Business Law Assignment

CASE ANALYSIS

Appellants: Hardev Singh Akoi and Ors.

Vs.
Respondents: Mr. Rai Bahadur Narain Singh Sugar Mill Ltd. and Ors.

Submitted to

Prof. Paramjyot Singh

Submitted by

Mohit Singh (BJ22024)

Section A

Date of Submission

27/01/2023
MOHIT SINGH BJ22024 SECTION - A

1. What were the main points of dispute between the parties?

The petition has been filed by the majority stakeholders (52.56%) of M/s Rai Bahadur Narain
Singh sugar Mills Ltd. against its minority shareholders (40.73%). The allegations posed by
the petitioner (majority stakeholders) on the respondents (minority stakeholders) were:
a. Creating a deadlock thereby leading to disruption in the functioning of the company
The petitioner claims that Respondents 1-8 have joined hands to deliberately create a
deadlock in passing the special resolutions which involved Items 6,8,9,10*. This is
obstructing and destroying the daily affairs of the company as the loan cannot be
obtained without consensus.

b. Oppression & Mismanagement by Minority stakeholders

The petitioner also claims that respondents 3 & 5 have approached several financial
institutions and government organizations (like RBI) to withhold any type of grant
and financial assistance to the company. It has also been alleged as Respondents 1,3
& 7 have never provided a personal guarantee since 2007 to secure a term loan that is
taken for the enhancement and modernization of the company. These acts clearly
depict the oppression and mismanagement practiced by the minority shareholders.
The respondents claim these allegations to be false and believe the entire litigation to be an
attempt to exit the company by the petitioners. The respondents are against the decision to
raise a loan because of the current financial condition of the company.

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

a. Section 293 of Companies Act 1956: In public companies, an ordinary resolution

needed to be passed to borrow money if it was in excess of the paid-up share
capital & free reserves.
b. Section 180 of Companies Act 2013: It is mandatory for all companies to pass a
special resolution for the same mentioned in section 293 of Companies Act 1956.
In the given case, the borrowings had already exceeded the paid-up share capital
& free reserves.
c. Section 397 of Companies Act 1956: Application to Company Law Board for
relief in cases of oppression.
d. Section 398 of Companies Act 1956: Application to Company Law Board for
relief in cases of mismanagement.

*Endnotes/References:
Agenda Item Nos: Item 6 – To modify the Articles of Association of the company in conformity with the Companies Act, 2013;
Item 8,9,10 – For enhancing the borrowing limit and to secure the same by creating charge and corporate guarantee.

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MOHIT SINGH BJ22024 SECTION - A

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

Sangramsinb P. Gaekwad v. Shantadevi P. Gaekwad

M/s. Seth Hotels Pvt. Ltd. v. Lata Mahinder Kumar Seth
Gurpartap Singh v. Vista Hospitality Pvt. Ltd
The above precedents were quoted by the learned senior counsel to highlight that the
interest of the company is of high importance while dealing with legal proceedings for
shareholder oppression and mismanagement u/s 397/398 of the Companies Act, 1956.
Both the involved parties should ensure that the company’s reputation is maintained, and
interests are prioritized.

Girdhar Gopal Dalmia v. Bateli Tea Co. Ltd

This case was cited as a precedent to mention that there’s a complete loss of trust
between minority and majority shareholders and minority shareholders have no
experience in running a company. Hence, the best interest of the company lies in minority
shareholders’ exit from the company at a fair value.

Palghat Exports v. TV Ramachandran

S Gaekwad v. Shantadevi Gaekwad
These cases were used by the respondents to argue that a single isolated act is insufficient
to put a case of oppression u/s 397 of Companies Act, 1956 and to obtain reliefs u/s. 397,
398 and 402 of the Companies Act, 1956, continuous acts of oppression and
mismanagement purported by respondents over a period of time has to be established.

4. What was the final judgment?

The respondents were informed not to approach any financial institutions without getting
permission from the Board of Directors. This is to ensure that the reputation, image, and
goodwill of the company are maintained.

The petitioners’ plead to relax the requirement of special resolution u/s 180 of the
Companies Act, 2013, and grant them permission to raise loans was refused. The plea
seemed unacceptable after seeing the financial condition and materials on record of the
company.

As the petitioners and respondents belong to the same family and run many other
businesses without any disputes, they should be able to settle the current situation
amicably.

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MOHIT SINGH BJ22024 SECTION - A

There is no acceptable evidence to claim the oppression and mismanagement by the

respondents. It is agreed that the respondents were not in support of taking loans as it can
be damaging to the company’s financial health.

Therefore, the petition is disposed of.

5. What was your takeaway from the case?

The case brings the perspective of how minority shareholders can influence decision-
making. Though being the majority shareholders, petitioners were unable to seek
permission to raise a loan. The laws under the Companies Act, 2013 restrict the power of
the Board of Directors and create provisions for reporting acts of oppression and
mismanagement.
The laws have been made to ensure that everything happens in the best interest of the
company. This becomes very necessary because it affects the lives of all the workers,
employees, and stakeholders in the company.

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