Company Law Board
Woodbriar Estate Limited And Ms. ... vs V.N.A.S. Chandran on 16 December, 2005
Equivalent citations: [2007]137COMPCAS709(CLB), [2007]78SCL393(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. In the company petition filed under Sections 111A, 163, 196, 237(b), 397, 398, 402, 403 and 406 read with Schedule XI of the Companies Act ('the Act') alleging acts of oppression and mismanagement in the affairs of M/s. Woodbriar Estate Limited ('the Company'), the respondents 1 & 4 have raised the issue of maintainability of the company petition by making the present company application (c) sic 101/2005.), in support of which Shri Sriram Panchu, learned Seinor Counsel argued as under:
• By virtue of Section 399, members holding not less than one-tenth of the issued capital of the company or members constituting not less than one-tenth of the total number of members or hundred members, whichever is less shall have the right to apply under Section 397 or 398. The petitioner's holding in the Company accounts for only 5.34% of the issued share capital as against 18.29%, claimed by him, in view of-
(i) the transfer of 33,126 equity shares out of 52,652 equity shares held by the petitioner in favour of the third respondent made on 05.10.2001; and
(ii) the allotment of 1,75,000 equity shares of Rs. 10/- to M/s Woodbriar Financial Services (P) Limited and 83, 216 equity shares of Rs. 10/- each to Woodbri Air Travel (P) Limited made during the year 2003-04.
• The petitioners' claim that .13,126 shares have been transferred by way of force and coercion in favour of the third respondent can be adjudicated in a civil court, but not before the CLB invoking the provisions of Section 111A, after a period of three years as against two months from the date of transfer of such shares.
• The transfer deed has been signed by the petitioner on 29.09.2001 and the transfer has been effected on 05.10.2001. According to the petitioner himself, the transfer deed has been signed on 06.08.2002. The annual return for the year ended 31.03.2002 filed on 30.11.2002 with the Registrar of Companies reflects the transfer of shares effected in favour of the third respondent. Any application for oppression and mismanagement has to be filed within three years from the date of transfer, whereas the present company petition has not been filed within three years. Thus, in both the cases, the remedy of the petitioner is barred by limitation.
• The High Court of Madras rejected in the Criminal O.P. Nos. 44232/2003 and 2067 and 2068/2004 the allegations of the petitioner that the share transfer was obtained by the third respondent by way of force and coercion as false and baseless and quashed the criminal complaint lodged by the petitioner with the Commissioner of Police against the respondents in February, 2003 for the purported force and coercion. Thus, the petitioner has been indulging in forum shopping. Furthermore, the petitioner categorically admitted before the High Court that the criminal complaints came to be filed due to certain misunderstanding and the parties are attempting to have a settlement in the presence of the elders of the family members.
• The Company, pursuant to the notice dated 15.10.2003 sent to all its members, at its extraordinary general meeting held on 25.11.2003 resolved to allot 2,58,216 equity shares to M/s Woodbriar Financial Services Private Limited (1,75,000 shares) and M/s Woodbri Travels Private Limited (83,216 shares). The petitioner is not disputing the fact of the allotment of shares made during the year 2003-2004, but only contends that the allotment in violation of Section 81(1A) is illegal and that the Company has not offered any shares in proportion, to the petitioner who as on the date of issue of further capital is holder of equity shares of the Company. The petitioner has not challenged the allotment of shares either in the present company petition or in any other forum. The petitioner ought to have amended the company petition impugning the allotment of shares. Mere allegations in the counter-statement challenging the allotment is not adequate and the CLB is bound to look at the company petition, wherein the allotment of shares has not been challenged by the petitioner. In the result, (consequent upon the impugned transfer and allotment of shares) the petitioner's holding of 19,526 shares out of the issued capital, consisting of 3,65,000 shares, accounts for 5.34% of the issued capital of the Company and the petitioner does not have the required shareholding of 10% as prescribed under Section 399.
• Section 397 can be invoked as held by the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Limited AIR 1965 Supreme Court 1535 only when shown that there is just and equitable cause for winding up the company, that the acts of oppression complained of are continuous, but not single and that the conduct of the majority shareholders is burdensome, harsh and wrongful, which are lacking in the present company petition. There are no pleadings about inability of the Company to continue its operations or circumstances which warrant winding up of the Company. The requirements of Section 397, as laid down by the Supreme Court are reinforced by the Orissa High Court in N.K. Mohapatra v. State of Orissa (1999) 96 CC 49; the Madras High Court in V.M. Rao v. Rajeswari Ramakrishnan; V.M. Rao v. V.L. Dutt (1987) 61 CC 20 and the Delhi High Court in Suresh Kumar Sanghi v. Supreme Motors Limited (1983) 54 CC 235. The Calcutta High Court in Mohta Bros. Private Limited v. Calcutta Landing and Shipping Company Limited (1970) 40 CC 119 held that in an application under Sections 397 and 398 the petitioner must give full particulars of acts of mismanagement, misappropriation, fraud or oppression and prove prima-facie that on those facts an investigation is called for. Vague and uncertain allegations of mismanagement and oppression, though they may constitute grounds for suspicion, do not entitle a petitioner to ask the court to embark upon an investigation into the affairs of the company. If the petitioner fails to set out the facts and produce satisfactory proof in support of those facts no order for investigation into the affairs of the company can he made, nor can any relief be granted to the petitioner. The CLB while considering the maintainability of a petition under Sections 397 & 398 in R. Ramanathan Chettiar v. A. & F. Harvey Limited (1967) 37 CC 212 followed the principles enunciated by the Calcutta High Court In re Bengal Luxmi Cotton Mills Limited (1965) 35 CC 187 that a general allegation of fraud, however strong the words used is insufficient, but must be supported by particulars of alleged fraud. In an application under Sections 397 and 398, the petitioner has to rely upon supporting affidavits from persons having personal knowledge of the allegations of oppression, mismanagement, misconduct or other act prejudicial to the interest of the company. If the petitioner has no personal knowledge himself, failure of which will prove fatal to the petition itself. The petitioner listed out in the company petition a few acts of mismanagement and misappropriation of funds or assets reportedly carried out by the respondents 2 to 6, without furnishing any details and supported by any materials. The grievances in relation to labour unrest in the Company and leasing of the landed property under the purported forged document in favour of one of the companies under the control of the respondents are irrelevant with reference to the company petition. Similarly, the grievances pertaining to custody of original documents of certain immovable properties in the hands of the respondents 2, 3 & 4, transfer of lease of certain enterprises to the respondents, custody of demand drafts worth Rs. 52 lakhs in the second respondent towards part payment for certain building put up by the petitioner and certain motor vehicles in possession of the respondents, elaborated in the company petition are not related to the affairs of the Company and cannot be gone into in the present company petition.
• The petitioner claims that the respondents must make good the misappropriated funds, investments and assets "as to be revealed" in the investigation of the independent chartered accountants, but failed to make out any case in this behalf, without which the prayer for reconstituting the board of directors of the Company and for preparing a scheme of Administration to regulate the affairs of the Company, being consequential, cannot be granted by the CLB.
• The petitioner is aggrieved of his removal from the board of directors. In a Section 397 petition, directorial complaints cannot generally be agitated except in cases of closely held companies as held in Karedla Surayanarayana v. Ramadas Motor Transport Limited (1999) 98 CC 518. In the present case, 30.20% of shares is held by the outsiders and therefore directorial grievances cannot be entertained.
2. Shri Krishna Srinivasan, learned Counsel, while opposing the company application submitted:
• Any application challenging the maintainability of the main company petition has to be filed at the threshold. The present application filed after ten months of the filing of the company petition, whereby the pleadings are completed, is an after-thought and liable to be dismissed in limini.
• The company petition cannot be rejected at the threshold, as it would cause serious prejudices to the petitioner. The CLB in Kishan Khariwal v. Ganganagar Industries Limited (2004) 118 CC 626 categorically held that no petition can be dismissed at the threshold before examining as to whether the issue of further shares could be considered to be an act of oppression against the petitioner and his supporters. The Bombay High Court in Jer Rutton Kavasmaneck v. Gharda Chemicals Limited (2001) 106 CC 35 held that while exercising powers under Order 7 Rule 11 of CPC providing for rejection of the plaint or petition for not disclosing cause of action, the courts must act with utmost caution. Dismissal of a petition at the threshold leads to very serious consequences. The courts have been very reluctant to reject the plaint at the threshold. The petition could be struck out only if the case put forward is unarguable.
• The preliminary issue raised by the respondents is a mixed question of law and facts and therefore the provisions of Order 14 Rule 2 of CPC cannot be invoked. The Gujarat High Court in Saurashtra Cement And Chemicals Industries Limited v. Esma Industries Private Limited (1990) 69 CC 372, while interpreting Order 14 Rule 2 of CPC held that a suit must be tried as a whole on all issues and trial of preliminary issues is permissible only where the preliminary issue is a pure issue of law, and (a) it touches upon the question of jurisdiction of the court; or (b) it raises a question that the proceedings are barred by any provision of law. In all other cases, where preliminary objections are taken about the maintainability of the proceedings, even if there were issues either of pure law or issues raising mixed questions of law and fact, they cannot be tried as a preliminary issue.
• The petitioner originally held 49.30% of the issued capital of the Company, but reduced to 18.29%, pursuant to the transfer of 33,126 shares to the third respondent on 05.10.2005, without consideration and by way of duress and coercion. The petitioner has prayed in the company petition for declaration that the transfer of 33,126 shares under duress and coercion is illegal, void and for restoration of these shares to the petitioner, which can be granted only by the CLB under Sections 397 and 398. The criminal court approached by the petitioner complaining of duress and coercion can only award punishment to the respondents for such offences. The petitioner came to know about the impugned transfer of shares on obtaining certified copy of the annual return of the Company for the year ended 31.03.2002 on 03.02.2003 and therefore the company petition is not barred by limitation, especially when no time limit is fixed in Section 111A, as interpreted by the Bombay High Court in Finolex Industries Limited v. Anil Ramchand Chhabria 2000-(CC2)-GJX-0090-BOM. This contentious issue cannot be decided at the threshold.
• The further issue of 2,58,216 shares allegedly made at the extraordinary general meeting held on 25.11.2003 came to light subsequent to the filing of the company petition and is being challenged by the petitioner. The issue of further shares being a subsequent event made, without any justification by conversion of the loans given by the two group companies to the Company and with the object of bringing down the shareholding of the petitioner from 18.29% to less than 10% must be set aside as malafide. The allotment is in contravention of Section 81(1A). This section provides that in the event of further issue of capital, such further shares must be offered to the existing shareholders, in proportion to their holding. The petitioner has been a shareholder during the year 2003-2004 when the further issue was made, but the petitioner was neither served with any notice for the extraordinary general meeting approving the issue of further shares nor issued any additional shares. The petitioner categorically sought to set aside in the rejoinder the illegal issue of further shares on the ground that it is ultra-vires the articles of association of the Company. The CLB has to adjudicate the validity of the allotment of shares and in the event of ignoring the impugned allotment, the petitioner will qualify under Section 399 to maintain the company petition. The CLB in T.N.K. Govindaraju Chetty And Company v. Kadri Mills (Cbe) Limited 1998-(CC2)-GJX-0119-CLB held that allotment of shares to the exclusion of some shareholders could he agitated as an act of oppression in a petition under Section 397 or 398 and further that when the holding of a petitioner is reduced below 10% due to further allotment of shares, the petition should he held to be maintainable on the strength of his holding before the further allotment of shares. Thus, the petitioner's holding of 19526 shares as on the date of the company petition in exclusion of the further allotment of shares amount to 18.29% of the issued and paid-up capital of the Company and therefore entitled to invoke the provisions of Sections 397 and 398. In Ashok Kumar Oswal v. Panchsheel Textile Manufacturing and Trading Company Private Limited (2002) 110 CC 800 it has been held that a single act of allotment of shares could be considered to be an act of oppression within the meaning of Section 397. Further, in view of the continuous effect arising out of the allotment of shares, the CLB cannot apply time limit to file a petition to challenge such allotment of shares. Hence, limitation does not apply to continuing acts under Section 397 or 398.
• The respondents have dealt in their sur-rejoinder several issues raised by the petitioner which include the allotment of shares impugned by the petitioner in the rejoinder. The allotment of shares under challenge has to be adjudicated in the present proceedings. Section 397 or 398 can be invoked by any aggrieved member satisfying the requirements of Section 399, when the company's affairs are being conducted in a manner prejudicial to public interest or the interest of the company or in a manner oppressive to any member or members. Any allotment which is found to be illegal can be set aside even without any prayer by the aggrieved party. The court while acting under Section 397 or 398 read with Section 402, has ample jurisdiction and wide powers to pass such orders and give such directions as it thinks fit for regulating the conduct of the company's affairs in future, and there would be no limitation or restriction or such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in accordance with such provisions of the Act. as held in Pramod Kumar Mittal v. Andhra Steel Corporation Limited (1985) 58 CC 772.
• The petitioner has set out in para 14 of the company petition various acts of oppression and mismanagement as well as statutory violations committed by the respondents 2 to 6. This Board granted reliefs in several cases where - (a) issue of further shares was not found to be in the interest of the company; (b) allotment of further shares created new majority; (c) director was removed without complying with the procedure prescribed in the Act; (e) "proper purpose doctrine was not followed by directors and (f) meeting was held without any notice. This Bench has to consider these aspects in the present company petition and therefore it cannot be said that the company petition lacks the essential ingredients of Section 397 and 398.
• The respondents preferred a revision petition against the order dated 23.12.2004 of the Bench made in CA 170/2004, before the Madras High Court, but later on withdrew the same and immediately thereafter filed yet another application in CA No. 134/2005 seeking modification of the order dated 23.12.2004. The petitioner, on the representation of the respondents, gave categorical assurance on 09.11.2005 across the Bar that he will not send any communication or representation or make any publication to any authority, prejudicing the interest of the Company, but the respondents chose to file subsequently on 10.11.2005 a civil suit (O.S. No. 2014/2005) on the file of the Court of the District Munsif of Coimbatore against the petitioner for permanent injunction restraining him, inter-alia, from addressing any matter touching upon any of the affairs of the Company and its group companies. The sequence of events reveals the conduct of the respondents 2 to 6.
3. Shri Sriram Panchu, learned Senior Counsel in his rejoinder submitted:
• By virtue of Order 14 Rule 2 of the Code of Civil Procedure, 1908, those issues of law in relation to (a) jurisdiction of the court or (b) bar to the suit created by any law for the time being in force may be decided as a preliminary issue by any court. The petitioner, pursuant to Section 399 is barred from making any complaint under Section 397 or Section 398 in relation to the affairs of the Company and therefore the CLB first necessarily try the maintainability of the company petition as a preliminary issue.
• The CLB in Kishan Khariwal v. Ganganagar Industries Limited and T.N.K. Govindaraju Chetty v. Kadri Mills (supra) categorically held that when the holding of a petitioner is reduced below 10% due to further allotment of shares and such allotment itself is impugned in a petition under Section 397 or Section 398, the petition should be held to be maintainable on the strength of his holding before the further allotment of the shares. The petitioner having failed to challenge the allotment of shares in the company petition, the shares further issued by the Company cannot be ignored for the purpose of Section 399, in which case he does not hold one-tenth of the issued capital of the Company. The CLB in Turner Morrisson Limited v. Jenson and Nicholson (India) Limited (1998) Vol.93 CC 347 held that in composite petitions. where the title to shares, which entitles a person under Section 399 is in dispute, the same should be adjudicated first without considering the matters under Section 397 or Section 398.
Therefore, this Bench has to decide the preliminary issue of maintainability to avoid abuse of process and multiplicity of proceedings. Notwithstanding the merits of the company petition and without prejudice to the claim of the respondents, the respondents 2 - 6 are willing to purchase the shares of the petitioner at a fair price, which may be determined by the CLB.
4. I have considered the elaborate arguments put forward by learned Counsel. The short issue before me is whether maintainability of the company petition can be decided as a preliminary issue in the facts and circumstances of the present case?
The petitioner should hold 10% of the issued capital in the Company to maintain a petition under Section 397 or Section 398, but his share holding according to the respondents, accounts for 5.34%, thereby attracting disqualification under Section 399. In this context, it has to be borne in mind that the authorized share capital of Rs. 45,00,000 divided into 4,50,000 equity shares of Rs. 10/- each and the issued and paid-up share capital of the Company of Rs. 10,67,840 divided into 1,06,784 equity shares of Rs. 10/- each are not in dispute. The petitioner admittedly held prior to the year 2002-2003, 52,652 shares representing 49.30% of the then paid-up capital of the Company. The transfer of 33,126 shares by the petitioner out of his 52,652 shares made in August, 2002 to the third respondent, was reportedly without his consent under duress and coercion. Accordingly, the transfer of 33,126 shares constituting 31.01% of the issued capital is impugned in the company petition. The petitioner's remaining shareholding with 19526 shares, despite the impugned transfer of 33,126 shares in favour of the third respondent represents 18.29% of the issued capital of the Company and entitles him to maintain the present company petition under Section 397 or Section 398. I may point out that one has to be a member before he can complain under Section 397 or Section 398. If the petitioner's title to the membership is in dispute and seeks relief under Section 111/111A for incorporating his name in the register of members, it would not be proper till the dispute is decided permitting such person to maintain a petition under Sections 397 and 398. In this backdrop, this Board in Turner Morrison Limited v. Jehnson and Nicholson (India) Limited (supra), held that "in a composite petitions, where the titles to shares, which entitles a person under Section 399 in dispute the same should adjudicated first without considering the matters under Section 397/398". Whereas, in the present case, the petitioner's title to membership in respect of 19526 shares constituting 18.29% of the issued capital is not in dispute and therefore the principles enunciated in Turner Morrison Limited v. Jenson and Nicholson (India) Limited (supra) have no application to the facts of the case before me. However, the subsequent reduction in the petitioners' shareholding to 5.34% on account of the further allotment of 2,58,216 shares, of which he pleads ignorance, is considered separately. By virtue of Section 111A, the shares of a public company shall be freely transferable and except as provided under Sub-section (3), failure of which, empowers the CLB to rectify the register of members within two months from the date of transfer of any shares. The instrument of transfer in respect of the impugned shares was signed by the petitioner on 06.08.2002, as reflected in para 5 of the company petition. The two month period prescribed under Section 111A(3), in my view, applies to the transfer of shares effected in normal course of transactions but not in respect of transactions, in which the shareholder has been deprived of his shares without free consent by way of coercion or duress or force. For forming this view, support is drawn from the decisions of this Board in Bhuwaneshwar Nath Nigam v. Hindustan Lever Limited (2002) 111 CC 590 and Shailesh Rajnikanth Parekh v. Starline Travels Private Limited (2004) 111 CC 145, wherein it has been held that the period of limitation cannot strictly be applied in the case of fraudulent transfer of shares on the basis of forged transfer forms. The Bombay High Court in Finolex Industries Limited v. Anil Ramchand Chhabria (supra), while considering the totality of provisions of Sections 111 and 111A came to the following conclusion:
By virtue of provisions of Section 28 of the Depositories Act it cannot be held that Section 111A(3) is restricted to rectification of the register only in transfer matters. This would mean that no remedy of rectification is available in case of loss of shares, bad deliveries, theft and forgery. This would be in derogation of the law for the time being in force. Remedy provided in Section 111A(3) is in addition to the remedy provided on Section 111(4). It is, therefore, held that the remedies of appeal and rectification are available to all kinds of shares held in a public company under the proviso to Section 111A(2) and Section 111A(3) read with Sub-section (7) of Section 111A which would make applicable the provisions of Section 111(1), (2) and (4) by virtue of Section 111(5) of the Act.
The complaint made by the petitioner with the Commissioner of Police in February, 2003 for the purported coercive transfer of shares has been quashed by the Madras High Court in Criminal O.P. Nos. 44232/2003 and 2067 and 2068/2004, against which appeal preferred by the petitioner before the Supreme Court is pending. In this background, the admission of the petitioner made before the High Court that the criminal complaints on account of coercion and duress came to be filed due to certain misunderstanding and that the parties are attempting for an amicable settlement has to be considered in the proceedings pending before the Supreme Court. The claim that the impugned transfer of 33,126 shares made without free consent, being voidable shall be agitated in a competent civil court and that the petitioner failed to approach the CLB within the stipulated time under Section 111A, involving a mixed question of law and fact as already elaborated, cannot be rejected at the threshold. Further, this Board in a number of cases, while considering the issue of limitation categorically held that the plea of limitation does not arise in case of proceedings in relation to Section 397 or 398 proceedings.
According to the respondents, the Company had allotted 258216 shares during 2003-2004 in favour of certain shareholders, the fact of which has not been challenged either in the company petition or in any other forum by the petitioner. The further issue of shares, as contended by the ' petitioner, came to his knowledge only subsequent to the filing of company petition and therefore the petitioner in his rejoinder sought to set aside those shares in the following words:
Even assuming for a moment without admitting the further allotment of shares referred to in para 2.3 of the counter is true, the same is in contravention of Section 81(1) of the Companies Act. Section 81(1)(a) requires that whenever there is a further issue of capital, such further shares being issued shall be offered to person who at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on these shares at that date. The petitioner is an equity shareholder of the Company and was during the year 2003-04 when the further issue was made. The Petitioner is taken to surprise as he is hearing for the first time from the Respondents through their counter that he has been made as a minority shareholder in his own company. The Petitioner most respectfully states that he is not aware of any such further issue and the same deserves to be set aside as malafide, exfacie illegal and vindictive. Thus the further allotment made by the Company is clearly not only illegal, ultra vires the Articles of Association of the Company but also invalid. Hence this Hon'ble Board has to set aside the said illegal, invalid further issue of shares. (para 2 (c) in pages 2 & 3).
The respondents in their sur-rejoinder reiterated that the allotment of 258216 shares was validly made in pursuance of a special resolution passed under Section 81 (1A)(a) at the extraordinary general meeting held on 25.11.2003 and that the notices of the extraordinary general meeting were sent to all shareholders of the Company. The respondents further denied that these shares were issued to create a new majority. While the petitioner asserts that "he is hearing for the first time from the Respondents through their counter that he has been made as a minority shareholder in his own company", the respondents vehemently contend that the petitioner having failed to impugn the allotment of shares in the company petition, the further shares allotted by the Company cannot be ignored for the purpose of Section 399. The respondents have attributed to the petitioner, prior knowledge of the allotment of further shares, but I do not see any material on record substantiating their claim. The plea of the respondents that the notice of the extraordinary general meeting said to have been held on 25.11.2003 for allotting further shares has been sent to the petitioner remains to be mere pleading without supported by any material. Whether the petitioner had prior knowledge about the further allotment and whether the notice of extraordinary general meeting was sent to the petitioner are seriously disputed questions of fact. In view of this, the claim of the respondents that "the allotment of 258216 shares was done after complying with the provisions of the Companies Act. It is denied that these shares were issued to create a new majority" (para 4.1 at page 5 of sur-rejoinder) cannot be adjudicated as a preliminary issue. "Pleading" shall mean, as per Order 6 Rule 1 of CPC, plaint or written statement. By virtue of Order 8 Rule 9, no pleading subsequent to the written statement of a defendant shall be presented except by the leave of the Court and upon such terms as the Court thinks fit. The provisions of CPC, though inapplicable, yet, the principles enunciated therein are made applicable to the proceedings before the CLB. Accordingly, the petitioner herein was permitted by an order dated 03.02.2005 to file a rejoinder meeting the allegations made in the counter-statement, which is found to be duly complied with by the petitioner. Thereafter, the respondents filed a sur-rejoinder in terms of the order dated 05.04.2005. Therefore, the further allotment of 258216 shares challenged in the rejoinder by the petitioner and justified by the respondents in their surrejoinder must necessarily be adjudicated in the present proceedings. However, the grievances raised in this behalf whether can be remedied, without any prayer being sought in the company petition, cannot be considered at the threshold. It is in this context when the holding of a petitioner is reduced below 10%, due to further allotment of shares and such allotment is impugned, the petition would be maintainable under Section 399 on the strength of his holding before the further allotment of shares as held in Kishan Khariwal v. Ganganagar Industries Limited and T.N.K. Govindaraju Chetty And Company v. Kadri Mills (Cbe) Limited (supra). The petitioner's holding of 19526 shares after ignoring the impugned transfer of 33,126 shares, accounts for 18.29% of the issued capital, which got reduced to 5.34% on account of the further allotment of shares and therefore such further allotment of shares under serious dispute must be ignored, while determining maintainability of the company petition. Thus, when the allotment of further 2,58,216 shares is not taken into consideration, then the petitioner's holding would constitute 18.29% of the issued capital of the Company, thereby satisfying Section 399 of the Act. The CLB in Ashok Kumar Oswal v. Panchsheel Textile Manufacturing and Trading Company Private Limited (supra) held that a single act of allotment of shares, if the effect will be of a continuing nature, such an act could be considered to be an act of oppression. Whether the issue of further shares in the facts of the present case would constitute an act of oppression against the petitioner has to be adjudicated on merits. Therefore, the company petition cannot be dismissed at the threshold as laid down by this Board in Kishan Khariwal v. Ganganagar Industries Limited (supra), more so, when such dismissal at threshold will lead to serious repercussions as held in Jer Rutton Kavasmaneck v. Gharda Chemicals Limited (supra). The conduct of the respondents cannot in any way disentitle them from agitating their rights before any forum. However, the issues raised by the respondents in the present application involving a mixed question of law and fact and not being pure issue of law touching upon the question of jurisdiction of the Court or bar by any law, cannot be tried as preliminary issues in the light of the provisions of Order 14 Rule 2 of CPC and as reinforced in Saurashtra Cement And Chemicals Industries Limited v. Esma Industries Private Limited (supra). Thus, it cannot be contended that maintainability should be tried as a preliminary issue.
The petitioner has raised in the company petition quite a few acts of oppression and mismanagement as well as non-compliance with statutory requirements, which according to the respondents, lack details and not supported by any materials, thereby not satisfying the requirements of Sections 397 and 398, in support of which Shri Sriram Panchu, learned Senior Counsel cited a number of decisions. While the proposition of law as enunciated in various judgments must necessarily be satisfied before granting any relief for the alleged acts of oppression and mismanagement, it is far from doubt that (a) whether the Company's affairs are being conducted in a manner oppressive to any member; (b) whether the facts set out would justify the making up of a winding up order on the ground that it was just and equitable that the Company should be wound up; and (c) whether a winding up order would unfairly prejudice the petitioner, could be gone into when the company petition is considered on merits. Similarly, the prayer for investigation of the affairs of the Company by the independent chartered accountants and for reconstitution of the board of directors would not arise at the preliminary stage and therefore the company petition cannot be rejected, as not maintainable. In view of these conclusions, the prayer made in the present application must fail. Ordered accordingly. The company petition will be heard on 20.01.2006 at 2.30 p.m. With these directions, the application stands disposed of.