A. M. AHMADI, J. ( 1 ) WHETHER the second respondent (Navnit Shivlal Bham) has either by virtue of sec. 314 (2) (a) or by his omission to attend three consecutive meetings of the Board of Directors without leave of absence ceased to be a Director of the Company and ( 2 ) WHETHER the conduct of the minority particularly the second respondent insofar as the affairs of the Company are concerned is oppressive having regard to the various acts of commission and omission tantamounting to misconduct set out in paragraph 12 to (h) of the main petition so as to invoke the application of sec. 397 of the Companies Act? (His Lordship observed that it would not be proper in the present proceedings to adjudicate upon the question whether the second respondent has vacated the office as Director of Company with effect from 25/09/1974 by virtue of sec. 314 (2) (a) of the Companies Act since disputed questions of fact arise and they can be satisfactorily resolved after the parties have led evidence in the proceedings pending before the subordinate courts. His Lordship further observed. ). . . . . . . . . . . . . . . ( 3 ) THAT takes me to the second part of the Company Petition bearing on the question whether the reliefs sought in Clauses (a) (b) and (c) of paragraph 31 namely giving of directions to the Bham group of shareholders not to institute any legal proceedings or make false and baseless allegations representations to various State and Central Government authorities without the permission of the High Court or to direct the Bham group of shareholders to sell their 400 equity shares to the Patel group of shareholders should be granted in the facts and circumstances of the case. That attracts the application of the provisions of sec. 397 and 398 of the Act. Sec. 397 reads as under:"397 (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section provided such members have a right so to apply in virtue of sec. 399. (2) If on any application under sub-sec. 399. (2) If on any application under sub-sec. (1) the Court is of opinion (A) that the Companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (B) that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-uporder on the ground that it was just and equitable that the company should be wound up; the Court may with a view to bringing to an end the matters complained of make such order as it thinks fit". Sub-sec. (1a) of sec. 398 which is relevant for our purpose reads as under:"398 (1) Any members of a company who complain (A) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the Company; orxxx xxx xxxmay apply to the Court for an order under this Section provided such members have a right so to apply in virtue of sec. 399". Sec. 399 next provides that an application under sec. 397 and 398 can be made in the case of a Company having a share capital by not less than one hundred members of the Company or not less than one-tenth of the total number to its members whichever is less or any member or members holding not less than one-tenth of the issued share capital of the company provided that the applicant or applicants have paid all calls and other sums due on their shares. In the instant case the petitioners have in paragraph 6 of the petition averred that they cumulatively hold more than 10 percent of the shares of the Company an averment which has not been challenged or controverted. It is therefore obvious that the petition answers the requirements of sec. 399 of the Act. At this stage it may be advantageous to refer to sec. 402 which spells out the powers of the Court under sec. 397 and 398 of the Act. It lays down that a Company Court while dealing with an application under sec. It is therefore obvious that the petition answers the requirements of sec. 399 of the Act. At this stage it may be advantageous to refer to sec. 402 which spells out the powers of the Court under sec. 397 and 398 of the Act. It lays down that a Company Court while dealing with an application under sec. 397/398 of the Act may provide for: (A) the regulation of the conduct of the Companys affairs in future; (B) the purchase of the shares or interests of any members of the company by other members thereof or by the Company; (C) in the case of a purchase of its shares by the Company as aforesaid the consequent reduction of its share capital; (D) the termination setting aside or modification of any agreement; howsoever arrived at between the Company on the one hand and any of the following persons on the other namely: (I) the managing director any other director (II) the managing agent (IV) the secretaries and treasurers and (V) the manager upon such terms and conditions as may in the opinion of the Court be just and equitable in all the circumstances of the case; (E) the termination. setting aside or modification of any agreement between the company and any person not referred to in clause (d) after notice to the concerned party; (F) the setting aside of any transfer delivery of goods payment execution or other act relating to property made or done by or against the Company within three months before the date of the application under sec. 397/398 which would if made or done by or against an individual be deemed in his insolvency to be a fraudulent preference; (G) any other matter for which in the opinion of the Court it is just and equitable that provision should be made. Sec. 433 (f) of the Act which deals with the winding up of the Company provides that a Company may be wound up by the Court if the Court is of opinion that it is just and equitable to do so. Now on a plain reading of sec. 397 of the Act which is analogous to sec. Sec. 433 (f) of the Act which deals with the winding up of the Company provides that a Company may be wound up by the Court if the Court is of opinion that it is just and equitable to do so. Now on a plain reading of sec. 397 of the Act which is analogous to sec. 210 of the English Act the Court must be satisfied that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that the facts would justify the making of a winding up order on the ground that it was just and equitable so to do sec. 433 (f) hut if such an order is likely to unfairly prejudice any member or members the Court may exercise power under sec. 402 with a view to bringing to an end the matters complained of. It is therefore an essential condition for the maintenance of a petition under sec. 397 of the Act that facts and circumstances which would justify the making of a winding up order on just and equitable grounds should exist as required by sec. 433 (f) of the Act. Under sec. 398 (1) (a) of the Act a petition can be filed by any members of the Company on the ground that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the Company. Now in the instant case admittedly the Patel group of shareholders are in majority. They are in charge of the affairs of the Company. So far as the second respondent is concerned as seen earlier he was eased out as the Managing Director of the Company by the deletion of Art. 38 of the Articles to Association of the Company. Thereafter he continued as an ordinary Director of the Company but it is the case of the Patel group of shareholders that he has ceased to be even an ordinary Director of the Company by virtue of sec. 314 (2) (a) of the Act he having failed to attend three consecutive meetings of the Board of Directors of the Company without leave to absence. 314 (2) (a) of the Act he having failed to attend three consecutive meetings of the Board of Directors of the Company without leave to absence. Since then he was not informed about the meetings of the Board of Directors of the Company and therefore it can safely he said that he did not participate in the conduct of the affairs of the Company. Therefore sec. 398 (1) (a) of the Act in my opinion has no direct application. That is why Mr. G. N. Shah the learned Counsel for the petitioners rightly emphasised throughout the hearing of this Company Petition that the intervention of the Court has become necessary under sec. 397 read with sec. 402 of the Act as the conduct of the second respondent is oppressive to the majority that is the Patel group of shareholders. It was on the other hand argued by Mr. Thakkar the learned counsel for the second respondent that nowhere in the petition has it been alleged that thefacts would justify the making of a winding tip order on the ground that it is just and equitable to do so but that such an order would unfairly prejudice the interest of the petitioning members and hence it is not advisable to wind up the Company. Mr. Thakkar emphasised that in order to bring the case within the purview of sec. 397 of the Act the petitioning creditors must make out a case that but for the power granted to the Court under sec. 397/402 of the Act a stage had reached for winding up the Company on just and equitable grounds that is under sec. 433 (f) of the Act. ( 4 ) THE petitioners in order to succeed in this petition must establish facts which would justify the making of a winding up order on just and equitable grounds under sec 433 (f) of the Act. The Court will entertain an application under this provision only when it is of opinion that an order for winding up will unfairly prejudice the interests of the petitioners or members on whose behalf the petition is filed. The Court will entertain an application under this provision only when it is of opinion that an order for winding up will unfairly prejudice the interests of the petitioners or members on whose behalf the petition is filed. In other words the normal remedy would be to move for having the Company wound up but if the Court comes to the conclusion that it is not in the interest of the members to wind up the Company since the substratum of the Company is in tact the oppression if any may be removed by granting appropriate directions to those causing the oppression. Normally petitions complain of oppression by the majority but in this petition the allegation is that it is the minority particularly the second respondent who is oppressing the majority. One of the conditions which must be satisfied is that the affairs of the Company are being conducted in a manner oppressive to the petitioning members and members on whose behalf they have filed the petition. Now if the affairs of the Company are in the hands of respondents Nos. 8 9 and 10 who represent the majority members that is the Patel Group of shareholders it is difficult to hold that the affairs of the Company are being conducted in a manner oppressive to them when they themselves are in majority on the Board of Directors of the Company. The second condition which must be satisfied is that the facts establish that ordinarily the Court would have directed the Company to be wound up on the just and equitable ground but that to do so would unfairly prejudice the majority members of the Company. The second essential ingredient for the exercise of power under sec. 397 of the Act which the petitioners must establish is whether on the facts and in the circumstances of the case the Court would have been prepared to wind up the Company under sec. 433 (f) of the Act had it not been of the opinion that a winding up order would unfairly prejudice the interests of the majority shareholders. Mr. G. N. Shah the learned advocate for the petitioners therefore contended that this being a Private Limited Company the principles governing the winding up of a partnership under sec. 433 (f) of the Act had it not been of the opinion that a winding up order would unfairly prejudice the interests of the majority shareholders. Mr. G. N. Shah the learned advocate for the petitioners therefore contended that this being a Private Limited Company the principles governing the winding up of a partnership under sec. 44 (g) of the Partnership Act on just and equitable grounds should govern this Court in reaching the conclusion whether ordinarily it would have directed the Company to be wound up under sec. 433 (f) of the Act on the facts and in the circumstances placed on record. In support of this contention strong reliance was placed by Mr. Shah on the decision of the House of Lords in Ebrahimi v. Westbourne Galleries (1973) A. C. 360. That was a petition brought by one Ebrahimi who for many years had been an equal partner with Nazar in a business dealing in Persian carpets. In 1958 they decided to incorporate the business and the two were appointed the first Directors each holding 500 shares. Shortly thereafter Nazars son entered the business and he too was made a Director of the Company. Ebrahimi and Nazar each transferred to him 100 of their shares. Thus the majority of votes tilted in favour of Nazars. For some years the Company did flourishing business and made good profits all of which were distributed amongst the Directors as remuneration. A few years later the relations between Ebrahimi and Nazar began to deteriorate and it was alleged that Nazar who did most of the purchasing on behalf of the Company in Persia was diverting substantial profits to himself leaving little or nothing for the Company. The Nazars had also started an antique business in the premises occupied by the Company. The Companys profits were considerably reduced and protests from Ebrahimi fell on deaf ears. Finally at an extraordinary general meeting of the Company the father and son who held the majority removed Ebrahimi from his office as Director. Thereupon Ebrahimi ceased to participate in the management of Companys affairs and since no dividends were paid the profits being distributed amongst the Directors as their remuneration he received nothing whatsoever. Thereupon Ebrahimi presented a petition under sec. 210 read with sec. Thereupon Ebrahimi ceased to participate in the management of Companys affairs and since no dividends were paid the profits being distributed amongst the Directors as their remuneration he received nothing whatsoever. Thereupon Ebrahimi presented a petition under sec. 210 read with sec. 222 (f) of the (English) Companies Act 1948 In that CAse the House of Lords came to the conclusion that when Ebrahimi and Nazar turned their partnership into a Company it was on the basis that the character of the association would as a matter of personal relation and good faith remain the same and therefore when the question of winding up of such a Company arises it is right to apply the principles of partnership in ordering the Company to be wound up. Mr. Thakkar the learned advocate for the second respondent. however invited my attention to the decision of the Supreme Court in Hind Overseas P. Ltd. v. B. P. Jhunjhunwalla (1976) 46 Company Cases 91 to point out that the observations in Ebrahimis case have no application so far as this case is concerned because the origin of the Company cannot he traced to a partnership business between two groups of shareholders. The Supreme Court in the aforesaid case reviewed the entire case law on the subject and observed as under:" When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management the principles of dissolution of partnership cannot be liberally invoked. Besides it is only when shareholding is more or less equal and there is a case of complete deadlock in the Company on account of lack of probity in the management of the Company and there is no hope or possibility of smooth and efficient continuance of the Company as a commercial concern there may arise a case for winding up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the Company is not the real structure and on piercing the veil it is found that in reality it is a partnership". In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the Company is not the real structure and on piercing the veil it is found that in reality it is a partnership". ( 5 ) IN Shanti Prasad Jain v. Kalinga Tubes Ltd. A. I. R. 1965 S. C. 1535 Their Lordships observed that the mere loss of confidence between groups of shareholders would not come within sec. 397 unless it be shown that this lack of confidence sprang from a desire to oppress the minority in the management of the Companys affairs and that there was at least an element of lack of probity and fair dealing to a member in the matter of his proprietary right as a shareholder ( 6 ) IN re Davis and Collett Let. (1935) 5 Company Cases 467 also it was said that it may be just and equitable that a Private Company the share capital of which is so held that it is substantially a partnership should be wound up when a Director has employed irregularities to put himself in complete control of the affairs of the Company excluding the other Director or Directors from management. ( 7 ) HOWEVER in the case of Rajahmundry Electric Supply Corporation Ltd. v. Nageshwara Rao A. I. R. 1956 S. C. 213 it was clarified that where nothing more is established than that the Directors have misappropriated the funds of the Company an order for winding up would not be just and equitable because if it is a sound concern such an order would operate harshly on the rights of the shareholders. But if in addition to such misconduct circumstances exist which would render it desirable in the interests of the shareholders that the Company should be wound up there is nothing in law which bars the jurisdiction of the Court to make such an order. ( 8 ) FROM the above case law it becomes clear that the principle of dissolution of partnership would be applicable only if the Company is a domestic concern. It must also be shown that an irresolvable deadlock in the administration of the Company has resulted because of groupism amongt the shareholders and Directors of the Company and it has rendered it impossible for the Company to transact business and the only alternative is to wind up the Company. It must also be shown that an irresolvable deadlock in the administration of the Company has resulted because of groupism amongt the shareholders and Directors of the Company and it has rendered it impossible for the Company to transact business and the only alternative is to wind up the Company. In the instant case so far as the second respondent is concerned he holds 50 equity shares while his wife Madhuben holds an equal number of equity shares. The Naiks who are alleged to be in the Bham group hold 250 equity shares and R. B. Gupta also stated to be a member of the Bham Group holds 50 shares. Thus amongst themselves they hold 400 shares whereas the Patel Group of shareholders hold 4600 equity shares apart from the entire block of preference shares held by them. If we turn to the Memorandum and Articles of Association we find that initially there were five Directors three from the Patel group and two from the Bham group including the second respondent. As stated earlier the second respondent was appointed a permanent Managing Director of the Company having regard to his experience and expertise in the field by virtue of Article 38 of the Articles of Association which came to be deleted at the extraordinary general meeting held on 7/12/1973 From that date onwards admittedly the second respondent ceased to be the Managing Director of the Company. It is also an admitted fact that at the said meeting for the deletion of Article 38 Shri Gunvant L. Naik the fifth respondent voted in favour of the deletion of that Article. In paragraph 12 of his affidavit he states as under :" I say that I had voted against Navnit Shivlal Bham in year 1973 in good faith when a resolution was brought to delete Article 38 of the Memorandum with a view to remove Mr. Bham as Managing Director of respondent No. 1". It is therefore difficult to say that the fifth respondent is a member of the Bham group as alleged by the petitioners. He too has been removed from the Board of Directors of the Company on the ground that he had failed to attend three consecutive meetings of the Board without leave of absence and had therefore vacated the office of Director of the Company under sec. 283 of the Act. He too has been removed from the Board of Directors of the Company on the ground that he had failed to attend three consecutive meetings of the Board without leave of absence and had therefore vacated the office of Director of the Company under sec. 283 of the Act. As has been discussed earlier even the name of the second respondent was removed from the Memorandum and Articles of Association of the Company as a Director of the Company on the ground that he had vacated office under sec. 314 (2) (a) and or sec. 283 of the Act. The result is that at present the management of the affairs of the Company is in the hands of the Patel group of shareholders namely respondents Nos. 8 9 and 10. It cannot therefore be urged on behalf of the Company that these Directors are conducting the business of the Company in a manner prejudicial to the interest of the members including the petitioners. They are in majority and are therefore in a position to overrule the second respondent even if he is allowed to participate in the management of the business of the Company. He is not in a position to oppress the majority Directors by his single vote as admittedly the other three Directors that is respondents Nos. 8 9 and 10 belong to the Patel group of shareholders. It is also not the case of the petitioners that the Company has lost financial stability or that its substratum is wiped out. On the contrary in the affidavits it has been stated that the Company is financially sound and is making profits. It is not the case of the Patel group of shareholders who are in a vast majority that the conduct of the second respondent is such that they would have been constrained to move for the winding up of the Company but for the provision of sec. 397 of the Act. This is not a company which came into existence out of any partnership business conducted in the past. The shareholdings of the two groups are such that no deadlock is possible. The Directors representing the majority of the shareholders belonging to the Patel group are in a position to overrule the second respondent even if he is allowed to participate in the affairs of the Company. The shareholdings of the two groups are such that no deadlock is possible. The Directors representing the majority of the shareholders belonging to the Patel group are in a position to overrule the second respondent even if he is allowed to participate in the affairs of the Company. What the majority has done is to first ease out the second respondent as the Managing Director of the Company by deleting Article 38 and thereafter to deny him participation in the business and affairs of the Company on the ground that he had vacated office as the Director of the Company by virtue of sec. 314 (2) (a) and/or 283 of the Act. It is in fact a situation where the second respondent can make a grievance that he is being eased out from the management of the Company by the majority Directors belonging to the Patel Group. In such a situation where the Company is not a domestic Company and where no deadlock is likely to occur and where the smooth functioning of the Company is not threatened it cannot be said that on the principle applicable for the dissolution of a partnership on just and equitable grounds the Company is liable to be dissolved. To my mind therefore the principle on which Mr. Shah relies cannot be invoked in the facts and circumstances of this case. That is why as pointed out by Mr. Thakkar there is no allegation in the petition that unless the Court exercises power under sec. 397 of the Act a situation has arisen for the dissolution of the Company which would not be in the interest of the majority of shareholders belonging to the Patel group. [the rest of the judgment is not material for the reports. ] petition allowed. .