In the case of S. P. Jain vs Kalinga Tubes Ltd on 14 January, 1965, the Supreme Court of India was called upon to adjudicate a dispute between two groups of shareholders for the control of Kalinga Tubes Limited. The case was a consequence of a petition filed under sections 397, 398, 402, and 403 of the Indian Companies Act, No. 1 of 1956, by S. P. Jain, alleging that the affairs of the company were being conducted in a manner oppressive to him and his group of members.
Facts of the Case
The company, Kalinga Tubes Limited, was initially a private limited company established on December 1, 1950, with an authorized capital of Rs. 25 lakhs. The shares were held by two groups of shareholders, represented by Patnaik and Loganathan. In 1954, S. P. Jain was approached to help the company, which was in financial and administrative difficulties. An agreement was reached, but the company was not a party to this agreement. The agreement stipulated that Jain would be allotted shares in the company equal to those held by Patnaik and Loganathan after increasing the share capital of the company. Jain was also made the chairman of the company.
In 1957, the company was converted into a public company, and the Articles of Association were amended. However, the terms of the 1954 agreement were not incorporated into the Articles of Association. In 1958, a dispute arose over the issue of new shares. Jain proposed that the new shares should be issued to the existing shareholders as provided in section 81 of the Act. However, Patnaik and Loganathan proposed that a general meeting should be called for the purpose of passing a resolution for the issue of new shares and for the manner and proportion in which shares were to be offered privately to the shareholders and other persons.
Issues Raised
The main issue raised was whether the affairs of the company were being conducted in a manner oppressive to Jain and his group of members. Jain argued that the issue of new shares was in furtherance of a continuing oppression of his minority group and that by allotting such shares to benamidars of Patnaik and Loganathan in disregard of the agreement of July 1954, it was intended to exclude him from all control of the affairs of the company.
Court’s Observations and Decision
The Supreme Court held that no case had been made out of oppression within the meaning of section 397. The court noted that for a petition under section 397 to succeed, it is not enough to show that there is just and equitable cause for winding up the company. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members. The court also held that the agreement of July 1954 was not binding even on the private company and much less so on the public company when it came into existence in 1957. The court further observed that it could not be said that the allottees of new shares were benamidars or stooges of the Patnaik or Loganathan group and that by allotment of shares to them, the majority shareholders were oppressing the minority. The court finally held that no case had been made out for action under section 398 on the ground that the affairs of the company were being conducted in a manner prejudicial to its interests.