Bihar State Industrial Development ... vs Asiatic Oxygen Ltd. & Ors

Bihar State Industrial Development Limited ... Appellant

Versus

Asiatic Oxygen Ltd. & Ors. ... Respondents

Present: For Appellant: Shri Nilanjan Chatterjee and Shri Bishwa Bandhu, Advocates

For Respondents: Shri Anil Agarwalla, Ms. Neha Sharma and Shri Shakya Sen, Advocates

WITH

Company Appeal (AT) No. 151 of 2017

IN THE MATTER OF:

Asiatic Oxygen Ltd. & Ors. Appellants

Versus

Bihar Air Products Limited & Ors. Respondents

Present: For Appellant: Shri Anil Agarwalla, Ms. Neha Sharma and Shri Shakya Sen, Advocates

For Respondents: Shri Nilanjan Chatterjee and Shri Bishwa Bandhu, Advocates 2

ORDER

28.07.20 17 Both these appeals have been preferred by the

contesting parties against the common order dated 22nd February,

2017 passed by the National Company Law Tribunal (hereinafter

referred to as 'Tribunal'), Kolkata Bench, Kolkata in Company

Petition No. 191/2007.

2. The Company Petition No. 191/2007 was preferred by Asiatic

Oxygen Limited (Petitioner/Appellant herein) under Sections 397,

398, 399, 402, 403 and 406 of the Companies Act, 1956 before the

erstwhile Company Law Board, Kolkata Bench, Kolkata. It was

alleged that the Bihar State Industrial Development Corporation

Limited, (Respondent before the Tribunal) was trying to act in a

manner which was oppressive to the petitioner-Asiatic Oxygen Ltd.

having decided to exit from the Company-Bihar Air Products

Limited by inviting tender to sell their shares.

3. The Company Law Board, noticed that the company-Bihar Air

Products Limited is a joint venture company. The Bihar State

Industrial Development Corporation Limited, a Government

Company incorporated under the Companies Act, 1956 in

collaboration with Asiatic Oxygen Ltd.-Respondent/Appellant, was

running the company named Bihar Air Products Limited (1st

Respondent before the Tribunal).

3

4. The arguments advanced on behalf of the parties were noticed

by the Company Law Board which by its order dated 30th June,

2009, observed and passed the following order:

"31. Shri Mookherjee advanced an alternative argument

alternative argument that since the company is a

Joint venture, the principals of partnership should

apply. This being the case, according to him one of

the partners cannot induct another partner without

the consent of the other and when he has decided to

exit from the company, he should offer the shares to

the remaining partner. This argument has two

components. One is that Corporation should have

offered its shares only to the petitioners and the

other is that it should hot have sold the shares to a

third party. Asfaras the applicability ofpartnership

principles is concerned, I am in full agreement with

Shri Mookerjee. The company is the creature of the

Collaboration Agreement between the petitioners

and the Corporation and in spite of disputes among

them, they have continued together for over 30

years. Even though the Corporation was to have

26% shares and the petitioner of 25%, yet, the

petitioner was allowed to acquire further shares in

the public offer. Thus, the petitioners came to old 4

38.45% as against the Corporation of 32.24%

making them as the single largest shareholder

group. While the petitioners were in control of the

company through their nominee MD till about 1992,

with the agreement dated 19.7.2006, their nominee

has again become the MD. This Board has always

taken a view that when disputes and differences

arise between two main parties controlling a

company, the parting of ways is the best solution in

so far as the Interests of the company is concerned

and in determining as to who should remain in the

company, this Board has always given weightage to

the shareholding and also to the fact as to who is in

effective control of the company. In the present case,

the petitioners are the largest group of shareholders

and from 2006, the company is under their control.

Further, the determination as to who should go out

of the company has become immaterial in this case,

as the Corporation has, on its own, decided to exit

from the company, as is evident from the fact that it

has called for tenders for its shares. In all fairness

and in equity, even in the absence of any written

agreement, the Corporation has, on its own, decided

to exit from the company, as is evident from the fact 5

that it has called for tenders for its shares. In all

fairness and in equity, even in the absence of any

written agreement, the Corporation should have

offered these shares to the petitioners-being the'

collaborators and only in case when either the

petitioners had rejected the offer or had not been

able to match the price demanded by the

Corporation, then, it could have invited offers from

outsiders. Admittedly, no offer was made to the

petitioners when the Corporation decided to exit the

company. As a matter of fact, when the petitioners

came to know of the tender process initiated by the

Corporation, they did write on 2.8.2007 expressing

their interest to purchase the shares at a mutually

agreed price, but the corporation did not react. Thus,

I am in full agreement with Shri Mookherjee that by

offering the shares to an outsider, and thus creating

a new negative control in a third party, that too,

without any, obligation towards the company, the

Corporation has acted in a manner oppressive to the

petitioners. One other aspect also requires

consideration. There are' certain Articles in the

Articles of Association of the company, without the

alteration of which, the "Corporation itself may not be 6

in a position to exit from the company. Since the

petitioners hold 38.45% shares no special resolution

is possible to amend the Articles without their

support, Article 7 stipulates that the Corporation and

the collaborators shall hold at any time, 26% and

25% or more as the Board decides of the issued

capital of the company respectively. Therefore, in

violation of this Article, the company itself would not

be able to register sale of any share held by the

Corporation, if by such sale, the shareholding of the

Corporation come down below 26%. As a matter of

fact, the order of the High Court dated 25.1.1993

restraining the company from registering the

transfer of shares held by the Corporation is still in

force. Article 101 stipules that the Corporation and

the collaborators shall be entitled to appoint four

directors each, as long as the shareholding of the

Corporation is not below 26% and that of the

petitioners not below 26% and that of the petitioners

not below 25%. In terms of Article 138, the

petitioners are entitled to appoint its nominee as the

MD in consultation with the Corporation. Similarly,

in terms of Article 138A, the Executive Director is to

be the nominee of the Corporation to be appointed in consultation with the petitioners. From these

provisions, it is evident that unless and until the

Articles are amended, the amendment of which

would require the support of the petitioners, the

proposal of the Corporation to sell the shares held by

it in the company to an outsider would make the

present Articles unworkable. Making the Articles of

a company unworkable by their voluntary act by a

set of shareholders is also an act of oppression.

Thus, taking into consideration the nature of the

company that it is joint venture in the nature of a

quasi partnership, the provisions of the Articles and

also in equity, I am of the view that the petitioners

have established their case for grant of the relief

sought that the Corporation should be directed not to

sell its shares to anybody, other than the petitioners.

32. However, it is on record that the Corporation had

invited tenders and has finalized the offer of M/s.

Anjaneya lspat Limited. Even though in the reply to

the petition, the Corporation has not indicated any

details about the consideration received from

Anjaneya, yet, in its interning application, M/s.

• Anjaneya has indicated that it has already

deposited a sum of Rs. 7 lakhs towards 8

consideration for the shares. Thus, without giving

MIS Anjaneya an opportunity of hearing, no relief as

sought for by the petitioners, even though I have

opined that the petitioners deserve the same, could

be granted. Even though MIS Anjaneya has not

been impleaded as a party respondent by the

petitioners, MI Anjaneya itself has applied for such

an imp leadment and I have already ordered for the

same. Shri Mookerjee pointed out that in acquiring

the impugned shares, MIS Anjaneya has acted in

breach of the SEBI Take Over Code and also the

provisions of SCRA as the sale is not on spot delivery

basis. Even though, these allegations are not part of

the petition, yet, since the same relate to alleged

violation of the provisions of statutes, MIS' Anjaneya

has to respond to these allegations.

33. Accordingly, I direct MIS Anjaneya and the

Corporation to file their response, as to why, the

proposed purchase/sale of the impugned shares

should not be declared as null and void for the

following reasons That the company, being in the

nature of a quasi partnership, the Corporation could

not have offered the shares to an outsider without

first offer to the petitioners; That the purchase or the 9

impugned shares is in violaton of the SEBI Takeover

Code and that it also violates the provisions of

SCRA.

34. Their response should be filed latest by 15.7.2009

and the petitioners are liberty to file their counter by

10.8.2009. The matter will be further heard on a

date to be notified. The earlier, interim order dated

19.11.2007 will continue till the matter is finally

decided."

5. Against the said order, the Respondent/ Appellant moved an

appeal before the Jharkhand High Court under Section 10-F of the

Companies Act, 1956 but the said appeal was not pressed and was

dismissed for default. Thereby, the order passed by the Company

Law. Board on 30th June, 2009, in so far as it relates to the finding

with regard to 'oppression and mismanagement' has reached

finality.

6. Thereafter, the matter remained pending after notice to the

third party i.e. M/s. Anjaneya Ispat Limited and Bihar State

Industrial Development Corporation Limited. Thereafter, no final

order was passed and the matter was transferred to the Tribunal,

Kolkata Bench at Kolkata. The Tribunal, by the impugned order

dated 22nd February, 2017, while observed that there is 'oppression 10

and mismanagement', further held that there is a deadlock between

the parties and passed the following order

"In view of the facts briefly enumerated above

in the present case, it is clear that there is a deadlock

which has adversely affected the functioning of the

Company-BAPL, as a viable enterprise. In a situation

where a deadlock has arisen in the management of

a company rendering the functioning of the company

inoperative, and even in the event where oppression

or mismanagement cannot be established against

any party, the Tribunal can make an order under

Section 402 (b) of the Companies Act, 1,956.

Additionally in the case of M.S.D.C.

Radharamanan vs. M.S.D. Chandrasekara Raja

and Another, 2008 (2) SCC 901, it was recorded that

there could be a method of valuation whereby at the

first instance, one of the parties to the dispute shall

purchase the shares of the petitioners, within six

months from the date of finalisation of such

valuation and on his failure to do so, the other party

shall purchase the shares of the other within six

months thereafter. In the event both the alternatives

fail the purchase of shares of either of the parties to .11

the dispute could be transferred to third parties

depending upon the exigency, to ensure the smooth

running of the company.

ORDER

Preliminary decree is being passed for valuation

of main business by an independent Valuer. Both

the groups of shareholders are being directed to give

the name of an independent Valuer through

consensus within fifteen days from the date of order,

failing which both the groups will have the option to

give names of three independent Valuers within one

week thereafter, so that the Tribunal may issue

directions for valuation of the aforesaid company

and report of valuation is directed to be submitted

within three months. The amount payable to

independent Valuer will be borne by both the

Petitioners and Respondents in equal proportion.

Based on the current valuation by the registered

valuer, either of the parties may then sell their

shares to the other that they hold in BAPL and

subsequently exit the company in question.

Parties are to bear their own costs."

12

7. The Appellant/Respondent-Bihar State Industrial

Corporation Limited has challenged the impugned order dated 22nd

February, 2017 on the ground that the Tribunal without any basis

and without any ground held that there is a deadlock between the

parties.

8. Learned counsel for the Respondent/Appellant-Asiatic

Oxygen Ltd., accepted that the order dated 30th June, 2009 passed

by the Company Law Board, Principal Bench at Kolkata, has

reached finality, in so far as the question as to whether there was

any 'oppression and mismanagement' on the part of

Appellant/ Respondent-Bihar State Industrial Development

Corporation or not.

9. It appears that a restoration application has been filed by

Respondent-Bihar State Industrial Development Corporation

Limited before the Jharkhand High Court but in view of the

development as taken place in the meantime, it is not necessary to

keep the matter pending for the same.

10. Learned counsel for the Respondent-Bihar State Industrial

Development Corporation Limited submitted that the Corporation

has now decided 'not to sell its shares to any third party', including

M/s. Anjaneya Ispat Limited. The tender as was issued in the year

2007 has not been given effect to. Thus, in view of such decision 13

as taken by the Corporation, we hold that 'oppression' as the Asiatic

Oxygen Ltd. (Respondent/ Appellant) was anticipated by Petitioner

no more subsists.

11. In view of the aforesaid development, we set aside the

impugned order dated 22nd February, 2017 passed by the Tribunal

in Company Petition No. 191/2007 and dispose of the appeals.

However, on the facts and circumstances of the case, there shall be

no order as to costs.

[Justice S.J. Mukhopadhaya Chairperson

[Balvinder Singh] Member (Technical)

/ ng/