Madras High Court
+Shankar Sundaram vs $1.Amalgamations Ltd on 3 June, 2002
?IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 3-6-2002
CORAM:
THE HON'BLE MR.JUSTICE N.V.BALASUBRAMANIAN
C.M.A.No.2018 of 2000 and C.M.P.No.19428 of 2000 .....
+Shankar Sundaram.
... Appellant.
vs.
$1.Amalgamations Ltd.,
81, Dr.Radhakrishnan Salai,
Chennai 600 004.
2.A.Sivasailam.
3.A.Krishnamoorthy.
4.Simpson & Co. Ltd.,
861/862, Anna Salai,
Chennai-2.
5.Additions Paints & Chemicals Ltd.,
Huzur Gardens, Sembium, Chennai 11.
6.India Pistons Ltd.,
Huzur Gardens, Sembium, Chennai 11.
7.Shardlow India Ltd.,
Huzur Gardens, Sembium, Chennai 11.
8.Tractors & Farm Equipment Ltd.,
35, Nungambakkam High Road,
Chennai 34.
9.Tafe Access Ltd.,
35, Nungambakkam High Road, Chennai 34.
10.Southern Tree Farms Ltd.,
35, Nungambakkam High Road, Chennai 34.
11.Associated Publishers (Madras) Ltd.,
856, Anna Salai, Chennai-2.
12.Bimetal Bearings Ltd.,
Strip Mill Plant,
Huzur Gardens, Sembium, Chennai 11.
13.IP Rings Ltd.,
Arjay Apex Centre, 24, College Road,
Chennai 6.
14.Wallace Cartwright & Company Ltd.,
55/56, St.James Street,
London, S.W.IA 1 LQ U.K.
15.W.J.Groom & Company Ltd.
55/56, St.James Street,
London, S.W.1A 1 LQ U.K.
16.Amco Batteries Ltd.,
3rd Floor, Tower Block,
Unity Buildings,
J.C.Road, Bangalore 560 002.
17.Amalgamations Valeo Clutch Ltd.,
'J' Gardens, G.N.T.Road,
Chennai 600 110.
18.Tafe (USA) Inc.d. Memphis,
Tennessee 38117, U.S.A.
19.Amco Power Systems Ltd.,
Hebbal - Bellary
Jabalpur Road,
Byadrayampura,
Bangalore 560 091.
20.Madras Hi-Tech Circuits ltd.,
C-8 & C-9, Madras Export Processing
Zone, Chennai 600 045.
21.R.G.N. Price & Co.,
Chartered Accountants,
861, Anna Salai, Chennai 600 002.
22.S.Balasubramaniam,
Director,
Addisons Paints & Chemicals Ltd.,
Huzur Gardens, Sembium, Chennai 11.
23.P.V.Sundaram,
Director,
Addisons Paints & Chemicals Ltd.,
Huzur Gardens, Sembium, Chennai 11.
... Respondents.
The C.M.A. is filed against the order dated 18.10.2000 in C.a.No.48
of 2000 in C.P.No.94 of 1999 on the file of the Company Law Board,
Principal Bench, New Delhi.
!For appellant :: Mr.Arvid P.Datar, Sr. counsel for
M/s.Gupta & Ravi.
^For respondents :: Mr.Anil B.Divan, Sr.counsel and
Mr.S.Ganesh,Sr.counsel for R1-3
Mr.A.L.Somayaji, Sr.counsel for R4 to R19.
Mr.Krishna Srinivas, for
M/s.Ramasubramaniam & Associatias for R20 to R23.
......
: JUDGMENT
An interesting question of law arises in this appeal on the scope of the expression "affairs of the company" occurring in sections 397 and 398 of the Companies Act, 1956 and further questions whether the said expression would include the affairs of the subsidiaries of the holding company and whether a shareholder of the holding company can seek relief against the subsidiaries in terms of section 402 of the Companies Act and on the jurisdiction of the Company Law Board to decide the said questions as preliminary issues arise in the appeal.
2. The appeal is filed against the order of the Company Law Board upholding the preliminary objection raised by respondent No.1 wherein the Company Law Board held that the appellant cannot claim reliefs against subsidiaries in terms of section 402 of the Companies Act and deleted the names of subsidiaries and their di array of parties.
3. The necessary facts are that the appellant herein, who is the petitioner in the company petition, is holding 10% of shares in the first respondent company. The first respondent company has 38 subsidiaries and some of the subsidiaries are, in turn, holding companies of other subsidiaries and there are direct subsidiaries of the first respondent company and there are also direct subsidiaries of the subsidiaries of the first respondent company and there are companies where the first respondent company and its subsidiaries are holding more than 51% of shares and there are companies in the group other than subsidiary companies.
4. The appellant has filed a petition before the Company Law Board claiming reliefs under section 402 of the appellant in the petition has mentioned some other companies which are in the same group, but they were not made parties/respondents since there were no averments made against them in the company pet facts of the case, as seen from the company petition, are that one late S.Anantharamakrishnan was the founder of Amalgamations Group of companies and the first respondent company is the holding company of other respondent companies which are involved in the business activities from manufacture of automobile engines to publicatio periodicals. The said Anantharamakrishnan passed away on 18.4.1964 and on the date of his death, he was holding the entire shares of Amalgamations Limited. According to the appellant/petitioner, he died intestate leaving behind his widow, two sons, who are respondents 2 and 3 , and two daughters. The widow of Anantharamakrishnan, by name, Valli Anantharamakrishnan passed away in May, 1977. According to the appellant, she died intestate, but, according to respondents 2 and 3, the shares held by Valli Anantharamakrishnan were tra Anantharamakrishnan's daughter, Kalyani Sundaram who is the mother of the appellant, passed away on 26.2.1993 and her shares devolved on the appellant and his sister and accordingly, the appellant is the owner of 10% of shares in the first respondent company.
5. The appellant filed the company petition under sections 397 and 398 of the Companies Act. The case of the Amalgamations Limited consists of several companies and it is run at the command of the second respondent. According to the appellant, all the decisions are taken by the second respondent and there is no concept of corporate management throughout the group. His further case is that the shareholders of Amalgamations Limited are the direct descendants of late Anantharamakrishnan and the entire group is in the nature of a partnership with the second respondent i controlling partner. His case is that none of the companies in the group have any autonomy in their affairs and all decisions regarding future plans, diversification/considerations etc. of various companies are taken only by the second respondent and Amalgamations Limited is a single economic unit and all shareholders are in the position of partners and some of them have been entrusted with management or day-to-day operation of some of the companies. The petitioner has set out the list of mismanagement, and it is not necessary to burden the judgment with the details as the Company Law Board has not gone into the question and it has decided the matter on the preliminary issue. Hence, the appellant/petitioner has approached the Company Law Board seeking the reliefs which are set out in the company petition.
6. The first respondent company and some of the respondent companies have questioned the maintainability of the petition as against subsidiaries as the appellant is not holding requisite percentage of shares in the subsidiaries which are made parties in the company petition. Before the Company Law Board, extensive arguments were advanced and the Company Law Board held that the expression, 'affairs of the company' in sections 397 and 398 of the Companies Act does not include the affairs of the subsidiaries and no petition agains subsidiaries under sections 397 and 398 of the Companies Act would lie and no order in terms of section 402 of the Companies Act can be passed against the subsidiaries. The Company Law Board therefore held that the expression, 'affairs of the company' in sections 397 and 398 of the Companies Act does not include the affairs of the subsidiaries and a shareholder of the holding company cannot array subsidiaries as parties seeking relief against the subsidiaries under section 402 of the Companies Act. It is against this part of the order appeal has been filed.
8. Mr.Arvind P.Datar, learned senior counsel appearing for the appellant submitted that the Company Law Board should have decided all the issues after allowing the parties to lead evidence on the issues in dispute and it was not correct in deciding the issues in piecemeal. His further submission was that Amalgamations Limite holding company and it has 38 subsidiaries and the entire structure is like a pyramid. According to the learned senior counsel, the persons having control and interest in Amalgamations Limited will have automatic control over the affairs of the subsidiary companies and the Company Law Board was not correct in deleting all the subsidiaries on the ground that the expression, 'affairs of the company' found in sections 397 and 398 of the Companies Act does not include the mitted that in view of the judgments rendered by the Calcutta High Court as well as by the Allahabad High Court, the finding of the Company Law Board on the preliminary issue is wholly unsustainable in law. Learned senior counsel also submitted that the Company Law Board has chosen to follow its earlier decision in Herbertsons Limited v. Kishore Raja Ram Chabbaria (97 C.C.429), but however, the issue that arose before Law Board in that case was entirely different. Learned senior counsel also referred to the merits of the matter and submitte allegations in the petition clearly show that the affairs of the holding company would include the affairs of the subsidiary According to him, the petitioner has raised allegations of oppression and mismanagement in respect of various subsidiary comp grave allegations are made against individual companies, the subsidiary companies are necessary and proper parties in the com for investigation against the affairs of the subsidiary companies, the subsidiary companies should be made parties. Learned companies and the learned senior counsel has also taken exception to the order of the Company Law Board in ordering deletion of the subsidiaries on the ground that there is no prayer against the subsidiaries. He stated that except respondents 5 and 8, none have chosen to file counter affidavits. According to him, there is no objection for the subsidiaries being impleaded as parties in the petition and when the question of misjoinder of parties was not raised, the order of the Company Law Board directing deletion of the subsidiary companies is illegal per se. His submission is that by the deletion of subsidiary companies from the array of parties in the company petition, the Company Law Board has rejected the reliefs sought for by the appellant even before adjudication. He referred to the sharehol the nature of a quasi-partnership and it is functioning as a single economic unit. Learned senior counsel submitted that the first respondent company is a closely knitted company and there is a consistent policy of having transactions within the same group. His main submission is that there has been a deliberate and systematic attempt by respondents 2 and 3 to destroy the functioning of the fifth respondent. Learned senior counsel submitted that the allegation appellant regarding the functioning of various companies and the role played by the respondents 2 and 3 have to be investig considered in detail at the final hearing of the company petition and by the deletion of the names of subsidiaries from the a in the petition even at the threshold, the Company Law Board has completely destroyed the rights of the appellant to claim the relief under sections 397 and 398 of the Companies Act. Learned senior counsel submitted that the decision in the case of SAROJ GOENKA AND OTHERS v. NARIMAN POINT BUILDINGS SERVICES AND TRADING (P) LTD. substantial pleas regarding composition of the first respondent group and its function as a single economic unit and applica partnership principles and unless the matters are thoroughly investigated, the reliefs sought for by the appellant may not be senior counsel submitted that the appellant is holding 10% of shares in the first respondent company and therefore he satisfies the requirement of section 397 of the Companies Act and there is no jurisdictional bar and the Company Law Board has to consider submitted that there are decisions of the Calcutta High Court and the Allahabad High Court holding that the issue regarding the subsidiary companies being made as parties cannot be decided at the preliminary stage and the Company Law Board being a Tribunal is bound by the decisions of the High Courts and the Company Law Board was not justified in taking a different view from the decisions of the Calcutta High Court and the Allahabad High Court. Learned senior counsel a that the Company Law Board was not correct in holding that there is no prima facie case when in the company petition the appellant has made serious allegations not only against the holding company, but also against the subsidiary companies. He submitted that the order of the Company Law Board deleting the names of subsidiary companies is wholly improper. He referred to the expression, 'affairs of the company found in sections 397 and 398 of the Companies Act and submitted that the expression, 'affairs of the company' would include the affairs of the subsidiaries. He therefore submitted that the appellant is having 10% of shares in the holding company and hence, it is Company Law Board upholding the preliminary objection of the first respondent and deleting the names of subsidiary companies from the array of parties and its directors in the company petition are not sustainable in law.
9. Mr.Anil B.Divan, learned senior counsel, followed by Mr.S. Ganesh, learned senior counsel for the respondents 1 to 3, on the other hand, submitted that the appeal preferred by the appellant should be dismissed on a very short ground as the Company Law Board has examined the entire allegations made against the respondents 5 and 8 and found that no prima facie case has been made out to implead them as subsidiaries. Learned senior counsel referred to paragraph-38 of the order of the Company Law Board and submitted that the appellant has not made any allegation or averment in respect of respondents 9,10,14,15,1 7,18 and 19 and in respect of those against whom allegations or averments have been made, no relief has been sought for against those subsidiaries except in relation to respondents 5 and 8 and the Company Law Board has found that the appellant has not made out any prima facie case for the inclusion of the subsidiaries either as necessary or proper parties to adjudicate his allegations against the holding company. Learned senior counsel submitted that it is a pure finding of fact and it has become final and hence, the appeal should be dismissed on the short ground. As regards the above submissions made by the learned senior counsel for the first respondent, I will consider the same later.
10. Mr.Anil B.Divan, learned senior counsel submitted that the powers of the Company Law Board under sections 397 and 398 of the Companies Act are wide and there is no counterpart in the English law to section 398 of the Companies Act. He referred to section 402 of the Companies Act and submitted that the ambit of powers of the Company Law Board is very wide. He also referred to section 399 Companies Act and submitted that section 399 is the jurisdictional condition precedent which is to be fulfilled by a shareholder, though he is allowed to invoke the provisions of sections 397 and 398 of the Companies Act. He submitted that section 399 of the Companies Act refers to only one company which is to be proceeded against in respect of whose affairs reliefs are sought for under sections 397 and 3 Companies Act. He therefore submitted that a shareholder of the holding company cannot maintain a petition under sections 39 in respect of the subsidiaries, if he does not hold 10% share capital in the respective subsidiaries. There is no difficulty in accepting the submission of Mr.Anil B.Divan, learned senior counsel that the powers of the Company Law Board under sections 397 and 398 read with 402 of the Companies Act are very wide and the Company L olders, and to administer or reduce the share capital of the company. The Company Law Board has the power to interfere into the corporate governance and professional management. There is also no dispute that there is no provision in the English Company Law corresponding to section 398 of the companies Act. I do not find any difficulty in accepting the submission of Mr.Anil B.Divan, learned senior counsel that only a shareholder having 10% share capital in the company can maintain the petition and he is permitted to invoke the provisions of sections 397 and 398 of the Companies Act. There is also no dispute that the expression, 'any members of a company' as found in sections 397 and 398 of the Companies Act refers to a member or members having interest in capital in the company and not outsiders and they have a right to apply by virtue of section 399 of the Companies Act. Section 399 of the Companies Act makes it clear that the expression, 'members of a company' would include a member or members of a particular co
11. Mr.Arvind P.Datar, learned senior counsel for the appellant has not seriously disputed that the appellant herein is a member of the holding company and he is not having the requisite nu in the subsidiary companies which are impleaded as parties in the company petition. Mr.Anil B.Divan, learned senior counsel referred to section 214 of the Companies Act which provides that a member of holding company has a right to look into the books of account kept by the subsidiary companies. Mr.Anil B.Divan, learned senior counsel also referred to section 235 of the Companies Act which confers a right on the members of the holding company to seek for investigation into the affairs of subsidiary companies. Learned senior counsel therefore submitted that by necessary implication the members of the holding company are not treated as members of the subsidiary companies and if they are members of the subsidiary companies, there is Divan, learned senior counsel also laid emphasis on the expression,'any members of a company' and submitted that only shareho particular company holding not less than 1/10th shares of the company is entitled to invoke the provisions of sections 397 and 398 of the Companies Act.
12. Mr.Anil B.Divan, learned senior counsel referred to section 402 of the Companies Act and pointed out var the Company Law Board and submitted that section 402 does not contemplate the grant of relief against management personnel of more than one company or of any company other than the company in which the petitioner is having shareholding of 10% or more. He therefore submitted that a shareholder of the parent company cannot proceed under sections 397 and 398 of Companies Act against the subsidiary company. Learned senior counsel also referred to section 4 of the Companies Act and submitted that under section 4, an Indian parent c foreign subsidiary company which may be incorporated abroad and may be governed by foreign laws and having a Board with foreign directors and in those circumstances, the Company Law Board cannot possibly be expected to exercise jurisdiction under sections 397 and 398 of the Companies Act in respect of the foreign subsidiary company and pass orders under section 402 of the Companies Act. Learned senior counsel submitted that section 405 also empowers the Managing Director or a Director or the Manager of the company, though not impleaded as a party/respondent in the application under section 397 or 398 of the Companies Act, to apply for impleading himself as a party/respondent and if it is satisfied that there is sufficient cause for doing so, the Company Law Board shall direct that he may be impleaded as a respondent. Learned senior counsel therefore submitted that the legislature never contemplated the impleadment of any company other than the company in which the petitioner is holding 10% of shares as a condition precedent to maintain the application under section 397 or 398 of the Companies Act. Learned senior counsel therefore submitted that the statutory scheme of the relevant provisions of the Companies Act clearly shows that a shareholder of a company can proceed under section 397 or 398 of the Companies Act against that particul provided he is holding 10% of the share capital and he cannot proceed against any subsidiary of the said company.
13. Mr.Arvind P.Datar, learned senior counsel has not disputed that the expression, 'any members of a company' would refer only to the members of a company in which the member or members have requisite number of shares to maintain a company petition. The the Supreme Court in HOWRAH TRADING CO. v. I.T. COMMR (AIR 1959 S.C. 775 ) is an authority for the proposition that the word, 'shareholder' in section 18(5) of the Indian Income-tax Act, 1922 would mean a person whose name and address are entered in the register of shareholders maintained by the company. The above decision is an authority for the proposition that the expression, 'any members of a company' means a person who holds shares, and having his name register register of members maintained by the company. The decision in BALKRISHAN v. SWADESHI POLYTEX LTD. (AIR 1985 S.C. 520) is also an authority for the proposition that a subscriber of the mem any other person who agrees to become a member of a company and whose name is entered in its register of members shall be a member of the company and a person ceases to be a member by transferring his share to another person, by transmission of his share by oper by forfeiture of share, by death or by any other manner known to law. The Supreme Court also held that the expression, 'a me shareholder' or holder of a share' is used as synonyms to indicate the person who is recognised by a company as its owner for its purposes. There is absolutely no difficulty in holding that the e any members of a company' would refer only to a person who is recognised by the company as owner of its shares and whose name is registered in the register maintained by the company.
14. Mr.Anil B.Divan, learned senior counsel referred to section 39 9(4) of the Companies Act. However, the provisions of section 399(4) have no application as it is not the case of the appell is a holder of shares in the subsidiary companies having less than the requisite majority number of shares. Section 401 of the Companies Act on which reliance has been placed has also no application as it empowers the Central Government to apply to the Company Law Board for an order under section 397 or 398 of the Companies Act. As far as section 405 of the Companies Act is concerned, it is only an enabling provision enabling the Managing Director or a Director or the Manager of the company to apply to the Company Law Board to implead himself as a party/respondent in an application under section 397 or 398 of the Companies Act, and if any such application is filed, it is open to the Company Law Board to pass orders, if sufficient cause is shown that the Managing Director or a Director or the Manager of the company shall be impleaded as a party in the application. Th provisions are enabling provisions and in the case of a person who is holding shares less than 1/10th of the total share capital of the company, there are provisions empowering the Central Gover or the Manager of the company to implead themselves as party in the application under section 397 or 398 of the Companies Act.
15. Mr.Anil B.Divan, learned senior counsel laid emphasis on the expression, 'any members of the company' occurring in sections 397 and 398 of the Companies Act. But, Mr.Arvind P.Datar, learned senior counsel for the appellant laid emphasis on the expression, 'affairs of the company' occurring in those two sections. I am u accept the submission of Mr.Anil B.Divan, learned senior counsel that section 399 has to be read with section 214 of the Companies Act. Before considering the provisions of section 214, it is re to section 211 of the Companies Act. Section 211 of the Companies Act provides that every balance sheet of a company shall g the financial year. Section 212 of the Companies Act provides that there shall be attached to the balance sheet of a holding company having a subsidiary or subsidiaries at the end of the finan following documents in respect of such subsidiary or of each subsidiary, viz., a copy of the balance sheet of the subsidiary, a copy of its profit and loss account, a copy of the report of its Board of Directors, a copy of the report of its auditors, a statement of the holding company's interest in the subsidiary, the net aggregate amount so far as it concerns members of the holding company which is not dealt with in the company's accounts of the subsidiary's prof deducting its losses or vice versa and the net aggregate amount of the profits of the subsidiary after deducting its losses or vice versa for the financial year and for the previous financial years. Sub- section (4) of section 212 of the Companies Act provides that the statements contemplated in clauses (b) and (C) of sub-section (3) of section 212 shall apply to revenue profits and losses of the subsidiary. Sub-section (5) of section 212 of the Companies Ac situation where the financial year or years of a subsidiary do not coincide with the financial year of the holding company and how a statement containing information as required in the sub-section should be attached to the balance sheet of the holding company. The scope of section 212 has been construed to mean that it casts an obligation on the holding company to attach the balance sheet and certain documents of the subsidiary company which are mentioned in sub-section (1) of section 212. There is no doubt that under the company is distinct from the holding company, but the holding company has a stake and interest in the financial position of the subsidiary company and also in the affairs of the subsidiary company. That is the reason why section 212 of the Companies Act requires that the accounts of the holding company shall be attached with the balance sheet, profit and loss account, etc. of the subsidiary com
16. Apart from section 212, under section 213 of the Companies Act, the Central Government is empowered to extend the financial year of a holding company or that of its subsidiary company so that the financial year of the subsidiary company may end with that of the holding company. Section 214 of the Companies Act, in my view, has to be read in the light of section 212 of the Companies Act and it confers a right on the members of a holding company to inspect the books of account kept by its subsidiary and the holding c resolution may authorise representatives named in the resolution to inspect the books of account of the subsidiary. Sub section (1) of Section 235 of the Companies Act provides for investigation into the affairs of a company by the Central Government. Sub-section (2) of having requisite majority of shares, it is open to the Company Law Board to declare investigation by an Inspector and if such a declaration is made, the Central Government would appoint an Inspector to inspect the affairs of the company. Section 237 of the Companies Act provides for investigation into the affairs of a company either by the Company Law Board or by the Central Government on the fulfilment of conditions mentioned in that section. Section 239 of the Companies Act defines the power of Inspectors to carry out investigation into the affairs of related companies, and under the section, the Inspector so appointed has the power to investigate the affairs of the company including the subsidiaries of the holding company.
17. The provisions of sections 214, 237 and 239 of the Companies Act are all additional powers conferred on the shareholders with reference to the inspection of books of account of a company including the right to inspect the books of account of its subsidiaries and they also deal with the powers of the Inspector to inspect the affairs of the subsidiaries. In my view, it is impermissible to cut down or restrict or abridge the powers of the Company Law Board in the exercise of the power under sections 397 and 398 read with 402 of the Companies Act. I am of the view, merely because specific provisions are made granting a right of inspection of books of acco to the shareholder of a holding company and conferring a right to approach the Company Law Board to get an order of investigation into the affairs of the subsidiary companies, and empowering to investigate into the affairs of the subsidiary companies, they do not mean that the Company Law Board has no such power to grant relief under sections 397, 398 and 402 of the Companies Act. It is well to remember here that before the constitution of the Company Law Board by the Companies (Amendment)Act, 1988, the powers under sections 397 and 398 of the Companies Act were exercised by the High Courts and in my view, the width of the power of the Company Law Board under sections 397 and 398 is the same as that was exercised by the High Courts prior to the constitution of the Company Law Board. impermissible to read section 397 and 398 of the Companies Act in a restrictive manner. Further, the mere fact that additional powers have been granted to members of a company under sections 214, 237 and 239 of the Companies Act does not mean that there is no such power conferred on the Company Law Board under sections 397 and 398 of the Companies Act. Hence, I am unable to accept the submission of Mr.Anil B. Divan, learned senior counsel that sections 397 and 398 of the Companies Act should be read in the light of section 214 of the Companies Act. As already held by me, sections 214, 237 and 239 of the Companies Act are independent sections conferring certain additional powers on the members of a company, and merely because specific provisions have been made, it cannot be held that the powers of the Company Law Board are circumscribed and limited only to the affairs of the holding company. The right of inspection of books of account of the subsidiary companies under section 214 of the Companies Act and the right of investigation under section 237 of the Companies Act are conferred on the shareholders of the holding company for some purposes, and if a shareholder of the holding company, on the inspection of books of account or on the report of investigation, finds that all is not well in the affairs of a subsidiary company, he must hav that are conferred on him under sections 397 and 398 of the Companies Act and therefore, it cannot be construed that the rights conferred in sections 214 and 237 of the Companies Act have no purpose behind the same as the statutory rights are conferred on the shareholder of the holding company for some definite purpose.
18. Now let me consider various decisions relied upon by the parties. In LIFE INSURANCE CORPORATION OF INDIA v. HARI DAS MUNDHRA (36 Comp Cas 371) a Division Bench of the Allahabad High Court consisting of V.G.Oak and S.N.Dwivedi,JJ., was dealing with a Corporation which owned and operated a large number of companies and it also owned 100 per cent share capital of its subsidiary company, M/s.Begg Sutherland and the Corporation controlled all its subsidiaries th managing agency. It was found that a member of the Corporation filed a petition under sections 397 and 398 of the Companies Act for removal of certain directors of the Corporation and for appoint Special Officer and for investigation of the affairs of the Corporation and some of the respondents. In that case, learned Company Judge held that the affairs of the Corporation were conducted in a manner prejudicial to the interest of the Corporation and its shareholders and it was necessary to settle a scheme for management of the Corporation under section 398 of the Companies Act, though the evi was not sufficient to establish misfeasance of the directors. Thus, two appeals were preferred before the Division Bench of the Allahabad High Court and the question before the Division bench was whether while dealing with the affairs of the holding company under sections 397 and 398 of the Companies Act, it is permissible to investigate into the affairs of its subsidiaries. V.G.Oak,J. held that t company and subsidiary company are separate legal entities and broadly speaking, their affairs are separate. Learned Judge a for certain purpose, the affairs of the subsidiary company are treated as the affairs of the holding company under sections 214 (2), 318(3)(e) and the deleted section 338 of the Companies also held that it is not necessary to decide whether in every case brought under sections 397 and 398 of the Companies Act, the Court is entitled to make an inquiry into the affairs of the subsidiary company, but it was found on evidence that the holding compan consider and sanction transactions relating to the purchase and sale of shares of the subsidiary company. Learned Judge further found that whenever the subsidiary company found itself in financial difficulty, it approached the holding company for funds. Learned Judge therefore held that the subsidiary company is a branch or a department of the holding company and the affairs of the subsidiary company became the affairs of the holding company and hence, the affairs of the subsidiary company were relevant under sections 398 and 543 read with Schedule XI of the Companies Act.
19. In a separate Judgment, S.N.Dwivedi,J.( as His Lordship then was) after considering various provisions of the Companies Act laid down the law as under:
" These are perhaps all the salient provisions shedding light on the meaning of section 398. They show that the Act treats the holding company and its subsidiary as a unified group rather t separate personified institutions for purposes of ownership of capital, control of the subsidiary by the parent's directors and managing agents, their inter-corporate finance and accountancy and disclosure of the subsidiary's affairs to members of the holding company. Further, at least for one purpose it looks upon the members of the holding company as members of the subsidiary."
Learned Judge after noticing earlier case-laws on the subject made the following observations which are relevant for the purpose of this case:-
" In absence of legislative guidance, courts have not been able to crystallise the determinative test of one Having regard to the history of the holding company, its inherent dangers, precedents, text-books and the enterprise-unit context of section 398. I am led to think that the court may investigate on the application of the appellant the affairs of the compa already discussed, had become a mere department of the Corporation. The object of the section is to liquidate mismanagement in the 'affairs' of a company. The 'affairs' of the Corporation woul the affairs of its departments and branches. If section 398 is construed as suggested on behalf of H.D.Mundhra, then fraud, ultra vires actions and misfeasance of the board of directions of a holding company in the management of its wholly owned subsidiary would pass unexposed and uncensured, for enjoying sightless support of the majority shareholders of the holding company, they would hardly allow the holding company or the subsidiary to resort to court to hast It is for this reason that several jurisdictions in the United States of America permit, even without a statute, shareholders of a holding company to maintain a 'double derivative' suit to enforce a cause of action in favour of a subsidiary company, if the directors of both the companies have refused to institute an action in the name of either company.(Ballantine,ibid., page 350).
Incidentally it looks somewhat cynical that directors of the Corporation should seek to insulate their wrongs behind the company's corporate bracket which they themselves had rubbed out beyond recognition."
20. I am in respectful agreement with the view expressed by the Allahabad High Court in LIFE INSURANCE CORPORATION OF INDIA v. HARI DAS MUNDHRA (36 Comp Cas. 371). The Company Law Board wa in distinguishing the decision of the Allahabad High Court on the ground that the decision was rendered with reference to peculiar facts and circumstances of the case. Though the Allahabad High Court held that it is not necessary to decide the larger question whether, in every case brought under sections 397 and 398 of the Companies Act, it is entitled to make an inquiry into the affairs of the subsidiary company, I am of the view that the decision of the Allahabad High Court is an authority for the proposition that if facts and circumstances of a case warrant the investigation into the affairs of subsidiary company, the Company Law Board would have necessary jurisdiction to do so. I am of the view, the question whether any action the subsidiary company would ultimately be determined on the facts of the case by the Company Law Board taking into account t allegations made against the holding company as well as the subsidiary company and the counter allegations and evidence that may be let in by the parties. Hence, it is not open to the Company Law Board even at the threshold to hold that the affairs of the holding company does not include the affairs of the subsidiary companies and ordering deletion of the names of subsidiary companies from the array of parties in the company petition.
21. Mr.Anil B.Divan, learned senior counsel submitted that the the decision of the Allahabad High Court in LIFE INSURANCE CORPORATION OF INDIA v. HARIDAS MUNDHRA (36 Comp Cas 371) is distinguishable as on the facts of the case it was found that the affairs of the holding company included the affairs of the subsidiary company. However, it is relevant to mention here that the decision of the Allahabad High Court was rendered after evidence was taken in entirety and it was found on evidence that the subsidiary company approached the holding company for funds whenever it faced financial crisis and the holding company used to consider and sanction transactions relating to the purchase and sale of shares of the subsidiary company.
22. The next decision relied upon by Mr.Arvid P.Datar, learned senior counsel is the decision of the Calcutta High Court in BAJRANG PRASAD JALAN v.MAHABIR PRASAD JALAN (AIR 1999 Calcutta 156) and the Calcutta High Court held as under:-
" It is also a trite law that over the affairs of company in question its entire affairs including those of the subsidiary companies can also be looked into."
The other decision relied upon by Mr.Arvind P.Datar, learned senior counsel is an unreported decision of the Calcutta High Court in the matter of Debonair Agencies Limited in C.P.No.494 of 1989 dated 3.6.199
6. In that case, the second respondent was the subsidiary of the first respondent company and the petitioners were not shareholders of the second respondent company. Before the Calcutta High Court, a similar objection was raised regarding maintainability of the petition and the Calcutta High Court held as under:-
" Apart from the above, the respondents have sought to contend that the petitioners are not shareholders of the respondent No.2 and as such cannot make any grievance with regard to the affairs of the respondent No.2 or any of the said two Board Meetings and Minutes relating thereto. The petitioners, however, have contended that in proceedings under sections 397 and 398 of the Act, the affairs of holding company include the affairs of its subsidiary. In the instant case, the respondent Nos.1 and 2 have common Directors and common registered office. The respondent No.2 is a wholly owned subsidiary of the respondent No.1. The main asset of the respondent No.1 is its shareholding in the respondent No.2. The main asset of the respondent No.2 is its shareholding in Oriental. The respondent Nos. 1 and 2 do not have any other business. For all practical purposes, the respondent Nos. 1 and 2 are part of one concern. In such circumsta Com Cases 371, 1964 (2) All ER 561 and unreported judgment dated 24.9.1 992 in Appeal No. of 1992 Re: Raigarh Jute & Textile Mills Ltd., of the division Bench of the Calcutta High Court and unreported judgment dated 10.8.1992 in C.A.No.207 of 1990 connected with C.P.No.135 of 1 990 in Re: Raigarh Jute & Textile Mills ltd. of the Calcutta High Court and the unreported judgment dated 5.7.1994 in C.P.No.493 of 1989 in Re: Sandeep Investments Ltd. of the Calcutta High Court which have also been relied on by the petitioners, it cannot be said that the affairs of the respondent No.2 cannot be gone into in these proceedings and reliefs with regard to the two Board Meetings of the respondent No.2 referred to above cannot be granted and all contentions of the respondents to the contrary are liable to be a The Calcutta High Court in the same judgment noticed the facts of the unreported decision which are as under:-
" These documents apart from several other companies also referred to the respondent Nos.1 and 2 and Oriental the separation of business was effected on the basis that Tolaram Jalan was entitled to 1/3rd of the same and the respondent No.4 and the petitioner No.1 were jointly entitled to 2/3rd of the same. The shareholding structures in the concerned companies were also altered on such basis by reason of which the companies which were allotted to Tolaram Jalan ceased to have any shareholding in the companies allotted to the respondent No.4 and the petitioner No.1 on the family settlement. The above facts have not been controverted by the respondent and nor have the documents relied in this regard been challenged by the respondent. The documents themselves clearly show that the respondent Nos.1 and 2 were merely the family and domestic concerns of the Jalans and after separation of Tolaram Jalan from the companies allotted to respondent No.4 and the petitioner No.1, the said companies included the respondent Nos. 1 and 2 were treated as family and domestic concern of the petitioner No.1 and the respondent No.4 and their respective families and in reality partnership in equal shares between the petitioner No.1 and his family members on one hand and the respondent No.4 and his family member on the other in the guise of a limited liability company. The petitioner No.1 or his family members and their nominees and the respondent No.4 and family members and their nominees were actively involved in the day-to-day business and affairs of the respondent Nos.1 and 2 and this is further corroborated by the Director's minutes book and shareholder's minute book of the respondent No.1 and 2 and the vouchers contained in the files of this respondent."
23. Another decision that was relied upon is the unreported judgment of a Division Bench of the Calcutta High Court in the matter of Raigarh Jute & Textile Mills Ltd., Bajrang Prasad Jalan and another in Appeal No. of 1992, C.A.No.207 of 1992 and C.P.No.135 of 1990 dated 2 4.9.1992 and the Bench laid down the law as under:-
" It is true that the 'oppression' has not been defined in the Act but it is left to the Court to decide on t whether there exists any oppression as calls for any action under section 397, whether the conduct of the affairs of a company by the majority of the shareholders is oppressive or not will depend upon the facts of a particular case. Technicalities cannot be the exercise of the equitable jurisdiction concerned by section 397 of the Act. The Court has to examine the conduct of majority shareholders to see whether such act of the majority amounts to 'oppression' to the minority. Such enquiry cannot be made in isolation by the Court strictly confining itself to the affairs of the company. Such an enquiry may, in the facts and circumstances of the case, have to be made into affairs of any other body corporate, if such body corporate as a majority shareholders or holding company has or is likely to have a dominating control over the affairs of the company so as to cause oppression to a group of shareholders of the company definite and conclusive finding without further investigation into the matter complained of. It seems to us that, if necessary, the court may direct the authority concerned to initiate investigation into the affairs of any body corporate while considering the application under section 397 of the Act and the reliefs claimed therein. In this context, the appellants may or may not succeed in substantia allegations made against the respondent No.2 and reliefs claimed against the said respondent. Such consideration would come in at the stage of final hearing of the main application under section397 of Act after filing of affidavits of the parties."
The decision of the Division Bench of the Calcutta High Court is an authority for the proposition that at the threshold of the proceedings the Court should not come to a definite finding without further investigation into the matter complained of and such consideration should come in at the stage of final hearing of the main application after filing of affidavits by the parties.
24. The Calcutta High Court in an unreported decision in C.P.No.493 of 1989 dated 5.7.1994 (between Bajrang Prasad Jalan and Sandeep Investments Limited) again considered the question. Mrs.Ruma Pal,J. ( as Her Lordship then was) considered the the question whether the affairs of the subsidiary could be looked into while considering complaints relating to the holding company and the learned Judge held as under:-
" On 10th August 1992, this Court decided the issue as a preliminary one, treating it as a pure question of law. This Court held that reliefs could not be granted against the holding company in proceedings against the subsidiary where the holding company was outside the jurisdiction of this Court.
An appeal was preferred from the decision. By an unreported judgment dated 24th September 1992 the Appeal Court set aside the finding of this Court and held that in proceedings under section 397 and 398 the Court was entitled to investigate not only into the affairs of the company against which the proceedings are initiated bu other entity be it a subsidiary or a holding company. The court further held that the issue whether reliefs could be granted holding company should not be decided as a preliminary issue but should be decided after an investigation into the facts.
A further appeal was preferred to the Supreme Court from the decision of the Division Bench. The Supreme Court said:
'We do not understand the appellate order to conclude the question of jurisdiction against the petitioner in the proceedings on remand. On the contrary, a proper understanding of the appellate order would indicate that the company Judge could, on a consideration of the whole matter, decide afresh whether the Calcutta Court jurisdiction or not.
Similarly, we do not understand the order to conclude against the petitioner on the question raised b holding company are not amenable to be gone into in proceedings against its subsidiary.
If these two questions are not concluded against the petitioner, the petitioner has no jurisdiction for grievance against the order under appeal at this stage.
The Special leave petition is accordingly dismissed.' The Supreme Court did not therefore, interfere with the appeal Court's decision to the extent it held that the issue of enquiry into the affairs of the holding company in proceedings against the subsidiary should not be decided as a preliminary one.
By the same reasoning in proceedings against the holding company the question whether an enquiry can lie into the affairs of the subsidiary cannot be decided as a preliminary one.
The Bench decision of the Allahabad High Court in Life Insurance Corporation of India vs. Haridas Mundhra and Anr : 36 (1966) Com. Cases 371) supports this view. This case is an authority for the proposition that in proceedings under section 397 and 398 the court is entitled to make an enquiry into the affairs of the subsidiary company provided that the affairs of the holding company and the subsidiary were interfused. In other words, it is a question of fac affairs of the subsidiary could be considered to be part of the holding company. (See also R v. Board of Trade (1964) 2 All E The question will have to be decided not at this stage as a preliminary issue but upon a consideration of the facts to assess whether there was such an identification of Marut with SIL."
25. The submission of Mr.Anil B.Divan, learned senior counsel is that the Calcutta High Court did not deal with the situation where the petitioner was holding shares in the parent company an subsidiary company, and the Calcutta High Court has adverted to neither the provisions of section 399 of the Companies Act, nor the provisions of sections 214, 401 402, 405, 41(2), 42(2), 237 and 239 of the Companies Act. His submission is that the judgment of the Calcutta High Court only dealt with the provisions of sections 397 and 398 of the Companies Act. I am unable to accept the submission of Mr.Anil B. Divan, learned senior counsel. A careful reading of the judgment of Mrs. Ruma Pal,J. (as Her Lordship then was) clearly shows that the learned Judge has held that the question whether in the proceedings against the holding company an enquiry would lie into the affairs of the subsidiary company cannot be decided at preliminary stage. Learned Judge held that the question cannot be decided at pre identification of subsidiary company with the holding company. Mrs. Ruma Pal,J. (as Her Lordship then was) held that it is a question of fact whether the affairs of the subsidiary company could be considered to be a part of the holding company. Learned Judge referred to the decision of Queen Bench in R v. Board of Trade (1964) 2 All ER 561) and held that the Court is entitled to direct enquiry into the affairs of subsidiary company provided the affairs of holdin subsidiary company are interfused. I am of the view, the decision of the Calcutta High Court cannot be ignored on the ground that there was no reference to the provisions of sections 214, 401, 402, 405, 41(2), 42(2), 237 and 239 of the Companies Act as most of relate to the definition of a member and the Calcutta High Court focussed its attention to the expression, 'affairs of the company' found in sections 397 and 398 of the Companies Act. I am of the view, the mere omission to refer to those sections would not rob the weight to be attached to the judgments of the Calcutta High Court and they cannot be regarded as per incuriam. The decisions of the Calcutta High Court clearly show that the Court has consistently held that the question whether an enquiry would lie into the affairs of the subsidiary in the proceedings against the holding company cannot be decided as a preliminary issue.
26. There is also another reason in support of the decision of the Calcutta High Court. The Company Law Boar under challenge has recognised that it is open to the Company Law Board to give a direction for investigation into the affair subsidiary company. The Company Law Board has also found that all decisions only laid down that the question whether the affairs of the holding company would include the affairs of the subsid decided on the facts of a particular case, that too in respect of investigation. The Company Law Board has completely overlooked the prayers in the main company petition and one of the payers is to order independent investigation into the accounts of the Amalgamations Limited, India Pistons, Bimetal Bearings, TAFE, etc. as seri discrepancies have been pointed out in paragraph 6.5 of the company petition. I am of the view, when the Company Law Board to order investigation into the affairs of the subsidiary company, it is not clear how the Company Law Board has upheld the p objection and directed deletion of the names of the subsidiary companies from the array of party/respondents in the company petition.
27. Mr.Anil B.Divan, learned senior counsel referred to the decision of Mr.Mukharji, C.J. in HUNGERFORD INVESTMENT TRUST LTD., RE v. TURNER MORRISON & CO. LTD. (ILR 1972 Calcutta 286). No doubt, the learned Chief Justice, after referring to the provisions of sections 4, 4 2, 212, 213, 214 (2), 235, 295(2)(b), 370 and 372 of the Companies Act, has held that it is improper on the merits and facts of the case and it is illegal under the provisions of law and authorities to join the subsidiaries in that application. Mr.Anil B. Diva senior counsel placed strong reliance on the judgment of Mr.Mukharji, C.J. No doubt, great weight should be attached to the learned Chief Justice, Mr.Mukharji, C.J. as the learned Chief Justice has considered the relevant provisions of the Company law and held that it would be improper and illegal to join a subsidiary as party/ respondent. Mr.Mukharji, C.J. also held that in appropriate cases the subsidiary would come under the expression, 'affairs of the company' thereby meaning that the affairs of the holding company would also include the affairs of the subsidiary company, but in that event the subsidiary company would not be considered as necessary and proper parties. Therefore, the judgment of Mr.Mukharji, C.J. also recognised the fact that in certain circumstances the affairs of would include the affairs of the subsidiary company and therefore it cannot be stated that the expression, 'affairs of the company' in sections 397 and 398 of the Companies Act does not include the affairs of subsidiary company. I am of therefore of the view, in each case it has to be investigated and decided whether the expression, 'affairs of the company' would include the affairs of the subsidiary company as well.
29. An appeal was taken against the decision of Mr.Mukharji,C.J. In Hungerford Investment Trust Ltd. Case, cited supra, and by the unreported judgment dated 21.5.1981, a Division Bench of the Calcutta High Court has reversed the decision of Mr.Mukharji,C.J. The submission of Mr.Anil B. Divan, learned senior counsel is that the Division Bench of the Calcutta High Court has not reversed the decision of Mr. Mukharji,C.J. and the learned senior counsel strongly relied upon the following passage of the judgment of the Division Bench:
" The respondent Nos.30 and 31 have already been added as parties. The respondent Nos.15,16 and 20, that is s to be added as parties to the proceedings. The other persons sought to be added as parties have not appeared in spite of service of notices upon them. At the further hearing of these appeals, the learned counsel for the appellant did not press the claim to the addition of parties besides those who have expressly stated their willingness to be so added, that is, the respondent Nos.15,16 and 20."
His submission is that due to the factual situation that the subsidiaries expressed no objection to be added as parties, only three subsidiaries were added as parties and the appellant before the Division Bench has not raised any claim against other subsidiaries and therefore the later judgments of the Calcutta High Court has proceeded on a wrong basis that the Division Bench reversed the judgment of Mr. Mukharji,C.J.
30. In my view, it is not the correct way to understand the judgment of the Division Bench of the Calcutta High Court in appeal in the matter of Hungerford Investment Trust Ltd. The subsequent Division Benches and Mrs.Ruma Pal,J. (as Her Lordship then was that in proceedings against the holding company, an enquiry could lie against the affairs of its subsidiary. I am further of the view that the decisions of the Division Benches of the Calcutta .Mukharji,C.J. in Hungerford Investment Trust Ltd. v. Turner Morrison & Co. Ltd., cited supra was reversed. I am of the view that when the Division Bench of the Calcutta High Court and Mrs.Ruma Pal,J. have held t impermissible to decide the question at preliminary stage, the Company Law Board was not justified in distinguishing the decisions on the ground that they have been decided on the facts of those cases e and hence, the Company Law Board was not correct in holding that the later decisions of the Calcutta High Court have no relevance to the preliminary objection raised by the first respondent herein.
31. Mr.Anil B.Divan, learned senior counsel submitted that in the decisions of the Calcutta High Court the shareholders were holding approximately equal size of share capital in the parent company and in the subsidiary company. In my view, the decisions of High Court cannot be confined only to the situation where the shareholders were holding shares in the parent as well as subsidiary company. If a shareholder is holding requisite number o subsidiary company, there can be no difficulty at all for the shareholder to maintain a petition under section 399 of the Companies Act. Further, even assuming that the shareholders were holding equal number of shares in the parent company and in the subsidiary company, the Calcutta High Court has not decided the question on that ground, but considered the expression, 'affairs of the company' occurring in sections 3 97 and 398 of the Companies Act and in that context, the High Court laid down the law.
32. I am of the view that if subsidiary companies are allowed to be deleted from the array of party/respondents in the preliminary stage itself, it would mean that the Company Law Board would be foreclosing the entire issues even before deciding the case on merits.
33. I have gone through the company petition filed before the Company Law Board by the appellant herein and the appellant has made allegations of mismanagement in paragraph-6 of the petition not only against the second respondent, but also against the subsidiaries. The petitioner has ultimately stated that the facts would justify the appointment of an Inspector under the provisions of the Company Act and the affairs of the first respondent company and other respondent companies should be investigated to consider the ambit, nature, object and seriousness of the allegations made by the company petitioner in the petition. However, the Company Law Board by deleting the subsidiary companies from the array of party/respondents has foreclosed the just determination of the allegations made by the petitioner in the company petition.
34. Mr.Anil B.Divan, learned senior counsel also referred to the orders of the Company Law Board in HERBERTSONS LIMITED v. KISHORE RAJA RAM CHABBARIA (97 C.C. 429) and in V.K.SRIVASTAVA v. SIR J.P. SRIVASTAVA & SONS (2000)4 Comp. LJ 163). I am of the view that these are all orders of the Company Law Board and I am not inclined to consider the correctness of the orders of the Company Law Board. Further, the Company Law Board has itself made an observation that in Herbertsons Ltd. case it has not discussed the issue whether the affairs of the holding company would include the affairs of as that issue was not before the Company Law Board.
35. Mr.Anil B.Divan, learned senior counsel also referred to the observations made by the learned author, A.Ramaiya in his book, the Companies Act. I am of the view that it is not necessary to consider the correctness of the view expressed by the learned author. I am in respectful agreement with the views expressed by the Allahabad High Court and the Calcutta High Court holding that the Company Law Board was not correct in deciding the issue raised therein as a preliminary issue.
36. In so far as the decision of this Court in Saroj Goenka and others v. Nariman Point Buildings Services and Trading (P) Ltd (1995) 5 Comp LJ 282) is concerned, this Court has held that i upon the facts of each case whether the company Law Board would be justified in deciding an issue as a preliminary issue. This Court also held that the decision on the preliminary issue is not confined to a pure question of law, but also would extend to the determination of an issue in which a mixed question of law and fact is i However, the decision has no application to the facts of the case as the question whether the expression, 'affairs of the com sections 397 and 398 of the Companies Act would include the affairs of subsidiary company necessarily involves a detailed examination of factual disputes and analysis of evidence, and ultimately a conclusion has to be arrived at on the facts of each case. Hence, I hold decision of this Court in Saroj Goenka's case (1995) 5 Comp LJ 282) is not applicable. In my view, it is not possible to accept the submission of Mr.Anil B.Divan, learned senior counsel that in no case ' affairs of the company' in section 397 and 398 of the Companies Act would include the affairs of subsidiary company, nor is it possible to accept the case of the appellant that in all cases the affairs of holding company would include the affairs of subsidiary com Courts is acceptable and it would depend upon the facts of each case whether the affairs of the holding company include the affairs of the subsidiary company under sections 397 and 398of the Companies Act.
37. The next submission of Mr.Arvind P.Datar, learned senior counsel that the law declared by a High Court would be binding on other High Courts in the country. In C.I.T. v. GODAVARIDEVI SARAF (113 ITR 589) the Bombay High Court-Nagpur Bench has held that u contrary decision is given by any other competent High Court, the Tribunal functioning in another State has to proceed on the footing that the law declared by the High Court, though of anothe final law of the land. The above decision was followed by another Division Bench of Bombay High Court presided over by Mr.S.P.Bharucha,J. (as His Lordship then was) in C.I.T. v. SMT. NIRMALAB ITR 242) where the learned Judge speaking for the Bench held that the Appellate Tribunal, acting anywhere in the country, is obliged to respect the law laid down by the High Court though of a different State so long as there is no contrary decision of any other High Court on that question. Mr.D.P.Madon,J. (as His Lordship then was) in SIEMENS INDIA LTD. v. K. SUBRAMANIAN, ITO (143 ITR 120) has taken the same view and held that when a High Court of another State has decided a point and the same point arises in the making of a provisional assessment, it is not open to the Income-tax Officer to ignore that decision, whatever may be the position in the making of a regular assessment, for, in a provisional assessment, as the assessee has no opportunity to satisfy the Income-tax Officer about the correctness decision. The above view was affirmed by a Division Bench of the Bombay High Court in K.SUBRAMANIAN v. SIEMENS INDIA LTD (173 ITR 136).
38. Mr. Arvind P.Datar, learned senior counsel referred to the subsequent judgment of the Bombay High Court in C.I.T. v. THANA ELECTRICITY SUPPLY LTD. (206 ITR 727), CONSOLIDATED PHEUMATIC TOOSL COMPANY INDIA LTD. v. CIT (209 ITR 227) and GEOFFREY MANNERS & CO. LTD. v. CIT (221 ITR 695). In the view I am taking, it is not nec decide the question whether the Company Law Board is bound by the decision of a High Court of a different State so long as there is no contrary decision of any other High Court on that question. However, the Company Law Board has to respect the law laid down by the High Court of another State when there is no contrary decision on question by any other High Court.
39. As far as the submission of Mr.Anil B Divan, learned senior counsel that the Company Law Board has given a finding that no prima facie case has been made out to implead Additions Paints & Chemicals Ltd. and Tractors & Farms Equipments Ltd. is concerned, the Company Law Board has noticed that the main allegation in respect of Additions Ltd. is that the second respondent who is the Chairma Amalgamations Ltd. is giving step-motherly treatment to Additions Ltd. and the father of the petitioner is the Chief Executive and the relief sought for in respect of Additions is that the two existing directors should be removed and that an independent Chairman should be appointed and the father of the petitioner should be appointed a complaint against TAFE is that it is not placing orders on Additions for paints during the recent past. The Company Law Board observed that the relief sought for by the petitioner cannot be granted in respect of subsidiaries and the appellant has not prima facie es the inclusion of the subsidiaries either as necessary or proper parties. I am of the view that the observation of the Company Law Board cannot be regarded as a finding. A finding postulates letting in evidence by the parties, and on the basis of evidence that may be let in by the parties, a quasi-judicial Tribunal, Company L Court renders its finding. The Company Law Board has decided the question that there is no prima facie case against Additions Ltd. and TAFE on the basis of averments made in the petitioner. A careful reading of the petition clearly shows that certain serious allegations have been made, and I am of the view that it is not necessary to burden the judgment with the allegations made by the petitioner. I am of the view that the observation made by the Company Law Board that no prima facie case is made out is not based on proper understanding and proper reading of the company petition. In my view, the petition has to be read as a whole and it is not open to the Company Law Board to rely upon certain stray sentences here and there and make the observation that no prima facie case has been made out. Mr.Anil B.Divan, learned senior counsel referred to the observation made by the Company Law Board in its order that no prima facie case is made out as against Additions Ltd. and TAFE and submitted that it is a clear finding of fact and hence, no prima facie case was established by the petitioner before the Company Law Board. I am of the view, the observa Company Law Board cannot be regarded as a finding and since the observation is not based on material, the said observation cannot be regarded as a finding of fact. Mr.Anil B.Divan, learned submitted that the finding has not been attempted to be canvassed before this Court. I am not able to accept the submission as the appellant has raised necessary grounds in ground Nos.19,32,33,34 to 39 in the memorandum of appeal. Further, the parties concerned must have been given an opportunity of being heard and must be given an opportunity to lead evidence on the issue and the Company Law Board has made the observation even before the parties have led evidence on the question and hence, the observation of the Company Law Board cannot be regarded as a finding at all. Further, a finding must be one which is necessary for the disposal of the petition. The Company Law Board after having found that the subsidiary companies and some of their directors are not necessary parties should not have ventured into the question whether even a prima facie case has been made out against the two companies which are mentioned earlier. In my view, the observation by the Company Law Board regarding the establishment of prima facie case against the two companies has been made expressed on the preliminary issue and the said observation cannot be regarded as a finding of fact which is binding on the appellant.
40. Mr.Anil B.Divan, learned senior counsel also referred to the extensive power of the Company Law Board under section 402 of the Companies Act and submitted that that wide power has to be exercised in the case of subsidiaries or otherwise, it would amount to interference in the corporate management of the subsidiary companie the view that the Company Law Board has very wide power and ultimately if the Company Law Board finds that there is oppression, it is always open to the Company Law Board to mould its relief on ju equitable grounds and it is not necessary that the Company Law Board should exercise all its powers under section 402 of the case oppression has been established by the appellant even with reference to the affairs of the subsidiary companies. Further, when the Company Law Board finds ultimately on evidence that the subsidiaries are branches or departments of the holding company, there will be nothing wrong on the part of the Company Law Board to exercise powers conferred under section 402 of the Companies Act with reference to the subsidiaries.
41. Mr.Arvind P.Datar, learned senior counsel also referred to the counter affidavit filed by the first respondent and submitted that there is no prayer at all to delete the names of subsi companies. He submitted that no application has been filed by the first respondent and other respondents to delete the names of subsidiary companies of the first respondent. He submitted that the date of final hearing before the Company Law Board was 15.5.2000 and subsequently on 2 3.5.2000 a written submission seems to have been made before the Company Law Board on behalf of respondents 4 to 20 wherein they have raised objection regarding maintainability of the company petition as against the subsidiaries. The written statement was singed by one Sukumaran advocate for respondents 4 to 20. I have called for the original records from the Company Law Board and I find that there is an endorsement that the written submission was filed on 23.5.2000. But, there is neither an initial, nor signature, nor seal of the Company Law Board found on the said written submission. It is also not clear whether it was filed after serving a copy of the same on the appellant. However, the written submission is found in the original file produced by the Company Law Board. The Company Law Board has passed its order on 18.10.2000, but the records submitted by th Board do not indicate that after filing of the said written submission by respondents 4 to 20 on 23.5.2000, the Company Law Board has given any opportunity to the appellant herein on the objections raised by the respondents 4 to 20. I am of the view that the Company Law Board has not adopted proper procedure when it has taken into account the written submission by the respondents 4 to 20. The Company Law Board should have given an opportunity to the appellant to make his submission on the written submission dated 23.5.2000. However, since I am deciding the question on merits of the matter, it is not necessary to set aside the order of the Company Law Board on the ground that the Company Law Board has not followed proper procedure by not giving an opportunity to the petitioner/appellant on the written submission filed by respondents 4 to 20 before the Company Law Board after the conclusion of final hearing as it appears from the records that no further hearing took place after 15.5.2000.
42. The Company Law Board has ordered deletion of the names of other respondents, viz., directors of some of the companies for the reasons given for the deletion of the names of the subsidiaries. As regards the deletion of the names of the respondents 2 and 3, the Company Law Board has not given any independent reason. Since that part of the order of the Company Law Board directing dele of the subsidiary companies who were arrayed as respondents in the company petition is liable to be set aside, that part of the order of the Company Law Board directing deletion of the names of respondents 2 and 3 and the directors of some of the companies is also liable to be set aside. I therefore set aside that part of the orde Company Law Board directing deletion of the names of the respondents 2 to 23 from the array of parties in the company petiti the observations made by the Company Law Board as against the respondents 5 and 8 and also set aside the adverse observations made by the Company Law Board against the appellant in the order under challenge. In other words, the appeal stands allowed. The appella entitled to costs of a sum of Rs.10,000/-. Consequently, connected C. M.P.No.19428 of 2000 is closed.
Index: Yes/No Website: Yes/No na. 3-6-2002 To The Company Law Board, Principal Bench, New Delhi.