Company Law Board
Saravana Stores Private Limited, S. ... vs S. Yogarathinam And S. Rajarathinam on 7 July, 2006
Equivalent citations: [2007]75SCL315(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. In the Company petition filed under Sections 235, 397, 398 read with Sections 402 and 403 of the Companies Act, 1956 ("the Act") alleging a series of acts of oppression and mismanagement in the affairs of M/s. Saravana Stores Private Limited ("the Company") on account of. inter alia, illegal (a) appointment of the respondent Nos. 2 & 3 as additional directors; (b) exclusion of the petitioners from the office of director: (c) usurpation of control over the Company (d) allotment of shares, the respondents have filed the present application under Regulation 44 of the Company Law Board Regulations. 1991 for stay of all further proceedings before the Company Law Board, until disposal of the civil suits in C.S. No. 943/2002 and C.S. No. 36/2003 on the file of the High Court of Judicature at Madras.
2. Shri. C. Harikrishnan. learned Senior Counsel, in support of the stay application submitted:
• S. Selvarathinam. since deceased, father of the second respondent, incorporated the first respondent Company in August 2002. out of his own funds with an authorized capital of Rs. two crores divided into 20 lakhs equity shares of Rs. 10/-. along with his brothers, being the petitioners herein, as signatories to the Memorandum of Association, each agreeing to subscribe for 50000 shares of Rs. 10/- each in the capital of the Company. While the brothers were named as the first directors. Selvarathinam was the first Managing Director of the Company. In due course of time, serious disputes arose among the brothers, soon after incorporation of the Company in regard to several of the jointly run businesses and the properties owned by them -movable and immovable - which resulted into a Memorandum of Understanding (MOU) dated 18.09.2002. agreeing to partition the properties and the businesses in the manner specified therein. In terms of the MOU. the Company ought to have been taken over by Selvarathinam. pursuant to which the petitioners had resigned from the office of director and executed appropriate returns and thereafter, the respondent Nos. 2 & 3 were inducted on the board as additional directors and were allotted 500 shares each, apart from the allotment of 21.550 shares in favour of Selvarathinam.
• The petitioners herein, failed to act in accordance with the MOU. compelling Selvarathinam to file a suit in C.S. No. 943 of 2002 on the file of High Court of Madras, wherein the latter exclusively claimed the Company by virtue of the MOU. Accordingly, the question whether Selvarathinam has become absolutely entitled to the Company is pending consideration and decision by the High Court of Madras. In the meanwhile, the petitioners have filed C.S. No. 36 of 2003 before the High Court of Madras against Selvarathinam and his wife for a decree of partition of the common properties including the landed properties with an extent of 43.18 acres at Sriperambadur and business in accordance with the MOU. upon which a combined preliminary and final decree came to be passed allotting the properties as per the MOU. Accordingly, the parties have taken possession of the respective immovable properties allotted to them and they are in possession of the same. As a result, the landed properties at Sriperambadur are in exclusive enjoyment of Selvarathinam. In these proceedings also Selvarathinam is asserting his absolute ownership over the Company, which has been set up in the property allotted to him namely, the landed property at Sriperambadur. Selvarathinam passed away in December 2003 and thereafter, the second respondent herein was impleaded in C.S. No. 36 of 2003. The respondents failed to honour the terms of consent decree, and the decree was executed, which was unsuccessfully contested by them. The matter was agitated by the petitioners before the Supreme Court with the same result.
• The present company petition has been filed in September. 2004 by the respondents with the ulterior motive of taking over the properties at Sriperambadur. which shall not be permitted. In the event of the contentions of Selvarathinam are upheld by the High Court, the respondents will have no right over the Company and the properties at Sriperambudur. The High Court has to decide whether the petitioners have relinquished their rights over the shares in the Company. The averments contained in the present petition make innumerable references to the various facts and disputes revolving the MOU. which have been raised in the civil suits before the High Court of Madras. If the present proceedings are continued, there would be possibility of conflicting decisions, adversely affecting the interests of the respondents and therefore, the present proceedings shall be stayed till the disposal of C.S. No. 943 of 2002 and C.S. No. 36 of 2003. as held by this Board in (a) Rashmi Seth v. Chemon (India) Pvt.Ltd. and Ors. 1995 (Vol.82) CC 563; and (b)Mrunalini Devi Puar and Anr. v. Gakewad Investment Corporation Pvt. Ltd. and Ors. 1995 (Vol.82) CC 899.
3. Sri Arvind P. Datar. learned Senior Counsel opposed the application on the following among other grounds:
• The pleadings are complete in the main petition. The respondents have failed to seek in the counter filed by them for stay of the CLB proceedings. Any objection as to stay of the proceedings ought to have been raised at the first instance.
• The prayer in the suits before the High Court and the prayer claimed before the CLB are quite dis-similar. There is. therefore, no scope for multiplicity of the proceedings.
• The CLB proceedings can be stayed only when (a) reliefs are identical and sufficiently similar: and (b) common question of fact and law are arising in the petition and the other judicial forum, which may result in conflicting decisions as held by this Board in RDF Power Projects Ltd. and Ors. v. M. Muralikirshna and Ors. 2005(Vol. 124) CC 177 which has been affirmed by the High Court of Andhra Pradesh by its order dated 10-09-2004.
• When there is no commonality of allegations made in the suit and in the petition before the CLB. it would not amount to parallel proceedings as held in Kshounish Chowdhury and Ors. v. Kero Rajendra Monolithics Ltd. and Ors. (2002)1 Comp.LJ 552.
• The relief of setting aside the allotment of shares entitling reduction of share capital cannot be granted by a civil court as in Haryana Telecom v. Sterlite. This board in Vijay Krisliun Jaidka and Ors. v. Jaidka Motor Co. Ltd. (1997)1 Comp LJ 268 came to the conclusion that the civil suit in that case was for a different purpose and, therefore, held that the company petition for relief against oppression or mismanagement before the CLB is maintainable.
• The CLB is concerned with the grievances in relation to removal of parties as directors and allotment of shares in the light of the Companies Act, 1956 while the partition suit before the High Court is exclusively concerned with division of common properties based on personal law.
• The prayers before CLB and the High Court are not over lapping. Any prayer in the petition, if over lapses with the prayer in the civil suits, it can be severed from rest of the prayer and be appropriately dealt.
• The present application is nothing but an abuse of process, since the whole aim of the applicants is to delay the entire proceedings at the cost of the respondents.
4. I have considered the arguments of learned Senior Counsel. The issue that arises before me is whether the present proceedings shall be stayed till the disposal of C.S. No. 943 of 2002 and C.S. No. 36 of 2003 on the file of High court of Madras, for which, the matter in issue both before the CLB and the High Court must be examined. The main grievances of the petitioners raised in the company petition before the CLB are-
• The Company failed to hold any board meetings or file balance sheet or annual return since its incorporation namely. 21-08-2002 in violation of the statutory provisions of the Act.
• The respondent Nos. 2 & 3 have not been appointed as additional directors with effect from 10-09.2002. as disclosed in Form No. 32 dated 10.09.2002.
• The petitioners have never resigned from the office of director with effect from 17.09.2002, as borne out by form No. 32 dated 18.09.2002.
• The board of directors never allotted 22,570 shares on 10.09.2002. out of which 21.550 shares reportedly allotted to Selvarathinam, in terms of Form No. 2 dated 15.09.2002.
• Form No. 32 and Form No. 2 stated supra have been filed after a delay of almost one year with the ulterior intention of usurping control over the Company.
• In C.S. No. 943 of 2002 on the file of the High Court of Madras, the essential plea of Selvarathinam has been that the petitioners herein and Selvarathinam entered into a family arrangement reduced in the form of agreement dated 18.09.2002. by which they have divided the joint properties and businesses amicably to maintain harmony. In terms of the family arrangement, among other things, (a) the Company will come under the sole control of Selvarathinam; (b) the petitioners will transfer the shares in the Company to Selvarathinam and his family members; (c) the petitioners will resign from the office of director; and (d) the petitioners will handover Memorandum and Articles of Association. Share Register. Share Certificates. Certificate of Incorporation and other documents related to Selvarathinam. The petitioners purportedly, apart from violating certain terms and conditions of the family arrangement, failed to hand over the relevant records of the Company in favour of Selvarathinam. compelling him to pray against the petitioners for a judgement and decree:
(i) for a mandatory injunction directing the petitioners herein to deliver possession of the title deeds of immovable properties described in the schedule forming part of the plaint:
(ii) for a mandatory injunction directing the petitioners to deliver the partnership deeds, audited balance sheets. income tax records, etc. in respect of the businesses allotted to Selvarathinam:
(iii) for a mandatory injunction directing the petitioners to deliver the registration certificates, insurance policies. tax tokens and other connected records in respect of the vehicles allotted to Selvarathinam:
(iv) for a mandatory injunction directing the petitioners to handover the Memorandum and Articles of Association. Certificate of Incorporation. Share Certificates. Share Register. Minutes Books and other necessary documents of the Company:
(v) for a permanent injunction restraining the petitioners and their men from in any way interfering with the Selvarathinan's peaceful possession of the properties described in the plaint.
• In C.S. No. 36 of 2003 on the file of the High Court of Madras, the petitioners together with their wives are seeking against Selvarathinam and his wife for a judgment and a decree, inter-alia. directing partition of the properties which are more fully described in the schedule therein. Selvarathinam and his wife in the written statement filed in the said suit specifically averred that the affairs of the Company will come under their control by following the legal formalities.
To put it in a nutshell, while the allotment of shares to Selvarathinam and others, appointment of the respondent Nos. 2 & 3 as additional directors and exclusion of the petitioners from the office of director of the Company are being challenged before the CLB in the company petition, the issue whether the Company will go to the exclusive control of Selvarathinam is being adjudicated in the civil suits. The High Court, in my considered view, will not go into the validity of the allotment of impugned shares; the appointment of additional directors: the alleged illegal exclusion of the petitioners from the office of director. Thus, the matters in issue in the company petition are not common but entirely different from the issues involved in C.S. No. 943 of 2002 and C.S. No. 36 of 2003. There is no identity of the subject matter before the CLB and the High Court and none of the contentious issues raised in the company petition has been agitated before the High Court, which are essential requisites before grant of slay as held in RDF Power Projects Ltd. and Ors. v. M. Muralikrishnu (supra). Therefore, there is no scope and feasibility for the High Court to go into the contentious issues agitated before the CLB. The decision of the High Court will not in any way affect the decision in the present company petition except that the entire control and ownership of the Company will be decided by the High Court in the civil suits. The present proceedings not being parallel proceedings to the civil suits would in no way result in multiplicity of proceedings. It is. therefore, beyond doubt that the civil suits before the High Court are for entirely different purposes. The reliefs claimed by the petitioners before the CLB (a) to set aside the allotment of 22.570 equity shares in favour of Selvarathinam and others: (b) to set aside the appointment of the respondent Nos. 2 & 3 as directors; and (c) to declare the resignation of the petitioners as void ab initio would fall within the jurisdiction of the CLB. The company petition for these purported acts of oppression is maintainable before the CLB. as held in Vijay Krishan Jahlka v. Jaidka Motors Co. Ltd. and Rashmi Seth v. Chemon (India) Pvt. Ltd. (supra). The High Court, as held in Haryana Telecom v. Sterlite (supra) will not exercise its jurisdiction by granting any of the remedies claimed by the petitioners before the CLB while adjudicating the issue as to whether the Company will exclusively go to Selvarathinam. The decisions cited by Sri Harikrishnan will have no application to the facts in the present case. The prayer of the applicants would be considered only when there is commonality of allegations and the reliefs are identical and substantially similar as held in Kshounish Chowdhury and Ors. v. Kero Rajendra Monolithics Ltd. (supra). At this juncture, it shall be borne in mind, that the MOU came to be executed on 18.09.2002. under which Selvarathinam exclusively claims the Company. Whereas, the impugned shares were purportedly allotted on 10.09.2002. one week before the MOU was executed. Similarly, the grievances in relation to the appointment of additional directors and exclusion of the petitioners from the office of director are just prior to the execution of the MOU. There is no material to show that the impugned shares were allotted in pursuance of the MOU. There is neither any reference to the Company in the MOU. of which this Bench will not be concerned, while determining the issues involved in the present proceedings.
In view of my foregoing conclusion I am of the firm view that the company application is liable to be dismissed. Ordered accordingly. The company petition will be heard on 26.08.2006 at 2.30 PM.