Company Law Board
A.P. Jain vs Faridabad Metal Udyog Pvt. Ltd. And Ors. on 27 July, 1998
Equivalent citations: [1999]95COMPCAS76(CLB)
ORDER
1. Shri A. P. Jain holding 15 per cent shares in the share capital of Faridabad Metal Udyog Private Limited ("the company") has filed this petition under Section 397/398 of the Companies Act, 1956 ("the Act"), alleging acts of oppression and mismanagement in the affairs of the company. He has also claimed that with the shareholding of his family members the percentage holding would come to 46.56 per cent.
2. It is on record that on more or less similar allegations, the petitioner had filed a petition under the same sections in the Delhi High Court in the year 1990, when the jurisdiction to adjudicate matters under Section 397/398 was with the High Court. On September 10, 1996, the petitioner moved the said High Court with a prayer for withdrawing the said petition and on that day, the court passed the following order :
"Counsel for the petitioners prays for leave to withdraw this petition with liberty to move the Company Law Board under Sections 397 and 398. Subsequent to the amendment, all such matters are being filed there although the petitions filed prior to amendment are especially saved by the Amending Act. I allow the request of counsel, which is not opposed by the opposite counsel to withdraw this petition as stated above. Dismissed as withdrawn without prejudice to right, if any, and with liberty to move the Company Law Board who if approached may deal with such petition in accordance with law. This is without prejudice to the rights of the respondents to raise any plea that may be available to them under law."
3. The present petition was later filed on October 16, 1996, before the Company Law Board. When the petition came up for hearing, considering the close family relationship between the parties, we suggested that the parties should try for amicable settlement of the disputes. Even though it was generally agreed that the petitioner's group would sell their shares to the respondent's group, in spite of our best efforts, proper consideration for the shares could not be settled between the parties and as such the efforts at compromise failed.
4. When the matter was taken up for hearing, counsel for the respondents, Shri Rajiv Dhawan, Senior Advocate, raised certain preliminary objections on the maintainability of the petition. His objections were that the present proceedings are an abuse of the process of law, hit by limitation, suffers from parallel proceedings and, finally, the petitioner does not qualify under Section 399 to present the petition.
5. Elaborating these objections, Shri Dhawan argued that the petitioner had filed a petition before the Delhi High Court in the year 1990 under Section 397/398 on the same allegations and after the matter had practically been heard by that court, he withdrew the petition and filed the present petition before the Company Law Board containing the same allegations as in the earlier petition. Therefore, this petition cannot be treated as a fresh petition. He further stated that as per Section 68 of the Companies (Amendment) Act, 1988, a matter that was pending before the High Court was to be continued in that court and the Company Law Board was not vested with any jurisdiction in respect of matters pending in the High Court. The High Court which was seized of the matter was fully competent to deal with the same. Withdrawing the said petition and filing the same before the Company Law Board is not only an abuse of the process of law but also would mean that the petitioner is guilty of forum shopping/jurisdictional shopping. Shri Dhawan further added to state that the Company Law Board, in view of the provisions of Section 68 of the Companies (Amendment) Act, 1988, suffers from the inherent lack of jurisdiction. On this proposition, he relied on Ujjam Bai v. State of U. P., AIR 1962 SC 1621. If the Company Law Board were to deal with the petition it would only mean wrongful assumption of jurisdiction on jurisdictional facts. He also further stated that even though the Delhi High Court had given liberty to the petitioner to move the Company Law Board yet the said court had also given liberty to the respondents to raise any plea that may be available to them under law. The mere fact that the High Court has given liberty to the petitioner to move the Company Law Board does not mean that the High Court has conferred power on the Company Law Board to deal with the petition. Accordingly, the respondents are at full liberty to raise all objections including the plea of jurisdiction which is fundamental and foundation of rule of law.
6. He further argued that the petition suffers from limitation aspect also. Since the petition deals with events that occurred prior to 1990, the petitioner has come before the Company Law Board only in 1996 and even in the petition, there is no allegation that the alleged acts of oppression or mismanagement are continuing. One of the ingredients of Section 397/ 398 is that the alleged acts of oppression/mismanagement should be continuing at least up to the date of the filing of the petition which is not the case in the present petition as the averments in the petition would clearly indicate that all the acts complained of related to the period before 1990. Citing 2CC 717 MB, he stated that the provisions of the Limitation Act are applicable to the proceedings under Section 397/398. In the absence of any allegation as to the continuation of the alleged acts of oppression and mismanagement, the petition cannot be entertained.
7. He further argued to state that in addition to the Section 397/398 petition, the petitioner had also filed another suit in the Delhi High Court in 1990 on more or less similar facts and that suit is still pending. Therefore, the petitioner cannot be allowed to prosecute these proceedings which would amount to the petitioner's pursuing two remedies at the same time.
8. Further, according to Shri Dhawan, the petitioners cannot claim any right over the shares under which they are claiming membership of the company as they had already agreed to sell their shares. No doubt the consideration for the same could not be exchanged as there were counter-claims. Citing Printers (Mysore) Ltd. v. Asst. CTO [1994] 2 SCC 434, Shri Dhawan stated that in interpreting the word "member" as contained in Section 399, one should look into whether such a person is really a member with all interest and liability. In the present case, since the petitioners had already agreed to sell their shares and they have also withdrawn from management consequent to the agreement, they no longer exhibit any interest in the affairs of the company and as such should not be treated to fall within the definition of "member" as in Section 399. Therefore, according to him, the words appearing in the statute should meaningfully be interpreted in the context in which the same is used. For the purpose of implementation of the agreement, a suit has already been filed and the matter is sub judice.
9. Shri U.K. Chowdhary, appearing for the petitioner, countered the arguments of Shri Dhawan that the present proceeding is an abuse of the process of law. According to Shri Chowdhary, the petitioner decided to withdraw the petition filed before the High Court only with a view to get expeditious disposal of the petition to be filed before the Company Law Board. The High Court was specifically told that the petitioners desired to withdraw the petition so that they would file the same before the Company Law Board and the High Court taking that fact into cognizance recorded the same in the order and gave liberty also to the petitioners to file the petition before the Company Law Board. At that time, the respondents never raised any objection against withdrawal and grant of liberty. Further, since the petitioner had already withdrawn the petition before the High Court, the present petition should be construed to be a fresh petition and cannot be treated as a petition transferred from the High Court. There are certain new allegations that have been made in the petition which itself makes it a fresh petition. Further, according to him, since the High Court itself has advised the Company Law Board to deal with the petition, the question of enquiring into whether the Company Law Board has jurisdiction or not does not arise. Dealing with the provisions of Section 68, he submitted that these provisions do not bar the filing of a petition before the Company Law Board but only impose an obligation on the High Court concerned to dispose of a pending petition by the concerned High Court itself. The provisions of this section are purely transitional in nature and do not prohibit either withdrawal of a petition from the High Court or filing of the same before the Company Law Board afterwards. Accordingly, Shri Chowdhary submitted that the Company Law Board has full jurisdiction to deal with the petition and since the petitioner has already withdrawn the petition before the High Court, the question of forum shopping or jurisdictional shopping does not arise.
10. Dealing with the objection relating to limitation, Shri Chowdhary stated that even though most of the allegations are similar in nature to those of the earlier petition, yet certain new allegations have also been incorporated in the petition. Further, even though many of the allegations related to the period before 1990, yet the effects of the acts of oppression and mismanagement continue even today, thus, satisfying the provisions of Section 397/398. Further, he submitted that the provisions of the Limitation Act are not applicable to proceedings before the Company Law Board.
11. In regard to the qualifications of the petitioners under Section 399, Shri Chowdhary submitted that the names of the petitioners are still in the register of members in respect of more than 10 per cent, shares in the company and, therefore, he is qualified to present the petition. The alleged agreement to sell the shares has not been implemented and as long as the name of the petitioner appears in the register of members, he has the locus standi to pursue the petition. The company as such is not concerned with the private agreement of individual shareholders and it has to go by with the register of members. He also drew our attention to Section 41 of the Act to state that by being in the register of members, the petitioner comes within the definition of "member".
12. Relating to the parallel proceedings, he submitted that the suit is in relation to partition of family properties and the company is not a party to the proceedings. Further, even when the Section 397/398 petition was pending before the High Court, the suit was also pending in the same High Court and this objection of parallel proceedings was never agitated in the High Court. According to him, the petitioner has come before the Company Law Board in the capacity of a member alleging acts of oppression and mismanagement in the affairs of the company which matter is not covered in this suit.
13. We have considered the arguments of counsel on the preliminary objections and also the written brief given by both counsel as per the liberty given to them to do so after the hearing was completed. First of all we shall deal with the locus standi of the petitioner. It is admitted by the company that the petitioner's name is in the register of members and the parties agree that the agreement to sell was not implemented in the sense no consideration was paid for the shares nor the share certificates together with transfer instruments were lodged with the company for registration of the transfer, The argument of Shri Dhawan is that the petitioners gave up their participation in the company after the agreement was entered into thus exhibiting lack of interest in the affairs of the company and therefore, even if their names continue in the register of members, they cannot be treated as members of the company. We are unable to accept this proposition. It is an admitted position that no consideration has been paid for the sale of shares and that the share certificates are still in the possession of these petitioners. The position would have been different if only the registration is pending while all other pre-acts like payment and receipt of consideration and handing over of necessary documents including the share certificates had taken place. In such a situation, we may have to examine about the locus standi of the petitioner even if his name continues in the register of members. In the present case, except an agreement itself, no further action pursuant to the same has been taken. Under these circumstances, we have no hesitation to hold that the petitioner satisfies the condition of being a member of the company and since he owns more than 10 per cent, shares in the company, he has locus standi to present this petition.
14. As far as the issue relating to the jurisdiction of the Company Law Board to deal with this petition, in addition to his argument, Shri Dha-wan, in his written brief has stated that if a case was pending before the High Court when jurisdiction was conferred on the Company Law Board, then such pending petition cannot be withdrawn and re-filed before the Company Law Board in terms of the provisions of Section 68 and the High Court by allowing the petition to be withdrawn could not have given the liberty to the petitioners to file the same before the Company Law Board as the High Court cannot confer any jurisdiction when the Legislature itself has not done so on pending matters. It is stated in the written brief that an order passed by a court without jurisdiction is null and void ab initio. On this proposition, he relied on Kiran Singh v. Chaman Paswan, AIR 1954 SC 340. The courts cannot enlarge a jurisdiction or confer jurisdiction, which it does not possess. Since Section 68 is explicit to the effect that the Company Law Board would not deal with pending matters, any assumption of jurisdiction on pending matters would mean that even with the consent of the parties, it cannot assume jurisdiction Balai Chandra v. Shewdhari Jadav, AIR 1978 SC 1062. The respondents have also relied on A R. Antulay v. R.S. Nayak, AIR 1988 SC 1531, wherein the Supreme Court observed "this court by its directions could not confer jurisdiction on the High Court of Bombay to try any case when it does not possess such jurisdiction . . . The power to create or enlarge jurisdiction is legislative in nature . . . Parliament alone can duly by law and no court, whether superior or inferior or both combined can enlarge jurisdiction of a court or divest . . ." In the same way, it is also stated in the written brief that the petitioner cannot do something indirectly what he cannot do directly. The present petition is not maintainable and a party cannot be permitted to indirectly invoke the jurisdiction of the Company Law Board which he cannot invoke directly because of the bar of Section 68, Patel Moti Bhai v. Dinubhai Patel [1996] 2 SCC 585.
15. In regard to the jurisdiction of the Company Law Board to deal with this petition, the objection of Shri Dhawan is based on the provisions of Section 68 of the Companies (Amendment) Act, 1988. From this Section it is quite clear that if in respect of certain provisions of the Act, the jurisdiction of the court had been transferred to the Company Law Board by the Amendment Act, even then, all pending matters in any court shall be continued and disposed of by that court. In accordance with this provision, the petition filed by the petitioner in 1990 was continued in the High Court till 1996 and was withdrawn in that year. While allowing the withdrawal, the High Court also gave liberty to the petitioner to move the Company Law Board and while doing so the court also observed that the Company Law Board if approached may deal with such petition in accordance with law. From a reading of this order we are not in a position to come to a conclusion that the High Court had conferred any jurisdiction on the Company Law Board as it has very specifically stated in that order that the Company Law Board would deal with this matter in accordance with law. On any petition filed after May 31, 1991, under Section 397/398, the Company Law Board has jurisdiction and the present petition being a petition filed in 1996, we feel that we have the jurisdiction to deal with the same. Once a petition has been withdrawn, it can never be treated as a pending proceeding. On withdrawal, it comes to a close. Therefore, the argument that by filing the present petition, the petitioner is seeking the Company Law Board to deal with the matter pending in the High Court, does not arise. Under these circumstances, we do not consider that there has been any violation of the provisions of Section 68.
16. Shri Dhawan gave us a comparative statement of the allegations in both the petitions, from which it is seen that practically all the allegations in the present petition are similar to the ones in the earlier petitions, save for some changes in the language and figures. Thus, taking into consideration the. contents of this petition, comparing the same with the contents of the petition before the High Court where the matter was pending for over six years, and that by withdrawing the same and in filing the present petition, we are of the firm view that the petitioner has definitely indulged in forum shopping/jurisdictional shopping. We also note that the High Court had even appointed an arbitrator with a view to get the disputes sorted out by the arbitrator but had, for some reasons, withdrawn from the assignment. In other words, the petition in the High Court was actively pursued. Under these circumstances, the reason adduced by Shri Chowdhary for withdrawal of the petition from the High Court and filing of this petition before the Company Law Board that in the Company Law Board, quick disposal is possible does not seem to be an acceptable plea. Further, we are unable to convince ourselves on this reasoning, especially when the jurisdiction was transferred to the Company Law Board as early as in 1991, and the matter was pursued in the High Court for over five years afterwards. Thus, we concur with Shri Dhawan that the petitioner is indulging in forum shopping and this petition is an abuse of the process of law.
17. As far as limitation is concerned, no doubt the provisions of the Limitation Act are not applicable to proceedings before the Company Law Board, yet if there is abnormal delay in bringing a matter before the Company Law Board, in this case of over six years, we do take into consideration the limitation. May be the stand of the petitioner is that he was not keeping quiet and that he had agitated the matter well in time before the High Court. But having withdrawn a long pending matter from the High Court where, in all probability, the matter could have ended in the near future, the petitioner cannot have the excuse that he had been vigilant in protecting his interest as a shareholder. We are coming to this conclusion only on comparing the various allegations in the earlier petition and this petition and find that except for some marginal changes in language or figures, the allegations in the petition are practically the same as in the earlier petition and the present petition is nothing but repetition of the earlier petition. Further, on the arguments of Shri Chowdhary that the effects of the alleged acts of oppression and mismanagement committed earlier still continue, we are of the view that having waited for over seven years, even assuming that the effects are continuing even now, we cannot consider this as a ground to proceed with the petition by shutting our eyes to the plea of the respondents that there is gross delay and laches.
18. Accordingly, considering the fact that through this petition the petitioner has indulged in forum shopping and that the petition suffers gravely on account of limitation, without going through the respective contentions of the parties on the merits of the allegations, we dismiss this petition.
No order as to costs.