166 SEBI & Corporate Laws - Reports [Vol. 154
capacity
they
could
not
participate
in
the
decision
where
shares
were
trans
ferred -
to
their
own
group/company.
Even
if
HQRL
were
a
private
limited
company,^
the
compliance
with
the
provisions
of
section
300
of
the
Act
was
mandatory.^
The
High
Court
has
also
observed
that
there
was
undervaluation
of^
HQRL
shares.
The
allotment
of
shares
at
par
to
Moral
in
the
meeting
on
10. 5. 2005
and
on
the
same
very
date,
shares
of
Moral
were
transferred
to
Mr.
R.P.^
Mittal
@
Rs. 20
per
share.
Thus,
the
High
Court
has
opined
that
these
acts
in^
overall
factual
matrix
of
the
case,
were
sufficient
to
conclude
that
ground
under^
section
397
had
been
made
out.
The
High
Court
has
also
found
that
HQRL
did
not
have
the
share
certif
icates -
along
with
duly
executed
share
transfer
forms
when
a
decision
was
taken^
at
the
Board
meeting
held
on
10. 5. 2005
to
transfer
shares
from
Moral
to^
Mr.
R.P.
Mittal.
The
decision
has
been
held
to
be
invalid
for
violation
of
provisions^
contained
in
Section
108
of
the
Act
of
1956
for
the
aforesaid
reason
also.^
The
Court
has
recorded
suo motuproceedings
under
section
340
Cr.PC
against^
Mr.
R.P.
Mittal.
The
Court
has
invalidated
the
impugned
resolutions
dated^
27. 7. 2004 ,
7. 1. 2005
and
10. 5. 2005
and
the
decision
of
the
Company
Law
Board^
has
been
set
aside.Coming
to
the
submission
as
to
oppression
whether
the
Act
was
oppres
sive -
or
not
within
the
purview
of
section
397
on
behalf
of
the
appellant,
it
was
submitted^
that
Mr.
Ashok
Mittal
did
not
fund
Rs. 5. 5
crores
to
Moral
out
of
Rs. 12. 03
crores
for
acquisition
of
HQRL,
as
claimed.
His
claim
that
a
loan
of
Rs. 13
crores
was
obtained
on
basis
of
his
personal
guarantee
was
wrong.
It
was^
also
urged
that
there
was
no
financial
mismanagement
by
the
appellants.
The^
test
whether
action
was
oppressive
or
not,
is
based
on
whether
it
is
legally
permissible^
or
not.
Reliance
has
been
placed
on
(^ Needle Industries India Ltd.^
supra)
in
which
this
Court
has
observed:
‘ 49.
The
question
sometimes
arises
as
to
whether
an
action
in
contravention
of
law
is^
o^ fper^ se^ oppressive.^ It^ is^ said,^ as^ was^ done^ by^ one^ of^ us,^ Bhagwati,^ J.,^ in^ a^ decision^
the Gujarat High Court in Seth Mohanlal Ganpatram v. Sayaji Jubilee Cotton &
Jute Mills Co. Ltd. [^1964 ] 34 Company Cases 777 that “a resolution passed by the
directors may be perfectly legal and yet oppressive, and conversely a resolution
which is in contravention of the law may be in the interests of the shareholders
and the company”. On this question, Lord President Cooper observed in Elder v.
Elder [^1952 ] S.C. 49 :
The decisions indicate that conduct which is technically legal and correct may
nevertheless be such as to justify the application of the “just and equitable” ju-
risdiction, and, conversely, that conduct involving illegality and contravention of
the Act may not suffice to warrant the remedy of winding up, especially where
alternative remedies are available. Where the “just and equitable” jurisdiction has
been applied in cases of this type, the circumstances have always, I think, been
such
as
to
warrant
the
inference
that
there
has
been,
at
least,
an
unfair
abuse
of
powers^
and
an
impairment
of
confidence
in
the
probity
with
which
the
company’s
affairs^
are
being
conducted,
as
distinguished
from
mere
resentment
on
the
part
of
a^
minority
at
being
outvoted
on
some
issue
of
domestic
policy.