Calcutta High Court
Birla Corporation Ltd vs Rameshwara Jute Mills Co. Ltd. & Ors on 21 August, 2009
Author: Aniruddha Bose
Bench: Aniruddha Bose
Form No. J(2)
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
Present:
The Hon'ble Justice Aniruddha Bose
APOT NO. 289 OF 2009
ACO NO. 59 OF 2009
Birla Corporation Ltd.
Vs.
Rameshwara Jute Mills Co. Ltd. & Ors.
With
APOT NO. 292 OF 2009
ACO NO. 61 OF 2009
Rameshwara Jute Mills Co. Ltd.
Vs.
Birla Corporation Ltd. & Ors.
APOT NO. 297 OF 2009
ACO NO 64 OF 2009
Harsh Vardhan Lodha
Vs.
Remeshwara Jute Mills Co. Ltd.
In APOT No. 289 of 2009:
Advocates for the Petitioner: Mr. Anindya Kumar Mitra (Sr. Adv.)
Mr. Abhrajit Mitra
Mr. Paritosh Sinha
Ms. Manju Bhutoria
Mr. Sachchida Nand Pandey
Mr. Anubhav Maitra
Advocates for Respondent
No. 7: Mr. P. C. Sen (Sr. Adv.)
Mr. Debangsu Basak
Mr. Sanjiv Kumar Trivedi
Mr. Debanjan Mandal
Mr. Deepnath Roy Chowdhury
Mr. Sourya Sadhan Bose
Advocates for Respondent
Nos. 12 to 35: Mr. Pratap Chatterjee (Sr. Adv.)
Mr. Malay Kumar Chosh
Mr. Jishnu Chowdhury
Mr. Sarvapriya Mukherjee
Ms. Sudeshna Bagchi
Mr. Subhojit Roy
Advocates for Respondent
No. 1: Mr. S. Pal (Sr. Adv.)
Mr. Sudipto Sarkar (Sr. Adv.)
Mr. R. Banerjee
Advocates for Respondent No. 2: Mr. Shyama Prasad Sarkar (Sr. Adv.)
Mr. D. N. Sharma
Advocates for Respondent
No. 3 to 5: Mr. S. N. Mookherjee (Sr. Adv.)
Ms. V. Mahevia
Mr. R. K. Rai
Advocates for Respondent
No. 6: Mr. P. Sengupta
Mr. A. Rai
Mr. N. G. Khaitan
Judgment On: 21.8.2009
ANIRUDDHA BOSE, J.:-
1. These three appeals filed under Section 10F of the Companies Act, 1956 are being taken up together as similar questions of law and near identical factual issues are involved these appeals. These appeals are directed against an order of the Company Law Board (the CLB) passed on 22 July 2009. This order is in the nature of an interim order passed in an interlocutory application taken out in a pending proceeding under Sections 397, 398, 402, 403 and 406 of the Companies Act, (the Act) against Birla Corporation Limited whom I shall henceforth describe as "The Company". The application, which was registered as C.P. No. 57 of 2004 was filed by five shareholders of the company in or about 14 September 2004. In that application, Rameshwara Jute Mills Co. Ltd. (RJM), who are the appellants in A.P.O.T. No. 292 of 2009 were originally impleaded as one of the respondents. In C.P. No. 57 of 2004, which I shall describe in the later part of this judgment as the original petition, altogether 34 individuals, corporate entities and institutions have been impleaded as respondents. The first respondent is the company itself. The respondent no. 2, Rajendra Singh Lodha (since deceased) had been described in the original petition as the principal person in control of the company and its management and affairs. The process through which such control was sought to be exercised was questioned in the original petition. The Respondent No. 3, Harsh Vardhan Lodha (HVL) is his son, as also a Director of the Company, whereas respondent nos. 4 to 8 are its directors. The respondent nos. 9 to 27 are different companies, and it appears that these companies own and control substantial number of shares of the company. The respondent nos. 28 to 34 are charitable institutions also owning shares in the company. The main prayer of the applicants in the original application was to restrain respondent nos. 2, 3, 7 & 8 therein from participating in the affairs of the company and also for restraining respondent nos. 9 to 34 from exercising any voting rights in the company. In substance, it is alleged in the original petition that the respondent no. 2 therein (RSL) and his supporters were indulging in acts to bring about a change in the controlling interest of the company, and such acts were oppressive, and prejudicial to the interest of the company and its shareholders. It has been submitted before me on behalf of the company that a petition has been moved for dismissal of this proceeding before the CLB on or about 15 October 2004, but this petition is still pending for final adjudication.
2. This company was incorporated in the year 1919 and was part of an industrial house commonly known as the "Birlas", Birla being the surname of the family promoting the company along with various other industrial units. It is also not much in dispute that the companies, as well as its corporate shareholders mostly belonged to a branch of the Birla family, known as the M.P. Birla group, named after Madhav Prasad Birla (since deceased). On his death, it has been averred in the original petition, Priyamvada Devi Birla (PBD), being the widow of late Madhav Prasad Birla had controlling interest in this company through various companies and institutions who have been impleaded as the respondents therein. PDB died on 3 July 2004. In the audited balance sheet of March 2004, the promoters' stake in the company was shown to be 66.22%, though PDB herself owned only 1260 shares in the company. At the time of her death, it has been pleaded in the original petition, she had control over 62.9% of the total paid up capital of the company.
3. On her death, dispute arose over succession of her estate, and several proceedings were taken out in connection with a will executed by her, the validity of which, however, was strongly disputed by the members of the different branches of the Birla family. RSL (since deceased) was the propounder of this will, and it appears that he was named as the executor as well as the principal beneficiary in the said will. Several orders have been passed in connection with these proceedings, which were instituted and are being continued in this Court in its Testamentary jurisdiction.
4. RSL died on 3 October 2008. During his lifetime, there was dispute over management of the estate of PBD, arising out of the will. An application was taken out before Probate Court for appointment of administrators over the estate of PDB. Initially an order was passed by an Hon'ble Single Judge appointing four Joint Administrator pendente lite, directing them to take charge and control of the shareholding of the deceased lady in the company. There were certain other directions issued in the order, which was passed on 19 May 2006. The order of appointment of the Administrator pendente lite over the controlling lot of shares of the companies of M.P. Birla group was subsequently set aside by an Hon'ble Appellate Bench of this Court in (A.P.O. No. 153 of 2006 arising out of P.L.A. No. 204 of 2004, T.S. No. 6 of 2004). Rajendra Singh Lodha Vs. Ajay Kumar Newar & Ors. on 11 October 2007.
5. After the death of RSL, RJM had filed an application before the CLB, in connection with the original petition being C.A. No. 534 of 2008. In this petition, prayer was made for restraining respondent no. 3 to 8 therein and the then existing Board of Directors of the Company from changing constitution and/or composition of the Board of Directors of the company in any manner. Further order was prayed for appointment of an independent Chairman in place of respondent no. 2 (i.e. RSL) with a corollary prayer for injunction restraining appointment of any Chairman of the Board of Directors of the respondent no. 1 or other shareholding companies in place and stead of the respondent no. 2.
6. On 15 October 2008, the Company Law Board passed an interim order in that application to the following effect:-
"Application mentioned, Counsel appearing for the respondent seek time to file reply to the same by 25th October 2008 and rejoinder by 2nd November 2008. The application will be heard on 5th November 2008 at 2.30 p.m. In the meanwhile, there shall be no Board Meeting in any of the Respondent Companies except that for the purpose of approving quarterly results, Board Meeting may be held, if required."
7. This order was appealed against before this Court. An Hon'ble Single Judge of this Court was pleased to set aside this order by an order passed on 24 October 2008 mainly on the ground that the said order was bereft of reasons. However, the company was permitted to conduct Board meeting, if any, without inclusion of any further Directors in the Board in place of its erstwhile Chairman Rajendra Singh Lodha until disposal of the application before the Company Law Board, in which the impugned order was passed. It was further specified in the order of this Court passed on 24 October 2008 that the Chairman of the Board meeting that was scheduled to be held in the later part of October 2008 was to be elected by the Board of Directors present in such meeting. That application, this Court is informed, is also still pending before the CLB.
8. It appears that on 3 July 2009 RJM received a notice convening the Annual General Meeting (AGM) of the Company which was scheduled to be held on 27 July 2009. It was after receipt of this notice, on or about 7 July 2009 RJM filed the application before the CLB, being C.A. No. 333 of 2009 primarily praying for freezing of voting rights in respect of promoters' shareholding of 62.9% in the ensuing AGM. Affidavits have been exchanged in that application between the main contesting parties as per the direction of the CLB in the said proceeding and substantial progress has been made in hearing of the said application.
9. The case of RJM in support of their claim for freezing of voting rights in respect of the 62.90% shares is that at all material time during the lifetime of PBD she was recognised as promoter of the company whereas RSL and HVL were described as the independent Directors. RJM's allegation against them is that they had illegally taken over control of the entire estate of PDB by illegally transmitting shares held by her in various companies. It was submitted on behalf of RJM that during the lifetime of RSL, there might have been an element of legitimacy, in his exercise of control over these shares as the executor named in the will of PDB. In this will, it has been further submitted on behalf of RJM, there was no other person named as executor. After the death of RSL the entire estate of PDB had become unprotected and legal heirs and representatives of RSL, it has been alleged, were trying to take control of the said estate. The case made out before the CLB was that in the absence of any administrator being appointed, legal heirs or representatives of RSL could not claim any right for control over the promoters' stake of 62.90% in the Company. On 22 July 2009, the CLB passed an interim order, which is under challenge in these three appeals. This order provides:-
"ORDER (Dated: 22.7.2009) During the arguments on the main petition, this application CA 333 of 2009 has been filed by the 6th petitioner, which is a corporate entity holding 260 shares in M/s Birla Corporation Limited (the company). It has filed this instant application seeking for freezing the voting rights of the shares held by respondents 9 to 24 and 26 to 34, which collectively account for over 62% shares in the company and for appointment of an independent Chairman to chair the AGM convened by the company on 27.7.2009. The counsel for the parties have extensively argued on this application for nearly 9 hours spreading over 3 days and completed the same only on 20.7.2009. Since the AGM is to be held on 27.7.2009, to give a reasoned order by dealing with all the factual and legal issues raised by the counsel, the time available for me is too short. Further, any decision in this application might also amount to giving a decision on the main petition itself, on which, arguments are yet to be completed. Therefore, for the time being, keeping the equities between parties in mind, I only propose to pass an interim order, which would not be prejudicial to the contention of either of the parties, and to reserve the final order along with the order on the main petition, the arguments on which would be completed by 25th/31st August, 2009. Accordingly I direct, that, in case poll is taken on any of the agenda items, then the voting by the above- mentioned respondents shall be counted separately and the results of the poll shall be determined with and without taking into account the votes of these respondents. However the results of the poll shall not be announced. The shareholders are free to elect anyone as the chairman except Harsh Lodha, to conduct the proceedings of the meeting. One of the representatives of the petitioner no. 6, as nominated by it, will be one of scrutinizers of the proxies. The chairman of the meeting shall submit a report on the proceedings of the AGM along with the results determined as above the poll, in a sealed cover, through the company secretary, on the day of hearing on 25th August 2009."
10. The case of the company and HVL, being the appellants in APOT No. 289 of 2009 and 297 of 2009 respectively is that no case had been made out in the subject application which would call for segregating the votes of their shareholders and for restraining HVL from acting as the chairman of the meeting. The main grievance of the RJM, being the appellants in APOT No. 292 of 2009 on the other hand is that the voting rights of the promoters' group ought to have been frozen as the shares through which such voting right was derived formed part of the estate of PDB. On her death and on subsequent death of RSL there was no legitimate person in control of such estate, and the estate, it was alleged, was in medio.
11. The company has been represented in these proceedings by Mr. Anindya Mitra, whereas HVL has been represented by Mr. P.C. Sen and Mr. Pratap Chatterjee has appeared for different companies and institutions who are shareholders of Birla Corporation. They have taken a common stand in their submissions. Mr. Samaraditya Pal, with Mr. Sudipto Sarkar have appeared on behalf of RJM. Mr. S. N. Mukherjee, have appeared for three other shareholders, whereas Mr. P. S. Sengupta argued for another shareholder (respondent no. 6 in APOT NO. 289 of 2009) of the company, who are all petitioners in the original petition. The arguments advanced by them also run on a common thread, in substance seeking freezing of voting rights in respect of the controlling block of 62.90% shares in the company.
12. In this judgment, I shall deal with the submissions of the contesting parties in a composite manner since though they have represented different individuals or entities, there have been many overlapping arguments on the part of the learned counsel appearing for the rival groups. I shall refer to the parties who have supported the stand of Birla Corporation Ltd. as the company, and the individuals who have supported the RJM's case as the applicants. Hearing of the A.P.O.T. No. 289 and 292 of 2009 was conducted simultaneously. Since the appeal of Birla Corporation was filed prior in point of time, I heard the learned counsel appearing in support of the company first and then the learned counsel for RJM and their supporting parties. As regards the appeal of Harsh Vardhan Lodha (APOT No. 297 of 2009), a preliminary objection was taken on its maintainability. After hearing the learned counsel appearing for the parties on this point, I held that the appeal was maintainable. Subsequently, the appeal was heard on 20 August 2009. Hearing of the appeal was concluded on that date itself, as most of the points urged in this appeal had already been argued in the two previous proceedings. HVL was impleaded as one of the respondents in both the appeals, and was represented by his learned counsel. Since arguments were advanced mainly on point of law in all the three appeals, formalities of filing of paperbooks or formal service of notice of appeal were dispensed with. An informal paper book however was filed on behalf of the appellants in APOT of 292 of 2009 containing relevant pleadings and orders, which were not included in the stay petitions taken out in connection with these appeals. The petitions seeking stay of operation of the order impugned were also not heard in isolation, as the appeals were taken up for hearing directly after admitting them.
13. The impugned order has been assailed by the company mainly on the ground that the same does not disclose any reason, and the same was passed by the CLB without coming to a finding as to whether a prima-facie case was made out or not for passing such interim order, and no irreparable loss and prejudice was shown or found by the CLB which could have been caused to RJM in the event such interim order was refused. It was also contended that the impugned order suffered from perversity.
14. Argument was advanced on the locus of Birla Corporation Ltd. (BCL) to maintain the appeal, and it was contended that the company could not be "aggrieved" to be entitled to prefer an appeal under Section 10F of the Act. In addition, substantial arguments have also been advanced on behalf of the learned counsel appearing for the respective parties touching upon the merits of the case as well. Submissions on merits of the case has been made in support of the arguments made on behalf of the company, HVL and the supporting shareholders of the company that the order is perverse. I have also been addressed on merit on the point that a prima facie case had been made out, by the learned counsel appearing for RJM and their supporting parties. In this judgment, I shall avoid expressing any opinion on merit of the case to the extent possible, as the CLB is in seisin of the matter, and hearing of the matter has progressed substantially before the CLB. I shall, however, address the issue of locus of the appellants, as also the legality of the interim order in greater detail, as these appeals involve adjudication on these two issues only.
15. Under the provisions of Section 10F of the Act, any person aggrieved by any decision or order of the CLB may prefer any appeal to this Court on any question of law arising out of such order. It was submitted on behalf of the applicants that a proceeding under the provisions of Sections 397 and 398 of the Act, the dispute in reality is between or among the shareholders, and a company is really not involved in such dispute. Two english authorities were relied upon in support of this argument, being Re: Crossmore Electrical and Civil Engineering Ltd. (1989 Butterworths Company Law Cases 137) and Re: a company (No.004502 of 1988), ex parte Johnson. (1992 Butterworths Company Law Cases 1992). In the case of Crossmore (supra), it was held:
"The company is a nominal party to the 459 petition, but in substance the dispute is between the two shareholders. It is a general principle of company law that the company's money should not be expended by the shareholders."
The other authorities relied upon on behalf of the applicants in support of their submissions that just because an order is passed a person cannot appeal against the order unless he is an aggrieved person. The authorities in support of this proposition are (i) In re Kitson (1911) 2 KB 109 (ii) Adi Pherozshah Vs. H M Seervai (AIR 1971 SC 385), (iii) Bar Council, Maharashtra Vs. M. V. Dhabolkar (AIR 1975 SC 2092), (iv) Thammanna Vs. K. Veera Reddy (AIR 1981 SC 116), (v) Banarasi Vs. Ram Phal (AIR 2003 SC 1989).
On behalf of the company, however, it has been contended that an interim order under Section 403 of the Act can be passed for regulating the conduct of the company's affairs only. If an order is passed regulating the affairs of the company, then the company having a distinct juridical entity would be entitled to prefer an appeal if they feel aggrieved by such order.
16. On a plain reading of the order, I find directions have been issued in the order primarily against the company, in connection with holding of the annual general meeting, which is the company's affair only. The case of Crossmore (supra) and exparte Johnson are on the question of expenditure to be made by legal expenses to defend action against them, which is not the grievance made out before me in course of these proceedings. None of these authorities cited on behalf of the applicants lay down in absolute term that a company cannot prefer an appeal against an order passed in a proceeding of this nature. As regards the proposition of law that an appeal can be maintained by an "aggrieved person"
only, that is too well established a proposition and does not require support of authorities. That is the requirement of Section 10F of the Act also. But who is an aggrieved person in a given context is to be ascertained from the nature of the order in the factual context of the case. In my opinion, since the order relates to regulating in certain manner the proceedings of the AGM of the company, the company, as a distinct juridical entity, can prefer an appeal against such order.
Thus, I decline to accept the argument made on behalf of the applicants that the company cannot be an aggrieved person to maintain the appeal.
17. The primary contention of the applicants in support of their prayer for freezing of voting rights of the controlling block of 62.90% shares is that in the absence of there being a valid owner having control over these shares, the voting right in connection with these shares was being usurped by the legal representatives of the RSL. Their main case is that after his death, the legal heirs of RSL cannot claim any right over the estate of PBD as executor, as the office of the executor is not heritable. The application was filed by RJM to protect the interest of the company from such usurpers, it was submitted, and till it is adjudicated by the Probate Court the manner in which the estate of PVD shall be managed, the voting rights over 62.90% of the paid up share capital of the company ought to have been frozen. I was informed that the question of appointment of Administrator over the estate of PBD subsequent to the death of RSL is now pending before the Probate Court.
18. Submissions on behalf of the company on the other hand has been that in a proceeding under Sections 397/398 of the Companies Act, what is examined is the affairs of the company, and not of their shareholders. In the event there are allegations against the affairs of the corporate or institutional shareholders of a company, that question cannot be raised in a proceeding concerning the company of which such entities are shareholders. The individual companies have a distinct juridical entity, and so long they have properly constituted Board of Directors, and in respect of non-corporate institutions managing bodies, voting rights of such institutions cannot be interfered with the decisions cited in support of this proposition are:
(i) Bacha F. Guzdar Vs. Commr. I.T. Bombay (AIR 1955 SC 74)
(ii) G. Kasturi & Anr. Vs. N. Murali & Ors. (74 CC 661)
(iii) Electric Corporation of India Vs. Secy. Revenue Deptt. Govt. of A.P. (1999) 4 SCC 458 Contention of that company is that if this distinction is not accepted, that would offend the provisions of Section 87 of the Act. It is the case of the company that the shareholders whose voting right is sought to be segregated by the order are all valid shareholders whose names appear in the register of members, and the CLB cannot direct separate counting of their votes.
19. Arguments were also advanced questioning the maintainability of the original petition itself, and it was submitted that the petition ought to have been dismissed as no case was made out for winding up of the company on just and equitable grounds. On the question of maintainability of the original petition, it was contended on behalf of the company that no case was made out that the affairs of the company was being conducted in such manner which was prejudicial to public interest or oppressive to any member of the company. Two decisions, being a judgment of the Hon'ble Supreme Court in the case of Rajamundry Electric Supply Corporation Ltd. Vs. Nageshwara Rao (AIR 1956 SC 213) and a decision of this Court, being Latika Rajya Lakshmi Vs. Indian Motor Co. (AIR 1962 CAL 129) have been cited in support of this proposition. It was submitted that an application had been taken out for dismissal of the original petition in the year 2004 on the ground of its non- maintainability. It was contended that without deciding that issue, the CLB ought not to have passed any interim order. The decision relied on in support of this submission is T. K. Lathika Vs. Seth Karandas Jamnadas (1999) 6 SCC
632. Question of malafide motive on the part of the applicants was raised, and relying on an english authority, Re: Bellador Silk Ltd. (1965) 1 AII ER 668, it was argued that no interim order ought to have been passed in the petition of RJM (i.e. CA 333 of 2009).
20. Learned counsel for the applicants on the other hand submitted that it is no more necessary that a case of winding up has to be made out on just and equitable ground to maintain an application under the provisions of Sections 397, 398 and 402 of the Act. The authorities relied on by him are (i) Kilpest Pvt. Ltd. & Ors. Vs. Shekhar Mehra (1996)10 SCC 696, (ii) Kamal Kumar Dutta & Anr. Vs. Ruby General Hospital & Ors. (2006) 7 SCC 613, (iii) M.S.D.C. Radharaman Vs. M.S.D. Chandrasekara Raja & Anr. (2008) 6 SCC 750 and a decision of the Hon'ble Bombay High Court in the case of Killick Nixon Ltd. Vs. Bank of India (57 CC 831).
21. This issue, however, relates to the merits of the original petition which is pending for more than four years, and several orders have been passed in that petition from time to time. In view of this, while examining the validity of an interim order passed in an interlocutory application taken out in connection with the main petition, I do not think it would be proper for me to adjudicate on this issue. Accordingly, I do not think it is necessary to consider the authorities cited on this point. This point may be urged before, and adjudicated by the CLB.
22. As it transpired in course of hearing, the main grievance of the company and HVL against the order impugned is that the CLB already considered and in substance decided that controlling shareholders form a separate block by segregating them from the other shareholders for the purpose of voting. It is submitted that this interim arrangement was made to freeze their voting rights eventually, without coming to any finding on the prima facie tenability of the applicants' claim. Further case of the company is that subsequent to the filing of the original petition, being C.P. 57 of 2004 four AGMs of the company has been held without any objection, and the business to be transacted in the proposed AGM are only routine matters like adopting of accounts, re-appointment of directors of the company, declaration of dividend etc. The order impugned in effect would destablise the affairs of the company, it was submitted by their learned counsel. In support of the submission of the unfettered rights of shareholders to vote, the authorities cited were:-
(i) LIC Vs. Escorts Ltd. (AIR 1986 SC 1370)
(ii) Andrew Yule & Co. Ltd. Vs. Descon Ltd. (2007) 3 CHN 287
(iii) Dinesh Vrajlal Lakhani Vs. Parke Davis (India) Ltd. (124 CC 728)
23. The learned counsel for the company further argued that the CLB ought not to have taken cognizance of the allegations made on behalf of RJM as the statements contained in the application (i.e. C.A. No. 333 of 2009) making such allegations were not verified as true to the knowledge of the deponent of the affidavit, but verified as mere submissions. This submission was founded on the ratio of two authorities, being A. K. K. Nambiar Vs. Union of India & Anr. (AIR 1970 SC 652) and A. C. Adhikary Vs. A. C. Ghosh (69 CWN 137).
24. If I make a subjective assessment of the degree of grievance that the rival parties have felt the impugned order has caused to them, from the thrust of the submissions made by the learned counsel appearing from them, I would conclude that the company has felt greater degree prejudice by this order. The applicants' case is that since the ownership question of the controlling group, who are exercising 62.90% voting right is "in medio", the CLB ought to have passed an order freezing their voting rights. Arguments on their behalf have been structured as if the CLB has granted lesser relief to them than they deserve, and has strongly supported the segregation of the voting rights. However, the Company's case is that segregating the shareholders is a step towards freezing of the voting rights of the controlling block itself. Moreover, mandating that HVL should not chair the meeting constitutes interference with the choice of the shareholders, and direction on appointment of scrutinizers also amounts to unnecessary interference with conducting of the AGM.
25. Justifying the locus of the applicants to approach the CLB with the original petition followed by the application out of which the present appeal arises, it has been submitted that no motive or personal prejudice is necessary to maintain an application under Sections 397/398. In the event, the applicants satisfy the qualification stipulated in Section 399 of the Act, it was submitted on their behalf that such proceeding would be maintainable. Reference was made on this point to a decision of the Bombay High Court in the case of Killick Nixon Ltd. Vs. Bank of India (1985) 54 CC 432, and the judgment of the Hon'ble Supreme Court in the case of J. P. Srivastava & Sons (P) Ltd. and Others Vs. Gwalior Sugar Co. Ltd. & Ors. reported in (2005)1 SCC 172. In this case, the Hon'ble Supreme Court held:-
"48. The object of prescribing a qualifying percentage of shares in the petitioners and their supporters to file petitions under Sections 397 and 398 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad common-sense approach. If the court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance with the rules read as a whole and no prejudice is caused....."
26. The main contention of the applicants on this count is that the question of personal grievance of the shareholders is of limited importance in a proceeding under the provisions of Sections 397/398 of the Act. If the applicants satisfy the requirement of qualifying shares, then their action has to be tested in the light of the interest of the company or beyond that, in public interest. As regards scope or power or jurisdiction of the CLB to pass orders three authorities have been relied upon to demonstrate that the Board is vested with wide power. These decisions are:-
(i) Debi Jhora Tea Co. Ltd. Vs. Barendra Krishna Bhowmick & Ors.
(50 CC 771)
(ii) Bennet Coleman & Co. Vs. Union of India & Ors. (1977 47 CC 92)
(iii) Amal Kumar Mukherjee Vs. Clarian Advertising Service Ltd. (52 CC 315)
27. On behalf of the company, it was contended that no interference with its management was called for at this stage since four annual general meetings have been held subsequent to the filing of the main petition without any objection and in the ensuing meeting also, no major business has been included in the agenda which would severely impact functioning of the company. In this regard, the following observation of an Hon'ble Division Bench of this Court in the judgment delivered in (A.P.O. No. 153 of 2006 arising out of P.L.A. No. 204 of 2004, Testamentary Suit No. 6 of 2004) Rajendra Singh Lodha Vs. Ajay Kumar Newar & Ors. on 11 October 2007 has been relied upon:
"We also cannot brush aside the opinion expressed by His Lordship when His Lordship has specifically came to the conclusion that "it is true at the present moment that mismanagement by Lodha has not surfaced the business of M.P. Birla Group of Companies and cannot be apparently put in perilous condition and not in serious jeopardy in the hands of Lodha"
This observation was made in the judgment by which the order of the Hon'ble Single Judge appointing Joint Administrator, pendenti lite over all the shareholding of PDB in all the companies was set aside.
28. To this submission, stand of RJM is that after the death of RSL, the position of the parties has undergone significant change. Moreover, it has been contended that the legal heirs and representatives of RSL are now taking a stand contrary to the earlier stand that RSL was having control over the estate as an Executor. In this regard, certain passages from an affidavit affirmed by one Pramod Kumar Chand filed on behalf of the company before the CLB in response to RJM's application (i.e. G.A. No. 333 of 2009) has been referred to, in which he stated:
".......I deny that the companies referred to as M.P. Birla Group of Companies held 62.9% of the total paid up share capital of the company as alleged or at all. I deny that PDB was in possession or control of the management and affairs of the Company. She was appointed a Director in the same way as all other directors of the Company and was unanimously appointed as Chairman of the Company....."
The statements made in this affidavit were adopted by HVL by filing an independent affidavit, and both these affidavits have been made annexures to the application taken out by RJM in connection with their appeal, being APOT No. 292 of 2009.
29. The main issue before the CLB in C. A. No. 333 of 2009 was the position of the companies and institutions forming a block controlling 62.90% of the paid up share capital, and whether they should be permitted to operate as individual entities and exercise their rights as shareholders through their managing bodies, or the Company Law Board should ascertain the persons who were actually controlling them, and decide on their voting rights after making an enquiry in that direction. In fact this controversy had reached this Court once earlier, arising out of a proceeding initiated by another set of shareholders before the CLB. That application was made before the CLB under Section 247(1A) read with Section 250 of the Companies Act. In this application, prayer was made for direction on the Central Government to appoint inspectors to investigate into the affairs of Birla Corporation as regards membership of the company, and other matters relating to the company, for the purpose of ascertaining the true persons who were financially interested in the success or failure of the company or were controlling the company. The CLB refused to pass such direction, and against such order of refusal, appeal was preferred before this Court under Section 10F of the Act. By an order passed on 24 August 2005, this appeal (APOT 421 of 2005) was dismissed. An Hon'ble Single Judge of this Court observed:
"In any event, as recorded in the order under appeal, both the parties proceeded on the basis, that Sri Lodha was in control. The learned Company Law Board found that there was no ground for investigation under Section 247 (1A) of the Act.
The learned Company Law Board rightly recorded the finding that the Estate of Late Priyamvada Birla was in control of the majority shares of the company. It was not necessary for the learned Company Law Board to record a finding on the true persons in control of the Estate of Late Priyamvada Birla or to order an investigation for the reasons discussed above, in view of the case made out by the parties. The observation of the learned Company Law Board that Section 247(1A) could not be invoked, to determine the persons entitled to control the Estate, which was in issue in this Court in its Testamentary Jurisdiction, does not call for interference in Appeal."
30. As I have observed earlier, submissions of the applicants has been that the situation has undergone substantial change on the death of Rajendra Singh Lodha, and hence RJM had made the application being CA 333 of 2009 before the CLB.
31. Reading of the order creates an impression that the CLB was in the process of examining the case of the rival parties, and since detailed arguments were advanced on behalf of the parties, it was not possible for the CLB to pass a detailed order at that stage, dealing with the question of freezing of the voting rights in the AGM, which was scheduled to be held after five days only. In that context, the CLB directed a functional arrangement to be maintained, till final order was passed. I have been informed by Mr. Mitra, learned Senior counsel appearing for the company that the meeting scheduled to be held on 27 July 2009 has been adjourned till 24 August 2009.
32. Both Mr. Sarkar and Mr. Mukherjee submitted that if that was the difficulty, the CLB could have directed adjournment of the AGM itself, as the last date for holding AGM of the Company is 31 October 2009. It was emphasised by Mr. Mukherjee that normal functioning of the Company would not have been disrupted in such a situation, as the Balance Sheet of the company could have been filed with the Registrar of Companies even without approval at an AGM of the company, and the same set of directors could have continued. Section 220 of the Companies Act was referred to in support of such contention, as also a decision of this Court reported in 1988 (1) CLT 61.
33. As regards the appeal filed by HVL, it was submitted on behalf of the applicants that he cannot be an aggrieved person because of an order restraining him from acting as a Chairman of the meeting. I was taken through Article 94 of the Articles of Association of the Company, which stipulates that Chairman of the Board of Directors of the Company ought to be the Chairman of the AGM. Further point taken on maintainability of the appeal of HVL was that since on 27 July 2009 the meeting was adjourned, the person who chaired the meeting ought to continue as the Chairman of the adjourned meeting as well. The decision of the Hon'ble Supreme Court in the case of Naresh Kumar Parti Vs. T. R. Tuli (1987 Supp. SCC 437) was cited to demonstrate that it was permissible for the CLB, as inheritor of the jurisdiction of the Company Court to pass an order on appointment of Chairman of the AGM of a company.
34. I do not think that an interim order can be sustained merely on the ground that a company would not suffer any prejudice by such order. An Hon'ble Division Bench of this court held in the case of Babulal Choukhani Vs. Western India Theaters Ltd. (XXVIII CC 565):
"This Court has previously on numerous occasions held that the principle on which it grants injunction is not that an injunction will not hurt a party against whom it is granted but it grants an injunction on the principle that the applicant for injunction must satisfy the Court that he has made out a case within the law to be clothed with an order of injunction from this Court..........."
Similar view has been expressed in a later judgment of this Court in the case of Phani Bhusan Vs. Sudhamoyee (1987 II CHN 49).
35. I shall proceed now to test the order on its own merit. But before I do so, I shall examine three issues, which it was argued on behalf of the company, goes to the very root of these proceedings. The first issue is as to whether an interim order could be passed in an application, the dismissal of which has been applied for on a demurrer point. The authority relied on in support of this submission is the case of T. K. Lathika (supra). But this judgment does not lay down the law that in every case where the question of maintainability is taken, that question has to decide first before passing any interim order. This judgment was delivered in the context of a dispute between a landlord and tenant, and the application of the landlord for eviction was contested of the ground of maintainability in view of certain statutory prohibition on filing of such application. In the light of these facts, the Hon'ble Supreme Court held:
"....The High Court should have first decided the question of maintainability of the petition and only if that point was found in the affirmative the merits need have been gone into."
36. The second objection was taken on the ground of improper verification, and I have referred to the two authorities which were cited on behalf of the company on this issue. The learned counsel for the applicants have referred to the decision of the Hon'ble Supreme Court in the case of Vidyabati Gupta Vs. Bhakti Hari Nayak (2006) 2 SCC 777 to contend that these are all procedural matters and are curable defects. In my opinion, however, this question touches on the merit of the case to a great degree, and on this count alone, while testing the validity of an ad interim order, I do not think I should come to a finding as to whether the application was properly verified or not. Part of the petition has been verified from personal knowledge of the deponent of the affidavit in support of the application being C. A. No. 333 of 2009 and part of it has been verified as his submissions. A detailed analysis of this affidavit is necessary to ascertain as to whether the applicant would be entitled to relief on the basis of such affidavit. It is not the case of the company that the entire pleadings remain improperly verified. While I agree with the authorities relied upon in support of the submissions of the Company, I do not think it can be held at this stage by me that the entire application is not maintainable for improper verification, in exercise of my jurisdiction under Section 10F of the Act. This question should be left to be determined by the CLB.
37. The third point taken, again touching upon the merit of the case, is that the CLB does not have jurisdiction to pass an interim order of this nature, as the jurisdiction of the CLB to pass interim order under Section 403 of the Act is much narrower than its jurisdiction to pass final order in terms of Sections 397, 398 and 402 of the Act. The jurisdiction of the CLB to pass orders on who should act as Chairman was questioned, and it was submitted, relying on a decision of the Hon'ble Supreme Court in the case of R. Rangachari Vs. S. Suppiah (45 CC
641) and a decision of the Hon'ble Bombay High Court in the case of Kishore Y. Patel Vs. Patel Engineering Co. Ltd. (1979 CC 53) that no such order could be passed. Argument on this point was that Court can pass orders on the question as to who could be a Chairman only if the meeting of the Company is ordered by the Court. The CLB ought to suffer from the same limitation while considering a controversy on this issue.
38. I shall express my prima facie opinion on this issue, as it is the CLB who ought to adjudicate on this issue. I would have avoided expressing my prima facie view also on this point, which I have done and propose to do on various other issues which are intricately linked with the merit of the case, but since in the interim order certain directions have been issued restraining Harsh Vardhan Lodha acting as a Chairman, formation of prima facie opinion on jurisdiction of the CLB to pass such an order becomes necessary.
Both the judgments referred to on this point deal with a situation where an independent Chairman was directed to be appointed by the Court, in a situation where the Court did not order holding of the meeting. In the interim order, however, the CLB has not directed an independent person to chair the meeting, but restrained only one individual from acting as Chairman of the meeting. In the order passed by an Hon'ble Single Judge of this Court on 24 October 2008, an order was passed restraining appointment of any Chairman of the Board of Directors in place of its erstwhile Chairman. I do not find any fundamental flaw in passing such a restraint order, as the decision to elect Chairman of the meeting has been rested on the shareholders only.
However, on the question of entitlement of Harsh Vardhan Lodha to act as Chairman in the light of Clause 94 of the Articles of the Company, I do not express any opinion, as it would be for the CLB to take final decision on that point.
39. Substantial argument was also advanced as to whether the management of an estate can be subject of an enquiry and adjudication in a proceeding of this nature on the ground that the controlling block of shareholdings of a company has no valid owner. Various authorities were cited by the learned counsel appearing for the respective parties on this count. I am of the view, however, that this issue has also to be left to be decided by the CLB and I refrain from expressing my own opinion on this issue at this stage. Even forming of prima- facie opinion on this issue in my view is to be avoided, since for the adjudication of these three appeals, I do not consider it necessary to examine that issue even at the prima-facie level. Thus I am not referring to any of the authorities cited on this issue.
40. It was also argued that RJM has very insignificant shareholding in the company. But that factor I do not think is of much relevance in the present proceeding, as the applicants of the original petition satisfied the qualification test. On this point, the decision reported in AIR 1956 SC 213 is relevant.
41. I have already discussed briefly the factual context of the case to examine the question as to whether the proceeding initiated by the applicants were of such nature that the CLB inherently lacked jurisdiction to entertain the same. My prima facie view on this point is that there was no inherent lack of jurisdiction. That question is pending for adjudication before the CLB. As regards my own jurisdiction, as an appellate forum under Section 10F of the Act, to test the validity of the order, on behalf of the applicants it was submitted that I should not interfere with the interim order passed by the CLB, which is a specialised body, exercising its discretion. The decision relied on in support of this submission is a judgment of the Hon'ble Supreme Court delivered in the case of Union of India Vs. Swadeshi Cotton Mills Co. Ltd. (AIR 1978 SC 1818). The order of the CLB was also sought to be sustained on the ground that it had merely directed preservation of status quo, and the authority cited on this count is the case of Kilhoto Hollohan Vs. Zachillu [(1992) Suppl. 2 SCC 717].
42. I accept the proposition of law laid down in both these judgments, which are binding authorities for this Court. None of these authorities, however, exclude altogether the jurisdiction of the Court vested in it under Section 10F of the Act to test the validity of an interim order passed by the CLB in a proceeding of this nature. Such interference is permissible on the ground of perversity. Some factual enquiry is also permissible, to test if an order suffers from perversity or not. It has been held by the Hon'ble Supreme Court in the case of Dale and Carrington Invt. P. Ltd. Vs. P.K. Prathapan (122 CC 161).
"It is selled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law."
43. In this case, the company has assailed the interim order on the ground that the order lacks reason and the CLB passed the order without formation of opinion on subsistence of a prima facie case. The applicants have founded their defence of the order on four planks. First, it has been argued that the order contains reasons. The alternative argument is that even if the order does not disclose reasons, this deficiency, by itself would not result in invalidation of the order. Six judgments have been cited in support of the proposition of law that an order without reasons can be sustained, being (i) Printers (Mys) Private Ltd. Vs. P. Joseph (AIR 1960 SC 1156), (ii) K. Venkatramiah Vs. Seetharama Reddy (AIR SC 1963), (iii) Woolcombers of India Vs. Their Workmen (air 1973 SC 2758), (iv) Gujarat Steel Tubes Ltd. Vs. Its Mazdoor Sabha (AIR 1980 SC 1896), (v) Collector of Customs Vs. Biswanath Mukherjee (1974 Cal LJ 251) and (vi) NEPC Micon Limited Vs. Magma Leasing Limited and Another. [CAL LT 1999(2) HC 347]. Submissions on this count have been that the Court itself could ascertain whether there were reasons for passing such order. A decision of the Hon'ble Delhi High Court in the case of Palm Print Textiles (India) Ltd. & Anr. Vs. British Millerain Co. Ltd. (AIR 2000 Del 497) was referred to, and it was contended that reasons could always be supplied at a later stage. Third submission on behalf of the applicants, on prima-facie case is that even if there is no specific recordal that the CLB is prima facie satisfied of the case of the petitioners, the appellate forum could itself ascertain from the order itself if there was application of mind of the Court of first instance in that regard, and consequential satisfaction on a prima facie case being made out. It was also contended that it was not necessary that prima facie case should be established to obtain an interim order. If the Court was satisfied that there was a bonafide contention between the parties, or there was a fair and substantial question to be decided as to what the rights of the parties were, an order for interim injunction could be passed. Three judgments were referred to on this point, being (i) Israel Vs. Samset Rahman (AIR 1914 Cal 362), (ii) Dorab Cawasji Warden Vs. Coomi Sorab Warden (AIR 1990 SC 867) and (iii) American Cyanamide Co. Vs. Ethicon Ltd. [(1975) 1 All ER 504)].
44. I shall first decide the question as to whether the impugned order is backed up by reasons or not. The order has its impact on the proposed AGM in three ways. First is that votes have been directed to be counted in the event poll is taken on any of the agenda items separately, segregating the controlling block from the rest of the shareholders. Then there is a direction that HVL would not be elected as Chairman of the meeting, and the third directions is that one of the scrutinizers would have to be a representative of the petitioner no. 6. The reasons which were required to be disclosed in the order, in my opinion, were as to why this arrangement was being directed, which would result in deviation from the normal course which are pursued in respect of an AGM of a public limited company. Reasons supplied in the order, instead, are as to why a detailed order could not be passed, and as to how this order would not prejudice any of the parties. This, I am of the view, does not constitute "reasons". The decision reported in AIR 2002 Del 497 also does not assist the case of the applicants.
45. Six decisions were cited on behalf of the applicants in which order passed by a judicial or a quasi-judicial authority without being supported with reason. The case of Printers (Mys) arise out of Arbitration Act, 1940, and is not an authority which lays down an unreasoned order is sustainable. The decision in K. Venkataramiah, is in respect of an order passed under Order 41, Rule 27(2) of the Code of Civil Procedure, by which additional evidence was allowed to be admitted, and it was held that the requirement in the Code to record reasons for allowing additional evidence was directory. The factual context of this case is entirely different from the present proceeding. In Woolcombers of India Vs. their Workers' Union (supra) the necessity of recording reasons was elaborately discussed, but it was held that an award under the Industrial Disputes Act could not be set aside simply because of absence of reasons, if there was evidence on record in support of the Tribunal's finding. The case of Gujarat Steel Tubes (supra) is on the point of jurisdiction of the Writ Court over an Arbitrator under the Industrial Disputes Act, 1947. This judgment does not lay down any legal principle that an order could be passed without reasons. Collector of Customs Vs. Biswanath Mukherjee is a case arising out of service dispute, and the main issue in that case was the validity of an enquiry proceeding. The legality of an unreasoned order was not in issue in this case. In the decision of this Court in NEPC Micon Ltd., the issue was whether a Judge on the Original Side of this Court is required to give reasons in support of an ex-parte order. Considering the provisions of the Letters Patent and Original Side Rules, it was held that there was no such requirement. The other case cited on the same point is Sarat Kumar Dash Vs. Biswajit Patnaik (1995) Supp. (1) SCC 434). In this case also, importance of disclosure of reasons was highlighted, but it was held that in a selection process for promotion, being conducted on the basis of a given criteria, the Public Service Commission need not give reasons, and appointments made on the basis of the recommendation of such Commission also need not be supported by reasons.
46. The factual context of the present case is, however, entirely different, where an interim order of the CLB is being tested. There are two judgments of benches of coordinate strength on this very issue, being a reported decision in the case of Uniworth Resorts Ltd. [2007(4) CHN 712] and an unreported judgment of this Court delivered on 24 October 2008 in T. No. 108 of 2008 in a case involving the very same parties, Birla Corporation Ltd. Vs. Rameshwara Jute Mills Co. Ltd. & Ors. in which the orders of the CLB were set aside, being bereft of reasons. I accordingly hold that an order of the CLB affecting the rights of the parties before it is required to be supported by reasons to be sustainable. The reasons need not be voluminous, but would be assessed in terms of quality. If reasons are not given, such order could not be sustainable merely on the ground that it causes no prejudice to the parties.
47. Now I shall address the issue of prima facie case. Arguments were advanced on behalf of RJM and the applicants that there is no requirement to establish a prima facie case, but if it is demonstrated that there is a fair and substantial question to be decided as to what the rights of parties are, then a temporary injunction could be granted. This was held in the case of Israel Vs. Samset Rahman (supra). The temporary injunction was granted in that case to prevent construction on certain land jointly owned, in which one of the co- sharers was making construction.
48. This order was passed primarily to preserve the character of the land, to maintain status quo. But in the order passed, the CLB has gone a degree beyond maintaining the status quo, by issuing certain directions as regards holding of the AGM. In the order, there is no reflection that he was satisfied, even on the question that fair and substantial questions were to be decided as to what the rights of the parties are. Even if I proceed on the basis that there is no requirement to mechanically reproduce the expression "there are fair and substantial questions to be decided" or that "there is a prima facie case", satisfaction on such issues is a mental exercise and the very fact that such exercise was undertaken ought to be reflected in the order itself. On a plain reading of the order, it appears that this mental exercise was postponed, and the CLB straightaway considered the question of balance of convenience of the parties. I also do not think that in exercise of jurisdiction under Section 10F of the Act, which vests this Court with the jurisdiction to test an order of the CLB on points of law, I ought to enter into an enquiry on the question as to whether prima facie case was made out before the CLB or not, even if the order does not record any such exercise on the part of the CLB.
49. But what does the expression "there is a fair and substantial question to be determined" imply? Does it just mean that a suit is maintainable, in that it can survive a proceeding for dismissal on a demurrer point? I do not think so. If that was the principle of law, in that event in every suit which was capable of being tried, and not liable to be dismissed in a proceeding in the nature of an application under Order 7 Rule 11 of the Code, prayer for temporary injunction would have to be routinely entertained, applying the "causes no prejudice"
principle. As held in the case of Babulal Choukhani (supra), that approach is not permissible. In my view, to decide as to whether in a suit there is a substantial question to be examined or not, the Court has to engage itself in a preliminary enquiry as regards the chance of ultimate success of a litigant in the suit. The temporary injunction could be granted on the basis of the Court's own preliminary assessment of the plaintiff's chance of success. The expression "prima-facie case" also conveys the same meaning, except to come to a finding that a "prima-facie has been made out", in the preliminary assessment of the Court, the chance of success possibly would have to be a shade deeper, or a degree higher. This preliminary enquiry a Court would have to conduct while examining a prayer for temporary injunction, and only if the Court finds that there is a chance of success, then the Court would have to consider the two other factors, the test of balance of convenience and the possibility of irreparable loss and injury. I have analysed the scope of grant of temporary injunction in relation to civil suits, as most of the authorities cited before me on this score relate to civil suits. The same principle, however, would apply to a proceeding before the CLB, in which the question of grant to interim order is involved under Section 403 of the Act.
50. The question as to whether establishing "fair and substantial case" would be necessary, or satisfaction would have to be on "prima facie case" depends on the nature of the order prayed for before the Court or Tribunal. In fact, there is a later authority require establishing "prima facie" case (Dalpat Kumar Vs. Prahlad Singh (AIR 1993 SC 276). In my own view, the satisfaction on "fair and substantial question to be tried" or "prima facie case" would depend on whether the order is prayed for purely preservation of status quo, or some further direction beyond the conditions exist on the given date. For the former situation, satisfaction on "fair and substantial question to be tried" would be sufficient to pass an order of status quo. Otherwise, prima facie case would have to be established. While passing the interim order, I find the CLB has not addressed this issue at all.
51. Accordingly, because of non-disclosure of reason, and not considering the question of prima facie case, in my opinion the impugned order suffers from perversity. Thus, the interim order cannot be sustained.
52. I am also of the opinion that if I set aside the interim order without issuing any further direction, that would be unfair to RJM as their prayer for interim order would altogether go unaddressed. RJM has sought for freezing of voting right of the controlling group, and relied on the decision of Shirish Finance and Investment P. Ltd. Vs. M. Sreenivasulu Reddy (109 CC 913) to establish that it is permissible for the CLB to pass such an order. I do not express any opinion on merit of such claim, but I am of the view that RJM is entitled to have this question examined by the CLB. I have been informed by the learned counsel for the company that the AGM, which was scheduled to be held on 27 July 2009 has been adjourned till 24 August 2009. I am of the opinion that the AGM ought to be adjourned for a further period of four weeks so that the CLB can examine the issue and give its decision, whether final or interim, after considering the comparative strength of the case of the respective parties.
53. I accordingly set aside the order passed by the CLB, I also direct the Company (Birla Corporation Ltd.) to adjourn the AGM scheduled to be held on 24 August 2009 by a further period of four weeks. I further request the CLB to conclude the hearing and decide the issue, preferably within a period of three weeks. If the final order cannot be passed, then the CLB will consider the questions raised in RJM's petition, being CA 333 of 2009 and pass an appropriate interlocutory order within the time prescribed above.
54. All the three appeals and the connected applications stand disposed of in the above terms.
55. There shall, however, be no order as to costs.
(ANIRUDDHA BOSE, J.) Later:
Let an urgent Photostat certified copy of the order be supplied to the parties, if applied for, upon compliance with all requisite formalities.
(ANIRUDDHA BOSE, J.)