Delhi High Court
T.L. Arora And Ors. vs Ganga Ram Agarwal And Ors. on 11 December, 1986
JUDGMENT Mahesh Chandra, J.
(1) This order would dispose of LA. 4584186 filed by defendants 1, 2, 3, 6 & 7 under Section 11 of the Code of Civil Procedure. The application is opposed on behalf of the plaintiffs. I have heard the learned counsel for the parties and have gone through the file and after giving my considered thought to the matter before me, T have come to the following findings.
(2) This application has been filed in this suit filed by the plain- tiffs for a declaration that plaintiff No. I is a validly denominated director of defendant No. 7-company on the allegations that plaintiff No. I was a director of defendant No. 7 and at the annual general meeting held on 31st March 1986, he was to retire by rotation and was to be re-elected as director thereof being the sole representative of Nri group and being in possession of majority support of other local Indian share-holders in the form of their proxies but defendant No. I in conspiracy with defendants 2 t.o 4 and two other directors objected to the denominated of plaintiff No. 1 as director and defendant No. l with the support of Ins employees-directors and other bogus shareholders had forged proceedings of the meeting in the minutes book which has cast a cloud on the right of plaintiff No. 1 and other plaintiffs ;ind on the status and title of plaintiff No. 1.
(3) The contention of the learned counsel for the defendants in this application is that 24 out of 30 plaintiffs before this Honble Court had filed an application under Sections 408 and 409 of the Companies Act before the Company Law Board and in para 23 of the said application it was alleged that ' 'denominated /re-election of plaintiff No. 1 as director was allegedly rejected' and in para 24 thereof it was alleged that 'petitioner No. 1's name was proposed by Shri B. M. Gandhi and seconded by Shri Kamal. Gandhi. At that stage some bogus shore-holders who_ had been brought there objected to the denominated of petitioner No. 1. Respondent No. I then took a calculated decision to decide the issue by show of hands. Though the majority voting went in favor of petitioner No. 1 and he stood validly denominated, yet the bogus share-holders outnumbered the genuine share-holders and rejected the denominated of petitioner No. 1. In fact, pandemonium prevailed and bogus record of the meeting was conveniently prepared by Respondent No. 1 with the help of Respondent No. 3 who was acting as chairman of the meeting 31-3--1986. Independent share-holders were Heckled and hooted down when they asked for a poll. Thus, petitioner No. I was duly elected, but his candidature has .been wrongly shown to have been rejected in the alleged meeting and that in the said application the two reliefs claimed by the plaintiffs were that Further prayed that no effect be given to the alleged resolution dated 31-3-1986 allegedly rejecting the denominated of petitioner No. 1 Further played that petitioner- No. I be allowed to participate as a Director on the Board of Directors of the Company. .........' and the Company Law Board vide its order dated 31st .JUly 1986 dismissed the application under Section 408 of the Companies Act as not being substantiated and application under Section 409 of the Companies Act was dismissed as not being maintainable for the reason that condition precedent for maintain such an 'application was that it should be made, inter alia. by a director and Shri T. L. Arora did not hold the position of a director at the relevant time i.e. at the time of the filing of the application and as such it has been prayed that the suit of the plaintiffs is barred by res judicata and deserves to be dismissed as such. The application is opposed on behalf of the plaintiffs who have alleged that the Company law Board vide its order dated 3lst July 1986 has, in fact, appointed Shri V. Govindan, Joint Director (Inspection), Department of Company Affairs. Shastri Bhavan, New Delhi, as Inspector- to investigate into affairs of the company and to report to the Company Board of irregularities and contraventions of the provisions of the Companies Act and/or any other law and the persons responsible for such irregularities and contraventions and it was further observed by the Company Law Board vide its order that 'it is also significant that the financial institutions are actively associating themselves with conducting the affairs of the company and have suggested professionalisation of the Board of Director, described in para Ii supra and appointment of concurrent auditors. These should adequately take care of proclivity, if any. towards mismanagement and we do not think if any further preventive action under Section 408 of the Companies Act is warranted and regarding reliefs sought under Section 409 of the Companies Act, the Board had found that the same could not be granted as the Company Law Board under its delegated powers did not have the jurisdiction to determine the question of appointment of plaintiff No. I as director denominated in the meeting dated 31st March 1986 and it was observed in para 25 of the order that 'in regard to maintainability of an application under Section 409 of the Act, the condition precedent is that the application should be made by either a director, managing director or other persons holding certain position as mentioned in Section 409. Since Shri Arora did not hold any of these positions at the relevant time and it has also not been shown that any of his co-applicants held the same when the application was made, it is clear that the same is not maintainable' and it has been urged that Section Ii of the Code of Civil Procedure has no application to the facts of the case and this application should be dismissed.
(4) From the application of the defendants and the reply of the plaintiffs thereto it emerges that it is common case of parties that an application under (Section 408), 409 of the Companies Act was moved before the Company Law Board and that certain orders have been passed in the said application. A true copy ofthe said orders has been placed on record. It is in the light of these facts that this application has to be considered.
(5) The learned counsel for the defendants has drawn my attention to on the scope of Section Ii of the Code of Civil Procedure. It was observed therein that : "IT is well-known that the doctrine of res judicata is codified in. Section Ii Civil Procedure Code but it is not axhaustive. Section Ii generally comes into play in relation to civil suits. But apart from the codified law the doctrine of res judicata has been applied since Ions in various other kinds of proceedings and situations by Courts in England, India and other countries. The rule of constructive res judicata is engrafted in Explanation Iv of Section Ii and in any other situations also principles not only of direct res judicata but of constructive res judicata are also applied. It by any judgment or order any matter In issue has been directly and explicitly decided the decision . operates as res judicata and bars the trial of an identical issue in a subsequent proceeding between the same parties. The principle of res judicata also comes into play when by the judgment and order a decision of a particular issue is implicit in it, that is, it must be deemed to have been necessarily decided by implication; then also the principle of res judicata on that issue is directly applicable. When any matter which might and ought to have been made a ground of defense or attack in a former proceeding but was not so made, then such a matter in the eye of law, to avoid multiplicity of litigation and to bring about finality in it is deemed to have been constructively in issue and, therefore, is taken as decided."
(6) There could be no dispute with the above principle. However, the Supreme Court had laid certain conditions under which Section 11 was attracted and the same are codified in Syed Mohd. Salie Labbai (Dead) by L.Rs. & others v. Mohd. Hanifa (Dead) by L.Rs. and others, .(2) and it was held therein that :
"BEFORE a plea of res judicata can be given effect, the following conditions must be proved- (1)that the litigating parties must be the same; (2)that the subject-matter of the suit also must be identical; (3) that the matter must be finally decided between the parties, and (4) that the suit must be decided by a court of competent jurisdiction."
It was further observed therein that 'the best method to decide the question of res judicata is first to determine the case of the parties as put forward in their respective pleadings of their previous suits, and then to find out as to what had been decided by the judgments which operate as res judicata'. It is keeping in view these observations of the Supreme Court in these rulings that this application has to be disposed of. The defendant has filed a photostat copy of the order dated 31st July 1986 of the Company Law Board in the petitions moved by the plaintiffs against the defendants. Para 2 of the said order shows that the application had been filed by Shri T. L. Arora and 30 others under Sections 408 and 409, 247 and 250 of the Companies Act requesting, inter alia, for appointment of directors on the basis of the proportional representation, appointment of additional directors firm among the applicants and freesing of voting rights in respect of certain allegedly bogus shares. The conclusions of the Company Law Board with regard to relief under Section- 409 of the Companies Act in the said application have been incorporated in para 25 of the said order which reads as follows : "IN regard to maintainability of an application under Section 409 of the Act, the condition precedent is that the application should be made by either a director, managing director or other persons holding certain positions as mentioned in Section 409. Since Shri Arora did not hold any of these positions at the relevant time and it had also not been shown that any of his co-applicants held the same when the application was made, it is clear that the same is not mamtamable."
(7) With regard to relief under Section 408 of the Companies Act, the Company Law Board has observed in para 26 as follows : "WITH regard *o the application under Section 408 it may be mentioned that the applicant No. 2 has not been able to prove most of the allegations in particular the one relating to advances of Rs. 1.64 crores said to have teen given to companies concerned with Shri G. R. Agarwal. The remaining transactions have been reasonably explained by the respondents. It is also significant that the financial institutions are actively associating themselves with conducting the affairs of the company and have suggested professiona'. sation of the Board of Directors, described in para 11 supra and appointment of concurrent auditors. "......These should adequately take care of proclivity if any. towards mismanagement and we do not think if any further preventive action under Section 408 of the Companies Act is warranted"
IN the end the orders of the Company Law Board are that 'the application under Section 408 is dismissed as not being substantiated' and 'application under Section 409 is dismissed as not being maintainable'. It is in the light of my discussion above G that the result of this application under Section Ii of the Code of Civil Procedure would depend. No doubt the parties in the applications under Sections 408 and 409 of the Companies act filed by the plaintiffs before the Company Law Board are the same but it would be difficult to say that the subject-matter of this suit is also identical with the subject-matter of the application filed before the Company Law Board. Secion 408 of the Companies Act refers to 'powers of Government to prevent oppression or mismanagement' and Section 409 thereof provides for 'power of Central Government to prevent change in Board of directors likely to affect company prejudicially'. The present suit is for declaration that plaintiff No. 1 was duly denominated and as such was director of defendant No. 7 in its annual general meeting held on 31st March, 1986. By no stretch of imagination u can be said that the subject-matter of the suit is identical with that of application filed under Sections 408 and 409 of the Companies Act before the Company Law Board. A perusal of photostat copy of order of the Company Law Board, relevant excerpts whereof have been quoted above, would further show that even in that. application the matter had not been finally decided. As regards application under Section 409, it has been held that it was not maintainable while on application under Section 408, an inspector has been appointed to investigate into the matter and because of it that the application was dismissed. The very fact that inspector had been appointed itself suggests that the matter bad not been finally decided with regard to allegations of the plaintiffs. Let us consider the matter from yet another angle. The plaintiff has sought a declaration that he was duly denominated and re-elected as director of defendant No. 7-company in the annual general meeting held on 31st March. 1986. Such a declaration could not have been granted by the Company Law Board either under Section 408 or Section 409 of the Companies Act. That being the position, it cannot be said that the matter in this suit could have been decided by the Company Law Board in those applications.
(8) Here is a (sic) which is sought to be dismissed as barred by res fudicata, but 'the subject-matter of this suit is not identical with the matter which was pending before Company Law Board and which has not been even decided by the Board much less finally and consequently provisions of Section Ii of the Code of Civil Procedure are not attracted in this suit. In order to attract Section Ii of the Code of Civil Procedure it is not enough that parties to the previous and pending proceedings are same rather further the subject-matter in the two proceedings should be same, similar or identical and the said subject-matter must have been finally decided between the parties and by a court or authority of competent jurisdiction.' Keeping in view all these facts it would be difficult to accept that the necessary ingredients of Section Ii of the Code of Civil Procedure have been established to invoke this Section by the defendants and consequently. I find no merit in this application which is liable to be dismissed and is dismissed with costs which are assessed at Rs.1.000.