Restricting The Battleground

These are statutory remedies. However, some persons even turn to the courts for help. But this tendency has been deprecated by the apex court in a recent judgment (Sri Ramdas Motor Transport Ltd vs Tadi Adhinarayana Reddy).

In this case, the company was a closely held one within the family. Disputes arose among them, leading to several petitions before the CLB alleging oppression of minority shareholders and mismanagement. The CLB declined to pass any interim orders. There was an application for injunction against the rights issue, another to supersede the board of directors and yet another to appoint an administrator. In none of these cases the CLB passed any order. So one shareholder moved the Andhra Pradesh high court.

 

The petition asked for the prosecution of the chairman and managing director of the company alleging misappropriation of funds, an enquiry by the CBI, and appointment of an interim administrator. The high court allowed this petition.

However, the Supreme Court stated in its judgment that the CLB could not be bypassed merely because it had not granted the prayers of the petitions. The court explained that the power to appoint an inspector to investigate the affairs of the company has to be exercised by the government after a scrutiny by the registrar or the CLB. It cannot be instituted simply on the basis of an allegation made by a shareholder. After all, the CLB has wide powers.

Quoting its 1969 Rohtas judgment, the Supreme Court said that the scheme of Sections 234 and 237(b) of the Companies Act made it clear that unless proper grounds existed for investigating the affairs of a company such investigations cannot be undertaken. This is because any investigation might seriously damage a company and should not be ordered without gathering proper material according to law. The governments powers should be exercised in a reasonable manner. It was also underlined that the department of companies is the expert body in such matters.

Therefore, the high courts should not be in a hurry to interfere in the affairs of a company, merely on a complaint by a shareholder. The apex court pointed out that there are other remedies available. The high court in this case justified its action on the ground of public interest.

However, the Supreme Court was not impressed. Merely because a public limited company is involved or because it has taken loan from public institutions, public interest could not be invoked, nor can the remedies under the Companies Act be bypassed, the court warned.

Power rates

Most state electricity boards (SEBs) are chronically in the red, though the Electricity Supply Act enjoins them to make a profit upto 3 per cent. The fact is that even with the abolition of central excise duty on power generation, things have not changed much. On the other hand, industrial consumers are demanding that the concession should be passed on to them.

The Supreme Court rejected such claims made by the industries in a judgment delivered last month in Bihar SEB vs Usha Martin Industries. Earlier, the Patna high court had asked the board to pass on the concession in levy to the consumers. However, the apex court described this as a grave error. This ruling is bound to benefit all electricity boards in the country as similar demands are being made by industries on the ailing boards.

The board was not bound to reduce the rate for several reasons listed by the Supreme Court. Firstly, the board has to supply electricity to persons other than licencees at the price fixed by the board. Secondly, it has to go by the provisions of the Electricity Supply Act and it is under a mandate to make profit.

Above all, pricing is a matter of policy. It is for the board and the state government to decide the price. Under no circumstances, said the Supreme Court, can the court lay down what should be the proper price and direct the board to reduce its tariff fixed under Section 49. In effect, what the high court has done is to direct a loss-making public undertaking to incur further losses by lowering its tariff. By giving this direction, the high court clearly exceeded its jurisdiction and lost sight of the statutory provisions.

The industries had argued that under Section 64A of the Sale of Goods Act, in contracts of sale, the amount of increased or decreased taxes should be added or reduced. But the apex court explained that there was nothing in the present contract which expressly showed the intention of the parties to do so. It only said that if the excise levy went up, the consumers will have to bear it; it was silent on the other possibility. Moreover, sale price included excise, according to leading decisions. The Supreme Court wants companies to sort out their disputes within the statutory framework instead of rushing to the appellate courts, writes M J Antony

The Supreme Court explained that the power to appoint an inspector to investigate the affairs of the company has to be exercised by the government after a preliminary scrutiny by the registrar or the CLB.