CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA PETROCHEMICALS LTD.& ORS.

The Judgment of the Court was delivered by E

· ALTAMAS KABIR, J. 1. Mis. Haldia Petrochemicals Ltd., hereinafter referred to as "H.P.L.", was incorporated in 1985 for establishing a green field petrochemical complex in Haldia in the State of West Bengal to be established by the West F Bengal Industrial Development Corporation, hereinafter referred to as "WBIDC", and the R.P. Goenka Group. However, the Goenka Group left the Company in 1990 and Tata Chemicals and Tata Tea were inducted into the project between 1990 and 1993. Not much headway was made towards G implementing the project till June, 1994 when Dr. Purnendu Chatterjee, hereinafter referred to as "PC", a Non-Resident Indian industrialist and financier, expressed an interest in the project. Accordingly, a Memorandum of Understanding was entered into between WBIDC and the Chatterjee Petrochem H

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A (Mauritius) Company, hereinafter referred to as "CP(M)C" and the Tatas on 3rd May, 1994. According to the said Memorandum, the initial cost of the project was estimated at Rs.3600 crores which was to be funded with a debt of Rs.2400 crores and equity of Rs.1200 crores. Initially, equity capital of B Rs.700 crores was to be contributed by WBIDC, CP(M)C and the Tatas in the ratio of 3:3:1 respectively. It was also provided that the Board of the Company would consist of four nominees each of WBIDC, CP(M)C and two from the Tata group. This was followed by a Joint Venture Agreement, hereinafter referred to c as "JVA", between the three parties on 20th August, 1994, incorporating the terms which had been agreed upon by the parties. It was decided that both WBIDC and CP(M}C would invest Rs.300 crores each and the Talas would invest Rs.100 crores, while Rs.500 crores was to be obtained from the public, including Non-Resident Indians and Financial Institutions, 0 towards equity, keeping the debt equity ratio at 2:1. Certain other terms and conditions agreed between the parties were also included in the Agreement, of which one of the specific terms was that in case of disinvestment by WBIDC, the disinvested shares would be offered to CP(M)C. One of the E other terms agreed to by the parties is that they would be entitled to seek specific performance of the terms and conditions of the agreement in accordance with the provisions of the Specific Relief Act, 1963, and the agreement would remain in force as long as the parties held the prescribed percentage of shares. F

2Copy pinpoint2. After the said agreement was executed, four other letters dated 30th September, 1994, 6th October, 1994 and 5th January, 1995, were exchanged between the parties, whereby it was agreed that between 24 months of commencement of G commercial production or within 60 months of the date of the JVA, whichever was later, at least 60% of the shareholding of the WBIDC would be offered to CP(M)C at Rs.14/- per share. It was provided that the role of the Government in the Company would be limited to its promotion and guidance through the initial H

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 147 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]

phases of the project and that the nominee of CP(M)C would be the Managing Director. In March, 1995, the Articles of Association of the Company were altered to bring it in line with the terms of the JVA. An addendum to the JVA was executed on 3oth September, 1996/4th October, 1996, by which the project cost was revised to Rs.5170 crores and the equity participation was revised to Rs.432.857 crores to be provided by WBIDC and by CP(M)C, while Talas were to provide Rs.144.286 crores. The remaining equity participation of Rs.969 crores was to be from the public.

3Copy pinpoint3. The project started in 1997 and commercial production c commenced in August, 2001. Thereafter, further agreements were entered into between the parties and the first of such agreements was entered into on 12th January, 2002, whereby CP(M)C, the Government of West Bengal, WBIDC and HPL, inter a/ia, agreed on a certain course of action in regard to D HPL's need of financial and managerial restructuring. The object and exercise of such restructuring was that CP(M)C would acquire a controlling interest of 51 % shares in the equity of the Company and would have complete control over the day-to-day affairs of the Company, including the right to appoint key E executives. WBIDC also agreed to vote along with CP(M)C on all issues in the shareholders meeting and its nominee would also vote along with the nominee Directors of the CP(M)C. It was specifically agreed that all other rights and obligations of CP(M)C in terms of the earlier agreement would continue till F CP(M)C acquired majority shares in the Company.

4Copy pinpoint4. The aforesaid agreement was followed by another agreement dated 8th March, 2002, wherein it was recorded that in terms of the agreement dated 12th January, 2002, G 155,099,998 equity shares of WBIDC had been transferred and delivered to CP(l)PL, on 8th March, 2002. It was also mentioned . that the said shares were pledged with WBIDC and, accordingly, the shares had been duly lodged along with the share certificates with WBIDC and the pledge had been H

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A acknowledged. Certain other agreements in regard to the shareholding pattern and the management of the Company were entered into, wherein after allotment of shares to Winstar, which had been brought in to infuse Rs.127.4 crores towards equity, the collective shareholding of the Appellants was shown B to be 58.62% with a rider that 155 million shares transferred by WBIDC to CP(M)C was subject to registration and lenders' approval. We may have recourse to refer to some of the said agreements at a later stage.

5Copy pinpoint5. One other agreement which is releva_nt to the facts of this case was entered into between PC and the Government of West Bengal, represented by the Respondent No.8, Shri Sabyasachi Sen, on 14th January, 2005, wherein it was indicated that the Government of West Bengal would sell its entire shareholding in HPL to CP(M)C, and that the price of the D shares would be determined by an independent valuer selected by the Government of West Bengal from amongst a panel of firms to be prepared by CP(M)C. It was further declared that the recommendation of the valuer would be binding both on the Government of West Bengal and CP(M)C. E

6Copy pinpoint6. In the months of January and February, 2005, HPL had approved the issuance and allotment of equity shares worth Rs.150 crores at par to Indian Oil Corporation (IOC). Objecting to the proposed allotment of shares to IOC anc also on the F ground that WBIDC and the Government of West Bengal had failed to fulfil their commitment to transfer their balance 36% shares to the Appellants, the Appellants filed Company Petition No.58 of 2009 before the Company Law Board under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, G inter alia, for the following reliefs :- "(a) An order be passed directing the company to take immediate steps for modifying and/or altering and/ or amending the Articles of Association of the Company to incorporate therein the complete agreement by and between the joint venture

CHAITERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 149 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] partners and special rights of the petitioner in relation to the Company, as provided in the Agreements dated 20th August, 1994, 12th January, 2002, 8th March 2002 and 30th July, 2004.

(b) Appropriate orders be passed directing the entire shareholding of the respondent No.2 in the Company to be tra11sferred in favour of the petitioner at the agreed price of Rs.14/- per share in respect of such number of shares of HPL registered in the name of Respondent No.2 constituting 60% of the holding of the respondent No.2 in the Company and c on such valuation in respect of the balance shares held by Respondent No.2 as this Hon'ble Board may think fit and proper;

(c) Declaration that the resolution passed at the EGM D of the Company held on January 14, 2005, is illegal, inoperative, null and void and not binding on the Company or any person connected therewith; (d) Permanent injunction restraining the respondents E whether by themselves or by their servants or agents or assigns or otheiwise howsoever from giving any effect or further effect to the resolution passed on the EGM held by the Company on January 14, 2005 in any manner whatsoever; F (e) Permanent injunction restraining the Company from receiving any money or encashing any cheque that may have been issued by the Respondent No.6 to the Company in pursuance of the Memorandum of Association and the resolution passed by the EGM G of the Company held on January 14, 2005;

(f) Permanent injunction restraining the Company and its Board of Directors from taking any major decision or policy decision relating to the H

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A management and affairs of the Company before the majority shareholding and management control in the Company is effectively established as per th~ Agreements dated 12th January, 2002, arid 3oi~ July, 2004, including the due recognitidn' of the nominee of petitioner No.? ;:is Director of the Company pursuanflo the letter of Petitioner No.2 dated 1st ~ugust, 2005;

(g) Permanent injunction restraining the Company-and its present board from dealing with or disposing of c or alienating or encumbering any asset or property of the Company except strictly in the course of the business of the Company;

(h) Permanent injunction restraining the Company and its Board of Directors from taking any decision in relation to the management and administration of the Company except with the previous approval of the petitioner; (i) Permanent injunction restraining the respondents and each of them from in any manner acting in derogation of the petitioner's rights as majority shareholders in the company and the petitioner's right to control the management of the \.ompany, including without limitation by way of sale of shares of the Company held by any of them to any third party except the petitioners; (j) ··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·· G (k) ··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·· (I) Direct the reconstitution of the Board of the Company to reflect the majority control and the H

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 151 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.j special rights accorded under the Agreements A between the shareholders to the petitioners;

(m)

(n) • B Subsequently, on coming to learn that the shares in question had already been allotted to IOC, the Appellants filed an application for amendment of the petition to challenge the allotment in favour of IOC and seeking cancellation thereof.

7Copy pinpoint7. Before the Company Law Board, hereinafter referred c to as "the CLB';, not only was it reiterated by the Chatterjee Group that PC had to rejuvenate the Company and to implement the project, for which he was recognized as a "promoter" in the Memorandum of Understanding entered into D on 3rd May, 1994, but that there was a clear understanding that the Chatterjee Group would have management interest in the Company. Before the CLB it was further contended that the Company was really a quasi-partnership with each of the three groups having financial stakes and management participation. The Chatterjee Group further claimed that the Memorandum of E Understanding not only provided for the Appellants to hold 3/ 7th of the shares of the Company, but also 2/5th of the Directorship therein. WBIDC was also to have a 3nth share in the Company so that the Company remain as a private company. F

8Copy pinpoint8. The Chatterjee Group also reiterated that in the JVA dated 20th August, 1994, the Chatterjee Group had been given a right of pre-emption to acquire the shares of WBIDC if it chose to disinvest its shares. Before the CLB it was also G · emphasized that at the time of entering into a Memorandum of Understanding on 3rd May, 1994, it had been clearly understood between the parties that the Company would remain in the private sector. Repeating what has been indicated hereinbefore, learned counsel for the Chatterjee Group H

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A submitted bdore the CLB that in addition to the JVA, 4 letters had been exchanged between the Chatterjee Group and the WBIDC/GoWB providing for the Chatterjee Group to acquire at least 60% of the shares held by WBIDC at Rs.14/- per share upon the happening of certain events within a particular B timeframe. Before the CLB the Chatterjee Group also contended that it was understood by the parties that the role of the Government would gradually be confined to promotion and guidance during the initial stages of the project, after which the control of the management would be in the private sector and c the nominee of the Chatterjee Group would be the Managing Director of the Company.

9Copy pinpoint9. In support of its contention of mismanagement and oppression by the Company towards the Chatterjee Group, it was alleged that the decision to allot 150 million shares to IOC D by WBIDC/GoWB had been taken behind its back with the sole intention of preventing the Chatterjee Group from acquiring the control of the Company's affairs, as was promised and understood at the initial stage when PC agreed to participate in the equity holdings of the Company. One of the major acts E of oppression complained of by the Chatterjee Group before the CLB was that despite having received payment in respect of 155 million shares and having transferred the same to the Chatterjee Group, it did not complete the trans(er by registering the transfer with the Company and altering its Register of F Members accordingly, which effectively deprived the Chatterjee Group of having the promised majority shareholding in the Company. Before the CLB it was further contended that had the said shares been registered in the name of the Chatterjee Group, the total shareholding of the Chatterjee Group would G have been 51% which would have given them control of the affairs of the Company. Hence, a prayer had been made before the CLB for a direction upon WBIDC/GoWB to complete the transfer of the 155 million shares in favour of the Chatterjee Group. H

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 153 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.)

10Copy pinpoint10. On behalf of the Cnatterjee Group it had also been contended before the CLB that it had agreed to induct IOC as a portfolio investor in the Company at the instance of GoWB. However, subsequently, by its letter dated 20th September, 2004, the Chatterjee Group had indicated that in view of the proposed public offer, there was no further necessity of inducting any portfolio investor, but the investment of Rs.150 crores by IOC could be considered. A resolution was adopted by the Company on 2nd November, 2004, to allot shares to IOC, although the Chatterjee Group was against such allotment. In order to maintain the private character of the Company, the C Chatterjee Group called upon WBIDC to sell 60% of its shareholding to the CP(M)C at the agreed price of Rs.14/- per share as recorded in the letter dated 30th September, 1994. It was further submitted before the CLB that upon such demand being made, discussions were held and it was mentioned that the GoWB and WBIDC would give in writing, that the entire shareholding of WBIDC in the Company would be sold to the Chatterjee Group. It was, therefore, submitted that pursuant to such discussions and representations that an Agreement was reached on 14th January, 2005, between one Dr. Sabyasachi Sen and PC in the presence of Mr. Tarun Das, wherein they agreed to vote in support of the Resolution to allot 150 million HPL equity shares to IOC at par. The grievance of the Chatterjee Group before the CLB was that inspite of several letters written on behalf of the Chatterjee Group, no steps were taken by the Company to give effect to the Resolution dated F 14th January, 2005.

11Copy pinpoint11. Another major grievance of the Chatterjee Group before the CLB was that sometime before 15th July, 2005, doubts regarding IOC's investment in HPL were substantiated G when the letter dated 10th November, 2004, written by the WBIDC to IOC was discovered. It was contended before the CLB that by deliberately suppressing the discussions between WBIDC and IOC which would give IOC control over the management of HPL, WBIDC/GoWB wrongly obtained the H

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A consent of the Chatterjee Group to the Resolution of the Extra- Ordinary General Meeting held on 14th January, 2005, to allot shares at par to the Respondent No.6 IOC. The Chatterjee Group also complained that neither GoWB nor WBIDC had ever intended to honour the agreement dated 14th January, 2005, 8 and from the letter dated 10th November, 2004, it was clear that GoWB and WBIDC did not intend to sell the HPL shares held by the WBIDC to the Chatterjee Group.

12Copy pinpoint12. It was also contended before the CLB by the Chatterjee Group that since HPL was not in immediate need of funds, the allotment of shares to IOC was not warranted despite the fact that the Chatterjee Group was ready and willing to complete the share purchase deal at the agreed price of Rs.14/- per share. By virtue of the superior bargaining power of the WBIDC and GoWB, the Chatterjee Group could not enforce their special rights on account of their continuing minority status in the Company, nor could it acquire control of the management thereof.

13Copy pinpoint13. It was also contended that even the Articles of E Association had not been modified or altered to reflect the rights which the Chatterjee Group enjoyed and the clandestine arrangement arrived at between the GoWB, WBIDC and IOC undermined the very basis on which the request made by GoWB and WBIDC had been accepted by the Chatterjee F Group. Accordingly, the said arrangement was required to be brought to an end for resolving the oppressive acts of the GoWB and the WBIDC.

14Copy pinpoint14. On the basis of the aforesaid allegations, the Chatterjee Group contended before the CLB that the affairs of the G Company were being conducted in a manner which was prejudicial to the public interest and oppressive to them. It was further contended that winding-up of the Company would unfairly · prejudice the parties but that otherwise ~he facts would justify the making of a winding-up or9er on just ilfid equitable grounds. H

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 155 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]

15Copy pinpoint15. The aforesaid stand taken by the Chatterjee Group A was opposed on behalf of the Company on the ground that inspite of having made several promises to infuse equity into the Company, it had failed to do so and in view of severe fund crunch faced by the Company on account of such failure, the Company had no other alternative, but to transfer the shares in B question to a party which was willing to do so. In fact; it was the joint contention of GoWB and WBIDC that since the Chatterjee Group had failed to abide by its commitments to infuse equity into the Company and as the affairs of the Company were at a point of collapse, with creditors, particularly c the Indian Oil Corporation supplying Naphtha, which was the essential ingredient in the manufacturing process of the Company, demanding their outstanding dues even under the threat of taking appropriate action under the provisions of the Companies Act, 1956, the Company had no option but to D transfer the 150 million shares to IOC as per the decision taken earlier. ·

16Copy pinpoint16. In addition to the above, it was also submitted that the Chatte~ee Group had agreed to the decision to induct the IOC in the Company as a portfolio investor. E

17Copy pinpoint17. The Company Petition was disposed of by the CLB by upholding the decision of the Company to allot 150 million shares to IOC, ·which would be at liberty to deal with the same in any manner it thought fit. Similarly, the transfer of 155 million F shares by WBIDC to the Chatterjee Group at Rs.10/- per share was confirmed. A further direction was given to GoWB and WBIDC to transfer the 520 million shares held by them in HPL to the Chatterjee Group. The Chatterjee Group was also directed tq purchase the 271 million preference shares held by G GoWB and WBIDC at par. The CP(l)PL was directed to pay a sum of Rs.125 crores to WBIDC towards balance consideration for the 155 million shares on or before 28th February, 2007. It was further directed that on payment of the said amount, the shares in question would be deemed to have been /H

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. A dematerialized and transferred in the name of CP(l)PL, without any further deed or act or refusal from anyone or production of any instruction to transfer. Significantly, the Chatterjee Group was also given liberty as soon as they paid the consideration for the 155 million shares, to take control of the day-to-day B management of the Company as they would then be holding 51 % of the equity shares, with the stipulation that no major decisions would be taken without the approval of the Court. The CLB also came to a definite finding that the 150 million shares allotted to IOC had not been so transferred suddenly or c surreptitiously or with any ulterior motive and the allegation of a secret agreement between GoWB and IOC, though of very little significance, has been magnified by the Chatterjee Group in the Company Petition.

18Copy pinpoint18. The Government of West Bengal, through its Joint D Secretary in the Department of Commerce and Industry, filed an appeal before the Calcutta High Court :,;gains! the said order of the CLB dated 31st January, 2007 under Section 1OF of the Companies Act, 1956, and the same was numbered as AP.O.No.45 of 2007. Among the various grounds taken in the E Appeal, a question was raised as to whether the CLB could have assumed jurisdiction on the Company Petition filed by Chatterjee Petrochem (Mauritius) Ltd. Co., Winstar India Investment Co.mpany Ltd., India Trade (Mau~itius) Ltd. and Chatterjee Petrochem (India) Pvt. Ltd., to enforce rights under F private contracts. Another ground taken was that the CLB had erred in applying the doctrine of legitimate expectation in a Petition under Section 397 read with 8ections 398 and 402 of the Companies Act, 1956, and in treating the Company to be a quasi-partnership. As a corollary to the said question, the G Government of West Bengal also questioned the jurisdiction of the CLB to convert the Company Petition into a Suit for Specific Performance of Contract. It was also contended that the issues raised in the Company Petition were with regard to the disputes of a contractual nature between shareholders and the non- H performance of such contracts between the shareholders could

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 157 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]

not be treated to be the "Affairs of the Company". The locus standi of the Chatterjee Petrochem (India) Pvt. Ltd. to maintain a petition under Section 398 of the Companies Act was also questioned since on the date of filing of the Petition before the CLB, the said Company was not even a member of the Joint Venture Company. It was also reiterated that no case for mismanagement or oppression had been made out and the application under Section 398 of the above Act was liable to be dismissed.

19Copy pinpoint19. Upon hearing the parties, the learned Single Judge held that CP(l)P!.. had no locus standi to maintain a petition under Section 397 of the Companies Act and that CLB could not have assumed jurisdiction on the Company Petition, in which CP(l)PL was a petitioner, since CP(l)PL was not a member of HPL. The learned Single Judge held that such a petition for the purpose of enforcing rights under private contracts would not be maintainable and that the agreement entered into between CP(l)PL and WBIDC for transfer of shares, being a private contract between two shareholders, the same could not be the subject matter of a petition under Section 397 of the Companies Act, 1956. The learned Single Judge also observed that such agreements could not be treated to be "affairs of the Company" and that, in any event, such a ground had not also been pleaded in the Company Petition. The learned Judge held that the order of the CLB, which was based entirely on the question of transfer of the 155 million shares by F WBIDC to CP(l)PL, stood vitiated by such jurisdictional error.

20Copy pinpoint20. The learned Single Judge also held that the CLB was not justified in applying the concept of quasi-partnership, which had been urged on behalf of the Chatterjee Group, to HPL. G According to the learned Single Judge, the question as to why a Limited Company should be considered to be a quasi- partnership, would have to be decided on the facts of each case. While, on the one hand, it would be easy to apply the said concept to a closely-held Family Company or a Private Limited H

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A Company, as in cases where a partnership is converted into a Company, such an assumption could not be arrived at merely on the ground that the promoters of the Company described themselves as partners.

21Copy pinpoint21. The learned Single Judge further held that from the entire pleagings in the Company Petition no case whatsoever had been made out that in conducting the affairs of HPL, the GoWB and WBIDC had oppressed the Petitioners in any way so as to attract the provisions of Section 397 of the Companies Act. The learned Single Judge also held that the CLB was not right in applying the doctrine of legitimate expectation to the agreement entered into between WBIDC and CP(l)PL on 8th March, 2002, thereby converting the Company Petition into a suit for specific performance of contract. The learned Judge observed that by granting relief in the name of the doctriAe of legitimate expectation, the CLB has actually enforced specific performance of the contract and agreements, which was beyond its jurisdiction.

22Copy pinpoint22. Lastly, on the question of the induction of IOC and the allotment of 155 million shares to the said Company, the learned Single Judge held that the induction of IOC was on the basis of the Debt Restructuring Package and the Refinancing Scheme, which were to the advantage of HPL, and had been decided from time to time at the Board meetings of the Directors, which had been presided over by PC. On the basis of his aforesaid findings, the learned Single Judge, relying on the decision of this Court in Shanti Prasad Jain Vs. Kalinga Tubes Ltd. [(1965) 2 SCR 720], held that an order granting relief under Section 397 could be made only after affirming and recording an opinion on each of the three conditions mentioned in Section 397(2)(a) and (b) of the Companies Act, 1956. The learned Single Judge held that in the instant case, no such opinion had either been formed or recorded by the CLB relating to the said three conditions. The learned Single Judge also rejected the submissions made on behalf of the Petitioners that an opinion with regard to the said two conditions would

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 159 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] . automatically follow from the opinion formed by the CLB on oppression, or such opinion could be gathered from the order of the Board itself. The learned Single Judge, accordingly, held that the order passed by the CLB was contrary to the provisions of Section 402(e) of the above Act, since no relief under the said Section could be granted without a finding having been arrived at that a case of oppression had been made out within the meaning of Section 397 of the aforesaid Act.

23Copy pinpoint23. Appearing for the Chatterjee Group, Mr. Fali S. Nariman, learned Senior Advocate, did not seriously oppose the contention that the prayers in the Company Petition were really for specific performance of the various agreements entered into by the parties, but that the same were on account of the acts of oppression and mismanagement on the part of GoWB, HPL and WBIDC with regard to the non-registration of the 155 million shares which had already been transferred by D WBIDC in favour of the Chatterjee Group. Mr. Nariman urged that although the said shares had been transferred in favour of the Chatterjee Group and although the price in respect thereof had been duly received by HPL, the Company had not registered the said 155 million shares with the Company in the E name of CP(l)PL and the transfer of the said shares was also not reflected in its Register of Members. Mr. Nariman contended that by not registering the 155 million shares in the name of the Chatterjee Group, which deprived the Chatterjee Group of being the majority shareholder, and, at the same time, allotting F 150 million shares to IOC, the acts of the Company reduced the Chatterjee Group from a majority shareholder to a minority shareholder, which amounted to oppressive treatmen! by the Company. G

24Copy pinpoint24. Mr. Nariman submitted that at the time of entry of the Chatterjee Group through the CP(M)C in 1994, the total issued share capital of HPL was 1010 million shares of Rs.10/- each and the shareholding pattern was as under :- H

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A CP(M)C 433 million shares

WBIDC 433 million shares

Talas 144 million shares

25Copy pinpoint25. However, on 28th September, 2001, at the Board Meeting of HPL, a Resolution was taken to offer a Rights Issue to the existing shareholders so that a further sum of Rs.223 crores could be infused in HPL in the ratio of 107:107:36. Although, the other shareholders subscribed to the Rights Issue, c the Chatterjee Group did not on the ground that such equity could be infused once the financial restructuring of HPL had been completed. Accordingly, on 8th March, 2002, the shareholding pattern as per the Register of Members in the share capital of 1153 million shares was : D CP(M)C 433 million shares= 37.56%

WBIDC 540 million shares = 46.83%

Tatas 180 million shares = 15.61 %

26Copy pinpoint26. Mr. Nariman submitted that in the Agreement dated 30th July, 2004, which was supplemental to the Agreement dated 12th January, 2002, executed by the GoWB, WBIDC, CP(M)C and HPL, it was specifically mentioned that GoWB had caused WBIDC to transfer to CP(l)PL, an affiliate of CP(M)C, F shares worth Rs.155 crores and that CP(l)PL had become the beneficial owner thereof. However, the registration of the said shares in the books of HPL was kept pending till approval was obtained from the Lenders, being the Banks and Financial Institutions. Mr. Nariman submitted that as a result, despite the transfer by WBIDC of 155 million shares in favour of CP(l)PL, WBIDC continued to be shown as owner thereof in the Share Register of the Company. Mr. Nariman submitted that once clearance had been obtained from the Lenders, WBIDC could no longer refuse to register the said 155 million shares in the name of CP(l)PL, which was an integral part of the Chatterjee

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 161 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] Group. A

27Copy pinpoint27. Mr. Nariman submitted that the number of shares transferred by WBIDC to CP(l)PL comprised 13.44% of the total number of shares amounting to 1~53 shares, which meant that along with the 36.56% of the shares held by the Chatterjee B Group, the total worked out to 51% and gave the Chatterjee Group the management control of HPL and reduced the shareholding of WBIDC from 46.83% to 36.9%.

28Copy pinpoint28. Mr. Nariman submitted that on the same day on which the Supplemental Agreement had been signed, a Share C Subscription Agreement was executed by HPL, CP(M)C, WBIDC and WINSTAR which, inter a/ia, referred to the agreement entered into by GoWB, WBIDC, CP(M)C and HP-l on 12th January, 2002 and that WBIDC, CP(M)C and CP(l)PL had entered into an Agreement on 8th March, 2002, relating D to the transfer of shares in the Company at Rs.10/- per share and pursuant to that agreement, CP(M)C came to be in management control of the Company.

29Copy pinpoint29. Mr. Nariman urged that by signing the Share E Subscription Agreement dated 30th July, 2004, WBIDC and HPL had acknowledged the fact that pursuant to the Agreements of 12th January, -2002 and 8th March, 2002, 155,099,998 shares had gone out of the holding of WBIDC and were held by CP(l)PL, a part of the Chatterjee Group. However, F in the Company Petition filed before the CLB, WBIDC and GoWB denied the same and ascertained that the 155 million shares continued to be part of the holding of the WBIDC and a further stand was taken that at no point of time had the Chatterjee Group held the majority shares in HPL. In addition to the above, by transferring 150 million shares to IOC, the G WBIDC/GoWB had reduced the Chatterjee Group from a majority to a minority, which clearly amounted to oppressive treatment by the Company.

30Copy pinpoint30. Mr. Nariman contended that on account of the various H

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A defaults committed by the Chatterjee Group in failing to infuse equity into HPL, in breach of the Agreement dated 12th January, 2002, WBIDC and the GoWB were absolved of the application to register the 155 million shares in favour of CP(l)PL. It was pointed out that under the aforesaid Agreement, CP(M)C had B agreed to infuse Rs.107 crores into HPL, of which Rs.53.5 crores was to be paid within 5 working days of signing of the Agreement, which was executed on 25th January, 2002. Taking into account the aforesaid sum, CP(M)C was required to arrange for a minimum amount of Rs.500 cores, either as equity c or equity-like instruments and/or advance from outside sources, including strategic partners. The CP(M)C also agreed to organize Letters of Comfort to be issued within 30 days of signing of the Agreement for the purpose ·of overall debt restructuring of HPL which was concluded by 31st March, 2002. There was a further stipulation that the balance of Rs.53.5 0 crores, out of the sum of Rs.107 crores, was to be inducted by CP(M)C within 5 days of the acceptance of the Letters of Comfort.

31Copy pinpoint31. Mr. Nariman further contended that the assurance given .E in Clause 5 of the Agreement, which assured CP(M)C 51% of the total paid-up equity of HPL, was not conditional to the infusion of equity worth Rs.500 crores by the Chatterjee Group. Such assurance was subject to compliance with the requirements of providing Letters of Comfort and acceptance thereof by the GoWB and upon payment of Rs.53.5 crores as stipulated. Mr. Nariman urged that since the said conditions had been fulfilled by the Chatterjee Group, it was incumbent upon GoWB and WBIDC to transfer the 155 million shares to CP(M)C which was the beneficial owner thereof. It was submitted that the failure of WBIDC to effect such registration and at the same time, registering 150 million shares in favour of IOC, thereby reducing the Chatterjee Group to a minority shareholder, was a positive act of oppression on the part of the majority shareholder, which was sufficient to attract the provisions of Sections 397 and 398 read with Section 402 of

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 163 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.) the Companies Act, 1956. Mr. Nariman urged that even if the A . allotment of 150 million shares to IOC was not taken into consideration, the continuous refusal on the part of the Company to register the. 155 million shares in the name of CP(l)PL, not only amounted to breach of the agreement dated 12th January, 2002, by which WBIDC and GoWB had agreed B to ensure that the Chatterjee Group would remain in majority, but that the same also attracted the provisions of Section 397 of the Companies Act. Mr. Nariman submitted that the said promise ccntained in the Agreement dated 12th January, 2002, formed the very basis on which PC had brought equity worth c Rs.257 crores into HPL, but for which the Company would not have been able to restructure its debts. Learned counsel submitted that for WBIDC and GoWB to contend that the induction of the Chatterjee Group on an understanding that it would always have a majority control over the Company's 0 management, was simply an agreement between two shareholders and not an affair of the Company, was not acceptable. Mr. Nariman urged that the refusal of the WBIDC to register the 155 million shares transferred to the CP(l)PL affected the shareholding pattern of the Company and was, therefore, directly an affair of the Company, which fact had been duly recognized by the CLB. Mr. Nariman submitted that it is on account of the various assurances given by WBIDC and the GoWB that the Chatterjee Group had become the owner of the 155 million shares, that it had been the consistent stand of the Chatterjee Group that they were the majority shareholders of the Company.

32Copy pinpoint32. Relying on the decision of this Court in· Needle Industries (India) Ltd. & Ors. Vs. Needle Industries Newey (India) Holding Ltd. & Ors. ((1981) 3 SCC 333], Mr. Nariman G submitted that in determining a question of oppression under Section 397 of the Companies Act, the Company Law Board was entitled to take into account facts which had come into existence after the company petition had been filed. Learned . counsel gave several instances where despite having given H

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A assurances that the shares in question would stand transferred in favour of CP(l)PL, the GoWB and WBIDC had failed to complete the transfer on one ground or the other, despite stating that the GoWB stood committed to the transfer of the shares to the Chatterjee Group as per the Agreements dated B 12th January, 2002, 8th March, 2002 and 30th July, 2004.

33Copy pinpoint33. Mr. Nariman submitted that the clandestine manner in which WBIDC had transferred 150 million shares in favour of IOC was in complete breach of the agreement between WBIDC C and PC that the Chatterjee Group would remain the majority shareholder and would also have the control and management over the company's affairs. Mr. Nariman submitted that had it been brought to the knowledge of the Chatterjee Group that such a secret agreement to transfer 150 million shares to IOC was being negotiated, it would have never voted at the D Extraordinary General Meeting of the Company on 14th January, 2005, in support of the allotment of the said shares to IOC.

34Copy pinpoint34. Although, Mr. Nariman had made certain submissions with regard to the Agreement of 8th March, 2002, read with the requirements of the Depositories Act, 1996, SEBI (Depositories and Participants) Regulations, 1996 and the bye- laws and business rules/operating instructions issued by the depositories, we shall, if need be, refer to the same 1t a later stage of the proceedings.

35Copy pinpoint35. Mr. Nariman submitted that the concept of oppression for the purposes of Sections 397, 398 and 402 of the Companies Act had been considered by this Court in various cases. Learned counsel pointed out that in the Needle G Industries case (supra), this Court had observed that the behaviour and conduct complained of must be held to be harsh and wrongful and in arriving at such a finding, the Court has to look at the business realities of the situation and not confine itself to a narrow legalistic view and allow technical pleas to defeat the beneficial provisions of the Section. Mr. Nariman

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 165 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] submitted that when the Company was in substance, though not in law, a partnership, there had to be utmost good faith between the members. Mr. Nariman submitted that this Court had gone even further to indicate that even if no oppression was made out in a Petition under Section 397 of the Companies Act, the Court is not powerless to do substantial justice between the parties.

36Copy pinpoint36. Learned counsel submitted that Company law had developed seamlessly from the law of partnership which is based on mutual trust and confidence, as was observed by the House of Lords in O'Neill Vs. Phillips [(1999)2 All ER 961], and in such a situation, the highest standards of honour had to be maintained. It was also submitted that the aforesaid decision of the House of Lords which was based on the earlier decision in Blisset Vs. Daniel [68 E.R. 1022], was subsequently reiterated by the House of Lords in Ebrahimi Vs. Westboume D Galleries [(1972) 2 All ER 492] and also by this Court in the Needle Industries case (supra). Mr. Nariman urged that in Dale & Carrington lnvt. P. Ltd. Vs. P.K. Prathapan [(2005) 1 SCC 217], this Court had held that if a Member who holds the majority of shares in a Company is reduced to the position of E · a minority shareholder by an act of the Company or by its Board of Directors, the said act must ordinarily be considered to be an act of oppression to such Member.

37Copy pinpoint37. Reference was also made to the decision of this Court F in Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao & Ors. [(1955) 2 SCR 1066], wherein, Venkatarama Ayyar, J., as His Lordship then was, while referring to an equitable and just principle, held that when the said doctrine specifying the ground of winding-up by the Court G is not to be construed as ejusdem generis then whether mismanagement of Directors is a ground for passing of a winding up order under the Indian Companies Act, 1913, becomes a question to be decided on the facts of each case. Mr. Nariman pointed out that in the aforesaid judgment, the H

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A learned Judge had referred to the decision in Loch Vs. John Blackwood Ld. [(1924) AC 783), in which an order for winding- up of the Company was ordered on the ground of mismanagement by the Directors and .the law was stated as follows:- B "It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, c not in regard to their private life or affairs, but in regard to th e company 's busmess. . ................. . "

38Copy pinpoint38. Mr. Nariman submitted that following the aforesaid principle, this Court had in M.S.D.C. Radharamanan Vs. D M.S.D. Chandrasekara Raja & Anr. [(2008) 6 SCC 750), observed that once the Company Law Board gave a finding that acts of oppression have been established, an order in terms of Sections 397 and 402 on the doctrine of winding-up of the company on just and equitable grounds, becomes automatic. E Accordingly, the interference by the learned Single Judge with the order of the CLB was wholly unwarranted.

39Copy pinpoint39. Appearing for Winstar India Investment Company Ltd., Mr. Sudipto Sarkar, learned Senior Advocate, while adopting the submissions made by Mr. Nariman, empha,o;ized Mr. F t,Jariman's submissi9ns on quasi partnership. In the said context, he submitted that in dealing with a petition under Section 3971398 of the Companies Act the Court has to consider business realities, instead of confining itself to a narrow legalistic view. Learned counsel argued that in the G Needle Industries case (supra), this Court, inter a/ia, observed that technical pleas should not be allowed to defeat the beneficent provisions of Section 3971398 of the Companies Act. Mr. Sarkar submitted that the said principle had been subsequently followed by this Court in (i) Sangramsinh P. H Gaekwad & Ors. Vs. Shantadevi P. Gaekwad (Dead) through

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 167 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] LRs. & Ors. [(2005) 11 SCC 314]; (ii) Kamal Kumar Dutta & A Anr. Vs. Ruby General Hospital Ltd. & Ors. [(2006) 7 SCC 613]; (iii) M.S.O.C. Radharamanan's case (supra). Mr. Sarkar submitted that in Sangramsinh P. Gaekwad's case (supra) this Court had observed that the jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act is B of wide amplitude and while exercising its discretion, the Court was not bound by the terms contained in Section 402 of the said Act, if in a particular fact situation a further relief or reliefs was warranted. Furthermore, in a given case, even if the Court came to a conclusion that no case .of oppression had been c made out, it could still grant such relief so as to do substantial JUS!ice to the parties.

40Copy pinpoint40. Mr. Sarkar submitted that a Joint Venture Agreement, in fact, contemplates a partnership, as was indicated by this Court in. New Horizons Ltd. & Anr. Vs. Union of India & Ors. D ((1995) t.SCC 478], where the expression "Joint Venture" was examined. It was noted that the said expression connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. Mr. Sarkar submitted that the terms and conditions of the Joint Venture Agreement in the instant case satisfies all the requisites of a partnership, which made it evident that the Joint Venture Company was nothing but a quasi-partnership as per the tests laid down by the House of Lords in Ebrahimi Vs. Westbourne Galleries Ltd & Ors. [(1972) 2 All ER 492], followed in Needle Industries case (supra). Mr. Sarkar submitted that in Ebrahimi's case, Lord Wilberforce writing the main judgment indicated that the reliefs prayed for were for a G direction upon the Respondent No.2 and his son to purchase the appellant's share in the company. In the alternative, an order for winding up of the company was sought. The learned Judge found that some of the allegations made remained unproved and that the complaint made did not amount to such a course H ·

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A of oppressive conduct as to justify an order under Section 210 of the Companies Act, 1948, in furtherance of the first relief.

41Copy pinpoint41. Mr. Sarkar then proceeded to the question of legitimate expectation and contended that in Company Law there was 8 sufficient room for recognition of the fact that there could be individuals with rights, expectations and obligations which may submerge in the corporate structure. Jn this regard, Mr. Sarkar submitted that the said doctrine of an enforceable expectation was considered in Re Saul D Harrison & Sons pie [1995] 1 BCLC 14, approved in O'Neil/'s case (supra). Several other C decisions in this regard were cited by Mr. Sarkar which do not require elaboration.

42Copy pinpoint42. Mr. Sarkar submitted that when joining the Company in 2004, Winstar had a legitimate expectation arising from the D Subscription Agreement dated 30th July, 2004, which indicated that the Chatterjee Group was in management and control of the affairs of HPL and that the Company would also have its private auditors and had it not been for the recitals in the Subscription Agreement, Winstar may not have invested funds E in HPL at all. Mr. Sarkar submitted that the conclusion was inescapable that even if no case of oppression had been made out in the Company Petition filed by the Chatterjee Group, relief under Section 397/398 could still be granted under Sections 397 and 398, if it was just and equitable to do so. Referring F a and placing reliance on decision of this Court in V.S. Krishnan & Ors. Vs. Westfort Hi-Tech Hospital Ltd. & Ors. [(2008) 3 SCC 363], Mr. Sarkar urged that once the conduct of the management was found to be oppressive under Sections 397 and 398 of the Companies Act, the discretionary power G given to the CLB under Section 402 of the Companies Act to put an end to such oppression was very wide. Mr. Sark<ir urged that the expression "legitimate expectation" had found its place in Indian Jurisprudence and has been considered by this Court in Needle Industries case (supra), which was followed in V.S. Krishnan's case (supra) and several other cases. The H

, CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 169 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] Agreement of WBIDC to transfer its entire shareholding to the A Chatterjee Group gave rise to an expectation that such an expectation would be fulfilled. Mr. Sarkar contended that since WBIDC did not fulfil its reciprocal promise to sell its entire • shareholding in HPL to CP(M)C, it was not open to either WBIDC or GoWB to contend that the direction given by the CLB B upholding the allotment of 150 million shares to IOC and directing WBIDC/GoWB to transfer its entire shareholding to the Chatterjee Group was contrary to law or without jurisdiction or erroneous.

43Copy pinpoint43. Mr. Sarkar submitted that having transferred 155 C million shares in favour of the CP(l)PL it was not open to the GoWB and WBIDC to refuse to register the same, despite having received the entire price for the same. Mr. Sarkar also reiterated that it is such a promise which had been incorporated in the agreements dated 12th January, 2002 and 8th March:, D 2002 as also 30th July, 2004, that had weighed with Winstar to invest Rs.147 crores in the Company. Accordingly, even if it was held that no case of oppression had been made out against the Company, it would still be open to the learned Company Judge to grant suitable relief to iron out the differences that might appear from time to time in the running of the affairs of a Company.

44Copy pinpoint44. While considering the submissions made on behalf of the Chatterjee Group, we might as well refer to the arguments advanced by Dr. Abhishek Manu Singhvi, learned Senior Advocate, appearing for the India Trade (Mauritius) Ltd. (ITML), which is part of the Chatterjee Group and was the co-Petitioner No.3 in Company Petition No.58 of 2005 filed by the Chatterjee Group before the Company Law Board. ITML is also the G Appellant in Civil Appeal No.5437-5440 of 2008. Incidentally, Dr. Singhvi also appeared for Dr. Purnendu Chatterjee, who was made Respondent No.20 therein.

45Copy pinpoint45. Dr. Singhvi contended that ITML had infused a sum of Rs.107 crores into HPL, which amount, along with Rs.143 H

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A crores separately infused in HPL by the Chatterjee Group of Companies, was vitally necessary for the financial health of HPL and its revival and prosperity. Dr. Singhvi submitted that such investments had been made, without any written agreement or commitment, on the clear understanding al)d B expectation that it would be a partnership and a commercial enterprise where the Chatterjee Group would have a controlling· interest and HPL would, therefore, be a non-government company. Dr. Singhvi submitted that the subsequent conduct of GoWB, IOC, Lenders, Chairman and Managing Director of c HPL had resulted in grave irreversible damage to ITML, involving breach of fiduciary and corporate obligations which was clearly oppressive and was sufficient ground for interference by the CLB in the proceedings initiated by the Appellants under Sections 397 and 398 read with Section 402 D of the Companies Act, 1956.

46Copy pinpoint46. Dr. Singhvi sul>mitted that despite the attempts of GoWB and WBIDC to make an issue of the non-infusion of Rs.107 crores by the Chatterjee Group, at no point of time had the Chatterjee Group refused to invest the amount in HPL, E though on certain conditions. Referring to Dr. Chatterjee's letter dated 4th December, 2001, Dr. Singhvi pointed out that in the said letter it had been clearly indicated that CP(M)C was prepared to bring equity into the company in the context of a comprehensive restructuring of HPL's balance sheet and F management control in line with the original promise made to the Chatterjee Group for management control of HPL. A suggestion was also made to avail of the corporate debt structuring available under established Reserve Bank of India procedure. Dr. Singhvi submitted that the entire sum of Rs.107 G crores which CP(M)C had agreed to invest had, in fact, been infused by the Chatterjee Group, though not by sut1cribing to the Rights Issue, but by arranging loans for the entire amount. Dr. Singhvi contended that the entire loan amount which had been arranged by the Chatterjee Group was also repaid by it without any liability to the Company. Even the interest accrued

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 171 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] on the loan of Rs.107 crores from 12th June, 2002, till the date of repayment, was discharged by the Chatterjee Group in full, which was duly acknowledged by HPL. Dr. Singhvi submitted that subsequently a further sum of Rs.53.5 crores was made available to HPL through HSBC on the understanding that the interest accrued on the loan, starting from the date of disbursement of the loan until its conversion, would be borne by CP(M)C.

47Copy pinpoint47. Dr. Singhvi urged that Dr. Chatterjee had been invited and had come into the project as an equal co-owner, unlike the other private investors who were neither promised nor given c equal partnership. As per the Agreement between GoWB and WBIDC, the character of HPL was always intended to remain a private non-Government Company by projecting a shareholding ratio of 3:1 :1 where four out of the seven parts would be held by Dr. Chatterjee and the Tatas. D

- 48. Reiterating all that had been said on behalf of the Chatterjee Group by Mr.· Nariman and Mr. Sudipto Sarkar, Dr. Singhvi submitted that the induction of IOC into the Company was contrary to the wishes of the Chatterjee Group since by not registering the 155 million shares in favour of the Chatterjee Group and on the other hand allotting 150 million shares to IOC, an imbalance was created which led to HPL becoming a Section 619-B Company under the Companies Act, 1956, thereby losing its private character. Dr. Singhvi submitted that it had been understood by GoWB, WBIDC and the Chatterjee Group, that IOC would be brought in not as a strategic partner but as a portfolio investor, but ultimately negotiations were commenced by GoWB and WBIDC to bring in IOC as a strategic partner with management control, although such a G proposal had earlier been categorically turned down by GoWB on 2nd July, 2002.

49Copy pinpoint49. Dr. Singhvi submitted that the observations contained in the impugned judgment of the High Court that Dr. Chatterjee . was not in a position to complete the deal and was trying to H

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A delay matters by asking for transfer of the said 155 million shares to the Chatterjee Group and the IOC's unconditional withdrawal from HPL, as a condition precedent for completion of the deal, was without any foundation, since from the records it would be clear that on 22nd July, 2005, GoWB had indicated B that it wanted to conclude the transaction by 25th July, 2005. As a matter of fact, by his Jetter of 25th July, ·zoos, Dr. Chatterjee had indicated his willingness to conclude the transaction and provided a letter from the Deutsche Bank, also dated 25th July, 2005, indicating the availability of funds to the c tune of 266 million US dollars to conclude the transaction.

50Copy pinpoint50. Dr. Singhvi submitted that it was GoWB and WBIDC which had fraudulently omitted to disclose the secret arrangement for the induction of IOC into HPL as a strategic partner in the Explanatory Statement to the notice for the D Extraordinary General Meeting issued on 21st December,

2004. Dr. Singhvi urged that there was no need to induct IOC for effectuating the debt restructuring process, since HPL had also taken steps for IPO of 300 million shares which would have fetched at least Rs.540 crores based on the indicated price of E Rs.18/- per share. Dr. Singhvi submitted that Dr. Chatterjee objected to the allotment of shares to the JOC as that would immediately convert the Company into a Section 619-B Company since 155 million shares transferred by WBIDC in favour of the Chatterjee Group was yet to be registered.

51Copy pinpoint51. Dr. Singhvi submitted that the allegation made against Dr. Chatterjee that he had moved in a calculated manner to obtain majority control of the Company and to oppose the allotment of 150 million shares to IOC, was without any foundation, since 155 million shares had already been G transferred to the Chatterjee Group and the same was a concluded contract. Furthermore, when GoWB made a commitment to sell to the CP(M)C all the HPL shares held by WBJDC, there was no reason for Dr. Chatterjee to oppose the induction of IOC as a portfolio investor. All that Dr. Chatterjee H

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 173 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] wanted was that GoWB and WBIDC should effect registration A of the 155 million shares already transferred and for which the price had already been paid. Dr. Singhvi submitted that the observation made by the learned Single Judge was wholly misconceived since the GoWB and WBIDC had in the Agreements dated 12th January, 2002 and 8th March, 2002, B already acknowledged that on account of the transfer of the said 155 million shares, the Chatterjee Group was in management and control of HPL. The further finding of the learned Single Judge that IOC had threatened civil and criminal action against HPL and its Directors for its unpaid dues for supply of Naphtha, c was also r.ot justified, since Dr. Chatterjee had strongly supported the refinancing package which had been approved by the Board of HPL. Dr. Singhvi submitted that Dr. Chatterjee and the Chatterjee Group had always wanted to act in the interest of the Company upon the assurance given by GoWB D and WBIDC that HPL would always remain a private company and that the Chatterjee Group would always have control over the management thereof.

52Copy pinpoint52. Dr. Singhvi then submitted that HPL had played an active role by supporting GoWB and WBIDC in the ongoing E litigation, contrary to the understanding in terms of the Agreement dated i 2th January, 2002 and the Share Subscription Agreement dated 30th July, 2004, which contemplated that the Chatterjee Group was to be in management of the Company. By allowing the transfer of 150 F million shares to IOC and by not registering the 155 million shares transferred to the Chatterjee Group by WBDIC, the Company had created a situation in which the Chatterjee Group, which was admitted to be in control of the Company, was reduced to a minority. Dr. Singhvi pointed out that the direct G consequence of the aforesaid acts of GoWB and WBIDC resulted in decline of profit before tax in 2007-08 and 2008- 09, thereby adversely affecting the interest of the Company and the shareholders.

53Copy pinpoint53. Dr. Singhvi submitted that the part played by Mr. Tarun H

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A Das, the Chairman of HPL, was also partisan and was contrary to the interest of the Chatterjee Group which, it had been agreed, was to be in management and control of the Company and its affairs. Reiterating the submissions made by Mr. Nariman, Dr. Singhvi submitted that the secret and clandestine B move to convert HPL into a 619-B Company by the arrangement entered into between WBIDC and IOC went against the very grain of the agreements entered into between the Chatterjee Group and WBIDC/GoWB in that regard.

54Copy pinpoint54. Dr. Singhvi submitted that in the entire exercise, Mr. C Tarun Das, the Respondent No.7, who was also the Chairman of the Company, had precipitated the allotment of 150 million shares to IOC, although, the Re-finandng Package approved by IDBI on 27th May, 2005, and by the Board of HPL on 28th May, 2005, did not contemiJiate allotment of shares to IOC. Mr. D Tarun Das had on his personal initiatives obtained and circulated an opinion from a senior counsel relating to the issue of shares to IOC and even the same had not been circulated to the Members of the Board in full, and they were deliberately kept in the dark in respect of certain portions of the opinion. E Dr. Singhvi pointed out that under Section 289 of the Act the full opinion was required to be circulated to the Members of the Board and in the absence thereof, the opinion could not be relied upon. Dr. Singhvi repeated his earlier charge that GoWB/ WBIDC had acted with the sole intention of reducing the F Chatterjee Group from a majority shareholder in HPL to a minority, which was sufficient ground for an application under Sections 397, 398 and 402 of the Companies Act, 1956.

55Copy pinpoint55. Dr. Singhvi contended that despite having acknowledged the Chatterjee Group as a prime sponsor of G HPL and that the CDR Package and the Re-financing Package of HPL had been considered because of Dr. Chatterjee, the Lenders sacrificed their own interest by permitting the Chatterjee Group to be ousted from the management of HPL after the complaint was filed before the Company Law Board H by the Chatterjee Group.

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 175 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] . 56. Dr. Singhvi submitted that the appointment of Mr. S.K. A Bhowmick as Managing Director of the Company, after being appointed as the Additional Director as there was no vacancy on the Board and his appointment as Managing Director, was wholly illegal since only a Director could be appointed to the said post. Dr. Singhvi submitted that the Company played a B dubious role in disallowing the claim of Winstar to have a Director on the Board of HPL on the ground that there was no vacancy, although, a vacancy had .arisen on the resignation of Mr. Ratan Tata, which vacancy was utilized for regularization of the irregular appointment of Mr. Bhowmick and his subsequent c re-appointment in view of the Agreements entered into on 12th January, 2002 and 30th July, 2004, which provide that CP(M)C is to be in management and control and the Managing Director is to be nominated and appointed by the Chatterjee Group. Dr. Singhvi submitted that the aforesaid acts were sufficient to 0 indicate the manner in which the Company and the majority shareholders had acted against the interest of HPL in general,_ and had by their acts of oppression and mismanagement, seriously affected the entire scheme on the basis whereof the Chatterjee Group h~d agreed to invest large amounts in HPL. E

57Copy pinpoint57. Learned Senior Advocate, Mr. Ashok Desai, appearing for Haldia Petrochemicals Ltd., the Respondent No.1 in all the appeals, repeated and reiterated the submissions made on behalf of the appellants regarding the manner in which the GoWB conceptualised HPL as a showcase project of the F GoWB on its coming into existence. Mr. Desai submitted that apart from equity, for the purpose of starting the project HPL had planned to avail credit from financial institutions and banks to the extent of Rs.2,400 crores. The project involved a total investment of Rs.3,600 crores. Mr. Desai submitted that this G in itself would indicate that the principle of quasi-partnership, as urged both by Mr. Nariman and Mr. Sarkar, could not apply to the Company, both at the time when it was conceived and during the subsequent period when the shareholdings of the parties changed periodically. Mr. Desai submitted that, in any H

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A event, HPL is today recognized as a deemed Government Company under Section 619-B of the Companies Act, 1956 and steps have been taken by the Comptroller and Auditor General of India under Section 619(2). However, since its incorporation in 1985, HPL was and continues to remain a B Board-managed Company with 16 Directors on its Board with equal representation of the two major promoters, namely, GOWB and the Chatterjee Group having 4 Directors each, 5 Nominee Directors, 2 independent Directors and 1 Managing Director. c 58. Mr. Desai submitted that although on behalf of the appellant it was contended that allotment of shares to IOC was highly improper and oppressive, such a course of action had to be resorted to since not only was HPL suffering from severe financial crunch, but that Naphtha, which is the main raw material for production of Polymer and Chemicals, was being supplied by IOC, which has its refinery by the side of the HPL plant at Haldia. Mr. Desai submitted that IOC, therefore, had a strong, commercial and symbiotic relationship with HPL which had deve:oped over the years and HPL had also started procuring Naphtha on credit basis and the dues on such account had also multiplied. It was, therefore, in the interest of HPL that when the Chatterjee Group failed to infuse equity into the Company, 150 million shares were allotted to IOC for providing such equity. F

59Copy pinpoint59. Mr. Desai submitted that the case of the Appellants could be summarised into a few specific issues, namely,

(a) that the Chatterjee Group had all along acted on the basis of the promise which had been held out by G GoWB, WBIDC and the Company that the Company would always remain a private Company in which the Chatterjee Group would have managerial control and that it was towards that end that 155 million shares were transferred by WBIDC H

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 177 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] to the Chatterjee Group, though, ultimately it went back on its word and refused to register the same;

(b) GoWB, WBIDC and HPL beguiled the Chatterjee Group into agreeing to the transfer of 150 million shares to IOC by entering into agreements in which it was admitted that upon transfer of the 155 million shares to the Chatterjee Group its shareholding was 51% and that the Chatterjee Group was in management and control of the affairs of the Company; c (c) even if the ingredients of Sections 397 and 398 of the Companies Act were not proved during the hearing of the Company Petition, the Company Law Board had ample jurisdiction to pass appropriate orders for the benefit of and in the interest of the Company, under Section 402 thereof.

60Copy pinpoint60. Mr. Desai submitted that all the aforesaid submissions made were misconceived and that in order to file. a complaint under Section 397 of the above Act, the complainant had to be a Member (emphasis supplied) of the Company, having the requisite standing under Section 399 of the Act. It was also urged that the conduct complained of had to be such as to be oppressive to the complainant/complainants as shareholders/ members. Inasmuch as, CP(l)PL was not a member of HPL, it could not have filed and maintained the complaint under F Section 397 before the Company Law Board. Mr. Desai submitted that it was no doubt true that upon transfer of the shares, the transferee became the beneficial owner thereof, but ' in the Company's Share Register till the shares were registered and subsequently, in the records of the Registrar of G Companies, the transferee did not acquire the right to vote at a meeting of the Company on the basis of'acquisition of the said shares. Mr. .Desai submitted that for all practical purposes ' the transferor remained in control of the transferred shares and also enjoyed the right to vote on the strength thereof. The failure H

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A of the transferor to have the shares registered with the Company, did not amount to an act of oppression of the Company, but was an area of dispute between the transferor and the transferee and it could not be said that the inaction of the transferor amounted to oppression within the meaning of B Section 397 of the Companies Act. Mr. Desai also submitted that the oppression complained of should be such as would lead to. a conclusion that it would be just and equitable to wind up the Company under Section 433(f) of the above Act.

61Copy pinpoint61. Referring to the decision of this Court in Shanti Prasad Jain's case (supra), Mr. Desai submitted that in the said decision it had been emphasized that the oppression complained of had to be shown as having been brought about by a majority of members exercising a predominant voting power in the conduct of the Company's affairs and must relate to the manner in which the affairs of the Company were being conducted. Such conduct must also be shown as being oppressive to a minority of the members in relation to the shareholding in the Company. It was also emphasized that although, the facts disclosed might appear to furnish grounds for the making of a winding up order under the "just and equitable" principle, such facts must be relevant in disclosing that the winding up order would unfairly prejudice the minority members in relation to the shareholders. Referring to the use of the expression "legitimate expectation· by Lord Justice F Hoffmann sitting in the Court of Appeal, in the decision rendered in Ebrahimi's case (supra), Mr. Desai submitted that subsequently in the case of Saul D Harrison & Sons Pie (1995) 1 BCLC 14, after referring to the decision in Ebrahimi's case (supra), Lord Justice Hoffmann held that such an G expression had been borrowed from public law to describe the correlative right in the shareholder to which such a relationship might give rise.

62Copy pinpoint62. Mr. Desai also urged that the decision in Kalinga H Tubes Ltd. 's case (supra) was also relied upon by this Court

CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 179 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] in the Needle Industries case (supra), wherein it was held that Pl. on a true construction of Section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that Section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, B conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. As to the findings of both the Company Law Board and the High Court in relation to the applicability of Section 398 of the above Act, Mr. Desai submitted that since both the c Courts had held that the same was not attracted, there was really little to add to the observations of both the forums that there was absolutely no reason to say that GoWB and WBIDC with their associates were conducting the affairs of HPL in any manner prejudicial to HPL's interests. The allotment made in 0 favour of IOC was, in fact, in the interest of the Company and ·. the allotment of shares to IOC was part of the terms and conditions of the debt restructuring package.

63Copy pinpoint63. Regarding the failure of WBIDC to register the 155 million shares in favour of CP(l)PL, Mr. Desai submitted that, E in fact, there was no pleading in that regard in the Company Petition filed by CP(l)PL. Accordingly, neither could CP(l)PL maintain the Company Petition, not being a member of HPL, nor could any prayer have been made for a direction upon the Company to register the said shares in the name of CP(l)PL. F Mr. Desai pointed out that though such a pleading was subsequently included in the Rejoinder Affidavit, no application was ever made for amendment of the pleadings and the prayers in the Company Petition. G

64Copy pinpoint64. To support his submissions, Mr. Desai referred to the decision of the Calcutta High Court in Re. Bengal Luxmi Cotton · Mills Ltd. (1969 CWN 137], Sangramsingh P. Gaekwad & Ors. Vs. Shantadevi P. Gaekward & Ors. ((2005) 11 SCC 314], R. Ramanathan Chettiar Vs. A & F Harvey Ltd. & Ors. [967 (37) H

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A Comp. Case 212], wherein the principles laid down in the Needle Industries case (supra) had been followed. Mr. Desai submitted that the 155 million shares transferred to CP(l)PL by WBIDC continued to be held by WBIDC and were never lodged with the Company.

65Copy pinpoint65. Lastly, on the question of allotment of 150 million shares to IOC, Mr. Desai referred to the observations of the Company Law Board which recorded that such allotment could not be questioned by the Chatterjee Group, since the same was neither clandestine nor surreptitious and was under C contemplation from 2000 itself and the idea of inducting IOC was initiated by Dr. Chatterjee himself, as would be evident from the letter dated 24th March, 2000, addressed to the Chief Minister, as the Company was in dire need of funds. Mr. Desai pointed out that the said view was endorsed by the learned D Single Judge of the High Court by observing that the Chatterjee Group had failed to produce any evidence with regard to the allegations that the allotment of shares to IOC was pursuant to a clandestine agreement to permit IOC to participate in the management of HPL. E

66Copy pinpoint66. Mr. Desai submitted that the case made out by the appellants before the Company Law Board was not only devoid of substance, but was entirely misconceived, since the same was not maintainable at the instance of CP(l)PL '<Jhich was not F a member of HPL. Even the allegations of oppression remained unproved, since the entire content related to the transaction between WBIDC and CP(l)PL, which was not the act of the Company, as contemplated in Section 397, but a private dispute between two groups of shareholders. Mr. Desai G submitted that the appeals were liable to be dismissed with appropriate costs.

67Copy pinpoint67. Mr. Dushyant Dave, learned Senior Advocate, appearing for the Industrial Development Bank of India (IDBI) pointed out that a loan agreement had been entered into between HPL and IDBI for a sum of Rs.12,500 lakhs and in the

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 181 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] event the borrower defaulted on the loan, the Bank would have the right to convert upto 20% of the loan into fully paid up equity of the Company. The Bank was also given the right to appoint a Nominee Director on the Board of HPL. Mr. Dave submitted that in 2003 the question of restructuring of the debt came up for consideration and in its meeting held on 8th August, 2003, B the Company agreed to allow IDBI to refer the Company to the Corporate Debt Restructuring (CDR) Cell with a debt restructuring proposal. Subsequently, on a 22nd January, 2004, at a meeting of the Empowered Group, Dr. Chatterjee agreed for conversion of debt to equity to the extent of Rs.140 crores. c Thereafter, on 23rd March, 2004, the Board of Directors of HPL approved a CDR package and Dr. Chatterjee's proposal to convert debt to equity. Dr. Chatterhee was, in fact, interested to give effect to the same. Mr. Dave submitted that subsequently the debt restructuring plan failed to fructify and the D Bank was informed by the Principal Secretary, Government of West Bengal, on 27th July, 2005, that the permission which had been granted in the credit restructuring package, be treated as annulled.

68Copy pinpoint68. In the pending proceeding before the CLB, Chatterjee E Petrochemicals Ltd. had got an interim order in its favour staying further allotment of shares of Rs.135 crores to IDBI. However, IDBI was neither a party to the proceedings nor was any relief, either final or interim in nature sought against IDBI. But by virtue of the interim order of injunction passed by the F CLB, the allotment of shares to IDBI was stayed, as that would have reduced the Chatterjee Group to a minority. Mr. Dave submitted that the application filed by IDBI before the CLB was kept in abeyance and no order was passed thereupon as it was likely to hamper the progress of negotiation. Mr. Dave G submitted that the writ petition filed by IDBI against the said order before the Delhi High Court was dismissed by the learned Single Judge and the appeal preferred therefrom was , also dismissed by the Division Bench. Ultimately, in its final judgment dated 31st January, 2007, the CLB gave directions H

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A to the effect that Chatterjee Group would purchase 155 million shares from GoWB/WBIDC at a minimum price of Rs.28.80 per share. It was also directed that the 155 million shares transferred to the Chatterjee Group would be dematerialized and registered and that the allotment to the IOC would remain. B

69Copy pinpoint69. Mr. Dave submitted that the question of CP(l)PL having any legitimate expectation did not arise and such a case was not also pleaded before the Board. Furthermore, since nothing had been proved before the Board that the conduct of GoWB and WBIDC was such as to justify an order of just and C equitable winding up, no order could have been passed by the Board on the Company Petition filed by the appellants and the learned Single Judge of the High Court rightly allowed the appeals preferred against the order of the Board.

70Copy pinpoint70. Appearing for the Respondent No.16, Mr. Altaf Ahmed, learned Senior Advocate, submitted that nowhere in the Company Petition had any allegation been made against the Managing Director as to his involvement in any manner in the acts of oppression alleged to have been committed against the complainant. Accordingly, as had been held by the CLB in its final order dated 31st January, 2007, the Company Petition, though filed under Sections 397 and 398 of the Companies Act., was essentially one under Sect.ion 397 of the aforesaid Act. Mr. Ahmed submitted that the said finding of the ..:LB had been duly upheld by the High Court.

71Copy pinpoint71. Mr. Ahmed submitted that the question raised by the Chatterjee Group with regard to the employment of Mr. Bhowmik as the Managing Committee was without any basis whatsoever, since he was appointed unanimously by the Board G of Directors consisting of the nominees of the different shareholders. Mr. Ahmed also pointed out that the Respondent No.16 had been responsible for the resurrection of HPL from the brink of financial disaster which had been occasioned by the failure of the promoters to infuse equity into the Company. H

CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 183 PETROCHEMICALS LTD. [ALTAMAS KABIR, J.] It was only after assessment of his performance during the initial two year period of his tenure that the Board of HPL reappointed him for a further period of 3 years, inspite of the objection from the Chatterjee Group.

72Copy pinpoint72. Mr. Ahmed submitted that the Respondent No.16 has moved l.A.Nos.25-28 of 2009 for a direction upon the Company to pay his arrears of salary as per the resolution passed by the Board of Directors on 28th May, 2008, for the period covering 29th March, 2005 to 31st March, 2007. A further prayer has also been made to fix the pay of the said Respondent for the period from 1st April, 2007, till 31st March, 2010, at a rate as might be deemed just, proper and reasonable.

73Copy pinpoint73. As far as the Talas are concerned, it was submitted that the Tata Group was one of the original promoters of HPL and continues to hold more than 2% of the shares in the D Company. It was submitted that the Tatas were keen to see HPL flourishing and had, accordingly, between 1994 and 2000 made significant infusion of funds into HPL, including a sum of Rs.11.89 crores which was given as an interest free loan. Even in 2000 when the Company was in dire financial straits, the E Talas brought in their share of Rs.35. 71 crores along with other shareholders, except for the Chatterjee Group which failed to bring in its share of Rs.107.14 crores. It was made clear that the Tata Group had no faith in the Chatterjee Group since from the very inception of HPL the Chatterjee Group wanted control of HPL, without making any effective contribution at times when such contributia.n was most needed and had, therefore, worked against the interest of the Company, its shareholders and the public at large.

74Copy pinpoint74. Mr. K.K. Venugopal, learned Senior Advocate, who appeared for the Government of West Bengal and its officials, urged that the relief prayed for in the Company Petition for specific relief, could not be granted under Section 397 of the Companies Act. Since the said question had been adequately dealt with on behalf of WBIDC, Mr. Venugopal chose to deal H

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