Madras High Court
V.L. Sridharan vs Econo Valves Pvt on 19 July, 2010
Author: P.Jyothimani
Bench: P.Jyothimani
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED:19.07.2010
CORAM:
THE HON'BLE MR.JUSTICE P.JYOTHIMANI
COMPANY APPEAL NOS.16 AND 17 OF 2010
AND CONNECTED MISCELLANEOUS PETITIONS
..
1.V.L. Sridharan
2.Nalini Sridharan .. Appellants in both
the appeals.
vs.
1.Econo Valves Pvt., Ltd.,
197 SIDCO Industrial Estate
Ambattur, Chennai 600 098.
2.M/s.NSSL Limited
F-8, MIDC Hingna Road
Nagpur 440 016.
3.M/s.Jayaswal Holdings Ltd.,
F-8 MIDC Hingna Road
Nagpur 440 016.
4.B.L.Shaw
F-8 MIDC Hingna Road
Nagpur 440 016.
5.Anand Jayaswal
F-8, MIDC Hingna Road
Nagpur 440 016. .. Respondents in
both the appeals.
Company appeals filed under Section 10-F of the Companies Act, 1956 against the dismissal order of the Company Law Board dated 11.05.2010 made in Company Petition No.81 of 2009.
For appellants : Mr.R.Murari
For respondents : Mr.Karthik Seshadri
for M/s.Iyer and Thomas for R1 to 3
..
COMMON JUDGEMENT
These appeals are filed under section 10F of the Companies Act, 1956 against the order of the Company Law Board dated 11.5.2010, by which the Company Law Board allowed the application filed in C.A.No.112 of 2009 by the respondents 1 to 3 and consequently dismissed the company petition in C.P.No.81 of 2009 filed by the appellants.
2. The first respondent company is a Private Limited Company stated to have been promoted by the appellants having substantial stack as on 13.12.2006. The second and third respondents have entered into two agreements with the appellants offering to purchase the appellants shareholding in the first respondent company, viz., (i) shareholders agreement and (ii) agreement to sell all technical processes for the manufacture of plug valves and various other types of valves on 14.12.2006.
(a) It is the case of the appellants that while as per the share holders agreement, the consideration in respect of both the agreements has to be paid and according to the appellants, the respondents 2 and 3, after paying the first stage of consideration and obtaining majority of shares, failed to pay the balance amount and there was a failure on the part of the respondents 2 and 3 in performing their obligation under the said agreement, which resulted in filing of applications in O.A.Nos.667 and 668 of 2009 by the appellants under section 9 of the Arbitration and Conciliation Act,1996 in which a direction was given by this Court against the respondents 1 and 2 to furnish security.
(b) It is stated that 45,600 shares were transferred in favour of 2nd and 3rd respondents as on 14.12.2006. The respondents 4 and 5 were appointed as additional Directors of the first respondent company. The first appellant, who is stated to have continued to be the Director and Managing Director, has also been appointed as Chief Operating Officer of the first respondent company from 14.12.2006 and as per shareholders agreement, the respondents 2 and 3 have also agreed to acquire 14,018 equity shares representing 23.36% interest in the paid up share capital and they also received transfer forms and share transfer certificates and in spite of the first appellants readiness, the respondents 2 and 3 did not make payment as per the agreement.
(c) It is the case of the appellants that the respondents 2 and 3 increased the share capital of the first respondent company from Rs.1 crore to Rs.2 crores in an Extraordinary General Meeting (EGM) conducted on 4.6.2007 and in respect of increased share capital, further allotment of shares were made in favour of respondents 2 and 3 to the extent of 71400 and 68600 equity shares respectively under a Board resolution dated 10.10.2007, which according to the appellants is against the Articles of Association.
(d) After such transfer, it is the case of the appellants that the respondents 2 to 5 attempted to control the first respondent company at the exclusion of the first appellant by conducting meeting at Nagpur, outside the place of the first respondent company which is at Chennai. It is the case of the appellants that in the meeting purported to have been conducted by the above respondents on 21.9.2009, removed the first appellant from all his roles and responsibilities as Managing Director of the first respondent company by taking away the cheque signing authority and the first appellants salary was also discontinued from September, 2009.
(e) It is due to the above said conduct, the appellants alleging oppression and mismanagement, filed the company petition under sections 397 and 398 of the Companies Act before the Company Law Board and the Company Law Board on 24.9.2009, granted an order of injunction restraining the respondents 2 to 5 from convening and holding any Board Meeting without leave of the Board and from taking any steps to amend the Articles of Association of the first respondent company without leave of the Board.
(f) The respondents 1 to 3 filed company application in C.A.No.112 of 2009 questioning the maintainability of the company petition and for dismissal of the same, apart from filing the application in C.A.No.113 of 2009 under section 8 of the Arbitration Act. It is stated that the earlier order passed by the Company Law Board on 24.9.2009 came to be modified on the application filed by the respondents. It is stated that the Company Law Board modified the order permitting the respondents to hold Board Meeting to approve and adopt the accounts of the first respondent's company for the year 2008-09 for submitting the same to the bankers stating that finality shall be subject to the outcome of the company petition.
(g) It is stated that the statutory auditors of the company viz., M/s.Venkatramani and Associates functioning for 28 years, also submitted resignation on 5.2.2010. It is also stated that in an emergent General Body Meeting stated to have been conducted by the respondents on 13.3.2010, M/s.Agarwal Chhallani and Co. was appointed as statutory auditors. It is stated that the said auditors are directors of a group of companies NECO Group of Industries, to which the transfer of shares of the first respondent company is stated to have been effected.
(h) It is stated that the Company Law Board on application filed by the appellants in Application No.47 of 2010, restrained the respondents from implementing the resolution for appointment of the said auditors. In the meantime, on the filing of the said company application in C.A.No.112 of 2009 by the respondents 1 to 3, the Company Law Board passed an order allowing the said application and holding that the company application filed by the appellants under section 399 of the Companies Act is not maintainable and vacated the interim orders stated above.
3. The Company Law Board having taken note of the admitted facts of transfer of shares effected by the appellants in the following manner:
(a)transfer of 30600 shares by the first appellant to the second respondent;
(b)transfer of 455 shares by the first appellant to the second respondent; and
(c)transfer of 14545 shares by the second appellant in favour of third respondent
held that it constituted 76% of total number of shares. After the authorized share capital of the first respondent company which was originally rupees one crore came to be increased to two crores, having found that in the Board Meeting held on 10.10.2007, the increased shares to the value of Rs.1,40,000/- were transferred to respondents 2 and 3, the Company Law Board held that both the appellants jointly held 14410 shares equivalent to 7.20% while the respondents 2 and 3 held 1,85,590 shares to the extent of 92.80%. Therefore, having found that the appellants jointly have not constituted more than 1/10th of the members of the company, the Company Law Board came to the conclusion that the company petition is not maintainable.
4. The Company Law Board has also found that in the Board of Directors Meeting of the first respondent held on 14.12.2006, it was resolved to approve the transfer effected by the appellants in favour of respondents 2 and 3 and in the consequent Board Meeting dated 10.10.2007, it was resolved to allot 1,40,000 equity shares to respondents 2 and 3 further resolving to authorize the first appellant and the 5th respondent to make necessary entries in the books of account and in fact, returns were filed by the first appellant and in the Annual General Body Meetings held on 29.9.2007 and 29.9.2008, the first appellant participated in which the shareholdings of the first appellant holding 328 shares was found to be 0.164% while the second and third respondents along with their groups were holding 185600 shares to the extent of 92.08% and others were holding 14072 shares to the extent of 7.036%. Taking note of the letter written by the first appellant dated 16.11.2007, admitting that the second appellant is no more a Director of the Company and she is also not a shareholder since her shares were completely transferred and finding that in spite of the said letter, the appellants chose to file the company petition to set aside the allotment made on or after 14.12.2006 and to restore the original shareholding pattern as on 13.12.2006 and that in the meeting there was no challenge by the first appellant in respect of the said shares, the Company Law Board came to the conclusion that the entire dispute rests on the shareholders agreement dated 14.12.2006, that said dispute has been raised by the appellants in respect of payment which is only a dispute attracting the breach of agreement and therefore, no relief can be asked for before the Company Law Board. Accordingly, the Company Law Board passed the order holding that the company petition is not maintainable and dismissed the same.
5. The order is challenged by the appellants on various grounds including that the further increase of shares or allotment was not taken into consideration; that the appellants complied with the requirements of section 399 of the Companies Act; that even before deciding the validity or otherwise of the further increase of share capital, it cannot be held that the appellants have not conformed with the requirements of qualifying shares for filing the petition under section 399 of the Companies Act; that the transfer stated to have been effected to NECO Limited to the extent of 14400 shares is against the Articles of Association; that all these are substantial issues that are to be decided and even before deciding the same, on the maintainability of requirement of qualifying shares, the company petition was dismissed which is not correct; that inasmuch as it amounts to rejection of plaint, utmost care should have been taken by the Company Law Board; that the Company Law Board ought to have gone into the merits of the case before deciding the question of maintainability; that the shareholders agreement is binding on the first respondent company which fact has been brushed aside by the Company Law Board; that the acts of the respondents 2 to 5 are continuous acts of oppression and misconduct which include removal of the first appellant from the post of Director without convening a meeting of the Board when the appellants challenged the increase in the authorized share capital; that unless and until the merit of the same is decided, the appellants cannot be thrown out; that the Company Law Board dismissed the company petition at threshold which is not correct; that the Company Law Board has failed to consider the question of law which is a mixture of law and fact which cannot be decided in the preliminary stage and that as per the judicial precedents, the Company Law Board has no power to decide the matter on preliminary issues.
6. Mr.R. Murari, learned counsel appearing for the appellants on the above said facts would contend that even though the shareholders agreement is not disputed by the appellants, the acts against the shareholders agreement and also against the Articles of Association in increasing the authorized share capital by which the appellants are said to have been relegated to a minor position holding less than 1/10th shares itself, are all acts of oppression and unless and until the correctness of the same is decided, it is not proper or legal for the Company Law Board to throw out the appellants at the preliminary stage.
(a) It is his further submission that when in the main company petition the appellants questioned the validity of further issue of share capital to the extent of 140000 shares in favour of respondents 2 and 3, unless the same is decided, the company petition cannot be decided on the question of maintainability for want of required number of shares to maintain a petition under section 399 of the Companies Act.
(b) He would strongly rely upon the judgment of Andhra Pradesh High Court in C.A.Nos.19 and 20 of 2005 dated 3.7.2009 [B.Subba Reddy vs. S.S.Organics Limited rep. By its Managing Director and V.N.Sundana Reddy] reported in MANU/AP/0229/2009, wherein it was held that under the Companies Act, there are no powers on the Company Law Board to decide preliminary issues and the Company Law Board cannot exercise the powers of Civil Court under the Civil Procedure Code except what is explained under section 10E(4C) of the Companies Act.
(c) It is his submission that as per the provision of section 10E of the Companies Act, except those mentioned in the said provision, no other provisions of Civil Procedure Code are applicable. He would also rely upon a Division Bench Judgment of Karnataka High Court reported in Mr.Vijayan Rajes and others vs. M.S.P.Plantations Private Ltd., rep. By its Managing Director M.S.P.Rajes and others [ILR 2009 Kar.3576] to substantiate his contention that for the purpose of deciding the eligibility of a member of a company to maintain a petition under section 399 of the Companies Act, the qualification in respect of the requisite shareholdings in the company of such person prior to the act of oppression complained of has to be taken into consideration and not the qualifying shares after the act of oppression complained of.
(d) He would also rely upon the judgment of this Court in S.V.T.Spinning Mills Pvt. Ltd., vs. M.Palanisami [2009 (151) Com.Cases 233] for the proposition that the Company Law Board cannot decide on the issue of maintainability if it involves appreciation of evidence and other factors. It is his submission that the shareholding position of the appellants being the promoters of the company should have been considered for the purpose of eligibility to move a petition under section 397 of the Companies Act as on the date of shareholders agreement viz., 14.12.2006 and even as per the terms of the said agreement, on the said date, the appellants had more than 10% of interest in the paid up share capital of the company and it was, only subsequent to the said shareholders agreement, the conduct of oppression by the respondents 2 to 5 was revealed by unauthorized transfer of shares against the provisions of the Articles of Association, apart from the unauthorized increase of share capital which requires appreciation of evidence and therefore, the decision of the Company Law Board in rejecting the Company Petition on maintainability has to be set aside.
(e) It is his further submission that under section 10E(4C) of the Companies Act, there are only six instances where the Code of Civil Procedure is applicable and apart from those exhaustive circumstances, it is not open to the Company Law Board to decide anything in the name of maintainability. He has also referred to various Company Law Board Regulations to substantiate his contention.
7. On the other hand, it is the contention of Mr.Karthik Seshadri, learned counsel for the respondents 1 to 3 that the main company petition itself was filed in the year 2009, which is based on two agreements viz., shareholders agreement and Technical know-how agreement dated 14.12.2006 and no where in the company petition, the appellants have challenged the validity of shares which are admitted to have been transferred in favour of the respondents 2 and 3 and on the other hand, it is the specific case of the appellants that they were consciously and voluntarily agreeable to sell their shares and the complaint is that the consideration for transfer of shares has not been paid in full. According to him, when the validity or otherwise of the transfer of shares has not been challenged by the appellants in the main company petition, an overall reading of the entire company petition shows that it is only the contractual right which the appellants sought to enforce in the company petition under the guise of treating it as oppression and mismanagement.
(a) It is his submission that the agreement to transfer of shares entered into by the appellants was in their individual status and that has nothing to do with the affairs of the company and therefore, the appellants have no locus standi to maintain the petition under section 397 of the Companies Act.
(b) It is his submission that the appellants have made a misstatement before the Company Law Board on the very first hearing to the effect that out of four members of the company, the appellants constituted two in number and in combination, they held more than 1/10th of total members of the company. He would vehemently submit that the very conduct of the appellants in invoking section 9 of the Arbitration and Conciliation Act,1996 shows the interest of the appellants in obtaining money as per the transactions. He would submit that section 399 of the Companies Act has to be construed strictly.
(c) It is his submission that on the facts of the present case, the judgment of the Andhra Pradesh High Court relied upon by the appellants should be treated as per incurium. He has placed reliance on the judgment of the Supreme Court in Canara Bank vs. Nuclear Power Corporation of India Ltd., [(1995) Supp.(3) SCC 81]. It is his submission that the term, court has to be construed comprehensively which may include certain Tribunals and according to him, the Company Law Board should also be construed as a Court for limited purpose.
(d) He has also submitted that the powers of the Company Law Board under section 402 are vast and such powers are not ousted in respect of the Company Law Board on reading of Order 14 Rule 2 C.P.C. He would insist on the judgment of the Division Bench of this Court in Om Sakthi Renergies Limited rep. By its Managing Director Mr.M.Jayathirth vs. Megatech Control Limited rep. By its Managing Director Mr.N.Ramkhumar and another [2006(2) CTC 161] and the judgment of the Supreme Court in ITI Ltd., vs. Siemens Public Communications Network Ltd., [(2002) 5 SCC 510] and the order of the Company Law Board in Morgan Ventures Ltd., vs. Blue Coast Hotels and Resorts Ltd., and others [2010 (155) Com.Cases 431] to assert his stand that the Company Law Boards powers are vast. It is his submission that inasmuch as the appellants have not questioned the transfer which was effected and the transfer itself is in the individual capacity of the appellants, it cannot be termed as affairs of the company.
(e) It is his submission that the validity or otherwise of the transfer can be questioned by the appellants in a different forum. He would submit that the Company Law Boards order is in substantial compliance. It is his submission that as far as the transfer of shares, which is alleged by the appellants as not valid, is concerned, the substantial compliance of the provisions of the Act is sufficient to hold as to the validity of such transfer and in this context, he would rely upon the judgment in J.P.Srivastava & Sons (P) Ltd., vs. Gwalior Sugar Co., Ltd., [(2005) 1 SCC 172].
(f) It is his submission that the appellants having filed an application under section 9 of the Arbitration and Conciliation Act,1996 cannot now go back and say that the position as stood on 14.12.2006 has to be taken note of for the purpose of deciding about the locus standi of the appellants in maintaining the petition under section 397 of the Companies Act.
8. I have heard the learned counsel for the appellants and the respondents and referred to the impugned order and given my anxious thoughts to the issues involved in this case.
9. These appeals being ones filed under section 10F of the Companies Act, which are maintainable on any question of law, arise from the orders of the Company Law Board. A reference to the pleadings in these appeals show that the major complaint made by the appellants being the petitioners in the original company petition filed under sections 397 and 398 of the Companies Act is revolving around the shareholders agreement dated 14.12.2006 and another agreement entered on the same day for the purpose of transfer of technical know-how of the first respondent company in favour of second and third respondents by the appellants being the promoters of the first respondent company.
10. The company petition in C.P.No.81 of 2009 came to be filed by the appellants complaining oppression and mismanagement of the affairs of first respondent company by the respondents 2 and 3 subsequent to the said agreement dated 14.12.2006 and the said company petition came to be filed on 18.9.2009 before the Company Law Board. It is also an admitted fact that based on the said agreements, the appellants approached this Court under section 9 of the Arbitration and Conciliation Act, 1996 by filing O.A.Nos.667 and 668 of 2009, in which this Court on 30.4.2010 issued direction against the respondents 2 and 3 to furnish security for an amount of Rs.3 crores. A reference to the averments made in the company petition filed by the appellants show that as per the said agreements dated 14.12.2006, the appellants transferred 45600 shares out of 60000 equity shares of the company to second and third respondents and that constituted 76% of the total number of shares of the first respondent company, and it is also not in dispute that they executed necessary instrument for transferring such shares as per the provisions of the Companies Act.
11. After such transfer, the second and third respondents were holding 76% of stake in the first respondent company, while the appellants were having 24%. It is seen that pursuant to the said two agreements, on 14.12.2006 viz., the date of agreements, the second and third respondents waived Rs.15 million and Rs.5 million respectively under the shareholders agreement and the agreement for sale of technical process for manufacture of plug valves and various other types of valves. As stated above, for the balance amount, the appellants approached this Court by filing the application under section 9 of the Arbitration and Conciliation Act.
12. It is stated by the second and third respondents that the appellants preferred an application under section 11 of the Arbitration and Conciliation Act before the High Court of Judicature at Bombay in Nagpur Bench and a Honourable retired Judge came to be appointed as Arbitrator, in which it is stated that the appellants were participating. It is seen that the share capital of the first respondent company came to be increased from Rs.1 crore to Rs.2 crores and further allotment of shares was made to the extent of 140000 fully paid up equity shares by allotting 71400 shares to the second respondent and 68600 shares to the third respondent on 10.10.2007 in the meeting of the Board of Directors. It is not in dispute that the first appellant participated in the said meeting and at that time, he was the Chairman of the Board.
13. After the said further allotment, the shareholding pattern of the company as stated by the appellants in the company petition was as follows:
1. Both the appellants together 14410 shares 7.20%
2. Respondents 2 and 3 1,85,590 shares 92.80%
However, according to the respondents 2 and 3, after further allotment the shareholding pattern is,
1. First appellant 328 shares 0.164%
2. Respondents 1,85,600 shares 92.808%
3. Others 14072 shares 7.036%
Therefore, on the date of further issue of share capital viz., 10.10.2007, even if the appellants shares along with others, as stated by the respondents 2 and 3, are put together, the shareholding pattern is 7.20% in respect of the appellants, as admitted by them. That position continued admittedly till the date of presenting of the company petition filed by the appellants under sections 397 and 398 of the Companies Act.
14. In the company petition, the appellants specifically admitted that they were paid Rs.150 lakhs on or about 14.12.2006 by the second respondent and thereafter, the appellants transferred the shares in the following manner:
1. First appellant 31055 equity shares
2. Second appellant 14545 equity shares.
Out of which the second respondent acquired 30600 equity shares and the third respondent acquired 15000 equity shares and the said transfer is specifically stated to have been approved in the Board Meeting held on 14.12.2006, in which the first appellant was the Chairman. As per the agreements, it is stated in the company petition that the balance amount of Rs.1.50 crores was payable on 31.3.2008, 31.3.2009 and 31.3.2010 at Rs.50 lakhs, Rs.25 lakhs and Rs.75 lakhs respectively. It is also specifically admitted in the company petition filed by the appellants that they agreed in the Extraordinary General Body Meeting held on 4.2.2007 for increasing the authorized share capital from Rs.1 crore to Rs.2 crores, and allotment was made to the respondents 2 and 3 in the resolution dated 10.10.2007. However, the appellants have chosen to state that they have not agreed for the increase of such shares and it is an unilateral increase of shares, even though it is stated that the respondents 2 to 5 have given certain assurance that the appellants interest in the company would be taken care of and therefore, they have agreed.
15. There are other averments in the company petition which are relating to the conduct of the 5th respondent. It is specifically stated in the company petition that the appellants have agreed to transfer their shares in the first respondent company on the bona fide belief that the same could be adhered to its obligation in letter and spirit. It is stated that after major shares were transferred, the conduct of the respondents 2 to 5 became fraudulent and they were attempting to act contrary to the terms of the agreements and detrimental to the interest of the company. It is, with the above said averments, the company petition came to be filed by the appellants for the following reliefs:
In view of what has been stated hereinabove and in view of the facts and circumstances of the present case, most respectfully prayed that this Hon'ble Board be pleased to:-
1.Declare that acts of respondent Nos.2 to 5 as fraud, deceit and oppressive to the shareholders of the company in general and the petitioners in particular and constitute acts of mismanagement;
2.Direct the respondent No.4 and 5 or any one claiming through them from interfering from the day to day management of the company;
3.To declare all the share allotment of the 1st respondent company on or after 14.12 2006 as null and void and to restore the original share holding pattern as on 13.12.2006;
4.Declare that the respondents 4 and 5 are unfit to act as directors of the 1st respondent company by reason of their conduct, disabled themselves from acting as directors of the company and they are unfit to continue as director in the best interest of the company and to remove them from the office of the director and appoint such other person or persons as this Hon'ble Board may deem fit;
5.Direct the respondents No.2-5 to compensate the company for the loss caused to the company due to their oppressive acts and mismanagement of the companies assets;
6.Declare that the acts of the respondents 2-5 quay the 1st respondent does not bind the petitioner in his capacity as a director/Managing Director of the 1st respondent as he has been sidelines as regards to the non-filing of the annual returns of the 1st respondent for the past 2 years;
7.Declare that the increase of equity shares from 1 crore to 2 crores made in the EGM dated 4.6.2007 as null and void;
8.Order and direct respondent Nos.2-5 to bear the cost of these proceedings and pass such further or other orders as this Hon'ble Board may deem fit and necessary in the facts and circumstances of the case to put an end to the acts of oppression and mismanagement by respondents 2-5.
16. The major relief is based on the allegation of fraud, deceit and oppression against the respondents 2 to 5 to the shareholders of the company in general and the appellants in particular. Therefore, on the broad analysis, it is clear that admittedly on the date of presentation of the company petition by the appellants before the Company Law Board under sections 397 and 398 of the Companies Act, the shareholding pattern of the appellants jointly was not more than 7.20% of the share capital of the first respondent company. It is also not in dispute that before the transfer and further allotment of shares on 14.12.2006 and 10.10.2007 respectively, the appellants jointly were holding 24% of shareholdings.
17. It is, in those circumstances, the Company Law Board took note of the averments made by the appellants in the company petition that out of four members of the first respondent company, the appellants were two, apart from the respondents 2 and 3 who were holding major shares. Having found that it is not true as per the details of members furnished in the annual return of the company up to 30.9.2006 that besides the appellants there were 31 other members in the first respondent company as on 30.9.2006 and having found that even going by the annual return, out of total number of persons of the company viz., 33 members, the appellants were not constituting 1/10th of the total members as on 30.9.2006 and after referring to the further issue of share capital as per the resolution of the Board in which the first appellant participated and also based on the letter of the first appellant dated 16.11.2007, wherein it is stated that the second appellant who is his wife, is no more a Director of the company as she has resigned with effect from 14.12.2006, and that the first appellant has chosen to file the company petition in the year 2009 by joining with his wife, the second appellant, to restore the original shareholding pattern as on 13.12.2006, the Company Law Board held that the claim of the appellants is only in respect of the agreement for transfer of shares and since the appellants are not holding the required number of shares as well as control of members, viz., 10%, the company petition is not maintainable.
18. The contention of Mr.R.Murari, learned counsel for the appellants by heavily relying upon the Division Bench judgment of the Karnataka High Court in Vijayan Rajes and others vs. M.S.P.Plantations Private Ltd., rep. By the Managing Director M.S.P.Rajes and others [ILR 2009 KAR 3576] is that for the purpose of maintaining a petition before the Company Law Board under sections 397 and 398 of the Companies Act, the qualifying shareholdings must be looked into not as it was on the date of presentation of the petition, but on the date of oppression alleged. That was a case where the appellant before the Division Bench who is the son of second respondent was functioning as Managing Director of the company after his return from U.S.A. and after his marriage with the second appellant, she also became a Director and in a Board resolution passed on 28.12.1995, the first appellant was removed from the post of Director and the third and fourth respondents were appointed as Directors of the company which was protested by the first appellant on the ground that it was mala fide and in contravention of an order of injunction granted by a Civil Court and that the removal was not in accordance with the provisions of the Act and not in consonance with the Articles of Association of the company. It was, on the basis of the alleged oppression by the majority against minority, the petition under sections 397 and 398 was presented by the appellants. There was a further allegation of mala fide and fraud against the majority and based on the earlier resolution dated 20.12.1995, by which time the first appellant was holding the post of Managing Director, a meeting was convened on 9.3.1996 after removal of the first appellant in which 455 numbers of preference shares in the company were redeemed and 245 numbers of equity shares of Rs.1000/- each were allotted in favour of the second respondent. When that petition was resisted by the respondents on the ground that the appellants ceased to be the Directors of the company as per the procedure adopted by the respondents and in the manner known to law, there arose an issue of maintainability of the company petition. The Company Law Board dismissed the petition as not maintainable on the ground that after 9.3.1996 by virtue of redemption process which was held to be valid, the appellants especially the first appellant, who was the Managing Director of the company on 28.12.1995 were held to have no locus standi. It was in that context, the Division Bench held as follows:
32. The reasoning given by the Company Law Board does not appeal to us. If the finding is to be that the persons presenting the petition do not qualify for presenting a petition under Section 399 of the Act, no further question arises and the petition was to be dismissed at the threshold. But the Company Law Board has viewed the working of the Section 399 of the Act in the converse way, which is not a proper understanding of the provisions of Section 399. But, on authority, it has been established that for the purpose of examining as to whether the petitioning members qualify for maintaining a petition under Section 399 of the Act, the question to be looked into is as to whether the petitioners constitute the requisite number of members or they had the requisite share holding in the company prior to the acts complained of. If the date of presentation of the petition should be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Sections 397 and 398 of the Act, as the overbearing majority shareholders can simply by highhanded action or even for other purpose and by oppressive methods, dismember minority shareholders and leave them with no remedies, as the dismembered minority shareholders technically do not qualify for maintaining a petition under Section 399 of the Act, being not member at all. As the minority shareholders will be complaining only after the acts occurred and when they have been removed from the membership of die company, the understanding and interpretation to be given to Section 399 is only so as to Author the object of relief to be given in a situation governed by Sections 397 and 398 of the Act and not to foreclose the options to an aggrieved person and to deny the very relief sought to be extended to a complaining minority shareholder/s envisaged under Sections 397 and 398 of the Act.
Therefore, in that case, based on the conduct of the Board in removing the Managing Director by a resolution which was objected to by a protest and subsequently, based on the redemption of equity shares and allotment of further shares to the second respondent, the Company Law Board concluded without going into the validity or otherwise of the redemption in detail which required appreciation of evidence, that the appellants therein have lost their locus standi. In fact, it cannot be disputed that in cases where the main issue of oppression and mismanagement which requires appreciation of evidence, certainly the company petition cannot be thrown out on the ground of maintainability.
19. While construing the term, member, as defined under section 2(27) of the Companies Act and also as defined in section 41 of the Act which provides for a deemed member who is a subscriber to the memorandum and on registration, entitled to be a member and other persons who are entered in the register of members, in the context of sections 397 and 398 of the Companies Act, the Supreme Court in World Wide Agencies Pvt., Ltd., vs. Margaratt Desor [(1990) 1 SCC 536], rejected the contention that the term member in the context of sections 397 and 398 of the Companies Act has to be strictly construed and held as follows:
On behalf of the appellants it was contended that the right which is a specific statutory right, is given only to a member of the company and until and unless one is member of the company, there is no right to maintain application under Section 397 of the Act. Mr.Nariman contended that there was no automatic transmission of shares in the case of death of a shareholder to his legal heir and representatives, and the Board has a discretion and can refuse to register the shares. Hence, the legal representatives had no locus standi to maintain an application under Sections 397 and 398 of the Act. Mr.Nariman submitted that the rights under Sections 397 and 398 of the Act are statutory rights and must be strictly construed in the terms of the statute. The right, it was submitted, was given to any member of a company and it should not be enlarged to include any one who may be entitled to become a member.
The Supreme Court has held,
20. ... We are clearly of the opinion that having regard tot he scheme and the purpose of Sections 397 and 398 of the Act, the reasoning on a pari materia provision of the English Act would be a valuable guide. The said construction, appears to us, to further the purpose intended to be fulfilled by petitions under Sections 397 and 398 of the Act. It facilitates solution of problems in case of oppression of the minorities when the member is dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by Pennycuick,J. does not militate against either equity or justice of such situation. We would, therefore, adhere to that construction. In this connection, it may be mentioned that in the 1972 Edition of Gore-Browne on Companies, it has been stated a as follows:
It has recently been settled that the personal representatives of a deceased member, even though they are not registered as members, are entitled to present a petition under Section 210. In Re Jermyn Street Turkish Baths Ltd. Pennycuick,J. held that on its true construction Section 210 required that the word 'member' should include the personal representatives of a deceased member, on whom title of his shares devolved by operation of law.
Therefore, in cases where the name of a member has not been registered in the list of members, either due to transmission of shares or transfer of shares, etc., and if he is a deemed member and entitled to come within the shareholding limits of section 397 of the Companies Act, certainly any such application cannot be thrown out on the technical ground since the said provision is attracting the equitable jurisdiction of the Court.
20. By referring various judgments, I had an occasion to deal with the said issue in S.V.T.Spinning Mills Pvt, Ltd., vs. M.Palanisami [2009 (6) MLJ 821]. That was a case where the Company Law Board held that the complaint of a person that his name has not been duly registered in the list of members of the company has to be decided along with the main petition and therefore, rejected the claim that the company petition itself has to be dismissed on the ground of maintainability. In such situation, I held as follows:
24. The applicability of Sections 397 and 398 of the Companies Act is an equitable jurisdiction which is intended to protect the minority members of the company from any oppression and mismanagement at the hands of majority members. It is in that background, the Supreme Court has held that the wider meaning of the term 'member' should be given in the context of Sections 397 and 398 of the Companies Act. On the facts and circumstances of the case, especially in the circumstance that the respondents filed a composite application, viz., the company petition seeking reliefs including the issuance of duplicate share certificates, I am of the considered view that the claim of the respondents herein in the company petition cannot be thrown out at the threshold without even going into the merits of the issue raised by the respondents under the guise of deciding the question of maintainability as s preliminary issue.
21. But, the fact of the present case is different as narrated above that the appellants admittedly effected transfer of shares by executing necessary documents on 14.12.2006, by which their interest in the shareholding pattern of the first respondent came to be reduced to 24% and that thereafter, by the further allotment of shares in the Annual General Body Meeting held on 23.9.2007 and 29.9.2008 and by virtue of further issue of shares and allotment of the same to second and third respondents, holding of share capital by the first appellant became 0.164% and in respect of others it became 7.036% and the respondents 2 to 5 held 92.8% as claimed by the respondents 2 and 3. Even as per the claim of the appellants, if it is taken that the contention of the appellants is correct that the second appellant has still retained shares, the percentage of share capital held by them on the dates stated above was only 7.20%.
22. It is true that having participated in the meeting especially the first appellant being the husband of the second appellant, the appellants chose to file the company petition under sections 397 and 398 of the Companies Act alleging oppression and the petition came to be filed in the year 2009. Therefore, it is clear that after the shareholding of the company was reduced to less than 10% of the total share capital as early as in October, 2007, the appellants chose to approach the Company Law Board by raising the plea of oppression and mismanagement under sections 397 and 398 of the Companies Act in 2009, nearly after 2 years. It is not in dispute that at the time when they filed the company petition before the Company Law Board in 2009, they were not having the minimum number of shares as required under section 397 of the Companies Act. Therefore, the above said facts of the case cannot be compared to the earlier decision which was strongly relied upon by the learned counsel for the appellants and the facts of the present case require an independent decision and appreciation of a totally different situation.
23. If it is the case of the appellants that on the date of complaining oppression, the appellants were competent to maintain the company petition under section 397 of the Companies Act, as per the requirements of section 399(1) and majority of shares was sought to be taken away by way of oppression or mismanagement resulting of which the shareholding of appellants was reduced, certainly the question of maintainability cannot be decided to throw away the case of such persons without deciding the merits of the matter. But, astonishingly on the facts of the present case, admittedly the resolution was passed in the presence of the first appellant who was holding the post of Managing Director at that time on 10.10.2007 for further allotment of shares in favour of respondents and the appellants agreed by resolution to transfer the shares pursuant to the further increase of share capital. After following the statutory requirements on the basis of agreements entered between the appellants and the respondents 2 and 3 in respect of transfer of shares and receiving a part of sale consideration and on the basis that further consideration was not paid as per the agreements dated 14.12.2006 and for the purpose of enforcing the terms of agreement, the appellants, after waiting for a period of 2 years, approached the Company Law Board by filing the company petition on the ground of oppression and mismanagement. Therefore, the intention of the appellants is really not opposing either the further issue of shares or transfer of majority of shares to the respondents 2 to 5 and it is only because the respondents 2 and 3 failed to pay the consideration for transfer of shares as per the agreements dated 14.12.2006, the appellants have approached the Company Law Board. This can utmost be held to be a claim by the appellants against the respondents 2 and 3 for breach of the terms of agreements entered between the parties on 14.12.2006. In such circumstances, the appellants having waited for a considerable period of time, have to necessarily prove that they have a right to file company petition under sections 397 and 398 of the Companies Act. In my considered view, that should be the construction of section 399(1) of the Companies Act, 1956 which is as follows:
Section 399. Right to apply under Sections 397 and 398.-
(1) The following members of a company shall have the right to apply under section 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;
(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.
24. Even the literal interpretation of the words in section 399(1) of the Act, if applied to the facts of the present case, I have no hesitation to hold that the appellants have miserably failed to prove their right to apply under sections 397 and 398 of the Companies Act.
25. A further reference was made by the learned counsel for the appellants to the provisions of section 10E of the Companies Act relating to the constitution of Board of Company Law Administration, especially sub-sections 4C, 4D, 5 and 6 which are necessarily to be construed as a point of relevance. To appreciate the same, it is necessary to extract section 10E of the Act which is as follows:
10E. Constitution of Board of Company Law Administration.-
(1) As soon as may be after the commencement of the Companies (Amendment) Act,1988, the Central Government shall, by notification in the Official Gazette, constitute a Board to be called the Board of Company Law Administration.
(1A) The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it [before the commencement of the Companies (Second Amendment) Act,2002], by or under this Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under this Act or any other law as may be conferred on its [before the commencement of the Companies (Second Amendment) Act,2002] by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law.
(2) The Company Law Board shall consist of such number of members, not exceeding [nine], as the Central Government deems fit, to be appointed by the Government by notification in the Official Gazette:
[Provided that the Central Government may, by notification in the Official Gazette, continue the appointment of the chairman or any other member of the Company Law Board functioning as such immediately before the commencement of the Companies (Amendment) Act,1988, as the chairman or any other member of the Company Law Board, after such commencement for such period not exceeding three years as may be specified in the notification.]
(2A) The members of the Company Law Board shall possess such qualifications and experience as may be prescribed.]
(3) One of the members shall be appointed by the Central Government to be the chairman of the Company Law Board.
(4) No act done by the Company Law Board shall be called in question on the ground only of any defect in the constitution of, or the existence of any vacancy in, the Company Law Board.
[(4A) omitted]
[(4B) [The Board] may, by order in writing, form one or more Benches from among its members and authorise each such Bench to exercise and discharge such of the Board's powers and functions as may be specified in the order; and every order made or act done by a Bench in exercise of such powers or discharge of such functions shall be deemed to be the order or act, as the case may be, of the Board.
(4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-
(a) discovery and inspection of documents or other material objects producible as evidence;
(b) enforcing the attendance of witnesses and requiring the deposit of their expenses;
(c) compelling the production of documents or other material objects producible as evidence and impounding the same;
(d) examining witnesses on oath;
(e) granting adjournments;
(f) reception of evidence on affidavits.
(4D) Every Bench shall be deemed to be a civil court for the purposes of section 195 and [Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)], and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of 1860), and for the purpose of section 196 of that Code.]
(5) Without prejudice to the provision of sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the discharge of its functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion.
(6) Subject to the foregoing provisions of this section, the Company Law Board shall have power to regulate its own procedure.
26. The contention of the learned counsel for the appellants is that when section 10E(4C) only categorizes certain circumstances in giving the power of a Court under the Civil Procedure Code, it should be presumed that the other provisions of Code of Civil Procedure are excluded and therefore, the Company Law Board is not having the power to decide the question of maintainability of the company petition. It is his submission that the principles of natural justice and the discretion that has been contemplated under section 10E(5) of the Act on the Company Law Board must be in consonance with sub-section 10E(4C) and in accordance with the Companies Act and therefore, the discretion cannot be exercised by the Company Law Board for holding a company petition as not maintainable without going into the merits of the matter.
27. To substantiate his contention, he would rely upon the judgment of the Andhra Pradesh High Court decided in Company Appeal Nos.19 and 20 of 2005 by judgment dated 3.7.2009 reported in MANU/AP/0229/2009 in B.Subba Reddy vs. S.S.Organics Limited rep. By its Managing Director and V.N.Sundana Reddy. A reference to the facts of the said case shows that a company petition was filed challenging the allotment of 20 lakhs shares of a company excluding the petitioners before the Company Law Board and the said petition was moved complaining violation under sections 111A, 163, 196, 237(b), 397, 398, 402, 403, 406 and 408 of the Companies Act alleging the said act as misappropriation and oppression. When an application was moved by the respondents on the ground that the allotment of shares against which the oppression and mismanagement was alleged, was pursuant to an order passed by BIFR dated 12.02.2002 and that the allotment of said shares was made on 25.4.2003, the Company Law Board, considering the plea raised by the counsel that section 26 of Sick Industrial Companies (Special Provisions) Act,1985 (SICA) does not provide for bifurcation of the subject matter of action as it is available under section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996, has rejected the said contention by relying upon the judgment of the Supreme Court in Sukanya Holdings Private Limited vs. Jayesh H.Pandya [(2003) 5 SCC 531] and concluded that the management and the statutory violations set out in the company petition could be bifurcated and dealt with separately. In the petition challenging the order of the Company Law Board holding that the company petition is not maintainable on the ground that the Company Law Board has no jurisdiction to decide preliminary objections, while referring to the contention that the Company Law Board has jurisdiction to decide about the preliminary issues, the High Court held that the regulations framed as per section 10E(6) of the Companies Act viz., Company Law Board Regulations, 1991 do not enable the Company Law Board to decide the preliminary issues. The High Court also relied upon the judgment of the Supreme Court dealing with the contravention of Government directives relating to reservation of SC/ST in IOB, reported in All India Indian Overseas Bank SC/ST Employees' Welfare Association v. Union Of India [(1996) 6 SCC 606], in which the power of the National Commission such as a Civil Court in granting injunction, etc. was dealt with, and held that the Company Law Board cannot decide the preliminary issues on the question of maintainability. The relevant portion of the judgment of the Andhra Pradesh High Court is as follows:
4.The contentious issue in these two appeals is whether CLB is vested with the power to entertain applications to decide preliminary issues. It is no gainsaying that CLB is a creature of a statute under Section 10E of the Companies Act. Its proceedings are governed by the regulations made by CLB under Section 10E(6) of the Companies Act. These regulations known as Company Law Board Regulations,1991 (hereafter called, Regulations), promulgated by CLB do not contain any regulation, which specifically confer power on CLB to decide preliminary issues. Respondent filed interlocutory application under Regulation 44 of the Regulations, which in the considered opinion of this Court does not even remotely suggest that power to decide preliminary issues inheres in the CLB.
5. Section 10E(4C) of the Companies Act is to the effect that every Bench of CLB shall have powers which are vested in a Court under Code of Civil Procedure,1908 (CPC), while trying a suit in respect of only the following matters: (a) discovery and inspection of documents, b) enforcing the attendance of witnesses, c) compelling production of documents or material objections, d) examining witnesses on oath, e) granting of adjournments and f) reception of evidence on affidavits. This would show that all the powers under CPC are not vested in the CLB.
6. In this context, a reference may be made to the decision of the Supreme Court in All India Indian Overseas Bank SC and ST Employees' Welfare Association vs. Union of India MANU/SC 1288/1996 : (1996) 6 SCC 606. In the said case, the National Commission for Scheduled Castes and Schedules Tribes directed the Executive Director of Indian Overseas Bank (IOB) to stop promotion process pending further investigation into the allegation of contravention of Government directives relating to reservation for SC/ST employees in IOB. Accordingly, IOB stayed the promotions. IOB Officers' Association and other candidates challenged the same before Delhi High Court by filing a writ petition. On the ground that National Commission had no power to issue interim orders, the writ petition was allowed. The same was challenged by All India Indian Overseas Bank SC and ST Employees' Welfare association. Reliance was placed on Clauses (5) and (8) of Article 338 of Constitution of India in support of the contention that the Commission had power to pass such orders. The Hon'ble Supreme Court after considering Clauses (5) and (8) of Article 338 of Constitution of India and also the earlier decision in M.V.Raj wade v. Dr. S.M.Hassan AIR 1954 Nag 71 and Baliram Waman Hiray (Dr) v. Justice B.Lentin MANU/SC/0582/1988 : (1988) 4 SCC 419 (in relation to Section 4 of Commissions of Inquiry Act,1952), laid down as under.
Interestingly, herein, in Clause (8) of Article 338, the words used are the Commission shall ... have all the powers of the Civil Court trying a suit. But the words all the powers of a Civil Court have to be exercised while investigating any matter referred to in sub-clause (a) or inquiring into any complaint referred to in Sub-clause (b) of Clause 5. All the procedural powers of a civil court are given to the Commission for the purpose of investigating and inquiring into these matters and that too for that limited purpose only. The powers of a civil court of granting injunctions, temporary or permanent, do not inhere in the Commission nor can such a power be inferred or derived from a reading of Clause (8) of Article 338 of the Constitution.
7. The learned counsel for the respondents have not placed before this Court any provision of Companies Act or Regulations (except Regulation 44) which confers the power on the CLB to decide preliminary issues as per Order XIV Rule 2 of CPC. It must be, therefore, held that CLB has no power to decide preliminary issues nor can exercise powers under CPC other than those conferred under Section 10E(4C) of the Companies Act.
28. On a careful consideration of the findings of the learned Judge in the above said case, I am of the considered view that the reasonings contained therein cannot be applicable to the case on hand, for more than one reason. First of all, when admittedly when the Court or Company Law Board is entitled to decide as to the act of oppression and mismanagement complained of as per sections 397 and 398 of the Companies Act, in my considered view, to decide at the first instance as to the competence of a person to file such petition and that decision is depending upon the mandatory requirements of qualifications imposed on a member of the company to approach the Court or the Company Law Board under sections 397 and 398 of the Act, as stipulated under section 399(1) of the Act which makes it abundantly clear that only the persons or members having not less than 1/10th total number of members or members holding 1/10th of the issued share capital of the company are entitled to maintain such petition under sections 397 and 398 of the Companies Act is a power available to the Company Law Board. When section 399 itself empowers the Company Law Board to decide about the competency of the person to maintain such petition under sections 397 and 398 of the Act, it is not known as to how it is claimed that the Company Law Board or the Court is not entitled to decide about the maintainability of the petition on the ground that the person who approaches the Company Law Board or the Court has no qualification as prescribed under section 399(1) of the Act.
29. Therefore, when the statutory provision of the Companies Act itself is very clear that unless and until the persons have the qualifications enshrined under section 399(1) of the Act, they have no right even to file a company petition under sections 397 and 398 of the Act, in my considered view, such power need not be traced to either the Code of Civil Procedure or any other law. In such circumstances, the contents of section 10E(5) as enumerated supra, which not only enable the Company Law Board to be guided by the principles of natural justice but also its discretion, gives abundant power to the Company Law Board to exercise its discretion to find out as to the person who files the petition before it under sections 397 and 398 of the Act as to whether he is having the right to make such petition as required under section 399(1) of the Act, which can certainly be decided as a preliminary issue before going into the merits of the case. Therefore, the power given to the Company Law Board under section 10E(4C) of the Companies Act, as in the case of a Civil Court governed by the Code of Civil Procedure, can only be termed to be an addition to the powers which are already available to the Company Law Board, to be exercisable as per its discretion under section 10E(5) of the Act. Inasmuch as it is not the case of the appellants that the Company Law Board has not exercised its discretion in a proper manner, in my considered view, it is not possible to accept the contention of the learned counsel for the appellants Mr.Murari that as per the judgment of Andhra Pradesh High Court, these appeals have to be allowed. With great respect, I disagree with the findings of the learned Judge in the above said judgment.
30. Further, while dealing with the petition under sections 397 and 398 of the Act, the power of the Company Law Board, as contained in section 402 of the Act, is on just and equitable ground, in the opinion of the Board. One other aspect which has to be remembered in this case is that it is not as if by holding that the company petition filed by the appellants as not maintainable, the jurisdiction of the Company Law Board in dealing with such situation afresh if the appellants are able to succeed in their efforts in invalidating the transfer of shares and thereafter obtaining the right to maintain an application under sections 397 and 398 of the Act as required under section 399(1) of the Act by way of fresh application. Inasmuch as there is no ouster of jurisdiction of the Company Law Board by the impugned order passed by it, especially when it is certainly open to the appellants to avail the remedies in the manner known to law to redress the grievance in respect of transfer of shares effected, in my considered view, there is no grievance in existence for the appellants.
31. The observation of the Supreme Court relied upon by the learned counsel for the appellants in the judgment rendered in J.P.Srivastava & Sons (P) Ltd., vs. Gwalior Sugar Co., Ltd., [(2005) 1 SCC 172] in paragraph 48, which is as follows:
48. The object of prescribing a qualifying percentage of shares in the petitioners and their supporters to file petitions under Sections 397 and 398 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad common-sense approach. If the court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance with the rules read as a whole and no prejudice is caused. (See Pratap Singh v. Shri Krishna Gupta) In our judgment, Section 399(3) and Regulation 18 have been substantially complied with in this case.
is not helpful to the case of the appellants.
32. That was a case where members of the company were family members and there was a difference of opinion on the demise of certain family members and a compromise was entered without the knowledge of one of the parties and after the compromise was broken, partition of shares was effected. In that case, a contention was raised that equivalent to 10% of petitioners shareholding in the company was made only with regard to equity share capital of the company, while section 399(1) of the Act has required the petitioners to have 10% of total issued share capital which would include preference shares and therefore, the shareholdings claimed by the petitioners who moved petition under sections 397 and 398 of the Companies Act did not amount to 10% of such total. It was on that basis, while referring to various case laws on the subject, the Supreme Court made the above said observation. In any event, the issue involved in the present case cannot be said to be technical. Apart from want of right on the part of the appellants in maintaining the petition under sections 397 and 398 of the Act, the very conduct of the appellants in approaching the Court under section 9 of the Arbitration and Conciliation Act,1996 for preserving their right pending arbitration proceedings regarding the dispute under the said agreements dated 14.12.2006, clearly shows the interest of the appellants to enforce the said agreements.
33. While dealing with section 111 of the Companies Act, 1960, as it stood then, where, as against the refusal of the company to register transfer of shares, an appeal was provided to the Central Government, which power has subsequently been vested with the Company Law Board and of course, to the Tribunal, after the same has been constituted, the Supreme Court, by making analogy between the powers of a Court and a Tribunal, in M.S.Madhusoodhanan vs. Kerala Kaumudi (P) Ltd., (2004 (9) SCC 204) held that such decision of the Central Government which is judicial in nature falls under Article 138 of the Constitution of India. It was held as follows:
Transfer of shares by Mani and his children to Madhusoodhanan
22. In CP No. 26 of 1987, Mani and his group prayed for rectification of the share register of Kerala Kaumudi by deleting the name of Madhusoodhanan as a shareholder in respect of the shares which Mani and his group had transferred to him in 1985. The prayers proceed on the basis that there was in fact a transfer of shares in 1985 which was, after two years, sought to be set aside. The grounds on which this was asked for were:
(A) The consideration for the transfer had not been agreed upon and no consideration had in fact been paid.
(B) No proper documents had been executed effecting the transfer.
(C) Neither Valsa nor Sukumaran Mani, a minor had any knowledge of the transfer and the transfer of their shares was invalid.
(D) Section 108 of the Companies Act, 1956 had not been complied with in respect of any of the transfers.
23. The learned Single Judge rejected all the four contentions, and in our view, rightly. The Division Bench held in favour of Mani and his group on grounds which are legally and factually unsustainable for the reasons stated in the following paragraphs.
24. The documentary evidence relating to the transfer, shows without a shred of doubt that there was a valid transfer of shares. To begin with, the minutes of the meeting held on 19-3-1985 [Ext. R-62(a)] which were signed by Mani, records:
Shares of Shri M.S. Mani
All the shares in Kerala Kaumudi owned by Shri M.S. Mani and family would be pledged by him to Shri M.S. Madhusoodhanan who shall extend financial facilities to Shri M.S. Mani. The loan will be paid with 22 per cent interest by Shri Mani when Shri M.S. Madhusoodhanan shall release the shares of Shri M.S. Mani. The modus operandi of the transaction shall be decided in consultation with Barrister P.K. Kurien of Menon and Pai.
25. The intention of Mani and his group to transfer their shareholding to Madhusoodhanan is evident from this. Although the mode of transfer was subsequently changed, this intention was affirmed at the Board meeting of Kerala Kaumudi held on 23-4-1985. The fifth and sixth resolutions as appearing in the minutes of the meeting [Ext. P-62(b)] which were also signed by Mani read as under:
Shri M.S. Mani
Letter of resignation from the direct directorship of Kerala Kaumudi (Pvt.) Ltd. effective from 23-4-1985 afternoon submitted by Shri M.S. Mani was approved by the Board.
(6) Shares owned by Shri M.S. Mani and family in Kerala Kaumudi (P) Ltd.
Shares owned by Shri M.S. Mani and family in Kerala Kaumudi (P) Ltd. will be transferred to Shri M.S. Madhusoodhanan forthwith on a consideration to be mutually agreed between the transferor and the transferee. The liabilities of Shri M.S. Mani to the Income Tax Department etc. up to 31-3-1985 should be settled by Kerala Kaumudi (P) Ltd. before finally deciding a consideration for the share transfer. Kerala Kaumudi (P) Ltd. undertakes to discharge the liabilities arising on account of personal guarantees given by Shri M.S. Mani for the Company. (emphasis supplied)
34. By referring to various judgments and passages from Hallsbury, the Supreme Court has ultimately held as follows:
30. The questions as to what would be the reasonable price for the shares, the mode of its determination and whether any consideration has already been paid by Madhusoodhanan to Mani are considered subsequently.
31. The minutes of the Board meeting held on 21-5-1985 [Exhibit P-62(c)] of Kerala Kaumudi record that the following share transfer deeds were placed before the Board, namely, the deeds relating to the transfer of 222 shares by M.S. Mani to Madhusoodhanan, 84 shares by Valsa Mani to Madhusoodhanan, 84 shares by Sukumaran Mani to M.S. Mani and 84 shares by Mani to Madhusoodhanan. The Board resolution goes on to record:
After discussion the share transfers were approved by the Board and the Managing Director and any other Director was authorised to sign the relatively new share certificates to be issued in favour of Shri M.S. Madhusoodhanan and to affix the common seal of the Company in the share certificates in the presence of the Company Secretary.
35. While dealing with Section 9 of the Arbitration and Conciliation Act, 1996, in the light of section 115 of the Code of Civil Procedure, even though the Act does not provide for the applicability of the Code specifically and in the circumstance that under section 37(2) of the Arbitration and Conciliation Act, 1996, a second appeal remedy is not available, the Supreme Court in ITI Ltd., vs. Siemens Public Communications Network Ltd., [(2002) 5 SCC 510], by holding that the remedy of revision would not cease to be available under section 115 C.P.C., laid down that the issue to be decided is as to whether there is an express bar of applicability of the Code, in the following words:
10. We do not agree with this submission of the learned counsel. It is true in the present Act application of the Code is not specifically provided for but what is to be noted is: is there an express prohibition against the application of the Code to a proceeding arising out of the Act before a civil court? We find no such specific exclusion of the Code in the present Act. When there is no express exclusion, we cannot by inference hold that the Code is not applicable.
36. While dealing with a similar issue in the context of Arbitration Act, 1940, referring to the above said judgment in Siemens case (cited supra), the Division Bench presided over by A.P.Shah,CJ (as he then was) in Om Sakthi Renergies Limited rep. By its Managing Director M.Jayathirth vs. Megatech Control Ltd., rep. By its Managing Director N.Ramkhumar (2006 (2) CTC 161) held as follows:
12. It is also required to be noted that this is not a case of lack of territorial jurisdiction, but only a waiver of a contractual clause. If a party allows the Trial Court to proceed to judgment without raising the objection as to the place of suing and takes a change of verdict in his favour, he clearly waives the objection and will not subsequently be permitted to raise it. The present proceedings under Section 9 are in effect final proceedings. The objection to the jurisdiction though taken before the Trial Court should have been pressed to its normal end and failure to do so would amount to waiver as per Section 21 of the Code of Civil Procedure. It is true that Section 21 of the CPC is not specifically made applicable to the proceedings arising under the Act, but there is no express prohibition against the application of the Code to the proceedings arising out of the Act before the Civil Court. In M/s.I.T.I. Ltd., v. M/s.Siemens Public Communications Network Ltd., (2002 (2) CTC 620 : AIR 2002 SC 2308), a two Judge Bench of the Supreme Court has clearly held that the jurisdiction of the Civil Court to which a right to decide a lis between the parties has been conferred can only be taken away by a statute in specific terms and such exclusion of right cannot be easily inferred because there is always a strong presumption that the Civil Court has the jurisdiction to decide all questions of civil nature, therefore, if at all there has been an inference the same should be in favour of the jurisdiction of the Court rather than the exclusion of such jurisdiction and there being no such exclusion of the Code in specific terms except to the extent stated in Section 37(2) of the Act an inference that merely because the Act has not provided the C.P.C. to be applicable, the Code is inapplicable cannot be drawn.
In such view of the matter, I am of the considered view that the findings of the Company Law Board in the impugned order cannot be either treated as perverse or against the law or that the Company Law Board considered irrelevant materials so as to enable this Court to interfere with the same under section 10F of the Companies Act on the basis of any question of law. The appeals fail and the same are dismissed accordingly. No costs. Connected miscellaneous petitions are closed.
Index:Yes/No
Internet:Yes/No
kh 19.07.2010
P.JYOTHIMANI,J.
P.D.COMMON JUDGEMENT IN COMPNAY APPEAL NOS.16 & 17 OF 2010 DATED:19.07.2010.