BUSINESS LAW ASSIGNMENT

AASHI MAROO (BJ21062)

Section B
1. What were the main points of dispute between the parties?
i. Financial Health of the Company: Respondents no. 1 to 8 argue that the
Company, i.e., Respondent no. 9, is already in debt due to loans, and that raising
more long-term debt would be damaging to the company's interests. It is true
that the company's current debts have already exceeded the sum of its paid-up
capital and free reserves. Petitioner No. 1 claims that it is in the company's best
financial interests to borrow more money.
ii. Deadlock in the Company's Operations: Petitioner No. 1 requested that the
board be authorised to take on debt up to Rs.300 crores, however Respondents 1
to 8 voted against increasing the borrowing limit at the Annual General Meeting
on September 29, 2014. The Petitioner claims that this has resulted in a
stalemate in the company's operations because these funds are required for
working capital and machine modernization.
iii. Minority Shareholders' Oppression: According to the Petitioner, the minority
group has written to many financial institutions and government authorities,
including the RBI, requesting that the company's financial aid be withheld.
However, after reviewing the evidence, the Hon'ble Judges concluded that this
was a one-time occurrence that did not amount to discrimination or
mismanagement on the part of the Respondents.

2. Cite relevant portions of statutes determining the cause of action?

Relevant sections:
A. Companies Act 1956-
 Section 3971: Application to Company Law Board for relief in cases of oppression.
 Section 3982- Application to Company Law Board for relief in cases of
mismanagement.

3. What precedents were cited by the parties before the NCLT?

The petitioners' and respondents' learned counsels referenced the following cases:

1
S.397, Companies Act 1956- Any members of a company who complain 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 Company Law board for an order under this section.
2
Section.398, Companies Act 1956.
 i. Sangramsinb P. Gaekwad v. Shantadevi P. Gaekwad3
ii. M/s. Seth Hotels Pvt. Ltd. v. Lata Mahinder Kumar Seth4
iii. Gurpartap Singh v. Vista Hospitality Pvt. Ltd5
iv. Girdhar Gopal Dalmia v. Bateli Tea Co. Ltd.6
v. Palghat Exports v. TV Ramachandran7
vi. S Gaekwad v. Shantadevi Gaekwad8

4. What was the final judgement?

The petition was dismissed by the National Company Law Tribunal's Principal Bench,
which consisted of two honourable judges.
The Hon'ble justices agreed with the Respondents that, given the amount of loans
previously raised, more debt would be damaging to the company's long-term interests.
If shareholders believe that a special resolution would be damaging to the firm, they
have every right to vote against it.
As a result, the Respondents' acts are an exercise of their statutory right under s.180 of
the 2013 Act and do not constitute oppression or mismanagement.
The Hon'ble Judges determined that the company should not be encumbered with
additional unmanageable debts.
The petitioner presented no sound foundation for increasing the loan amount, nor did
they provide any expert analysis requiring the increased loan amount.
The company's present revenue and profitability track record was already determined to
be satisfactory.

5. What was your takeaway from the case?

The Companies Act of 2013 raised the threshold and added many statutory measures to
give minority shareholders rights and protection mechanisms, preventing the majority
from trampling on them. Even having a majority of 52.56% of the company's shares, the
Petitioners were unable to unilaterally affect the company's judgments in this matter.
Given the corporation's nature, the Hon'ble courts decided the case with the long-term
interests of not only the company but also society in mind. They were able to recognise
the positive impact that businesses had on the economy and the people around them.
They attempted to foster cooperation between the family by dismissing the petition,
giving them a second chance to resolve their conflict amicably. By doing so, the Court of
Law demonstrated its ability to use nuance rather than blindly following the rules.

3
AIR 2005 SC 809.
4
(2014) 182 Com Case 491(Delhi).
5
(2014) 186 CompCas 202 (Delhi).
6
(2006) 74 CLA 369 (CLB).
7
(1994) 79 Comp Cas 213 (Ker).
8
(2005) 11 SCC 314.