Company Law Board
India Switch Company Private Limited, ... vs Aci (India) Inc. on 5 October, 2005
Equivalent citations: [2007]136COMPCAS470(CLB)
ORDER
K.K. Balu, Vice Chairman
1. In the company petition filed by M/s ACI (India) Inc., ("the petitioner") under Section 111(4)(b) and 94 of the Companies Act, 1956 ("the Act") seeking directions against M/s India Switch Company Private Ltd. ("the Company") and four others for rectification of the register of members of the Company in respect of 60,000 equity shares impugned in the company petition, the Company and respondent Nos. 2 & 5 have filed the present application (CA 44/2005) challenging the maintainability of the company petition, being barred by limitation and urged to vacate the ex-parte interim order granted on 17.06.2005, whereby any proposal of the Company for sale of its assets or business was made subject to the final outcome of the company petition.
2. Shri Krishna Srinivasan, learned Counsel, appearing for the petitioner, while justifying the interim order submitted that the Company Law Board (CLB), in exercise of the power under Sub-section (6) of Section 111 may at its discretion make such interim orders, including any orders as to injunctions or stay, as it may deem fit and just. By virtue of Sub-section (7) of Section 111, the CLB may decide any question, which is expedient to decide in connection with the application for rectification. In view of this, this Bench is competent to make any order, as may be deemed fit in relation to the assets or business of the Company. Thus, the order dated 17.06.2005 is a standard one, made in all such matters and in no way causes any prejudice to the interests of the Company. This Board in A.J. Coelho v. South India Tea And Coffee Estates Ltd. (1998) 93 CC 401, while considering an application under Section 111 permitted sale of the Company's property subject to getting the Board's approval before the actual sale is effected. The High Court of Madras, in the application No. 609/2005 in C.S. No. 519/2005 between the petitioner and the Company permitted sale of the Company's assets, without affecting the rights of the petitioner under the joint venture agreement. The Company cannot raise the issue of limitation but may agitate the delay on the part of the petitioner in initiating the present proceedings, which, however, is duly explained by the petitioner. The Calcutta High Court in Farhat Sheikh v. Escman Metalo Chemical Pvt. Ltd. 1991 (vol.71) CC 88 held that delay could not deprive anyone of the right to obtain the relief sought for. Technicality cannot by itself defeat the cause of justice unless such a technicality goes to the root of the matter. Justice is supreme and the law courts exist therefor - to do so is a plain exercise of judicial function and the law courts would fail in their duties in the event they cannot rise up to the occasion to do complete justice to one who seeks it. The Supreme Court in Sha Mulchand and Co. Ltd. v. Jawahar Mills Ltd. - held that mere waiver or acquiescence or laches not amounting to an abandonment of one's right does not disentitle him from claiming any relief in equity in respect of his executed contract. The Company and respondent Nos. 2 & 5 have filed their objections opposing the prayer for the interim reliefs sought by the petitioner, but they have not prayed for vacation or modification of the order dated 17.06.2005 of this Bench. Therefore, the interim order made by the Bench is justifiable on the facts of the present case. The respondent Nos. 2 & 3 controlled by the fifth respondent entered into an agreement on 12.08.1995 with the Indian Banks' Association, with the commitment of the petitioner, an American company and the fourth respondent to incorporate the Company with the main object of operating a computer processing facility at Bombay. All rights and obligations under this agreement must be assigned and assumed by the Company, as if the Company were a signatory to the agreement. The parties to the agreement including the petitioner and the fourth respondent must retain equity in the Company and maintain representation on the board of directors of the Company for the initial five year term thereof. Accordingly, the Company was incorporated in September, 1995. Thereafter, a joint venture agreement was entered into on 19.07.1996 among the petitioner and respondent Nos. 1 to A for the purposes of, inter-alia, to regulate the relationship among themselves with regard to the management and control of the Company. The joint venture agreement envisages essentially the following:
• The authorized and initial issued capital of the Company should be Rs. 2 crores divided into two lakhs shares of Rs. 100/- each, to be held by the petitioner (30%), the second respondent (51%), the third respondent (4%) and the fourth respondent (15%). Accordingly, the petitioner was to be issued 60,000 shares of Rs. 100/- each at par.
• The investment by the petitioner and the fourth respondent towards the equity capital of the Company is subject to approval of the relevant Governmental authorities within the stipulated time, failing which the joint venture agreement is liable to be terminated.
• The shareholders are entitled to a pre-emptive right to subscribe for additional shares representing any increase in the capital of the Company in proportion to the number of shares held by them.
• Each of the shareholders is entitled to appoint its nominees on the board of the Company in proportion to its existing shareholding in the Company.
• The effective date and closing date of the joint venture agreement are specified therein. The closing date shall in no event exceed 180 calendar days of the joint venture agreement.
• The Company shall before the closing date amend its articles as required by and consistent with the joint venture agreement.
• The affirmative vote of one director each appointed by each shareholder shall be required for approval of the matters expressly specified in the joint venture agreement.
• If any provision of the joint venture agreement is invalid or unenforceable for any reason, materially affecting the interest of any party under the agreement, such provision shall be considered divisible and inoperative and the remainder of the agreement shall be valid and binding upon the parties to the joint venture agreement.
The RBI accorded its approval on 05.12.1997 for the investment of the petitioner and the fourth respondent to the maximum tune of 30% and 15% respectively of the paid-up capital of the Company. This approval does not affect the petitioner, in the event of failure on the part of the fourth respondent from bringing in its investment of 15% of the paid-up capital of the Company. The petitioner had remitted in terms of the joint venture agreement in the year 1997-98, a sum of US $ 1,57,000 equivalent to Rs. 60 lakhs towards the equity capital of the Company, but no shares were issued in favour of the petitioner. The petitioner waited for a period of five years without asking for return of its investment, in view of the restrictive covenant contained in the agreement dated 12.08.1995 entered into with the Indian Banks' Association for retention of the equity in the Company. The Company gave effect to and acted upon the joint venture agreement by issuing 8,000 shares in favour of the third respondent and inducting representatives of the petitioner and respondent Nos. 2 to 4 on the board of directors of the Company. The petitioner's representatives continued to be directors for the period from April, 1987 to March 2002, insisting for the issue of 60,000 shares in favour of the petitioner, as borne out by the correspondence exchanged between the petitioner and the Company and the various minutes of the board meetings of the Company. When the Company failed to issue the shares, the petitioner by its letter dated 30.03.2000 claimed refund of the amount of US $ 157,000 invested towards subscription of 60,000 equity shares in the Company, which was reiterated by the petitioner in its communication dated 16.11.2000. Thereafter, when the Company made an application to the Reserve Bank of India, seeking approval for refund of the share application money in February and March, 2001, the RBI by its letter dated 15.05.2001 accorded permission for refund of an amount of Rs. 60,65,084 without any interest. In spite of the communications dated 11.01.2002 and 19.11.2004 of the petitioner, there was no positive response from the Company in refunding of the share application money. The Company failed to issue the shares and remit the license fee under the license agreement entered into with the petitioner, compelling the petitioner to terminate the license agreement, which resulted in a civil suit filed by the Company against the petitioner. The interlocutory proceedings before the High Court were pending between the period January, 2002 and February, 2004. When the interlocutory applications were finally disposed of by a Division Bench of the Madras High Court in February, 2004 and after expiry of the requisite period for any appeal which might be preferred by the Company before the Supreme Court, the petitioner renewed its demand for the issue of shares and thus approached the CLB in June, 2005 for rectification of the register of members of the Company in respect of the impugned shares. Thus, the petitioner has not at any stage acquiesced or waived its right for the shares, but has been diligently pursuing with the Company since the year 1998 for the issue of shares. By virtue of the memorandum of understanding dated 01.02.2000 entered into between M/s ACI Worldwide Inc., the petitioner's parent company, the Company and the second respondent, it was agreed to assign all rights and obligations of the petitioner in the 59,999 shares of the Company to the second respondent, which re-enforces the fact that the petitioner is a shareholder of the Company. The petitioner, continuing to be a shareholder of the Company, holding 30% of its paid-up capital has every right to question the Company's proposal for sale of its assets or business. When the memorandum of understanding dated 01.02.2000 came to be terminated, in view of breach of its terms committed by respondent Nos. 1 & 2, the petitioner renewed the demand for the shares, rectifying the register of members of the Company or refund of the consideration thereof.
The preliminary issue of limitation belatedly raised by the Company is an after-thought. The issue of limitation involves mixed questions of law and facts and, therefore, cannot be adjudicated as a preliminary issue. Order 14 Rule 2 of the Code of Civil Procedure envisages that a suit must be tried as a whole on all issues and trial of preliminary issues is permissible only where it is a pure issue of law touching upon the question of jurisdiction of the court or raising a question that the proceedings are barred by any provision of law, as re-enforced by the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd. v. Esma Industries P. Ltd.(1990) 69 CC 372. In all other cases, where preliminary objections are taken about the maintainability of the proceedings, even if they are issues either of pure law or issues raising mixed questions of law and fact, they cannot be tried as a preliminary issue. The present company petition involves the question of law and facts and hence the question of limitation cannot be raised as a preliminary issue. While Sub-sections (1), (2) and (3) of Section 111 dealing with appeal to the CLB specifies the period, Clause (b) of Sub-section (4) of Section 111 does not prescribe any period of limitation, while applying to the CLB for rectification of the register of members of the company. The Notes on clauses in the Bill which preceded the Companies Amendment Act, 1988 relating to Section 111 states that there is no limitation period provided for making the application for rectification of register of members under Sub-section (4). The Notes on Clauses accompanying the Bill would aid the interpretation of the provisions of law as affirmed by the Supreme Court in Commissioner of Wealth tax, Punjab v. Yuvraj Amrinder Singh - AIR 1986 SC 959. The claim for the rectification of register of the Company is still alive and continuing and, therefore, is not barred by limitation. All decisions rendered by the CLB in relation to the question of limitation have arisen out of Section 111(4)(a), but the present company petition has been filed invoking the provisions of Section 111(4)(b). In view of this, those decisions decided under Section 111(4)(a) would not be applicable to the present case. The CLB in Dr. Jitendra Nath Shah v. Shyamal Mondal (1995) 82 CC 688 held that in an application under Section 111(4) of the Act, the CLB is competent to consider all relevant facts and circumstances and see whether the principles of justice and equity and fair play were observed and if not, it may declare the transaction invalid.
Shri Krishna Srinivasan, learned Counsel pointed out that the Companies Act while defining "Court" refers to the High Court and District Court only. The CLB is a body constituted by the Central Government having administrative powers. Under Sub-section 4-C of Section 10-E, only some powers under the CPC have been conferred on the CLB and is defined as a Civil Court under Sub-clause 4 only for certain provisions of the Cr.PC and the IPC. Under Sub-clause 5, the CLB in exercise of its powers to discharge of its functions is to act on the principles of natural justice and the power to regulate its own procedure. These provisions show that the CLB does not have the trappings of a Court but only some of them. This Board till the year 1997 had consistently taken the view that the Limitation Act, 1963 does not apply to applications under Section 111 of the Act, on the premise that the CLB is not a "Court" within the provisions of the Limitation Act and accordingly held in Dr. G.N. Byra Reddy v. Arathi Cine Enterprises Pvt. Ltd. (1997) 89 CC 745 that the Tribunals are not courts for all purposes. The Limitation Act is not applicable to Tribunals, including the CLB and, therefore, the CLB is not covered by the provisions of the Limitation Act. Similarly in T.G. Veera Prasad v. Sree Rayalaseema Alkalies and Allied Chemicals Ltd. (1997) 89 CC 13, the proceedings under Section 111 before the CLB are held to be not covered by the provisions of the Limitation Act, 1963. The CLB in Bombay Dyeing and Mfg. Co. Ltd. v. Arun Kumar Bajoria (2001) 4 Comp LJ 115, while dealing with the applicability of the Limitation Act to proceedings under Section 111, relied upon the decision of a Division Bench of Calcutta High Court in Smt. Nupur Mitra v. Basubani (P.) Ltd. (1999) 35 CLA 97, which was affirmed by the Supreme Court and came to the conclusion that the provisions of the Limitation Act are applicable to the proceedings under Section 111 before the CLB. According to Shri Krishna Srinivasan, learned Counsel, the relevant portion of the decision of the Supreme Court, viz., "various contentions are raised on behalf of both the parties before us and, in particular, on behalf of the Appellants as regards the limitation and delay. The Respondents in this Petition have made out a "prima facie" case for condonation of delay and, if necessary, the Respondents may file such documents as permissible in Law to get the delay condoned" reproduced in the Bombay Dyeing and Mfg. Co. Ltd. v. Arun Kumar Bajoria (supra), cannot be said to be a statement of law or a decision on the question of limitation and powers of the CLB to entertain applications under the Limitation Act. After making an exhaustive reference to the various decisions discussed in Smt. Nupur Mitra v. Basubani (P) Ltd., it is not possible to hold that the judgment of the Caucutta High Court in the Smt. Nupur Mitra v. Basubani (P) Ltd., lays down the proposition that the CLB is a "Court" for the purpose of the Limitation Act. The Calcutta High Court further extracted the relevant passage from the decision of the Supreme Court in Canara Bank v. Nuclear Power Corporation of India Limited (supra) to highlight that the CLB was construed to be a court for the purpose of Section 9A of the Special Court Act. However, it has been held (para 60) that the CLB is a "Court" only in a restricted sense and not in the sense used in the Limitation Act. It is, therefore, incorrect to say that the Calcutta High Court held that in a proceeding under Section 111, the provisions of the Limitation Act apply. In Canara Bank v. Nuclear Power Corporation of India Ltd. 1995 CLJ 203, the Supreme Court referred to the fact that the CLB has been vested with powers of administration and some 'curial' power has been given in respect of proceedings under Section 111 of the Act. This cannot be sufficient to hold that the Supreme Court intended to lay down that under Article 137 even a "deemed" court could be given power to entertain applications under Article 137. The Supreme Court in Nityanand M. Joshi v. The Life Insurance Corporation of India held that in view of Sections 4 and 5 of the Limitation Act, it would be clear that the Scheme of the Act is that it only deals with applications to Courts and the Labour Court is not a court within the Limitation Act. The decision of the Supreme Court in The Kerala State Electricity Board v. T.P. Kunhaliumma illustrates the point that Article 137 of the Limitation Act will apply to a petition or application under any Act, provided such application is made to a civil court. Thus, the earlier decisions of the CLB appear to be correct and the departure in Bombay Dyeing and Mfg. Co. Ltd. v. Arun Kumar Bajoria has to be re-considered. The Supreme Court in Harinagar Sugar Mills Limited v. Shyam Sunder Jhunjhunwala (1961) 31 CC 387 held that "all Tribunals are not courts, though all courts are "tribunals". The word 'Court' must be read in the context in which it is used in the Statute. A division Bench of Allahabad High Court in Prakash Timbers Private Ltd. v. Sushma Shingla 1997 (89) CC 770, after considering a number of decisions from the beginning in Bharat Bank case , Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala 31 CC 387 SCand English decision and after setting out the features of the CLB and explicitly referring to the decision in Canara Bank v. Nuclear Power Corporation of India Ltd. (supra) came to the conclusion that the CLB can be held only a Tribunal and not a 'Court' for the purposes of the Allahabad High Court Rules. Thus, provisions of Limitation Act are not applicable to the Tribunals such as the CLB and for the proceedings under Section 111(4).
3. Shri Karthik Seshadri, learned Counsel appearing for respondent Nos. 1, 2 & 5, while seeking to vacate the ex-parte interim order made on 17.06.2005, questioned the maintainability of the company petition, being barred by limitation. According to learned Counsel, Section 111 cannot be invoked so as to restrain the Company, inter-alia, from dealing with or transacting the sale or registering any transfer of (i) shares and (ii) fixed assets of the Company, pending disposal of the company petition. This Board in A.J. Coelho v. South India Tea and Coffee Estates Ltd. (1998) 93 CC 401 held that it is empowered to make such interim orders, including any orders as to injunction or stay while acting under Sub-section (5) or Sub-section (6) only in relation to registration of both transfer and transmission by operation of law, of any shares and debentures and rectification of register of members in a company and therefore, the power of injunction or stay cannot be extended beyond the scope of Sub-section (5) and (6) of Section 111. In view of this, the ex-parte interim order of the Bench to the effect that any proposal of the Company for sale of its assets or business will be subject to the outcome of the company petition falling outside the scope of Sub-sections (5) & (6) must be vacated. Moreover, the Company has already entered into an agreement for sale of a portion of its business and, therefore, the ex parte interim order passed by the Bench is harmful to the interests of the Company. It is difficult to undo the damage suffered by the Company on account of the interim order cannot be allowed to continue indefinitely and its continuance has to be decided without undue delay as held in ICICI Ltd. v. Grapco Industries Ltd. -.
The joint venture agreement only envisages that the authorized and initial issued capital of the Company should be Rs. 2 crores to be held by the petitioner, respondent Nos. 2 to 4 and it cannot, therefore, constitute a letter of allotment of shares, in support of which reliance has been placed on the decision of the Supreme Court in Sri Gopal Jalan and Co. v. Calcutta Stock Exchange Association Ltd. to show that there are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created, it may remain unissued for years. When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment, which means an appropriation by the directors or the managing body of the company of shares to a particular person. Thus, there has been no allotment of shares in favour of the petitioner and other shareholders under the joint venture agreement. Consequently, the claim for rectification of the register of members of the Company does not lie. Nevertheless, the petition is liable to be dismissed in limine, as it is ex facie barred by limitation. This issue of limitation affects the very root of the subject matter and must be dealt with as a preliminary issue before considering any issues on merit, so as to save time and cost for the litigants. The Code of Civil Procedure is not applicable to the proceedings before the CLB. Even otherwise, Order 14 Rule 2(b) provides that the Court may try any issue of law raising a question that proceedings are barred by any provision of law, as a preliminary issue. In the present company petition, there is a bar under the Companies Act to enforce the claim under Section 111(4). The trial of a preliminary issue touching upon the question of jurisdiction of the Court is permissible, as affirmed by the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd. v. Esma Industries Pvt. Ltd. (supra). In the present company petition, the respondents have raised the question of law, which can be disposed of as a preliminary issue. If the facts as pleaded in the company petition are admitted as true, which are, however, denied, the petitioner would not be entitled to any relief, on account of the claim already barred by limitation. The rights of the petitioner in respect of the impugned shares are not extinguished, but it has lost its remedy on account of the period of limitation.
Section 10F of the Act envisages that any person aggrieved by any order of the CLB may file an appeal to the High Court within the prescribed time on any question of law arising out of such order. Thus, the CLB is the final adjudicating authority in so far as the question of facts is concerned. It is, clear that the power exercised by the CLB is judicial in nature. The Supreme Court in Brajnandan Sinha v. Jyoti Narain , while dealing with essential conditions constituting a Court categorically held that "the Court should have apart from having some of the trappings of a judicial tribunal, power to give a decision or a definitive judgment which has finality and authoritativeness which are the essential tests of a judicial pronouncement. " Section 10-E of the Act lays down the various powers of the CLB. The Supreme Court considered the identical provisions akin to Section 10-E in Jugal Kishore v. Sitamarhi Central Co-op Bank and came to the conclusion that a Registrar of Cooperative Society vested with these powers is "Court". In Canara Bank v. Nuclear Power Corporation of India Ltd. - (1995) 84 CC 70, the Supreme Court while dealing with a petition for rectification of the register of members in respect of transactions involving notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 after discussing the difference between Tribunals and Courts as discussed the Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala came to the conclusion that the CLB is a permanent body constituted under statute. It is difficult to see how it can be said to be anything other than a Court, particularly for the purposes of Section 9A of the Special Court Act. The Allahabad High Court in Prakash Timbers Pvt. Ltd. v. Sushma Shingla , while examining the issue whether the CLB is a Court considered the judgment of the Supreme Court made in Canara Bank v. Nuclear Power Corporation of India Ltd. and held that for the purposes of Section 111, the CLB is a "Court" and for other purposes may not be a Court, while discharging other functions and powers. Thus, the CLB is a "Court" for the purposes of Section 111 of the Act and, therefore, provisions of Limitation Act, 1963 would apply. This Board in Tommy Mathew v. Duroflex Ltd. (2004) 55 SCL 636 and the unreported decision of M.S.D.C. Radha Ramanan v. Shree Bhaarathi Cotton Mills Private Limited in C.P. No. 8/11 l/SRB/2004, held that provisions of Limitation Act, 1963 would be applicable to proceedings under Section 111(4) of the Companies" Act, 1956. In Smt. Krithika Mullengada v. Wipro Ltd. reported in (2004) 121 CC 676, this Board considered the applicability of Section 14 of the Limitation Act to a petition under Section 111A of the Act and came to the conclusion that the petition in question was hopelessly barred by Limitation and that the petitioner cannot get the benefit of the provisions of Section 14 of the Limitation Act.
The Petitioner made a distinction between 111(4)(a) & (4)(b) for the purpose of the Limitation Act. However, if the Limitation Act applies to Sub-section (4)(b) of 111, it should equally apply to Sub-section (4)(a) of Section 111 also, especially when the powers exercised are the same. The provisions of Section 111(4) were introduced by way of an amendment with effect from 31.05.1991 to the Companies Act, 1956 based on the recommendations of the Sachar Committee report of 1988, which contemplated assimilation of the provisions of Section 111 and 155 into a single statutory provision. The present Section 111 has been brought into effect, pursuant to these recommendations, the fact has been judiciously noticed by the Supreme Court in Canara Bank v. Nuclear Power Corporation of India Ltd. (supra). The Supreme Court in Sha Mulchand and Co. v. Jawahar Mills Ltd. , while considering a petition under Section 38 of the Indian Companies Act, 1913 which corresponded to Section 155 of the Companies Act, 1956 and the present Section 111(4) of the Companies Act, 1956 held that Article 120 of the Limitation Act, 1908 corresponding to Article 113 of the Limitation Act, 1963 would be applicable. In a petition under Section 111(4) for rectification of the register of members, the CLB is to adjudicate a dispute on the "Original Cause of action", in which case, the word "application", used in this section is in reality a "Suit". It has been held by the Supreme Court in Mardia Chemicals Ltd. v. Union of India (2004) 120 CC 373, while considering the provisions of Section 17 of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 held that the word used therein though was "Appeal" actually was in the nature of a "Suit", as it was an action initiated on the "Original Cause of action". Therefore, an application for rectification made under Section 111(4) must be necessarily be an action in the original cause of action. The Supreme Court in Ammonia Supplies Corporation Pvt. Limited v. Modern Plastic Containers Pvt. Limited (1998) 94 Comp Cas 310 held that the jurisdiction of the CLB in the matters of rectification of the register of members is more or less exclusive unless it comes to a conclusion in view of complex questions of facts requiring extensive evidence that the parties must be relegated to a Civil Court. Under the circumstances, Article 113 of the Limitation Act would be applicable and by virtue of Section 3 of the Limitation Act, 1963, it is obligatory for the Court to non-suit any person who sues belatedly after the expiry of period of Limitation. The Supreme Court in State of Punjab v. Gurudev Singh AIR 1991 SC 2219, while considering the question of limitation held that a suit must be instituted when the right asserted in the suit is infringed or when there is a clear and unequivocal threat to infringe that right by the defendant against whom the suit is instituted. The cause of action for the present petition first accrued on 19.07.1996, when the joint venture agreement was entered into and on 29.11.2000, when the Company denied the existence of the joint venture and refused to register the impugned shares in favour of the petitioner, but it failed to initiate any action for more than 4 years and 7 months from 29.11.2000, which is clearly beyond the period of 3 years prescribed by the Limitation Act.
The joint venture agreement provides, among other things, closing date and effective date, for the purpose of fulfilling the terms and conditions of the agreement, which must be fulfilled within a period of six months from the date of its execution or within such time as may be mutually extended by the parties. The fourth respondent never fulfilled the terms and conditions of the joint venture agreement before the closing date and, therefore, the joint venture agreement never came into operation. The closing date shall no in no event exceed 180 calendar days from the date of the joint venture agreement, in which case, the joint venture agreement ought to have been enforced within three years after expiry of 180 days of execution of the joint venture agreement. Therefore, the present company petition filed on 16.06.2005 is clearly barred by limitation. If the terms and conditions as per the joint venture agreement are not satisfied within the stipulated time, any of the parties may terminate the joint venture agreement. The completion of the transaction never took place before the closing date, viz., within 30 days of receipt of the requisite Government approvals, but the petitioner did not terminate the joint venture agreement. The Company never amended its articles as required by and consistent with the joint venture agreement as specified in Article 15.2 therein. The petitioner's nominee was on the board of the Company till the year 2002. Article 19.1 of the joint venture agreement provides that if the governmental approvals to the joint venture agreement are not received within six months of the date of the joint venture agreement or if any terms and conditions of such approvals are not acceptable to the petitioner and or the fourth respondent, either of these parties may terminate the joint venture agreement. The minutes of the board meeting of the Company held on 06.07.1998, to which the petitioner's representative is a party, categorically shows that the fourth respondent, one of the joint venture partners failed to bring in its contribution towards equity and therefore, the joint venture agreement of 19.07.1996 never come into force. In view of this, the petitioner ought to have enforced its right for rectification of the register of members in respect of the impugned shares within a period of three years from the date of the said board meeting held on 06.07.1998.
ACI Worldwide (Asia) Pte. Ltd., (ACI), being the petitioner's parent company, respondent Nos. 1 & 2 entered into a memorandum of understanding dated 01.02.2000 for transfer of ACI's interest in 59,999 shares of the Company before 01.05.2000. However, this MOU came to be subsequently terminated, upon which, any legal action enforcing the petitioner's right under the MOU ought to have been taken within three years thereof, which has not been initiated by the petitioner. The petitioner in his communication dated 30.03.2000 demanded from the Company, refund of the share application money on account of non-allotment of the impugned shares, which ought to have been enforced within three years from the date of such demand by the petitioner. The second respondent in its communication dated 16.11.2000 assured the petitioner to make full payment of a sum of US $ 417,213 on or before 01.05.2000. The petitioner failed to enforce his rights against the Company within three years of such promise made by the Company. The petitioner in his communication dated 24.11.2000 advised the Company that it found a third party who was interested in purchasing its rights in the Company. This shows that the petitioner was never interested in holding the shares in the Company. The Company in its communication dated 29.11.2000 addressed to ACI reiterated that the joint venture agreement dated 19.07.1996 never came into force since no contribution towards equity capital of the Company was brought in by the fourth respondent. Consequently, the Company informed the petitioner that steps are taken to refund the share application money in favour of the petitioner. In view of this, the petitioner must have enforced its claim against the Company within three years from 29.11.2000.
The petitioner by its letter dated 12.02.2001, demanded from the Company refund of US $ 157,000, being payment by the petitioner towards its subscription of shares. The petitioner failed to take any legal action enforcing his rights within three years from 12.02.2001. The petitioner by his letter dated 11.01.2002 terminated the license of the Company without prejudice to his rights to recover the share application money remitted with the Company. However, the petitioner failed to enforce his claim within three years from the date of the said communication, viz., 11.02.2002. Thus, by any means, the petitioner's claim is barred by limitation.
4. Shri Ramanathan, learned Counsel representing the petitioner, in his rejoinder, submitted that the Supreme Court in Canara Bank v. Nuclear Power Corporation of India Ltd. found that the CLB has limited powers and further pointed out that when the Constitution speaks of "Courts" in Article 136 and other articles, it contemplates Courts of civil judicature, but not tribunals, other than such Courts. The CLB cannot be brought under "Courts" as contemplated in the Constitution. The Company ought to have allotted shares in terms of the joint venture agreement. The Company is delaying to incorporate the petitioner's name in the register of members in respect of the impugned shares constituting 30% of the paid-up capital of the Company and, therefore, the relief claimed must be granted by the CLB. Though the petitioner agreed for refund of the share application money by the Company, yet, the same has not been returned till date, in which case the question of limitation would not arise.
5. Having heard learned Counsel for the parties and the written submissions, the issues which arise for my consideration are -
(i) Whether the petitioner's claim for rectification of the register of members of the Company in respect of the impugned shares is enforceable?
(ii) If so, whether the ex-parte interim order granted by the Bench shall be made absolute or vacated?
The issues (i) & (ii) are inter-related and, therefore, they are together considered. These contentious issues revolve around the joint venture agreement executed on 19.07.1996 among the petitioner and respondents Nos. 1 to 4. Among other things, the joint venture agreement envisages that upon its execution, the paid-up share capital of Rs. 20,000,000 divided into 2,00,000 shares of Rs. 100/- each would be issued in favour of the petitioner (60,000 shares), the second respondent (1,02,000 shares), the third respondent (8,000 shares) and the fourth respondent (30,000 shares). The government approval is a condition precedent to this joint venture agreement. The Reserve Bank of India by a communication dated 05.12.1997 accorded its permission, under the Foreign Exchange Regulation Act, 1973 to the issue of (i) 60,000 equity shares of Rs. 100/- each at par on repatriation basis amounting to Rs. 60,00,000 to the petitioner; and (ii) 30,000 equity shares of Rs. 100/-each at par amounting to Rs. 30,00,000/- to the fourth respondent, subject to among other conditions that at no stage the investment of the petitioner and the fourth respondent should exceed 30% and 15% respectively of the paid-up of the Company; that the shares should not be issued to these foreign collaborators without the RBI's specific approvals and that the foreign investors shall have to obey the law of land. Pursuant to the joint venture agreement, the petitioner remitted in the year 1997-98 a sum of US $ 1,57,000 equivalent to Rs. 60 lakhs in favour of the Company for the issue of 60,000 shares in favour of the petitioner, which reflected in the Company's accounts as advance for share capital, as borne out by the balance sheet as at 31.03.2000. However, the Company never issued the share certificates in respect of the impugned shares. Thereafter, by virtue of a memorandum of understanding entered into between the petitioner, the Company and the second respondent on 01.02.2000, the petitioner agreed to assign all its rights and obligations in its 59,999 shares in favour of the second respondent for a consideration of US $ 1,000,000 within 90 days thereof. But, this memorandum of understanding came to be terminated and never implemented. The petitioner by its communications dated 30.03.2000 and 16.11.2000 advised the Company to refund the subscription amount remitted towards the impugned shares, since the Company failed to issue the shares. The second respondent by its communication dated 31.03.2000 assured the petitioner to refund the share application money after obtaining necessary approval from the Reserve Bank of India. In the meanwhile, the petitioner had agreed on 31.03.2000 to assign its 59,999 shares in the Company in favour of M/s Capven Limited for US $ 425787, but had to rescind the contract, for non-payment of the consideration by M/s Capven Limited, within the stipulated time, as borne out by a communication dated 16.11.2000 of the petitioner. The petitioner in its communication dated 24.11.2000 sought from the Company its no objection to a third party purchasing the petitioner's interest in the Company and further stated if the Company had no objection to this proposal, the refund of the subscription amount for the impugned shares would not be required, in view of the fact that the same would be taken care by the proposed party purchasing the interest of the petitioner. The petitioner by its communication dated 12.02.2001 addressed to the Company pointed out that the petitioner was yet to receive the refund of US $ 157,000, being the payment made by the petitioner towards subscription of its shares. The Company by its communication dated 16.02.2001 advised the petitioner that approval from the RBI is awaited for refund of the subscription amount for the shares in favour of the petitioner. It is relevant to observe that schedule 11 forming part of the balance sheet as at 31.03.2000 and 31.03.2001 indicate that "The Company has received a total sum of US $ 157,000 (Rs.60,65,084/-) from a foreign company as an advance towards (a committed) equity participation of Rs. 60,00,000. The Company had obtained in principle approval for a total equity participation of Rs. 90,00,000 from two foreign parties but could not proceed with the allotment due to non-receipt of equity contribution from the other foreign party. 1 he foreign company has now requested the company to refund the application money. The amount received is therefore proposed to be returned subject to necessary approvals in this regard. ".... The petitioner by its communication dated 11.01.2002, while terminating the license granted in favour of the Company made it clear that the termination of license is without prejudice to its right to recover the subscription amount made towards equity participation of the Company. According to the petitioner, when it came to know from the market that the Company was being sold to eFunds Inc, it wrote on 19.11.2004 to the Company, as under:
Please clarify if the sale includes the 60000 shares that we currently own in India Switch Company, and if so, the consideration for the same. We reserve the right to object to the sale in the event that we consider the consideration inadequate.
Here and now it has to be pointed out that even as late as in November, 2004 the petitioner was not concerned with the issue of shares in its favour by the Company, but only with the consideration for the impugned shares. In response to the letters dated 26.02.2001, 21.11.2000 and 27.03.2001 of the Company for refund of the share application money, the RBI by its communication dated 15.05.2001 advised that it has no objection to the Company's refund of Rs. 60,65,084/- in favour of the petitioner without any interest due thereon at the prevailing rate of exchange on the date of such refund. Schedule 11 forming part of the accounts for the year ended 31.03.2001 categorically reports that "pending refund the amount of Rs. 60,00,000/- is carried under sundry creditors - others ", while the same was reflected in the accounts for the year ended 31.03.2000 under "advance for share capital". A careful consideration of the plethora of correspondence between the parties and other documents on record unequivocally indicate that the petitioner has been reiterating for refund of the subscription amount remitted towards the equity share capital of the Company which is found unconditionally accepted by the Company. This concluded understanding resulted in culmination of the approval from the RBI for refund of the subscription amount in favour of the petitioner. It is, therefore, clear that the approval originally granted by the RBI in its communication under the relevant applicable provisions of the Foreign Exchange Regulation Act, 1973 to the issue of 60,000 equity shares of Rs. 100/- in favour of the petitioner stood revoked. At this juncture, the dictate of the RBI in terms of its communication dated 05.12.1997 shall be borne in mind, according to which, "the shares should not be issued to the foreign collaborators without obtaining our specific approval". In these circumstances, the present claim of the petitioner for rectification of the register of members of the Company in respect of 60,000 equity shares in the name of the Company invoking the jurisdiction of the CLB under Section 111(4)(b), in my considered view, is not in consonance with the persistent demand of the petitioner made since 2000 for refund of the subscription amount towards the equity share capital of the Company. Before enforcing any claim in a judicial forum, the essential pre-requisites are (a) cause of action (b) jurisdiction of forum and (c) period of limitation. In the absence of any one of these requirements, the right to prosecute for obtaining any remedy by legal means is barred. The purported cause of action for the present claim to register the impugned shares in the name of the petitioner, no longer being alive and continuing in the light of the option exercised by the petitioner to receive back the share application money and duly approved by the RBI cannot be enforced before the CLB, invoking the provisions of Section 111(4). The CLB could neither assume jurisdiction to enforce the right for return of the share application money in a Section 111 proceeding. The petitioner having acquiesced and waived its right for the issue of shares in the Company and reiterated from time to time for refund of the share application money, it will be nothing but a futile exercise to go into the controversy regarding the applicability of the law of limitation to proceedings under Section 111 before the CLB and the various decisions cited in this behalf. Applying the principles of Order 14 Rule 2 of CPC, the trial of a preliminary issue touching upon the question of jurisdiction of the Court or any bar to the proceedings created by any provision of law is permissible, as affirmed by the Gujarat High Court in Saurashtra Cement and Chemicals Industries Ltd. v. Esma Industries Pvt. Ltd. (supra), which is found to be satisfied in the matter before me. In view of these conclusions, the prayer made under Section 111(4)(b) for rectification of the register of members of the Company must fail. Ordered accordingly. With these directions, the company application and company petition stand disposed of. The ex-parte interim order made on 17.06.2005 stands vacated. No order as to costs.