Company Law Board
Pradip Kumar Sengupta And Ors. vs Titan Engineering Co. Pvt. Ltd. And Ors. on 27 July, 1998
Equivalent citations: [1998]94COMPCAS825(CLB)
ORDER
1. Shri Pradip Kumar Sengupta and three other shareholders holding roughly about one-third of the shares in Titan Engineering Co. Pvt. Ltd. (company) have filed this petition under Sections 397, 398, 399, 402 and 403 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the affairs of the company. This petition was filed on April 30, 1993, and finally heard on April 20, 1998. The delay in hearing the matter was on account of the parties expressing a desire to amicably settle the disputes, the attempts at which unfortunately failed, and also later on account of the respondents' inability to file a detailed reply to the petition since most of the records of the company were in the custody of a criminal court in Durgapur from which the respondents were able to get copies of all the exhibits only some time in July, 1997, after which only the respondents filed their replies. In addition to the allegations in the petition, the petitioners later filed a few applications wherein certain additional allegations were also made. During the pendency of the petition, petitioner No. 2 and respondent No. 2 expired and on an application made by the legal heirs of these persons, we allowed the substitution of the legal heirs in the place of the expired persons. An application was filed by petitioner No. 4 seeking that his name may be struck off the array of parties for reasons stated in that application and another application was filed by the employees of the company seeking to be impleaded as they were supporting the respondents.
2. In addition to the present petition, the petitioners have filed certain criminal proceedings as well as civil proceedings in respect of some of the allegations contained in the petition and the applications. In some cases, while proceedings were initiated in other fora before filing of this petition, some proceedings were initiated after filing of this petition.
3. A summary of the petition is as follows : The company was incorporated in 1971 with respondents Nos. 2 and 3 as signatories to the memorandum along with one Shri Hirendra Bhadra. In 1972, the petitioner No. 1 became a shareholder and according to the petitioner right from that time the company was being managed on partnership principle basis between the four shareholders. Later, after the exit of Shri Hirendra Bhadra and further issue of shares, the shareholdings of the petitioners, respondent No. 2 and respondent No. 3 became approximately 34.2 per cent., 30.4 per cent, and 35.4 per cent., respectively, and all the three were equally represented on the board and they managed the company in accordance with the principles of mutual faith and trust and confidence reposed in each other. While the factory and registered office of the company are located at Durgapur and being managed by respondents Nos. 2 and 3, most of the affairs of the company were being conducted from the Calcutta office which was being managed by the first petitioner (hereinafter referred to as "the petitioner"). Accordingly, the petitioner was operating the bank accounts at Calcutta and the two respondents were operating the bank accounts at Durgapur. The company was doing extremely well from 1972 onwards till 1988. Later, according to the petitioner, the two respondents started managing the affairs of the company in a manner oppressive to the petitioners and prejudicial to the interest of the company. The allegations in the petition are as follows :
In August, 1988, gas cylinders belonging to the company worth about Rs. 3 lakhs were wrongfully transferred to one Shri R. N. Roy, a friend of the respondents, without any consideration and on the insistence of the petitioner, the cylinders were brought back.
4. In 1991, one Radha Krishna Oxygen, a client of the company, furnished invalid sales tax declaration forms with forged registration date with a view to avoid payment of sales tax to the tune of Rs. 1.33 lakhs and the third respondent abetted and aided this fraudulent activity and in spite of the petitioner's demanding corrective action, the respondents are not taking any steps towards this end. Such an action on their part may result in this company being liable for a sum of Rs. 1.33 lakhs which would be against the interest of the company and shareholders.
5. No board meeting was called after the 103rd meeting on October 23, 1990, in spite of several letters written by the petitioner. Instead of holding the 104th meeting, the 105th meeting was sought to be convened on April 16, 1991. The petitioner protested against this on the ground that the 104th meeting had not been held. On an intimation that the 104th meeting had been held on January 23, 1991, the petitioner made a complaint to the Registrar of Companies, who seized the minutes book of board meetings wherein it was noticed that it has been falsely shown therein that the petitioner had attended this meeting, even though only respondents Nos. 2 and 3 had signed the same. The Registrar of Companies has initiated criminal prosecution against the company in this regard.
6. On March 5, 1992, when the petitioner visited Durgapur, he looked into the accounts of the company when the accountant of the company informed that there was a shortage of Rs. 93,500 in the cash balance. The petitioner advised the respondents to correct the irregularity and illegality of the accounts of the company. However, without taking any corrective action, the respondents have asserted that there was no irregularity. The petitioner advised the respondents once again through a letter dated March 11, 1992, to regulate the accounts which they did not do. Accordingly, on March 24, 1992, the petitioner addressed a letter to the board intimating that respondents Nos. 2 and 3 should immediately refund Rs. 93,500 to the company as the financial year was going to close on March 31, 1992. When the petitioner visited Durgapur on April 9, 1992, the shortage of cash had gone up to Rs. 1,60,500 as on March 30, 1992. He was informed by the accountant that on March 30, 1992, respondent No. 2 in connivance with respondent No. 3, had withdrawn Rs. 75,000 and deposited Rs. 8,000, thus, misappropriating Rs. 65,000 on that day. In the board meeting held on April 9, 1992, when the petitioner raised this issue, respondents Nos. 2 and 3 stated that the said amount would be adjusted in due course, but so far nothing has been done.
7. In the board meeting held on July 17, 1992, it was decided that all decisions would be taken by unanimous resolutions and to that effect the articles of association of the company would be amended in an extraordinary general meeting to be convened. However, no extraordinary general meeting was convened.
8. In the board meeting convened on January 15, 1993, 15 items in the agenda were to be discussed. On receipt of notice for the meeting, the petitioner requested the board to pass appropriate resolution so that each cheque is required to be signed by all the three directors. In that meeting, he also desired to discuss about the criminal case that had been filed against the respondents which the latter refused to discuss. Therefore, the petitioner left the meeting in the middle after putting the signatures on page Nos. 7 and 8 of the minutes book. In that meeting, he objected to the payment of interim dividend without rectification of the board. Since he had already left the meetings, all resolutions passed in that meeting or subsequent meetings were behind the back of the petitioner, thus, completely eliminating the petitioner's participation in the affairs of the company.
9. After the petition was filed, certain applications were filed alleging further acts of oppression and mismanagement as below :
In a board meeting held on May 7, 1993, the petitioner was allegedly dismissed as a director in violation of Article 42 of the Articles of association. According to the petitioner, the board had no authority to dismiss a director appointed by the general body. The company also paid him a cheque for about Rs. 32,000 in full and final settlement, which the petitioner never encashed.
10. Regarding cessation of office of director by the petitioner, the company is not consistent in its stand. In proceedings before District Judge, Alipore, respondent No. 3 has affirmed in an affidavit that the petitioner vacated his office on July 13, 1994, at one page and again at another page, he has stated that he had vacated the office on September 17, 1994. In other words, in more than one way the respondents have ensured that the petitioner is completely eliminated in participating in the affairs of the company.
11. On the demise of respondent No, 2, the company instead of registering the shares held by him in the name of the legal heirs who have now been allowed to be substituted in place of respondent No. 2 in these proceedings, have not yet registered the transmission of the shares in their names.
12. Without quorum, respondent No. 3 was appointed an additional director on the board and further shares were issued to new shareholders to the exclusion of the existing shareholders.
13. Under these circumstances, the petitioners aver that it is just and equitable that the company should be wound up but to do so would unfairly prejudice the petitioners and as such they have sought for the following reliefs. A scheme to be framed by the Company Law Board to manage the affairs of the company, an administrator to be appointed, to assist the administrator a committee consisting of the petitioner and the respondents should be appointed, a declaration that the second and third respondents are guilty of diverse acts of oppression and mismanagement as well as malversation of funds and assets of the company, to declare that the board meetings purported to have been held on January 23, 1993, and April 2, 1993, as illegal, null and void and to cancel all the resolutions passed in various board meetings from January 23, 1991, to April 2, 1993.
14. When the petition was taken up for hearing, Shri Pradip Kumar Sengupta, the first petitioner, himself argued very eloquently citing various case laws to substantiate the allegations in the petition and also on the justification for grant of the relief sought. Before we deal with the arguments in detail, it is necessary to refer to the arguments of Shri Ganguli, senior advocate, for respondents Nos. 1 and 3, who stated that most of the allegations made by the petitioners in the petition are already covered in various other proceedings initiated by the petitioner. The allegations which have been made through applications after the petition was filed could not be looked into by us as events subsequent to filing of petition cannot be considered by the Company Law Board. Even otherwise he stated that even these allegations have been agitated in other proceedings. Therefore, Shri Ganguli submitted that the petitioner should not be allowed to prosecute parallel proceedings. According to him, the following are the proceedings wherein the matters contained in the petition and applications have been agitated :
(a) Gas cylinder issue : T, S. No. 24 of 1993, and T. S. No. 70 of 1994.
(b) Sales tax issue : T. S. No. 24 of 1993, and T. S. No. 70 of 1994.
(c) 104th board meeting : T. S. No. 24 of 1993.
(d) Shortage of cash : C. R. No. 161 of 1992.
(e) Appointment of additional director and allotment of shares : T. S. No. 70 of 1994.
15. In view of the above, according to Shri Ganguli, the Company Law Board should refrain from going into these allegations inasmuch as there could be conflict of decisions. Even otherwise he stated that the petitioner, having chosen a forum, cannot later on choose another forum to agitate the same matter. On the doctrine of election, he relied on Black's Law Dictionary, 6th Edition, page 518, wherein it is stated that if two or more remedies exist which are repugnant and inconsistent with one another, a party will be bound if he has chosen one of them. For the proposition that one cannot agitate the same matter in two different judicial fora, he relied on Amir Din Shahab Din v. Shiv Dev Singh Jhanda Singh, AIR 1917 Lahore 102 and Maharoj Dhiraj Himmatsinghji v. State of Rajasthan, AIR 1987 SC 82. In the first case, after filing a suit, the plaintiff instituted another suit on the same cause of action and against the same defendant. The first suit was dismissed for default and regarding the second suit, the court held that the same is liable to be dismissed as offending against the well known maxim that no one shall be twice vexed with one and the same cause of action and also on the ground of its institution and trial amounting to an abuse of process of the court. In the second case, after filing a writ under Article 226 of the Constitution of India, the same was withdrawn without permission to institute a fresh petition. The court held that under these circumstances, the petitioner cannot file another writ petition in respect of the same cause of action.
16. We have gone through the plaint in T. S. No. 24 of 1993. This is a comprehensive suit covering most of the allegations that have been made in the present petition before us. We also find that certain interim orders were passed in that suit. The allegations covered in the suit, as rightly pointed out by Shri Ganguli, relate to gas cylinders, Radha Krishna Oxygen, 104th board meeting, cash shortage, board meeting on July 7, 1992, board meeting of November 10, 1992, payment of interim dividend, resolutions passed in the board meeting dated January 15, 1993, etc. This suit was filed on February 8, 1993, by the petitioner herein and he made an application to the court for withdrawal of the suit on April 30, 1993. The instant petition before us was also filed on the same date, i.e., on April 30, 1993. Even though in the application for withdrawal, the petitioner had stated "it is, therefore, and for ends of justice necessary that your petitioners be granted leave to withdraw the instant suit and file proceedings before the Hon'ble Company Law Board involving marginally the subject matter of this suit", the court passed the following order on March 29, 1994, "that the plaintiff is at liberty to withdraw the suit subject to payment of costs of Rs. 100. No liberty is given to file any suit afresh on the same cause of action". It is, therefore, abundantly clear that the instant petition before us was filed when the prayer of the petitioner before the civil court was pending. His prayer for liberty has been refused by that court. In other words, in spite of the petitioner's prayer for filing a fresh suit on the same cause of action, the court has expressly declined to grant the liberty. Therefore, consistent with legal propriety and as held in the cases cited by Shri Ganguli, when the court has refused liberty to reagitate the same matter, we are of the view that we should not permit the petitioner to reagitate the same in the proceedings before us and as such we are not looking into any of the allegations as contained in the petition. That being the case, the petition has to be dismissed as not maintainable. Once the petition is not maintainable, as we have already observed, the question of looking into other allegations in subsequent applications, does not arise. Moreover, we also find that the subsequent allegations are more or less covered in the Title Suit No. 70 of 1994.
17. Accordingly, without elaborating the arguments of the petitioner and the counsel for the respondents on the merits of the case, we dismiss this petition as not maintainable. No order as to costs.