Madhya Pradesh High Court
H.L.Taneja vs Jitender Mohan Khungar on 19 May, 2010
HIGH COURT OF MADHYA PRADESH : AT JABALPUR
Misc. Appeal Com. No : 1 of 2006
H.L. Taneja (deceased) through
Legal Heirs and others
- V/s -
Jitendra Mohan Khungar & Others
Present : Hon'ble Shri Justice Rajendra Menon.
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Shri Ajay Mishra, Senior Advocate, with
Shri P. Tripathi for the appellants.
Shri Sankalp Kochar for respondents 1 to 3.
None for other respondents.
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ORDER
19/05/2010 This appeal filed by the appellants under section 10-F of the Companies Act, 1956 assails the order-dated 25.7.2006, passed by the Company Law Board, Principal Bench, New Delhi in Company Petition No.66/2004.
2- Facts, relevant for deciding this appeal, are that M/s Northern Air Products Private Limited, respondent No.4 herein, is a Company incorporated on 21.4.1977 under the Companies Act 1956, is a private limited company having its registered office at CHD-5, Sukhlia Housing Scheme, Indore, MP. The authorized share capital of the Company is Rs. 20 Lacs, divided in 20,000 shares of Rs.100/- each. The fully paid capital of the Company was Rs.10 Lacs consisting of 10,000 shares of Rs.10/- each. Respondents 1 to 3, who were petitioners before the Company Law Board in Company Petition No.66/2004, hold 21% of 2 the equity in the company and the appellants herein hold the majority share totaling 76.04% and are known as the Taneja Group. The remaining 2.96% are held by various other persons and the same is not relevant for deciding this appeal. As far as appellants herein namely the Taneja Group are concerned, they constitute the majority share holders and respondents 1 to 3, the minority share holders.
3- The majority i.e.. Taneja Group, apart from their interest in the Company in question - M/s Northern Air Products Private Limited, have various other business interests.
4- The Company was formed with the object of manufacturing and dealing in various kinds of industrial gases like Oxygen, dissolved Acetylene Nitrogen, Hydrogen, Argon, Carbonic Acid, Medical Gases, Fuel Gases etc. Respondent No.5 INOX Air Products Limited purchased the business and assets of the Company - M/s Northern Air Products Private Limited, by virtue of a Memorandum of Understanding (hereinafter referred to as 'MOU') dated 8.5.2000. By the aforesaid MOU, all the group companies of the Majority decided to transfer to M/s INOX Air Products Limited their assets, so also that of M/s Northern Air Products Private Limited. In pursuance to the MOU dated 8.5.2000, two sale agreements dated 17.8.2000 were also executed for transfer of the business of M/s Northern Air Products Private Limited to M/s INOX Air Products Limited. Conveyance deed evidencing these factors are available on record.
5- By the MOU dated 8.5.2000, Taneja Group, which included the appellants herein and respondent Nos. 1 and 2; Jitendra Mohan Khungar and his wife Mrs. Manju Khungar, decided to transfer the properties of M/s Northern Air Products Private Limited to M/s INOX Air Products Limited. In Schedule 3 to the aforesaid MOU, values were attributed to various items, which comprised the assets of the company. In terms of the said Schedule, the aggregate sum of Rs.103 Lacs was to be paid by M/s INOX Air Products Limited, as consideration for the transfer. In terms of Schedule 3 of the MOU, M/s INOX Air Products 3 Limited was required to pay for the respective items as mentioned against each comprising the assets as mentioned as under:
(i) Leasehold land - valued at 'O';
(ii) Factory sheds, Office compound wall, water tanks -
Rs.13 Lacs;
(iii) Power Sub-Station complete with transformers, A-B switch, LT Panel complete with IT Panel and board capacitors etc - Rs.2 Lacs;
(iv) Air Separation Plants complete in all respects - Rs.15 Lacs;
(v) Goodwill - Rs.7 Lacs;
(vi) Non-compete - Rs. 14 Lacs; and,
(vii) Oxygen DA cylinders (2800 in number)-Rs.52 Lacs.
6- The MOU recorded in detail, the method and manner in which the number of cylinders owned by the transferor Company was to be determined. In pursuance to the MOU, a detailed agreement was entered into between the parties on 17.8.2000. In this agreement, the consideration was stated as Rs.75 Lacs. However, this agreement did not include transfer of the cylinders. By a separate agreement executed on 17.8.2000, provisions were made for transfer of the cylinders, consideration for which was assessed at Rs.52 Lacs. Accordingly, the total consideration of such transfer, which was to be paid by M/s INOX Air Product Limited to M/s Northern Air Products Private Limited, was Rs.103 Lacs. It may be taken note of that respondents 1 and 2 herein were signatories to the MOU dated 8.5.2000, but they were not signatories to the agreements dated 17.8.2000. They have refused to sign the same on the ground that it is not in accordance to the earlier agreement and assurance given to them.
7- Complaining 'oppression' and 'mis-management' by the majority group and contending that the majority has acted in total disregard to the interest of the company and in detriment to the interest of the minority share holders, respondents 1 to 3 filed a Company 4 Petition under Sections 397/398 of the Companies Act before the Company Law Board. It was their case that the act of the majority in transferring the assets of the Company to M/s INOX Air Products Limited and their subsequent act of entering into an ESCROW Agreement on 12.4.2001, executed between M/s Northern Air Products Private Limited and Central Bank of India as the ESCROW Agent, so also the Indenture of Conveyance dated 20.3.2001 is detrimental to the interest of the minority share holders, the various acts of the respondents in furtherance to these agreement and conveyance amount to 'oppression' and 'mis-management'; there has been under-valuation of the assets of M/s Northern Air Products Private Limited by the majority group; mis-appropriation of funds and assets have been undertaken by the majority group; and, non-payment of fixed deposits and other dues of the company petitioners was also alleged. Allegations were also made with regard to mis-appropriation by means of the ESCROW Agreement and further pointing out that the under-valuation has been done to commit mis-appropriation, a valuation report of M/s P.A. Mukadam and Associates was filed to show valuation of the land at Rs.45,78.600/- and the building at Rs.17 Lacs. Accordingly, seeking for return of the corpus of M/s Northern Air Products Private Limited diverted and mis-managed by way of acts alleged, the company petition was filed and it was indicated that a total sum of Rs.88,16,603/- has been diverted by the majority share holders, which should be brought back to the Company. 8- Appellants herein refuted each and every contention of the company petitioners and raised various grounds for assailing the reliefs sought for. The grounds raised by the appellants herein and their objection pertained to maintainability of the company petition under sections 397/398, the ground that the 'mis-management' and 'oppression' complained of is more than three years old and, therefore, by virtue of the provisions of Article 137 of the Limitation Act, the petition was not maintainable. It was pointed out that in the MOU dated 8.5.2000, there is an arbitration clause and, therefore, the company petition was not maintainable. It was also pointed out that as the 5 company petitioners do not represent the interest of the share holders as required in accordance to section 399 of the Companies Act, the company petition was not maintainable. It was further pointed out that the company petitioners - respondents 1 to 3 herein, were not only signatories to the MOU dated 8.5.2000, but as respondent No.1, a Director was party to the conveyance dated 20.3.2001, he cannot assail the action and make a complaint of 'mis-management' and 'oppression' being party to the transaction. It was also stated that the deed of conveyance dated 20.3.2001 has not been challenged. It was argued that the petition was filed with ulterior motives and accordingly raising the grounds as indicated hereinabove, respondents resisted the claim of the appellants.
9- After hearing all concerned and on the basis of the material that came on record, the Company Law Board having allowed the company petition and having directed respondents 3 to 8 therein i.e.. the present appellants to bring back an amount of Rs.88,16,603/- to the corpus of M/s Northern Air Products Private Limited and further having directed appellants herein to bring back the sale consideration of the company to its corpus and to render complete account. Further, a direction was issued to respondent No.3 in the company petition namely Shri H.L. Taneja (since dead), to repatriate the company fund alongwith bank commission paid from ESCROW Account to the company. The order passed by the Company Law Board and the directions issued read as under:
"I. Respondent Nos.3 to 8 are hereby directed to bring back an amount of Rs.88,16,603/- (Rs.65,91,809 + Rs.7,24,794 + Rs.1,00,000 + Rs.14,00,000) to the corpus of Respondent No.1 company forthwith; II. Respondent Nos. 3 to 8 (specifically Respondent No.3) are hereby directed to bring back the sale consideration of Respondent No.1 Company to its corpus and render complete account of receipt of sale consideration; and, 6 III. Respondent No.3 is further directed to repatriate Respondent No.1 company's fund alongwith bank commission paid for ESCROW account to Respondent No.1 company forthwith."
Accordingly, challenging the aforesaid directions, this appeal has been filed under section 10-F. 10- Shri Ajay Mishra, learned Senior Advocate appearing for the appellants, took me through the documents available on record, particularly the MOU dated 8.5.2000; the Indenture of Conveyance dated 20.3.2001, to which respondents were signatories, and argued that respondents 1 and 2 being husband and wife and respondent No.1 being Executive Director, incharge of various activities of the company, having participated in the activities of the company and having known all the activities of the company could not challenge the action on the ground of 'oppression' or 'mis-management'. It was argued that respondent No.1 as Executive Director of the company had infact prepared the balance-sheet for the year ending 31.3.2001 on 3.9.2001, the entire dispute having been crystallized on 3.9.2001, the company petition filed after 3 years, on 24.9.2004, is barred by time. It was also argued by Shri Ajay Mishra that the grounds of under valuation on the basis of the report of M/s P.A. Mukadam and Associates is unsustainable. The report dated 8.3.2003 submitted by M/s P.A. Mukadam is not properly proved, there is no affidavit of Shri P.A. Mukadam and even each and every page of the valuation report is not signed by the valuer. It was argued that the valuation submitted by M/s P.A. Mukadam is unsustainable and cannot be accepted. It was stated that the respondent suppressed material fact with regard to participating in the execution of the indenture of company dated 20.3.2003 and his being a party to the MOU, the Company Law Board should not have exercised equity jurisdiction in the matter. It was stated that there being an arbitration clause in the agreement-dated 8.5.2000, the company petition under sections 397/398 was not maintainable. Taking me 7 through various documents and material available on record and by referring to the conduct of the respondents as has been reflected from this documents, it was argued that the entire company petition is motivated, has been filed with ulterior motives and respondents cannot maintain the petition for recovery of the fixed deposit paid by them to the company. It was argued that the provisions of section 397/398 cannot be used for recovery of personal dues of the respondents. Taking me through the documents and valuation of the companies property indicated therein, Shri Ajay Mishra, learned Senior Advocate, submitted that there is no under valuation. He submitted that the Company Law Board has not acted in accordance to law, in allowing the petition. It was submitted that a person, who was a party to the decision making process, cannot turn around and challenge the action in the manner done by the respondents. Submitting that the Company Law Board has misdirected itself and has allowed the petition on improper consideration, learned counsel sought for interference into the matter. In sum and substance, the arguments of the learned counsel were to the effect that the company petition was barred by time and, therefore, it should have been dismissed, respondent No.1 Jitendra Mohan Khungar being a party to various transaction and agreements that had taken place, could not challenge the action in the manner done by filing the company petition, there being an arbitration clause in the MOU dated 8.5.2000, the company petition was not maintainable. There are material suppression of fact and, therefore, the Company Law Board should have dismissed the petition, no continuous act of 'oppression' or 'mis-management', no 'oppression' or 'mis-management' after 31.3.2001 is established and, therefore, the company petition under sections 397/398 is not maintainable. It was further argued that the deed of conveyance dated 20.3.2001 having not been challenged, the company petition was not maintainable and in view of non-compliance of section 399 of the Companies Act, the petition was liable to be dismissed. 11- Placing reliance on the following judgments in support of his contention, Shri Ajay Mishra, learned Senior Advocate, submitted 8 that the findings recorded by the Company Law Board and the reasons given for interference are perverse, unsustainable and, therefore, liable to be dismissed. The judgments relied upon are: Mohanlal Ganpatram and another Vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and others, AIR 1960 GUJARAT 96; Shanti Prasad Jain Vs. Kalinga Tubes Ltd., AIR 1965 SC 1535; Jagaribai Ramlal Kanojia Vs. Ramkhilawan Govind Prasad and others, 1975 MPLJ 857; K.C. Kapoor Vs. Smt. Radhika Devi (dead) by LRs and others, AIR 1981 SC 2128; Kilpest Pvt. Ltd. and others Vs. Shekhar Mehra, 1985 MPLJ 160; Mahboob Sahab Vs. Syed Ismail and others, AIR 1995 SC 1205; and, Sangramsinh P. Gaekwad and others Vs. Shantadevi P. Gaekwad (Dead) by LRs and others, AIR 2005 SC 809.
12- Shri Sankalp Kochar, learned counsel for respondents 1 to 3, refuted the aforesaid and submitted that the relationship between Shri H.L. Taneja (since deceased) and Shri Jitendra Mohan Khungar is of a special nature, they are associated with each other for more than thirty years and Shri Jitendra Mohan Khungar considered Shri Taneja to be like his father and, therefore, normally did not question the acts undertaken by Late H.L. Taneja. It was emphasized by him that it is in the backdrop of this relationship, which has existed between Late H.L. Taneja and Shri Jitendra Mohan Khungar, for more than 30 years, that the entire conduct of respondent No.1 should be evaluated. 13- Shri Kochar, learned counsel for respondents 1 to 3, submitted that in connection with the alleged acts of 'oppression' and 'mis-management', it has to be taken note of that in all eight Agreements/MOUs have been entered into between the parties. Out of the eight, the present respondent No.1 has signed only two such agreements - they are the MOU dated 8.5.2000 and the Indenture of Conveyance dated 20.3.2001. Apart from the above, six other agreements/conveyance have been executed to which respondent No.1 is not a party and all these 6 agreements have bearing on the working and the financial status of the company, and infact some of the agreements have not been produced even for perusal of the Company Law Board or 9 of this Court. The six agreements to which respondents 1 to 3 are not parties are two agreements dated 7.8.2000 - for conveying the assets and cylinders of M/s Northern Air Products Private Limited to M/s INOX Air Products Limited; a non-compete agreement entered into for a period of 5 years; the ESCROW Agreement dated 12.4.2001; a group concept agreement and another agreement available at page 339 of the paper- book.
14- As far as the non-compete agreement is concerned, it is pointed out by Shri Sankalp Kochar that even though appellants have denied execution of such an agreement, by referring to various documents available on record, particularly the communication available at page 172 and at page 237, the group adjustment concept at page 307, emphasized that the appellants have not disclosed the actual position with regard to these agreements. Contending that it is the appellants, who have not come with clean hands and have suppressed material facts, Shri Kochar submitted that the appeal is liable to be dismissed on this ground alone. That apart, taking me through various letters and correspondence available on record, issued by respondent No.1 not only to the appellants and in particular to Late H.L. Taneja, but also to various other authorities, tried to controvert the contention of the appellants with regard to consent of respondents to the MOU dated 8.5.2000 and the Indenture of Conveyance dated 20.3.2001 and emphasized that respondents were protesting to the activities of the majority group. He has referred to me the letters available on record, right from the date of execution of the MOU dated 8.5.2000 till filing of the suit. The various letters referred to are available on record and are dated 11.3.2003, 19.3.2003, 16.1.2004, 12.5.2004 and 3.6.2004, and on various other dates the letters referred to are in the paper book. By referring to these letters Shri Kochar tried to emphasize that the respondents have been protesting against the action of the appellants from the very beginning and finally when their objections fell on deaf ears, they filed the civil suit before the Court at Indore on 6.4.2003. As far as signing the balance-sheet on 3.9.2001 is concerned, it is submitted 10 by Shri Kochar that respondent No.1 ceased to be a Director after 31.3.2001 and the balance-sheet was infact got signed by him after he had ceased to be a Director, that also by use of threat and by applying arm twisting tactics. By referring to the correspondence and the material available on record, Shri Kochar refuted both the contentions with regard to conduct of signing of MOU and the allegation of consent to the entire action and the grounds of limitation. It was emphasized by Shri Kochar that even though section 137 of the Limitation Act is not applicable, as an alternative submission even if it is held to be applicable, then the limitation would start only from 31.5.2003 when the respondents' last protest was not accepted and the time spent by them in pursuing the civil suit and other proceedings should be ignored in view of section 15 of the Limitation Act. Accordingly, emphasizing that the act of the respondents was bonafide and the acts of 'oppression' and 'mis-management' are established, Shri Kochar sought for rejection of this appeal. By taking me through the report with regard to valuation and association of Shri Mukadam with the company, the findings recorded by the Company Law Board, as contained in paragraph 7 of the impugned order and the law and principle governing the acts of 'oppression' and 'mis- management', the scope of judicial review to be exercised by the High Court in a proceeding under section 10-F of the Companies Act, Shri Kochar emphasized that in the totality of the facts and circumstances, the Company Law Board has not committed any error warranting interference in the matter.
15- By referring to section 399 of the Companies Act and the total share capital held by the minority group, consisting of respondents 1 to 3, which has instituted the proceedings, Shri Kochar emphasized that the requirement of section 399 are fulfilled and the contention of Shri Ajay Mishra, learned Senior Advocate, that respondent No.1 Shri Jitendra Mohan Khungar being party to the MOU Agreement, cannot count his share for assessing the requirement of section 399 is wholly misconceived, refuted the grounds raised by the appellants by taking me through the memorandum of appeal and referring to the acts of the 11 appellants in executing non-compete agreements and the findings recorded by the Company Law Board with regard to the acts of 'oppression' and 'mis-management', Shri Kochar emphasized that it is a fit case where the order passed by the Company Law Board should be upheld and the appeal dismissed. In support of his contention, Shri Kochar placed reliance on the following judgments: Nityanand M. Joshi and Another Vs. The Life Insurance Company of India and others, AIR 1970 SC 209; Sakru Vs. Tanaji, AIR 1985 SC 1279; 1992 (73) Company Cases 572; and, 1996 (87) Company Cases 398, to canvass his contention that the provisions of section 137 of the Limitation Act will not apply in a proceeding under sections 397/398. 16- Shri Kochar, learned counsel for the respondents, placed reliance on V.S. Krishnan and others Vs. Westfort Hi-Tech Hospital Limited and others, 2008(3) SCC 363, to emphasize the scope of judicial review available to the High Court in a proceeding under section 10-F of the Companies Act and the principle governing evaluation and assessment of the acts of 'oppression' and 'mis-management'. Shri Kochar placed reliance on Shanti Prasad Jain Vs. Kalinga Tubes Ltd. AIR 1965 SC 1535; Needle Industries (India) Limited and others Vs. Newey (India) Holdings Limited and others, AIR 1981 SC 1298; Sangramsinh P. Gaekwad (supra - also relied upon by Shri Ajay Mishra) - AIR 2005 SC 809; and, M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara Raja and another, AIR 2008 SC 1738, to contend and bring to the notice of this Court the principles governing assessment of the acts of 'oppression' and 'mis-management' in relation to a proceeding under sections 397/398. It was further argued by Shri Kochar that in the findings recorded by the Company Law Board, as contained in paragraph 7, various aspects of the matter have been dealt with not only with regard to under valuation of the assets, but also with regard to receipt of funds by the majority group and non-explanation of the same with regard to their end utilization. It was submitted by him that in the absence of any explanation to show the end and final utilization of the funds, the act of 'oppression' and 'mis-management' 12 being established, the same is a finding of fact, which cannot be interfered with now by this Court. It was further argued that in the totality of the circumstances, there is no suppression of fact by the respondents, the Company Law Board having adopted a reasonable approach and having recorded a finding based on proper valuation and assessment of the totality of the circumstances and the material available on record, no case is made out for interference into the matter. 17- Shri Sankalp Kochar, learned counsel for the respondents, taking me through various documents available on record and the findings recorded in this regard by the Company Law Board, argued that the under-valuation and diversion of fund and end-utilization of the amount have not been established. The documents referred to are the affidavit filed by Shri H.L. Taneja, available at page 389; the bank- statements at pages 216 and 217; the documents showing payment made by M/s INOX Air Products Limited to Mr. Taneja, available at pages 170 and 171 of the paper-book; the balance-sheet at page 458 dated 31.3.2002, which is unsigned and the indication of a sum of Rs.36,06,666/- shown as outstanding to be paid by M/s INOX Air Products Limited; the amount received towards ESCROW commission shown as debited from the accounts of M/s Northern Air Products Private Limited, as is evident from page 375; the fixed deposit made by the respondents and the ESCROW documents to show that there has been diversion of funds and the end-utilization has not been explained. Accordingly, on the aforesaid grounds placing reliance on the following judgments: Caparo India Limited (UK) and Machino Plastics Limited Vs. Caparo Maruti Limited and others, V 128 (2006) DLT 425; Smt. Hetal Alpesh Muchhala Vs. Adityesh Educational Institute and Others, (2009) 152 Company Cases 75 (Bom); and, Probir Kumar Misra Vs. Ramani Ramaswamy and Others, Manupatra (TN) 2009, page 2194, Shri Sankalp Kochar, learned counsel argued that the findings of under-valuation and diversion of funds indicated by the Company Law Board is a finding of fact based on due appreciation of material available on record and, therefore, 13 interference in the matter exercising limited jurisdiction under section 10-F is not warranted.
18- Shri Sankalp Kochar, learned counsel for the respondents, also pointed out that the provisions of section 137 of the Limitation Act, will not apply in the facts and circumstances of the present case, because the Company Law Board was constituted after the amendment to the Companies Act and initially when the Division Bench of this Court considered the matter, in the matter of Kilpest (supra), the Company Law Board was not constituted and was not functioning. Referring to a judgment of the Delhi High Court, in the case of Shri A.P. Jain vs. Faridabad Metal Udyog, V 123 (2005) DLT 114, and the observations made in paragraphs 14 and 15 of the aforesaid judgment, Shri Sankalp Kochar argued that the provisions of section 137 are not applicable in a proceeding under sections 397/398. He also invited attention of this Court to two judgments of the Company Law Board - in the cases of A.V. Sampat, Official Liquidator Vs. Dunlop India Limited and Another, (1996) 87 Company Cases 398; and, Carbon Corporation Limited Vs. Abhudaya Properties Private Limited, (1992) 73 Company Cases 572, to contend that the provisions of Limitation Act and section 137 are not applicable to proceedings before the Company Law Board under sections 397/398.
19- As far as non-filing of affidavit by Shri P.A. Mukadam and the valuation report submitted by him is concerned, Shri Sankalp Kochar, learned counsel for the respondents, argued that the report of Shri Mukadam is only the first page available at page 160 of the paper- book, wherein Shri Praful Mukadam has dealt with the valuation of land and building. The other documents from page 161 onwards are the notings of Shri Jitendra Mohan Khungar and it is stated by Shri Kochar that what is relied upon by the Company Law Board is only the report of the valuer available at page 160, pertaining to land and building and nothing more. Accordingly, it was argued by him that the report of Shri Mukadam is just, reasonable and fair. It was further argued by him that the objections with regard to acceptance of the report of Shri Mukadam 14 and non-challenge made to the Indenture of Conveyance dated 20.3.2001 were never raised before the Company Law Board by the appellants and now they cannot raise it now in a proceeding under section 10-F of the Companies Act. In this regard, inviting my attention to the observations made by the Madras High Court, in paragraph 7.4 of the judgment rendered in the case of Probir Kumar Mishra (supra), Shri Sankalp Kochar argued that grounds not raised or considered by the Company Law Board will not form questions of law to be considered in a proceeding under section 10-F. 20- Finally, Shri Kochar took me through the ESCROW agreement and other documents and the fixed deposits made by the respondents and placing reliance on a judgment of the Bombay High Court, in the case of Ravi Kiran Agrawal and Another Vs. Moolchand Shah and others, (2009) 152 Company Cases 637 (Bom), paragraphs 10, 11 and 23 thereof, argued that respondents/company petitioner is entitled to refund of the fixed deposit made by him to the extent of 13.56 Lacs alongwith interest, by exercising jurisdiction under sections 402 read with 405 of the Companies Act in this appeal itself under section 10-F, this Court can direct the appellants to pay the aforesaid amount. Accordingly, Shri Kochar, learned counsel for the respondents, apart from seeking a prayer for dismissal of the appeal of the appellants, sought for a consequential direction to the appellants to pay to the respondents an amount of Rs.13.56 Lacs alongwith interest. 21- By way of rejoinder arguments Shri Ajay Mishra, learned Senior Advocate, emphasized that the so-called documents and letters relied upon by Shri Sankalp Kochar for contending that respondent No.1 had been objecting to the acts of Late Shri H.L. Taneja cannot be taken note of by this Court for the simple reason that there is no proof about submission of these documents and without proper pleadings the documents have been annexed to the company petition. It was argued by him that the Company Law Board took cognizance of these documents without there being valid proof with regard to their dispatch. Taking me through the requirement of Order 6 of the Code of Civil Procedure, 15 pertaining to the law governing pleadings and the requirement of the Evidence Act for admitting a document in evidence, it was emphasized by Shri Ajay Mishra that there being no proof with regard to most of these letters submitted, they cannot be considered for the purpose of accepting the explanation given by respondent No.1 with regard to his being a consenting party to the acts alleged. Finally, by taking me through the findings recorded in paragraph 7 of the impugned order, it was argued by Shri Ajay Mishra that the findings are perverse, recorded without any cogent evidence or basis and even the pendency of the criminal case is not properly established by the respondents and, therefore, holding the criminal case to be pending in the matter of execution of Indenture of Conveyance dated 20.3.2001 is a perverse finding.
22- Having heard learned counsel for the parties and on consideration of the facts that have come on record, it is seen that the following questions arise for consideration now in this appeal:
(a) Whether the petition under sections 397/398, filed by respondents 1 to 3 was maintainable in view of the Arbitration Clause contained in the Memorandum of Understanding dated 8.5.200?
(b) Whether the application filed before the Company Law Board under sections 397/398 was barred by time and liable to be dismissed on the ground of delay (limitation)?
(c) Whether the act of respondent No.1 in signing the MOU dated 8.5.2000 and the Deed of Conveyance dated 20.3.2001 so also having participated in certain activities of the Company dis-entitles respondents 1 and 2 from initiating proceedings under sections 397/398?
(d) In the facts and circumstances of the case, whether the acts of 'oppression' and 'mis-management' alleged is made out and whether the same is a continuing wrong or not?
16(e) Whether the petition filed before the Company Law Board was liable to be dismissed on the ground of suppression of fact, as alleged by the appellants?
(f) What is the effect of respondents 1 to 3 not challenging the conveyance deed dated 20.3.2001 and whether it can be said that the petition is filed with ulterior motives?
(g) Whether the allegations of under-valuation and the report supplied by the valuer Shri P.K. Mukadam is properly proved?
(h) Whether the company petition under sections 397/398 was properly filed, complying with the requirement of section 399 of the Companies Act?
(i) Whether the findings recorded by the Company Law Board is perverse and contrary to or without material available on record?
23- As far as the first ground with regard to invoking the jurisdiction of Arbitration is concerned, it is seen from the records that in the Article of Association of the company in question, there is no such provision for arbitration, to resolve the interse dispute between the members or share holders of the company. The so-called arbitration clause relied upon by the appellants is contained in Article 20 of the MOU dated 8.5.2000 - Annexure A/4. This memorandum is entered into between the company i.e.. M/s Northern Air Products Private Limited- the appellants and M/s INOX Air Products Limited. Even though respondent No.1 is a party to the said agreement, the arbitration clause contained in Article 20 pertains to dispute or difference arising between the parties to the MOU dated 8.5.2000. The MOU is for transferring the assets of M/s Northern Air Products Private Limited to M/s INOX Air Products Limited and, therefore, what is contemplated under Clause 20 of the Arbitration Agreement referred to in the MOU is a dispute arising in the execution of the MOU and not with regard to the affairs of the Company - M/s Northern Air Products Private Limited.
1724- The dispute between the parties herein, particularly between the appellants and respondents 1 to 3, is with regard to managing the affairs of the company - M/s Northern Air Products Private Limited, and misuse of funds of the said company. The said dispute is clearly beyond the scope of Article 20 of the MOU dated 8.5.2000. This Arbitration Clause will not apply in the facts and circumstances of the present case, as the arbitration agreement contemplated in the MOU pertains to dispute in the execution of the said MOU and not with regard to the dispute pertaining to management of the company in question - M/s Northern Air Products Private Limited. In this regard, the principles laid down by the Supreme Court in the case of Sukanya Holdings (P) Limited Vs. Jayesh Pandya and another, (2003) 5 SCC 531, may be taken note of.
25- If the objection in question is taken note of in the light of requirement of section 8 of the Arbitration and Conciliation Act 1996, it would be seen that this section contemplates seeking reference to an arbitral Tribunal, for which the dispute has to be between the parties to the arbitral agreement and the dispute should be with regard to execution of the agreement, wherein the arbitration agreement is incorporated. As the language of section 8 refers to "..in a matter which is subject of an arbitration agreement ..". In the present case, the dispute of 'mis- management' and 'oppression' complained of and other irregularities committed by respondents 1 to 3, in managing the affairs of M/s Northern Air Products Private Limited, does not pertain to any matter which is in relation to execution of the MOU dated 8.5.2000. Even though respondent No.1 is a party to the MOU, but the dispute in question which he was canvassing in the company petition under sections 397/398 was not a matter, which would come within the meaning of a dispute covered by the arbitration agreement as contemplated under Article 20 of the MOU dated 8.5.2000. Accordingly, there is no substance in the objection raised with regard to availability of alternate remedy of arbitration.
1826- As far as the question of limitation is concerned, a Division Bench of this Court in the case of Kilpest (supra), relied upon by Shri Ajay Mishra, learned Senior Advocate, has clearly laid down that the provisions of Article 137 of the Limitation Act would apply to proceedings under sections 397/398 of the Companies Act. It is correct that the law laid down by the Division Bench of this Court, in the case of Kilpest (supra) does lay down a proposition that the provisions of Article 137 of the Limitation Act will not apply, buy this judgment was rendered in the year 1985 when the Company Law Boards were not functioning and the petitions used to be filed directly before this Court. After the Company Law Boards have started functioning, it has been a consistent view of the Company Law Board in various cases that the Company Law Board is a quasi-judicial authority and, therefore, the provisions of section 137 of the Limitation Act will not apply. The Delhi High Court, in the case of Shri A.P. Jain (supra) has dealt with the matter and if the observations made therein in paragraphs 14 and 15 are taken note of, it cannot be said that the finding of the Company Law Board with regard to delay, is wholly perverse or unsustainable. However, even if the Limitation Act applies, when a case of 'mis- management' or apprehension of 'oppression' and 'mis-management' of a company under sections 397/398 is alleged, the same would be a continuous act, which may continue upto the date of presentation of a petition or till the damage caused by the act of 'oppression' or 'mis- management' is not rectified or made good, and if on a close scrutiny of the facts that have come on record, the Court finds that the acts of 'oppression' or 'mis-management' alleged is such that it continues and has the effect of causing prejudice to the interest of the company or its share holders, then even if some events have occurred three years prior to filing of the petition, the acts can be looked into as it has the effect of causing a continuous adverse effect on the affairs of the company, till rectified, and in such case the bar of filing the suit within three years may not apply. In this regard, certain principles laid down by the Delhi High Court, in the case of Surinder Singh Bindra and others Vs. M/s 19 Hindustan Fasteners (P) Limited and others, AIR 1990 DELHI 32, may be taken note of, wherein in paragraphs 9,11 and 12, the Hon'ble Judge has taken note of the acts of 'oppression' and 'mis-management', the transaction involved and it is held that wrongful act may not be a single act, but it may give rise to certain continuous course of 'oppression' or 'mis-management' through the wrongful act and, therefore, the same may be akin to the normal terminology i.e...'continuing cause of action' and then events which constitute the dispute, which ultimately resulted in the filing of the petition, will have to be taken note of. Even during the course of hearing Shri Kochar had invited attention of this Court to various acts of 'oppression' and 'mis- management' alleged, the objections raised by the Company Petitioners vide various representations and the ultimate effect of filing of the civil suit by the respondents before the Competent Court at Indore on 6.4.2003, withdrawal of the same and benefit of section 15 of the Limitation Act to be extended to the respondents. There is much force in the contentions of Shri Kochar in this regard. Immediately after the MOU was signed by the respondents on 8.5.2000, records indicate that they had been corresponding, various objections and letters were written and when nothing was done, the civil suit was instituted on 6.4.2003 and a criminal case was also filed. In that view of the matter, the advantage of section 15 read with section 22 of the Limitation Act has to be extended to the respondents/company petitioners. Even if the correspondence and letters in this regard are ignored in view of the objections raised by Shri Ajay Mishra, learned Senior Advocate, there are enough material to show that the alleged acts of 'oppression' or 'mis- management' was a continuous act and, therefore, there is no delay in initiating action.
27- If the case in hand is evaluated in the backdrop of the aforesaid principle, it would be seen that the first act of 'mis- management' or 'oppression' is alleged to have commenced when the MOU was got executed on 8.5.2000. Thereafter, it was the case of the company petitioners - respondents 1 to 3, that an agreement was entered 20 into on 17.8.2000. Respondent No.1 protested to this agreement and under protest did not sign this agreement, thereafter the Indenture of Conveyance was executed on 20.3.2001. Thereafter, the so-called balance-sheet was prepared on 3.9.2001 and when respondents 1 and 2 found that by 'mis-representation' and 'coercion', they have been made to act in a manner, which was detrimental to the interest of the company, they objected to the entire transaction and file civil suit, being Case No.9-A/2003 before the Court at Indore, on 6.4.2003. Filing of this civil suit is within the period of three years from the date the balance-sheet was finally prepared on 3.9.2001. Thereafter, the matter travelled upto the High Court. That apart, when the Indenture of Conveyance was prepared on 20.3.2001, a criminal case was filed in the Court of Magistrate and a plea of fraud, deceit and coercion by the majority in the execution of this deed dated 20.3.2001 was made. Against the aforesaid registration of criminal case, appellants filed appeal and Special Leave Petition to the High Court and Supreme Court, the same has been dismissed and the criminal case was pending when the Company Law Board decided the matter by the impugned order on 25.7.2006. That being so, immediately after the Indenture of Conveyance, which was executed on 20.3.2001, and which formed part of the act of 'oppression' or 'mis-management', a criminal case was instituted within three years and when the matter was pending before the Court, the company proceedings were initiated by filing the petition under sections 397/398 in the year 2004, i.e.. on 20.8.2004. It is a case where the acts of 'oppression' or 'mis-management' is alleged to have continued upto 20.3.2001, when the Indenture of Conveyance was got executed, allegedly by use of fraud, deceit and coercion and when the criminal case was filed and pending and when the Civil Court refused to entertain the matter and directed the company petitioners to avail the alternate remedy of filing the company petition, the company petition was filed within a reasonable time thereof. If the aforesaid fact coupled with the provisions of section 15 and 22 of the Limitation Act are taken note of, it cannot be said that the respondents have committed delay in filing the 21 company petition. It is, therefore, a case where the cause of action for filing of the company petition continued for various periods upto 20.3.2001 and even thereafter till filing of the civil suit, and the company petition which was filed, on 20.8.2004, would be within limitation and the same cannot be dismissed on the ground of limitation. 28- That apart, in this case the provisions of section 22 of the Limitation Act would be attracted. The case of the petitioners was that the amount, which was due to be accounted for in the Accounts of the company, are being siphoned of and used for the personal purpose of the appellants. This is a continuing wrong and would continue until and unless the amount is made good by bringing the amount so misused to the corpus of the company. That being so, the provisions of section 22 of the Limitation Act would also apply in the present case and, therefore, in rejecting the objection of limitation, the Company Law Board has not committed any error. After evaluating the totality of the circumstances and finding the company petitioners to have been diligently prosecuting the matter at various levels, the Company Law Board has not committed any error in rejecting the objection of limitation. Accordingly, the ground of limitation raised is also found to be unsustainable. 29- As far as non-compliance with the provisions of section 399 is concerned, it would be seen that section 399 of the Companies Act contemplates the following provision:
"399. Right to apply under sections 397 and 398 -
(1) The following members of a company shall have the right to apply under Sections 397 or 398 -
(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares;22
(b) xxx xxx xxx
(2) xxx xxx xxx xxx
(3) Where any members of a company are entitled to
make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them."
The members indicated in sub-clause 1(a) and 1(b), sub- clause (2) and (3) are entitled to institute proceedings under sections 397/398. In the case of a company having a share capital not less than 100 members of the company or not less than one-tenth of the total number of the members, whichever is less, or any Member or Members holding not less than one-tenth of the issued share capital of the company can institute the proceedings. In the present case, the total issued and subscribed share capital of the company is Rs.10 Lacs, consisting of 10,000 shares of Rs.100 each. Out of this issued and subscribed share capital of Rs.10 Lacs, the minority group which has instituted the proceedings, consisting of respondents 1 to 3, jointly hold 21% of the subscribed share capital. That being so, the share held by the minority group being more than one-tenth of the issued share capital of the company, objection raised with regard to non-maintainability of the petition in view of section 399 is also unsustainable. Shri Ajay Mishra, learned Senior Advocate, had tried to argue that for calculating the share holdings of the minority, the share held by Shri Jitendra Mohan Khungar should be ignored, as he has subscribed to the MOU dated 8.5.2000 and was a consenting party to the entire acts of 'oppression' and 'mis- management' alleged. There is nothing under the provisions of section 399, which warrants such a consideration to be made. Merely because Shri Jitendra Mohan Khungar had subscribed to the MOU dated 8.5.2000 or is alleged to be party to certain acts, for considering the provisions of section 399 and calculating the share holding of the aggrieved member, it is not known as to how and on what basis the share 23 holdings of Shri Jitendra Mohan Khungar should be ignored or not taken account of. This contention of Shri Ajay Mishra, learned Senior Advocate, seems to be wholly misconceived and without any basis. 30- The next question that arises for consideration is as to what would be the effect of respondent No.1 Jitendra Mohan Khungar subscribing to the MOU dated 8.5.2000 and signing of the Indenture of Conveyance dated 20.3.2001.
31- In this regard, the conduct of respondent Jitendra Mohan Khungar and his wife Smt. Manju Khungar in participating in the management and affairs of the company and their subsequent act in challenging the action of the appellants by filing the company petition has to be evaluated with reference to their conduct and the explanation given by them for having signed the MOU dated 8.5.2000, the Indenture of Conveyance dated 20.3.2001 and participating in the management affairs till preparation of the balance-sheet on 3.9.2001. 32- Shri Ajay Mishra, learned Senior Advocate for the appellants, took me through various documents and by referring to the act of respondent No.1, in being a party to the MOU dated 8.5.2000, the Indenture of Conveyance dated 20.3.2001 and being a signatory to the balance-sheet dated 3.9.2001, had argued that he having given his consent is estopped from going back on the same and in support had placed reliance on the judgments of K.C. Kapoor (supra); Mahboob Sahab (supra); and of this Court in the case of Jagaribai Ramlal Kanojia (supra).
33- If the principles laid down in the aforesaid judgments are taken note of, it would be seen that the entire conduct of the person giving the consent and acting in a particular manner has to be taken note of and thereafter a decision taken depending upon the facts and circumstances of each case. There cannot be a straight jacket formula for evaluating the same in a particular manner. Fact of each case has to be taken note of and a decision taken.
34- In the present case, when the MOU dated 8.5.2000 was executed, according to respondent No.1 Jitendra Mohan Khungar he 24 subscribed to the same considering the interest of the company and believing the representation of the majority. However, when he found that the agreement dated 17.8.2000 was being executed, the majority was acting in a manner which was not in the interest of the company and which was adversely affecting the rights of the minority and contrary to the understanding received at the time of signing the MOU dated 8.5.2000, he refused to sign the agreement-dated 17.8.2000. It is seen from the records that the minority group headed by Shri Jitendra Mohan Khungar is not a party to the agreement-dated 17.8.2000. The agreement-dated 17.8.2000 is in furtherance of the MOU dated 8.5.2000, for transferring the assets of the Company to M/s INOX Air Products Limited. When the conduct of the minority shows that they objected to and did not subscribe to the agreement-dated 17.8.2000, their conduct in not participating in the transaction becomes clear. In this regard, reference may also be made to the six agreements, which remain unsigned and to which respondent Shri Jitendra Mohan Khungar and his wife are not a party. Merely because respondent No.1 has signed the MOU dated 8.5.2000, it cannot be said that he has accepted or approved the acts of 'oppression' and 'mis-management' complained of. The Company Law Board has taken note of all these aspects of the matter and has found that the very fact that respondents-company petitioners have not subscribed to the agreement-dated 17.8.2000, clearly indicates that they were not willing to be a party to the transaction. Thereafter, when the Indenture of Conveyance was executed on 20.3.2001 and when respondents, the minority came to know about the illegality committed, the fraud and deceit played on them, they have instituted criminal case in the matter and the same is still pending. An application filed in the High Court by the appellants for quashing the criminal case has been dismissed and the SLP has also been dismissed. That being so, merely because the minority headed by Shri Jitendra Mohan Khungar had been a party to the MOU dated 8.5.2000 and the Indenture of Conveyance dated 20.3.2001, that by itself cannot be a ground for holding that they are parties to the acts of 'mis-management' complained of, cannot object 25 to the same. It is clear from the conduct of the respondents that they not only refused to sign the agreement-dated 17.8.2000, had been continuously objecting to the acts of the majority by representing to various authorities, including the Registrar of Companies, but after the Indenture of Conveyance was executed on 20.3.2001, have instituted criminal proceedings against the majority group on the grounds of fraud, deceit and coercion. In that view of the matter, it is clear that the respondents have come out with a case that believing the assurance given by the majority they had subscribed to the MOU dated 8.5.2000, but when they found that contrary to the assurance, by under valuing the assets of the company and by making acts of 'mis-management' and 'oppression' when the majority was acting in detrimental to the interest of the company and the minority share holders, the respondents- company petitioners objected by not signing the agreement on 17.8.2000, represented and thereafter instituted criminal case in the matter. This conduct clearly shows that they were not party to the entire episode, but when they found that the majority was not sticking to the understanding given, they have protested and thereafter instituted the proceedings. That being so, on the grounds of respondents 1 to 3 signing the MOU or on the ground of they being a party to the entire action, the company petition could not be dismissed and in doing so, the Company Law Board has not committed any error. During the course of hearing Shri Ajay Mishra, learned Senior Advocate, had placed much emphasis on the ground with regard to filing of the criminal case and proving it in accordance with law. The question has been dealt with in detail in paragraph 41.
35- There is much force in the contention of Shri Kochar, learned counsel for the respondents, with regard to the conduct of the appellants in not bringing to the notice of the respondents all the agreements entered into in the matter. It is an admitted fact that there are in all, eight agreements, and it is only in two of them that Shri Jitendra Mohan Khungar has affixed his signatures. In the six agreements, he is not a party and as far as non-compete agreement is concerned, even 26 though appellants have tried to point out that there is no such agreement, but the documents available on record, particularly the assertions made by M/s INOX Air Products Limited and their reply to the notice sent is concerned, it clearly shows that a non-compete agreement was infact entered into. In this regard, the documents available at page 172 of the paper book may be referred to, which is the reply of M/s INOX Air Products Limited to the counsel of the company petitioners, wherein they have referred to the non-compete agreement. Apart from the aforesaid, there are various documents showing execution of non- compete agreements and even in paragraph 7 of the impugned order, the Company Law Board has referred to the same. Suffice it would be to refer to the particulars of various agreements that are indicated in Schedule II to the ESCROW Agreement dated 12.4.2001, available on record at page 155, is Schedule II, which forms part of list of agreements and in item No.3, reference is made to a non-compete agreement signed by M/s INOX Air Products Limited with Shri H.L. Taneja on 17.8.2000. It is therefore, clear that inspite of the fact that M/s INOX Air Products Private Limited admits execution of the non-compete agreement and the documents does show existence of such an agreement, the appellants have tried to deny execution of this agreement at various stages and have not even bothered to bring the agreement on record, as has been observed by the Company Law Board. These acts of the appellants in not producing these agreements, particularly the non-compete agreements and the group concept agreement, and not disclosing execution of these agreements to the company petitioners adds to the act of 'oppression' and 'mis-management'. For even if the said agreement is between M/s INOX Air Products Limited and Late Shri H.L. Taneja, it has some bearing and affect on the affairs of the company and had ultimately effected it adversely.
36- As far as suppression of fact is concerned, suppression of fact is alleged mainly on the ground that execution of the Indenture of Conveyance dated 20.3.2001 is not indicated in the company petition and respondent No.1 has suppressed the fact about his being a party to 27 this Indenture of Conveyance. In this regard, once it is found that respondent No.1 has challenged this Indenture of Conveyance on the grounds of fraud, deceit and coercion by instituting criminal proceedings, the objection of filing the company petition by suppression of facts cannot be accepted. That apart, this contention is also baseless. A proceeding before the Company Law Board is in the nature of a quasi- judicial proceedings and the strict laws of pleadings and evidence are not applicable in these proceedings. The proceedings are governed by the Company Law Board Regulation 1991, and the Regulations indicate that the Company Law Board is entitled to not only consider the application and documents filed, but also the material adduced before it by way of rejoinder, affidavits and written submissions also and all these constitute the material on the basis of which a final decision is to be taken, protecting the interest of the company and the share holders. In that view of the matter, as the company petitioners have made various averments and have specifically stated with regard to the execution of the criminal case, civil suit etc, it cannot be said that there is any suppression of fact, which has caused serious prejudice to the appellants. Accordingly, this Court does not find any substance in the object raised with regard to suppression of fact.
37- As far as the question of filing the petition with ulterior motives and the fact of not challenging the Indenture of Conveyance dated 20.3.2001 is concerned, the Indenture of Conveyance is not required to be challenged separately, as it form a part of act of 'mis- management' and 'oppression' and as the respondents have already instituted criminal case for the ace of fraud alleged in getting this Conveyance deed executed, the non-challenge of this document by separate prayer does not make any difference in the matter. 38- As far as filing of the petition with ulterior motives is concerned, there is no merit in the aforesaid contention. The contention is wholly devoid of substance and cannot be accepted.
2839- As far as the question of continuing wrong is concerned, in the light of the findings recorded while dealing with the question of limitation, now it is not necessary to go into this question separately. 40- As far as the grounds of perversity is concerned, even if some of the communications made and other documents are ignored, it would be seen that the Company Law Board has taken note of the averments made in the company petition, the objections and reply of the appellants, the counter-affidavit of M/s INOX Air Product Limited, the rejoinder application filed by the company petitioners and the written submission, all these material form part of the record and if the Company Law Board has taken note of all these material and has placed reliance on them to arrive at a conclusion, it cannot be said that the Company Law Board has recorded a perverse finding, because the material which did not form part of the original pleading have to be ignored. On a perusal of the provisions of the Company Law Board Regulation 1991 and the provisions of Regulation 24, it would be seen that the material adduced before the Company Law Board can be taken note of for arriving at a just and reasonable conclusion in the absence of their being evidence to show that the material adduced is fabricated and cannot be taken note of. The provisions of Regulation 44 read with Regulation 48 empowers the Company Law Board to follow a just and reasonable procedure. In the present case, the Company Law Board has taken into consideration the total material that was adduced before it, which consisted of the company petition, the reply, the affidavits, rejoinders and the written submission and if after considering the totality of all these material, reasonable finding is recorded, this Court exercising limited jurisdiction in a proceeding under section 10-F is not required to disturb the said finding in the absence of material to show that the documents or other pleadings relied upon by the Company Law Board could not be accepted, as they are wholly unacceptable. Nothing is brought to the notice of this Court on the basis of which it can be held that the averments made by the respondents in the material adduced before the Company Law Board falls in the category of material, which 29 is fraudulent or otherwise has to be ignored. If the Company Law Board after evaluating the entire material has recorded a finding and giving reasons for the same, it cannot be said that the findings are perverse. 41- During the course of hearing, great emphasis was stressed to argue that the finding of criminal case pending in the matter of coercion with regard to execution of the Indenture of Conveyance dated 20.3.2001 is a perverse finding, there is no material to show that such a criminal case is pending. The company petitioners have made specific averments with regard to pendency of criminal case and except for making a bald allegation that the criminal case is not pending, the appellants herein have not filed any affidavit to stress that the allegations of pendency of the criminal case is a false and frivolous allegation. If the memorandum of appeal under section 10-F, filed before this Court the averments made therein, the factual averments, and the grounds are taken note of, it would be seen that there is nothing by way of specific ground taken to suggest in the memorandum of appeal to contend that the allegations of pendency of the criminal case is a false and fabricated allegation and it is not correct. If the grounds of appeal, contained in paragraph 11 are perused, it would be seen that no specific allegation is made in the grounds to say that no such criminal case is pending. In the absence of specific denial by the appellants by making specific averments in the memorandum of appeal, in the matter of pendency of the criminal case, this Court does not find any ground to hold the finding in this regard, recorded by the Company Law Board to be perverse. There is no whisper in the memorandum of appeal under section 10-F, specifically dealing with the question of the criminal case being false or incorrect. Except of making general and vague allegation at the time of hearing that the findings are perverse, no specific ground with reference to the pendency of the criminal case, challenge to the criminal case in the High Court as well as the Supreme Court, are made. In that view of the matter, this Court does not find any ground to hold that the finding with regard to the pendency of the criminal case is a perverse finding. The scope of review available to this Court under section 10-F does not 30 so permit. Infact, a perusal of the findings recorded in paragraph 7 of the impugned order would indicate that various findings of fact recorded therein are mainly based on the ground that funds that came into the hands of the appellants in the light of various transactions that took place after execution of the MOU dated 8.5.2000 is not properly accounted for and non-furnishing of particulars with regard to end-utilization of these funds is taken note of by the Company Law Board to uphold the act of 'mis-management' and 'misappropriation' as established. These findings are based on material available, that is the bank account, the amount paid and the transaction entered into and it is a finding, which cannot be termed as perverse in any manner, whatsoever.
42- Having held so, the only question now would be with regard to the acts of 'oppression' and 'mis-management' committed, the act of 'under-valuation' and the effect of the allegations made with regard to 'oppression' and 'mis-management' and consideration of the same by the Company Law Board.
43- Before adverting to consider this question, it may be appropriate to take note of the principle governing the law with regard to 'oppression' and 'mis-management'.
44- In this regard, reference may be made to the law laid down by the Supreme Court, in the case of V.S. Krishnan and others Vs. Westfort Hi-tech Hospital Limited and others, (2008) 3 SCC 363, and the following observations are made in paragraphs 14 to 16:
"14. In a number of judgments, this Court considered in extenso the scope of Sections 397 and 398. The following judgments could be usefully referred to:
(a) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.1
(b) M.S. Madhusoodhanan v. Kerala Kaumudi (P) Ltd.2
(c) Dale and Carrington Investment (P) Ltd. v.
P.K. Prathapan3
(d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad4
(e) Kamal Kumar Dutta v. Ruby General Hospital Ltd.5 31 From the above decisions, it is clear that oppression would be made out:
(a) Where the conduct is harsh, burdensome and wrong.
(b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-à- vis the others.
(c) The action is against probity and good conduct.
(d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398.
(e) Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide.
(f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact.
15. Before going into the claims of both parties, it is useful to refer to the scope of Section 10-F of the Companies Act which provides appeal against the order of the Company Law Board. Section 10-F reads as under:
"10-F. Appeals against the orders of Company Law Board.-- Any person aggrieved by any decision or order of the Company Law Board made before the commencement of the Companies (Second Amendment) Act, 2002 may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court, may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days."32
16. It is clear that Section 10-F permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e. the Company Law Board is the final authority on facts unless such findings are perverse, based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate court under Section 10-F is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate court would interfere under Section 10-F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) omission to construe (sic consider) relevant materials."
Similarly, in the case of Sangramsinh P. Gaekwad (supra), the matter has been so dealt with in paragraphs 184 to 191:
"185. 'Oppression' complained of, thus, must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs.
186. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warranted. (See Bennet Coleman & Co. Vs. Union of India and Others [(1977) 47 Comp. Cases 92] and Syed Mahomed Ali Vs. R. Sundaramurthy and others [AIR 1958 Madras 587]
187. But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of Directors. Reliefs must be granted having regard to the exigencies of the situation and the court must arrive at a conclusion upon analyzing the materials brought on records that the affairs of the company were such that it would be just and equitable to order winding up thereof and that the majority acting through the Board of Directors by reason of abusing their dominant position had oppressed the minority shareholders. The conduct, thus, complained of must be such so as to oppress a minority of the members including 33 the petitioners vis-à-vis the shareholders which a fortiorari must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members.
188. The interest of the company vis-à-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956. .
189. Mala fide, improper motive and similar other allegations, it is trite, must be pleaded and proved as envisaged in the Code of Civil Procedure. Acts of mala fide are required to be pleaded with full particulars so as to obtain an appropriate relief.
190. The remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, thus, necessary to be proved. The acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority.
191. In Halsbury's Laws of England, 4th Edition, Volume 7, para 1011, it is stated:
'1011. Conduct amounting to oppression. In this context, "oppressive" means burdensome, harsh and wrongful. It does not include conduct which is merely inefficient or careless. Nor does it include an isolated incident: there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression.' On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful 34 usurpation of authority, even though the affairs of the company prosper in consequence."
And, in the case of M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara Raja and another, AIR 2008 SC 1738=2008(6) SCC 750, the matter has been so dealt with in paragraphs 19 to 21:
"19. The provisions of the Act vis-à-vis the jurisdiction of the Company Law Board must be considered having regard to the complex situation(s) which may arise in the cases before it. No hard-and-fast rule can be laid down. There cannot be any doubt whatsoever that the acts of omission and commission on the part of a member of a company should be qua the management of the company, but it is difficult to accept the proposition that the just and equitable test, which should be held to be applicable in a case for winding up of a company, is totally outside the purview of Section 397 of the Act. The function of a Company Law Board in such matters is first to see as to how the interest of the company vis-à-vis its shareholders can be safeguarded. The Company Law Board must also make an endeavour to find out as to whether an order of winding up will serve the interest of the company or subvert the same. Further, if an application is filed under Section 433 of the Act or Section 397 and/or Section 398 thereof, an order of winding up may be passed, but as noticed hereinbefore, the Company Law Board in a winding-up application may refuse to do so, if any other remedy is available. The Company Law Board may not shut its doors only on sheer technicality even if it is found as of fact that unless the jurisdiction under Section 402 of the Act is exercised, there will be a complete mismanagement in regard to the affairs of the company.
20. Sections 397 and 398 of the Act empower the Company Law Board to remove oppression and mismanagement. If the consequences of refusal to exercise jurisdiction would lead to a total chaos or mismanagement of the company, would still the Company Law Board be powerless to pass appropriate orders is the question.
If a literal interpretation to the provisions of Section 397 or 398 is taken recourse to, may be that would be the consequence. But jurisdiction of the Company Law Board having been couched in wide terms and as diverse reliefs can be granted by it to keep the company functioning, is it not desirable to pass an order which for all intent and purport would be beneficial to the company itself and the majority of the members? A court of law can hardly satisfy all the litigants before it. This, however, by itself would not mean that the Company Law Board would refuse to exercise its jurisdiction, although the statute confers such a power on it.
21. It is now a well-settled principle of law that the courts should lean in favour of such construction of statute 35 whereby its jurisdiction is retained enabling it to mould the relief, subject of course, to the applicability of law in the fact situation obtaining in each case.
In Pearson Education Inc. v. Prentice Hall India (P) Ltd. as regards the jurisdiction of the Company Law Board and the High Court under Sections 397/398 and 402, a learned Single Judge of the Delhi High Court held:
" ... Jurisdiction of the CLB (and ultimately of this Court in appeal) under Sections 397/398 and 402 is much wider and direction can be given even contrary to the provisions of the articles of association. It has even right to terminate, set aside or modify the contractual arrangement between the company and any person [see Sections 402(d) and (e)]. Section 397 specifically provides that once the oppression is established, the Court may, with a view to bringing to an end the matters complained of, make an order as it thinks fit. Thus, the Court has ample power to pass such orders as it thinks fit to render justice and such an order has to be reasonable. It is also an accepted principle that 'just and equitable' provision in Section 402(g) is an equitable supplement to the common law of the company to be found in its memorandum and articles of association."
45- If the totality of the facts and circumstances available on record is evaluated in the backdrop of the aforesaid legal principles, with regard to acts of 'oppression' and 'mis-management', it would be seen that the certain acts on the part of the appellants are found to be established and in paragraph 7 of the impugned order, the Company Law Board has dealt with it. It is found from the material and documents available on record that the acts of 'oppression' and 'mis-management' are basically made by under-valuing the property. The land value mentioned as 'Nil' in various documents clearly amounts to an act of under-valuation, when in the valuation report of Shri P. Mukadam it is found that the land is valued at more than Rs.45,78,600/-. The land is received on lease for a period of 99 years, which was executed on 4.6.1979 and even if the minimum premium and development charges of the land is taken note of and according to the calculations made by the Company Law Board, the amount would come to more than Rs. 5 Lacs, whereas the appellants have valued the land at 'zero'. The assessment of 36 land and building made and the valuation undertaken runs contrary to the report of the valuer Shri P. Mukadam. This Court while exercising limited jurisdiction in a proceeding under section 10-F of the Companies Act and does not sit over the order of the Company Law Board, as if it is exercising appellate jurisdiction. The Company Law Board in paragraph 7 of the impugned order, has dealt in details about the various acts of under-valuation, mis-appropriation and valuation of goodwill and has found that these amount to acts of 'oppression' and 'mis-management'. This Court is not required to repeat the same factual assertions again. Suffice it to say that the findings recorded by the Company Law Board in this regard are based on assessment of the material and documents available on record and this Court is not required to interfere with the same while exercising limited jurisdiction in a petition under section 10- F. If the findings recorded by the Company Law Board in paragraph 7 is scanned and if it is evaluated in relation to the allegations of perversity pointed out, it would be seen that the Company Law Board has dealt with various aspects of the matter in detail and it has taken note of the documents available before it to come to a conclusion that the appellants have failed to indicate the manner in which the funds received toward account of the company were utilized and it is found that it has not been properly explained. Instance of mis-appropriation and non-utilization of the funds have been evaluated and various instances are quoted. It is seen from a close scrutiny of the findings recorded in paragraph 7, that the Company Law Board has dealt with the matter in detail. For example
- the receipt of Rs.1,11,06,6656=00, as sale consideration of the company to M/s INOX Air Product Limited, is not denied. However, the end-utilization of this fund is found to be not properly explained. The Company Law Board based on the affidavits of the appellants' themselves have found that the amounts were diverted in the name of M/s Eastern Air Products Private Limited, which is under the total control of the majority, various agreements entered into are not produced and infact the end-utilization of this entire amount is not explained. This Court does not deem it proper to go into each and every aspect discussed 37 in paragraph 7. Suffice it to say that the Company Law Board has infact dealt with the matter in a pragmatic way and it cannot be said that its finding is perverse.
46- In this regard, if the principles governing jurisdiction of this Court while hearing an appeal under section 10-F is taken note of and if the law laid down by the Delhi High Court in the case of Shri A.P. Jain (supra); Madras High Court in the case of Probir Kumar Misra (supra); and, the Bombay High Court in the case of Smt. Hetal Alpesh Muchhala (supra), it would be seen that this Court is only required to consider substantial questions of law. The jurisdiction of this Court is limited and when the Company Law Board has discussed various factual issues in detail and has given justification for the same, in the absence of material to show that the same is perverse, not based on cogent or relevant consideration, interference in the matter is not called for. In this regard, the observations made by the Madras High Court in the case of Probir Kumar Misra (supra), based on a judgment of the Supreme Court indicates the following position:
"7.4 The scope of Section 10-F of the Act, which provides for an appeal against the order of the Company Law Board, has been enunciated by the Apex Court in V.S. Krishnan and Others vs. Westfort Hi-Tech Hospital Limited and Others, (2008) 3 SCC 363 as under:
'16. It is clear that Section 10-F permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e. the Company Law Board is the final authority on facts unless such findings are perverse, based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate court under Section 10-F is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate court would interfere under Section 10-F was if such conclusion was (a) against 38 law or (b) arose from consideration of irrelevant material or (c) omission to construe (sic consider) relevant materials.'."
47- Even a Bench of this Court in the case of Marble City Hospital and Research Centre (P) Limited Vs. Sarabjeet Singh Mokha, (2010) 99 SCL 303 (MP), has dealt with the question of jurisdiction of this Court while exercising power under 10-F and in paragraphs 17 and 18, has crystallized the concept in the following manner:
"17. ... This Court while exercising jurisdiction in an appeal under section 10-F of the Act does not deal with questions of fact. It only deals with questions of law involved in an appeal. A question of fact may give rise to a question of law, if the factual assertions made by the parties culminate in a finding of fact, which is perverse or contrary to the material available on record. At the same time if the finding recorded by the competent authority is based on some evidence available on record and is a possible finding that can be arrived at in the given set of circumstances, then the same need not and will not give rise to a question of law.
18- The scope and power of this Court while exercising appellate jurisdiction in a proceeding under section 10-F of the Act, is, as indicated in the preceding paragraph. Section 10-F contemplates that 'any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order 'on any question of law arising out of such an order'. It is, therefore, clear that an appeal contemplated under section 10-F is not an appeal on fact. The appeal is only on a "question of law" and, therefore, it can be safely construed that a finding of fact recorded by the Company Law Board is final and against such a finding no appeal lies. Under law the jurisdiction of this Court in an appeal under section 10-F is confined only to determination of any substantial question of law and, therefore, a finding of fact arrived at cannot be reversed by this Court until and unless it is apparent from the face of the record that the finding, even on factual aspects, is erroneous or perverse to such an extent that the same could not be arrived at in the given set of circumstances."39
48- Considering the impugned order passed by the Company Law Board in the light of the aforesaid legal principles and the findings recorded in paragraph 7 of the impugned order, I am of the considered view that a reasonable finding arrived at by the Company Law Board, after properly appreciating the totality of the facts and circumstances, does not warrant any interference now in these proceedings. 49- After arguments were advanced by Shri Ajay Mishra, learned Senior Advocate, on behalf of the appellants and when reply arguments of Shri Sankalp Kochar were concluded, an additional application I.A.No.5896/2010 has been filed, raising additional substantial grounds. Even though at this stage when the case is heard, it is not permissible to consider any such additional substantial grounds, but if the grounds raised and canvassed at the time of hearing are taken note of, it would be seen that the grounds now proposed to be raised vide I.A.No.5896/2010 have already been argued and considered by this Court.
50- Having so held, now it would be appropriate to consider a prayer made by Shri Sankalp Kochar for directing payment of the fixed deposit amount of Rs.13.56 Lacs alongwith interest. Even though the respondents in the company petition filed before the Company Law Board has made assertion in this regard, but when the Company Law Board refused to grant any relief on this count, respondents have not challenged the same by filing appeal nor is any cross-objection or cross- appeal filed in the present proceedings. The said prayer is only made by filing an interlocutory application in this proceeding and while considering the interlocutory application, this Court refused to grant interim relief, but only directed for early hearing of the appeal. In the absence of a specific proceeding initiated by the respondents for claiming the said amount in accordance to law, merely on the basis of some prayer made in the interlocutory application, it is not proper to direct for refund of this amount to the company petitioners/respondents. Accordingly, the said prayer is rejected.
4051- In view of the findings recorded hereinabove, this Court does not find any illegality in the order passed by the Company Law Board, warranting interference in this appeal under section 10-F. 52- Accordingly, the appeal is dismissed without any order so as to costs.
( RAJENDRA MENON ) JUDGE Aks/-