NEEDLE INDUSTRIES (INDIA) LTD. V. NEEDLE INDUSTRIES NEWEY (INDIA) HOLDINGS LTD.,AIR 1981 SC 1298

NEEDLE INDUSTRIES (INDIA) LTD. V. NEEDLE INDUSTRIES NEWEY (INDIA) HOLDINGS LTD.,AIR 1981 SC 1298

 

FACTS

• The FACTS of the case are that the Appellant Needle Industries Newey (India), based in the United Kingdom (UK), a Holding Company (foreign majority shareholders) filed a suit against Respondent Needle Industries India Ltd., which was the subsidiary of that Holding Company (Indian minority shareholders) under Section 397 & 398 of the Companies Act, 1956 on the ground of ‘oppression’ against them.
• The Holding Company had majority shares with themselves and it was settled between the Holding Company and NIIL that when the FERA5 will be passed, the NIIL will be reducing the non-resident shareholding percentage from 60% to 40% within one year’s time period, which was held by the Holding Company.
• The Managing Director of the NIIL, Mr. Devagnanam in this regard came forward with the proposal that the excess shares can be issued to the existing Indian shareholders only, but it was subsequently refused by the Holding Company.
• According to the FACTS available on record, in this case, what actually happened was that the NIIL (Indian minority shareholders) basically issued rights shares to its existing Indian shareholders at a much lower price as compared to the market price without properly coordinating with the Holding Company. This resulted in the Holding Company becoming a minority group, and due to this reason, the Holding Company filed a suit against NIIL by alleging Devagnanam and NIIL for the ‘acts’ of oppression and mismanagement.
• The Holding Company alleged that both NIIL and Devagnanam had purposefully held the Annual General Meeting without properly coordinating with the Holding Company so that the extra shares can be issued to the existing shareholders by which they can be benefited, and it would ultimately result in Devagnanam having an upper edge over the company.

 

ISSUE

• Whether the Act of NIIL by issuing rights shares at a cost much lesser than the market value to the existing shareholders only comprised an act of “Oppression” against the Holding Company under Section 397 of the Companies Act, 1956?
• Whether there was an abuse of fiduciary powers by the Indian shareholders, and whether the appointment of Silverstone as an Additional Director in the Annual General Meeting was valid or not?
• Whether the court can decide the case where there were allegations of mala fides and abuse of fiduciary powers solely based on affidavits and no oral evidence?

 

HELD
The alleged acts of the minority shareholders do not amount to “Oppression.”

• With reference to the meaning of ‘Oppression’ provided under Section 397 of the Companies Act, the court in this regard pointed out that an isolated Act could not be regarded as ‘Oppressive’ against the law unless and until there is the presence of malafide intention in it.
• Thus, whenever any person alleges oppression against the other, then he/she must prove that as to how oppression made him/her compromise on his/her decision and surrender to an unfair act, which lacked integrity. Hence, if a director acted carelessly and inefficiently while discharging duties in the company, then it cannot be said to give rise to oppression.
• Moreover, the court added that in order to find the ‘acts’ of oppression in the company, every court must consider the FACTS and circumstances of the cases in a broader aspect along with the intention of the parties. Thus, when the acts committed are in favour of the best interest of the company, then that particular act is no more oppressive.
• Hence, the Hon’ble Supreme Court of India gave the judgement in favour of the minority shareholders and held that the acts of NIIL with respect to issuing shares to its existing shareholders did not amount to oppression as such acts were performed keeping in mind the best interest of the company and were complied with the provisions of the Foreign Exchange Regulation Act, 1973.