Company Law Board
Guljarilal Kanoria And Anr. vs Loptchu Tea Company Ltd. And Ors. on 28 October, 1999
Equivalent citations: [2000]102COMPCAS292(CLB)
JUDGMENT
K.K. Balu, Member
1. The petitioners holding 49.27 per cent. of shares in Loptchu Tea Company Limited ("the company") have filed this petition under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956 ("the Act"), alleging various acts of oppression and mismanagement in the affairs of the company and seeking, inter alia, the following reliefs :
(a) To declare that the authorised share capital of the company is Rs. 25,00,000 divided into 2,50,000 equity shares of Rs. 10 each and the issued, subscribed and paid-up capital of the company is Rs. 5,70,500 divided into 57,050 shares of Rs. 10 each or fully paid.
(b) To declare that the issue of capital to respondents Nos. 4 and 5 is valid, legal and binding on the respondents.
(c) To declare that respondents Nos. 2 and 3 have ceased to be the directors of the company on and from February 6, 1996.
(d) To declare that the petitioners and respondent No. 8 are and continue to be the directors of the company.
(e) To declare that the purported transfer of shares by the sixth respondent to the seventh respondent is illegal, invalid, null and void.
(f) To restrain respondents Nos. 2 and 3 from acting as or holding themselves out to be the directors of the company.
(g) To restrain respondents Nos. 2 and 3 from interfering with the holding of board meetings of the company.
(h) To direct respondents Nos. 2 and 3 to hand over the statutory books of account and all other books, records and documents of the company to the special officer to be appointed by the Company Law Board.
(i) To appoint a special officer to investigate into the conduct of respondents Nos. 2 and 3 in relation to the business and affairs of the company ; and
(j) To direct respondents Nos. 2, 3, 6 and/or 7 to sell their shares to the petitioners.
2. The alleged acts of oppression and mismanagement relate to the following :
(i) Alleged creation of stalemate and deadlock in the affairs of the company in order to obtain a better price for the shares held by the petitioners.
(ii) Appointment of the joint administrator over the assets, properties and funds of the company through intervention of the High Court of Calcutta.
(iii) Elimination of the petitioners from the management or control of the company.
(iv) The company is made to suffer enormous losses and damage by not bringing in additional capital towards modernisation of the factory and demands of labours, resulting in labour indiscipline and drastic fall in the income of the company.
(v) Transfer of 560 shares held by respondent No. 6 to respondent No. 7 in violation of the terms of the agreement between the petitioners and respondents Nos. 2 and 3, thereby tilting the majority in favour of respondents Nos. 2 and 3 and ousting the petitioners from management.
3. Respondents Nos. 2 and 3 while opposing this petition, have raised a preliminary objection that they have already filed a civil suit in Suit No. 245B of 1996 before the High Court of Calcutta as early as in 1996 against the petitioners seeking, inter alia, the reliefs claimed in the company petition on the same causes of action, upon which the petitioners have presently filed this petition under Sections 397 and 398 of the Act before the Company Law Board (CLB). The civil suit and other applications including the application seeking amendment of the prayers made in the plaint are being contested by the petitioners herein and are pending for disposal. Accordingly, respondents Nos. 2 and 3 have filed this application in C. A. No. 22 of 1999 seeking dismissal and/or permanent stay of the company petition till disposal of the civil suit pending before the High Court of Calcutta.
4. Shri Sudipto Sarkar, senior advocate, appearing on behalf of respondents Nos. 2 and 3, while initiating his arguments drew our attention to the reliefs sought in the company petition in view of the alleged acts of oppression and mismanagement in the affairs of the company. He dealt with each and every one of the reliefs claimed in the civil suit before the Calcutta High Court and co-related them with the reliefs claimed in the company petition. The proceedings before the Company Law Board are parallel to the proceeding's already initiated by respondents Nos. 2 and 3 in the civil suit. Both the High Court and the Company Law Board would give findings on majority of the issues which are one and the same, resulting in conflict of findings and jeopardising the interests of the parties. In this connection, he referred to the order dated July 16, 1996, of the High Court of Calcutta appointing a special officer as joint administrator over the funds, assets and properties of the company. He further drew our attention to the specific observation of the High Court in para. 1 of the said order to the effect that ".... until further investigation is made, it is difficult to accept the contention of defendants Nos. 1 and 2 that plaintiffs Nos. 2 and 3 ceased to be the directors of plaintiff No. 1". He emphasised that the same relief is sought in the present petition before the Company Law Board. He submitted that the joint administrator, who is carrying on the day-to-day business and administration of the company, has not been made a party in the petition, without which the Company Law Board cannot grant any relief sought in the petition against the company. He further referred to the order dated August 16, 1999, of the High Court pursuant to the joint administrator initiating action for recovery of the outstanding amount due from several persons. Sarkar pointed out to the stand taken by the petitioners before the High Court that the same relief is claimed by respondents Nos. 2 and 3 in the amended petition upon which counsel for the latter categorically stated before the High Court that the said relief would not be pressed while moving the application for amendment of the plaint. Sri Sarkar therefore, prayed for stay of the proceedings before the Company Law Board till disposal of the civil suit before the High Court of Calcutta. In this connection, he relied upon the following decisions :
Naveen Kedia v. Chennai Power Generation Ltd. [1998] 4 Comp LJ 128 ; [1999] 95 Comp Cas 640 (CLB) to state that the Company Law Board has referred the parties to arbitration on the ground that the substantial matter covered in the company petition has arisen out of an agreement between the parties in which there is a provision for settling the disputes through arbitration under the rules of the London Court of International Arbitration.
Turner Morrion Ltd. v. Jenson and Nicholson (India) Ltd. [1998] 3 Comp LJ 97 ; [1998] 93 Comp Cas 347 (CLB) to state that the Company Law Board has not adjudicated the matter on account of the pendency of certain legal proceedings in the High Court of Calcutta on the same issues pending before the Company Law Board.
Binod Kumar Agarwal v. Ringtong Tea Company Private Ltd. [1995] 1 Comp LJ 138 ; [1996] 85 Comp Cas 289 (CLB) to state that the Company Law Board did not invoke its discretionary powers and grant any relief in view of the fact that the disputes between the same parties have been pending before the High Court of Calcutta, even after examining the disputes in detail.
5. P.C. Sen, senior advocate appearing for the petitioners, reiterated that the petitioners holding 49.27 per cent. shares, are entitled to maintain the petition under Section 397 of the Act against the acts of oppression and mismanagement in the affairs of the company. There is a deadlock in the management of the company. The disputes cannot be resolved amicably among the parties. In the circumstances, the company had to be wound up on just and equitable grounds but since it would not be in the interest of the shareholders, the petitioners have filed this petition under Section 397. He further pointed out that the reliefs sought before the High Court of Calcutta are different from the reliefs claimed in the company petition. The amendment application filed by respondents Nos. 2 and 3 may not at all be considered by the High Court and the application is pending since 1997. The administrator though appointed by the High Court, is not an officer of the court. The administrator is only representing the shareholders. Hence, the company petition, without leave of the court, is maintainable. In this connection, Sen relied on Everest Coal Company Pvt. Ltd v. State of Bihar, AIR 1977 SC 2304. He further pointed out that respondents Nos. 2 and 3 originally sought before the High Court to cancel the board meetings and annual general meetings convened by the company and later by means of an amendment application claimed several reliefs, which are yet to be considered by the High Court. Respondents Nos. 2 and 3 have not prayed for sale of the shares under Section 402 of the Act. Moreover, the civil court will have no jurisdiction to grant such a relief. By virtue of Section 402 of the Act, the Company Law Board alone can direct the parties to sell or purchase the shares and in this regard the petitioners are willing to go by the order of the Company Law Board. Even if the amendment application is allowed by the High Court, the relief of directing" sale of the shares under Section 402 of the Act cannot be granted by the High Court. It is only the Company Law Board which has special jurisdiction to bring to an end the affairs of the company. He brought to our notice the communication dated March 21, 1996, of the Government of West Bengal with regard to sale of shares of Prafulla Kr. Banerjee, wherein 560 shares of the company held by the sixth respondent are stealthily shown. He also referred to the letter dated May 13, 1996, addressed to the sixth respondent by the second respondent stating that the company has received a share certificate for 560 shares of the company together with the share transfer deed duly executed by the sixth respondent, selling the shares in favour of the purchaser. He further emphasised that the averments made in the company petition will establish the acts of oppression and mismanagement in the affairs of the company, for which the Company Law Board alone will remedy the grievances of the petitioners.
6. Shri Sen in support of his submissions relied on the following decisions:
Piyush Kanti Guha v. West Bengal Pharmaceutical and Phytochemical Development Corporation Ltd., AIR 1982 Cal 94--to show that the court has not stayed the company petition in spite of the pendency of a civil suit before the civil court.
New Standard Coal Company Pvt. Ltd. v. Special Officer [1964] 2 Comp LJ 184 to state that a special officer appointed by the court cannot be regarded as an officer of the court and that his acts are not the acts of the court appointing him. He only represents the board of directors of the company which has been superseded.
7. In view of the foregoing, Sen contended that there is no bar in the Company Law Board proceeding with the company petition and sought for dismissal of the application filed by respondents Nos. 2 and 3.
8. We have considered the affidavits and counter-affidavit filed on behalf of the parties as well as arguments of counsel. The issue for our consideration is whether the proceedings before the Company Law Board are to be stayed in view of the pendency of the civil suit in S. O. No. 245B of 1996 on the file of the High Court of Calcutta initiated by respondents Nos. 2 and 3 against the petitioners.
9. The facts not in dispute are that respondents Nos. 2 and 3 had filed a civil suit in the year 1996 before the High Court of Calcuta against the petitioners and also an application seeking amendment of the reliefs claimed in the plaint. The following among other reliefs, are sought in the civil suit before the High Court :
(i) to declare the board meetings of the company said to have been held subsequent to March 22, 1995, as null and void ;
(ii) to declare the annual general meeting of the company for the year ended March 31, 1995, purported to have been held on September 29, 1995, as null and void ;
(iii) to restrain the petitioners from giving any effect to any of the board meetings ;
(iv) to restrain the petitioners from giving any effect to the annual general meeting of the company said to have been held on September 29, 1995 ;
(v) to restrain the petitioners from acting as directors of the company ;
(vi) to restrain the petitioners from altering the shareholding position in the company by issue of allotment of further shares in the company ;
(vii) to declare the extraordinary general meeting of the company said to have been held on May 20, 1996, as null and void ;
(viii) to declare the allotment of 7,500 ordinary shares in favour of respondents Nos. 4 and 5 in the company petition, as null and void ;
(ix) to declare the transfer of 100 shares of the company in favour of respondents Nos. 8 to 13 in the company petition, as null and void ;
(x) to restrain the respondents from giving any effect to the transfer of 600 shares of the company by the first petitioner in favour of respondents Nos. 8 to 13 in the company petition ;
(xi) to declare the appointment of the eighth respondent in the company petition as director of the company, as null and void and to restrain the eighth respondent from acting as a director of the company ;
(xii) to declare respondents Nos. 2 and 3 to be the directors of the company.
10. The suit as well as application seeking amendment of the plaint are contested by the petitioners and are pending before the High Court.
11. A perusal of the amendment application in the civil suit and the company petition shows that the reliefs claimed in the company petition in para. viii(a) to (d), (f) and (g) by the petitioners, are sought in the civil suit by respondents Nos. 2 and 3 against the petitioners. Respondents Nos. 2 and 3 have not sought to nullify the transfer of 560 shares of the company in favour of the seventh respondent by the sixth respondent and question the appointment of the special officer to investigate into the affairs of the company in the civil suit before the High Court. In all other respects, it is observed that the reliefs sought both in the company petition and the civil suit arc substantially the same. The parties to the suit before the High Court are all parties before the Company Law Board. The causes of action both in the suit and the company petition are found to be the same. The disputed issues will be gone into by the Company Law Board as well as the High Court and findings will be by both the forums. It is not fair to give our findings on the issues which are already pending before the High Court of Calcutta, which may result in conflict of the findings. We do agree with learned senior counsel for the petitioners that the powers under Section 402 are discretionary vested with the Company Law Board and the High Court will not interfere granting any such relief invoking the provisions of Section 402 of the Act. However, to exercise the discretionary powers by the Company Law Board under Section 402, we are bound to give our findings on various other issues which are agitated before the High Court. We will not be in a position to grant any remedy in the company petition without considering the issues of which the High Court is seized of the matter. In this connection, it is relevant to quote from a portion of the application in C. A. No. 22 of 1999 with regard to the disputes between the parties, which runs as under :
"There are disputes between the parties relating to the board meetings of respondent No. 1 shown to have been held by the petitioners on January 25, 1995, August 25, 1995, September 30, 1995, December 21, 1995, January 25, 1996, January 26, 1996, February 6, 1996, February 27, 1996, April 26, 1996, June 26, 1996, August 26, 1996, September 2, 1996, the minutes and resolutions relating thereto, the notices purported to have been issued for convening of such board meetings, an alleged notice dated April 26, 1996, allegedly issued for convening an extraordinary general meeting of the company on May 20, 1996, the purported extraordinary general meeting of the company shown to have been held on May 20, 1996, by the petitioners abovenamed, the minutes and resolutions relating thereto, the alleged increase of authorised share capital of the company, the purported issue and allotment of 7,500 ordinary shares each of and in the company in favour of respondents Nos. 4 and 5 and alleged transfer of shares of and in the company in favour of respondents Nos. 8 to 13, the alleged continuance of the abovenamed petitioners as directors of the company, the alleged appointment of respondent No. 8 as an additional director of the company, the alleged cessation of office of the applicants herein as directors of the company, the annual general meeting of the company for the year ended March 51, 1995, purported to be shown to have been held on September 29, 1995, and the misappropriation of funds and other acts and conduct of the petitioners abovenamed which are all the subject-matter of Civil Suit No. 245B of 1996 filed, inter alia, by the applicants and the company before the Hon'ble High Court at Calcutta as also the application made for amendment of the plaint relating thereto. The petitioners abovenamed have also sought to apply to the Hon'ble High Court at Calcutta to make the transfer of shares by respondent No. 6 in favour of respondent No. 7 of and in the company a part of the said proceedings ...... In such circumstances it is evident that all disputes between the parties are already before a competent forum in relation to the management and affairs of the company in prior proceedings to which the petitioners herein are also parties."
12. The petitioners have not denied the above averments in their reply affidavit. Moreover, the plea of Sen is that the Company Law Board alone will have the jurisdiction to grant the discretionary relief under the provisions of Section 402 in a petition under Section 397/398 and that the High Court has no jurisdiction to grant any such remedy. It is, therefore, evident that the issues in dispute are substantially the same before the Company Law Board as well as the High Court of Calcutta, though reliefs which may be granted to the parties will not be the same.
13. In regard to the decisions cited by counsel, the decision in Chennai Power Generation Ltd.'s case [1999] 95 Comp Cas 640 (CLB) does not apply to the facts and circumstances of the present case.
14. The decision in Jenson and Nicholson (India) Ltd.'s case [1998] 93 Comp Cas 347 (CLB) has no relevance, especially when the issue relating to stay of the proceedings on account of the pendency of civil suit before the High Court of Calcutta has not been adjudicated by the Company Law Board.
15. Counsel for respondents Nos. 2 and 3 has not challenged the proposition enunciated in New Standard Coal Company Pvt. Ltd.'s case [1964] 2 Comp LJ 184 relied upon by counsel for the petitioners. In fact, respondents Nos. 2 and 3 have not pleaded that the company petition does not lie without the sanction of the High Court, in view of the appointment of a special officer.
16. The facts and circumstances of the case in West Bengal Pharmaceutical and Phytochemical Development Corporation Ltd.'s case, AIR 1982 Cal 94, cited by counsel for the petitioners can be distinguished from the facts of the present case especially in the former case, the High Court has held that the reliefs asked for in the civil suit are different from the reliefs sought in the company petition.
17. In view of the foregoing, since the civil proceeding before the Calcutta High Court is prior in time to the filing of the petition before us, to avoid conflict of decisions, we are inclined to stay the proceedings before the Company Law Board till disposal of the Civil Suit in No. 245B of 1996 on the file of the High Court of Calcutta, and accordingly the proceedings in the company petition are stayed.
18. Accordingly, application in C. A. No. 22 of 1999 stands disposed of.