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NEEDLE INDUSTRIES LTD. V. NEEDLE INDUSTRIES NEWEY HOLDING LTD. AND ORS.

Needle Industries Ltd. v. Needle Industries Newey Holding Ltd. and Ors. AIR 1981 SC 1298

ISSUE:

  • Whether the Act of NIIL issuing right shares at a price much lower than the market price to the existing Indian shareholders only constituted an act of “oppression” against the Holding Company under Section 397 of the Indian Companies Act, 1956?
  • Whether there is an abuse of fiduciary powers by the Indian Stakeholders and whether the appointment of Silverstone as Additional Director in the board meeting is valid?
  • Whether the court could decide a case, where there are allegations of mala fides and abuse of fiduciary powers, solely based on affidavits and no oral evidence?

RULE:

  • The term “Oppressive” manner indicates acts that are “burdensome, harsh and wrongful”. An isolated act, which is against the law, cannot be said to be “oppressive” unless it has a mala fide intention behind it or if that act was “harsh, burdensome and wrongful”.
  • The person alleging oppression against the other party has to show how the oppression led him to compromise on his decision and surrender to an act that lacks integrity, an act that is on the face unfair and had affected his proprietary rights.

FACTS:

  • Under Section 397 of the Companies Act, 1956 the foreign majority shareholders of the holding company, filed a case against the Indian minority shareholders of the company, its subsidiary, alleging an act of “oppression” against them.
  • The allegation of the majority was based on the deliberate act of the minority shareholders which includes the appointment of an additional director (Silverstone) by the existing board of directors under an Annual General Meeting and rightful issuance of the shares to the Indian group of shareholders at par which was far below their market price.
  • The plea of foreign majority shareholders was accepted by the division bench of Madras High Court, stating that such an act is oppressive and against the interest of the company. The bench also suspended the existing Board of Directors and even removed the Managing Director (Devagnanam) and appointed an Interim Board. A consequential direction was also issued concerning acquiring the company.

HELD:

  • When the dispute was presented for adjudication before the Supreme Court of India, based on the merits, it held that alleged acts of the minority shareholders do not amount to oppression.
  • An illegal act about the affairs of the company alone would not amount to oppression. But when an illegal act combined with the ill intention of doing such an act would amount to oppression.
  • An isolated act that is prima facie contrary to the law enforced at the time, may not necessarily and by itself suggest that the very law was violated with a mala fide intention of such violation was harsh, burdensome, and wrongful.
  • Rather, a series of such illegal acts committed one after the other can lead to the conclusion, that they were all part of the equivalent transaction whose object was to commit oppression against whom those acts were directed.