JUDGMENT
Ranjan Gogoi, J.
1. An order dated 31.12.2001 passed by the Company Law Board, Principal Bench, New Delhi in a proceeding registered under Sections 397/398 of the Companies Act, at the instance of the Respondent No. 1 herein, has been put to challenge in the present appeal filed under Section 10(f) of the Companies Act.
2. It will be convenient to recapitulate the essential facts necessary for disposal of the present appeal by referring to the Appellants as the Agarwal Group and the contesting Respondents herein as the Lohia Group.
The Respondent No. 1 herein (referred to as the petitioner) had approached the Company Law Board with an application under Sections 397/398 of the Act alleging oppression and mismanagement in the running of the affairs of the appellant Company, i.e., M/s Kamrup Developers Private Limited. According to the petitioner, on the basis of an understanding reached between him and the Agarwal group, the appellant company was incorporated in the year 1998 with an authorised capital of 5000 equity shares of Rs. 100 each. The paid up capital of the company consisted of 200 equity shares of Rs. 100 each, out of which the petitioner was allotted 100 snared and the remaining 100 shares were held by one Ashok Kumar Agarwal, Respondent No. 3 before the Company Law Board (Appellant No. 2 herein). The Second Respondent before the Company Law Board, i.e., Shri Bhajanlal Agarwal was the owner of a plot of land, which was allowed to be developed by the appellant Company and for the said purpose, the aforesaid second Respondent had executed an irrevocable Power of Attorney in favour of the Company in return for a consideration of Rs. 16 lakh. In addition to the paid up capital of 100 shares each, both the Groups contributed Rs. 2.5 lakhs each as share application money. The petitioner by himself and through his associates had brought in an additional amount of Rs. 2.25 crores to the Company either as unsecured loans or as advances against booking of space. The further case of the petitioner is that as he was a permanent resident of Calcutta, the day to day management of the Company was entrusted to the third respondent. Sometime, in the month of November, 1999, some discrepancies were noticed in the accounts of the Company, which the third respondent could not satisfactorily explain. To settle the aforesaid dispute, an Arbitrator was appointed and a Memorandum of Understanding was reached by and between the parties on 2.5.2000. However, the said memorandum of understanding was not honoured by the Agarwal Group and thereafter the Agarwal Group, by fabricating the records maintained by the Company, had inducted two Additional Directors belonging to the Agarwal Group thereby reducing the Lohia group to a minority. The aforesaid action of the Agarwal Group were contended by the Lohia Group to be in utter breach of the understanding reached between the parties that both the parties were to have equality of representation in the Board of Directors. It was further contended, before the Company Law Board, that on 1.9.1999 allotment of 2600 shares were made in favour of the Agarwal Group whereas 2400 shares were allotted to the Lohia Group. The aforesaid allotment was again made by fabricating and falsifying the company records and the action of the Agarwal Group was again in breach of the understanding reached between the parties that both the sides were to have parity in the share holding of the Company. There was a further allegation made before the Company Law Board that the Agarwal Group had not been holding the Annual General Meetings or the Board Meetings of the Company. On the aforesaid broad basis, oppression and mismanagement of the company was alleged by the Lohia Group.
3. The case projected by the Lohia Group before the Company Law Board was resisted by the Agarwal Group by contending that no understanding was reached between the parties to maintain parity in the share holding or in the representation in the Board of Directors as contended by the Lohia Group. Rather, the understanding was that the Agarwal Group would hold the majority shares. The allotment of shares as well as the induction of two Additional Directors were stated to be pursuant to decisions taken by the Board of Directors, to which the Lohia Grpup was a party. The allegation of mismanagement in not holding the Board Meetings and the Annual General Meetings was denied. This appears to be broad trend of the case projected by the Agarwal Group before the Company Law Board.
4. Before the Company Law Board, elaborate pleadings were brought on record by the rival parties and voluminous documents were also filed in the form of bulky paper books. The Company Law Board, on a consideration of the materials on record and the respective cases projected, took the view that it was the understanding and intention of the parties to have equal share and representation in the share holding of the company as well as in its Board and that the induction of the two Additional Directors belonging to the Agarwal Group as well as the additional shares allotted to the said Group were in breach of the agreement and understanding between the parties, and therefore constituted acts of oppression. While the Company Law Board thought it proper to decide the allegation of mismanagement against the Lohia Group, on the findings recorded with regard to oppression and after considering the various options open to it, the learned Board thought it proper to require the Lohia Group to surrender the Company to the Agarwal Group subject to payment of the value of the shares held by the said Group and return of all investments brought in the Company by the Lohia Group along with interest thereon. The correctness of the view taken by the Company Law Board is the subject matter of the present appeal.
5. I have heard Mr. S. Banerjee, learned counsel for the appellants and Mr. SN Mukherjee, learned counsel for the Respondent No. 1. I have also heard Mr. K. Agarwal, learned counsel appearing for the Respondent No. 5 to 17 and Mr. H. Roy, learned counsel appearing for the Respondent No. 2, 4, 20 to 27.
6. Mr. S. Banerjee, learned counsel arguing for the appellants has contended that the Company was incorporated only in the year 1998 and further as a Private Limited Company, At the time of appointment of the first Directors and allotment of the initial shares, it is but natural to have parity between the two groups, who had joined together to form the Company. Such parity or equality is not to be understood to be necessary to be maintained at all times in the future. According to the learned counsel for the appellants, the Company Law Board had proceeded in the matter on a fallacious presumption that having regard to the initial standing of the parties in the Company, there was an understanding or intention that the initial equality between the two groups was required to be maintained. Learned counsel has further submitted that the findings reached by the Board with regard to oppression by the Agarwal Group are wholly incorrect. The decision to induct the two additional Directors was taken in the meeting of the Board of Directors held on 3.2.1999, where the Lohia Group was present. In the said meeting of the Board held on 3.2.1999, there was a further resolution taken to permit one outsider Anil Kumar Agarwal (Respondent No. 4 before the Board) to operate the Bank Account of the Company. The Lohia Group was in fact a signatory to the aforesaid later decision taken on 3.2.1999. If that be so, it must be understood that the Lohia Group was aware and it had acquiesced in the appointment of the two additional Directors. The appointment of the two Additional Directors was further reflected in the Director’s report for the year ending 31.3.1999. The balance sheet accompanying the said Director’s report was signed by the Lohia Group, which, according to the learned counsel for the appellants would further fortify the fact that the Lohia Group was all along aware of the appointments of the two Additional Directors. Similar arguments have been advanced in so far as the allotment of additional shares is concerned. The aforesaid allotment was made in the meeting of the Board held on 1.9.1999, in which meeting the Lohia Group was present. The allotment of the additional shares was reflected in the Director’s report dated 2.9.1999 and as the Lohia Group was a signatory to the balance sheet accompanying the Director’s report they must have had knowledge of the said allotment and had acquiesced in the same. According to Mr. Banerjee, learned counsel for the appellants, the understanding between the parties was that the Agarwal Group would hold the majority shares, a fact, which he contends to be fully fortified by the knowledge of the Lohia Group to the allotment made and the acquiescence of the said Group to such allotment. Learned counsel has, therefore, contended that the findings reached by the Board that the allotment of shares and induction of additional Directors were made by the Agarwal Group contrary to the agreement between the parties and that the same amounted to acts of oppression, are plainly contrary to the evidence and materials on record. The Board had misconstrued and misunderstood the true purport of the agreement between the parties, as evidenced by the materials brought on record. Learned counsel for the appellants further argued that in any event the conditions subject to which the Company has been handed over to the Agarwal Group are wholly untenable and inequitable. While the Agarwal Group does not dispute the capital brought in by the Lohia Group as mentioned in the relevant charts marked as Annexures-P4 and P5 before the Board, all such capital was brought in without any interest. The Agarwal Group had agreed to take over the Company on payment of the principal amount whereas the Board by the impugned order, has awarded exhorbitant and uncalled for interest @ 20% PA. Learned counsel for the appellants contended that there is no basis whatsoever for award of interest and that too at an exorbitantly high rate of 20%.
7. The arguments made by the learned counsel for the appellants have met with stiff resistance from Mr. SN Mukherjee, learned counsel for the Respondent No.l. At the outset, learned counsel for the Respondent No. 1 has argued that the present appeal being under Section 10(f) of the Act, would be confined only to such questions of law as may reasonably arise from the order of the Board. According to the learned counsel, findings of fact recorded by the Board would not be open to scrutiny in the present appeal. If the conclusion reached is a possible conclusion and have been so reached on a consideration of the materials on record, no interference would be called for. According to the learned counsel for the respondents, the findings with regard to oppression reached by the learned Board being a possible conclusion arrived at on a consideration of the evidence and materials on record, the same ought not to be disturbed even if this Court is to take a different view in the matter. In so far as the award of interest is concerned, learned counsel for the Respondent No. 1 has argued that the pleadings advanced on behalf of the Company as well as the averments made in the Memo of Appeal, make it amply clear that the unsecured loans brought by the Lohia Group bore interest in all cases @ 15% except for one loan where the rate of interest was 18% PA. The balance sheets of the Company prepared subsequently to the order of the learned Company Law Board, when the Agarwal Group was in control, also bears testimony to the fact that the unsecured loans did carry interest. Learned counsel for the Respondent No. 2 has further argued that in so far as the advances against booking space is concerned, though the said amounts did not carry any interest, it is but natural that the Lohia Group, who may now be required to return the said advances, will have to pay some interest to the concerned persons. That apart, the Lohia Group would be parting ways and would earn no profit from the venture undertaken. The award of interest by the learned Board has a compensatory element which the learned Board considered fit and proper to be considered in the facts of the case. Therefore, no interference in the award of interest would be called for. Reliance in this regard has been placed by the learned counsel for the respondent on the observations of the Apex Court contained in paragraph 172 of the judgment reported in AIR 1981 SC 1298 (Needle Industries (India) Ltd. v. Needle Industries Newoy Holdings Ltd.), Reference has also been make to the case reported in 2000 (2) Butter Worths Company case 516 (Profiwance Trust SA v. Gladstone).
8. The rival submissions advanced on behalf of the parties have been duly considered. The parameters of the appellate powers conferred by Section 10(f) of the Act, under which provision of law, the instant appeal has been filed need not detain the Court. The statute has limited the scope of an appeal against the order of the learned Company Law Board only on questions of law. While it will not be necessary to exhaustively enumerate what would constitute a question of law, it will be sufficient to put on record that a conclusion reached by the learned Board on a consideration of the evidence and materials on record, would not call for interference, if the conclusion reached is a possible Conclusion. Even if the appellate Court is to disagree with the eventual conclusion, it would not be permissible to substitute the conclusion reached by the Tribunal below, so long the conclusion recorded is a possible conclusion. The scope of an appeal under Section 10(f) would, therefore, be limited to cases where the conclusions arrived at are palpably opposed to the weight of the materials on record and only when a conclusion reached is otherwise perverse, interference would be justified. It must also be noted that the power Under Sections 397/398 of the Act, vested in the learned Company Law Board upon a finding being reached that there has been oppression or mismanagement, as the case may be, is in the widest possible terms. A very wide discretion has been conferred on the learned Company Law Board to pass such orders as may be considered appropriate in the event a case of oppression or mismanagement is made out. Discretion exercised by a body, on whom it has been conferred by the statute, is not to be lightly interfered by the appellate Court. Unless the discretion has been exercised arbitrarily, capriciously or whimsically, interference must be avoided; The fact that the appellate body would have exercised the discretion in a different manner would not constitute a good ground to interfere with the discretion exercised.
9. Adverting to the facts of the present case, what is noticeable is that to begin with the Company Law Board took into account the fact that neither of the Groups have been able to substantiate their respective stand with regard to the claims of equality or majority, as may be, with regard to share holding and representation in the Board of Directors. In such a situation, the learned Company Law Board took into account the fact that apart from the initial parity in the share holding and representation in the Board of Directors, both the Groups had contributed an equal amount of Rs. 2.5 lakh as share application money. The learned Board also took into account the fact that if both the parties had contributed an equal amount on account of share application money, the claim of the Agarwal Group that they were entitled to a majority of the shares would not be correct. On the aforesaid basis, which does not appear to be unjustified, the learned Board thought it appropriate to proceed on the basis that parity of share holding was required to be maintained by both the parties. Next, the learned Board took into account the fact that as the share application money was already deposited with the Company, the allotment of additional shares could not be for the reason of requirement of funds. The allotment of majority shares to the Agarwal Group, though both the Groups have contributed an equal amount as share application money was in that context viewed by the learned Board as an attempt to increase the share holding of the Agarwal Group. As the Lohia Group at the relevant point of time was holding equal number of shares in the company as well as equal representation in the Board of Directors, the learned Board though it appropriate to hold that the version put forward by the Lohia Group regarding their absence in the alleged meetings of the Board of Directors, where the aforesaid decisions were taken, was more acceptable. The fact that the requisite statutory forms with regard to allotment of additional shares and induction of Additional Directors was filed before the Registrar of Companies as late as on 13.7.2000 was another fact that the learned Board though it proper to take into account in determining the correctness of either of the versions placed before it. There was one further material circumstance, which the learned Board though it proper to rely on in reaching the conclusion that the version of the Lohia Group that it did not participate in the meeting of the Board held on 3.2.1999 to be correct. According to the Board, if on the said date, two Directors were already inducted, the necessity of appointing an outsider to operate the Bank Account on the same day was redundant. The finding reached by the Board that the Agarwal Group, in violation of the understanding between the parties had increased its share holding as well as its representation in the Board of Directors is a finding reached on consideration of the evidence and materials before it. The finding with regard to oppression having been reached on the aforesaid basis, it will be difficult for this Court to hold that the said finding would be open to interference in exercise of the limited powers conferred on this Court under Section 10(f) of the Act.
10. Having reached the conclusion that the acts of the Agarwal Group in enhancing their share holding as well as in increasing their representation in the Board of the Directors were acts of oppression, the next course that was required to be adopted by the learned Board is to consider the options that were open to it with regard to the future of the Company. In this regard, the learned Board, in the impugned order dated 31.12.2001, appears to have systematically considered the various options including the option of winding up of the company. As the winding up of the Company was found to be against the interest of the Company and as the handing over of the Company to the Lohia Group was certain to bring to an end the business venture of the Company, inasmuch as, the land held by the Company under a Power of Attorney was owned by the Agarwal Group, the learned Company Law Board thought it proper to hand over the Company to the Agarwal Group. Such handing over of the company to the Agarwal Group was repeatedly sought for by the said Group in the proceedings before the learned Board and the said part of order has also not been appealed against by the Lohia Group. This Court, therefore, would have no occasion to go into the correctness of the said conclusion and it is the conditions subject to which the handing over has been ordered is a matter that has now to engage the attention of the Court.
11. There is no dispute that the Lohia Group had brought in certain capital into the Company, details of which have been mentioned in the documents marked as P4 and P5. There is also no dispute between the parties that the Lohia Group is entitled to the said amounts. The dispute with regard to the interest awarded to the Lohia Group. That the amounts brought in by way of unsecured loan as mentioned in P4 document were interest free, as projected by the Agarwal Group, has been belied by the contents of the affidavit filed on behalf of the said Group before the learned Company Law Board. All such amounts carried an interest of 15% per annum. The other amounts mentioned in the document enclosed as P5, i.e., advances against booking space etc. were, however, brought in by the Lohia Group without any interest. When the space/accommodation booked has not yet been made ready and the person at whose instance advances were made, i.e., Lohia Group is going out of the Company, it is but natural that the said advances may have to be returned to the persons concerned, a position which, to some extent, stands reflected in the affidavit filed by the said persons before the Company Law Board, Such return of money cannot obviously be understood to be interest free. Lohias will, therefore, have to pay some interest on the said amount. That apart, parting of ways by the Lohia Group necessarily involves some loss of profits, which was in their contemplation, at the commencement of the venture. Loss of such possible profit is an aspect that the learned Company Law Board was authorised and competent to take into account in working out the final settlement between the parties. The learned Company Law Board instead of awarding compensation for loss of profit, under a separate head thought it proper to club the compensatory package along with the compensation for delayed payments that the Lohia Group would be required to pay to such persons who had advanced money against booking of space. It is an equitable relief that has been afforded to the Lohia Group by the learned Company Law Board in the exercise of its very wide powers under Sections 397/398 as already noticed. That the learned Board had proceeded on that basis is evident from the reasons assigned by the Board for grant of interest. Viewed from that perspective the discretion exercised does not suffer from any palpable error that should call for interference of the appellate Court. That apart, operation of the interest was intended to be limited in duration of time, i.e., till the date of payment as ordered by the learned Board. That the amount has not been paid and in the meantime the interest has accumulated to a colossal amount, as submitted, is a situation that has been created by the appellants themselves by not complying with the order of the learned Board even in the absence of any restraint order by this Court during the pendency of the appeal.
12. For all the aforesaid reasons, I am inclined to take the view that the order dated 31.12.2001 passed by the learned Company Law Board in the proceeding before it would not call for any interference by this Court. The appeal is without any merit. It is accordingly dismissed. However, having regard to the facts and circumstances of the case, the parties are left to bear their own costs.
13. Before parting with the record, there is another aspect of the case, which must be dealt with in the present order. In course of the arguments advanced, learned counsel for the appellant had emphatically submitted that the business undertaken by the appellant company has not been able to make any substantial progress on account of certain changed in the Building Regulations of the Gauhati Municipal Corporation and also on account of the construction of a Fly Over, which has created some kind of obstruction to the proposed and half completed venture. After the closure of the arguments, an affidavit to the above effect has been filed on 23.1.2004. This Court has noticed that the construction of the Fly Over and the difficulties created by such construction were matters in existence at the time when the learned Company Law Board had passed its order on 31.12.2001. As to how and in what manner any changes in the Building Regulations of the Municipal Corporation has affected the project has not been disclosed in the affidavit field. I, therefore, do not consider the aforesaid circumstances to be of any consequence in moulding the eventual relief in the present appeal by causing any alteration in the order passed by the learned Company Law Board.