# 15 (ADDL.) S.C.R. 135 CHATIERJEE PETROCHEM (I) PVT. LTD v. HALDIA PETROCHEMICALS LTD.& ORS

- **Citation:** [2011] 15 S.C.R. 135
- **Court:** Supreme Court of India
- **Decided:** 2011-09-30
- **Case number:** Civil Appeal Nos. 5416-5419 of 2008
- **Bench:** Altamas Kabir, Cyriac Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/15-addl-s-c-r-135-chatierjee-petrochem-i-pvt-ltd-v-haldia-petrochemicals-ltd-ors-27591
- **Pages:** 68

## Headnote

A
B
Companies Act, 1956 - ss. 397, 398 and 402 -
Company petition under - Grievance of applicant-Chatterjee
Group that due to non-registration of transfer of 155 million C
shares in their favour, and, on the other hand, transfer of 150
million shares in favour of IOC, the character of the Company
in question (HPL) was altered from a Private Company into
a Government Company and also reduced the Chatterjee
Group to a minority shareholder, contrary to promises held D
out earlier and as incorporated in the agreements between the
parties - Held: In order to succeed in an action under ss.397
and 398, the complainant has 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 E
members - However, the law has not defined as to what would
amount to •oppressive" for the purposes of s.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 s.397
- The conduct of the majority shareholders should not only
F
be oppressive to the minority, but must also be burdensome
and operating harshly upto the date of the petition - On facts,
although, the Chatterjee Group complained of the manner in
which it had been reduced to a minority in the Company in
question, it is also obvious that when the Company was in dire G
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
135
H
136
SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A Company - 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 - If in the first place, the Chatterjee
B 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
c a portfolio investor with the possibility of the same be!ng
converted into a strategic investment - The failure of West
Bengal Industrial Development Corporation (WBIDC) and
Government of West Bengal (GoWB) to register the 155
million shares transferred to CP(l)PL could not, strictly
0 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 s.397 of the Companies Act- The
alleged breach of the agreements, was really in the nature of
a breach between two members of the Company and not the
E Company itself- It is not on account of any act on the part of
the Company that the shares transferred to CP(l)PL were not
registered m the name of the Chatterjee Group - There was,
therefore, no occasion for the Company Law Board (CLB) to
make any order either under s.397 or 402 - The appellants
F failed to substantiate either of the two grounds canvassed by
them for the CLB to assume jurisdiction either u/s.397 or
s.402, 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
G rightly set aside the same and dismissed the Company
Petition.
Mis Haldia Petrochemicals Ltd. (HPL) was
incorporated for establishing a green field petrochemical
H complex in Haldia in the State of West Bengal to be
,•
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 137
PETROCHEMICALS LTD.
established by the West Bengal Industrial Development
A
Corporation (WBIDC) and the R.P. Goenka Group. The
Goenka Group left the Company and Tata Chemicals and
Tata Tea were inducted into the project. H

## Text

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[2011] 15 (ADDL.) S.C.R. 135
CHATIERJEE PETROCHEM (I) PVT. LTD.
v.
HALDIA PETROCHEMICALS LTD.& ORS.
(Civil Appeal Nos. 5416-5419 of 2008)
SEPTEMBER 30, 2011
[ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]
A
B
Companies Act, 1956 - ss. 397, 398 and 402 -
Company petition under - Grievance of applicant-Chatterjee
Group that due to non-registration of transfer of 155 million C
shares in their favour, and, on the other hand, transfer of 150
million shares in favour of IOC, the character of the Company
in question (HPL) was altered from a Private Company into
a Government Company and also reduced the Chatterjee
Group to a minority shareholder, contrary to promises held D
out earlier and as incorporated in the agreements between the
parties - Held: In order to succeed in an action under ss.397
and 398, the complainant has 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 E
members - However, the law has not defined as to what would
amount to •oppressive" for the purposes of s.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 s.397
- The conduct of the majority shareholders should not only
F
be oppressive to the minority, but must also be burdensome
and operating harshly upto the date of the petition - On facts,
although, the Chatterjee Group complained of the manner in
which it had been reduced to a minority in the Company in
question, it is also obvious that when the Company was in dire G
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
135
H
136
SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A Company - 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 - If in the first place, the Chatterjee
B 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
c a portfolio investor with the possibility of the same be!ng
converted into a strategic investment - The failure of West
Bengal Industrial Development Corporation (WBIDC) and
Government of West Bengal (GoWB) to register the 155
million shares transferred to CP(l)PL could not, strictly
0 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 s.397 of the Companies Act- The
alleged breach of the agreements, was really in the nature of
a breach between two members of the Company and not the
E Company itself- It is not on account of any act on the part of
the Company that the shares transferred to CP(l)PL were not
registered m the name of the Chatterjee Group - There was,
therefore, no occasion for the Company Law Board (CLB) to
make any order either under s.397 or 402 - The appellants
F failed to substantiate either of the two grounds canvassed by
them for the CLB to assume jurisdiction either u/s.397 or
s.402, 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
G rightly set aside the same and dismissed the Company
Petition.
Mis Haldia Petrochemicals Ltd. (HPL) was
incorporated for establishing a green field petrochemical
H complex in Haldia in the State of West Bengal to be
,•
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 137
PETROCHEMICALS LTD.
established by the West Bengal Industrial Development
A
Corporation (WBIDC) and the R.P. Goenka Group. The
Goenka Group left the Company and Tata Chemicals and
Tata Tea were inducted into the project. However, since
the TATAs were not very keen to continue with the
Project, Dr. Purnendu Chatterjee, a Non-Resident Indian
B
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 [CP(M)C] and
the Tatas.
c
The appellants filed Company Petition before the
Company Law Bo~.rd under Sections 397, 398, 399, 402,
403 and 406 of the Companies Act, 1956 seeking various
reliefs. The main grievance of the appellants was that
having been induced into investing large sums of money D
in establishing the petrochemical complex on various
promises, particularly that the Company would continue
to retain its private character and the Chatterjee group
would have control over its management, such promises,
although, reduced into writing in the form of agreements,
E
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, a
Central Government Company. The other grievance of
the appellants was that despite having transferred 155
F
million shares in favour of CP(l)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.
G
The grievance of the Chatterjee Group was 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
H
138
SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A Company was altered from a Private Company into a
Government Company and also reduced the Chatterjee
Group to a minority, despite the promises held out earlier
and as incorporated in the agreements between the
parties.
B
The Company Petition was disposed of by the CLB
by upholding the decision of the Company to allot 150
million shares to IOC. 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
C GoWB and WBIDC to transfer the 520 million shares held
by them in HPL to the Chatterjee Group.
The Government of West Bengal filed appeal before
the High Court against the said order of the CLB. The
D Single Judge of the High Court held that the agreement
entered into between CP(l)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,
E 1956. On the question of induction of IOC and the
allotment of 155 million shares to the said Company, the
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
F HPL, and had been decided from time to time at the Board
meetings of the Directors, which had been presided over
by Dr. Chatterjee himself. The Single Judge held that the
order passed by the CLB was contrary to the provisions
of Section 402(e) of the Act, since no relief under the said
G Section could be granted without a finding having been
arrived at that a case of oppression had bee11 made out
with!n the meaning of Section 397 of the aforesaid Act.
Hence the present appeals.
·
Dismissing the appeals, the Court
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 139
PETROCHEMICALS LTD.
HELD:1.1. In order to succeed in an action under A
Sections 397 and 398 of the Companies Act, the
complainant has 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. However, the law has not defined as to what
B
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. The
conduct of the majority shareholders should not only be c
oppressive to the minority, but must also be burdensome
and operating harshly upto the date of the petition. [Paras
93, 94] [194-E-H; 195-G-H; 196-A]
1.2. In order to pass orders under Section 397 of the
Companies Act, 1956, the CLB has to be satisfied that the
D
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. Unwise,
E
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
F
to the Applicant in exercising his legal and proprietary
rights as a shareholder. 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 G
thereafter. [Para 96] [197-E-H; 198-A]
1.3. 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
H
140
SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A 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. [Para 97] [198-B-C]
8
1.4. It is clear that when Dr. Purnendu Chatterjee
expressed his interest in setting up of the Haldia
Petrochemicals Ltd., 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.
C Chatterjee's bringing in sufficient equity to set up and run
the Company. 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
D 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
E 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 Rights Issue, and, thereafter, by
F transfer of 150 million shares by WBIDC in favour of IOC.
[Para 101] [199-E-H; 200-A]
1.5. Although, the Chatterjee Group has complained
of the manner in which it had been reduced to a minority
G 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.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 141
PETROCHEMICALS LTD.
Furthermore, while promising to infuse sufficient equity A
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
B
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 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 c
manufacturing process, that it finally agreed to induct ICC
into the Company as a member by transferring 150 million
shares to it. It was on Dr. Chatterjee's initiative that it had
been decided to induct the ICC as a member of the
Company at meetings of the Directors which were D
chaired by Dr. Chatterjee himself. 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 · E
been reduced to a minority nor would it perhaps have
been necessary to induct ICC as a portfolio investor with
the possibility of the same being converted into a
strategic investment. [Para 102] [200-~-H; 201-A]
1.6. The failure of WBIDC and GoWB to register the
F
155 million shares transferred to CP(l)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
G
Companies Act. The alleged breach of the agreements,
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 i:;ompany
that the shares transferred to CP(l)PL were not registered
H
142
SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A 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. [Para
103) [201-B-G]
B
1. 7. The appellants 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
C million shares held by them in HPL to the Chatterjee
Group and the High Court rightly set aside the same and
dismissed the Company Petition. [Para 104) [202-B]
Shanti Prasad Jain Vs. Kalinga Tubes Ltd. (1965) 2 SCR
720; Needle Industries (India) Ltd. & Ors. Vs. Needle
D Industries Newey (India) Holding Ltd: & Ors. (1981) 3 SCC
333 : 1981 (3) SCR 698; V.S. Krishnan & Ors. Vs. Westfort
Hi-Tech Hospital Ltd. & Ors. (2008) 3 SCC 363: 2008 (3)
SCR 184; Bengal Luxmi Cotton Mills Ltd. (1969) CWN 137;
Sangramsingh P. Gaekwad & Ors. Vs. Shantadevi P.
E Gaekward & Ors. (2005) 11 SCC 314 : 2005 (1) SCR 624;
R. Ramanathan Chettiar Vs. A & F Harvey Ltd. & Ors. 1967
(37) Comp. Case 212; BALCO Employees' Union (Regd.) Vs.
Union of India & Ors. (2002) 2 SCC 333 : 2001 (5) Suppl.
SCR 511; Hanuman Prasad Bagri Vs. Bagress Cereals Pvt.
F Ltd. (2001) 4 sec 420 : 2001 (2) SCR 811; Kilpest Pvt. Ltd.
& Ors. Vs. Shekhar Mehra (1996) 10 SCC 696 : 1996 (7)
Suppl. SCR 239; Hind Overseas Pvt. Ltd. Vs. Raghunath
Prasad Jhunjhunwalla & Anr. (1976) 3 SCC 259: 1976 (2)
SCR 226; Allianz Securities Ltd. Vs. Regal Industries Ltd.
G 2002 (11) CC 764; Howrah Trading Company Vs. CIT AIR
1959 SC 775: 1959 Suppl. SCR 448; Life Insurance
Corporation of India Vs. Escorts Ltd. (1986) 1 SCC 264 :
1985 ( 3) Suppl. SCR 909; Manna/al Khetan Vs. Kadamath
Khetan [(1977) 2 SCC 424) : 1977 ( 2 ) SCR 190; Claude
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 143
PETROCHEMICALS LTD.
Lila Parulekar (Smt.) Vs. Sakal Papers (P) Ltd. (2005) 11
A
SCC 73 : 2005 (2) SCR 1063; J.P. Srivastava & Sons Pvt.
Ltd. Vs. Gwalior Sugar Co. Ltd. (2005) 1 SCC 172 : 2004 \5j
Suppl. SCR 648; Mathrubhumi Printing & Publishing Co.
Ltd. Vs. Vardhman Publishers Ltd. (1992) 73 CC 80 and
Satgur Prasad Vs. Hamarayan Das AIR 1932 PC 89; Dale
B
- & Carrington lnvt. P. Ltd. Vs. P.K. Pratl:lapan (2005) 1 SCC
217; Rajahmundry Electric Supply Corporation Ltd. Vs. A
Nageswara Rao & Ors. (1955) 2· SCR 1066; M.S.D.C.
Radharamanan Vs. M. S. D. Chandrasekara Raja & Anr.
(2008) 6 SCC 750: 2008 (5) SCR 182; Sangramsinh P. c
Gaekwad &'Ors. Vs. Shantadevi P. Gaekwad (Dead) through
LRs. & Ors. (2005) 11 sec 314: 2005 (1) SCR 624; Kamal
Kumar Dutta & Anr Vs. Ruby General Hospital Ltd. & Ors.
(2006) 7 SCC 613: 2006 (4) Suppl. SCR 462; New Horizons
Ltd. & Anr. Vs. Union of India & Ors. (1995) 1 SCC 478: 1994
D
( 5) Suppl. SCR 310 - referred to.
O'Neill Vs. Phillips (1999)2 All ER 961; Blisset Vs."
Daniel 68 E.R. 1022; Ebrahimi Vs. Westboume Galleries
(1972) 2 All ER 492; Ebrahimi Vs. Westboume Galleries Ltd
& Ors. (1972) 2 All ER 492 and Saul D Harrison & Sons pie
E
(1995) 1 BCLC 14 - referred to.
Case Law Reference:
(1965) 2 SCR 720
referred to
Para 22
F
1981 (3) SCR 698
referred to
Para 32
(1999)2 All ER 961
referred to
Para 36
68 E.R. 1022
referred to
Para 36
(1972) 2 All ER 492
referred to
Para 36
G
(2005) 1 sec 211
referred to
Para 36
(1955) 2 SCR 1066
referred to
Para 37
2008 (5) SCR 182
referred to
Para 38
H
144
SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A 2005 (1) SCR624
referred to
Para 39
2006 (4) Sup!"> I. SCR462 referred to
Para 39
1994 (5) Suppl. SCR 310 referred to
Para 40
B (1972) 2 All ER 492
referred to
Para 40
2008 (3) SCR 184
referred to
Para 42
1995 1 BCLC 14
referred to
Para 61
1969 CWN 137
referred to
Para 64
c
2005 (1) SCR 624
referred to
Para 64
1967 (37) Comp. Case 212 referred to
Para 64
2001 (5) Suppl. SCR 511 referred to
Para 75
D 2001 (2) SCR 811
referred to
Para 82
1996 (7) Suppl.· SCR 239 referred to
Para 83
1976 (2) SCR 226
referred to
Para 83
E 2002 (11) cc 764
referred to
Para 84
1959 Suppl. SCR 448
referred to
Para 86
1985 (3) Suppl. SCR 909 referred to
Para 86
F 1977 (2) SCR 190
referred to
Para 86
2005 (2) SCR 1063
referred to
Para 86
~004 (5) Suppl. SCR 648 referred to
Para 86
(1992) 73 cc 80
referred to
Para 86
G (AIR 1932 PC 89
referred to
Para 87
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5416-5419 of 2008.
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 145 .
PETROCHEMICALS LTD.
From the Judgment & Order dated 21.9.2007 of the High A
Court of Calcutta in APO No. 45,46, 73 and 113 of 2007.
WITH
C.A. Nos. 5420 and 5437-5440 of 2008.
B
Falsi S. Nariman, Dr. A.M. Singhvi, Sudipto Sarkar,
Siddharth Mitra, Ashok Desai, Altaf Ahmad, R.S. Suri, K.K.
Venugopal and Ranjit Kumar, Neeraj Sharma, Roopali Singh
Subhash Sharma, Archana Lakhotia (for Dua Associates, H.K.
Puri, Gaurav Duggal, Amit Meharia (for Meharia & Co.), Anuj c
Bhandari, Sanjay Bhat, Amit Wadha, Aniruddha S. Deshmukh,
Sahir Hussain, Yashvardhan Roy, S. Mahendran, Mayank
Mishra, Ananya Kumar, Amar Gupta, Vibha Datta Makhija, Jay
Savla, Meenakshi Ogra, Sanjeev K. Kapoor, Kumar Mihir, S.
Karkrania (for Khaitan & Co.) Nitish Massey, Pinaki Addy, Anu D
Bindra, K.S. Prasad, Chanchal Kumar Ganguly, Amar Gupta,
Ankur Sa1gal, Bina Gupta, Mayank Mishra, V.D. Makhija, Fox
Mandal & Co. and Manik Karanjawala for the appearing
parties.
The Judgment of the Court was delivered by
· ALTAMAS KABIR, J. 1. Mis. Haldia Petrochemicals Ltd.,
hereinafter referred to as "H.P.L.", was incorporated in 1985
for establishing a green field petrochemical complex in Haldia
E
in the State of West Bengal to be established by the West F
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 G
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
H
146
SUPREME COURT REPORTS (2011) 15 (ADDL.) S.C.R.
A (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
B Rs.700 crores was to 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
c 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 Talas would invest Rs.100
crores, while Rs.500 crores was to be obtained from the public,
0 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
E other terms agreed to by the 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
F
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
G 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
H
CHATIERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 147
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
phases of the project and that the nominee of CP(M)C would
A
be the Managing Director. In March, 1995, the Articles of
Association of the Company were altered to bring it in line with
the terms of the JVA. An addendum to the JVA was executed
on 3oth September, 1996/4th October, 1996, by which the
project cost was revised to Rs.5170 crores and the equity
B
participation was revised to Rs.432.857 crores to be provided
by WBIDC and by CP(M)C, while Talas 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 c
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 a/ia, agreed on a certain course of action in regard to
D
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 the
Company and would have complete control over the day-to-day
affairs of the Company, including the right to appoint key
E
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
F
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,
G
155,099,998 equity shares of WBIDC had been transferred and
delivered to CP(l)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
H
148
SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A acknowledged. Certain other 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
B 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.
C
5. One other agreement which is releva_nt 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
D 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 CP(M)C. It was further declared that
the recommendation of the valuer would be binding both on the
E
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 anc also on the
F 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,
G 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
H
agreement by and between the joint venture
CHAITERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 149
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
partners and special rights of the petitioner in
A
relation 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
B
shareholding of the respondent No.2 in the
Company to be tra11sferred 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 c
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 D
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 E
whether by themselves or by their servants or
agents or assigns or otheiwise 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;
F
(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
the Company in pursuance of the Memorandum of
Association and the resolution passed by the EGM
G
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
H
150 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A
management and affairs of the Company before
the majority shareholding and management control
in the Company is effectively established as per th~
Agreements dated 12th January, 2002, arid 3oi~
July, 2004, including the due recognitidn' of the
nominee of petitioner No.? ;:is Director of the
Company pursuanflo the letter of Petitioner No.2
dated 1st ~ugust, 2005;
(g)
Permanent injunction restraining the Company-and
c
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
D
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;
E
(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 petitioner's
right to control the management of the \.ompany,
F
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)
··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-··
G
(k)
··-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-·-··
(I)
Direct the reconstitution of the Board of the
H
Company to reflect the majority control and the
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 151
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.j
special rights accorded under the Agreements
A
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
B
c
to as "the CLB';, not only was it reiterated by the Chatterjee
Group that PC had to rejuvenate the Company and to
implement the project, for which he was recognized as a
"promoter" in the Memorandum of Understanding entered into
D
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 E
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 3nth 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
F
a right of pre-emption to acquire the shares of WBIDC if it
chose to disinvest its shares. Before the CLB it was also G ·
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
H
152
SUPREME COURT REPORTS (2011) 15 (ADDL.) S.C.R.
A submitted bdore 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
B 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
c the nominee of the Chatterjee Group 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
D 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
E 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 trans(er by registering
the transfer with the Company and altering its Register of
F Members accordingly, which effectively deprived the Chatterjee
Group of having the promised majority shareholding in the
Company. Before the 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
G 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.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 153
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.)
10. On behalf of the Cnatterjee Group it had also been
A
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
B
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, although the Chatterjee Group was against such allotment.
In order to maintain the private character of the Company, the
C
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
D
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
E
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 behalf of the Chatterjee Group, no steps were
taken by the Company to give effect to the Resolution dated
F
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
G
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
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154
SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R. ·
A consent of the Chatterjee Group to the Resolution of the ExtraOrdinary 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,
8 and from the letter dated 10th November, 2004, it was clear
that GoWB and WBIDC did not intend to 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
C 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
D 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
E 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 basis on which the request made by
GoWB and WBIDC had been accepted by the Chatterjee
F 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
G 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 ~he facts would justify
the making of a winding-up or9er on just ilfid equitable grounds.
H
CHATTERJEE PETROCHEM (I) PVT. LTD. v. HALDIA 155
PETROCHEMICALS LTD. [ALTAMAS KABIR, J.]
15. The aforesaid stand taken by the Chatterjee Group
A
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 the Company on account of such failure, the
Company had no other alternative, but to transfer the shares in
B
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 c
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
D
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
Chatte~ee Group had agreed to the decision to induct the IOC
in the Company as a portfolio investor.
E
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
F
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 tq purchase the 271 million preference shares held by
G
GoWB and WBIDC at par. The CP(l)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 /H
156
SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R
. A dematerialized and transferred in the name of CP(l)PL, without
any further deed or act or refusal from anyone or production of
any instruction to transfer.