M J Antony: Winding up as the last option
OUT OF COURT
Though the ways pointed out by the board are not going to please everybody in a debilitating dispute, the Supreme Court has no doubt about the power of the board to use the option it thinks fit to keep the company afloat.
The court emphasised this in a recent judgment, MSDC Radharamanan vs MSD Chandrasekara Raja. In this case, the clash was between an octogenarian father and his son who jointly owned two companies, Shree Bharathi Cotton Mills and Visva Bharathi Textiles. All the shares of these companies were held, for all practical purposes, by the father-son duo.
They fell out with each other and a bitter legal battle followed. The son even threatened to file a criminal complaint of misappropriation of funds by the father, who was the managing director.
The latter moved the Company Law Board. It felt that there was a deadlock in the affairs of the company. In order to solve it, the board asked the son to buy all the shares of the company at a value to be determined by a chartered valuer. The son moved the Madras high court, but it merely modified the board's order. It explained that the board has the power under Section 402 to pass further orders for the smooth running of the company. The Supreme Court upheld the high court view.
According to the court, when there are allegations of oppression of members (Section 397) or mismanagement (Section 398), the board can provide for the purchase of the shares or interests of any member of the company by other members or by the company. The jurisdiction of the board is wide enough "to pass any other order or further order in the interest of the company, if it is of the opinion, that the same would protect the interest of the company."
The high courts exercised such power even before the Company Law Board was conferred with it in an amendment to the company law in 1991. In the 1965 judgment of the Supreme Court in SP Jain vs Kalinga Tubes Ltd, the court said that it was not fair that the company should always be wound up when it was otherwise solvent. Though there might be just and equitable ground for winding it up, alternatives could be explored in the interest of the shareholders by the high court if it felt that "it would be better if the company was allowed to continue under such directions as the court may consider proper to give."
The present judgment also emphasised that the interest of the company should be an important consideration. It elaborated on this theme thus: "The function of the CLB in such matters is first to see how the interest of the company vis-