M.C. Jain, J.

(1) The dispute relates to a public limited company-Trackparts of India Ltd. which is appellant no. 1 in Appeal No. 2 of 2000 and respondent No. 6 in Appeal No. 3 of 2000. The said appellant no. 1 and appellants Nos. 2 to 5 were respondents before the Company Law Board (for short "clb") in Company Petition No. 35 of 1998. An application had been made there by the present respondents Nos. 1 to 5 under Section 397/398 of the Companies Act, 1956. Both the parties were on the board of directors. The appellants in the other Appeal No. 3 of 2000 are other shareholders of the company. In this appeal No. 3 of 2000, both the parties before the CLB in company Petition No. 35 of 1998 have been arrayed as respondents. The appellants of this appeal No. 3 of 2000 are family members/close relatives of appellants Nos. 2 to 5 of. Appeal no. 2 of 2000. In a sense, they are the alter ego of the appellants of Appeal No. 2 of 2000. The two appeals are connected with each other and are being decided by this common judgment. The appellants in both the appeals are aggrieved by an order November 30, 1999, passed by the CLB in the company petition aforesaid which was modified by subsequent order dated January 12, 2000. The grievance of the appellants is against the direction of the CLB providing for the division of the assets of the company, giving an option to the respondents of Appeal No. 2 of 2000 to obtain forge division.

(2) It is necessary to relate the previous background leading to this litigation. All the facts are detailed in the impugned order of the CLB and those relevant for the decision of the instant appeals are being detailed here. M/s. Trackparts India Ltd. (hereinafter referred to as "the company") was incorporated as a private limited company in 1969 to take over the running business of a partnership firm, namely, Trackparts India in which the predecessors of the parties presently litigating were the partners. At that time, the shareholders position was like this : 1. H. N. Bhargava 24 per cent. 2. K. N. Bhargava 24 per cent.

(3) Prem Bhargava 2 per cent.

(4) Others 40 per cent. 3. At the time of incorporation of the company, H. N. Bhargava was the chairman and managing director of the company and after his death in 1979, K. N. Bhargava and B. N. Bhargava became the chairman/managing director and joint managing director respectively. This company was converted into a public limited company with effect from November 1, 1975, eighty per cent. of the shares in the company are owned and controlled by four groups of shareholders, all brothers and their family members. The four groups are known as the H. N. Bhargava group (HNB), the knb group (KNB), B. N. Bhargava (BNB) and M. N. Bhargava (MNB). KNB and BNB are on one side (contesting respondents in appeals) and HNB and MNB on the other side (appellants). The contesting respondents here were the petitioners before the CLB and the appellants of appeal No. 2 of 2000 were the respondents there. 4. On the death of H. N. Bhargava, HNB, MNB and their groups came to be headed by Dilip bhargava, son of HNB and Mrs. Veena Bhargava, wife of MNB. Now the HNB group is known as the DB group. The company owned about 46 per cent. shares in another company known as ema India Ltd. From 1983 onwards the DB group had been controlling the affairs of EMA while KNB, BNB and MNB controlled the company. The company has four divisions, namely, track Component Division (TCD), Forge Division (FD), Track Rebuilding Division (TRD)located at Kanpur and Plastic Division located at Mumbai. At the time of the making of the petition before the CLB, the petitioners group/respondents here held 27. 29 per cent. shares and the respondents group (appellants) owned 51. 87 per cent. The financial institutions held about 9 per cent shares and the rest were held by the public.

(5) A family agreement was entered into on March 23, 1991, between the families of the four brothers. At that time the families of KNB, BNB and MNB were on one side known as the KNB group and the DB group was on the other side. This agreement provided that the DB group would have five directors on the board of the company ; that there would be an operations committee consisting of two nominees each of the KNB group and the DB group, the eldest member of the groups being CMD. It also provided for equalisation of the shareholding of both the groups ; pre-emptive right of each group to acquire shares of the other group in case the other group desired to sell its shares. The agreement also provided for amendment of the articles of association of the company. The articles of association were amended to incorporate the relevant clauses of the agreement. Five nominees of the DB group were inducted in the board of directors as per the agreement. Dilip Bhargava was also inducted as a director and he was appointed whole-time director some time in 1996. A new division, viz. , the Plastic Division was started in maharashtra with an investment of Rs. 20 crores. This division did not function well and landed in losses which came to be the root cause for the making of the petition before the CLB by the petitioners/respondents here.

(6) The petition under Section 397/398 was primarily founded by the petitioners/respondents here before the CLB on these allegations : The DB group has not complied with the terms of the family settlement relating to equalization of shareholding though it had nominated five directors on the board including Dilip Bhargava (who heads the DB group). The result was that the petitioner group/respondents here held only 1,49,948 shares compared to the holding of the DB group of 2,07,759 shares. After Dilip Bhargava came on the board of directors he started acting in an autocratic manner. In 1994, he forced the board to approve the setting up of a Plastic division at Mumbai involving an investment of Rs. 14. 93 crores with a projected annual turnover of about Rs. 20 crores. To maintain family harmony, the board approved the proposal and the plastic division was left under the sole control of Dilip Bhargava who was also appointed as deputy managing director and vice-chairman of the company with effect from October 1, 1996. Originally he assured the board that no assistance would be required for the plastic division, but a sum of over Rs. 8 crores was transferred from the Kanpur Division to the plastic division. The performance of the plastic division had been dismal right from the beginning and it accumulate losses to the tune of Rs. 8. 3 crores as on December 31, 1997. He also indulged in siphoning off of funds of this division and refused to furnish detailed accounts. Various attempts to restructure the plastic division were not accepted by him.

(7) The board meeting of the company was held on June 13, 1998, which was attended, amongst others, by DB also. It was decided therein to sell off the plastic division but he did not take any further action in this behalf. It transpired that he had fabricated a boards resolution allegedly passed on June 13, 1998, whereby some of the respondents (of the petition) had been made additional signatories for the operation of the bank accounts in addition to the existing signatories consisting of the petitioners group (respondents here). The company filed a civil suit against the banks and the court stayed the operation of the bank accounts by the earlier signatories. It also transpired that at the meeting illegally convened by DB on that date, he appointed himself as chairman in contravention of the family agreement as well as Article 108 (a)of the articles of association of the company. The banks suspended all the operations resulting in bouncing of cheques issued by the company earlier. At that illegal meeting, he also appointed four additional directors in violation of the family agreement and thus illegally usurped the control of the management of the company. The petitioners before the CLB filed a civil suit praying for stay of the resolution allegedly passed in the board meeting convened by DB and the court stayed the resolution. Not only this, he caused a notice to be issued for convening an eogm to remove two of the independent directors and to appoint two directors from his family in their place. The following reliefs were sought in the petition under Section 397/398 of the companies Act, moved by the petitioners before the CLB against the respondents/appellants here :

(a) Mr. Dilip Bhargava, respondent No. 2 be removed from the office of director and vice-chairman and deputy managing director forthwith ; (b) The alleged resolutions passed by respondents Nos. 2 and 3 in the alleged board meeting on june 13, 1998, be declared as null and void ; (c) The State Bank, IFB Branch and Bank of Baroda be directed to operate the bank account of the respondent-company without giving effect to the alleged resolution dated June 13, 1998, with the existing already authorised signatories i. e. , petitioners Nos. 1, 2 and 3 only ; (d) The purported requisition notice dated June 15,1998, under Section 169 of the Companies act, 1956, be declared as null and void and the respondents be restrained from holding any extraordinary general meeting of the company and from exercising any rights as shareholders that are detrimental to the interest of the company or for toppling the existing management; (e) Respondents Nos. 2 and 3 be restrained from holding any board meeting ; (f) Petitioners be permitted to increase their shareholding in the company so as to equalise with the shareholding of the respondents group as per family agreement dated March 23, 1991 ; (g) Investigation or inspection be ordered into the affairs of the plastic division of the company at Mumbai, for the last 3 years and for fixing the responsibility for diversion of the funds of the company and various acts of mismanagement. (h) Appropriate orders may be passed under Section 406 of the Companies Act, 1956, for breach of trust, misfeasance, misappropriation, cheating and falsification of books of account by respondent No. 2 in relation to the plastic division of the company at Mumbai ; (i) Respondent No. 2 be directed to render half-yearly accounts of the plastic division of the company at Mumbai for the period ended March 31, 1998, duly authenticated by him and for the subsequent period forthwith to the petitioners ; (j) A commissioner be appointed to seize and authenticate the books of account and records of the plastic division of the company at Mumbai ; (k) The voting rights of respondents Nos. 2, 3, 4 and 5 in respect of their shares held in the company be frozen ; and (1) Such other order or orders as may be deemed fit and proper may also be passed.

(8) The grounds of resistance put forth by the respondents before the CLB (appellants here) may also be summarized. KNB is the managing director. Another petitioner is the joint managing director of the company. As such, they had no locus standi to file the petition alleging oppression and mismanagement in the affairs of the company. The petitioners/respondents here were in a minority and they simply wanted to retain the control of the company. That was said to be the motive in moving the petition before the CLB. The petition was founded on a family agreement which itself provided for arbitration in case of disputes. The company was a listed one and a petition under Section 397/398 of the Companies Act, could not be filed for execution of the family agreement. The petitioners had already filed two civil suits on the same issues. After the death of HNB (father of Dilip Bhargava), KNB was appointed as managing director as being the eldest member of the family. After his appointment as such, he started promoting his own sons and the son of BNB completely neglecting the MNB and DB group. Originally, the MNB group was on the side of the petitioners. All the divisions were under the control of the petitioners. It was actually the group of the petitioners which had oppressed the majority of shareholders.

(9) As regards the plastic division, because of the capital market conditions public issue could not be resorted to and the board decided to finance the project by resorting to intercorporate deposit. The entire project was executed and supervised by the fourth petitioner Mukesh Bhargava (son of KNB). It was only in January, 1996, that the respondent Dilip Bhargava (appellant here)sought for a role in the/company and as the petitioners did not want him to be associated with the kanpur unit, he was made in-charge of the ailing plastic division at Mumbai which was being looked after till then by Mukesh Bhargava (son of KNB). It was only in October, 1996, that the respondent Dilip Bhargava was made a whole-time director after a lot of persuasion. The Kanpur divisions were supporting the plastic division at Mumbai till Mukesh Bhargava son of KNB was its in-charge but no financial support came forth after the respondent Dilip Bhargava took control of the plastic division. Because of the liquidity problem financial institutions urged the company to go for a rights issue of Rs. 8 crores and at the initiative of the respondent Dilip bhargava, M/s. VSL Finance Ltd. agreed to sponsor the rights issue. But the petitioners were not interested in the rights issue and as such it did not materialize, though the respondent Dilip bhargava and his family members had contributed Rs. 1. 5 crores towards the rights issue. Though the plastic division was not doing well, yet the petitioners wanted remittances from this division to Kanpur. With a view to oust the respondent Dilip Bhargava from the company, the petitioner suggested closing of the plastic division or in the alternative advised formation of a separate entity of this division. To consolidate his position, KNB allegedly held a board meeting on May 28, 1998, which was attended only by three out of ten directors in which one Mr. P. N. Bhalla was appointed as a director and far reaching decisions were taken. It was done without the knowledge of the directors belonging to the DB group. The proceedings of this meeting were stayed by the civil court. Dilip Bhargava gave a notice for convening a board meeting on June 13, 1998, in which 8 out of 10 directors were present. When the issue relating to the appointment of Mr. Bhalla in the earlier meeting was raised, KNB and BNB left the meeting. The meeting continued with DB as chairman and four additional directors were appointed. Change of operation of bank accounts was also approved. This resolution came to be stayed by a civil court. Later on, some of the shareholders requisitioned a general body meeting for removing two directors and appointing two other directors and this requisition was considered through a circular resolution by the majority of the directors and these directors decided to convene the eogm. In the meantime, the board allegedly passed a resolution in a board meeting convened by KNB, rejecting the requisition. But the requisitionists themselves convened the said meeting and passed the resolution as proposed. To come to the point, with the above contentions the respondents/appellants here accused that the petitioners with minority backing had oppressed the majority shareholders.

(10) During the pendency of the proceedings before the CLB, a number of applications were filed by both the sides levelling allegations against each other in the conduct of the affairs of the company. One of the allegations of the respondents there was that without notice to their group of shareholders, the petitioners allegedly held the AGM for 1997-98 on December 28, 1998, whereat far reaching decisions were taken including shifting of the registered office of the company to the residence of KNB. From the side of petitioners, one of the allegations was that db had forcibly taken over the Kanpur division of the company on December 28, 1998, and the petitioners were not allowed entry into the factory premises.

(11) Certain interim orders were passed by the CLB. On January 8, 1999, it was directed that none of the resolutions of the AGM and of the board meeting shall be given effect to. With a view to explore the possibility of amicable settlement between the warring groups, the parties agreed to have a working arrangement as an interim measure and accordingly, an order dated february 10, 1999, was passed to the effect that the board shall be reconstituted with two directors from each side with Justice RM Sahai, former judge of the Supreme Court as the chairman. The petitioner group was to manage the day to day affairs of the forge division and the db group the other two divisions at Kanpur. The board was to decide the fate of the plastic division. The bank accounts were to be operated jointly with one member from each group. No transfer of shares was to take place during the pendency of the proceedings and none of the parties was to pursue any pending proceedings.

(12) Accordomgly, the board was reconstituted. On receipt of the report from the chairman of the board, the CLB gave a further direction vide order dated April 21, 1999, which provided for opening of separate bank accounts for the forge division and for the other divisions and also for supply of raw materials by the forge division to trackpart division, as also for the maintenance of status quo with regard to shareholding of the company. Later on, the DB group complained of non supply of raw material by the forge division. The stand taken up by the KNB group was that the DB group was not making payment for the supply already made. On May 28, 1999, the parties agreed before the CLB that the disputes could be resolved by division of assets of the company whereby forge division would go to the KNB group and the other two divisions to the db group. An order was accordingly passed on May 31, 1999, giving certain directions for conducting the affairs of the company in the interim period till the modalities of the division of assets were to be worked out. In view of the settlement between the parties, the interim board was dissolved. But none of the parties complied with the interim directions given on May 31, 1999, and later on the offer of amicable settlement by division of the assets of the company was withdrawn by the DB group. Things came to such a pass and the petition was heard on merits. The CLB found both the groups to be guilty of oppression against each other and ultimately decided the petition with certain directions by order dated November 30, 1999. The relevant portion is contained in paragraphs Nos. 20 to 22 of the order dated November 30, 1999, under challenge before this court, extracted below in extenso for proper appreciation.

"accordingly, in exercise of our powers under Section 402 of the Act, we direct as follows : presently, the petitioners are managing the forge division and the respondents the other two divisions in Kanpur and this arrangement came into existence some time in January, 1999. We formalise this division of the assets of the company with the cut-off date as January 1, 1999. Each group will manage their divisions independently without any interference from the other group. A balance sheet as on December 31, 1998, will be prepared after preparing a profit and loss account for the period ending on that date including the accounts of the plastic division. Since the financial institutions have high stakes in the company, we consider it expedient that they should be associated with the exercise of partitioning the company so that in the partition arrangement, their interests are also protected. Accordingly, we constitute a fresh board of directors for the company which will consist of two directors from the petitioners group and two from the respondents group with an independent chairman to be nominated by the ICICI. The icici will appoint a valuer to value the shares as on December 31, 1998. Both the sides will be at liberty to make both oral as well as written submissions before the valuer so appointed, which will be taken into account by the valuer in determining the value of shares. Once it is so determined, the company will purchase the shares held by the petitioners group and effect reduction in the share capital of the company. The valuer will also determine the value of the forge/division which will be sold to the petitioners at that value. In giving these directions, we have taken note of the decision of the Supreme Court in Cosmosteels P. Ltd. v. Jairam Das gupta [1978] 48 Comp Cas 312 ; AIR 1978 SC 375 [LQ/SC/1977/347] , according to which the CLB need not follow the provisions of Sections 100 to 104 of the Act in a proceeding under Section 397/398. The ICICI will nominate a suitable per son as the chairman of the company latest by December 15, 1999, who will ensure that the final division of the assets is completed by June 30, 2000. The function of this board will be restricted to working out the modalities of car lying out the above directions. Expenses connected with these tasks will be borne by the company. During this period the companys bank accounts which stand frozen now, will be operated only as per the directions/authority of the chairman. However, the petitioners and the respondents are at liberty to open and operate new accounts in the names of the forge division and track components divisions respectively. If there are any outstandings from any customers on the supplies made prior to January 1, 1999, then realisation of the same will be credited to the accounts standing in the name of the company. Till the partition is effected, no general body meetings of the company will be convened or held either by the company or by any shareholder. This would safeguard the apprehensions of the respondents arising out of the transfer of shares to VLS Finance. Once the modalities of the division are worked out and the value of the shares and the forge division is determined, the parties may approach us for a formal order for disposal of the petition. All the parties, including the financial institutions are at liberty to apply to us in the case of any need. Let a copy of this order be sent to ICICI and State Bank of India, Kanpur drawing their attention to para. 21 of this order. "

Subsequently, the ICICI represented that it could not be possible for it to assume the responsibility of appointing an independent chairman. The DB group also raised certain operational difficulties in implementing the order dated November 30, 1999. Consequently, the order dated November 30, 1999, was modified by order dated January 12, 2000, and the following directions were given :" (1) Instead of having a board with two representatives from each side with the nominee of the icici as the chairman, there will be a committee consisting of the above to carry out the division of assets of the company. (2) The ICICI will appoint a valuer to value the shares as also the forge division as per our earlier order. (3) Since the respondents would take over the management of the company, they are at liberty to reconstitute the board of directors of the company and also operate the bank accounts of the company. In case the petitioners require any resolution of the board of the company in respect of the management of the forge division, the board will pass necessary resolution to that effect without any loss of time. The board is at liberty to take decisions regarding the sale or otherwise of the plastic division. (4) The petitioners will furnish all accounts relating to the forge division from the time they took over the control of that division of the company to enable it to prepare accounts for the period ended December 31, 1999. In case the petitioners have collected any money of the company, they will furnish full details of the same to the company. Likewise, they will hand over all the statutory records of the company, now in their custody to the company forthwith. In the same way the respondents will also hand over all the records/ documents relating to the forge division, now in their custody to the petitioners forthwith. (5) With immediate effect, the forge division will not compete with the business of the company nor the company with that of the forge division. The duration of such non-competing with each other will be decided later. (6) All other directions contained in our order dated November 30, 1999, will continue. "

(13) It is against the aforesaid two orders passed by the CLB that the present appeals have been directed in so far as the same provide for the division of the assets of the company as mentioned in the earlier part of the judgment.

(14) I have heard Sri Sunil Ambwani, learned counsel from the side of the appellants in Appeal no. 2 of 2000 and Sri R. K. Vajpayee learned counsel, representing the appellants in Appeal No. 3 of 2000 as also Sri. S. N. Verma, learned senior advocate representing the contesting respondents in the two appeals who were the petitioners before the CLB. The material on record has also been carefully waded through by me.

(15) It has been argued by learned counsel for the appellants that there was no ground for the clb to have assumed jurisdiction to pass the order under Section 397/398 of the Companies act. The second limb of the argument from the side of appellants is that the CLB could not pass an order for the division of assets and the principle of dissolution of partnership could not be applied. Instead, it ought to have ordered the purchase of the shares of the minority by the majority, viz. , of the respondents by the appellants. It has also been submitted that the private agreement between the parties was not binding on the company and could not be implemented. Yet another argument is that all the divisions of the company are interdependent and the TCD and the TRD cannot survive without the FD. The last argument is that the impugned orders could not be passed by the CLB without issuing notice to the creditors.

(16) On the other hand, Sri S. N. Verma learned senior advocate appearing from the side of the respondents has raised a preliminary objection that the appellants (hereinafter referred to as the db group) acquiesced in the impugned orders passed by the CLB and as such waived their right to appeal. On this score, it has been urged that the appeal is not at all maintainable. Another argument from the side of respondents (hereinafter referred to as the KNB group) is that the impugned orders passed by the CLB do not suffer from any error of law and as such, the appeals warrant dismissal. The argument advanced in support of the appeals have been repelled and it is urged that impugned orders passed by the CLB are perfectly justified having regard to the fact situation and the applicable law.

(17) It would be appropriate to first deal with the preliminary objection raised from the side of the respondents. To begin with, it may be pointed out that the two appeals are directed only against a part of the impugned orders passed by the CLB. As per the memo of appeal of Appeal No. 2 of 2000, it is directed against the order dated November 30, 1999, as amended by the order dated january 12, 2000, passed by the CLB to the extent they provide for the division of the assets of the company, giving option to the respondents to purchase forge division. Similarly, connected appeal No. 3 of 2000 is also directed against the division of the assets of the company directed by the CLB. It would be noted from the operative portion of the order dated November 30, 1999, passed by the CLB contained in paragraph 20 of the said order extracted in the earlier part of the judgment that the CLB issued a number of directions and division of assets of the company was one of them. The direction was that the forge division would go to the KNB group and the other two divisions to the DB group. It is also noted that the DB group had been taking steps to implement the order dated November 30, 1999, passed by the CLB. The petition before the CLB was filed by the KNB group on July 11, 1998. The proposal for the division of the company in the manner aforesaid emanated from the DB group itself in August, 1998. Annexure I to the affidavit of Mukesh Bhargava, son of KNB dated April 12, 2000, in Appeal No. 2 of 2000 is the proposal put forth by the DB group before the CLB. It says that the parties agree in principle to compromise. One of the proposals put forth by the DB group was that forge division would be hived off in favour of the KNB group and the other two divisions the TCD and the TRD in favour of the DB group. The KNB group, while reacting to the said proposal of the DB group made on August 28, 1998, agreed in principle to the split of the Kanpur unit, the DB group taking the TCD and the TRD with the name of the company and the KNB group taking the forge division. Different orders passed by the CLB on February 10, 1999, April 21, 1999, May 31, 1999, and the ultimate impugned order dated November 30, 1999, clearly indicate that the warring parties had agreed to the above division. It was specifically mentioned in the order dated may 31, 1999, that the parties had jointly agreed that the disputes could be amicably settled by which the assets of the company would be divided in such a way that the forge division would go to the petitioners group and the other two to the respondents group. To state this another way, the agreement between the parties as to the division of the assets of the company was the basis of the passing of the impugned order by the CLB. It deserves mention that the DB group never disputed the factum of the agreement between the parties as to the division of the assets of the company at any stage.

(18) The legal position is well settled that if an observation made by a court in a judgment is challenged to be wrong, such challenge cannot be accepted unless an application is made to the judge concerned who made those observations, with a prayer to correct the same. If it is not done, statements or observations made by the judge in his judgment are taken to be correct. A division Bench of this court so held in the case of Suresh Chand v. Rajneesh Saxena [1995] 1 uplbec 405 [LQ/AllHC/1995/94] All. The said decision of the Division Bench of this court, in its turn, is based on a decision of the Supreme Court in the case of State of Maharashtra v. Ramdas Shrinivas Nayak, air 1982 SC 1249 [LQ/SC/1982/110] .

(19) To come to the point, the DB group never made any protest before the CLB against the observations made by it in the opening part of its order dated May 31, 1999, which are to the following effect :

"the parties have generally agreed that the disputes could be amicably settled by which the assets of the company will be divided in such a way that the forge division would go the petitioners group and the other two divisions would go to the respondents group. "

(20) Instead of disputing the correctness of these observations made by the CLB, the respondents, after the passing of the final impugned order dated November 30, 1999, accepted this order, taking steps for its implementation. The DB group made an application to the CLB on December 31, 1999, which is annexure 4 to the counter affidavit of Mukesh Bhargava dated April 12, 2000, seeking directions for implementation of the order dated November 30, 1999. It necessitated the passing of the subsequent order dated January 12, 2000, by the CLB whereby directions were issued to overcome the operational difficulties concerning the implementation of order dated november 30, 1999, raised by the DB group by its application dated December 31, 1999. Implementing the directions of the CLB as contained in its order dated November 30, 1999, and january 12, 2000, the DB group reconstituted the board of directors of the company with effect from January 20, 2000, and intimated the change to the Registrar of Companies by submitting form No. 32. Another resolution dated January 25, 2000, was passed to the following effect authorising the directors of the reconstituted board to operate the bank account : "resolved that in supersession of all the previous resolutions passed by the board regarding operation of bank accounts, the current account No. of the company with ANZ Grindlays Bank, Mall Road, kanpur be operated upon and dealt with immediate effect by any of the following directors of the company :

(1) Mr. Dilip Bhargava (2) Mr. Deepak Bhargava (3) Mr. Sameer Bhargava

(21) Furtjer resolved that the aforesaid branch be and is hereby authorised with immediate effect to honour cheques, bills of exchange and promissory notes drawn, accepted or made on behalf of the company by any one of the following directors : mr. Dilip Bhargava Mr. Deepak Bhargava Mr. Sameer Bhargava. "

(22) Form No. 32 submitted to the Registrar of Companies regarding change in the board of directors mentioned in Column No. 6 reads thus :

"appointed in terms of order dated January 12, 2000, passed by honourable Company Law board (copy enclosed). "

(23) It is thus obvious that the DB group took active and positive steps to implement the impugned order dated November 30, 1999, and January 12, 2000, passed by the CLB and consolidated its hold on the TRD and TCD divisions of the company. The DB group, while implementing the said orders of CLB, completely ousted the KNB group from the company and then designed to grab the forge division also (hived off in favour of the KNB group), throwing all norms of fair play and reasonableness to the wind. There is not the slightest doubt that the DB group accepted the orders dated November 30, 1999, and January 12, 2000, in question, acted upon them, reaped advantages out of them and then turned around to deprive the other group of the forge division also. The argument of learned counsel for the respondents has substantial force that a party who voluntarily acquiesces in, ratifies or recognizes the validity of a judgment or order, or otherwise takes a position which is inconsistent with the right to appeal therefrom, thereby impliedly waives its rights to appeal and is estopped from asserting its right to have such judgment or order reviewed by the appellate court and this rule would apply where the acquiescence or ratification is either partial or in toto. The manner in which the DB group has acted in implementing the orders dated November 30, 1999, and January 12, 2000, clearly and unerringly shows that it has acquiesced therein. The Supreme Court has laid down in the case of m. Ram Narain P. Ltd. v. STC [1983] 3 SCC 75 [LQ/SC/1983/141] ; AIR 1983 SC 786 [LQ/SC/1983/141] , that in appropriate cases a party may be held to have become disentitled from enforcing the right of appeal which it may otherwise have. In an appropriate case any party which derives any advantage under a decree or order may, depending on facts and circumstances of a case, disentitle himself to challenge the same and will be estopped from filing an appeal against the same. The said analogy would apply to the present case with full force. Here also, the DB group accepted and acted upon the impugned orders dated November 30, 1999, and January 12, 2000, passed by the CLB, derived advantages accruing to it thereunder by retaining the TRD and the TCD divisions of the company, reconstituted the board of directors, ousted the KNB group and installed itself in complete control and management of the company. After doing so, it attempted to put the clock back by striking on a strategy to deprive the KNB group of the forge division also by preferring the instant appeal.

(24) To say in a nutshell, the DB group acquiesced in the impugned orders dated November 30, 1999, and January 12, 2000, and thus waived its right to appeal. To be short, it is estopped from challenging the same by means of this appeal. Even then, to give quietus to the controversy between the parties finally. I think it proper to deal with the matter on the merits too, having regard to the other submissions made by learned counsel for the parties.

(25) While proceeding further, it has to be clearly understood that an appeal under Section 10f of the Companies Act, lies only on a question of law arising out of the order of CLB. The scope of the appeal cannot be stretched beyond this permissible limit. To bolster up the agreement questioning the jurisdiction assumed by the CLB under Section 397/398 of the Companies Act, several submissions have been made by learned counsel for the appellants, which I propose to deal with in the discussion that follows. It has been submitted by learned counsel for the appellants that it is an essential condition for the maintenance of a petition under Section 397/398 of the Companies Act, that the facts and circumstances should justify the making of a winding up order on the just and equitable grounds and, according to him, no such circumstances were present in the instant case. It has been submitted that Section 398 of the Companies Act, could also not apply as the petitioners were there on the board of directors, so much so that KNB was the chairman and managing director and BNB was the joint managing director. This being so, the petitioners could not complain of mismanagement of the companys affairs.

(26) It may be stated that special powers have been vested in the CLB for the protection of the members against oppression by majority of shareholders or vice versa and for intervention in the case of mismanagement of the affairs of the company. This has been done because the cardinal rule laid down in Foss v. Harbottle [1843] 2 Hare 461, that the minority is bound by the majority is abused in many cases. Sections 397 to 407 of the Companies Act, provide for remedial measure. If the oppressed minority considers that to wind up the company would not relieve, but, on the contrary, they would be unfairly prejudiced by winding up, they may petition the CLB which may impose a solution on the disputants.

(27) Obviously, learned counsel for the appellants questions the jurisdiction of the CLB to entertain the petition under Section 397/398 of the Companies Act, culminating into the passing of the impugned orders which have been challenged in these appeals. It is well known that the objection to the jurisdiction should be taken at the earliest possible opportunity in the court of first instance. Though the present appellants (DB group) did raise an objection before the CLB that the petitioners had not been able to make out a case as per the requirements of Section 397/398 of the Companies Act, but it is found that they themselves made counter allegations of oppression and mismanagement against the present respondents who were petitioners before the clb. Their submission was that the petitioners being in a minority should be directed to sell their shares to them who were in the majority. Here also, they have appealed only against this direction of the CLB regarding division of assets of the company, the forge division going to the knb group and the other two divisions to the appellants-DB group. Judged in this relevant backdrop, the application of Section 397/398 to the present dispute cannot be questioned by the appellants.

(28) Otherwise also, on scanning and sifting the allegations and counter allegations of oppression and mismanagement made by the parties against each other before the CLB, it has recorded a finding of fact that actually both the groups were guilty of acts of oppression against each other and the said finding does not suffer from any error of law in view of the manner in which the two parties were conducting themselves with regard to the affairs of the company.

(29) Another submission of learned counsel for the appellants is that the petition was founded on a solitary instance concerning the board meeting held on June 13, 1998. It has also been submitted that events that happened subsequent to the institution of the petition before the CLB could not be the basis for granting relief under Section 397/398 of the Companies Act. Reliance in this regard has been placed on the case of C. P. Gnanasambandam v. Tamilnad Transports (Coimbatore) Pvt. Ltd. [1971] 41 Comp Cas 26 (Mad). Referring to the case of V. M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20 (Mad), it has been urged that the oppression complained of must be in the matter of the proprietary right of the shareholder. Oppression in any other capacity as director or creditor is outside the purview of Section 397. Making reference to another decision of the Madras High Court in the case of S. Narayanan v. Century Flour Mill ltd. [1985] 3 Comp LJ 209, it has been urged that in a proceeding under Section 397/398 of the companies Act, no individual right could be asserted nor a personal relief to any member be obtained. Save Section 155 of the Companies Act, (which has now been omitted by the amending Act of 1988) there was no provision in the Act by which any member could approach the company court complaining of an injury to him. Suffice it to say in this regard that the question whether the affairs of the company are being conducted in a manner oppressive to any member or members, is a question of fact depending upon the facts of each case. One has to proceed with caution that the observations made in a particular case cannot always be transplanted on the other irrespective of the consideration of facts and circumstances. In the present case, the company was a family company, closely held by the two warring groups who controlled a little over 80 per cent. of the shares. Both of them were on the board of directors and in real control and management of the company. While being directors, the petitioners (KNB group) did not lose their character as shareholders. It cannot be said that any of them was asserting or seeking some personal relief by presenting the petition to the CLB. The truth of the matter was that the petitioners formed a group of shareholders with actual involvement in the control and management of the company, being on the board of directors too. They were eligible, as. per the requirements of Section 399 of the Companies Act, to present the petition before the clb.

(30) It also cannot be accepted that the petition was founded on an isolated instance of the outcome of the meeting of the board held on June 13, 1998. Really speaking, what took place at the meeting dated June 13, 1998, was the climax of the events boiling during the preceding period, the main cause of which was the dismal performance of the plastic division at Mumbai which was in the charge of DB at the relevant time of the presenting of the petition by the KNB group before the CLB. There was allegation from the side of the KNB group that they had been forced to give consent for starting the plastic division. The allegations had also been made against DB regarding unauthorised expenses, diversion of funds, mismanagement, non-furnishing of complete details of the accounts of the plastic division etc. From the side of the DB group, the charge against the KNB group was that they starved the plastic division of the requisite funds and were responsible for the losses incurred by it. Therefore, it could not be said that the foundation of the petition under Section 397/398 before the CLB was an isolated instance of the outcome of meeting dated June 13, 1998. There was lack of probity and fairness on either side resulting in deadlock and the attempt to oust the other by unilateral acts. The two groups held parallel meetings to have the upper edge over one another, creating a stalemate like situation. Even suits came to be filed in civil courts concerning the resolutions passed at the meetings. I am of the view that the conduct of the parties after the presentation of petition before the CLB was relevant and could be taken note of as indicating that they could not co-exist and carry on together. The way in which the parties conducted themselves subsequent to the presenting of the petition before the CLB exhibited the irreconcilable nature of differences and this factor could be taken note of at least to this limited extent.

(31) The Clb has also rightly observed that after amendment of the articles of association of the company consequent upon the family settlement of 1991, Article 68 provided for passing of special resolutions in respect of certain matters and Article 109 provided for affirmative vote from both the groups on certain matters coming before the board. As per Section 189 of the companies Act, a special resolution is required to be passed by not less than three times the number of votes, if any, passed against the resolution. The DB group held nearly 51 per cent, and the KNB group held about 28 per cent shares. In case of necessity, concerning matters enumerated in Article 68 a special resolution could be defeated. Similarly, a piquant situation could be created in respect of matters to which Article 109 applied. The two groups being at loggerheads the interest of the company could be jeopardised. Judged in the right perspective, in my opinion, a case had come to be made out for the intervention by the CLB for passing an order under Section 402 to resolve the dispute between the two groups through workable formulae in the interest of the company and the shareholders. The two groups held nearly 80 per cent, shares and were on the warpath against each other. In such a situation, the CLB had jurisdiction to mediate on a petition having been presented to it under Section 397/398 of the Companies Act.

(32) Learned counsel for the appellants has also argued that the respondents having availed of the alternative remedy of filing civil suits concerning the resolutions passed by the DB group, they could not present the petition before the CLB under Section 397/398. This argument is not tenable and is apparently built on straw. The civil court was not a court of co-ordinate jurisdiction and could not have granted relief as the CLB is empowered to do in a situation like the present one under the provisions of the Companies Act, under Sections 397/398 and 402.

(33) Learned counsel for the appellants has relied on the case of Bengal Luxmi Cotton Mills Ltd. , in re [1965] 35 Comp Cas 187 (Cal), but I find that the same can have no application here. In that case application for various interim reliefs in a company petition under Sections 397, 398, 402 and 403 of the Companies Act, had been made in respect of which suits instituted in the high Court of Calcutta were also pending. Under these circumstances, the Calcutta High Court held as under (page 219 of 35 Comp Cas) :

"in my opinion, however, the extraordinary and summary jurisdiction of the court under sections 397 and 398 ought not to be exercised when suits covering the same subject have been instituted in this court and interim orders have been obtained restraining voting rights and alienation of shares. If those suits had not been instituted, and the remedy relating to the alleged wrongful sale of the shares not sought for in those suits, the position would have been different. It would have been, in that event, open to this court to go into the questions of propriety, legality, and validity of the transfer of the shares. But the suits are pending and are ready for hearing and so far as the question of validity and legality of the transfer of the shares is concerned, this court must stay its hands. The forum has been chosen and that choice must be adhered to. Remedy has been sought for and that remedy must be pursued in the manner in which it has been sought and to the extent that law sanctions such remedy. This court in exercise of its jurisdiction under sections 397 and 398 should not interfere with the legality and validity of the sale of shares, which is the subject-matter of two pending actions. If injury has been caused to the applicants by the sale of shares, no doubt, they will get their remedy in the actions which have been diligently pursued and in which ad interim orders have been obtained restraining the general meeting and also alienation of the shares sold. "

(34) Another contention of learned counsel for the appellants is that the company in question is a running profit earning concern, though the profits dwindled over the years. Therefore, there could be no just and equitable cause for its winding up which is a condition precedent to claim relief and for the exercise of power by the CLB under Section 397 of the Companies Act. This argument does not have the support of law as laid down by the apex court in the case of Needle industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [19811 51 Comp Cas 743 ; [1982] 1 Comp LJ 1. The Supreme Court has held thus (page 779) :

"the fact that the company is prosperous and makes substantial profits is no obstacle to its being wound up if it is just and equitable to do so. This position was accepted in the decision of the court of Appeal in Yenidje Tobacco Company Limited, In re [1916] 2 Ch D 426 and of the privy Council in Loch v. John Blackwood, Limited [1924] AC 783 PC. "

(35) To cap all, the said decision in the Needle Industries Indias case [1981] 51 Comp Cas 743 (SC) is the complete answer to silence the argument of learned counsel for the appellants that the clb could assume jurisdiction to pass an order under Section 397 of the Companies Act only if the circumstances existed that there was just and equitable cause for the winding up of the company. It may be stated as a passing reference that earlier to the passing of the Companies (Amendment) Act, 1988, the powers under Section 397 of the Companies Act were exercised by the court viz. , company court. In the case referred to above, it has also been held by the apex court that even if the case of oppression has failed, the court is not powerless to do substantial justice between the parties. That means to say, even on the failure of the plea of oppression, the court (now the CLB) is empowered to pass appropriate order in a petition under Section 397/398 of the Companies Act which may be deemed to be fit in the interest of the company and the shareholders.

(36) The long and short of the above discussion on the point under decision dealing with the argument of learned counsel for the appellants questioning the jurisdiction of the CLB is that circumstances did exist for the passing of an order by the CLB in exercise of powers under sections 397 and 402 of the Companies Act. Encompassing and embracing the whole chain of the events and the conduct of the contesting parties, the CLB rightly exercised its power and did not commit any error whatsoever. Resultantly, the argument raised by learned counsel for the appellants does not carry conviction.

(37) Now comes another important argument of learned counsel for the appellants that the principle of dissolution of partnership could not be applied and the CLB could not pass an order for division of assets. Instead of it, the CLB ought to have ordered purchase of the shares of the minority by the majority (of the respondents by the appellants). The argument is seemingly based on the premise that the division of assets could be ordered by the CLB only if the principle of dissolution of partnership could be invoked. It should be stated before proceeding further that the contention that the CLB could only order the purchase of shares of the minority group by the majority group, is somewhat contradictory to this stand of the appellants that there was no cause for the CLB to have assumed jurisdiction to pass an order under Section 397/398 of the companies Act. Indeed, even the order of purchase of shares of the minority by the majority could also be passed by the CLB only under Section 397/398 or 402 of the Companies Act and not otherwise. To say that only a particular remedy of the purchase of shares of minority by majority could be afforded by the CLB cannot be reconciled with the stand of the appellants that no case had been made out for the passing of an order by the CLB under Section 397/398 or 402 of the Companies Act. Anyway, leaving aside this incongruity in the stand of the appellants, the worth of the present argument should be put to test. It appears that the just and equitable principle of wind ing up was evolved by English Courts. Section 210 of the (British) Companies act, 1948, and Sections 459 to 461 of the (British) Companies Act, 1985, are akin to the provisions of Sections 397 and 398 of the (Indian) Companies Act, 1956. Likewise Section 433 of the (Indian) Companies Act, 1956 is pari materia with Section 222 of the (British) Companies act, 1948 and Section 517 of the (British) Companies Act, 1985. It would be found that Section 44 (g) of the Indian Partnership Act, 1932, provides for dissolution of a firm by the court on the just and equitable ground. The important case on this aspect of the matter which has been taken note of by the Indian courts is Ebrahimi v. West-bourne Galleries Ltd. [1972] 2 All ER 492 (HL). It was held in the said case that the just and equitable clause for the winding up of a company could be invoked when the company in substance was a partnership and there was an understanding that the parties would participate in the management of the company and when there was provision in the articles of association for removal of directors and the petitioner was removed from the board of directors and excluded from any part of the management of the company, it amounted to breach of good faith the parties owed to each other.

(38) In the case of Bhaskar Stoneware Pipes Pvt. Ltd. v. Rajinder Nath Bhaskar [1988] 63 Comp cas 184, the Delhi High Court applied the just and equitable clause in relation to winding up of a company when the business started as a partnership between four groups of family members converted into a company. Proportionate parity of shares between the groups was maintained throughout and there was a basic obligation that the balance of shareholding was not to be disturbed. There was an attempt to take over by one group of the company by increasing its shareholding. In such a situation, the analogy of partnership and the rule in Ebrahimis case [1972] 2 All ER 492, was held to be applicable. It was held that the question was not whether any group had been expelled lawfully or otherwise. Rather the question was whether a breach of mutual understanding occurred. It was further held that on proof of acts of oppression and mismanagement and proof that the affairs of the company warranted winding up under the just and equitable clause, the court was not to order winding up merely on the existence of just and equitable grounds. The court has to consider as to whether the companys affairs could be remedied under Section 397 or 398 of the Companies Act. In the present case also, both the warring groups had equal rights in the management as is clearly borne out by the articles of association, particularly Articles 108, 109 and 110. Two groups taken together held 80 per cent, of shares. The discussion made in the earlier part of the judgment is a clear indicator of the complete deadlock between the two groups, both of them trying to have upper edge over the other and the CLB having recorded a finding of fact that both of them were guilty of acts of oppression against each other. Thus, there was complete breach of faith between the two groups who had equal rights in carrying on the management.

(39) Both parties have relied on the case of Kilpest P. Ltd. v. Shekhar Mehra [1996] 87 Comp Cas 615 (SC). Learned counsel for the appellants has urged on the basis of this decision of the supreme Court that the principle applicable to dissolution of partnerships is to be invoked in the matter of a company in rare cases to order winding up. The interest of shareholders is of primary importance as held in the said case. On the other hand, the submission of learned counsel for the respondents is that this decision of the Supreme Court also does not completely rule out the application of the principle of dissolution of partnership to order winding up of a company. To my mind, what flows from this decision of the Supreme Court is that each case has to be judged on its own facts and circumstances for invoking or otherwise the principle applicable to the dissolution of partnership and it cannot be said that the application of such principle in the winding up petition of a company is completely excluded.

(40) Learned counsel for the appellants has relied on yet another case of Hind Overseas Pvt. Ltd. v Raghunath Prasad Jhunjhunwala [1976] 46 Comp Cas 91 (SC), to articulate the point that the interest of the applicant alone is not of predominant consideration. The interest of the shareholders of the company as a whole apart from those of other interests has to be kept in mind. It was held in the said case that the relief under Section 433 (f) of the Companies Act, 1956, based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interest of the company. It has been stressed that as held in the said case, it is only when shareholding is more or less equal and there is complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, that there may arise a case for winding up on the just and equitable ground. I do not think that this decision of the Supreme Court is helpful to advance the argument of learned counsel for the appellants that the principle of dissolution of partnership could not be invoked under the facts and circumstances of the present case. In the present case, virtually the company is a family company and both groups have equal rights of management as per the articles of association. The Supreme Court has ruled in the cited case that the principle of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil, it is found that in reality it is a partnership. The discussion made earlier and which is likely to follow would clearly establish that the company is virtually a family company controlled by the two groups holding 80 per cent, of the share capital. The company has most of the trappings of a partnership in the garb of public limited company. The facts and circumstances did justify the invoking of the principle of dissolution of partnership.

(41) It would now be appropriate to examine another angle as to whether the CLB could order the division of assets between the two groups. To begin with on this aspect of the matter, it deserves mention that the court may also find it just to break through the corporate shell and apply the principle of what is known as lifting or piercing the corporate veil, where it may become necessary to examine the character of persons in real control of corporate affairs. The background is that it is a closely held company. It was formed as a partnership firm by the family members of the two groups around 1960, was then converted into a private limited company in 1969 and ultimately into a public limited company in 1975. The articles of association bear ample testimony to the character of the company as a family company. As per the articles of association (particularly articles 108 to 110), both the groups have equal rights in the management. KNB has been associated right from the beginning and has been the managing director of the company over long span of years with another one on his side ; namely, BNB as the joint managing director. It is obvious that the KNB group actively looked after the concern, nurtured it and made active contribution in its flourishment, which probably necessitated transformation of the partnership firm into a company. The KNB group should not, therefore, be thrown on the streets and deprived of the source which has been the fountain of its sustenance over long years, on hypertech-nical view that this group was in a minority and the majority shares were held by the DB group.

(42) There was a complete deadlock in the management and lack of confidence between the groups, though both of them had equal rights in management. Lack of probity was apparent. There was absence of fair dealings in the affairs of the company. There was continuous quarrelling with no reasonable hope of reconciliation. The two groups could not co-exist together. Parting of ways was the only way out.

(43) The Clb being a court of equity had to keep all the relevant aspects in mind while giving appropriate relief. Having regard to the history of the formation of the company and the involvement, participation and contribution of the KNB group throughout as also the equal rights of management given to both the groups by articles of association, no fault can be found in the decision of the CLB in ordering the division of assets, the forge division going to the KNB group and the other divisions to the DB group. There is nothing wrong when the CLB chose one of the many options which was nearest to the ends of justice to afford equitable, fair and reasonable relief to both the warring groups.

(44) It should also be pointed out that the concept of division of assets is not unknown to corporate jurisprudence. Sections 293 and 391 of the Companies Act, 1956, may be cited with advantage. Section 293, inter alia, provides for sale, lease or otherwise disposal of the undertaking of a company. The division of assets may also be ordered under Section 391 while sanctioning a scheme of compromise or arrangement. Article 68 of the articles of association of the company in question also, inter alia, relates to the sale or lease of the whole or substantial part of the undertaking of the company, of course, by special resolution of the company passed in general meeting. The exercise of powers by the CLB under Section 397/398 and 402 of the companies Act is not subject to ratification or approval by the shareholders or the board of directors. The CLB has wide powers for bringing to an end the oppression and mismanagement and can make any order that it considers just and equitable. In my opinion, the division of assets can also be ordered by the CLB in appropriate cases while exercising such powers. As to the scope of the powers of CLB under Sections 397/398 and 402 of the Companies Act, reference may be made to the case of Bennet Coleman and Co. v. Union of India [1977] 47 Comp Cas 92. A Division Bench of the Bombay High Court has held in the said case that Chapter VI, which contains Sections 397/398 and 402 of the Companies Act, deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent the oppression and/or mismanagement in the conduct of the affairs of the company. In the context of this scheme having regard to the object that is sought to be achieved by Sections 397 and 398 read with Section 402, the powers of the court (earlier to the amendment of the Companies Act in 1988 these powers were exercised by the company court) thereunder cannot be read as subject to the provisions contained in other Chapters which deal with normal corporate management of the company. An analysis of the Sections contained in Chapter VI of the Act would also indicate that the powers of the court under Section 397 or 398 read with Section 402 cannot be read as being subject to the other provisions contained in Sections dealing with corporate management of the company in normal circumstances. The topic or subjects dealt with by these Sections are such that it becomes impossible to read any such restriction or limitation on the powers of the court. Without prejudice to the generality of the powers conferred on the court under Sections 397 and 398, Section 402 proceeds to indicate what types of orders the court could pass. Under clause (g) of Section 402 the courts order may provide for any other matter for which, in the opinion of the court, it is just and equitable that provision should be made. The only limitation that can be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those Sections and beyond this limitation, which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of courts power. Further, Sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority shareholders from the acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and, if that be the objective, the court must have power to interfere with the normal corporate management of the company.

(45) Relying on the above case, a similar view was taken by a Division Bench of the Calcutta high Court in the case of Debi Jhora Tea Co. Ltd. v. Barendra Krishna Bhowmick [1980] 50 comp Cas 771. The court held as under (head-note) :

"there can be no limitation on the courts power while acting under Sections 397, 398 and 402 of the Companies Act, 1956. Instead of winding up a company, the court has been vested with ample power to continue the corporate existence of a company by passing such orders as it thinks fit in order to achieve the objective by removing any member or members of a company or to prevent the companys affairs from being conducted in a manner prejudicial to public interest. The court under Section 398 read with Section 402 of the Act has the power to supplant the entire corporate management. Under these provisions, the court can give appropriate directions which are contrary to the provisions of the articles of the company or the provisions of the Act. On a reading of Sections 402 (a) and 402 (g), there can be no doubt that the intention of the Legislature was to confer wide and ample powers upon the court for the regulation of the conduct of the companys affairs and to provide for any other matter which the court thinks just and equitable to provide for, in the interests of the corporate body and the general public. "

(46) The Calcutta High Court held in the case of Sishu Ranjan Dutta v. Bhola Nath Paper House ltd. [1983] 53 Comp Cas 883 that the court has ample power to pass any order for putting an end to the matter complained of including the division of assets between the two factions.

(47) So, it clearly emerges from various decisions that the powers of the CLB under Section 397/398 read with Section 402 of the Companies Act are absolute and are not controlled by any other provisions in the Act.

(48) Section 397/398 read with Section 402 of the Companies Act, 1956, present an alternative to the winding up of a company and the CLB has very wide powers to pass any just and equitable order to remedy the complained oppression/mismanagement with the avoidance of the winding up.

(49) Examing the present case in the proper perspective, the order of division of assets made by the CLB cannot be flawed on any premise. The CLB has passed such order on equitable consideration in the interest of the company and shareholders. The company has not been wound up. It continues to survive. The company goes with the DB group with its name. The decision of the CLB is not arbitrary. Rather it is guided by the fact situation and has proceeded on sound and firm foundation. It goes without saying that justice is the end of law. It has to be administered in such a way as to achieve this end.

(50) Hairsplitting technicalities should not be allowed to defeat justice. Law is not a cold blooded weapon always bound by technical considerations. Rather it is, a warm blooded remedial measure to impart substantial justice. By ordering division of assets, the KNB group is completely ousted from the company. The CLB has passed just and equitable order hiving off the forge division in favour of KNB group. As indicated earlier, this group has long been associated with the company right from the time of its inception. It may also be stated at the risk of repetition that both the warring groups had equal rights of management as per the articles of association. As complete deadlock came to be created between the two groups, they could not carry on together any more. The two groups owning 80 per cent, of the share capital were in real control of the company and could tilt the balance either way as against the remaining 20 per cent, shareholders. When complete lack of faith surfaced between the two groups having equal rights in the management, division of assets could be the only proper and just solution. The CLB rightly steered the middle way between two extremities. The law permits such a division and the clb has rightly granted it. The forge division given to the KNB group is to be valued by the valuer as directed by the CLB and it has to pay the price of this division. The shares held by the knb group have also to be valued and sold to company as per the value determined by the valuer.

(51) To come to the point, the argument of learned counsel for the appellants does not carry conviction that the principle of dissolution of partnership could not be invoked and that the division of assets could not be ordered by the CLB which could only order purchase of shares of the minority by the majority.

(52) Another argument of learned counsel for the appellants is that the CLB could not implement a private agreement between the parties. Annexure CA-2 to the counter affidavit A-7 filed by the respondents (K. N. group) in Appeal No. 2 of 2000 is the family settlement that had been arrived at on March 23, 1991, between the KNB group and the DB group. Consequent upon this family settlement, the articles of association of the company have been amended to incorporate some of the conditions of the family settlement. One of the clauses of the family settlement related to equalisation of shares between the two groups. However, it was not incorporated in the articles of association by amendment. It cannot be comprehended as to how the impugned order of the clb can be taken to be implementing the family settlement. The CLB has taken note of only what was contained in articles of association either originally or after amendment subsequent to the family settlement of 1991. It may be stated another way that no weight or consideration has been given by the CLB to the family settlement, excepting what came to be incorporated in the articles of association by amendment. The impugned order of CLB does not provide for equalisation of shares. The company survives and remains with the DB group. Only a division (forge division) has been hived off in favour of the KNB group on cumulative consideration of relevant factors. This argument, therefore, does not hold water and is rejected.

(53) Yet another argument from the side of the appellants is that the divisions of the company are interdependent and the TCD and the TRD cannot survive without forge division. The argument may seem to be attractive at the first blush but falls through on scrutiny. It would be recalled that a partnership business of the family was converted into private limited company in 1969 and later on into a public limited company in 1975. Annexure 1 to the counter affidavit of Sameer bhargava filed in support of the application for interim relief is the copy of the petition made by the KNB group before the CLB. It was stated in its paragraph 6 that the forge division was established in 1977-78. Annexure 2 of the said affidavit is the copy of the reply filed by DB group. The above averment of the KNB group has not been denied by the DB group in the reply filed before the CLB. The fact was repeated by the respondents (KNB group) in paragraph 9 of the affidavit A-7 that it was in 1977-78 that Trackparts of India Ltd. set up a forge division. Again it has gone uncontroverted meaning thereby that actually the forge division was set up in 1977-78. It is obvious that for a number of years the company carried on without forge division. There is also nothing to show that the entire product of forge division is consumed or utilized by the other two divisions. Inference can justifiably be drawn that the produce of forge division was partly utilized by the other two divisions of the company and the rest was marketed outside. Therefore, it is not at all acceptable that the three divisions of the company are interdependent and the TRD and the TCD cannot survive without forge division. As an interim arrangement knb group had been managing the forge division and the DB group, the other divisions independently since January 1, 1999, without any difficulty. It has to be pointed out that the CLB has provided requisite safeguards to secure the interest of both the groups by providing as under in the order dated January 12, 2000.

"with immediate effect, the forge division will not compete with the business of the company nor the company with that of the forge division. The duration of such non-competing with each other will be decided later".

(54) So, I am not impressed by the theory of interdependence of the three divisions raised by the appellants. To my mind, there is no such interdependence, meaning thereby that forge division on the one hand and the other divisions on the other can independently carry on their operations and activities.

(55) The last argument of learned counsel for the appellants is that division of assets could not be ordered by the CLB in the absence of the creditors. It has been urged that financial institutions have heavy stake and they ought to have been heard before division of assets of the company was ordered by the CLB. I should point out in this regard that two main secured creditors, namely, the ICICI and State Bank of India were before the CLB as mentioned in paragraph 7 of its order dated November 30, 1999. Another relevant point is that no creditor has come up to lodge any challenge or objection against the impugned orders passed by the CLB. The appellants cannot take upon themselves the, role of creditors. They cannot make an issue of ventilating non-existent grievances on behalf of the creditors. This court also finds that the CLB was anxious to protect the interest of creditors and has given proper directions. It is the ICICI which has to appoint a valuer to value the shares as also the forge division. After valuation is determined, the parties including the financial institutions have been given the liberty to approach the CLB for a formal order. Financial institutions have also been given liberty to apply to the CLB in case of any necessity. Therefore, there is no likehood of the suffering of the interest of the creditors by such division inasmuch as necessary safeguards have already been provided by the CLB. On this aspect of the matter the decision of the Supreme Court in the case of Cosmosteels P. Ltd. v. Jairam Das Gupta [1978] 48 Comp Cas 312 may also be taken note of. That was a petition under Section 397/398 of the Companies Act, against oppression/mismanagement. Under Section 402 the court gave directions to the company to purchase shares of some of its own members, resulting in reduction of share capital. It was held that before granting such direction it was not necessary to give notice of consequent reduction of share capital to the creditors of the company inasmuch as no such requirement was laid down by the Act. There also the objection was that a direction for reduction of share capital could not be given by the court behind the back of the creditors whose interest was likely to be adversely affected. It was pointed out by the Supreme Court that a right of notice by any reason of rule or natural justice, which a party has to establish, must depend for its existence upon proof of interest which is bound to be injured by not hearing the party claiming to be entitled to a notice and to be heard before an order is passed. If the duty to give notice to hear a party is not mandatory, the actual order passed on a matter must be shown to have injuriously affected the interest of the party which was given no notice of the matter.

(56) The analogy of the said case is fully attracted here. As pointed out earlier, no grievance has been raised by any creditor and simply the appellants want to make an issue for themselves. Moreover, the CLB has provided sufficient safeguards to protect the interest of the creditors.

(57) Sri R. K. Vajpayee who has argued Appeal No. 3 of 2000 on behalf of the appellants has adopted all the arguments advanced by Sri Sunil Ambwani in Appeal No. 2 of 2000. Sri vajpayee has, however, made a few additional submissions which may be dealt with here.

(58) He has argued that the CLB found the petitioners also to be guilty of oppression and mismanagement. Still it passed the impugned orders granting relief to them. The line of his reasoning is that the CLB being a court of equity and the petitioners themselves having been found to be wrong doers, they could not be deemed to have come with clean hands and no relief could be granted to them. It is not possible to accept this line of approach. The mere fact that the clb found as a fact that both the groups were guilty of oppression and mismanagement could not debar or prevent it from passing an order which justice demanded and the law permitted. Needless to say, justice has to rise above pique instead of succumbing to retribution or retaliation.

(59) Referring to the case of Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp cas 548 (SC), it has also been argued by Sri Vajpayee that no eventuality or occasion had arisen for the CLB to have lifted the veil to come to the conclusion that the principle of dissolution of partnership could be invoked under the facts and circumstances of the case. Stress has been laid on the following observation of the Supreme Court (headnote) :

"generally and broadly speaking, the corporate veil may be lifted where the statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded, or associated companies are so inextricably connected as to be, in reality, part of one concern".

(60) I have considered this aspect of the matter. I do not think that the above decision of the apex court presented any hurdle in the way of the CLB to consider the previous background culminating into the formation of the company, the relationship of the parties, their contribution and involvement in the business since inception onwards so as to modulate an opinion about just and equitable relief which the situation demanded on a holistic approach.

(61) Assailing the division of assets ordered by the CLB, Sri Vajpayee has urged that the CLB completely gave a go-by to corporate democracy by only protecting the interest of the petitioners, remaining unmindful to the interest of the company as a whole and of shareholders. This argument too does not impress me. It is not so that the CLB has only protected the interest of the petitioners (KNB group). The reality is that the company survives and goes to the majority shareholders (DB group). The KNB group is completely ousted. The two groups taken together were actually controlling and managing the company holding amongst themselves about 80 per cent, share capital and each of them had equal right of participation in management. When an irreconcilable dispute and differences with lack of faith and probity came to the fore between the two groups, it was most reasonable, far from being unfair or prejudicial to the company or the body of shareholders as a whole, to order the division of assets.

(62) I have discussed above all the arguments and contentions raised at the Bar and my conclusion is that the impugned orders dated November 30, 1999, and January 12, 2000, passed by the CLB under challenge in the two appeals are perfectly justified having regard to facts and circumstances of the case and the same also have the support of law. They cannot at all be flawed on any ground whatsoever.

(63) To sum up, both the appeals are found to be devoid of merit. Resultantly, both Appeals Nos. 2 and 3 of 2000 are hereby dismissed. There shall be no order as to costs.