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COMPANY LAW II
- MODULE 2 – MANAGEMENT AND CORPORATE GOVERNANCE
- FIDUCIARY DUTY OF DIRECTORS/ ROLE OF DIRECTORS
- Percival v. Wright
- Ferguson v. Wilson
- Peskin v. Anderson
- DUTY TOWARDS SHAREHOLDERS
- Reliance Natural Resources v. Reliance Industries Ltd.....................................................................
- Globe Motors Ltd. v. Mehta Teja Singh & Co.
- Dale & Carrington v. Prathapan
- DUTY TOWARDS STAKEHOLDERS
- Tristar Consultants v. V. Customer Services India P. Ltd.
- PROPER PURPOSE RULE
- Howard Smith Ltd v. Ampol Petroleum Ltd
- Eclairs Group v. JKX Oil
- DIVERSION OF CORPORATE OPPORTUNITY
- Regal (Hastings) Ltd v. Gulliver
- Bhullar v Bhullar
- Foster Bryant Surveying Ltd v Bryant, Savernake Property Consultants Ltd
- Industrial Development Consultants Ltd v Cooley
- BUSINESS JUDGMENT
- Cede & Co. v. Technicolor, Inc
- BOARD MEETINGS
- Maharashtra Power Development Corporation v. Dabhol Power
- T.M. Paul (Dr.) v. City Hospital (P.) Ltd.
- MODULE 3 – INSIDER TRADING - 17. Rakesh Agarwal v. SEBI - 18. V.K. Kaul v. Adjudicating Officer, SEBI - 19. SEBI vs. Abhijit Rajan.................................................................................................................. - 20. Mrs. Chandrakala v. SEBI - 21. Shruti Vora v SEBI
- MODULE 4 – CORPORATE RESTRUCTURING - 22. Hindustan Lever Employee’s Union v. Hindustan Lever Ltd.
- Miheer Mafatlal v. Mafatlal Industries Ltd
- MODULE 5 – OPPRESSION & MISMANAGEMENT
- Foss v. Harbottle
- Menier v. Hooper’s Telegraph Works Ltd.
- Rajahmundry Electric Supply Co. v. Nageshwara Rao
- Tata Consultancy Services Limited Vs. Cyrus Investments Pvt. Ltd. and Ors.............................
- Shanti Prasad Jain v. Kalinga Tubes
- Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.
- MODULE 6 – INSOLVENCY AND WINDING UP
- Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd.
- Innoventive Industries Limited v. ICICI Bank Limited
- Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd
- CoC Essar Steel v. Satish Kumar Gupta
Ferguson and the individual directors, making the company liable for any breach of contract, and thus, the directors could not be held personally liable in this case.
3. Peskin v. Anderson o Facts: The Royal Automobile Club sold one of its businesses. Some former members of the club sued RAC as they were not able to enjoy the proceeds of the sale owing to them having left the company. o Holding: Directors owe a fiduciary duty to the company, and there is no general duty towards the shareholders. However, under appropriate and specific circumstances, a director can be under a fiduciary duty to a shareholder. Thus, they were not bound to inform the members of the plans to sell the company before they resigned. Duty towards Shareholders 4. Reliance Natural Resources v. Reliance Industries Ltd. o Facts: The dispute between RIL and RNRL stemmed from the division of RIL assets between Mukesh and Anil Ambani following a family arrangement in 2005. RNRL claimed entitlement to gas supply from RIL based on a Memorandum of Understanding (MoU), but objections were raised over deviations in the Gas Sale Master Agreement (GSMA) and Gas Sale Purchase Agreement (GSPA) sent by RIL, leading to a legal battle over compliance with the MoU terms and the subsequent approval of gas prices by the Ministry of Petroleum and Natural Gas. o Issue: Whether the MoU entered into amongst the Promoter’s family members was binding upon the corporate entity - RIL? o Holding: The MoU between the Ambani brothers did not bind their respective companies, RIL and RNRL, as it was a private agreement and not placed within the corporate domain. The MoU served as an external aid for interpreting the intentions behind the Scheme but did not require complete alignment with the GSMA. o The court emphasized the fiduciary duty of the board to protect shareholder interests, rejecting RNRL's claims that RIL acted solely at the behest of its promoters, as accepting such demands would undermine company law principles and shareholder trust. s.184 – Disclosure of Interest by Directors mandates that directors disclose their interests in any contracts or arrangements involving the company, and prohibits their participation in board meetings concerning such contracts if they hold significant stakes or positions in the other entity. Failure to disclose or comply results in the contract being voidable and subjects the director to potential fines or imprisonment.
5. Globe Motors Ltd. v. Mehta Teja Singh & Co. o Facts: The winding-up application for Globe Motors Ltd. involved agreements with distributors for steel products under Globe Steels, with disclosed director beneficiaries. The official liquidator sought to rescind these agreements citing fraud and harm to the company's interests, leading to arbitration and an ensuing appeal. o Holding: The court held that directors can be held liable for misfeasance even without strict proof of fraud if their negligence enables fraud to occur and causes losses to the company. Disclosure of interest and abstention from voting are only formalities; the key issue is whether directors' conduct upholds their fiduciary duties to the company. o In this case, the court found that the directors' actions primarily served their benefit at the expense of the company, leading to the agreement being declared void and the Official Liquidator entitled to seek its rescission, rendering the arbitration agreement non-existent. 6. Dale & Carrington v. Prathapan o Facts: P.K. Ramanujam facilitated the acquisition of Hotel Siddharth for P.K. Prathapan under Dale & Carrington Investments Pvt. Ltd., with Prathapan investing INR 5 lakhs. However, Ramanujam became the majority shareholder through an alleged board meeting, causing Prathapan to allege oppression and mismanagement. o Holding: The court found that the allotment of additional equity shares to Ramanujam was invalid due to procedural irregularities, lack of proper authority, and evidence suggesting manipulation by Ramanujam. Directors, acting on behalf of the company in a fiduciary capacity, owe a duty to act in the company's best interest, which includes issuing shares for proper purposes. As the allotment was deemed mala fide and aimed at gaining control of the company, the court set aside the entire allotment, undoing the advantage gained by Ramanujam through manipulation and fraud. Duty towards Stakeholders 7. Tristar Consultants v. V. Customer Services India P. Ltd. o Facts: The Appellant, a human resource services provider, entered into a contract with V Customer Services India Ltd., represented by its director, which was later cancelled, leading to failed negotiations for payment, prompting a legal action alleging breach of contract. o Holding: Directors of a company are considered agents of the company and can be held personally liable for any personal benefits derived while acting on behalf of the company, though they owe no fiduciary or contractual duties to third parties, unless they personally bind themselves, such as through fraudulent misrepresentation.
10. Regal (Hastings) Ltd v. Gulliver o Facts: Regal, a cinema company, sought to expand by acquiring leases for two additional cinemas but formed a subsidiary, Hastings Amalgamated Cinemas Ltd., due to reluctance from its directors to expose Regal to the risks of operating these cinemas. o Subsequently, the directors and solicitors of Regal made personal investments in the subsidiary, which later yielded profits upon the sale of their shares, prompting a lawsuit from Regal against its former directors for an account of these profits. o Holdin g: Directors are accountable for profits made from activities outside the company if those activities were conducted using their position and special knowledge as directors, resulting in personal gain. This liability exists regardless of whether the directors acted lawfully and in the company's interests, as fiduciary duties prevent conflicts of interest. Additionally, the lack of approval from shareholders further solidifies the directors' obligation to account for their profits. 11. Bhullar v Bhullar o Facts: Bhullar Bros owned by two families, decided to split their assets, but during negotiations, one family's members set up a separate company and acquired a property without informing the main company, leading to an unfair prejudice claim based on breach of fiduciary duty. o Holding: The directors, in their fiduciary capacity, were obligated to disclose and make available to the company any business opportunities closely related to its existing activities, and their failure to do so constituted a breach of duty, leading to a finding of unfair prejudice. o Directors must avoid conflicts of interest and disclose opportunities closely related to the company's business activities; failure to do so constitutes a breach of fiduciary duty, even if the company was in the process of negotiations for asset division. 12. Foster Bryant Surveying Ltd v Bryant, Savernake Property Consultants Ltd o Facts: Mr. Foster, a chartered surveyor, set up his own consultancy after securing an exclusivity agreement with Alliance, a client. Later, Mr. Foster invited Mr. Bryant to join the company as a partner. However, tensions arose leading to Mr. Bryant's departure and subsequent establishment of his own company, Savernake, resulting in allegations of breach of fiduciary duty. o Holding: The Court of Appeal found no breach of fiduciary duty in Mr. Bryant's actions, emphasizing that intent to compete after resignation isn't inherently conflicting, and there must be a clear link between resignation and obtaining business to establish breach. Mr. Bryant's actions were deemed innocent of disloyalty or conflict of interest, as his resignation and subsequent activities were not part of a dishonest plan.
13. Industrial Development Consultants Ltd v Cooley o Facts: Neville Cooley, former chief architect of the West Midlands Gas Board, was appointed managing director of Industrial Development Consultants Ltd. (IDC) with the intention of securing business from gas boards, but after exploring opportunities with the Eastern Gas Board, he resigned due to ill health, set up his own company, and pursued contracts with the gas board, leading IDC to claim he breached his duties as a director. o Holding: Neville Cooley, in his capacity as MD of IDC, breached his fiduciary duty by failing to disclose relevant business opportunities to IDC and instead pursuing them for personal gain after resigning, thus putting his personal interests in direct conflict with his obligations to the company. Business Judgment Business judgment rule presumes corporate directors' decisions are made in good faith, with due care, and in the best interests of the company, shielding them from liability unless proven otherwise. 14. Cede & Co. v. Technicolor, Inc o Facts: Technicolor, facing financial challenges, explored a merger with Ronald Perelman's company, facilitated by certain directors who failed to disclose their conflicts of interest and engaged in negotiations without full board awareness. Ultimately, the board approved the merger without adequate exploration of alternatives, leading to shareholder litigation. o Holding: Shareholders successfully rebutted the business judgment rule presumption by demonstrating the directors' failure to inform themselves fully, leading to process failures and breach of the duty of care. The burden then shifted to the directors to prove the entire fairness of the transaction, highlighting the importance of diligence and transparency in board decision- making. Board Meetings 15. Maharashtra Power Development Corporation v. Dabhol Power o Facts: Dabhol Power Company, with shareholders including Enron and MPDC, faced turmoil after Enron's bankruptcy and subsequent resignations of nominee directors, leading to disputes over the validity of a board meeting called to appoint a new director amidst allegations of attempting to delay international arbitration proceedings. o Holding: The appointment of Freeman to meet quorum was deemed essential for the functioning of the company, as directors owe a fiduciary duty to diligently prosecute and defend legal proceedings. As the appointment was permitted by the Articles of Association and reduced the number of directors below the quorum, the June 2002 board meeting was considered valid.
MODULE 3 – INSIDER TRADING
17. Rakesh Agarwal v. SEBI o Facts: Rakesh Agarwal was the Managing Director (MD) of ABS Industries Ltd., a publicly listed company engaged in resin/styrene manufacturing. In October 1996, Bayer AG, a German multinational company, acquired a controlling stake in ABS through a combination of preferential share allotment and a public open offer. The allegation against Rakesh Agarwal centered around his involvement in directing his brother-in-law, Mr. I.P. Kedia, to purchase ABS shares before Bayer's announcement of acquiring a controlling stake. This alleged transaction was based on undisclosed information regarding Bayer's impending acquisition, which was considered price sensitive. o Issue: Whether Rakesh Agarwal violated insider trading regulations by using undisclosed price- sensitive information (UPSI) to influence share purchases by Mr. Kedia prior to Bayer's public announcement of acquiring a significant stake in ABS. o Holding: The Securities Appellate Tribunal (SAT) based its decision on several legal precedents and principles. o First, SAT relied on the SEC decision in Cady Roberts & Co., which established that using insider information for personal benefit or taking advantage of such information contravenes fiduciary obligations of corporate insiders possessing undisclosed price-sensitive information (UPSI). o Additionally, SAT referred to the US Supreme Court decision in Chiarella, emphasizing the "disclose or abstain" rule. This rule dictates that the use of UPSI in securities transactions is fraudulent as it provides certain buyers or sellers with an unfair advantage due to the lack of parity of information availab Issue: The key issue was whether Rakesh Agarwal violated insider trading regulations by using undisclosed price-sensitive information (UPSI) to influence share purchases by Mr. Kedia prior to Bayer's public announcement of acquiring a significant stake in ABS.le to the public. o SAT clarified that UPSI should only be used for corporate purposes and not for personal gain, aligning with the intent of Indian legislation reflected in Regulation 3 of the PIT Regulations 1992. o SAT concluded that: ▪ Rakesh Agarwal, as the MD of ABS, qualified as an 'insider' under Regulation 2(e) of the PIT Regulations 1992. ▪ Agarwal possessed UPSI regarding Bayer's impending acquisition of ABS. ▪ Agarwal financed Mr. Kedia's purchase of ABS shares based on UPSI. ▪ Despite these findings, SAT determined that Agarwal did not act with mala fide intention (mens rea) because he instructed Mr. Kedia to purchase shares with the aim of consolidating shareholding to fulfill Bayer's commitment of a 51% stake, not for personal gain.
▪ SAT noted that subsequent decisions by SAT and the Supreme Court, along with the 2015 PIT Regulations, have modified considerations of mens rea in insider trading cases. o SAT concluded that if the same case were to be heard under the current PIT Regulations 2015, there would likely be a clear breach of Regulation 3 (Prohibition on dealing, communication, or counseling on matters related to insider trading) and Regulation 4 (Violation of provisions relating to insider trading). o However, based on the circumstances and intent at the time of the events, no insider trading offense was found, and no penalty was imposed on Rakesh Agarwal.
18. V.K. Kaul v. Adjudicating Officer, SEBI o Facts: V.K. Kaul, a non-executive independent director of Ranbaxy was implicated in insider trading activities involving Ranbaxy's subsidiaries Solus and Rexcel, which purchased shares of Orchid based on undisclosed material information. These transactions occurred following communications between Kaul and Malvinder Singh, with Kaul's wife purchasing shares just before Solrex's market purchases, leading to a significant increase in Orchid's stock price. o Holding: V.K. Kaul, as a director of Ranbaxy with access to UPSI, traded in the shares of the target company through his wife while possessing knowledge that Ranbaxy was arranging funds for its subsidiaries to purchase significant shares, thus violating Reg 3 of the PIT Regulations 1992. 19. SEBI vs. Abhijit Rajan o Facts: The respondent, who was the Chairman and MD of GIPL, sold approximately 14 lakhs shares of GIPL just before the company disclosed the termination of two shareholders agreements to the NSE and BSE. SEBI conducted an enquiry and found the respondent guilty of insider trading, leading to a legal challenge and subsequent appeal to the SAT. o Holding: The SC held that the respondent, as a former chairman and managing director of GIPL, possessed insider information regarding the termination of shareholders' agreements, which qualified as significant changes in company operations under Regulation 2(ha)(vii) of the PIT Regulations. o Despite dealing in securities by selling shares before his resignation, the Court found that his motive was not to make undeserved gains but rather to address pressing financial needs, akin to a distress sale. As the information's disclosure was likely to benefit shareholders and the respondent didn't wait for its public release to sell his shares, the Court concluded that his actions did not constitute insider trading.
MODULE 4 – CORPORATE RESTRUCTURING
Relevant Sections – s. 48, 61, 66, 230, 231, 232, 233, 234, 235, 236, 237
22. Hindustan Lever Employee’s Union v. Hindustan Lever Ltd. o Facts: The case involved the proposed amalgamation of Tata Oil Mills Company Ltd. (TOMCO) with Hindustan Lever Limited (HLL), challenged on grounds including share valuation, preferential allotment, and employee interests. Concerns regarding Malegam's dual role and non- disclosure of the same, as well as regarding the lawful and fair valuation of shares and alleged preferential treatment arose. o Holding: The court upheld the fairness of the share exchange ratio determined by Mr. Malegam, emphasizing its approval by over 99% of shareholders and its alignment with well-accepted valuation methods. Despite Malegam's dual role as a TOMCO director and valuer, the court found no prejudice to TOMCO shareholders, as his appointment was accepted by both companies and his interest in the scheme was not material for shareholder consideration. 23. Miheer Mafatlal v. Mafatlal Industries Ltd o Facts: Scheme of Amalgamation of two public limited companies – Appellant was one of the directors of MFL (‘transferor-company’) and the shareholder of MIL (‘transferee-company’). When the meeting was conducted, the scheme was approved by an overwhelming majority. Over 5000 members voted in favour of the merger whereas only 143 members voted against it o Non-disclosure of material facts: Appellants contended that the failure to disclose a director's private dispute in the explanatory statement violated s.391(1)(a), claiming it hindered shareholders from making an informed decision. However, the SC found that the dispute had no substantial connection with the merger and did not affect the director's interest, thus not mandating disclosure. Additionally, the overwhelming support from equity shareholders, excluding a minor percentage affiliated with the director, demonstrated informed approval regardless of the non-disclosure. o Suspension of minority interests: The SC found that the merger's objective to increase financial resources for enhanced profitability aligned the interests of both majority and minority shareholders, negating claims of unfair voting or suppression of minority interests. o Exchange ratio: The exchange ratio was determined by reputable chartered accountants based on various reliable valuation methods and approved by the appellants initially, thus declining to intervene as it fell within the realm of internal company affairs and was accepted by the statutory majority, binding all shareholders.
o The court must ensure that a proposed scheme of compromise and arrangement is not in violation of any law and is not contrary to public policy, and should assess its fairness, reasonableness, and whether it benefits the affected class. o The court must ensure that a proposed merger scheme follows all legal steps, gains majority approval from informed participants, treats all parties fairly, complies with laws and public policy, and is conducted in good faith without coercion. o Once these broad parameters are met and the requisite majority approves the scheme, the court's role is supervisory rather than appellate, respecting the commercial wisdom of the involved parties. o The Court noted that the commercial merits of an amalgamation are primarily for the shareholders to decide. The Court should not interfere with the commercial judgment of the shareholders unless the proposed merger is manifestly unfair or proposed unfairly to defraud other shareholders. o Whether Appellant was a special class of shareholder? The appellant claimed to be a special kind of shareholder because of some family agreement, but the company's articles of association (AOA) only recognized two types of shareholders, not any special subclass like the appellant claimed. Under the law, when a meeting is held for a particular class of members, like equity shareholders in this case, it's meant to include all members of that class. There's no provision in the law for holding separate meetings for smaller groups within that class.
o The "Majority Rule" empowers shareholders to ratify or rescind resolutions, and control director appointments and removals, with transactions potentially subject to confirmation by the corporation, while actions exceeding corporate powers may not be ratified if any dissenting voice persists.
25. Menier v. Hooper’s Telegraph Works Ltd. o Facts: The European Telegraph Co., seeking to challenge Baron de Maua's attempt to divert company assets, found its efforts thwarted by the influence of Hooper's Telegraph Works, a major shareholder, and its nominated directors, leading to the company's voluntary winding-up and subsequent actions benefiting Hooper's Telegraph Works. The Plaintiff sought to redress and declaration of trustee status for profits derived from these actions. o Holding: The majority shareholders, by favoring themselves over the minority, cannot unjustly appropriate assets that belong to the entire company. He cautioned against allowing the majority to potentially monopolize company assets to the detriment of the minority. o However, exceptions to the Proper Plaintiff Rule exist, such as the Derivative Action, where a shareholder can sue on behalf of the company for its benefit, with any recovery benefiting the company rather than the individual plaintiff. o Additionally, Representative Suit allows shareholders to sue on behalf of themselves and others to safeguard their corporate rights, particularly in cases where their voting rights are unfairly disregarded by the directors. Exceptions to the Proper Plaintiff Rule
- Derivative Action: An individual member may bring an action to remedy a wrong done to the company or compel the company to follow its constitution and legal rules, even if no personal wrong has been done to them. This action is for the company’s benefit, and any recovered property or damages go to the company, not the plaintiff. The court allows this only if the action benefits the company and is not for the plaintiff's personal gain or a rival's benefit.
- Representative Suit: In exceptional cases, an individual member may bring a representative action on behalf of themselves and others to protect their legitimate corporate rights.
- Illegal or Ultra Vires Actions: The rule does not apply if the act complained of is illegal or beyond the company's powers (ultra vires).
- Infringement of Personal Rights : If a shareholder’s personal rights, such as the right to vote or receive dividends, are infringed, they can proceed in their own name.
- Breach of Fiduciary Duties: A derivative action can be taken against directors or promoters who breach their fiduciary duties to the company, especially if they prevent the company from suing in its own name.
- Fraud or Oppression Against the Minority : If there is unfair discrimination or oppression of the minority by those in control of the company, action can be taken under sections 241- 245. Shareholder Remedies o Personal Action : The shareholder will act in his personal capacity if he has suffered a wrong himself. A personal action is brought by a shareholder against the company o Derivative Action : A derivative claim is one made by a member of the company in respect of a cause of action vested in the company and in which relief is sought on behalf of the company. o Oppression & Mismanagement : Remedy available to shareholders of a company (minority shareholders), who feel oppressed by the company's other shareholders (majority shareholders), or vice versa (or directors – mismanagement). o Class Action Suits : Remedy available to members or depositors of a company against the Company, Directors, Auditors, etc. They collectively may sue on behalf of a larger group of people. 26. Rajahmundry Electric Supply Co. v. Nageshwara Rao o Facts: The respondent alleges gross mismanagement of the company's affairs, including pending dues to the government for electricity supplied, while the plaintiff accuses the directors of misappropriating company funds and acting against the interests of shareholders due to their majority voting strength. Seeking remedies, the plaintiff filed for winding-up under Sections 162 (v) and (vi) of the 1913 Act or action under Section 153-C. o Issues : a. Whether the application under section 153- C of the Companies Act, 1956 maintainable at the appeal stage, without proof to the effect that the applicant had obtained consent of the requisite number of shareholders under section 153-C (3)(a)(i)? b. Whether the facts found make out a case for passing a winding-up order under section 162? c. Whether the appointment of administrators under section 153 – C of the Companies Act, 1956 would amount to judicial interference in internal management? o Holding : o The Supreme Court held that the petition under s. 153 - C of the Companies Act, 1956 was maintainable even though some shareholders withdrew their consent after its institution. The court emphasized that the validity of the petition is determined based on the facts at the time of presentation. o Regarding the application for winding up under s.162, the court ruled that mere misconduct or mismanagement by directors is insufficient grounds for winding up unless there is a justifiable lack of confidence in their conduct related to the company's business affairs.
28. Shanti Prasad Jain v. Kalinga Tubes o Facts: Kalinga Tubes (R) was incorporated with shares equally held by two groups, with a few shares held by others. ▪ Disputes arose between the two groups, particularly regarding the issue of new shares and control over the company. ▪ An agreement between one group (A) and two individuals (Patnaik and Loganathan) was made outside the company's Articles, giving A the chairmanship. ▪ The company needed more funds and sought guarantees from the Government of Odisha and financing from A. ▪ A resolution to issue new shares was passed at the request of Patnaik and Loganathan (P&L) to exclude A from becoming the majority shareholder. ▪ A temporary injunction against the issuance of new shares was initially granted but later vacated, allowing shares to be allotted to applicants. ▪ A petition was filed alleging oppression and mismanagement, particularly regarding the issuance of new shares and the change in management. ▪ The High Court found in favor of the petitioner, holding that the actions of P&L were oppressive and amounted to mismanagement. o Issue: Whether the actions of P&L in relation to the issuance of new shares and change in management constituted oppression and mismanagement, justifying legal intervention o Rule: The oppression complained of must relate to the manner in which the company's affairs are conducted, and it must oppress a minority of shareholders. The conduct of majority shareholders must unfairly prejudice the minority shareholders' interests. ▪ Mismanagement under Section 398 of the Companies Act applies when there is actual or apprehended mismanagement of the company's affairs. o Holding: The Supreme Court held that the actions of P&L did not constitute oppression or mismanagement. While the issuance of new shares and change in management may have been contentious, they did not oppress the minority shareholders or prejudicially affect the company's interests. The Court emphasized that the conduct complained of must involve a lack of probity or fair dealing and must be continuous and oppressive to some members. o Therefore, the petition alleging oppression and mismanagement was dismissed. 29. Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. o Facts: Needle Industries (India) Ltd. (NIIL) had TA Devagnanam (TAD) as its managing director, with a significant portion of shares held by a holding company.
▪ Government directives mandated Indianization of the share capital of foreign companies, resulting in a significant increase in Indian shareholders, including TAD and his relatives. ▪ Conflict arose between Coats Paton Limited and TAD, with the former preferring TAD's control. ▪ The Foreign Exchange Regulation Act (FERA) was implemented, imposing restrictions on non-residents holding shares in Indian companies. RBI granted approvals for shareholding but imposed conditions on reducing non-resident interests. ▪ Disputes arose regarding the transfer of shares and control over NIIL, leading to actions such as the issuance of rights shares to existing Indian shareholders. ▪ The holding company filed a petition alleging oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956. o High Court SB: held that the decisions made in the board meetings of NIIL constituted acts of oppression and mismanagement, ordering relief for the holding company under Section 398. o High Court DB: held that there was no oppression against the holding company and set aside the rights issue resolution, directing a fresh issue of shares, while also removing TAD as managing director and compensating him for one year's loss of office. o Holding: The Supreme Court held that the decisions taken by NIIL's board did not constitute acts of oppression against the holding company. ▪ The Court rejected the charge of oppression, stating that the actions were taken in the larger interests of the company and were not lacking in probity or fairness. ▪ While the holding company's petition failed, the Court emphasized its power to ensure substantial justice between the parties. ▪ Directors must exercise their powers for the benefit of the company, and the mere benefit derived by directors as shareholders does not invalidate the exercise of such powers. ▪ If the directors' powers are exercised solely for personal gain and to the detriment of the company, the court will intervene. CHAPTER XVI – PREVENTION OF OPPRESSION AND MISMANAGEMENT
241. Application to Tribunal for relief in cases of oppression, etc. 242. Powers of Tribunal. 243. Consequence of termination or modification of certain agreements. 244. Right to apply under section 241. 245. Class action. 246. Application of certain provisions to proceedings under section 241 or section 245.
