there was incompatibility between
them. It directed the parties to approach the Company Law
Board for getting the valuation finalised. Hence the
present appeal.
Dismissing the appeal, the Court D
HELD: 1.1 The provisions of the Companies Act, 1956
_., - vis-a-vis the jurisdiction of the Company Law Board must
be considered having regard to the complex situation(s)
which may arise in the cases before it. No hard and fast
rule can be laid down. There cannot be any doubt E
whatsoever that the acts of omission and commission on
the part of a member of a company should be qua the
management of the company, but it is difficult to accept
the proposition that the just and equitable test, which
should be held to be applicable in a case for winding up F
of a company, is totally outside the purview of Section
~
397 of the Act. The function of a Company Law Board in
such matters is first to see as to how the interest of the
company vis-a-vis its shareholders can be safeguarded.
The Company Law Board must also make an endeavour G
to find out as to whether an order of winding up will serve
the interest of the company or subvert the same. Further,
...... if an application is filed under Section 433 of the Act or
Section 397 and/or 398 thereof, an order of winding up
may be passed, but the Company Law Board in a winding H
184 SUPREME COURT REPORTS [2008) 5 S.C.R.

A up application may refuse to do so, if any other remedy is
available. The Compainy Law Board may not shut its doors
only on sheer technicality even if it is found as of fact that
unless the jurisdicticm under Section 402 of the Act is
exercised, there will be a complete mismanagement in
8 regard to the affairs of the company. (Para 19) [196-H;
197-A, B, C, D & E]
1.2 Sections 397 and 398 of the Act empower the
Company Law Boc:ird to remove oppression and
mismanagement. If the consequences of refusal to
c exercise jurisdiction would lead to a total chaos or
mismanagement of the company, would still the Company
Law Board be powerless to pass appropriate orders is
the question. If a literal interpretation to the provisions of
s. 397 or 398 is taken recourse to, may be that would be
the consequence. But jurisdiction of the Company Law
0
Board having been couched in wide terms and as diverse
reliefs can be granted by it to keep the company
functioning; is it not dlesirable to pass an order which for
all intent and purport would be beneficial to the company
itself and the majority of the members? A court of law can
E hardly satisfy all the litigants before it. This; however, by
itself would not mean that the Company Law Board would
refuse to exercise its; jurisdiction, although the statute
confers such a power on it. (Para 20) [197-E, F, G & H;
198-A]
F 1.3 The Courts should lean in favour of such
construction of statutE! whereby its jurisdiction is retained
enabling it to mould the relief, subject of course, to the
applicability of law in the fact situation obtaining in each
case. (Para 21) [198-B]
G
P1~arson Education Inc. (formerly Prentice Hall Inc.) Vs.
Prentice Hall India (P) Ltd. and Ors. 134 (2006) DLT 450 -
referred to.
2.1 In a case of this nature, where there are two
H shareholders and two, Directors, any animosity between
M.S.D.C. RADHARAMANAN v. M.S.D. 185
CHANDRASEKARA RAJA AND ANR.
-'
~ them not only would have come in the way of proper A
functioning of the company but it would also affect the
smooth management of the affairs of the company. The
parties admittedly are at logger heads. A suit is pending
regarding title of the shares of the Company. A contention
had been raised by the appellant before the Company Law B
..,. Board that the 1st respondent having filed a wealth-tax
return as Karta of Hindu Undivided Family, he not only
has 50 % shares in the Company but also 50% shares in
the H.U.F.; whereas the contention of the 1st respondent
in that behalf is that the appellant had already taken his
half share in the joint family property and the H.U.F.
c
mentioned in the Wealth Tax Return pertains to the smaller
H.U.F. which consists of himself and his daughters. 1st
respondent is about 80 years old. Because of his old age,
he is not in a position to look after the affairs of the
company. Even in the grounds of appeal, a contention D
has been raised that it was the 1st respondent, who is the
-{
oppressor. It is noticed that rightly or wrongly, appellant
also intended to file a criminal case against the 1st
respondent alleging that he had misappropriated a
huge amount as a Director of the company. (Para 22) E
[198-G & H; 199-A, B, C & D]
2.2 Before the Company Law Board, several grounds
to establish a case of oppression had been made out:
non co-opting of a third Director on the Board; non
clearance of accumulated stocks; surrender of the F
~ surplus power in favour of TNEB; non issue of duplicate
~
share certificates; non redemption of preference shares;
non sanctioning of increment to the staff members; and
dead lock in the affairs of the company. In regard to the
first ground, admittedly, son-in-law of the 1st respondent G
being the brother-in-law of the appellant was nominated
as a Director of the company. Appellant indisputably did
not agree in that behalf. However, the first respondent left
...,..!f
it to the discretion of the Company Law Board to appoint
a third Director, but even the same was objected to by the H
186 SUPREME COURT REPORTS [2008] 5 S.C.R.

A appellant. It is in such situation the Company Law Board .._ .....
has opined that such an impasse could have been
removed by reso1rting to appointment of an additional
Director. What the! Board failed to notice was that when
the appellant hims1~lf intended to become the MD, he would
B like to have his ciwn man in the Board which was not
acc:eded to by the· 1st respondent. Further, surrender of ...,.
surplus power in favour of TNEB may be a business
decision but such a decision will have a direct impact on
the conduct of th e business. It at least shows that the
1

c parties were at logger heads. (Paras 23, 24, 25 and 26)
[199-E, F, G & H; 200-A, B & C]
2.3 The High Court, however, in this regard opined
that the "Company Law Board could have very well held
that the second re!spondent was not justified in causing
D obstruction to the issuance of such share certificates."
The same is only evidence of the instances as to how a •,
dead lock in the affairs of the company was viewed. Both r
the Company Law Board as well as the High Court have
arrived at a concurrent finding that as there was no miltual
E trust and confidence between the parties and, thus, it
would be impossible for the company to run the same
smoothly. The same by itself would not be a ground of
winding up; but the ground of lack of mutual trust and
confidence cannot be taken into consideration in
F isolation. The same has to be considered having regard
to large number of other factors. The cumulative effect
thereof would be e!xtremely significant to arrive at one or -4 "
the other conclusion. (Para 28 and 30) [201-A, E, F, G & H]
2.4 In a case 1of this nature, it is necessary to take a
G holistic approach of the matter. What might not be
permissible for the! affairs of a public limited company or
even a private 1:;ompany having large number of
shareholders and Directors, may be permissible in a case .,._..
of this nature where a company for all intent and purport
H a quasi partnersllip concern. The Parliament, while

v
M.S.D.C. RADHARAMANAN v. M.S.D. 187
CHANDRASEKARA RAJA AND ANR.
:
~
... enacting a statute, cannot think of all situations which may A
emerge in giving effect to the statutory provision. The
situation obtaining in the instant case in that sense is a
pathetic one. Both the Company Law Board as also the
High Court has no doubt that the acrimony between the
parties is resulting in mismanagement of the conduct of B

- "1"
affairs of the company. Therefore, a conclusion as regards
the dead lock in the affairs of the company cannot be
faulted with. (Para 33) [203-C, D & E]
2.5 What is important is not the interest of the
applicant but the interest of the shareholders of the c
company as a whole. If such a principle is applied in a
case of winding up of a company, there is no reason not
to invoke the said principle in a case under Section 397
of the Act, subject of course to the applicability of the well
known judicial safeguards. (Para 35) [204-D & E] D
Sangramsinh P Gaekwad vs. Shantadevi P Gaekwad
2005 (11) sec 314 - referred to.
2.6 The submission that the appointment of an
additional Director could be a sufficient relief which the E
court may grant cannot be accepted. Appellant rejected
such an offer. At this stage bitterness and acrimonies
between the parties have ensued. (Para 38) [206-F & G]
2.7 In the facts and circumstances of this case, it is
not a fit case where interference with impugned judgment F
in exercise of discretionary jurisdiction under Article 136
>- of the Constitution of India is called for. (Para 40) [207-C]
Hanuman Prasad Bagri and Ors. vs. Bagress Cereals
Pvt. Ltd. and Ors. 2001 (2) SCR 811; S.P Jain vs. Kalinga
G
Tubes Ltd. 1965 (2) SCR 720; Needle Industries (India) Ltd.
vs. Needle Industries Newey (India) Holding Ltd. 1981 (3) SCC
333; Hind Overseas (P} Ltd. vs. Raghunath Prasad
-~
Jhunjhunwal/a and another 1976 (3) SCC 259; Ki/pest (P} Ltd.
vs. Shekhar Mehra (1996) 10 SCC 696; J.K. Paliwa/ and
H
188 SUPREME COURT REPORTS [2008] 5 S.C.R.

A Others vs. Pa/iwal Steels Ltd. and others 2007 (5) Comp LJ ,..
t-
279 (CLB); Girdhar Gopal Dalima and others vs. Bateli Tea
Co. Ltd. and others : f.2007) 1 Comp.LJ 450 (CLB) - referred
to.

Re. H.R. Harmpr,Limited 1958 (3) All. E.R. 689; Re:
B
Ebrahimi and Westboume Galleries Ltd. 1973 AC 360; Re:
Yenidje Tobacco Co. Ltd. 1916 (2) Ch. 412 - referred to. ~
"--

CIYILAPPELLATE JURISQJCTION: Civil Appeal No. 2006
of 2008.
c From the final Judgment and Order dated 11.10.2006 of
the High Court of Judicature at Madras in C.M.A. No. 174 of
2004.

C.A. Sundaram, Haripriya, Rohini and V. Mohana for the
Appellant.
D
K. Parasaran, H. Murari, K.P. Indira, K. Swami, Yousa
Lachenpa and Prabha Swami for the Respondents. r-
The Judgment of the Court was delivered by

E S.B. SINHA, J. 1. Leave granted.
2. Mis. Shree Bhaarathi Cotton Mills Private Limited is a
company registered and incorporated under the Companies
Act, 1956 (For short, 'the Act'). Out of the 2,84,000 equity shares
in the company of Rs.10/- each, 2,83,999 shares are held by
F the first respondent and his son (appellant herein). The remaining
one share is held by M/s. Visva Bharathi Textiles Private Limited,
shares in which again is held equally by the first respondent -(

and the appellant. Thus, for all intent and purport, all shares of
the company are held by the appellant and the first respondent.
G
3. Whereas the first respondent is the Managing Director
of the Company, the appellant is the Director thereof.
Indisputably the parties are not on good terms.
-1---
4. Respondent No.1 filed an application purported to be
H under Sections 397 and 398 of the Act alleging several acts of
M.S.D.C. RADHARAMANAN v. M.S.D. 189
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

> _..j oppression on the part of appellant herein before the Company A
Law Board, Additional Principal Bench, Chennai. The said
application was registered as C.P. No. 2 of 2004. By reason of
an order dated 16th August, 2004, the Company Law Board
while opining holding there was no act of mala fide or oppression
on the part of the appellant, opined that there exists a deadlock B

- -y
in the affairs of the company. It directed the appellant to purchase
2,84,000 shares held by the first respondent at a value to be
determined by a chartered valuer.

5. An appeal was filed thereagainst by the appellant before
the High Court of Judicature at Madras under of Section 1OF of c
the Act which was registered as C.M.A. No. 174 of 2004.
By reason of the impugned judgment dated 11th October,
2006 a Division Bench of the High Court dismissed the same
opining that the Company Law Board could very well look into
D
the justifiability of the situation and was, thus, right in arriving at
__.,
its conclusion that there existed a deadlock situation. It was
opined that in such a situation it would be impossible for both of
them to pull on together as there was incompatibility between
them. The High Court noticed that the appellant herein even
intended to file a criminal complaint against his father, the first E
respondent for alleged mis-appropriation of a sum of
Rs.8, 15,000/-. A suit for partition, it was furthermore noticed,
was pending. It was directed:
"77 ...... However, if there is any dispute regarding the F
method of valuation of the shares and the ultimate valuation
)-
arrived at by the valuer, it is open for either parties to
approach the Company Law Board for getting the valuation
finalised. Thereupon, at the first instance, the second
respondent shall purchase the shares of the petitioners,
G
within six months from the date of finalisation of such
valuation and on his failure to do so, the petitioner in C.P.,
shall purchase the shares of the second respondent, within
six months thereafter. In the event of both the alternatives
failing, the purchase of shares of either the petitioner or
H
190 SUPREME COURT REPORTS [2008] 5 S.C.R.

(
A the second respondent could be transferred to third parties +..
depending upon the exigency. The Company Law Board
is at liberty to pass such further orders under Section 402
of the Companies Act, in commensurate with the views
expressed by this court, for the smooth running of the
B company.
..... ...,.
78. In view of the reasons given for deciding the aforesaid
point this civil miscellaneous appeal is partly allowed by
modifying the ordier passed by the Company Law Board.
The submission made by learned Counsel for the petitioner
c is recorded as aforesaid."
6. Mr. C.A. Sundaram, learned Senior counsel appearing
on behalf of the appellant, in support of the appeal, submitted :
1. The Company Law Board was not justified in issuing
D the impugned direction in purported exercise of its
jurisdiction under Section 402 of the Act directing
him to purchase the shares of the respondent despite )-·

arriving at a finding of fact that·no act of oppression
has been committed by the appellant.
E 2. The condition precedent for exercise of such power
being oppression on the part of a Director of a
company being not satisfied, the impugned judgment
is wholly unsustainable.

F ~~. The High Court committed a manifest error in passing
the impugned judgment in reversing the findings of
fact arrived at by the Company Law Board; although ~
no appeal therefrom had been preferred by the first
respondent so as to hold that the acts of omission
G and commission on the part of the appellant
constituted such an oppression.
4. Both the Hi~1h Court as also the Company Law Board
committed a serious error in granting the relief in
favour of the first respondent without taking into
H consideration that the grant of relief shall not only~~
M.S.D.C. RADHARAMANAN v. M.S.D. 191
CHANDRASEKARA RAJAANDANR. [S.B. SINHA, J.]
.... in the interest of the company but also must have a A
direct nexus with the affairs of the company and
conduct of its business.

5. In any view of the matter, having regard to the prayers
made by the first respondent in his application before
the Company Law Board, appointment of an B
y
Additional Director would have served the purpose.

6. As the appellant does not have the necessary fund
to purchase the shares of the first respondent, he
could not be forced to sell his shares. c
7. Mr. K. Parasaran, learned Senior counsel, appearing
for the respondents, on the other hand, would contend :-

1. Appellant did not raise any ground in the special
leave petition that he is not in a position to purchase
D
the shares of the Respondent No.1.
~
2. The company being a private limited company, which
is in the nature of a quasi partnership concern, th.e
Court should take a holistic view of the matter and so
viewed the judgments of the Company Law Board E
as also the High Court are unassailable.
3. Appellant having not acceded to the proposal of
respondent No.1 in regard to the appointment of the
Additional Director, it does not lie in the month to say
that appointment of the Additional Director would F
)-
serve the purpose.
4. The Company Law Board, in exercise of its
jurisdiction under Sections 397 and 398 read with
Section 402 of the Companies Act has the requisite
G
jurisdiction to direct a share holder to sell his shares
to the other, although no case for winding up of the
company has been made out or no actual oppression
on the part of the Director has been proved.
8. A shareholder of a company or a Director has several H
192 SUPREME COURT REPORTS [2008] 5 S.C.R.

A remedies !Jnder the Act. Section 433 of the Act envisages filing *-
..
of an application for winding up thereof, inter alia, in a case
where the Company Law Board may form an opinion that it is
just and equitable that the company should be wound up.

9. Section 443 of the Act provides for the powers of
B Company Law Board in a winding up proceeding. Sub-section ~

(2) thereof provides that a company may be directed to be
wound up when a petition is presented for winding up on the
ground that it is just and equitable.

c The Company Law Board may refuse to do so, if in its
opinion aome other remedy is available to the petitioners and
that they are acting unreasonably.

The applicant, thus, in a given case, when it would not be
.
in the interest of the company to be wound up, may take recourse
D to other remedies available in law. Making out a case of
oppression is one of them.
>-
.
10. An application under Section 397 of the Act may be
filed in the following circumstances :-

E 1) Where the affairs of the company are being
conducted in the manner prejudicial to public interest;
or

2) In a manner oppressive to any member or members.

F 11. Sub-section (2) of Section 397 of the Act, however,
provides that in the event the Court is of the opinion that the
-
-(
company's affairs are being conducted in a manner oppressive
to any member or members or furthermore held that directing
winding up the company would unfairly prejudice such member
G or members, but the same otherwise justifies the making of a
winding up order on the ground that it is just and equitable that
the company should be wound up. It may make such other or
further order as may think fit and proper with a view to bringing
-.+-
to an end to the matters complained of.

H Interpretation of S13ction 397(2) of the Act came up for ·'
M.S.D.C. RADHARAMANAN v. M.S.D. 193
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

consideration before a Division Bench of this court in Hanuman A
Prasad Bagri & Ors. vs. Bagress Cereals Pvt. Ltd. & Ors.
[[2001] 2 SCR 811]. This court while examining the conditions
laid down in the section, opined that:
"No case appears to have been made out that the
company's affairs are being conducted in a manner B
prejudicial to public interest or in a manner oppressive of
any member or members. Therefore, we have to pay our
attention only to the aspect that the winding up of the
company would unfairly prejudice the members of the
company who have the grievance and are the applicants C
before the court and that otherwise the facts would justify
the making of a winding up order on the ground that it was
just and equitable that the company should be wound up.
In order to be successful on this ground, the Petitioners
have to make out a case for winding up of the company D
on just and equitable grounds. If the facts fall short of the
case set out for winding up on just and equitable grounds
no relief can be granted to the Petitioners. On the other
hand the party resisting the winding up can demonstrate
that there are neither just nor equitable grounds for winding E
up and an order for winding up would be unjust and unfair
to them."

After reviewing the decision of the High Court on the above
test, this Court held that no reasons prevailed for interference
with the order and thus dismissed the appeal. F
12. Section 398 of the Act provides for filing of an
application for the reliefs in cases of mismanagement.
Section 402 provides for the powers of the Company Law
Board on an application made under Section 397 or 398 of the G
Act which includes the power to pass any order providing for
the purchase of the shares or interests of any member of the
company by other member (s) thereof or by the company.
13. Ordinarily, therefore, in a case where a case of
H
194 SUPREME COURT REPORTS [2008] 5 S.C.R.

A oppression has been made a ground for the purpose of invoking
~-
..
~
the jurisdiction of the Board in terms of Sections 397 and 398
of the Act, a finding of fact to that effect would be necessary to
be arrived out. But, the jurisdiction of the Company Law Board
to pass any other or further order in the interest of the company,
B if it is of the opinion, that the same would protect the interest of
"<
the company, it would not be powerless. The jurisdiction of the
Company Law Board in that regard must be held to be existing
having regard to the aforementioned provisions.
14. The deadlock in regard to the conduct of the business
c of the company has be1en noticed by the Company Law Board
as also the High Court. Keeping in view the fact that there are
only two shareholders and two Directors and bitterness having
crept in their personal relationship, the same, in our opinion,
will have a direct impact in the matter of conduct of the affairs of
D the company.
15. When there are two Directors, non-cooperation by one
of them would result in a stalemate and in that view of the mater
the Company Law Board and the High Court have rightly
exercised their jurisdiction.
E
16 Before us, learned counsel for the parties, have referred
to a large number of decisions operating in the field.
We may notice the legal principle emerging from some of
them.
F
17 In S.P Jain vs. Kalinga Tubes Ltd.: (1965) 2 SCR 720
this Court compared the provisions of Section 397 with Section
210 of the English Act to hold:-
-.,(
-
"The law always provided for winding up, in case it was
G just and equitable to wind up a company. However, it was
being felt for some time that though it might be just and
equitable in view of the manner in which the affairs of a
company were conducted to wind it up, it was not fair that
the company should always be wound up for that reason,
H particularly when it was otherwise solvent. That is why
M.S.D.C. RADHARAMANAN v. M.S.D. 195
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]
.. Section 210 was introduced in the English Act to provide A
an alternative remedy where it was felt that, though a case
had been made out on the ground of just and equitable
cause to wind up a company, it was not in the interest of
the shareholders that the company should be wound up
and that it would be better if the company was allowed to B
continue under such directions as the court may consider
proper to give."
The Court analysed the decision in Re. H.R. Harmer
Limited: [1958] 3All. E.R. 689 in the following terms:-
c
"19. In Harmer's case, it was held that " the word '
oppressive ' meant burdensome, harsh and wrongful". It
was also held that " the section does not purport to apply
to every case in which the facts would justify the making
of a winding up order under the ' just and equitable' rule,
0
but only to those cases of that character which have in
them the requisite element of oppression." It was also
held that" the result of applications under Section 210 in
different cases must depend on the particular facts of each
case, the circumstances in which oppression may arise
being so infinitely various that it is impossible to define E
them with precision." The circumstances must be such as
to warrant the inference that" there has been, at least, an
unfair abuse of powers and an impairment of confidence
in the probity with which the company's affairs are being
conducted, as distinguished from mere resentment on the F
part of a minority at being outvoted on some issue of
domestic policy". The phrase "oppressive to some part of
the members" suggests that the conduct complained of "
should at the lowest involve a visible departure from the
standards of fair dealing, and a violation of the conditions G
of fair play on which every share holder who entrusts his
money to a company is entitled to rely ... But, apart from
this, the question of absence of mutual confidence per se
between partners, or between two sets of shareholders,
however relevant to a winding up, seems to me to have no H
196 SUPREME COURT REPORTS (2008] 5 S.C.R.

A direct relevance to the remedy granted by Section 210. It
..
is oppression of some part of the shareholders by the
manner in which the affairs of the company are being
conducted that must be averred and proved. Mere loss of
confidence or pun: deadlock does not ... come within
B Section 210. It is not lack of confidence between share ,..
holders per se thalt brings Section 210 into play, but lack "'
of confidence springing from oppression of a minority by
a majority in the management of the company's affairs
and oppression involves ... at least an element of lack of
c probity or fair dealing to a member in the matter of his
proprietary right as a shareholder."
It is true that obse1vations in Harmer's case was held to
be applicable in a case falling within the purview of Section 397
of the Act but the statement of law that it was not enough that
D only a just and equitablE~ case for winding up cf the company
should be made out but it must also be found that conduct of the '!-
majority shareholders was oppressive to the minority members,
cannot be said to be exhaustive.

18 The question came up for consideration yet again
E before a three judge Bench of this Court in Needle Industries
(India) Ltd. vs. Needle Industries Newey (India) Holding Ltd., :
(1981) 3 SCC 333 wherein Chandrachud, C.J. upon
considering a large number of decisions of this Court as also
the English Courts including S.P Jain and Harmer Ltd. (supra)
F categorically held :-
"172. Even though the company petition fails and the "
appeals succeed on the finding that the Holding Company
has failed to make out a case of oppression, the court is
not powerless to do substantial justice between the parties
G
and place them, as nearly as it may, in the same position
in which they would have been, if the meeting of May 2
were held in accordance with law."
19. The provisions of the Act vis-a-vis the jurisdiction of
H the Company Law Board must be considered having regard to
M.S.D.C. RADHARAMANAN v. M.S.D. 197
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

the complex situation(s) which may arise in the cases before it. A
No hard and fast rule can be laid down. there cannot be any
doubt whatsoever that the acts of omission and commission on
the part of a member of a company should be qua the
management of the company, but it is difficult to accept the
proposition that the just and equitable test, which should be held B
to be applicable in a case for winding up of a company, is totally
outside the purview of Section 397 of the Act. The function of a
Company Law Board in such matters is first to see as to how
the interest of the company vis-a-vis its shareholders can be
safeguarded. The Company Law Board must also make an c
endeavour to find out as to whether an order of winding up will
serve the interest of the company or subvert the same. Further,
if an application is filed under Section 433 of the Act or Section
397 and/or 398 thereof, an order of winding up may be passed,
but as noticed hereinbefore, the Company Law Board in a
0
winding up application may refuse to do so, if any other remedy
is available. The Company Law Board may not shut its doors
only on sheer technicality even if it is found as of fact that unless
the jurisdiction under Section 402 of the Act is exercised, there
will be a complete mismanagement in regard to the affairs of
the company. E

20. Sections 397 and 398 of the Act empower the
Company Law Board to remove oppression and
mismanagement. If the consequences of refusal to exercise
jurisdiction would lead to a total chaos or mismanagement of F
the company, would still the Company Law Board be powerless

r
to pass appropriate orders is the question.

If a literal interpretation to the provisions of Section 397 or
398 is taken recourse to, may be that would be the consequence.
But jurisdiction of the Company Law Board having been couched G
in wide terms and as diverse reliefs can be granted by it to
keep the company functioning; is it not desirable to pass an
order which for all intent and purport would be beneficial to the
company itself and the majority of the members? A court of law
can hardly satisfy all the litigants before it. This, however, by H
198 SUPREME COURT REPORTS [2008] 5 S.C.R.

A itself would not mean that the Company Law Board would refuse
to exercise its jurisdiction, although the statute confers such a
power on it.
2·1. It is now a welll settled principle of law that the Courts
should lean in favour of such construction of statute whereby its
B jurisdiction is retained enabling it to mould the relief, subject of
course, to the applicability of law in the fact situation obtaining
in each case.

In Pearson Education Inc. (formerly Prentice Hall Inc.)
c Vs. Prentice Hall India (P) Ltd. and Ors. [134 (2006) DLT 450),
as regards the jurisdiction of the Company Law Board and the
High Court under Sections 397/398 and 402, a learned single
judge of the Delhi High Court held:
"Jurisdiction of thei CLB (and ultimately of this Court in
D appeal) under Sections 397/398 and 402 is much wider
and direction can be given even contrary to the provisions
of the Articles of Association. It has even right to terminate,
set aside or modify the contractual arrangement between
. the company and any person [see Section 402(d) and
E (e)]. Section 397 specifically provides that once the
oppressiois established, the Court may, with a view to
bringing to an end the matters complained of, make an
order as it thinks fit. Thus, the Court has ample power to
pass such orders as it thinks fit to render justice and such
F an order has to be reasonable. It is also an accepted
principle that "just and equitable" provision in Section
402(g) is an equitable supplement to the common law of
the company to be found in its Memorandum and Articles
of Association."
G 22. In a case of this nature, where there are two
shareholders and two Directors, any animosity between them
not only would have com1:i in the way of proper functioning of the
company but it would also affect the smooth management of +--
the affairs of the company. The parties admittedly are at logger
H heads. A suit is pendin!~ regarding title of the shares of the
M.S.D.C. RADHARAMANAN v. M.S.D. 199
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

--\ Company. A contention had been raised by the appellant before A
the Company Law Board that the 1st respondent having filed a
wealth-tax return as Karta of Hindu Undivided Family, he not
· only has 50 % shares in the Company but also 50% shares in
the H. U. F.; whereas the contention of the 1st respondent in that
behalf is that the appellant had already taken his half share in B
.., the joint family property and the H.U.F. mentioned in the Wealth
Tax Return pertains to the smaller H.U.F. which consists of
himself and his daughters.

1st respondent is about 80 years old. Because of his old
age, he is not in a position to look after the affairs of the c
company. Even in the grounds of appeal before us, a contention
has been raised that it was the 1st respondent, who is the
oppressor. We have noticed hereinbefore that, rightly or wrongly,
appellant also intended to file a criminal case against the 1st
respondent alleging that he had misappropriated a huge amount D
as a Director of the company.

"' 23. Before the Company Law Board, several grounds to
establish a case of oppression had been made out :-.
1) Non co-opting of a third Director on the Board ; E
2) Non clearance of accumulated stocks ;

3) Surrender of the surplus power in favour of TNEB ;

4) Non issue of duplicate share certificates ;
F
5) Non redemption of preference shares ;
I
)
,4 6) Non sanctioning of increment to the staff members ; ·
7) Dead lock in the affairs of the company. '

24. In regard to the first ground, admittedly, A. Jayakumar, G
son-in-law of the 1st respondent being the brother-in-law of the
appellant was nominated as a Director of the company. Appellant
A.4 indisputably did not agree in that behalf. However, the first
respondent left it to the discretion of the Company Law Board
to appoint a third Director, but we are informed at the bar that H
200 SUPREME COURT REPORTS [2008] 5 S.C.R.

A even the same was objected to by the appellant. f-.

25. It is in the aforementioned situation the Company Law
Board has opined that such an impasse could have been
removed by resorting to appointment of an additional Director.
What the Board failed to notice was that when the appellant
B himself intended to become the Managing Director, he would
~
)"
like to have his own man in the Board which was not acceded
to by the 1st respondent

26. Surrender of surplus power in favour of TNEB may be
c a business decision but such a decision will have a direct impact
on the conduct of the business. It at least shows that the parties
were at logger heads. It is in the aforementioned situation, the
High Court opined :-
"The Company Law Board should have categorically held
D that such surrender was beneficial to the company and
the second respondent unjustifiably objected to it.
Admittedly, the second respondent was not in favour of ;.
such surrender on the ground that it was required for future
expansion of the factory activities. Such a plea of the
E second respondent is based on mere conjectures and
surmises and not borne out by any proposed project for
future expansion. As such the Company Law Board very
well could have held that the second respondent was
oppressive."
F 27. In relation to the non-issue of duplicate share
certificates the Company Law Board opined :-
"That is why the petitioner took up the very same issue "' "·
again at the Board meeting convened on 20.03.2004,
after filing of the company petition. It is on record that the
G
second respondent did not attend the Board meeting on
20.03.2004 on the ground that the subject matter is sub-
judice before the CLB. Thus, there is no ultimate denial of
the issue of duplicate share certificates by the second +..-~

respondent in favour of the petitioner."
1H
M.S.D.C. RADHARAMANAN v. M.S.D. 201
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

28. The High Court, however, in this regard opined A
"recording this, the Company Law Board could have very well
'"' held that the second respondent was not justified in causing
obstruction to the issuance of such share certificates."
29. A ground has also been taken in the memo of appeal
contending : B
..,
"The Division Bench entirely failed to appreciate that the
Petitioner being a whole time director and also being a
50% shareholder the Petitioner has a right to refuse to
give his consent to certain transactions if the Petitioner is c
of the opinion that the same is not good for the business
of the Respondent No.2 company or that the same is
against the interests of the company. The Petitioner has
merely exercised his right as a whole time director in not
agreeing to certain resolutions and that by itself neither
D
amounts to a dead lock of oppression."
' We have referred to the views taken by the Company Law
~
Board as also the High Court, not being oblivious of the objection
of Mr. Sundaram, that in relation to those findings, the 151
respondent did not prefer any appeal. E
30. Without going into the legal issue, however, we are of
the opinion that the same is only evidence of the instances as
to how a dead lock in the affairs of the company was viewed.
Both the Company Law Board as well as the High Court have
arrived at a concurrent finding that as there was no mutual trust F
and confidence between the parties and, thus, it would be
>
)c impossible for the company to run the same smoothly.
We are not again oblivious of the observations made by
this Court in S.P Jain case that the same by itself would not be
G
a ground of winding up; but the ground of lack of mutual trust
and confidence cannot be taken into consideration in isolation.
The same has to be considered having regard to large number
...... of other factors, the cumulative effect thereof would be extremely
significant to arrive at one or the other conclusion.
H
202 SUPREME COURT REPORTS [2008] 5 S.C.R.

A 31. We may take notiGe of the fact that the appellant had ~
made the following allegations against the 1st respondent in the
list of dates :-
"It is respectfully submitted that the Respondent No.1 did
not maintain proper books of minutes of meetings or
B attendance registers, did not allow the Petitioner herein to
use the company guest house in Chennai, the Respondent
.
"
No.1 attempted to bring in a third director to marginalize
the role of the Petitioner, the Respondent No.1 siphoned
off Rs.8, 15,000/- of the company money, the Respondent
c No.1 attempted to transfer by way of gifts properties given
as collateral security to financial institutions and so on.
When the Petitioner herein either asserted his rights or
attempted to thwart the wrongful acts of the Respondent
No.1, the Respondent No.1 became abusive."
D
32. We may also notice that in his reply statement before
the Company Law Board it was stated by the appellant :- y

"5.10 The Petitioner-Managing Director has become quite
old. In fact under the Companies Act, in case of Public
E Companies there exist sufficient safeguards to restrict
appointment of Managing Directors over the age of 70
without prior permission of the Central Government. Such
provisions have beErn thoughtfully provided considering
the inherent weaknesses that will emerge out of old age.
F In order to continue the smooth functioning of the enterprise,
it would be very much conducive if the Managing Director
~
gracefully retires from the post and lets a much younger
and still experienced person to take over the mantle of the "'
company. And further more, so, considering that the
younger person is the only son of the present Managing
G
Director, it is quite natural that the take-over of the mantle
that should be mooted."
It was further averre!d :-
+--
"6. There has been no oppression or mismanagement as
H
M.S.D.C. RADHARAMANAN v. M.S.D. 203
CHANDRASEKARA RAJA AND ANR. [S.B. SINHA, J.]

averred by the Petitioner. It is a fact that the Petitioner, A
~
who is the Managing Director of the Company is in a
more convenient position to oppress the 2nd Respondent
but on the other hand, the Petitioner has been alleging the
opposite, without any basis. The mere fact that one of the
two directors/shareholders decides to exercise his B
proprietary right as a shareholder/director to vote for or
against any resolution does not amount to deadlock in
management or oppression."

33. In a case of this nature, it is necessary to take a holistic
approach of the matter. What might not be permissible for the c
affairs of a public limited company or even a private company
having large number of shareholders and Directors, may be
permissible in a case of this nature where a company for all
intent and purport a quasi partnership concern. The Parliament,
while enacting a statute, cannot think of all situations which may D
emerge in giving effect to the statutory provision.
_..,
The situation obtaining in the present case in that sense is
a pathetic one. Both the Company Law Board as also the High
Court has no doubt that the acrimony between the parties is
resulting in mismanagement of the conduct of affairs of the E
company. Therefore, a conclusion as regards the dead lock in
the affairs of the company cannot be faulted with.

34. In Hind Overseas (P) Ltd. vs. Raghunath Prasad
Jhunjhunwalla and another[(1976) 3 SCC 259] this Court upon F
noticing a large number of decisions opined :-
_.. "37. Section 433 (f) under which this application has been
made has to be read with Section 443(2) of the Act. Under
the latter provision where the petition is presented on the
ground that it is just and equitable that the Company should G
be wound up, the court may refuse to make an order of
winding-up if it is of opinion that some other remedy is
available to the petitioners and that they are acting
~--4
unreasonably in seeking to have the Company wound up
instead of pursuing that other remedy. H
204 SUPREME COUHT REPORTS [2008] 5 S.C.R. I-

A 38. Again under Sections 397 and 398 of the Act there
are preventive provisions in the Act as a safeguard against >-
oppression in management. These provisions also
indicate that relief under Section 433 (f) based on the just
and equitable clause is in the nature of a last resort when
B other remedies are not efficacious enough to protect the
general interests of the Company."
•
35. This Court noticed that although the Indian Companies
Act is modelled on the English Companies Act, the Indian Law
is developing on its own lines. It was opined that the principle of
c 'just and equitable clause' is essentially equitable consideration
at'ld may, in a given case, be superimposed on law.
The Court in arriving at the said conclusion considered
the decision of House of Lords in Re : Ebrahimi and
Westboume Galleries Ltd. : 1973 AC 360 whereupon strong
D
reliance has been placed by Mr. Sundaram as also in Re:
Yenidje Tobacco Co. Ltd'. : (1916) 2 Ch. 412 amongst others.
;---
What is important is not the interest of the applicant but
the interest of the shareholders of the company as a whole. If
I: such a principle is applied in a case of winding up of a company,
· · w~ do not See any reason not to invoke the said principle in a
~ case under Section 39:7 of the Act, subject of course to the
~pplicability of the well known judicial safeguards.

A similar question came up for consideration in
F Sangramsinh P Gaekwad vs. Shantadevi P Gaekwad 2005
(11) SCC 314 wherein this Court upon noticing a large number
of decisions including Needle Industries (India) Ltd. (supra)
.A.
observed:-

G "191. In Shanti Prasad Jain referring to Elder case it was
categorically held that the conduct complained of must
relate to the manner of management of the affairs of the
company and must be such so as to oppress a minority
of the members including the petitioners qua shareholders.
+--.
The Court, however, po.inted out that that law, however,
H

•· :t_:
'
I
M.S.D.C. RADHARAMANAN v. M.S.D. 205
CHANDRASEKARA RAJAAND ANR. [S.B. SINHA, J.]

has not defined what oppression is for the purpose of the A
said section and it is left to the court to decide on the facts
of each case whether there is such oppression."

It was furthermore held
"196. The court in an application under Sections 397 and 8
398 may also look to the conduct of the parties. While
enunciating the doctrine of prejudice and unfairness borne
in Section 459 of the English Companies Act, the Court
stressed the existence of prejudice to the minority which
is unfair and not just prejudice per se. c
197. The court may also refuse to grant relief where the
petitioner does not come to court with clean hands which
may lead to a conclusion that the harm inflicted upon him
was not unfair and that the relief granted should be
restricted. (See London School of Electronics, Re.) D

198. Furthermore, when the petitioners have consented
_., to and even benefited from the company being run in a
way which would normally be regarded as unfairly
prejudicial to their interests or they might have shown no
E
interest in pursuing their legitimate interest in being
involved in the company. [See RA Noble & Sons (Clothing)
Ltd., Re)
199. In a given case the court despite holding that no case
of oppression has been made out may grant such relief F
so

~
201. In Shanti Prasad Jain v. Union of India it was held
that the power of the Company Court is very wide and not
restricted by any limitation contained in Section 402 thereof
or otherwise. " G

36. It was opined that the burden to prove oppression or
mismanagement is upon the applicant. The Court, however, will
have to consider the entire materials on record and may not
~~
insist upon the applicant to prove each act of oppression. It was
H
206 SUPREME COURT REPORTS [2008] 5 S.C.R.

A furthermore obseNed that an action in contravention of law may
).
not per se be oppressive, whereas the conduct involving illegality
and contravention of the Act may be suffice to warrant grant of
any remedy.
37. Reliance has been placed by Mr. Sundaram on Ki/pest
B (P) Ltd. vs. Shekhar Mehra : (1996) 10 SCC 696, which has
also been noticed in Sangramsinh P Gaekwad (supra) opining :
'
"The real character of the company, as noticed
hereinbefore, for the. purpose of judging the dealings
c between the parties and the transactions which are
impugned may assume significance and in such an event,
the principles of quasi·-partnership in a given case may be
invoked.
231. The ratio of the said decision, with respect, cannot
D be held to be correct as a bare proposition of law, as was
urged by Mr. Desai, being contrary to larger Bench
judgments of this Cour1 and in particular Needle Industries.
-!·
It is, however, one thing to say that for the purpose of
dealing with an application under Section 397 of the
E Companies Act, the court would not easily accept the plea
of quasi-partnership but as has been held in Needle
Industries the true character of the company and other
relevant factors shall be considered for the purpose of
grant of relief havin!J regard to the concept of quasi-
F partnership."
38. Submission of Mr. Sundaram that the appointment of
an additional Director could be a sufficient relief which the court _J
. may grant cannot be accepted. Appellant rejected such an offer.
At this stage bitterness and acrimonies between the parties
G have ensued.
In a recent decision of J.K. Paliwal and Others vs. Pa/iwal
Steels Ltcf. and others ((2007) 5 Comp LJ 279 (CLB)], on the
role of the directors in te~rms of Section 397 and 398 , the
H Company Law Board held that the role of the directors was well
M.S.D.C. RADHARAMANAN v. M.S.D. 207
CHANDRASEKARA RAJAANDANR. [S.B. SINHA, J.]

settled and they were the trustees of the company. It was thus A
opined that the directors were required to act on behalf of the
company in a fiduciary capacity and their acts and deeds have
to be exercised for the benefit of the company.

39. In Girdhar Gopal Dalima and others vs. Bateli Tea
Co. Ltd. and others: (2007) 1 Comp.LJ 450 (CLB) the Company 8
Law Board held that once the Company Law Board gives a
finding that acts of oppression have been established, winding
up of the company on just and equitable grounds becomes
automatic.
c
40. We, in the facts and circumstances of this case, are of
the opinion that it is not a fit case where we should interfere with
impugned judgment in exercise of our discretionary jurisdiction
under Article 136 of the Constitution of India. The appeal fails
· and dismissed with costs. Counsel's fees assessed at Rs.
0
50,000/-.

N.J. Appeal dismissed.