Chattisgarh High Court
Jagdish Singh Saini And Ors vs M/S G. P. Ispat Private Limited And Ors on 4 July, 2024
Author: Rajani Dubey
Bench: Rajani Dubey
Neutral Citation
2024:CGHC:23767
1
NAFR
HIGH COURT OF CHHATTISGARH, BILASPUR
Judgment reserved on : 21.03.2024
Judgment delivered on : 04.07.2024
Misc. Appeal No. 62 of 2015
1. Jagdish Singh Saini (wrongly mentioned as Jadish Singh Saini),
S/o Shri Trilok Singh Saini, aged about 61 years, R/o HIG-10,
Tatibandh, Raipur, P.S. Telibandha, Raipur, District - Raipur,
Chhattisgarh.
2. Charanjeet Singh Saini, S/o Jagdish Singh Saini, aged about 35
years, R/o HIG-10, Tatibandh, Raipur, P.S. Telibandha, Raipur,
District - Raipur, Chhattisgarh.
3. Sunny Saini, S/o Jagdish Singh Saini, aged about 30 years, R/o
HIG-10, Tatibandh, Raipur, P.S. Telibandha, Raipur, District -
Raipur, Chhattisgarh.
---- Appellants
Versus
1. M/s GP Ispat Private Limited, through its Director, A company
incorporated under the provisions of the Companies Act,1956,
Plot No.688-693, Urla Industrial Growth Centre, Raipur,
Chhattisgarh, 492001.
2. Shri Pritpal Singh Chandhok, S/o Shri Harbans Singh, Pritpal
Farm House, VIP Road, Raipur, Chhattisgarh, 492015.
3. Shri Gurpreet Singh Chandhok, S/o Shri Pritpal Singh
Chandhok, Pritpal Farm House, VIP Road, Raipur,
Chhattisgarh, 492015.
4. Shri Dinesh Kumar Shukla, S/o Shri Ram Prakash Shukla, LIG
853, MPHB, Tatibandh, Raipur, Chhattisgarh, 492009.
Neutral Citation
2024:CGHC:23767
2
5. State Bank of India, SME Branch Premises, Byron Bazar,
Raipur, Chhattisgarh, 492001.
6. Shri Amarpreet Singh Chandhok, S/o Shri Pritpal Singh
Chandhok, S/o Shri Harbans Singh, Pritpal Farm House, VIP
Road, Raipur, Chhattisgarh.
---- Respondents
For Appellants : Mr. Ankit Singhal, Advocate.
For Respondent No.1 to 3 & 6 : Mr. Sumit Nema, Sr.Adv. with Mr.
Anand Dadariya, Advocate.
For Respondent No.4 : None though served.
For Respondent No.5 : Mr. Abhishek Sinha, Sr. Adv. with
Mr. Ghanshyam Patel, Advocate.
Hon'ble Smt. Justice Rajani Dubey
CAV JUDGMENT
The present appeal has been filed by the appellants under Section 10F of the Companies Act,1956 against the judgment and order dated 19.2.2015 passed by learned Member, Company Law Board, Mumbai Bench, Mumbai whereby the company petition filed by the appellants under Sections 397, 398 read with 402 of the Companies Act,1956 was dismissed as not maintainable as also on merits.
02. Facts, in brief, as mentioned in the appeal are that M/s GP Ispat Pvt. Ltd., respondent No.1 Company, was incorporated on 21.1.2004 under the provisions of Companies Act, 1956, having its registered office at Plot No.688-893, Urla Industrial Growth Centre, Raipur (CG) and it is carrying on business in all kinds of ferrous or non ferrous Neutral Citation 2024:CGHC:23767 3 metals and presently engaged in manufacturing of sponge iron, pig iron, cast iron etc vide Memorandum of Association (Annexure A/2). The appellants herein were members of the respondent No.1/company and were holding 7,35,500, 2,30,000 and 2,55,875 equity shares of Rs.10 each respectively. Respondents No.2, 3, 4 & 6 are said to be directors of the company (hereinafter referred to as respondent group) whereas respondent No.5/SBI is the secured creditor who advanced various financial facilities to respondent No.1/company.
In the year 2011 the respondent group started exerting pressure on the appellants to go out of the respondent company without making payment of the fair value of shares held by them in the company and insisted on their resignation. Pursuant thereto, appellant No.3 submitted his resignation as a Director on 4.1.2011, followed by appellants No. 1 & 2 on 5.10.2011 and thereafter they stopped attending the day to day affairs and management of the company and waited for fair compensation of net worth at market value on account of their 50% shares in the company. However, the respondents did not pay any compensation to the appellants and after much persuasions, respondents No. 2 & 3 and others entered into a Memorandum of Understanding (MoU) on 1.1.2012 containing certain terms and conditions vide Annexure A/3. However, payment due under the said MoU in the sum of Rs. 4 crores and further monthly payment of Rs.5 lacs and repayment of loan, amounting to Rs.2,99,98,234/- together with interest at the rate of 15% p.a. is still outstanding despite the fact that period stipulated in the MoU has already expired on 31.12.2012. Since the respondent group has not fulfilled their obligation under the Neutral Citation 2024:CGHC:23767 4 MoU, these documents are of no legal effect and the appellants still continue to be the shareholders of the company.
03. In the backdrop of the above, the appellants filed a petition under Sections 397, 398 read with 402 and 403 of the Companies Act, 1956 (in short "the Act of 1956") before the Company Law Board, Mumbai Bench alleging various acts of oppression and mismanagement committed by respondents No. 1 to 4 & 6 in the conduct of affairs of respondent No.1/company. The respondents filed their reply to the said petition and denied the allegations made by the appellants. In their reply, they raised a preliminary objection regarding mis-joinder and non-joinder of necessary party and maintainability of the petition. However, by the impugned judgment and order dated 19.2.2015, the learned Member of Company Law Board dismissed the petition as not maintainable. While dismissing the company petition as not maintainable, the learned Member travelled beyond its jurisdiction and decided the petition on merit also and held that the appellants have failed to establish the case of oppression and mismanagement in conduct of affairs of respondent No.1/company. Hence this appeal.
04. Learned counsel for the appellant submits that the impugned judgment is erroneous, arbitrary, illegal and bad in law and as such, liable to be set aside. The Company Law Board (in short "CLB") was not justified in dismissing the petition as not maintainable. Due to non- compliance of terms of MoU dated 1.1.2012 the appellants were still continuing to be the shareholders of the company and being shareholders, they have every right to seek relief on the basis of terms Neutral Citation 2024:CGHC:23767 5 of MoU before the CLB by filing a petition under Section 397/398 of the Act of 1956 for the act of oppression and mismanagement in the affairs of respondent No.1/company. Further, the CLB has committed a grave legal error by deciding the petition on merit once it was held to be not maintainable. While deciding the petition on merit, the CLB has recorded certain findings of fact which are beyond its jurisdiction and thus it was not open for the CLB to reject the petition as not maintainable on the one hand and decide the same on merit on the other hand. Further, the CLB was not justified in holding that the petition was bad for non-joinder of necessary party i.e. M/s Chandhok Steel & Infrastructure Pvt. Ltd. (CSIPL) and M/s Saini Industries Ltd. He submits that the petition was filed with regard to disputes inter se between the shareholders and the persons managing the affairs of respondent No.1/company and neither CSIPL and M/s Saini Industries Ltd. were shareholders nor directors on the Board of the company and therefore, their non-impleadment in the petition is not fatal and the petition cannot be dismissed on this ground.
So far as the finding recorded by the CLB that the appellants have not approached the Board with clean hands is concerned, the said finding is imaginary and does not cite a single example in support of the same. The facts regarding loan from respondent No.5/SBI and pendency of proceedings under SARFAESI Act were not germane to the disputes raised in the petition and therefore, the appellants were not guilty of any act of suppression of material facts and documents. The Board has also recorded an erroneous finding that the petition filed by the appellants is for collateral purpose whereas the petition was Neutral Citation 2024:CGHC:23767 6 filed for enforcement of MoU dated 1.1.2012 which is a shareholders' agreement where all the shareholders have signed the same and the MoU has been admitted by the respondents and remedy for dishonour of shareholders' agreement is well within the scope of minority oppression covered by Section 397 to 402 of the Act of 1956 and thus, the petition was correctly filed before the competent authority.
05. Learned counsel for the appellants would next submit that the CLB failed to appreciate that MoU is a qua-member and non- implementation of MoU falls within the jurisdiction of CLB under Section 402(d) of the Act of 1956 which empowers the Board to deal with the agreements and thus, the finding of CLB that the relief claimed in the petition cannot be granted by the Board in exercise of powers u/s 402 of the Act of 1956 is erroneous. The CBL has recorded a categorical finding that the respondents have failed to show that any notice was served upon the appellants for attending the meeting of Board of Company on 3.10.2011 when additional allotment of share took place, however, it further held that the said act would not amount to oppression as the appellants might not be interested in attending the meeting. The said finding is perverse, arbitrary and illegal, as such liable to be set aside. The CLB failed to see that the respondents have not only violated the provisions of the Act of 1956 but also committed various criminal and economic offences which forced the appellants to make applications to the police against their criminal act.
06. Learned counsel for the appellants would further contend that the CLB failed to appreciate that according to the respondents they Neutral Citation 2024:CGHC:23767 7 have paid the consideration to the appellants for transfer of their shareholding by way of payment to the creditors of M/s Saini Industries Ltd. pursuant to order passed by CG Steel Chamber, Raipur whereas M/s Saini Industries Ltd. is a separate entity and has nothing to do with shareholding of the appellants in respondent No.1/company. Further, CG Steel Chamber has no authority of law to pass any order directing M/s Saini Industries Ltd. to pay any money to its creditors. The impugned judgment has been passed in an arbitrary and illegal manner, without due application of mind and de horse the principles of natural justice, hence it is liable to be set aside and the appellants be granted the reliefs as claimed in Company Petition No.26/2013 by imposing exemplary costs on the respondents.
Reliance has been placed on the decisions of the Hon'ble Supreme Court in the matters of JP Srivastava & Sons (P) Ltd. and others Vs. Gwalior Sugar Co. Ltd & others, (2005) 1 SCC 172; Dale & Carrington Invt. (P) Ltd. and another Vs. PK Prathapan and others, (2005) 1 SCC 212; Govindaraju Vs. Mariamman, (2005) 2 SCC 500; Ramesh B Desai and others Vs. Bipin Vadilal Mehta and others, (2006) 5 SCC 638; VS Krishnan and others Vs. Westfort Hi- tech Hospital Ltd. & others and other connected matters, (2008) 3 SCC 363; and Purnima Manthena and another Vs. Renuka Datla and others and other connected matters, (2016) 1 SCC 237.
07. On the other hand, learned counsel for respondents No. 1 to 3 & 6 supporting the impugned judgment submits that the learned CLB has rightly proceeded to decide the preliminary issue of maintainability Neutral Citation 2024:CGHC:23767 8 along with other relevant issues so as to avoid delaying the process as is evident from paras 46 to 59 of the impugned judgment. Further, relying upon the judgment of the Hon'ble Supreme Court, vide paras 45 to 48 of the impugned judgment, the learned CLB rightly dismissed the petition on the ground that enforcement of MoU dated 1.1.2012 cannot be claimed as a relief in a petition filed under Sections 397 & 398 of the Companies Act. Hence there being no illegality or perversity in the impugned judgment, the present appeal is liable to be dismissed.
Reliance has been placed on the decision of the Hon'ble Apex Court in the matters of DP Maheshwari Vs. Delhi Administration and others, (1983) 4 SCC 293; Ramesh Chandra Sankla Vs. Vikram Cement, (2008) 14 SCC 58; and Chatterjee Petrochem Pvt. Ltd. Vs. Haldia Petrochemicals Ltd. and others (2011) 10 SCC 466.
08. Learned counsel appearing for respondent No.5/SBI submits that respondent No.5 is not a necessary and proper party in this case as the appellants have not produced any particular document or evidence to support their allegations of collusion of the officers of the bank with the respondent group. The account of the company has been classified as NPA and the bank has invoked its rights under SARFAESI Act and the rules made thereunder and has proceeded to recover its dues in accordance with law. Therefore, the present appeal is liable to be dismissed as against respondent No.5.
09. Heard learned counsel for the parties and perused the material available on record.
Neutral Citation 2024:CGHC:23767 9
10. This appeal was admitted on 28.7.2017 for hearing on the following substantial question of law:
"Whether the Member of Company Law Board, Mumbai is justified in dismissing the company petition filed by the appellants under Sections 397/398 read with 402 of Companies Act is not maintainable and also simultaneously holding on merit that the appellants are not entitled for any relief?"
11. The main objection of the appellants is that the impugned order is erroneous and illegal for the reason that the learned CLB, on the one hand, dismissed the petition as not maintainable and on the other, simultaneously entertained it on merits also. However, looking to the impugned order it is clear that the learned CLB appreciated the terms and conditions of MoU and rival submission of both the parties and observed in paras 52, 58 & 59 of the impugned order as under
"52. Having given my thoughtful consideration to the above said explanations offered on behalf of the Respondents, in my view, there is no substance in the Petitioners allegations as to allotment of additional shares to the Respondent Group with malafide purpose to gain control over the Management of the Company. It is not in dispute that the Petitioners wanted to exit from the Company and the discussions and deliberations were going on prior to entering into the MOU dated 1/01/2012. Taking into consideration the fact that the Petitioners on one side were trying to dispose off their shares, and they were planning to exit from the Company on the other side, it can safely be presumed that they might not be interested in acquiring further shares. It is also apparent on a perusal of the relief clause of the Petition that the Petitioners nowhere have Neutral Citation 2024:CGHC:23767 10 sought allotment of proportionate shares in their favour. They have simply sought declaration to the effect that the allotment of further shares was void. This shows the frame of mind of the Petitioners that they were not inclined to subscribe further shares. It is further a settled law that if further allotment of shares has been made by the Company for its benefit and for right purpose, even if the allotment of further shares is strictly not in accordance with law or is terms of the Articles of Association of the Company, the same cannot be said to be an act of oppression. Here, the undisputed fact that the Respondent Group had to pay a huge sum to the Creditors of M/s Saini Industries Ltd. has also to be kept in mind. Therefore, the argument advanced on behalf of the Respondent Group that Company in fact needed additional funds and therefore, there was a bonafide need to allot further shares-in-question to raise the capital for smooth running of the Company affairs appears correct. It is although correct that the Respondents have failed to show that any notice was served upon the Petitioners inviting them to attend the meeting of Board of Company on 3/10/2011, as sought to be contended by them, and it is also established that they were not offered the proportionate shares as required in law, yet, looking to the fact that the Petitioners had decided to exit from the Company during the relevant period, in my opinion, the alleged decision of allotment of further shares of the Company, without the consent and knowledge of the Petitioner Nos. 1 and 2, cannot be said as an act of oppression. The aforesaid issue is, therefore, answered accordingly.
"58. In so far as the allegations with respect to the alleged violation of Central Excise Act are concerned, they are pending with the competent authority and there is nothing on record to suggest that the Respondent Group Neutral Citation 2024:CGHC:23767 11 has manipulated the Company's record or documents. This complaint is also has no substance and liable to be rejected. It is rejected accordingly.
59. Taking into consideration the stock of facts and circumstances of the case, I conclude that the petition is not maintainable for the reasons. mentioned hereinabove. Further, on merits also, the Petitioners have failed to establish the case of oppression and mismanagement in the conduct of the affairs of the Company. I, therefore, think that no useful purpose would be served even if the impleadment of M/s Saini Industries Ltd. being a necessary party is directed. In the result, the petition fails. I have also considered the prayers as contained in the C.A No. 160 of 2013. Based on the above discussion, the prayers made therein may be allowed. Order is as follows:-
Order
1. C.P. is dismissed.
2. Ad-interim order stands vacated. C.A. No.160/2013 stands disposed off.
3. No order as to costs.
4 Copy of the order be circulated to the parties as per rule."
12. The Hon'ble Supreme Court in the matter of Ramesh Chandra Sankla (supra) observed from paras 63 to 68 of its judgment as under:
[ "63. On the facts of the case, however, we are unable to uphold the argument on behalf of the workmen that the Company did not want to prosecute the petitions and had given up its claim against the order passed by the Labour Court and confirmed by the Industrial Court. The record reveals that the Company filed one writ petition against one employee which was registered as Writ Petition No. 3060 of 2005. It also filed another petition against the remaining employees (236) which was registered as Writ Petition No.3471 of 2005. Since the other petition was against Neutral Citation 2024:CGHC:23767 12 several employees, the Registry of the High Court raised an objection that it was under `defect'. It was, therefore, not placed for admission-hearing. In an order, dated 3-10-
2005, the Court noted that the learned counsel for the Company prayed for time "to remove the defects pointed by the office". The prayer was granted.
64. It also appears that according to the Registry, there were practical difficulties and logistic problems since the petition was against more than 200 employees. The learned counsel for the Company, therefore, on 14-12- 2005, did not "press" the petition and petition was accordingly dismissed "as not pressed". The said order was passed on 14-12-2005. Immediately thereafter, in January, 2006, separate petitions were filed by the Company against the workmen.
65. It is thus clear that it was not a case of abandonment or giving up of claim by the Company. But, in view of office objection, practical difficulty and logistic problem, the petitioner Company did not proceed with an "omnibus" and composite petition against several workmen and filed separate petitions as suggested by the Registry of the High Court.
66. There is an additional reason also for coming to this conclusion on the basis of which it can be said that the Company was prosecuting the matter and there was no intention to leave the matter. As is clear, Writ petition No. 3060 of 2005 which was filed against one employee was very much alive and was never withdrawn/"note pressed". If really the Company wanted to give up the claim, it would have withdrawn that petition as well. Thus, from the circumstances in their entirety, we hold that the objection raised by the learned counsel for the workmen has no force and is rejected.
Neutral Citation 2024:CGHC:23767 13 67 The learned counsel for the Company contended that the courts below committed an error in not deciding the issue as to maintainability of claim petitions as preliminary issue and in rejecting the prayer of the Company. It was submitted that the workmen accepted the scheme, received the payment thereunder and separated from the Company. The relationship of master and servant came to an end on acceptance of voluntary retirement and payment of dues thereunder. It was thereafter not open to them to invoke the provisions of the Act by instituting claim petitions. The relationship of master and servant is sine qua non or condition precedent for the exercise of power under the Act by the Labour Court. It is thus a "jurisdictional fact" or "preliminary fact" which must exist before a Court assumes jurisdiction to entertain, deal with and decide the claim.
68. A "jurisdictional fact" is one on existence of which depends jurisdiction of a court, tribunal or an authority. If the jurisdictional fact does not exist, the court or tribunal cannot act. If an inferior court or tribunal wrongly assumes the existence of such fact, a writ of certiorari lies. The underlying principle is that by erroneously assuming existence of jurisdictional fact, a subordinate court or an inferior tribunal cannot confer upon itself jurisdiction which it otherwise does not possess."
13. In the case of Sangramsinh P. Gaekwad and others Vs. Shantadevi P. Gaekwad (dead) through LRs and others, (2005) 11 SCC 314, the Hon'ble Supreme Court observed in para 185 of its judgment as under:
"185. It has to be borne in mind that when a complaint is made as regard violation of statutory or contractual right, the shareholder may initiate a proceeding in a civil court Neutral Citation 2024:CGHC:23767 14 but a proceeding under Section 197 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view of the wide and far-reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mis- management, the petition must be rejected."
14. In light of above, it is evident that the learned CLB minutely appreciated the arguments of both the parties in the backdrop of terms and conditions of MoU and observed in para 57 of the impugned order as under:
"57. In this connection, on perusal of the record, it is seen that the Banker of the Company, after receiving the complaint, made an audit and inspection of the stock and did not find anything missing from the stock and inventories of the Company. This fact, therefore, falsifies the claim of the Petitioners."
Learned CLB also found that the appellants have failed to establish the case of oppression and mismanagement in the conduct of affairs of the company and accordingly, dismissed the petition. As per the audit report, the Banker of the Company did not notice missing of any stock and inventories of the Company. The appellants could not produce anything in rebuttal of the said findings in the audit report.
15. Thus, considering the facts and circumstances of the case in Neutral Citation 2024:CGHC:23767 15 light of the aforesaid decisions of the Hon'ble Supreme Court, the findings of CLB recorded in the impunged judgment cannot be faulted with. The CLB was justified in dismissing the company petition filed by the appellants under Sections 397, 398 read with 402 of the Act of 1956 as not maintainable as also on merits. Accordingly, the substantial question of law is answered in the affirmative and the present appeal being without any substance is hereby dismissed.
Sd/ (Rajani Dubey) Judge Khan