REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.5416-5419 OF 2008

CHATTERJEE PETROCHEM (I) PVT. LTD.  … APPELLANT  Vs.

HALDIA PETROCHEMICALS LTD.& Ors.  … RESPONDENTS

WITH CIVIL APPEAL NOS.5420, 5437-5440 OF 2008

J U D G M E N T

ALTAMAS KABIR,J.

1. M/s.  Haldia  Petrochemicals  Ltd.,  hereinafter  

referred to as “H.P.L.”, was incorporated in 1985  

for  establishing  a  green  field  petrochemical

complex in Haldia in the State of West Bengal to be  

established  by  the  West  Bengal  Industrial  

Development Corporation, hereinafter referred to as  

“WBIDC”, and the R.P. Goenka Group.  However, the  

Goenka  Group  left  the  Company  in  1990  and  Tata  

Chemicals  and  Tata  Tea  were  inducted  into  the  

project between 1990 and 1993. Not much headway was  

made towards implementing the project till  June,  

1994  when  Dr.  Purnendu  Chatterjee,  hereinafter  

referred  to  as  “PC”,  a  Non-Resident  Indian  

industrialist and financier, expressed an interest  

in  the  project.  Accordingly,  a  Memorandum  of  

Understanding was entered into between WBIDC and  

the  Chatterjee  Petrochem  (Mauritius)  Company,  

hereinafter referred to as “CP(M)C” and the Tatas  

on 3rd May, 1994.  According to the said Memorandum,  

the initial cost of the project was estimated at  

Rs.3600 crores which was to be funded with a debt  

of  Rs.2400  crores  and  equity  of  Rs.1200  crores.  

Initially, equity capital of Rs.700 crores was to  

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be contributed by WBIDC, CP(M)C and the Tatas in  

the  ratio  of  3:3:1  respectively.   It  was  also  

provided  that  the  Board  of  the  Company  would  

consist of four nominees each of WBIDC, CP(M)C and  

two from the Tata group.  This was followed by a  

Joint Venture Agreement, hereinafter referred to as  

“JVA”,  between  the  three  parties  on  20th August,  

1994, incorporating the terms which had been agreed  

upon by the parties. It was decided that both WBIDC  

and CP(M)C would invest Rs.300 crores each and the  

Tatas  would  invest  Rs.100  crores,  while  Rs.500  

crores  was  to  be  obtained  from  the   public,  

including  Non-Resident  Indians  and  Financial  

Institutions,  towards  equity,  keeping  the  debt  

equity  ratio  at  2:1.   Certain  other  terms  and  

conditions  agreed  between  the  parties  were  also  

included  in  the  Agreement,  of  which  one  of  the  

specific terms was that in case of disinvestment by  

WBIDC, the disinvested shares would be offered to  

CP(M)C.  One of the other terms agreed to by the  

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parties  is  that  they  would  be  entitled  to  seek  

specific performance of the terms and conditions of  

the agreement in accordance with the provisions of  

the Specific Relief Act, 1963, and the agreement  

would remain in force as long as the parties held  

the prescribed percentage of shares.   

2. After  the  said  agreement  was  executed,  four  

other  letters  dated  30th September,  1994,  6th  

October, 1994 and 5th January, 1995, were exchanged  

between  the  parties,  whereby  it  was  agreed  that  

between  24  months  of  commencement  of  commercial  

production or within 60 months of the date of the  

JVA,  whichever  was  later,  at  least  60%  of  the  

shareholding  of  the  WBIDC  would  be  offered  to  

CP(M)C at Rs.14/- per share. It was provided that  

the role of the Government in the Company would be  

limited to its promotion and guidance through the  

initial phases of the project and that the nominee  

of  CP(M)C  would  be  the  Managing  Director.   In  

March,  1995,  the  Articles  of  Association  of  the  

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Company were altered to bring it in line with the  

terms  of  the  JVA.   An  addendum  to  the  JVA  was  

executed on 30th September, 1996/4th October, 1996,  

by which the project cost was revised to Rs.5170  

crores and the equity participation was revised to  

Rs.432.857 crores to be provided by WBIDC and by  

CP(M)C,  while  Tatas  were  to  provide  Rs.144.286  

crores.   The  remaining  equity  participation  of  

Rs.969 crores was to be from the public.   

3. The  project  started  in  1997  and  commercial  

production commenced in August, 2001.  Thereafter,  

further agreements were entered into between the  

parties  and  the  first  of  such  agreements  was  

entered into on 12th January, 2002, whereby CP(M)C,  

the Government of West Bengal, WBIDC and HPL, inter  

alia,  agreed  on  a  certain  course  of  action  in  

regard to HPL’s need of financial and managerial  

restructuring.   The  object  and  exercise  of  such  

restructuring  was  that  CP(M)C  would  acquire  a  

controlling interest of 51% shares in the equity of  

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the Company and would have complete control over  

the day-to-day affairs of the Company, including  

the right to appoint key executives.  WBIDC also  

agreed to vote along with CP(M)C on all issues in  

the shareholders meeting and its nominee would also  

vote  along  with  the  nominee  Directors  of  the  

CP(M)C.  It was specifically agreed that all other  

rights and obligations of CP(M)C in terms of the  

earlier  agreement  would  continue  till  CP(M)C  

acquired majority shares in the Company.   

4. The  aforesaid  agreement  was  followed  by  

another agreement dated 8th March, 2002, wherein it  

was recorded that in terms of the agreement dated  

12th January,  2002,  155,099,998  equity  shares  of  

WBIDC  had  been  transferred  and  delivered  to  

CP(I)PL, on 8th March, 2002.  It was also mentioned  

that the said shares were pledged with WBIDC and,  

accordingly, the shares had been duly lodged along  

with  the  share  certificates  with  WBIDC  and  the  

pledge  had  been  acknowledged.  Certain  other  

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agreements in regard to the shareholding pattern  

and  the  management  of  the  Company  were  entered  

into, wherein after allotment of shares to Winstar,  

which had been brought in to infuse Rs.127.4 crores  

towards equity, the collective shareholding of the  

Appellants was shown to be 58.62% with a rider that  

155 million shares transferred by WBIDC to CP(M)C  

was subject to registration and lenders’ approval.  

We may have recourse to refer to some of the said  

agreements at a later stage.   

5. One other agreement which is relevant to the  

facts of this case was entered into between PC and  

the Government of West Bengal, represented by the  

Respondent  No.8,  Shri  Sabyasachi  Sen,  on  14th  

January, 2005, wherein it was indicated  that  the  

Government  of  West  Bengal  would  sell  its  entire  

shareholding in HPL to CP(M)C, and that the price  

of the shares would be determined by an independent  

valuer selected by the Government of West Bengal  

from amongst a panel of firms to be prepared by  

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CP(M)C.   It  was  further  declared  that  the  

recommendation of the valuer would be binding both  

on the Government of West Bengal and CP(M)C.    

6.  In the months of January and February, 2005,  

HPL  had  approved  the  issuance  and  allotment  of  

equity shares worth Rs.150 crores at par to Indian  

Oil Corporation (IOC). Objecting to the proposed  

allotment of shares to IOC and also on the ground  

that WBIDC and the Government of West Bengal had  

failed to fulfil their commitment to transfer their  

balance  36%  shares  to  the  Appellants,  the  

Appellants  filed  Company  Petition  No.58  of  2009  

before the Company Law Board under Sections 397,  

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

1956, inter alia, for the following reliefs :-

“a) An  order  be  passed  directing  the  company  to  take  immediate  steps  for  modifying  and/or  altering  and/or  amending  the  Articles  of  Association  of the Company to incorporate therein  the complete agreement by and between  the joint venture partners and special  rights of the petitioner in relation  

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to  the  Company,  as  provided  in  the  Agreements dated 20th August, 1994, 12th  January, 2002, 8th March 2002 and 30th  July, 2004.

b) Appropriate orders be passed directing  the  entire  shareholding  of  the  respondent No.2 in the Company to be  transferred  in  favour  of  the  petitioner  at  the  agreed  price  of  Rs.14/- per share in respect of such  number of shares of HPL registered in  the  name  of  Respondent  No.2  constituting 60% of the holding of the  respondent No.2 in the Company and on  such  valuation  in  respect  of  the  balance shares held by Respondent No.2  as this Hon’ble Board may think fit  and proper;

c) Declaration that the resolution passed  at  the  EGM  of  the  Company  held  on  January  14,  2005,  is  illegal,  inoperative,  null  and  void  and  not  binding on the Company or any person  connected therewith;

d) Permanent  injunction  restraining  the  respondents  whether  by  themselves  or  by their servants or agents or assigns  or otherwise howsoever from giving any  effect  or  further  effect  to  the  resolution passed on the EGM held by  the Company on January 14, 2005 in any  manner whatsoever;

e) Permanent  injunction  restraining  the  Company  from  receiving  any  money  or  encashing  any  cheque  that  may  have  been issued by the Respondent No.6 to  

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the  Company  in  pursuance  of  the  Memorandum  of  Association  and  the  resolution passed by the EGM of the  Company held on January 14, 2005;

f) Permanent  injunction  restraining  the  Company  and  its  Board  of  Directors  from  taking  any  major  decision  or  policy  decision  relating  to  the  management and affairs of the Company  before  the  majority  shareholding  and  management control in the Company is  effectively  established  as  per  the  Agreements  dated  12th January,  2002,  and 30th July, 2004, including the due  recognition  of  the  nominee  of  petitioner  No.2  as  Director  of  the  Company  pursuant  to  the  letter  of  Petitioner No.2 dated 1st August, 2005;

g) Permanent  injunction  restraining  the  Company  and  its  present  board  from  dealing  with  or  disposing  of  or  alienating or encumbering any asset or  property  of  the  Company  except  strictly in the course of the business  of the Company;

h) Permanent  injunction  restraining  the  Company  and  its  Board  of  Directors  from taking any decision in relation  to  the  management  and  administration  of  the  Company  except  with  the  previous approval of the petitioner;

i) Permanent  injunction  restraining  the  respondents and each of them from in  any manner acting in derogation of the  petitioner’s  rights  as  majority  shareholders  in  the  company  and  the  

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petitioner’s  right  to  control  the  management  of  the  Company,  including  without limitation by way of sale of  shares of the Company held by any of  them  to  any  third  party  except  the  petitioners;

j) …………………………………………………………………………………………………… k) ……………………………………………………………………………………………………

l) Direct the reconstitution of the Board  of the Company to reflect the majority  control  and  the  special  rights  accorded under the Agreements between  the shareholders to the petitioners;

m) …………………………………………………………………………………………………… n) ……………………………………………………………………………………………….”

     Subsequently,  on  coming  to  learn  that  the  

shares  in  question  had  already  been  allotted  to  

IOC,  the  Appellants  filed  an  application  for  

amendment  of  the  petition  to  challenge  the  

allotment in favour of IOC and seeking cancellation  

thereof.  

7. Before  the  Company  Law  Board,  hereinafter  

referred  to  as  “the  CLB”,  not  only  was  it  

reiterated by the Chatterjee Group that PC had to  

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rejuvenate  the  Company  and  to  implement  the  

project,  for  which  he  was  recognized  as  a  

“promoter”  in  the  Memorandum  of  Understanding  

entered into on 3rd May, 1994, but that there was a  

clear understanding that the Chatterjee Group would  

have management interest in the Company.  Before  

the CLB it was further contended that the Company  

was  really  a  quasi-partnership  with  each  of  the  

three groups having financial stakes and management  

participation. The Chatterjee Group further claimed  

that  the  Memorandum  of  Understanding  not  only  

provided for the Appellants to hold 3/7th of the  

shares  of  the  Company,  but  also  2/5th of  the  

Directorship therein.   WBIDC was also to have a  

3/7th share  in  the  Company  so  that  the  Company  

remain as a private company.

8. The Chatterjee Group also reiterated that in  

the  JVA  dated  20th August,  1994,  the  Chatterjee  

Group  had  been  given  a  right  of  pre-emption  to  

acquire  the  shares  of  WBIDC  if  it  chose  to  

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disinvest its shares.  Before the CLB it was also  

emphasized  that  at  the  time  of  entering  into  a  

Memorandum of Understanding on 3rd May, 1994, it had  

been clearly understood between the parties that  

the  Company  would  remain  in  the  private  sector.  

Repeating  what  has  been  indicated  hereinbefore,  

learned counsel for the Chatterjee Group submitted  

before  the  CLB  that  in  addition  to  the  JVA,  4  

letters had been exchanged between the Chatterjee  

Group  and  the  WBIDC/GoWB  providing  for  the  

Chatterjee Group to acquire at least 60% of the  

shares held by WBIDC at Rs.14/- per share upon the  

happening  of  certain  events  within  a  particular  

timeframe. Before the CLB the Chatterjee Group also  

contended  that  it  was  understood  by  the  parties  

that the role of the Government would gradually be  

confined  to  promotion  and  guidance  during  the  

initial  stages  of  the  project,  after  which  the  

control of the management would be in the private  

sector  and  the  nominee  of  the  Chatterjee  Group  

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would be the Managing Director of the Company.

9. In support of its contention of mismanagement  

and  oppression  by  the  Company  towards  the  

Chatterjee Group, it was alleged that the decision  

to allot 150 million shares to IOC by WBIDC/GoWB  

had  been  taken  behind  its  back  with  the  sole  

intention of preventing the Chatterjee Group from  

acquiring the control of the Company’s affairs, as  

was promised and understood at the initial stage  

when  PC  agreed  to  participate  in  the  equity  

holdings of the Company.  One of the major acts of  

oppression complained of by the Chatterjee Group  

before  the  CLB  was  that  despite  having  received  

payment in respect of 155 million shares and having  

transferred the same to the Chatterjee Group, it  

did not complete the transfer by registering the  

transfer with the Company and altering its Register  

of Members accordingly, which effectively deprived  

the  Chatterjee  Group  of  having  the  promised  

majority shareholding in the Company. Before the  

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CLB  it  was  further  contended  that  had  the  said  

shares  been  registered  in  the  name  of  the  

Chatterjee  Group,  the  total  shareholding  of  the  

Chatterjee Group would have been 51% which would  

have  given  them  control  of  the  affairs  of  the  

Company.  Hence, a prayer had been made before the  

CLB for a direction upon WBIDC/GoWB to complete the  

transfer of the 155 million shares in favour of the  

Chatterjee Group.

10. On behalf of the Chatterjee Group it had also  

been contended before the CLB that it had agreed to  

induct IOC as a portfolio investor in the Company  

at the instance of GoWB.  However, subsequently, by  

its  letter  dated  20th September,  2004,  the  

Chatterjee Group had indicated that in view of the  

proposed  public  offer,  there  was  no  further  

necessity of inducting any portfolio investor, but  

the investment of Rs.150 crores by IOC could be  

considered. A resolution was adopted by the Company  

on  2nd November,  2004,  to  allot  shares  to  IOC,  

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although  the  Chatterjee  Group  was  against  such  

allotment.  In  order  to  maintain  the  private  

character  of  the  Company,  the  Chatterjee  Group  

called upon WBIDC to sell 60% of its shareholding  

to the CP(M)C at the agreed price of Rs.14/- per  

share  as  recorded  in  the  letter  dated  30th  

September, 1994.  It was further submitted before  

the  CLB  that  upon  such  demand  being  made,  

discussions were held and it was mentioned that the  

GoWB  and  WBIDC  would  give  in  writing  that  the  

entire shareholding of WBIDC in the Company would  

be sold to the Chatterjee Group. It was, therefore,  

submitted  that  pursuant  to  such  discussions  and  

representations that an Agreement was reached on  

14th January, 2005, between one Dr. Sabyasachi Sen  

and PC in the presence of Mr. Tarun Das, wherein  

they agreed to vote in support of the Resolution to  

allot 150 million HPL equity shares to IOC at par.  

The grievance of the Chatterjee Group before the  

CLB was that inspite of several letters written on  

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behalf of the Chatterjee Group, no steps were taken  

by the Company to give effect to the Resolution  

dated 14th January, 2005.

11. Another major grievance of the Chatterjee Group  

before the CLB was that sometime before 15th July,  

2005, doubts regarding IOC’s investment in HPL were  

substantiated when the letter dated 10th November,  

2004, written by the WBIDC to IOC was discovered.  

It  was  contended  before  the  CLB  that  by  

deliberately  suppressing  the  discussions  between  

WBIDC and IOC which would give IOC control over the  

management of HPL, WBIDC/GoWB wrongly obtained the  

consent of the Chatterjee Group to the Resolution  

of the Extra-Ordinary General Meeting held on 14th  

January,  2005,  to  allot  shares  at  par  to  the  

Respondent  No.6  IOC.   The  Chatterjee  Group  also  

complained  that  neither  GoWB  nor  WBIDC  had  ever  

intended to honour the agreement dated 14th January,  

2005, and from the letter dated 10th November, 2004,  

it was clear that GoWB and WBIDC did not intend to  

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sell  the  HPL  shares  held  by  the  WBIDC  to  the  

Chatterjee Group.

12. It was also contended before the CLB by the  

Chatterjee  Group  that  since  HPL  was  not  in  

immediate need of funds, the allotment of shares to  

IOC was not warranted despite the fact that the  

Chatterjee Group was ready and willing to complete  

the  share  purchase  deal  at  the  agreed  price  of  

Rs.14/-  per  share.  By  virtue  of  the  superior  

bargaining  power  of  the  WBIDC  and  GoWB,  the  

Chatterjee Group could not enforce their special  

rights  on  account  of  their  continuing  minority  

status in the Company, nor could it acquire control  

of the management thereof.  

13. It was also contended that even the Articles of  

Association  had  not  been  modified  or  altered  to  

reflect  the  rights  which  the  Chatterjee  Group  

enjoyed and the clandestine arrangement arrived at  

between the GoWB, WBIDC and IOC undermined the very  

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basis on which the request made by GoWB and WBIDC  

had  been  accepted  by  the  Chatterjee  Group.  

Accordingly, the said arrangement was required to  

be brought to an end for resolving the oppressive  

acts of the GoWB and the WBIDC.

14. On the basis of the aforesaid allegations, the  

Chatterjee Group contended before the CLB that the  

affairs of the Company were being conducted in a  

manner which was prejudicial to the public interest  

and oppressive to them. It was further contended  

that  winding-up  of  the  Company  would  unfairly  

prejudice the parties but that otherwise the facts  

would justify the making of a winding-up order on  

just and equitable grounds.

15. The  aforesaid  stand  taken  by  the  Chatterjee  

Group was opposed on behalf of the Company on the  

ground that inspite of having made several promises  

to infuse equity into the Company, it had failed to  

do so and in view of severe fund crunch faced by  

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the Company on account of such failure, the Company  

had  no  other  alternative,  but  to  transfer  the  

shares in question to a party which was willing to  

do so.  In fact, it was the joint contention of  

GoWB and WBIDC that since the Chatterjee Group had  

failed to abide by its commitments to infuse equity  

into the Company and as the affairs of the Company  

were  at  a  point  of  collapse,  with  creditors,  

particularly the Indian Oil Corporation supplying  

Naphtha, which was the essential ingredient in the  

manufacturing  process  of  the  Company,  demanding  

their  outstanding  dues  even  under  the  threat  of  

taking appropriate action under the provisions of  

the Companies Act, 1956, the Company had no option  

but to transfer the 150 million shares to IOC as  

per the decision taken earlier.   

16. In addition to the above, it was also submitted  

that  the  Chatterjee  Group  had  agreed  to  the  

decision to induct the IOC in the Company as a  

portfolio investor.   

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17. The Company Petition was disposed of by the CLB  

by upholding the decision of the Company to allot  

150  million  shares  to  IOC,  which  would  be  at  

liberty to deal with the same in any manner it  

thought fit. Similarly, the transfer of 155 million  

shares by WBIDC to the Chatterjee Group at Rs.10/-  

per share was confirmed.  A further direction was  

given to GoWB and WBIDC to transfer the 520 million  

shares held by them in HPL to the Chatterjee Group.  

The Chatterjee Group was also directed to purchase  

the 271 million preference shares held by GoWB and  

WBIDC at par.  The CP(I)PL was directed to pay a  

sum  of  Rs.125  crores  to  WBIDC  towards  balance  

consideration  for  the  155  million  shares  on  or  

before 28th February, 2007.  It was further directed  

that on payment of the said amount, the shares in  

question  would  be  deemed  to  have  been  

dematerialized  and  transferred  in  the  name  of  

CP(I)PL, without any further deed or act or refusal  

from  anyone  or  production  of  any  instruction  to  

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transfer. Significantly, the Chatterjee Group was  

also  given  liberty  as  soon  as  they  paid  the  

consideration for the 155 million shares, to take  

control of the day-to-day management of the Company  

as they would then be holding 51% of the equity  

shares,  with  the  stipulation  that  no  major  

decisions would be taken without the approval of  

the Court.  The CLB also came to a definite finding  

that the 150 million shares allotted to IOC had not  

been so transferred suddenly or surreptitiously or  

with any ulterior motive and the allegation of a  

secret agreement between GoWB and IOC, though of  

very little significance, has been magnified by the  

Chatterjee Group in the Company Petition.   

18. The  Government  of  West  Bengal,  through  its  

Joint Secretary in the Department of Commerce and  

Industry, filed an appeal before the Calcutta High  

Court against the said order of the CLB dated 31st  

January, 2007 under Section 10F of the Companies  

Act, 1956, and the same was numbered as A.P.O.No.45  

22

of 2007. Among the various grounds taken in the  

Appeal, a question was raised as to whether the CLB  

could  have  assumed  jurisdiction  on  the  Company  

Petition filed by Chatterjee Petrochem (Mauritius)  

Ltd. Co., Winstar India Investment Company Ltd.,  

India  Trade  (Mauritius)  Ltd.  and  Chatterjee  

Petrochem  (India)  Pvt.  Ltd.,  to  enforce  rights  

under private contracts.  Another ground taken was  

that the CLB had erred in applying the doctrine of  

legitimate expectation in a Petition under Section  

397 read with Sections 398 and 402 of the Companies  

Act, 1956, and in treating the Company to be a  

quasi-partnership.  As  a  corollary  to  the  said  

question,  the  Government  of  West  Bengal  also  

questioned the jurisdiction of the CLB to convert  

the  Company  Petition  into  a  Suit  for  Specific  

Performance  of  Contract.   It  was  also  contended  

that the issues raised in the Company Petition were  

with regard to the disputes of a contractual nature  

between  shareholders  and  the  non-performance  of  

23

such contracts between the shareholders could not  

be treated to be the “Affairs of the Company”.  The  

locus standi of the Chatterjee Petrochem (India)  

Pvt. Ltd. to maintain a petition under Section 398  

of the Companies Act was also questioned since on  

the date of filing of the Petition before the CLB,  

the said Company was not even a member of the Joint  

Venture Company.  It was also reiterated that no  

case for mismanagement or oppression had been made  

out and the application under Section 398 of the  

above Act was liable to be dismissed.  

19. Upon hearing the parties, the learned Single  

Judge  held  that  CP(I)PL  had  no  locus  standi to  

maintain  a  petition  under  Section  397  of  the  

Companies Act and that CLB could not have assumed  

jurisdiction  on  the  Company  Petition,  in  which  

CP(I)PL was a petitioner, since CP(I)PL was not a  

member of HPL.  The learned Single Judge held that  

such a petition for the purpose of enforcing rights  

under private contracts would not be maintainable  

24

and that the agreement entered into between CP(I)PL  

and WBIDC for transfer of shares, being a private  

contract between two shareholders, the same could  

not  be  the  subject  matter  of  a  petition  under  

Section  397  of  the  Companies  Act,  1956.   The  

learned  Single  Judge  also  observed  that  such  

agreements could not be treated to be “affairs of  

the Company” and that, in any event, such a ground  

had not also been pleaded in the Company Petition.  

The learned Judge held that the order of the CLB,  

which  was  based  entirely  on  the  question  of  

transfer  of  the  155  million  shares  by  WBIDC  to  

CP(I)PL,  stood  vitiated  by  such  jurisdictional  

error.

20. The learned Single Judge also held that the CLB  

was not justified in applying the concept of quasi-

partnership, which had been urged on behalf of the  

Chatterjee Group, to HPL.  According to the learned  

Single  Judge,  the  question  as  to  why  a  Limited  

Company  should  be  considered  to  be  a  quasi-

25

partnership, would have to be decided on the facts  

of each case.  While, on the one hand, it would be  

easy to apply the said concept to a closely-held  

Family Company or a Private Limited Company, as in  

cases  where  a  partnership  is  converted  into  a  

Company, such an assumption could not be arrived at  

merely  on  the  ground  that  the  promoters  of  the  

Company described themselves as partners.   

21. The learned Single Judge further held that from  

the  entire  pleadings  in  the  Company  Petition  no  

case  whatsoever  had  been  made  out  that  in  

conducting the affairs of HPL, the GoWB and WBIDC  

had oppressed the Petitioners in any way so as to  

attract  the  provisions  of  Section  397  of  the  

Companies Act.  The learned Single Judge also held  

that the CLB was not right in applying the doctrine  

of legitimate expectation to the agreement entered  

into between WBIDC and CP(I)PL on 8th March, 2002,  

thereby converting the Company Petition into a suit  

for specific performance of contract.  The learned  

26

Judge observed that by granting relief in the name  

of the doctrine of legitimate expectation, the CLB  

has actually enforced specific performance of the  

contract  and  agreements,  which  was  beyond  its  

jurisdiction.  

22. Lastly, on the question of the induction of IOC  

and the allotment of 155 million shares to the said  

Company,  the  learned  Single  Judge  held  that  the  

induction  of  IOC  was  on  the  basis  of  the  Debt  

Restructuring Package and the Refinancing Scheme,  

which were to the advantage of HPL, and had been  

decided from time to time at the Board meetings of  

the Directors, which had been presided over by PC.  

On the basis of his aforesaid findings, the learned  

Single Judge, relying on the decision of this Court  

in  Shanti  Prasad  Jain Vs.  Kalinga  Tubes  Ltd.  

[(1965) 2 SCR 720], held that an order granting  

relief under Section 397 could be made only after  

affirming and recording an opinion on each of the  

three conditions mentioned in Section 397(2)(a) and  

27

(b) of the Companies Act, 1956.  The learned Single  

Judge  held  that  in  the  instant  case,  no  such  

opinion had either been formed or recorded by the  

CLB relating to the said three conditions.  The  

learned Single Judge also rejected the submissions  

made on behalf of the Petitioners that an opinion  

with  regard  to  the  said  two  conditions  would  

automatically follow from the opinion formed by the  

CLB  on  oppression,  or  such  opinion  could  be  

gathered from the order of the Board itself. The  

learned Single Judge, accordingly, held that the  

order  passed  by  the  CLB  was  contrary  to  the  

provisions  of  Section  402(e)  of  the  above  Act,  

since no relief under the said Section could be  

granted without a finding having been arrived at  

that a case of oppression had been made out within  

the meaning of Section 397 of the aforesaid Act.  

23. Appearing for the Chatterjee Group, Mr. Fali S.  

Nariman, learned Senior Advocate, did not seriously  

oppose  the  contention  that  the  prayers  in  the  

28

Company  Petition  were  really  for  specific  

performance of the various agreements entered into  

by the parties, but that the same were on account  

of the acts of oppression and mismanagement on the  

part of GoWB, HPL and WBIDC with regard to the non-

registration of the 155 million shares which had  

already been transferred by WBIDC in favour of the  

Chatterjee Group. Mr. Nariman urged that although  

the said shares had been transferred in favour of  

the  Chatterjee  Group  and  although  the  price  in  

respect thereof had been duly received by HPL, the  

Company  had  not  registered  the  said  155  million  

shares with the Company in the name of CP(I)PL and  

the  transfer  of  the  said  shares  was  also  not  

reflected in its Register of Members.  Mr. Nariman  

contended that by not registering the 155 million  

shares in the name of the Chatterjee Group, which  

deprived the Chatterjee Group of being the majority  

shareholder, and, at the same time, allotting 150  

million  shares  to  IOC,  the  acts  of  the  Company  

29

reduced  the  Chatterjee  Group  from  a  majority  

shareholder  to  a  minority  shareholder,  which  

amounted to oppressive treatment by the Company.  

24. Mr. Nariman submitted that at the time of entry  

of the Chatterjee Group through the CP(M)C in 1994,  

the total issued share capital of HPL  was 1010  

million shares of Rs.10/- each and the shareholding  

pattern was as under :-

CP(M)C - 433 million shares

WBIDC - 433 million shares

Tatas - 144 million shares

25. However, on 28th September, 2001, at the Board  

Meeting of HPL, a Resolution was taken to offer a  

Rights Issue to the existing shareholders so that a  

further sum of Rs.223 crores could be infused in  

HPL  in  the  ratio  of  107:107:36.   Although,  the  

other shareholders subscribed to the Rights Issue,  

the Chatterjee Group did not on the ground that  

such  equity  could  be  infused  once  the  financial  

30

restructuring  of  HPL  had  been  completed.  

Accordingly, on 8th March, 2002, the shareholding  

pattern as per the Register of Members in the share  

capital of 1153 million shares was :

CP(M)C - 433 million shares = 37.56%

WBIDC - 540 million shares = 46.83%

Tatas - 180 million shares = 15.61%

26. Mr.  Nariman  submitted  that  in  the  Agreement  

dated 30th July, 2004, which was supplemental to the  

Agreement dated 12th January, 2002, executed by the  

GoWB, WBIDC, CP(M)C and HPL, it was specifically  

mentioned that GoWB had caused WBIDC to transfer to  

CP(I)PL,  an  affiliate  of  CP(M)C,  shares  worth  

Rs.155  crores  and  that  CP(I)PL  had  become  the  

beneficial owner thereof. However, the registration  

of the said shares in the books of HPL was kept  

pending  till  approval  was  obtained  from  the  

Lenders,  being  the  Banks  and  Financial  

Institutions.   Mr.  Nariman  submitted  that  as  a  

31

result,  despite  the  transfer  by  WBIDC  of  155  

million  shares  in  favour  of  CP(I)PL,  WBIDC  

continued to be shown as owner thereof in the Share  

Register of the Company. Mr. Nariman submitted that  

once clearance had been obtained from the Lenders,  

WBIDC could no longer refuse to register the said  

155 million shares in the name of CP(I)PL, which  

was an integral part of the Chatterjee Group.

27. Mr. Nariman submitted that the number of shares  

transferred by WBIDC to CP(I)PL comprised 13.44%  

of the total number of shares amounting to 1153  

shares, which meant that along with the 36.56% of  

the shares held by the Chatterjee Group, the total  

worked out to 51% and gave the Chatterjee Group the  

management  control  of  HPL  and  reduced  the  

shareholding of WBIDC from 46.83% to 36.9%.   

28. Mr. Nariman submitted that on the same day on  

which the Supplemental Agreement had been signed, a  

Share Subscription Agreement was executed by HPL,  

32

CP(M)C,  WBIDC  and  WINSTAR  which,  inter  alia,  

referred  to  the  agreement  entered  into  by  GoWB,  

WBIDC, CP(M)C and HPL on 12th January, 2002 and that  

WBIDC,  CP(M)C  and  CP(I)PL  had  entered  into  an  

Agreement  on  8th March,  2002,  relating  to  the  

transfer of shares in the Company at Rs.10/- per  

share and pursuant to that agreement, CP(M)C came  

to be in management control of the Company.  

29. Mr. Nariman urged that by signing the Share  

Subscription Agreement dated 30th July, 2004, WBIDC  

and HPL had acknowledged the fact that pursuant to  

the Agreements of 12th January, 2002 and 8th March,  

2002,  155,099,998  shares  had  gone  out  of  the  

holding of WBIDC and were held by CP(I)PL, a part  

of the Chatterjee Group.  However, in the Company  

Petition  filed  before  the  CLB,  WBIDC  and  GoWB  

denied  the  same  and  ascertained  that  the  155  

million shares continued to be part of the holding  

of the WBIDC and a further stand was taken that at  

no point of time had the Chatterjee Group held the  

33

majority shares in HPL.  In addition to the above,  

by  transferring  150  million  shares  to  IOC,  the  

WBIDC/GoWB had reduced the Chatterjee Group from a  

majority to a minority, which clearly amounted to  

oppressive treatment by the Company.   

30. Mr. Nariman contended that on account of the  

various defaults committed by the Chatterjee Group  

in failing to infuse equity into HPL, in breach of  

the Agreement dated 12th January, 2002, WBIDC and  

the  GoWB  were  absolved  of  the  application  to  

register  the  155  million  shares  in  favour  of  

CP(I)PL.  It  was  pointed  out  that  under  the  

aforesaid Agreement, CP(M)C had agreed to infuse  

Rs.107 crores into HPL, of which Rs.53.5 crores was  

to be paid within 5 working days of signing of the  

Agreement, which was executed on 25th January, 2002.  

Taking into account the aforesaid sum, CP(M)C was  

required to arrange for a minimum amount of Rs.500  

cores, either as equity or equity-like instruments  

and/or  advance  from  outside  sources,  including  

34

strategic  partners.  The  CP(M)C  also  agreed  to  

organize Letters of Comfort to be issued within 30  

days of signing of the Agreement for the purpose of  

overall  debt  restructuring  of  HPL  which  was  

concluded by 31st March, 2002.  There was a further  

stipulation that the balance of Rs.53.5 crores, out  

of the sum of Rs.107 crores, was to be inducted by  

CP(M)C  within  5  days  of  the  acceptance  of  the  

Letters of Comfort.   

31. Mr.  Nariman  further  contended  that  the  

assurance given in Clause 5 of the Agreement, which  

assured CP(M)C 51% of the total paid-up equity of  

HPL, was not conditional to the infusion of equity  

worth Rs.500 crores by the Chatterjee Group. Such  

assurance  was  subject  to  compliance  with  the  

requirements of providing Letters of Comfort and  

acceptance thereof by the GoWB and upon payment of  

Rs.53.5 crores as stipulated.  Mr. Nariman urged  

that since the said conditions had been fulfilled  

by the Chatterjee Group, it was incumbent upon GoWB  

35

and WBIDC to transfer the 155 million shares to  

CP(M)C which was the beneficial owner thereof. It  

was submitted that the failure of WBIDC to effect  

such registration and at the same time, registering  

150  million  shares  in  favour  of  IOC,  thereby  

reducing  the  Chatterjee  Group  to  a  minority  

shareholder, was a positive act of oppression on  

the  part  of  the  majority  shareholder,  which  was  

sufficient to attract the provisions of Sections  

397 and 398 read with Section 402 of the Companies  

Act, 1956.  Mr. Nariman urged that even if the  

allotment  of  150  million  shares  to  IOC  was  not  

taken into consideration, the continuous refusal on  

the part of the Company to register the 155 million  

shares in the name of CP(I)PL, not only amounted to  

breach of the agreement dated 12th January, 2002, by  

which WBIDC and GoWB had agreed to ensure that the  

Chatterjee Group would remain in majority, but that  

the same also attracted the provisions of Section  

397 of the Companies Act.  Mr. Nariman submitted  

36

that the said promise contained in the Agreement  

dated 12th January, 2002, formed the very basis on  

which  PC  had  brought  equity  worth  Rs.257  crores  

into HPL, but for which the Company would not have  

been  able  to  restructure  its  debts.   Learned  

counsel  submitted  that  for  WBIDC  and  GoWB  to  

contend that the induction of the Chatterjee Group  

on an understanding that it would always have a  

majority control over the Company’s management, was  

simply an agreement between two shareholders and  

not an affair of the Company, was not acceptable.  

Mr. Nariman urged that the refusal of the WBIDC to  

register the 155 million shares transferred to the  

CP(I)PL affected the shareholding pattern of the  

Company and was, therefore, directly an affair of  

the Company, which fact had been duly recognized by  

the  CLB.  Mr.  Nariman  submitted  that  it  is  on  

account of the various assurances given by WBIDC  

and the GoWB that the Chatterjee Group had become  

the owner of the 155 million shares, that it had  

37

been the consistent stand of the Chatterjee Group  

that  they  were  the  majority  shareholders  of  the  

Company.   

32. Relying on the decision of this Court in Needle  

Industries  (India)  Ltd.  &  Ors. Vs.  Needle  

Industries  Newey  (India)  Holding  Ltd.  &  Ors.  

[(1981) 3 SCC 333], Mr. Nariman submitted that in  

determining a question of oppression under Section  

397 of the Companies Act, the Company Law Board was  

entitled to take into account facts which had come  

into existence after the company petition had been  

filed.   Learned  counsel  gave  several  instances  

where  despite  having  given  assurances  that  the  

shares  in  question  would  stand  transferred  in  

favour of CP(I)PL, the GoWB and WBIDC had failed to  

complete the transfer on one ground or the other,  

despite stating that  the GoWB stood committed to  

the transfer of the shares to the Chatterjee Group  

as per the Agreements dated 12th January, 2002, 8th  

March, 2002 and 30th July, 2004.   

38

33. Mr.  Nariman  submitted  that  the  clandestine  

manner in which WBIDC had transferred 150 million  

shares in favour of IOC was in complete breach of  

the  agreement  between  WBIDC  and  PC  that  the  

Chatterjee  Group  would  remain  the  majority  

shareholder  and  would  also  have  the  control  and  

management over the company’s affairs.  Mr. Nariman  

submitted that had it been brought to the knowledge  

of  the  Chatterjee  Group  that  such  a  secret  

agreement to transfer 150 million shares to IOC was  

being negotiated, it would have never voted at the  

Extraordinary General Meeting of the Company on 14th  

January, 2005, in support of the allotment of the  

said shares to IOC.   

34. Although,  Mr.  Nariman  had  made  certain  

submissions  with  regard  to  the  Agreement  of  8th  

March,  2002,  read  with  the  requirements  of  the  

Depositories  Act,  1996,  SEBI  (Depositories  and  

Participants)  Regulations,  1996  and  the  bye-laws  

39

and business rules/operating instructions issued by  

the depositories, we shall, if need be, refer to  

the same at a later stage of the proceedings.   

35. Mr.  Nariman  submitted  that  the  concept  of  

oppression for the purposes of Sections 397, 398  

and 402 of the Companies Act had been considered by  

this  Court  in  various  cases.   Learned  counsel  

pointed  out  that  in  the  Needle  Industries case  

(supra), this Court had observed that the behaviour  

and conduct complained of must be held to be harsh  

and wrongful and in arriving at such a finding, the  

Court has to look at the business realities of the  

situation  and  not  confine  itself  to  a  narrow  

legalistic view and allow technical pleas to defeat  

the  beneficial  provisions  of  the  Section.   Mr.  

Nariman  submitted  that  when  the  Company  was  in  

substance, though not in law, a partnership, there  

had to be utmost good faith between the members.  

Mr. Nariman submitted that this Court had gone even  

further to indicate that even if no oppression was  

40

made out in a Petition under Section 397 of the  

Companies Act, the Court is not powerless to do  

substantial justice between the parties.   

36. Learned counsel submitted that Company law had  

developed seamlessly from the law of partnership  

which is based on mutual trust and confidence, as  

was observed by the House of Lords in O’Neill Vs.  

Phillips [(1999)2  All  ER  961],  and  in  such  a  

situation, the highest standards of honour had to  

be  maintained.  It  was  also  submitted  that  the  

aforesaid decision of the House of Lords which was  

based on the earlier decision in Blisset Vs. Daniel  

[68 E.R. 1022], was subsequently reiterated by the  

House of Lords in Ebrahimi Vs. Westbourne Galleries  

[(1972) 2 All ER 492] and also by this Court in the  

Needle Industries case (supra).  Mr. Nariman urged  

that in  Dale & Carrington Invt. P. Ltd. Vs.  P.K.  

Prathapan [(2005) 1 SCC 217], this Court had held  

that if a Member who holds the majority of shares  

in  a  Company  is  reduced  to  the  position  of  a  

41

minority shareholder by an act of the Company or by  

its  Board  of  Directors,  the  said  act  must  

ordinarily be considered to be an act of oppression  

to such Member.   

37. Reference was also made to the decision of this  

Court  in  Rajahmundry  Electric  Supply  Corporation  

Ltd. Vs.  A. Nageswara Rao & Ors. [(1955) 2 SCR  

1066],  wherein,  Venkatarama  Ayyar,  J.,  as  His  

Lordship then was, while referring to an equitable  

and  just  principle,  held  that  when  the  said  

doctrine specifying the ground of winding-up by the  

Court is not to be construed as  ejusdem generis  

then whether mismanagement of Directors is a ground  

for passing of a winding up order under the Indian  

Companies  Act,  1913,  becomes  a  question  to  be  

decided on the facts of each case.   Mr. Nariman  

pointed  out  that  in  the  aforesaid  judgment,  the  

learned Judge had referred to the decision in Loch  

Vs. John Blackwood Ld. [(1924) AC 783], in which an  

order for winding-up of the Company was ordered on  

42

the ground of mismanagement by the Directors and  

the law was stated as follows :-

“It is undoubtedly true that at the foundation  of applications for winding up, on the ‘just  and  equitable’  rule,  there  must  lie  a  justifiable lack of confidence in the conduct  and management of the company’s affairs.  But  this lack of confidence must be grounded on  conduct  of  the  directors,  not  in  regard  to  their private life or affairs, but in regard to  the company’s business.  ………………”

38. Mr.  Nariman  submitted  that  following  the  

aforesaid  principle,  this  Court  had  in  M.S.D.C.  

Radharamanan Vs.  M.S.D. Chandrasekara Raja & Anr.  

[(2008) 6 SCC 750], observed that once the Company  

Law Board gave a finding that acts of oppression  

have  been  established,  an  order  in  terms  of  

Sections 397 and 402 on the doctrine of winding-up  

of  the  company  on  just  and  equitable  grounds,  

becomes automatic.  Accordingly, the interference  

43

by the learned Single Judge with the order of the  

CLB was wholly unwarranted.   

39. Appearing for Winstar India Investment Company  

Ltd., Mr. Sudipto Sarkar, learned Senior Advocate,  

while adopting the submissions made by Mr. Nariman,  

emphasized  Mr.  Nariman’s  submissions  on  quasi  

partnership.   In  the  said  context,  he  submitted  

that  in  dealing  with  a  petition  under  Section  

397/398  of  the  Companies  Act  the  Court  has  to  

consider business realities, instead of confining  

itself  to  a  narrow  legalistic  view.   Learned  

counsel argued that in the  Needle Industries case  

(supra),  this  Court,  inter  alia,  observed  that  

technical pleas should not be allowed to defeat the  

beneficent  provisions  of  Section  397/398  of  the  

Companies Act.  Mr. Sarkar submitted that the said  

principle had been subsequently followed by this  

Court  in  (i)  Sangramsinh  P.  Gaekwad  &  Ors. Vs.  

Shantadevi P. Gaekwad (Dead) through LRs. & Ors.  

[(2005) 11 SCC 314]; (ii) Kamal Kumar Dutta & Anr.  

44

Vs. Ruby General Hospital Ltd. & Ors. [(2006) 7 SCC  

613]; (iii)  M.S.D.C. Radharamanan’s case (supra).  

Mr.  Sarkar  submitted  that  in  Sangramsinh  P.  

Gaekwad’s case (supra) this Court had observed that  

the jurisdiction of the Court to grant appropriate  

relief under Section 397 of the Companies Act is of  

wide amplitude and while exercising its discretion,  

the Court was not bound by the terms contained in  

Section 402 of the said Act, if in a particular  

fact  situation  a  further  relief  or  reliefs  was  

warranted. Furthermore, in a given case, even if  

the Court came to a conclusion that no case of  

oppression had been made out, it could still grant  

such relief so as to do substantial justice to the  

parties.

40. Mr.  Sarkar  submitted  that  a  Joint  Venture  

Agreement, in fact, contemplates a partnership, as  

was indicated by this Court in New Horizons Ltd. &  

Anr. Vs. Union of India & Ors. [(1995) 1 SCC 478],  

where the expression “Joint Venture” was examined.  

45

It was noted that the said expression connotes a  

legal entity in the nature of a partnership engaged  

in  the  joint  undertaking  of  a  particular  

transaction for mutual profit or an association of  

persons  or  companies  jointly  undertaking  some  

commercial enterprise wherein all contribute assets  

and share risks.  Mr. Sarkar submitted that the  

terms and conditions of the Joint Venture Agreement  

in the instant case satisfies all the requisites of  

a partnership, which made it evident that the Joint  

Venture Company was nothing but a quasi-partnership  

as per the tests laid down by the House of Lords in  

Ebrahimi Vs.  Westbourne  Galleries  Ltd  &  Ors.  

[(1972)  2  All  ER  492],  followed  in  Needle  

Industries case (supra).  Mr. Sarkar submitted that  

in  Ebrahimi’s case, Lord Wilberforce writing the  

main judgment indicated that the reliefs prayed for  

were for a direction upon the Respondent No.2 and  

his son to purchase the appellant’s share in the  

company.  In the alternative, an order for winding  

46

up of the company was sought.  The learned Judge  

found that some of the allegations made remained  

unproved and that the complaint made did not amount  

to  such  a  course  of  oppressive  conduct  as  to  

justify an order under Section 210 of the Companies  

Act, 1948, in furtherance of the first relief.   

41. Mr. Sarkar then proceeded to the question of  

legitimate  expectation  and  contended  that  in  

Company  Law  there  was  sufficient  room  for  

recognition  of  the  fact  that  there  could  be  

individuals  with  rights,  expectations  and  

obligations  which  may  submerge  in  the  corporate  

structure.  In this regard, Mr. Sarkar submitted  

that  the  said  doctrine  of  an  enforceable  

expectation was considered in Re Saul D Harrison &  

Sons plc [1995] 1 BCLC 14, approved in  O’Neill’s  

case  (supra).   Several  other  decisions  in  this  

regard  were  cited  by  Mr.  Sarkar  which  do  not  

require elaboration.

47

42. Mr.  Sarkar  submitted  that  when  joining  the  

Company  in  2004,  Winstar  had  a  legitimate  

expectation arising from the Subscription Agreement  

dated  30th July,  2004,  which  indicated  that  the  

Chatterjee Group was in management and control of  

the affairs of HPL and that the Company would also  

have its private auditors and had it not been for  

the recitals in the Subscription Agreement, Winstar  

may not have invested funds in HPL at all.  Mr.  

Sarkar  submitted  that  the  conclusion  was  

inescapable that even if no case of oppression had  

been made out in the Company Petition filed by the  

Chatterjee  Group,  relief  under  Section  397/398  

could still be granted under Sections 397 and 398,  

if it was just and equitable to do so.  Referring  

and placing reliance on a decision of this Court in  

V.S. Krishnan & Ors. Vs. Westfort Hi-Tech Hospital  

Ltd. & Ors. [(2008) 3 SCC 363], Mr. Sarkar urged  

that once the conduct of the management was found  

to be oppressive under Sections 397 and 398 of the  

48

Companies Act, the discretionary power given to the  

CLB under Section 402 of the Companies Act to put  

an  end  to  such  oppression  was  very  wide.   Mr.  

Sarkar  urged  that  the  expression  “legitimate  

expectation”  had  found  its  place  in  Indian  

Jurisprudence and has been considered by this Court  

in  Needle  Industries case  (supra),  which  was  

followed  in  V.S.  Krishnan’s  case  (supra)  and  

several other cases.  The Agreement of WBIDC to  

transfer its entire shareholding to the Chatterjee  

Group  gave  rise  to  an  expectation  that  such  an  

expectation  would  be  fulfilled.   Mr.  Sarkar  

contended  that  since  WBIDC  did  not  fulfil  its  

reciprocal promise to sell its entire shareholding  

in HPL to CP(M)C, it was not open to either WBIDC  

or GoWB to contend that the direction given by the  

CLB upholding the allotment of 150 million shares  

to  IOC  and  directing  WBIDC/GoWB  to  transfer  its  

entire  shareholding  to  the  Chatterjee  Group  was  

49

contrary  to  law  or  without  jurisdiction  or  

erroneous.

43. Mr.  Sarkar  submitted  that  having  transferred  

155 million shares in favour of the CP(I)PL it was  

not  open  to  the  GoWB  and  WBIDC  to  refuse  to  

register  the  same,  despite  having  received  the  

entire  price  for  the  same.   Mr.  Sarkar  also  

reiterated that it is such a promise which had been  

incorporated in the agreements dated 12th January,  

2002 and 8th March, 2002 as also 30th July, 2004,  

that  had  weighed  with  Winstar  to  invest  Rs.147  

crores in the Company.  Accordingly, even if it was  

held that no case of oppression had been made out  

against the Company, it would still be open to the  

learned Company Judge to grant suitable relief to  

iron  out  the  differences  that  might  appear  from  

time to time in the running of the affairs of a  

Company.   

50

44. While  considering  the  submissions  made  on  

behalf of the Chatterjee Group, we might as well  

refer  to  the  arguments  advanced  by  Dr.  Abhishek  

Manu  Singhvi,  learned  Senior  Advocate,  appearing  

for the India Trade (Mauritius) Ltd. (ITML), which  

is part of the Chatterjee Group and was the co-

Petitioner No.3 in Company Petition No.58 of 2005  

filed by the Chatterjee Group before the Company  

Law  Board.  ITML  is  also  the  Appellant  in  Civil  

Appeal  No.5437-5440  of  2008.   Incidentally,  Dr.  

Singhvi also appeared for Dr. Purnendu Chatterjee,  

who was made Respondent No.20 therein.   

45. Dr. Singhvi contended that ITML had infused a  

sum of Rs.107 crores into HPL, which amount, along  

with Rs.143 crores separately infused in HPL by the  

Chatterjee  Group  of  Companies,  was  vitally  

necessary for the financial health of HPL and its  

revival and prosperity. Dr. Singhvi submitted that  

such investments had been made, without any written  

agreement or commitment, on the clear understanding  

51

and expectation that it would be a partnership and  

a commercial enterprise where the Chatterjee Group  

would have a controlling interest and HPL would,  

therefore, be a non-government company. Dr. Singhvi  

submitted that the subsequent conduct of GoWB, IOC,  

Lenders, Chairman and Managing Director of HPL had  

resulted  in  grave  irreversible  damage  to  ITML,  

involving  breach  of  fiduciary  and  corporate  

obligations which was clearly oppressive and was  

sufficient ground for interference by the CLB in  

the proceedings initiated by the Appellants under  

Sections 397 and 398 read with Section 402 of the  

Companies Act, 1956.           

46. Dr. Singhvi submitted that despite the attempts  

of GoWB and WBIDC to make an issue of the non-

infusion of Rs.107 crores by the Chatterjee Group,  

at  no  point  of  time  had  the  Chatterjee  Group  

refused  to  invest  the  amount  in  HPL,  though  on  

certain conditions.  Referring to Dr. Chatterjee’s  

letter dated 4th December, 2001, Dr. Singhvi pointed  

52

out that in the said letter it had been clearly  

indicated that CP(M)C was prepared to bring equity  

into the company in the context of a comprehensive  

restructuring of HPL’s balance sheet and management  

control in line with the original promise made to  

the Chatterjee Group for management control of HPL.  

A  suggestion  was  also  made  to  avail  of  the  

corporate  debt  structuring  available  under  

established Reserve Bank of India procedure. Dr.  

Singhvi  submitted  that  the  entire  sum  of  Rs.107  

crores which CP(M)C had agreed to invest had, in  

fact, been infused by the Chatterjee Group, though  

not  by  subscribing  to  the  Rights  Issue,  but  by  

arranging loans for the entire amount. Dr. Singhvi  

contended  that  the  entire  loan  amount  which  had  

been  arranged  by  the  Chatterjee  Group  was  also  

repaid by it without any liability to the Company.  

Even the interest accrued on the loan of Rs.107  

crores  from  12th June,  2002,  till  the  date  of  

repayment, was discharged by the Chatterjee Group  

53

in full, which was duly acknowledged by HPL.  Dr.  

Singhvi submitted that subsequently a further sum  

of Rs.53.5 crores was made available to HPL through  

HSBC on the understanding that the interest accrued  

on the loan, starting from the date of disbursement  

of the loan until its conversion, would be borne by  

CP(M)C.

47. Dr. Singhvi urged that Dr. Chatterjee had been  

invited and had come into the project as an equal  

co-owner, unlike the other private investors who  

were neither promised nor given equal partnership.  

As per the Agreement between GoWB and WBIDC, the  

character of HPL was always intended to remain a  

private  non-Government  Company  by  projecting  a  

shareholding ratio of 3:1:1 where four out of the  

seven parts would be held by Dr. Chatterjee and the  

Tatas.   

48. Reiterating all that had been said on behalf of  

the Chatterjee Group by Mr. Nariman and Mr. Sudipto  

54

Sarkar, Dr. Singhvi submitted that the induction of  

IOC into the Company was contrary to the wishes of  

the Chatterjee Group since by not registering the  

155  million  shares  in  favour  of  the  Chatterjee  

Group and on the other hand allotting 150 million  

shares to IOC, an imbalance was created which led  

to HPL becoming a Section 619-B Company under the  

Companies  Act,  1956,  thereby  losing  its  private  

character.  Dr. Singhvi submitted that it had been  

understood by GoWB, WBIDC and the Chatterjee Group,  

that IOC would be brought in not as a strategic  

partner but as a portfolio investor, but ultimately  

negotiations were commenced by GoWB and WBIDC to  

bring in IOC as a strategic partner with management  

control, although such a proposal had earlier been  

categorically turned down by GoWB on 2nd July, 2002.  

49. Dr.  Singhvi  submitted  that  the  observations  

contained  in  the  impugned  judgment  of  the  High  

Court that Dr. Chatterjee was not in a position to  

complete the deal and was trying to delay matters  

55

by  asking  for  transfer  of  the  said  155  million  

shares  to  the  Chatterjee  Group  and  the  IOC’s  

unconditional withdrawal from HPL, as a condition  

precedent for completion of the deal, was without  

any foundation, since from the records it would be  

clear that on 22nd July, 2005, GoWB had indicated  

that it wanted to conclude the transaction by 25th  

July, 2005.  As a matter of fact, by his letter of  

25th July, 2005, Dr. Chatterjee had indicated his  

willingness  to  conclude  the  transaction  and  

provided  a  letter  from  the  Deutsche  Bank,  also  

dated 25th July, 2005, indicating the availability  

of funds to the tune of 266 million US dollars to  

conclude the transaction.   

50. Dr.  Singhvi  submitted  that  it  was  GoWB  and  

WBIDC which had fraudulently omitted to disclose  

the  secret  arrangement  for  the  induction  of  IOC  

into HPL as a strategic partner in the Explanatory  

Statement  to  the  notice  for  the  Extraordinary  

General Meeting issued on 21st December, 2004.  Dr.  

56

Singhvi urged that there was no need to induct IOC  

for  effectuating  the  debt  restructuring  process,  

since  HPL  had  also  taken  steps  for  IPO of  300  

million shares which would have fetched at least  

Rs.540  crores  based  on  the  indicated  price  of  

Rs.18/- per share.  Dr. Singhvi submitted that Dr.  

Chatterjee objected to the allotment of shares to  

the  IOC  as  that  would  immediately  convert  the  

Company  into  a  Section  619-B  Company  since  155  

million shares transferred by WBIDC in favour of  

the Chatterjee Group was yet to be registered.   

51. Dr. Singhvi submitted that the allegation made  

against  Dr.  Chatterjee  that  he  had  moved  in  a  

calculated manner to obtain majority control of the  

Company and to oppose the allotment of 150 million  

shares to IOC, was without any foundation, since  

155 million shares had already been transferred to  

the Chatterjee Group and the same was a concluded  

contract.  Furthermore, when GoWB made a commitment  

to sell to the CP(M)C all the HPL shares held by  

57

WBIDC, there was no reason for Dr. Chatterjee to  

oppose  the  induction  of  IOC  as  a  portfolio  

investor.  All that Dr. Chatterjee wanted was that  

GoWB and WBIDC should effect registration of the  

155  million  shares  already  transferred  and  for  

which the price had already been paid. Dr. Singhvi  

submitted that the observation made by the learned  

Single Judge was wholly misconceived since the GoWB  

and WBIDC had in the Agreements dated 12th January,  

2002 and 8th March, 2002, already acknowledged that  

on account of the transfer of the said 155 million  

shares, the Chatterjee Group was in management and  

control of HPL.  The further finding of the learned  

Single  Judge  that  IOC  had  threatened  civil  and  

criminal action against HPL and its Directors for  

its unpaid dues for supply of Naphtha, was also not  

justified,  since  Dr.  Chatterjee  had  strongly  

supported the refinancing package which had been  

approved  by  the  Board  of  HPL.   Dr.  Singhvi  

submitted that Dr. Chatterjee and the Chatterjee  

58

Group had always wanted to act in the interest of  

the Company upon the assurance given by GoWB and  

WBIDC  that  HPL  would  always  remain  a  private  

company and that the Chatterjee Group would always  

have control over the management thereof.

52. Dr. Singhvi then submitted that HPL had played  

an active role by supporting GoWB and WBIDC in the  

ongoing litigation, contrary to the understanding  

in terms of the Agreement dated 12th January, 2002  

and  the  Share  Subscription  Agreement  dated  30th  

July, 2004, which contemplated that the Chatterjee  

Group was to be in management of the Company. By  

allowing the transfer of 150 million shares to IOC  

and  by  not  registering  the  155  million  shares  

transferred to the Chatterjee Group by WBDIC, the  

Company  had  created  a  situation  in  which  the  

Chatterjee  Group,  which  was  admitted  to  be  in  

control of the Company, was reduced to a minority.  

Dr. Singhvi pointed out that the direct consequence  

of the aforesaid acts of GoWB and WBIDC resulted in  

59

decline of profit before tax in 2007-08 and 2008-

09, thereby adversely affecting the interest of the  

Company and the shareholders.  

53. Dr. Singhvi submitted that the part played by  

Mr.  Tarun  Das,  the  Chairman  of  HPL,  was  also  

partisan and was contrary to the interest of the  

Chatterjee Group which, it had been agreed, was to  

be in management and control of the Company and its  

affairs.  Reiterating the submissions made by Mr.  

Nariman, Dr. Singhvi submitted that the secret and  

clandestine  move  to  convert  HPL  into  a  619-B  

Company  by  the  arrangement  entered  into  between  

WBIDC and IOC went against the very grain of the  

agreements  entered  into  between  the  Chatterjee  

Group and WBIDC/GoWB in that regard.  

54. Dr.  Singhvi  submitted  that  in  the  entire  

exercise, Mr. Tarun Das, the Respondent No.7, who  

was  also  the  Chairman  of  the  Company,  had  

precipitated the allotment of 150 million shares to  

60

IOC, although, the Re-financing Package approved by  

IDBI on 27th May, 2005, and by the Board of HPL on  

28th May,  2005,  did  not  contemplate  allotment  of  

shares to IOC.  Mr. Tarun Das had on his personal  

initiatives obtained and circulated an opinion from  

a senior counsel relating to the issue of shares to  

IOC and even the same had not been circulated to  

the Members of the Board in full, and they were  

deliberately kept in the dark in respect of certain  

portions of the opinion. Dr. Singhvi pointed out  

that under Section 289 of the Act the full opinion  

was required to be circulated to the Members of the  

Board and in the absence thereof, the opinion could  

not  be  relied  upon.  Dr.  Singhvi  repeated  his  

earlier charge that GoWB/WBIDC had acted with the  

sole  intention  of  reducing  the  Chatterjee  Group  

from a majority shareholder in HPL to a minority,  

which  was  sufficient  ground  for  an  application  

under Sections 397, 398 and 402 of the Companies  

Act, 1956.   

61

55. Dr.  Singhvi  contended  that  despite  having  

acknowledged  the  Chatterjee  Group  as  a  prime  

sponsor of HPL and that the CDR Package and the Re-

financing  Package  of  HPL  had  been  considered  

because of Dr. Chatterjee, the Lenders sacrificed  

their  own  interest  by  permitting  the  Chatterjee  

Group to be ousted from the management of HPL after  

the  complaint  was  filed  before  the  Company  Law  

Board by the Chatterjee Group.  

56. Dr. Singhvi submitted that the appointment of  

Mr.  S.K.  Bhowmick  as  Managing  Director  of  the  

Company, after being appointed as the Additional  

Director as there was no vacancy on the Board and  

his appointment as Managing Director, was wholly  

illegal since only a Director could be appointed to  

the  said  post.   Dr.  Singhvi  submitted  that  the  

Company played a dubious role in disallowing the  

claim of Winstar to have a Director on the Board of  

HPL  on  the  ground  that  there  was  no  vacancy,  

62

although, a vacancy had arisen on the resignation  

of Mr. Ratan Tata, which vacancy was utilized for  

regularization of the irregular appointment of Mr.  

Bhowmick and his subsequent re-appointment in view  

of the Agreements entered into on 12th January, 2002  

and 30th July, 2004, which provide that CP(M)C is to  

be  in  management  and  control  and  the  Managing  

Director is to be nominated and appointed by the  

Chatterjee Group. Dr. Singhvi submitted that the  

aforesaid  acts  were  sufficient  to  indicate  the  

manner  in  which  the  Company  and  the  majority  

shareholders had acted against the interest of HPL  

in general, and had by their acts of oppression and  

mismanagement, seriously affected the entire scheme  

on  the  basis  whereof  the  Chatterjee  Group  had  

agreed to invest large amounts in HPL.   

57. Learned  Senior  Advocate,  Mr.  Ashok  Desai,  

appearing  for  Haldia  Petrochemicals  Ltd.,  the  

Respondent No.1 in all the appeals, repeated and  

reiterated the submissions made on behalf of the  

63

appellants regarding the manner in which the GoWB  

conceptualised  HPL  as  a  showcase  project  of  the  

GoWB  on  its  coming  into  existence.   Mr.  Desai  

submitted that apart from equity, for the purpose  

of starting the project HPL had planned to avail  

credit from financial institutions and banks to the  

extent of Rs.2,400 crores.  The project involved a  

total  investment  of  Rs.3,600  crores.   Mr.  Desai  

submitted that this in itself would indicate that  

the principle of quasi-partnership, as urged both  

by Mr. Nariman and Mr. Sarkar, could not apply to  

the Company, both at the time when it was conceived  

and  during  the  subsequent  period  when  the  

shareholdings of the parties changed periodically.  

Mr.  Desai  submitted  that,  in  any  event,  HPL  is  

today  recognized  as  a  deemed  Government  Company  

under Section 619-B of the Companies Act, 1956 and  

steps  have  been  taken  by  the  Comptroller  and  

Auditor  General  of  India  under  Section  619(2).  

However, since its incorporation in 1985, HPL was  

64

and  continues  to  remain  a  Board-managed  Company  

with  16  Directors  on  its  Board  with  equal  

representation of the two major promoters, namely,  

GOWB and the Chatterjee Group having 4 Directors  

each, 5 Nominee Directors, 2 independent Directors  

and 1 Managing Director.

58. Mr. Desai submitted that although on behalf of  

the appellant it was contended that allotment of  

shares to IOC was highly improper and oppressive,  

such a course of action had to be resorted to since  

not only was HPL suffering from severe financial  

crunch, but that Naphtha, which is the main raw  

material for production of Polymer and Chemicals,  

was being supplied by IOC, which has its refinery  

by the side of the HPL plant at Haldia.  Mr. Desai  

submitted  that  IOC,  therefore,  had  a  strong,  

commercial  and  symbiotic  relationship  with  HPL  

which had developed over the years and HPL had also  

started procuring Naphtha on credit basis and the  

dues on such account had also multiplied.  It was,  

65

therefore, in the interest of HPL that when the  

Chatterjee Group failed to infuse equity into the  

Company, 150 million shares were allotted to IOC  

for providing such equity.    

              59. Mr.  Desai  submitted  that  the  case  of  the  

Appellants could be summarised into a few specific  

issues, namely,  

(a)  that  the  Chatterjee  Group  had  all  

along  acted  on  the  basis  of  the  

promise  which  had  been  held  out  by  

GoWB, WBIDC and the Company that the  

Company would always remain a private  

Company in which the Chatterjee Group  

would have managerial control and that  

it  was  towards  that  end  that  155  

million  shares  were  transferred  by  

WBIDC to the Chatterjee Group, though,  

ultimately it went back on its word  

and refused to register the same;  

66

(b)  GoWB,  WBIDC  and  HPL  beguiled  the  

Chatterjee Group into agreeing to the  

transfer of 150 million shares to IOC  

by entering into agreements in which  

it was admitted that upon transfer of  

the  155  million  shares  to  the  

Chatterjee Group its shareholding was  

51% and that the Chatterjee Group was  

in  management  and  control  of  the  

affairs of the Company;  

(c)  even  if  the  ingredients  of  Sections  

397 and 398 of the Companies Act were  

not proved during the hearing of the  

Company  Petition,  the  Company  Law  

Board had ample jurisdiction to pass  

appropriate orders for the benefit of  

and in the interest of the Company,  

under Section 402 thereof.

67

60. Mr.  Desai  submitted  that  all  the  aforesaid  

submissions  made  were  misconceived  and  that  in  

order to file a complaint under Section 397 of the  

above  Act,  the  complainant  had  to  be  a  Member  (emphasis  supplied)  of  the  Company,  having  the  

requisite standing under Section 399 of the Act.  

It was also urged that the conduct complained of  

had  to  be  such  as  to  be  oppressive  to  the  

complainant/complainants  as  shareholders/members.  

Inasmuch as, CP(I)PL was not a member of HPL, it  

could not have filed and maintained the complaint  

under  Section  397  before  the  Company  Law  Board.  

Mr. Desai submitted that it was no doubt true that  

upon transfer of the shares, the transferee became  

the beneficial owner thereof, but till the shares  

were registered in the Company’s Share Register and  

subsequently, in the records of the Registrar of  

Companies, the transferee did not acquire the right  

to vote at a meeting of the Company on the basis of  

acquisition  of  the  said  shares.   Mr.  Desai  

68

submitted  that  for  all  practical  purposes  the  

transferor remained in control of the transferred  

shares and also enjoyed the right to vote on the  

strength thereof.  The failure of the transferor to  

have the shares registered with the Company, did  

not amount to an act of oppression of the Company,  

but was an area of dispute between the transferor  

and the transferee and it could not be said that  

the  inaction  of  the  transferor  amounted  to  

oppression within the meaning of Section 397 of the  

Companies Act.  Mr. Desai also submitted that the  

oppression complained of should be such as would  

lead to a conclusion that it would be just and  

equitable  to  wind  up  the  Company  under  Section  

433(f) of the above Act.

   61. Referring  to  the  decision  of  this  Court  in  

Shanti  Prasad  Jain’s  case  (supra),  Mr.  Desai  

submitted that in the said decision it had been  

emphasized that the oppression complained of had to  

be shown as having been brought about by a majority  

69

of members exercising a predominant voting power in  

the  conduct  of  the  Company’s  affairs  and  must  

relate to the manner in which the affairs of the  

Company were being conducted.  Such conduct must  

also be shown as being oppressive to a minority of  

the members in relation to the shareholding in the  

Company.  It was also emphasized that although, the  

facts disclosed might appear to furnish grounds for  

the making of a winding up order under the “just  

and  equitable”  principle,  such  facts  must  be  

relevant in disclosing that the winding up order  

would unfairly prejudice the minority members in  

relation to the shareholders. Referring to the use  

of the expression “legitimate expectation” by Lord  

Justice Hoffmann sitting in the Court of Appeal, in  

the decision rendered in  Ebrahimi’s case (supra),  

Mr. Desai submitted that subsequently in the case  

of  Saul D Harrison & Sons Plc (1995) 1 BCLC 14,  

after referring to the decision in Ebrahimi’s case  

(supra), Lord Justice Hoffmann held that such an  

70

expression  had  been  borrowed  from  public  law  to  

describe the correlative right in the shareholder  

to which such a relationship might give rise.   

62. Mr.  Desai  also  urged  that  the  decision  in  

Kalinga Tubes Ltd.’s case (supra) was also relied  

upon by this Court in the  Needle Industries case  

(supra),  wherein  it  was  held  that  on  a  true  

construction of Section 397, an unwise, inefficient  

or  careless  conduct  of  a  Director  in  the  

performance of his duties cannot give rise to a  

claim for relief under that Section.  The person  

complaining  of  oppression  must  show  that  he  has  

been constrained to submit to a conduct which lacks  

in  probity,  conduct  which  is  unfair  to  him  and  

which causes prejudice to him in the exercise of  

his legal and proprietary rights as a shareholder.  

As to the findings of both the Company Law Board  

and the High Court in relation to the applicability  

of  Section  398  of  the  above  Act,  Mr.  Desai  

submitted that since both the Courts had held that  

71

the same was not attracted, there was really little  

to add to the observations of both the forums that  

there was absolutely no reason to say that GoWB and  

WBIDC  with  their  associates  were  conducting  the  

affairs of HPL in any manner prejudicial to HPL’s  

interests. The allotment made in favour of IOC was,  

in fact, in the interest of the Company and the  

allotment of shares to IOC was part of the terms  

and conditions of the debt restructuring package.   

63. Regarding the failure of WBIDC to register the  

155 million shares in favour of CP(I)PL, Mr. Desai  

submitted that, in fact, there was no pleading in  

that  regard  in  the  Company  Petition  filed  by  

CP(I)PL.  Accordingly,  neither  could  CP(I)PL  

maintain the Company Petition, not being a member  

of HPL, nor could any prayer have been made for a  

direction  upon  the  Company  to  register  the  said  

shares in the name of CP(I)PL.  Mr. Desai pointed  

out that though such a pleading was subsequently  

included in the Rejoinder Affidavit, no application  

72

was ever made for amendment of the pleadings and  

the prayers in the Company Petition.   

64. To support his submissions, Mr. Desai referred  

to the decision of the Calcutta High Court in Re.  

Bengal  Luxmi  Cotton  Mills  Ltd. [1969  CWN  137],  

Sangramsingh P. Gaekwad & Ors. Vs.  Shantadevi P.  

Gaekward & Ors. [(2005) 11 SCC 314], R. Ramanathan  

Chettiar Vs.  A & F Harvey Ltd. & Ors. [967 (37)  

Comp. Case 212], wherein the principles laid down  

in  the  Needle  Industries case  (supra)  had  been  

followed.  Mr. Desai submitted that the 155 million  

shares transferred to CP(I)PL by WBIDC continued to  

be held by WBIDC and were never lodged with the  

Company.   

65. Lastly, on the question of allotment of 150  

million shares to IOC, Mr. Desai referred to the  

observations  of  the  Company  Law  Board  which  

recorded  that  such  allotment  could  not  be  

questioned by the Chatterjee Group, since the same  

73

was neither clandestine nor surreptitious and was  

under contemplation from 2000 itself and the idea  

of inducting IOC was initiated by Dr. Chatterjee  

himself, as would be evident from the letter dated  

24th March, 2000, addressed to the Chief Minister,  

as the Company was in dire need of funds.  Mr.  

Desai pointed out that the said view was endorsed  

by the learned Single Judge of the High Court by  

observing that the Chatterjee Group had failed to  

produce any evidence with regard to the allegations  

that the allotment of shares to IOC was pursuant to  

a  clandestine  agreement  to  permit  IOC  to  

participate in the management of HPL.  

66. Mr. Desai submitted that the case made out by  

the appellants before the Company Law Board was not  

only  devoid  of  substance,  but  was  entirely  

misconceived, since the same was not maintainable  

at the instance of CP(I)PL which was not a member  

of HPL. Even the allegations of oppression remained  

unproved, since the entire content related to the  

74

transaction between WBIDC and CP(I)PL, which was  

not  the  act  of  the  Company,  as  contemplated  in  

Section  397,  but  a  private  dispute  between  two  

groups of shareholders.  Mr. Desai submitted that  

the  appeals  were  liable  to  be  dismissed  with  

appropriate costs.

67. Mr.  Dushyant  Dave,  learned  Senior  Advocate,  

appearing for the Industrial Development Bank of  

India (IDBI) pointed out that a loan agreement had  

been entered into between HPL and IDBI for a sum of  

Rs.12,500  lakhs  and  in  the  event  the  borrower  

defaulted  on  the  loan,  the  Bank  would  have  the  

right to convert upto 20% of the loan into fully  

paid up equity of the Company.  The Bank was also  

given the right to appoint a Nominee Director on  

the Board of HPL.  Mr. Dave submitted that in 2003  

the question of restructuring of the debt came up  

for consideration and in its meeting held on 8th  

August, 2003, the Company agreed to allow IDBI to  

refer  the  Company  to  the  Corporate  Debt  

75

Restructuring (CDR) Cell with a debt restructuring  

proposal.  Subsequently, on a 22nd January, 2004, at  

a meeting of the Empowered Group, Dr. Chatterjee  

agreed  for  conversion  of  debt  to  equity  to  the  

extent of Rs.140 crores.  Thereafter, on 23rd March,  

2004, the Board of Directors of HPL approved a CDR  

package and Dr. Chatterjee’s proposal to convert  

debt  to  equity.  Dr.  Chatterhee  was,  in  fact,  

interested to give effect to the same.  Mr. Dave  

submitted that subsequently the debt restructuring  

plan failed to fructify and the Bank was informed  

by  the  Principal  Secretary,  Government  of  West  

Bengal,  on  27th July,  2005,  that  the  permission  

which had been granted in the credit restructuring  

package, be treated as annulled.   

68. In  the  pending  proceeding  before  the  CLB,  

Chatterjee Petrochemicals Ltd. had got an interim  

order in its favour staying further allotment of  

shares of Rs.135 crores to IDBI. However, IDBI was  

neither  a  party  to  the  proceedings  nor  was  any  

76

relief, either final or interim in nature sought  

against IDBI.  But by virtue of the interim order  

of injunction passed by the CLB, the allotment of  

shares  to  IDBI  was  stayed,  as  that  would  have  

reduced the Chatterjee Group to a minority.  Mr.  

Dave submitted that the application filed by IDBI  

before the CLB was kept in abeyance and no order  

was passed thereupon as it was likely to hamper the  

progress of negotiation.  Mr. Dave submitted that  

the writ petition filed by IDBI against the said  

order before the Delhi High Court was dismissed by  

the learned Single Judge and the appeal preferred  

therefrom was also dismissed by the Division Bench.  

Ultimately,  in  its  final  judgment  dated  31st  

January,  2007,  the  CLB  gave  directions  to  the  

effect  that  Chatterjee  Group  would  purchase  155  

million shares from GoWB/WBIDC at a minimum price  

of Rs.28.80 per share.  It was also directed that  

the  155  million  shares  transferred  to  the  

Chatterjee  Group  would  be  dematerialized  and  

77

registered and that the allotment to the IOC would  

remain.  

69. Mr. Dave submitted that the question of CP(I)PL  

having any legitimate expectation did not arise and  

such a case was not also pleaded before the Board.  

Furthermore, since nothing had been proved before  

the Board that the conduct of GoWB and WBIDC was  

such as to justify an order of just and equitable  

winding up, no order could have been passed by the  

Board  on  the  Company  Petition  filed  by  the  

appellants and the learned Single Judge of the High  

Court rightly allowed the appeals preferred against  

the order of the Board.  

70. Appearing for the Respondent No.16, Mr. Altaf  

Ahmed,  learned  Senior  Advocate,  submitted  that  

nowhere in the Company Petition had any allegation  

been made against the Managing Director as to his  

involvement in any manner in the acts of oppression  

alleged  to  have  been  committed  against  the  

78

complainant.  Accordingly, as had been held by the  

CLB in its final order dated 31st January, 2007, the  

Company Petition, though filed under Sections 397  

and 398 of the Companies Act, was essentially one  

under Section 397 of the aforesaid Act.  Mr. Ahmed  

submitted that the said finding of the CLB had been  

duly upheld by the High Court.

71. Mr. Ahmed submitted that the question raised by  

the Chatterjee Group with regard to the employment  

of  Mr.  Bhowmik  as  the  Managing  Committee  was  

without  any  basis  whatsoever,  since  he  was  

appointed  unanimously  by  the  Board  of  Directors  

consisting  of  the  nominees  of  the  different  

shareholders.  Mr. Ahmed also pointed out that the  

Respondent  No.16  had  been  responsible  for  the  

resurrection  of  HPL  from  the  brink  of  financial  

disaster which had been occasioned by the failure  

of the promoters to infuse equity into the Company.  

It  was  only  after  assessment  of  his  performance  

during the initial two year period of his tenure  

79

that the Board of HPL reappointed him for a further  

period of 3 years, inspite of the objection from  

the Chatterjee Group.

72. Mr. Ahmed submitted that the Respondent No.16  

has  moved  I.A.Nos.25-28  of  2009  for  a  direction  

upon the Company to pay his arrears of salary as  

per the resolution passed by the Board of Directors  

on  28th May,  2008,  for  the  period  covering  29th  

March, 2005 to 31st March, 2007.  A further prayer  

has  also  been  made  to  fix  the  pay  of  the  said  

Respondent for the period from 1st April, 2007, till  

31st March, 2010, at a rate as might be deemed just,  

proper and reasonable.   

73. As  far  as  the  Tatas  are  concerned,  it  was  

submitted  that  the  Tata  Group  was  one  of  the  

original  promoters  of  HPL  and  continues  to  hold  

more than 2% of the shares in the Company.  It was  

submitted  that  the  Tatas  were  keen  to  see  HPL  

flourishing and had, accordingly, between 1994 and  

80

2000 made significant infusion of funds into HPL,  

including a sum of Rs.11.89 crores which was given  

as an interest free loan.  Even in 2000 when the  

Company was in dire financial straits, the Tatas  

brought  in  their  share  of  Rs.35.71  crores  along  

with other shareholders, except for the Chatterjee  

Group  which  failed  to  bring  in  its  share  of  

Rs.107.14 crores.  It was made clear that the Tata  

Group had no faith in the Chatterjee Group since  

from the very inception of HPL the Chatterjee Group  

wanted control of HPL, without making any effective  

contribution at times when such contribution was  

most needed and had, therefore, worked against the  

interest of the Company, its shareholders and the  

public at large.

74. Mr.  K.K.  Venugopal,  learned  Senior  Advocate,  

who appeared for the Government of West Bengal and  

its officials, urged that the relief prayed for in  

the Company Petition for specific relief, could not  

be granted under Section 397 of the Companies Act.  

81

Since the said question had been adequately dealt  

with on behalf of WBIDC, Mr. Venugopal chose to  

deal with the directions given by the CLB to the  

GoWB to disinvest its entire shareholding in HPL,  

which was a Company set up in public interest and  

for which a huge extent of land had been acquired  

for the public purpose of maintaining supplies and  

services essential to the life of the community, by  

setting up a Petro Chemical Complex at Haldia.  Mr.  

Venugopal contended that it was settled law that  

the decision of the Government to disinvest or not  

to disinvest was not in the realm of public law and  

was  not,  therefore,  amenable  to  challenge  or  

interference,  unless  it  amounted  to  an  abuse  of  

power by the Government.   

75. Mr.  Venugopal  submitted  that  the  order  and  

directions  of  the  CLB  would  exclude  the  State  

Government from having any future role to play in  

the running and management of HPL.  Learned counsel  

submitted  that  in  a  matter  of  this  nature,  the  

82

public interest should have been considered first  

before such directions are given.  Mr. Venugopal  

submitted that the proceedings under Section 397 of  

the Companies Act should not have been allowed to  

be made a vehicle for relief which was available to  

the Chatterjee Group under the provisions of the  

Specific Relief Act, 1963.  It was also submitted  

that the Company Law Board erred in applying the  

principles of private law in the exercise of its  

jurisdiction under Sections 397/398 and 402 of the  

Companies  Act,  since  the  decision  of  the  State  

Government  not  to  disinvest  would  have  to  be  

decided by applying the public law in appropriate  

proceedings. In this regard, Mr. Venugopal referred  

to the decision of this Court in  BALCO Employees’  

Union (Regd.) Vs. Union of India & Ors. [(2002) 2  

SCC  333],  wherein  it  was  observed  that  it  is  

neither within the domain of the courts nor the  

scope of judicial review to embark upon an enquiry  

as to whether a particular public policy is wise or  

83

something better could be evolved.  This Court also  

observed that the courts are not inclined to strike  

down a policy merely because it has been urged that  

a  different  policy  was  fairer  or  wiser  or  more  

scientific or more logical.  This Court went on to  

observe that the procedure of disinvestment is a  

policy decision involving complex economic factors  

and  the  courts  have  consistently  refrained  from  

interfering with economic decisions, unless it was  

demonstrated  that  economic  expediency  was  so  

violative  of  constitutional  or  legal  limits  on  

power  or  is  so  abhorrent  to  reason,  that  such  

interference was necessary.  The Courts would in  

given cases interfere if it could be demonstrated  

that  the  policy  was  contrary  to  any  statutory  

provision or the provision of the Constitution or  

there was illegality in the decision itself.   

76. Mr. K.K. Venugopal submitted that from the very  

inception,  GoWB  had  played  a  major  role  in  

conceptualizing  and  setting  up  of  HPL  with  the  

84

primary  object  of  industrial  development  of  the  

region in particular, and the State in general and  

subserving  the  underlying  public  interest.   Mr.  

Venugopal submitted that HPL had been conceived as  

a  showcase  project  of  the  GoWB.   It  was  only  

because of the active role of the State Government  

that it was also possible to acquire a total of  

1031.305 acres of land for the project at Haldia,  

without any trouble and disturbance, from the year  

1973  onwards.   Mr.  Venugopal  submitted  that  the  

direction given by the CLB would be against the  

very  grain  of  the  concept  of  a  Joint  Venture  

between WBIDC, which was owned by GoWB, and the  

R.P. Goenka Group (RPG) and subsequently, with the  

exit of the RPG Group, the Tata Group as well as  

the CP(M)C. It was also submitted that even the  

financial institutions, namely, IDBI and SBI, etc.,  

who had a total stake of Rs.2989 crores in HPL,  

drew great comfort from the continued presence of  

the State Government and its active participation  

85

in the management of HPL.  On the other hand, on  

several  occasions  the  very  same  financial  

institutions had expressed their concern regarding  

the  capability  and  intentions  of  the  Chatterjee  

Group in managing the Company and inducting funds  

as  necessary  for  the  growth  and  development  

thereof.  Mr. Venugopal submitted that the acts of  

oppression alleged by the Chatterjee Group and the  

relief claimed by them, apart from being based on  

alleged breach of contract, aimed at invoking the  

jurisdiction of the CLB under Section 397 read with  

Section 402 of the Companies Act, 1956, to compel  

the  Government  to  disinvest  its  shareholding  in  

HPL.  Mr. Venugopal submitted that the CLB did not  

have the jurisdiction to grant such relief and, in  

any  event,  in  view  of  the  overriding  public  

interest,  no  relief  should  be  granted  to  the  

appellant in the instant appeals.

77. Mr. Anil Dewan, learned Senior Advocate, who  

appeared for Mr. Tarun Das, who was functioning as  

86

the Chairman of HPL, adopted the submissions made  

by Mr. Desai and Mr. Venugopal and urged that the  

Company Petition itself was not maintainable as it  

had been filed by a Company which was not a member  

of  HPL,  despite  being  the  owner  of  155  million  

shares thereof.  Mr. Dewan submitted that instead  

of assisting the Company in meeting its financial  

liabilities,  the  appellants  not  only  failed  to  

infuse equity into the Company but also confined  

their  focus  on  acquiring  only  51%  of  the  

shareholding in order to maintain its control over  

the management of the Company.  Mr. Dewan submitted  

that the judgment of the High Court did not call  

for any interference in the instant proceedings.  

78.  In continuation of Mr. Desai’s submissions,  

Mr.  C.A.  Sundaram,  learned  Senior  Advocate  

appearing for the Respondent No.2, reiterated the  

factual  aspect  of  the  case  as  portrayed  by  Mr.  

Desai. Mr. Sundaram, however, urged that the stand  

now being taken by the Chatterjee Group that the  

87

induction of IOC into HPL had adversely affected  

their interest and had reduced the Chatterjee Group  

to a minority shareholder in the Company, it was,  

in fact, Dr. Chatterjee himself, who had initiated  

the idea of allotting 150 million shares to IOC.  

Dr. Chatterjee was the Chairman of the Committee  

which prepared and sent the offer of allotment to  

IOC  which  was  accepted  by  its  return  letter  

enclosing a cheque for Rs.150 crores in favour of  

HPL.  Between April, 2005 and July, 2005, eight  

draft  Share  Purchase  Agreements  were  exchanged  

between the Chatterjee Group and the GoWB regarding  

sale  of  the  shares  held  by  WBIDC  to  CP(M)C.  

However, the Chatterjee Group never seemed to be in  

a  position  to  complete  the  transaction  and  

repeatedly  asked  for  the  inclusion  of  fresh  

conditions, such as a pre-condition that IOC should  

not  be  allotted  any  shares  of  HPL.   In  the  

meantime, having accepted the offer of allotment of  

150 million shares and having sent the price for  

88

the same to HPL, IOC sent legal notices to HPL  

calling upon the Company to issue and allot the  

said 150 million shares to IOC and to credit the  

same to the account of IOC after dematerialization.  

79. Mr. Sundaram submitted that in the aforesaid  

cauldron  of  events,  the  GoWB  wrote  to  the  

Chatterjee Group on 27th July, 2005, stating that it  

had  decided  to  defer  its  proposal  to  disinvest  

shares in favour of the Chatterjee Group as it was  

not in a position to conclude matters.  On account  

of the severe financial crunch being faced by HPL  

and in view of the stand of IOC, which was the main  

supplier of Naphtha to HPL, on 2nd August, 2005, HPL  

allotted 150 million shares to IOC and a return of  

allotment  was  also  filed  with  the  Registrar  of  

Companies in respect thereof.  On 3rd August, 2005,  

the  cheque  given  to  IOC  for  Rs.150  crores  was  

encashed by HPL.

89

80. Mr. Sundaram submitted that it was no doubt  

true that at the initial stages it had been the  

intention  of  GoWB  and  WBIDC  to  involve  Dr.  

Chatterjee and his Group of Companies as the prime  

stakeholders in HPL with management control, but at  

crucial times when support in the form of equity  

was  required,  the  Chatterjee  Group  failed  to  

provide the same.  Mr. Sundaram submitted that even  

when on 3rd June, 1996, GoWB wrote to Dr. Chatterjee  

that  on  account  of  HPL’s  financial  crunch,  all  

promoters had been requested to induct 50% of the  

equity and the last date for such infusion was 18th  

June,  1996,  the  Chatterjee  Group  failed  to  make  

such  investments,  although,  both  the  Tatas  and  

WBIDC  brought  in  their  respective  equity  

contributions of Rs.35.5 crores and Rs.117 crores.  

Once  again,  since  the  Lenders  were  insisting  on  

immediate infusion of Rs.581 crores into HPL and  

HPL  was  on  the  threshold  of  becoming  a  Non-

Performing Asset, a Rights Issue Offer was made by  

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HPL to the existing shareholders for subscription  

of 34,99,99,988 shares at the rate of Rs.10/- per  

share. Despite Dr. Chatterjee’s assurance to bring  

in Rs.53.5 crores immediately along with additional  

fund of Rs.53.5 crores and a further sum of Rs.300  

crores, the Chatterjee Group did not subscribe to  

the Rights Issue, thereby depriving the Company of  

Rs.107 crores at a very crucial time. In order to  

re-assure HPL, the Chatterjee Group on 12th January,  

2002, agreed to induct a minimum of Rs.500 crores  

and  such  other  further  funds  towards  equity  and  

equity-like instruments to effectuate the Corporate  

Debt  Restructuring.   However,  despite  such  

commitment, till today, the Chatterjee Group has  

not  brought  in  the  amount  of  Rs.500  crores  

committed by it.  On the other hand, acting on the  

assurance  given  by  the  Chatterjee  Group,  WBIDC  

agreed to transfer shares worth Rs.360 crores to  

the Chatterjee Group to ensure that it controlled  

51% of paid-up equity to enable it to remain in the  

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majority.  Mr. Sundaram submitted that out of the  

said number of shares, 155 million shares were, in  

fact,  transferred  to  CP(I)CL  to  maintain  a  

shareholding of 51%.  However, WBIDC even agreed to  

transfer shares beyond the said 155 million shares  

to ensure that the 51% shareholding of CP(M)C was  

maintained.  It was also agreed that the transfer  

would be effected within 10 days of the acceptance  

of  Letter  of  Comfort  by  WBIDC.  Mr.  Sundaram  

submitted that although the shares were transferred  

in the name of CP(I)CL, the said transfers were  

never completed as they were not registered either  

in the Company’s books or with the Registrar of  

Companies and WBIDC continued to have voting rights  

on  the  said  155  million  shares.   Mr.  Sundaram  

submitted that to cap it all, instead of bringing  

in  equity  of  an  amount  of  Rs.53.5  crores,  as  

promised as per the decision taken by the Company  

on 3rd June, 1996, to induct 50% of its equity, the  

Chatterjee Group brought in only Rs.61.5 crores and  

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that too as debt and not equity, despite the fact  

that  post-dated  cheques  issued  to  vendors  were  

still bouncing and other commitments were not met.  

In addition, the Corporate Debt Restructuring could  

not be implemented since CP(M)C could not induct a  

strategic  investor.   Ultimately,  out  of  sheer  

compulsion  in  order  to  save  the  Company  from  

becoming a Non-Performing Asset, a decision had to  

be taken to induct IOC as a portfolio investor,  

though there may have been discussion to bring in  

IOC as a strategic investor.  

81. Mr.  Sundaram  submitted  that  one  of  the  

questions  which  arise  in  these  proceedings  is  

whether  the  Company  Law  Board,  acting  under  

Sections 397 and 398, read with Section 402 of the  

Companies Act, could direct sale of shares in the  

absence of a finding that there had been oppression  

by  one  body  of  shareholders  against  another  or  

mismanagement  of  the  Company.  According  to  Mr.  

Sundaram, the second question, which is directly  

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connected with the first, is whether in the absence  

of  such  a  finding  the  Company  Law  Board  could  

direct sale of shares in the absence of a further  

finding that such sale of shares was necessary in  

the interest of the Company.  The third question  

posed by Mr. Sundaram was whether in addition to  

the findings indicated above, the Company Law Board  

could direct sale of shares under Sections 397 and  

398 read with Section 402 of the above Act in the  

absence of a finding that without giving such a  

direction it might be just and equitable to wind-up  

the Company.

82. On  the  aforesaid  issues,  Mr.  Sundaram  

reiterated the submissions made by Mr. Desai that  

the said questions have been answered by this Court  

in  Shanti Prasad Jain’s case (supra) and in the  

subsequent  decisions  in  Sangramsinh  P.  Gaekwad  

(supra),  M.S.D.C.  Radharamanan (supra),  V.S.  

Krishnan (supra), the Needle Industries (supra) and  

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in the case of  Hanuman Prasad Bagri Vs.  Bagress  

Cereals Pvt. Ltd. [(2001) 4 SCC 420].

83. Mr.  Sundaram  submitted  that  the  next  issue  

involved the question as to whether the concept of  

legitimate expectation of a body of shareholders  

would  be  applicable  to  a  large  public  limited  

company or only in quasi partnerships and family  

companies and whether in those situations also the  

sale of shares could be directed in order to break  

a deadlock.  In this regard, reference was made to  

the decision of this Court in Kilpest Pvt. Ltd. &  

Ors. Vs. Shekhar Mehra [(1996) 10 SCC 696] and Hind  

Overseas  Pvt.  Ltd. Vs.  Raghunath  Prasad  

Jhunjhunwalla & Anr. [(1976) 3 SCC 259]. In  Hind  

Overseas Pvt. Ltd.’s case, this Court had held that  

when more than one family or several friends and  

relations together form a company and there is no  

right as such agreed upon for active participation  

of members who are excluded from management, the  

principles of dissolution of partnership cannot be  

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liberally invoked.  It was further observed that it  

is only when shareholding is more or less equal and  

there  is  a  case  of  a  complete  deadlock  in  the  

running  of  the  company  on  account  of  lack  of  

probity in the management and there is no hope or  

possibility of smooth and efficient continuance of  

the company as a commercial concern, a case for  

winding up may arise. However, in a given case, the  

principles of dissolution of partnership may apply  

if the apparent structure of the company is proved  

not to be the real structure and on piercing the  

veil  it  is  found  that  in  reality  it  is  a  

partnership.  Mr. Sundaram submitted that, in any  

event, the application of the just and equitable  

clause  would  depend  upon  the  facts  and  

circumstances of each case.  A note of caution was  

also introduced that even admission of a petition  

could  prejudice  and  cause  immense  injury  to  a  

company in the eyes of the investors, if ultimately  

the petition is dismissed.  Mr. Sundaram urged that  

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in  a  petition  under  Section  397/398  of  the  

Companies Act, it was not always incumbent on the  

CLB to order the winding up of a company on the  

just and equitable principle, but in order to pass  

any order under Section 397, the Company Law Board  

would have to arrive at a specific finding that  

there was just and equitable reason to order such  

winding up.

84. The next issue canvassed by Mr. Sundaram is  

that the Court would have to examine as to whether  

the direction given for sale of shares was in order  

to  maintain  the  status  quo  which  was  being  

disturbed  on  account  of  the  oppressive  measures  

taken.  In this regard, Mr. Sundaram referred to  

the decisions of this Court in  Dale & Carrington  

Invt. (P) Ltd. Vs. P.K. Prathapan & Ors. [(2005) 1  

SCC 212] and M.S.D.C. Radharamanan’s case (supra),  

along with the decision in Allianz Securities Ltd.  

Vs.  Regal  Industries  Ltd. [2002  (11)  CC  764  =  

(2000)  25  SCL  349  (CLB)].  On  the  concept  of  

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legitimate expectation, Mr. Sundaram submitted that  

it has to be considered whether the same should be  

restricted to maintaining the state of affairs at  

the time when the parties became shareholders or  

whether any subsequent understanding arrived at by  

private treaty between the shareholders would fall  

under  the  purview  of  the  Company  Law  Board  to  

enable  it  to  deal  with  such  questions  between  

private shareholders.   

85. Mr. Sundaram repeated that in this regard it  

would have to be decided as to whether the CLB  

could direct sale and transfer of shares to a group  

to give it majority control on an application under  

Section  397/398  read  with  Section  402  of  the  

Companies Act and to enforce specific performance  

of agreement between the parties whether legitimate  

or not, especially when such specific performance  

was not necessary in the interest of the company,  

or to prevent winding up of the company. Another  

question of equal importance in this connection was  

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whether specific performance could be directed at  

the instance of a party whose own conduct had been  

inequitable in failing to carry out its promises,  

to the severe prejudice of the company.       

86. Another issue raised by Mr. Sundaram, which has  

a direct bearing to the facts of this case, is  

whether a Company can effect transfer of shares in  

the absence of transfer deeds and a request for  

transfer,  and  whether  the  transfer  of  shares  is  

complete  only  when  such  transfers  are  duly  

registered and entered in the Register of Members  

of  the  Company.  In  this  regard,  Mr.  Sundaram  

referred to the decisions of this Court in  Howrah  

Trading Company Vs.  CIT [AIR 1959 SC 775];  Life  

Insurance  Corporation  of  India Vs.  Escorts  Ltd.  

[(1986) 1 SCC 264],  Mannalal Khetan Vs.  Kadarnath  

Khetan [(1977) 2 SCC 424],  Claude Lila Parulekar  

(Smt.) Vs.  Sakal Papers (P) Ltd. [(2005) 11 SCC  

73],  J.P. Srivastava & Sons Pvt. Ltd. Vs. Gwalior  

Sugar  Co.  Ltd. [(2005)  1  SCC  172],  Mathrubhumi  

99

Printing  &  Publishing  Co.  Ltd. Vs.  Vardhman  

Publishers Ltd. [(1992) 73 CC 80] and several other  

decisions to which we shall shortly refer as they  

have a bearing on the issue involving the rights  

acquired by the Chatterjee Group on the transfer of  

155  million  shares  by  WBIDC,  which  were  not,  

thereafter,  registered  in  the  name  of  the  

Chatterjee Group in the Register of Members of the  

Company,  nor  was  the  factum  of  such  transfer  

communicated to the Registrar of Companies.  

87. Mr. Sundaram also raised another question as to  

why on failure of reciprocal promises in a contract  

on account of non-performance of the promises made  

by one of the parties, the benefits accrued to such  

party  through  part  performance  should  not  be  

restituted to the other party.  In this regard,  

reference was made to Sections 51 to 54 of the  

Contract Act and the decision of the Privy Council  

in  Satgur Prasad Vs. Harnarayan Das [(AIR 1932 PC  

89] and the decision of the Delhi High Court in  

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Suit No.1481 of 1996, to which reference may be  

made, if required.

88. Lastly, on the question of allotment of the 150  

million  shares  by  WBIDC  to  IOC,  Mr.  Sundaram  

submitted that on account of the failure of the  

Chatterjee  Group  to  bring  in  equity  when  the  

Company was in dire need of funds, such allotment  

was fully justified under the doctrine of  Indoor  

Management.  However, even if a legitimate dispute  

could be raised in regard to such transfer, such  

transaction could not be avoided by the Company Law  

Board  as  the  same  was  in  the  interest  of  the  

Company, which would otherwise have been converted  

into a Non Performing Asset.  

89. What emerges from the materials on record and  

the  submissions  made  on  behalf  of  respective  

parties is that HPL was incorporated in 1985 by the  

West Bengal Industrial Development Corporation and  

the R.P. Goenka Group, and their nominees were the  

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subscribers to the Memorandum of Association.  Soon  

thereafter,  in  1990,  the  Goenka  Group  left  the  

Company  and  Tata  Chemicals  and  Tata  Tea  were  

inducted into the project between 1990 and 1993.  

However,  since  the  TATAs  were  not  very  keen  to  

continue  with  the  Project,  in  June  1994,  Dr.  

Purnendu  Chatterjee,  a  Non-Resident  Indian  

industrialist and financier, evinced his interest  

in  implementing  the  project.  Accordingly,  a  

Memorandum  of  Understanding  was  entered  into  

between  WBIDC  and  the  Chatterjee  Petrochem  

(Mauritius) Company and the Tatas on 3rd May, 1994.  

Certain  assurances  were  given  to  Dr.  Chatterjee  

that the Company would remain a private enterprise  

with  the  Chatterjee  Group  in  control  of  the  

management thereof.  A further assurance was given  

to the effect that WBIDC/GoWB would transfer their  

entire  shares  in  the  Company  to  the  Chatterjee  

Group, which would then acquire a complete majority  

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for the purposes of management and control of the  

Company.

90. In addition to the above, certain duties and  

obligations to be performed by the Chatterjee Group  

were  also  indicated,  mainly  confined  to  the  

question  of  bringing  in  equity  in  an  otherwise  

cash-strapped situation then prevailing in relation  

to the Company’s finances.  It also appears that  

the assurances given by WBIDC/GoWB were on account  

of the aforesaid assurances given by the Chatterjee  

Group  to  bring  in  equity.   Inasmuch  as,  the  

Chatterjee  Group  failed  to  abide  by  its  

commitments, the Company had no other alternative,  

but to bring in IOC by selling and transferring 150  

million shares to the said Company.   

91. The  parties  also  agreed  that  they  would  be  

entitled to seek specific performance of the terms  

and conditions of the Agreement in accordance with  

the provisions of the Specific Relief Act, 1963.  

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Various other terms and conditions were included  

with  the  intention  of  guaranteeing  that  CP(M)C  

would acquire a controlling interest to the extent  

of at least 51% shares which would also give it  

complete control over the day-to-day affairs of the  

Company.  In addition, it was agreed that in future  

the composition of the Board would be altered to  

reflect  the  revised  shareholding  structure  and  

WBIDC would vote along with CP(M)C on all issues in  

the shareholders meeting and its nominee would also  

vote  along  with  the  nominee  Directors  of  the  

CP(M)C.  

92. Despite the concessions given and/or afforded  

to  the  Chatterjee  Group,  it  had  failed  to  take  

advantage of the same and a subsequent Agreement  

dated 8th March, 2002, had to be entered into for  

recording the fact that in terms of the Agreement  

dated 12th January, 2002, 155,099,998 equity shares  

of WBIDC had been transferred/delivered to CP(I)PL  

on  the  same  day.  It  was  also  indicated  in  the  

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Agreement that all the aforesaid shares which had  

been transferred and delivered to the Petitioner  

No.4 would be pledged with WBIDC and, accordingly,  

their shares had been duly lodged along with their  

share certificates with WBIDC and such pledge had  

been acknowledged.

93. It is in the aforesaid background that we have  

to consider the Petition filed by the Chatterjee  

group before the Company Law Board under Sections  

397, 398, 399, 402, 403 and 406 of the Companies  

Act, 1956, and the reliefs prayed for therein.

94. The  law  relating  to  grant  of  relief  on  a  

petition under Sections 397, 398 and 402 of the  

Companies  Act,  1956,  has  been  crystallised  in  

various decisions of this Court, including those  

cited on behalf of the parties.  The common refrain  

running  through  all  these  decisions  is  that  in  

order to succeed in an action under Sections 397  

and 398 of the Companies Act, the complainant has  

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to prove that the affairs of the Company were being  

conducted  in  a  manner  prejudicial  to  public  

interest or in a manner oppressive to any member or  

members.   For  better  appreciation  of  the  above,  

Section  397  of  the  above  Act  is  extracted  

hereinbelow :

“397. Application to [Tribunal] for relief  in cases of oppression.—  1) Any member of a company who complains  that the affairs of the company are being  conducted  in  a  manner  prejudicial  to  public interest or] in a manner oppressive  to  any  member  or  members  (including  any  one or more of themselves) may apply to  the  Tribunal  for  an  order  under  this  section,  provided  such  members  have  a  right  so  to  apply  in  virtue  of  section  399.  

(2)  If,  on  any  application  under  sub- section (1), the Court is of opinion—  

(a) that the company’s affairs are  being  conducted  in  a  manner  prejudicial to public interest or  in  a  manner  oppressive  to  any  member or members; and  

(b) that to wind up the company  would  unfairly  prejudice  such  member  or  members,  but  that  otherwise the facts would justify  the making of a winding-up order  

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on the ground that it was just and  equitable that the company should  be wound up,  

the Tribunal may, with a view to bringing  to an end the matters complained of, make  such order as it thinks fit.”

 However, as was observed by this Court in  Shanti  

Prasad Jain’s case (supra) the law has not defined  

as to what would amount to “oppressive” for the  

purposes of Section 397 and it is for the Courts to  

decide on the facts of each case as to whether such  

oppression exists which would call for action under  

Section  397.   It  was  also  emphasized  that  the  

conduct  of  the  majority  shareholders  should  not  

only be oppressive to the minority, but must also  

be burdensome and operating harshly upto the date  

of the petition.  

95. The main grievance of the Appellants appears to  

be that having been induced into investing large  

sums  of  money  in  establishing  the  petrochemical  

complex on various promises, particularly that the  

Company  would  continue  to  retain  its  private  

107

character  and  the  Chatterjee  group  would  have  

control  over  its  management,  such  promises,  

although,  reduced  into  writing  in  the  form  of  

agreements, not only remained unfulfilled, but even  

the character of the Company was altered with the  

transfer  and  sale  of  150  million  shares  by  the  

Company in favour of IOC.  Coupled with the above,  

is  the  other  grievance  that  despite  having  

transferred  155  million  shares  in  favour  of  

CP(I)PL,  and  having  received  the  full  price  

therefor, the Company had not registered  the same  

in the Company’s Register of Share-holders, thereby  

depriving the Chatterjee Group from exercising its  

right to vote in respect of the said shares.  The  

third grievance of the Chatterjee Group is that by  

not  registering  the  transfer  of  the  155  million  

shares in their favour, but, on the other hand,  

transferring 150 million shares in favour of IOC,  

the character of the Company was altered from a  

Private Company into a Government Company and also  

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reduced the Chatterjee Group to a minority, despite  

the promises held out earlier and as incorporated  

in  the  Agreements  dated  20th August,  1994,  12th  

January, 2002 and 8th March, 2002.        

96. Let  us  examine  as  to  whether  any  of  the  

complaints contained in the Company Petition before  

the CLB make out a case that the affairs of the  

Company are being conducted in a manner prejudicial  

to public interest or in a manner oppressive to any  

member or members, which was sufficient to justify  

the passing of a winding-up order on the ground  

that it was just and equitable that the Company  

should be wound-up, but that to wind-up the Company  

would prejudice such member or members.  In Shanti  

Prasad  Jain’s  case  (supra),  referred  to  

hereinabove,  in  a  similar  situation,  it  was  

observed by this Court as follows :-

“It is not enough to show that there is  just  and  equitable  cause  for  winding  up  the Company though that must be shown as a  preliminary to the application of Section  

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397.  It must further be shown that the  conduct of the majority shareholders was  oppressive to the minority as members and  this  requires  that  events  have  to  be  considered not in isolation but as part of  a  consecutive  story.  There  must  be  continuous  acts  on  the  part  of  the  majority  shareholders,  continuing  up  to  the  date  of  petition,  showing  that  the  affairs  of  the  company  were  being  conducted in a manner oppressive to some  part of the members.  The conduct must be  burdensome, harsh and wrongful, and mere  lack  of  confidence  between  the  majority  shareholders and the minority shareholders  would  not  be  enough  unless  the  lack  of  confidence  springs  from  oppression  of  a  minority by a majority in the management  of  the  Company’s  affairs  and  such  oppression  must  involve  at  least  an  element of lack of probity or fair dealing  to  a  member  in  the  matter  of  his  proprietary rights as a shareholder.”

It will be evident that in order to pass orders  

under Section 397 of the Companies Act, 1956, the  

CLB has to be satisfied that the Company’s affairs  

are being conducted in a manner oppressive to any  

member or members and that the facts would justify  

the making of a winding-up order on the just and  

equitable principle, but that such an order would  

unfairly prejudice the Applicant before the CLB.  

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As  was  discussed  by  this  Court  in  the  Needle  

Industries case  (supra),  unwise,  inefficient  or  

careless conduct of a Director cannot give rise to  

claim for relief under Section 397 of the Act. For  

relief under this Section, the Applicant would have  

to prove that the conduct of the majority of the  

shareholders lacked probity and was unfair so as to  

cause prejudice to the Applicant in exercising his  

legal  and  proprietary  rights  as  a  shareholder.  

This, in fact, is the golden thread of the various  

decisions in relation to petitions under Section  

397, 398 and 402 of the above Act.  All the various  

decisions  cited  by  the  learned  counsel  for  the  

various  parties  are  ad  idem on  this  issue  and  

applying the said principles, each complaint under  

Section 397 will have to be judged on its own merit  

for the CLB to arrive at a conclusion as to whether  

the ingredients of Section 397 were satisfied and  

pass appropriate orders thereafter.        

111

97. As  has  been  indicated  in  some  of  the  cases  

cited, the language of Section 397 suggests that  

the  oppressive  manner  in  which  the  Company’s  

affairs were being conducted could not be confined  

to one isolated incident, but that such acts would  

have to be continuous as to be part of a concerted  

action  to  cause  prejudice  to  the  minority  

shareholders  whose  interests  are  prejudiced  

thereby.

98. In the aforesaid context, what do the facts  

reveal in the instant case and do they bring the  

acts of oppression complained of within the purview  

of Section 397 for grant of relief under Section  

402 of the Companies Act?

99. The  case  of  the  Chatterjee  Group  is  woven  

around two particular issues, namely, that it had  

been induced to invest in HPL so as to make it a  

successful  commercial  enterprise  on  the  promise  

that  the  Company  would  always  retain  a  private  

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character  and  the  Chatterjee  Group  would  have  

control over its management, but such a promise had  

not  been  adhered  to  and,  on  the  other  hand,  

negotiations  were  undertaken  by  WBIDC  to  induct  

IOC,  a  Central  Government  Company,  with  the  

intention of ultimately handing over the management  

of the Company to IOC.  The aforesaid case of the  

Chatterjee  Group  is  also  based  on  the  grievance  

that while keeping the Chatterjee Group under the  

impression  that  it  intended  to  ensure  that  the  

Chatterjee Group had the requisite number of shares  

to allow it to have a majority shareholding and  

thereby control of the Company’s management, the  

Company  carried  on  clandestine  negotiations  with  

WIBDC to transfer all the shares held by it in the  

Company to IOC to give it management and control  

over the Company’s affairs.   

100. The  second  ground,  as  made  out  by  the  

Chatterjee  Group,  was  that  despite  having  

transferred 155 million shares in favour of CP(I)PL  

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on 8th March, 2002, it did not register the same in  

the name of CP(I)PL, which remained the beneficial  

owner,  the  right  to  vote  on  the  basis  thereof  

remained with WBIDC.  This was done despite the  

fact that the price for the said shares had been  

received by way of a private arrangement and the  

Lenders and financial institutions had given their  

consent to the same. According to the Chatterjee  

Group, this one act of omission on the part of the  

Company was sufficient to attract the provisions of  

Section 397 of the Companies Act and for the CLB to  

pass appropriate orders on account thereof.  It is  

on  account  of  the  second  ground  on  which  the  

Company Petition was filed that a prayer had been  

made therein for a direction upon WBIDC and IOC to  

immediately  register  the  transferred  155  million  

shares in the name of CP(I)PL.   

101.From the facts as revealed, it is clear that  

when Dr. Purnendu Chatterjee expressed his interest  

in setting up of the Haldia Petrochemicals Ltd.,  

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various incentives had been offered to him by the  

GoWB and WBIDC to invest in the Company and to make  

it  a  successful  commercial  enterprise.  Such  

investments  were,  however,  contingent  upon  Dr.  

Chatterjee’s bringing in sufficient equity to set  

up and run the Company.  As would be seen, at the  

very initial stage all the understanding between  

Dr. Chatterjee and GoWB & WBIDC, both WBIDC and the  

Chatterjee Group were to hold 433 million shares  

each, while Tata was to hold 144 million shares.  

The  promise  extended  by  WBIDC  and  GoWB  to  the  

Chatterjee Group to provide at least 60% of the  

shares held by WBIDC at Rs.14/- per share to the  

Chatterjee Group so as to give the Chatterjee Group  

the majority shareholding in the Company, as was  

indicated  in  the  Agreements  dated  12th January,  

2002, 8th March, 2002 and 14th January, 2005, did not  

ultimately materialise and, on the other hand, the  

Chatterjee  Group  was  reduced  to  a  minority  on  

account of its decision not to participate in the  

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Rights Issue, and, thereafter, by transfer of 150  

million shares by WBIDC in favour of IOC.  

102.  Although, the Chatterjee Group has complained  

of the manner in which it had been reduced to a  

minority in the Company, it is also obvious that  

when the Company was in dire need of funds and the  

Chatterjee Group also promised to provide a part of  

the same, it did not do so and instead of bringing  

in equity, it obtained a loan from HSBC through the  

Merlin Group, which only increased the debt equity  

ratio of the Company.  Furthermore, while promising  

to  infuse  sufficient  equity  in  addition  to  the  

amounts that would have been brought in by way of  

subscription to the Rights Issue, the Chatterjee  

Group imposed various pre-conditions in order to do  

so,  which  ultimately  led  GoWB  and  WBIDC  to  

terminate  the  agreement  to  transfer  sufficient  

number of shares to the Chatterjee Group to enable  

it to have complete control over the management of  

the  Company  and  also  to  retain  its  private  

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character.   It  is  at  a  stage  when  there  was  a  

threat to the supply of Naphtha, which was the main  

ingredient  used  by  HPL  for  its  manufacturing  

process, that it finally agreed to induct IOC into  

the Company as a member by transferring 150 million  

shares to it. It may not be out of place to mention  

that it was on Dr. Chatterjee’s initiative that it  

had been decided to induct the IOC as a member of  

the Company at meetings of the Directors which were  

chaired by Dr. Chatterjee himself.  Of course, as  

explained on behalf of the Chatterjee Group, even  

the induction of the IOC as a member of the Company  

is concerned, was part of a conspiracy to deprive  

the  Chatterjee  Group  of  control  of  the  Company  

since GoWB and WBIDC never intended to keep its  

promise regarding transfer of at least 60% of its  

shareholdings in favour of the Chatterjee Group.  

Such  a  submission  has  to  be  considered  in  the  

context of the financial condition of the Company  

and the response of the Chatterjee Group in meeting  

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such financial crunch.  In our view, if in the  

first place, the Chatterjee Group had stood by its  

commitment to bring in equity and had subscribed to  

the Rights Issue, which was a decision taken by the  

Company  to  infuse  equity  in  the  running  of  the  

Company, it would neither have been reduced to a  

minority nor would it perhaps have been necessary  

to  induct  IOC  as  a  portfolio  investor  with  the  

possibility  of  the  same  being  converted  into  a  

strategic investment.

103.  The failure of WBIDC and GoWB to register the  

155  million  shares  transferred  to  CP(I)PL  could  

not, strictly speaking, be taken to be failure on  

the part of the Company, but it was the failure of  

one  of  the  parties  to  a  private  arrangement  to  

abide by its commitments. The remedy in such a case  

was not under Section 397 of the Companies Act.  It  

has  been  submitted  by  both  Mr.  Nariman  and  Mr.  

Sarkar that even if no acts of oppression had been  

made out against the Company, it would still be  

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open to the learned Company Judge to grant suitable  

relief under Section 402 of the Act to iron out the  

differences that might appear from time to time in  

the  running  of  the  affairs  of  the  Company.  No  

doubt, in the  Needle Industries case, this Court  

had  observed  that  the  behaviour  and  conduct  

complained of must be held to be harsh and wrongful  

and in arriving at such a finding, the Court ought  

not to confine itself to a narrow legalistic view  

and allow technical pleas to defeat the beneficial  

provisions  of  the  Section,  and  that  in  certain  

situations  the  Court  is  not  powerless  to  do  

substantial justice between the parties, the facts  

of this case do not merit such a course of action  

to be taken. Such an argument is not available to  the Chatterjee Group, since the alleged breach of  

the agreements referred to hereinabove, was really  

in the nature of a breach between two members of  

the Company and not the Company itself.  It is not  

on account of any act on the part of the Company  

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that  the  shares  transferred  to  CP(I)PL  were  not  

registered  in  the  name  of  the  Chatterjee  Group.  

There was, therefore, no occasion for the CLB to  

make any order either under Section 397 or 402 of  

the aforesaid Act.  If, as was observed in M.S.D.C.  

Radharamanan’s case (supra), the CLB had given a  

finding that the acts of oppression had not been  

established, it would still be in a position to  

pass appropriate orders under Section 402 of the  

Act. That, however, is not the case in the instant  

appeals.   

104.  In our view, the appellants have failed to  

substantiate either of the two grounds canvassed by  

them  for  the  CLB  to  assume  jurisdiction  either  

under  Section  397  or  402  of  the  Companies  Act,  

1956,  and  it  could  not,  therefore,  have  given  

directions  to  WBIDC  and  GoWB  to  transfer  520  

million  shares  held  by  them  in  HPL  to  the  

Chatterjee Group and the High Court quite rightly  

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set  aside  the  same  and  dismissed  the  Company  

Petition.   

105. Consequently, all the appeals are dismissed.  

Having regard to the peculiar facts of the case,  

the parties shall bear their own costs.  

…………………………………………J. (ALTAMAS KABIR)

New Delhi                    …………………………………………J. Dated: 30.09.2011               (CYRIAC JOSEPH)

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