Madras High Court
Amalgamations Limited vs Shankar Sundaram on 7 September, 2011
Author: B. Rajendran
Bench: R. Banumathi, B. Rajendran
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 07-09-2011
Coram
THE HONOURABLE MRS. JUSTICE R. BANUMATHI
and
THE HONOURABLE MR. JUSTICE B. RAJENDRAN
Letter Patent Appeal Nos. 129 to 131 of 2002
and
C.M.P. Nos. 8586, 8588, 8602, 8605 of 2002
C.M.P.Nos. 413, 414, 415 and 416 of 2011
L.P.A. No. 129 of 2002
1. Amalgamations Limited
(Now Amalgamations (P) Ltd)
No.124, Old No.81
Dr. Radhakrishnan Salai
Chennai 600 004
2. A. Sivasailam (died)
3. A. Krishnamoorthy .. Appellants
Versus
1. Shankar Sundaram
2. Simpsons & Co Ltd.,
861/862, Anna Salai
Chennai 600 002
3. Addisons Paints & Chemicals Ltd.,
Hazur Gardens
Sembium, Chennai 11
4. India Pistons Limited
Hazur Gardens
Sembium, Chennai 11
5. Shardlow India Limited
Hazur Gardens
Sembium, Chennai 11
6. Tractors & Farm Equipment Limited
35, Nungambakkam High Road
Chennai 600 034
7. TAFE Access Limited
35, Nungambakkam High Road
Chennai 600 034
8. Southern Tree Farms Limited
35, Nungambakkam High Road
Chennai 600 034
9. Associated Publishers (Madras) Limited
865, Anna Salai
Chennai 600 002
10. Bimetal Bearings Limited
Strip Mill Plant
Huzur Gardens
Sembium, Chennai 11
11. I.P. Rings Limited
Arjay Apex Centre
24, College Road
Chennai 600 006
12. Wallace Cartwright & Company Limited
55/56, St. James Street
London, S.W.IA 1 LQ
U.K.
13. W.J. Groom & Company Limited
55/56, St. James Street
London, S.W.IA 1 LQ
U.K.
14. Amco Batteries Limited
3rd Floor, Tower Block
Unity Buildings
J.C. Road
Bangalore 560 002
15. Amalgamations Valeo Clutch Limited
'J' Gardens
G.N.T. Road, Chennai 600 010
16. Tafe (USA) Inc., d. Memphis
Tennessee 38117
U.S.A.
17. Amco Power Systems Limited
Hebbal Bellary
Jabalpur Road
Byadrayampura
Bangalore 560 091
18. Madras Hi-tech Circuits Limited
C8 & C9, Madras Export Processing Zone
Chennai 600 002
19. R.G.N. Price & Co
Chartered Accountants
861, Anna Salai
Chennai 600 002
20. S. Balasubramaniam
Director
Addisons Paints & Chemicals Limited
Huzur Gardens, Sembium
Chennai 600 001
21. P.V. Sundaram
Director
Addisons Paints & Chemicals Limited
Huzur Gardens, Sembium
Chennai 600 001 .. Respondents
L.P.A. No. 130 of 2002
Amalgamations Limited
(Now Amalgamations (P) Ltd)
No.124, Old No.81
Dr. Radhakrishnan Salai
Chennai 600 004 .. Appellant
Versus
Shankar Sundaram .. Respondent
L.P.A. No. 131 of 2002
1. Simpsons & Co Ltd.,
861/862, Anna Salai
Chennai 600 002
2. Addisons Paints & Chemicals Ltd.,
Hazur Gardens
Sembium, Chennai 11
3. India Pistons Limited
Hazur Gardens
Sembium, Chennai 11
4. Shardlow India Limited
Hazur Gardens
Sembium, Chennai 11
5. Tractors & Farm Equipment Limited
35, Nungambakkam High Road
Chennai 600 034
6. TAFE Access Limited
35, Nungambakkam High Road
Chennai 600 034
7. Southern Tree Farms Limited
35, Nungambakkam High Road
Chennai 600 034
8. Associated Publishers (Madras) Limited
865, Anna Salai
Chennai 600 002
9. Bimetal Bearings Limited
Strip Mill Plant
Huzur Gardens
Sembium, Chennai 11
10. I.P. Rings Limitex
Arjay Apex Centre
24, College Road
Chennai 600 006
11. Wallace Cartwright & Company Limited
55/56, St. James Street
London, S.W.IA 1 LQ
U.K.
12. W.J. Groom & Company Limited
55/56, St. James Street
London, S.W.IA 1 LQ
U.K.
13. Amco Batteries Limited
3rd Floor, Tower Block
Unity Buildings
J.C. Road
Bangalore 560 002
14. Tafe (USA) Inc., d. Memphis
Tennessee 38117
U.S.A.
15. Amco Power Systems Limited
Hebbal Bellary
Jabalpur Road
Byadrayampura
Bangalore 560 091 .. Appellants
Versus
1. Shankar Sundaram
2. Amalgamations Limited
(Now Amalgamations (P) Ltd)
No.124, Old No.81
Dr. Radhakrishnan Salai
Chennai 600 004
3. A. Sivasailam (died)
4. A. Krishnamoorthy
5. Amalgamations Valeo Clutch Limited
'J' Gardens, G.N.T. Road
Chennai 600 010
6. Madras Hi-tech Circuits Limited
C-8 & C-9
Madras Export Processing Zone
Chennai 600 002
7. R.G.N. Price & Co
Chartered Accountants
861, Anna Salai
Chennai 600 002
8. S. Balasubramaniam
Director
Addisons Paints & Chemicals Limited
Huzur Gardens, Sembium
Chennai 600 001
9. P.V. Sundaram
Director
Addisons Paints & Chemicals Limited
Huzur Gardens, Sembium
Chennai 600 001 .. Respondents
LPA No. 129 and 131 of 2002: Appeals filed under Clause 15 of the Letters Patent against the order dated 03.06.2002 made in C.M.A. No. 2018 of 2000 on the file of this Court.
LPA No. 130 of 2002: Appeal filed under Clause 15 of the Letters Patent against the order dated 03.06.2002 made in C.M.A. No. 2036 of 2000 on the file of this Court.
L.P.A. No. 129 of 2002:
For Appellants : Mr. Anil B. Divan
for M/s. A.R. Ramanathan & Dwarakesh
For Respondents : Mr. K. Ravi for R1
for M/s. Rugan and Arya
along with
M/s. Aishwarya and Mr. Murugan
: Mr. Adeesh Anto for RR2 to 18
L.P.A. No. 130 of 2002
Appellant : Mr. Krishna Srinivas
for M/s. Ramasubramaniam Associates
For Respondents : Mr. K. Ravi
for M/s. Rugan and Arya
along with
M/s. Aishwarya and Mr. Murugan
LPA No. 131 of 2002
For Appellants : Mr. Anil B. Divan, Senior Counsel
for M/s. A.R. Ramanathan & Dwarakesh
For Respondents : Mr. K. Ravi for R1
for M/s. Rugan and Arya
along with Ms. Aishwarya & Mr. Murugan
: Mr. Adeesh Anto for RR2 to 6
COMMON JUDGMENT
B. RAJENDRAN, J These letters patent appeals arise out of the common order dated 03.06.2002 passed by the learned single Judge in C.M.A. No. 2018 and 2036 of 2000. Inasmuch as the issues involved in all these appeals are one and the same and the parties to the appeals are also same, by consent of counsel for both sides, the appeals are taken up together and are disposed of by this common judgment.
2. All these proceedings are concerned with the affairs of management of a Company called Amalgamation Private Limited, which is the holding company of several other companies, which are all either 100% owned and controlled by the holding company and some of the subsidiary companies themselves are holding companies, which are sought to be arrayed as parties in the Company Petition by the respondent by taking out an company application before the Company Law Board for necessary action under Section 397 of the Companies Act, hereinafter referred to as the Act.
3. The proceedings originated by filing of Company Petition No. 94 of 1999 filed by Shankar Sundaram, respondent in the appeals, complaining of oppression and mismanagement by the majority group under Sections 397 and 398 of the Act. In the said Company Petition No. 94 of 1999, the deceased Srisailam, Director and one Krishnamoorthy have filed Company Application No. 48 of 2000 mainly to delete the name of subsidiary companies from the array of parties in the Company Petition and also to dismiss the Company Petition itself as not maintainable in view of certain preliminary objections raised by the holding company.
4. The Company Law Board allowed the Company Application No. 48 of 2000 by ordering to delete the names of the subsidiary companies from the array of parties, however rejected the prayer for dismissing the main Company petition on the preliminary objection itself. The Company Law Board further directed that the holding company shall give reply on all the allegations in the company petition, including those concerning subsidiary companies. The Company Law Board also gave liberty to the respondent to seek investigation into the affairs of the subsidiary company by filing separate petition under Section 214 (2) read with Section 235 of the Companies Act.
5. Aggrieved by the said order of the Company Law Board, the petitioner in C.P. No. 94 of 1999 and respondent in the Letter Patent Appeal namely Shankar Sundaram filed C.M.A. No. 2018 of 2000 against that part of the order of the Company Law Board ordering to delete the name of the subsidiary companies from the array of party. The holding company namely Amalgamations Limited filed separate appeal against the portion of the order of the Company Law Board granting liberty to the respondent to file separate petition under Sec. 214 (2) read with Sec.235 of the Companies Act for appropriate direction in C.M.A. No. 2036 of 2000.
6. Though these appeals were taken up together, by two separate orders passed on 03.06.2002, the learned single Judge allowed C.M.A. No. 2018 of 2000 filed by Shankar Sundar and dismissed the appeal filed by the holding company in C.M.A. No. 2036 of 2000.
7. Aggrieved by the order of the learned single Judge, LPA Nos. 129 and 131 of 2002 were filed. LPA No. 129 of 2002 was filed by the holding Company represented by Mr. Sivasailam and Mr. Krishnamoorthy. LPA No. 130 of 2002 was filed by the holding company itself against the order in CMA No. 2036 of 2000. LPA No. 131 of 2002 was filed by the subsidiary companies, whose names are sought to be included by the respondent. Thus, all the three appeals are before us.
8. The brief facts about the case is that the company application was filed by the respondent Shankar Sundaram, who is holding 10% share in the Amalgamations Limited, which is the holding company. The company has got 38 subsidiaries and some of the subsidiaries are in turn holding companies of other subsidiaries. The respondent has arrayed only 17 subsidiaries as respondents in the company application and he sought certain relief against some of the subsidiaries in terms of Section 402 of the Companies Act. It is also an admitted fact that the respondent was holding 10% share in the main holding company namely Amalgamation Limited, but does not hold any share in any of the subsidiary company, except in one company. Therefore, on this background, the company as well as some of the subsidiaries have questioned the maintainability of the very company petition itself against the subsidiaries inasmuch as the respondent does not fulfil the requirements of Section 399 of the Companies Act as far as the subsidiaries are concerned. Therefore, they have filed application before the Company Law Board in the Company Petition to decide this as a preliminary issue before considering the company petition on merits. It was also contended that the preliminary objection goes to the root of the matter in terms of Section 399 of the Companies Act, as far as subsidiaries are concerned.
9. The main contention raised as preliminary objection by the holding company is that none of the allegations made in the company petition have been substantiated and consequently the Company petition cannot be maintained against the subsidiaries inasmuch as the respondent is not a share holder in any of the subsidiary companies. Further it was contended that all the subsidiary companies are independent entities and therefore, to invoke the provisions of Section 397 and 398 of the Act against these subsidiary companies, the respondent should fulfil the requirements contemplated under Section 399 of the Companies Act.
10. On behalf of the holding company, it was contended that even among the subsidiaries named in the petition, as against 7 respondents (respondents 9, 10, 14, 15, 17, 18 and 19) no allegations were made or any relief is claimed; as against 8 respondents (respondents 4, 6, 7, 11, 12, 13, 16 and 20) allegations were made but no relief claimed. Only as against two (Respondents 5 and 8) allegations were made and relief claimed. When no allegations are made against many of the subsidiaries and even relief has not been sought for, definitely, these are motivated as against the main company and therefore, they pleaded for removal of the subsidiaries from the array of parties. It was mainly contended that the company petition itself was filed with an oblique motive and not for setting right the wrong alleged to have been committed by the company. Some of the subsidiaries would contend that the main petition was filed only to tarnish the image and reputation of the holding company, which is one of the most reputed companies in the South. Further, only after counter has been filed, in the rejoinder, some of the allegations were made against the company without any basis. It was also contended that the respondent was not the original promoter of the company and only a share holder by devolution of interest.
11. The interesting question of law which arises in these appeals for consideration, as discussed by the Company Law Board as well as by the learned single Judge, is whether the affairs of the holding company would include the affairs of the subsidiary company in a petition filed under Section 397, 398, 402 and 403 of the Act. The further question is whether by impleading the subsidiary companies as the respondent, a share holder of the holding company, without satisfying the provisions of Section 399 of the Act in respect of the subsidiary companies can claim relief in respect of the subsidiary companies in terms of Section 402 of the Act also.
12. We have heard the counsel for all the parties concerned and perused the materials on record. The appellant is aggrieved by the order passed by the learned single Judge, reversing the order passed by the Company Law Board and also directing that the petition can be filed even against the Subsidiary companies under Sections 397 and 398 of the Act and setting aside the order of the Company Law Board.
13. The main ground of attack of the appellant was that the maintainability of the petition namely Company Application against the subsidiaries inasmuch as the respondent does not fulfil the requirements of Section 397 of the Act as far as the subsidiaries are concerned.
14. Shri. Anil Diwan, learned Senior counsel appearing for the appellants in O.S.A. No. 129 and 131 of 2002 would mainly contend as follows:-
(i) The inclusion of the subsidiary companies in terms of Section 399 of the Act in so far as subsidiaries are concerned itself is a preliminary issue and therefore it was rightly decided by the Company Law Board as it goes to the root of the matter. It was further contended by the learned Senior Counsel that whatever allegations have been made against the holding company have not been made against the subsidiary company.
(ii) The company petition cannot be maintained against the subsidiary companies as the respondent is not a share holder in any of the subsidiary companies, which is also an admitted fact. A share holder of the holding company cannot file a petition under Sections 397 and 398 of the Act whereas a holding company share holder can do anything under Section 235 availing the principles as enunciated under Section 214 (2) but not in regard to Sections 397 and 398 of the Act.
(iii) There are no allegations made against many of the subsidiary companies and there are some allegations made in respect of the some of the subsidiary companies without seeking any relief and this would only reveal the intention of the respondent to degrade the institution and hence, such an application cannot be maintained.
(iv) Even though the Appellant company was incorporated in the year 1963 and the respondent became a share holder only in the year 1993, that too by devolution by share and he was not a part of the management of the appellant company. Therefore, according to the learned Senior Counsel, the company petition was filed by the respondent only to tarnish the image of the company. The respondent sought prayer (d) in the company petition thereby he attempted to compel and force the appellant company to give him an office of profit in the company.
(v) The learned Senior counsel would further contend that conveniently, the removal of his father from the fifth respondent company was suppressed by the respondent in the company petition and it is only an act taken in vengance. According to the learned Senior counsel, the subsidiary companies are all separate and independent entities and therefore, the company petition filed by the respondent is not maintainable.
(vi) The learned Senior Counsel would raise a legal plea that it is not as though the respondent is without any remedy. Even under Section 399 (4) of the Act, any member of the Company, without holding the required 1/10th share in that company, can still maintain a petition against that company under Section 397 and 398 subject to authorisation of the Central Government. It is not the case of the respondent that he sought such remedy before the Central Government, whereas, without obtaining the same, straightaway, the respondent had rushed to the Company Law Board and therefore also, the company Petition is not maintainable under law.
(vii) The words 'affairs of the company' used in Section 397 and 398 would only denote that particular company and it does not include the affairs of the subsidiary company as was held by the learned single Judge. In this context, reliance was also placed by the learned Senior Counsel to the decision reported in (Ishar Alloy Steels Limited vs. Jayaswala Neco Limited) 2001 (105) Company Cases Page No.1 (SC)
(viii) The learned Senior Counel also pointed out that the learned single Judge relied on the decision in (Life Insurance Corporation of India vs. Hari Das Mundhra and others) 1966 (36) Company Cases 371 and wrongly applied it to the facts of the case, whereas, in that case, the very subsidiary company was only treated like a department of the holding company, which is not so in the present case.
(ix) The decisions rendered by the Calcutta High Court are not in consonance with the principle which is now brought forward especially in this case, the applicability of the company application under Section 399 of the Act was not taken into consideration. In fact, the learned Senior Counsel has taken us to the provisions of Sections 214, 235, 237, 239, 397, 398, 401 and 402 of the Act to demonstrate that the company petition against the subsidiary companies is not maintainable.
(x) The learned Senior counsel also placed reliance in the decision reported in (Hungerford Investment Trust Limited vs. Turner Morrison & Co Ltd.,) ILR 1972 (1) Cal 286 to bringforth the fact that the parties were directed to be impleaded in that case only because of the consent and the inclusion of subsidiary cannot be treated as an automatic right.
(xi) The learned Senior Counsel further contended that Section 214 (2), read with Sections 235, 257, 239 and 243 would unequivocally demonstrate that the respondent herein has remedy available to him under these sections provided a case has been made out and does not have any equitable right to file the company petition against the subsidiaries without satisfying the mandatory requirement contemplated under Sectin 399 of the Companies Act. In other words, if a case is made out against any of the subsidiaries, on investigation either under Section 235 or 237, only the Central Government may present a petition under Section 397 and 398 against the subsidiaries before the Company Law board and not the respondent herein. For this proposition, the learned Senior Counsel for the appellant relied on the decision reported in (State of Jharkhand and others vs. Ambay Cements and another) 2005 1 SCC 368 SC wherein it was stated that if the law requires a particular matter to be dealt in a particular manner, it has to be done only in that manner.
(xii) The learned Senior Counsel further argued that the learned single judge failed to take into consideration the provisions of Sections 235, 237 and the consequent power under Section 239 and 243 of the Act as the legislature has categorically made it clear to stipulate different conditions required to invoke the two provisions namely Sections 235 (2) and 399 (4) of the Act. When it was categorically stated that the members of the holding company can invoke Section 235 with the aid of Section 214 (2) as they alone are the members of subsidiary, but when it came to Section 397 and 398, they restricted it with a condition precedent that he should qualify under Section 399 (4) of the Act. Therefore, the legislature has consciously not conferred the right to member of holding company to file a petition under Section 397 and 398 of the Act in respect of the subsidiary company.
(xiii) Lastly, the learned Senior counsel for the appellant would contend that in deciding upon the maintainability of the company application, only the averments made in the petition need to be looked into and the subsequent events or production of records or documents at a later point of time cannot be taken into consideration for deciding the maintainability of the company application.
15. Mr. Krishna Srinivas, learned counsel appearing for the appellant in LPA No. 130 of 2002 would contend that even as against the main company, the respondent has not made out any case in respect of Sections 397 and 398 of the Act as the respondent himself has participated in all the meetings, accepted the resolutions, in certain resolutions, he had seconded and signed in all the balance sheet and therefore, it is not open to the respondent, at this stage, to spike against the company. It was further argued that the whole episode carried out only by him in a vindictive manner to seek a plum post in the management and the fact that he is seeking a plum post in a very good company would indicate the intention of the respondent herein and the company application was not filed for the welfare of the company and it was filed in his own personal interest. Therefore, even as against the company, when no case is made out, the respondent cannot make out any case against the subsidiary company as well. Under those circumstances, the company petition itself has to be dismissed in limine. Though the Company Law Board has not granted such relief, the main company petition itself has to be dismissed in the preliminary stage itself as it does not warrant any investigation.
16. (i) Mr. Ravi, learned counsel appearing for the respondent would contend that the holding company is being conducted in a manner oppressive to the interest of the respondent and therefore, he has prayed for a direction under Section 235 (2) of the Act praying for investigation by an inspector into the affairs of the holding company and its subsidiaries, which are appellants in LPA Nos. 131 of 2002. Therefore, according to the learned counsel for the respondent, the company petition is a composite petition under Sections 397, 398 and 235 (2) of the Act and it cannot be construed as a petition under Section 397 and 398 of the Act against the subsidiaries of the holding company. The holding company has no independent, distinct business, apart from those of its subsidiaries.
(ii) The learned counsel for the respondent would further contend that the holding company is in the nature of a family partnership and it was a closely guarded company consisting of its family members, especially it was dealt with by two persons Shri. Sivasailam, since deceased and Mr. Anandakrishnan, who ran the business in the company as a one-man-show. Therefore, the affairs of the holding company includes the affairs of the subsidiary as well. In this context, the learned counsel for the respondent relied on the decision reported in (Life Insurance Corporation of India vs. Hari Das Mundhra and others) 1966 (36) Company Cases (DB) 371 (Allahabad) and also the decision reported in AIR 1976 SC 1317 and also the decisions rendered by the Calcutta High Court in (Bajrang Prasad Jalan and others vs. Mahabir Prasad Jalan and others) AIR 1999 (Calcutta) 156.
(iii) The learned counsel for the respondent mainly contended that the corporate veil of the holding company and the subsidiary company have to be lifted and they have to be treated as one economic unit. Therefore, the question of waiver, estoppel acquiesence are all questions of law and it depends on the facts of the determined case upon evidence. Therefore, he would contend that the order of the learned single Judge directing deletion of all the subsidiaries at the threshold, even before the facts are ascertained, is bad and that the holding company is bound to answer the querries of its share holders concerning the affairs of the subsidiaries company, hence, he prayed for dismissal of the letter Patent appeals.
17. Before dwelling in detail as to the rival contentions, it is necessary to look into some of the relevant provisions of the Companies Act, which are extracted hereunder;-
Section 214 - Rights of Holding Company's representatives and members (1) A holding company may, by resolution, authorise representatives named in the resolution to inspect the books of account kept by any of its subsidiaries; and the books of account of any such subsidiary shall be open to inspection by those representatives at any time during business hours.
(2) The rights conferred by section 235 upon members of a company may be exercised, in respect of any subsidiary, by members of the holding company as if they alone were members of the subsidiary.
235. Investigation of the affairs of a company (1) The Central Government may, where a report has been made by the Registrar under sub-section (6) of section 234, or under sub-section (7) of that section, read with sub-section (6) thereof, appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct.
(2) Where
(a) in the case of a company having a share capital, an application has been received from not less then two hundred members or from members holding not less than one-tenth of the total voting power therein, and
(b) in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the companys register of members, the [Tribunal] may, after giving the parties an opportunity of being heard, by order, declare that the affairs of the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct
237. Investigation of Company's affairs in other cases -- Without prejudice to its powers under section 235, the Central Government
(a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if
(i) the company, by special resolution; or
(ii) the Court, by order, declares that the affairs of the company ought to be investigated by an inspection appointed by the Central Government; and
(b) may do so [in its opinion or in the opinion of the Tribunal] there are circumstances suggesting
(i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose;
(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company
18. Section 239 of the Act deals with the power of inspectors appointed under Section 235 or 237 of the Act even to investigate into the affairs of the related company or managing agent or Associates etc., and the Inspector can report on the affairs of the other body corporate or managing director in so far as the result of the investigation thereof are relevant to the investigation into the affairs of the main company itself with a provision that the Investigator or the Inspector can obtain prior approval of the Central Government.
19. Section 242 of the Act deals with the power of the Central Government to prosecute anybody as per the report of the other Directors, who shall give necessary assistance to the Central Government.
20. Section 243 of the Act deals with the power of the Central Government on the basis of any report by the investigating officer to wind up the company under Section 237 (1) or 237 (2) of the Act. Further, Section 397, 398 and 401 of the Act reads as follows:-
397. Application to [Tribunal] for relief in cases of oppression.(1) Any member of a company who complain that the affairs of the company [are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more of themselves) may apply to the [Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the Court is of opinion
(a) that the companys affairs [are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the [Tribunal] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
398. Application to [Tribunal] for relief in cases of oppression.(1) Any members of a company who complain
(a) that the affairs of the company [are being conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; or
(b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors, [or manager], or in the ownership of the companys shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company [will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company, may apply to the 1[Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the [Tribunal] is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the [Tribunal] may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.
401. Right of Central Government to apply under Sections 397 and 398 - The Central Government may itself apply to the [Tribunal] for an order under section 397 or 398, or cause an application to be made to the [Tribunal] for such an order by any person authorised by it in this behalf."
21. Section 402 of the Act deals with the power of the Tribunal or Court on the application under Section 397 and 398 of the Act.
22. Section 403 of the Act deals with the power of the Tribunal or the Court to grant interim order pending final order under Section 397 and 398 of the Act.
23. When we analyse these sections, for an application to be filed under Section 397 and 398, the person who files such an application should possess the requisite qualification as contemplated under Section 397 of the Act namely any member of the company, who complains about the affairs of the company, may apply to the then Company Law Board (now Tribunal) for an order under this Section provided that such member has the right so to apply in virtue of Section 399 of the Act. Therefore, there is a qualification rider in Section 397 to apply to the satisfaction of Section 399 of the Act.
24. When we take Section 399, it is made clear that the following members of the company shall have the right to apply namely"-
S.No Remedial Provision of Companies Act Mandatory requirements of share holding 1 Section-235 (2), Investigation of the affairs of the company Either 200 members or members holding not less than one-tenth (1/10th) of total voting power
25. Therefore, Section 399 (4), for applying under Section 397 or 398 of the Act, contemplates either 100 members of the company or member holding not less than 1/10th share in the holding company and that too he has to acquire it by succession. At the same time, it is also an admitted fact that such member is not a share holder in respect of any of the subsidiary companies, excepting one. Therefore, for applying under Section 397 and 398 of the Act, in so far as the main company is concerned, namely Amalgamation, yet he has to apply with the restrictions imposed in Section 397 of the Act, as contemplated under Section 399 (4) of the Act. In so far as subsidiary company is concerned, the respondent has not fulfilled this condition. When a person has not complied with the provisions of the Act, can he be permitted to do so. In this context, we are fortified by the decision of the Honourable Supreme Court reported in (State of Jharkhand and others vs. Ambay Cements and other) 2005 (1) SCC 368 wherein it was held that when law expects somebody to do something in a particular manner that particular thing must be done only in that particular manner as prescribed by law. In that judgment, it was held as follows:-
"26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides a particular thing should be done, it should be done in the maner prescribed and not in any other way.........."
26. Therefore, when the statute provided that a particular thing should be done in a particular manner it should be done in that manner and not in any other way.
27. With this background, when we analyse the present case on hand, Section 214 (2) of the Act provides a facility for a non-member of a subsidiary company to even seek for investigation into the affairs of the company. Under sub-section (2), a person in the holding company under a fiction will be deemed to be a member of the subsidiary company, in so far as it relates to the provisions of Section 235 of the Act.
28. Section 235 of the Act contemplates seeking for investigation into the affairs of the company. Therefore, when a share holder is given a right under Section 214 (2) of the Act, even to seek for investigation into the affairs of the subsidiary company under Section 235, it is deemed that this provision will entitle a share holder in the holding company to seek for a remedy under Section 235 of the Act, but the legislature did not thought it fit to give the same interpretation in so far as it relates to Section 397 and 398 of the Act. Therefore, an application under Section 397 and 398 of the Act cannot be filed by a share holder of a holding company even though he could be a holder of 10% share to seek remedy under Section 397 and 398 of the Act in so far as the holding commany is concerned and not against the subsidiary company.
S.No Remedial Provision of Companies Act Mandatory requirements of share holding 1 Section-235 (2), Investigation of the affairs of the company Either 200 members or members holding not less than one-tenth (1/10th) of total voting power 2 Section 399 (4), Right to apply under Section 397 & 398 Either 100 members of the company or members holding not less than one tenth (1/10th) of total members whichever is less (or) Members holding not less than one tenth (1/10th) of issued share capital.
29. Therefore, a reading of Section 214 and 235 of the Act will make it clear that if subsidiary companies are separately incorporated entities and having their own assets and liabilities, it would be wrong to construe the word 'affairs of the company' to mean and include the 'affairs of the subsidiary company' as well. As rightly pointed out by the Company Law Board, if an inspector is appointed under Section 235 or 237 of the Act, it is for him to decide whether investigation is necessary in respect of the subsidiary companies also and the Court cannot give any direction in this regard.
30. When we consider this aspect whether the affairs of a holding company would include the affairs of the subsidiary company, it might create anomalous situation not warranting under the provisions of the Act. In this context, the learned Senior Counsel for the appellant would site an example to the effect that (i) when a subnsidiary company are professionally and independently managed by the respective board of Directors (ii) when some of them are listed companies for example Bi metal Bearing Limited, the 10th respondent and I.P. Rings Limited, 11th respondent in LPA No. 129 of 2002, which are listed company and (iii) when some of the subsidiaries have joint venture shareholding with world renowned foreign corporation for example TAFE in which foreign colloboration holds 23.75% share as factually found by the Company Law Board and (iv) when some of the subsidiaries have their registered office outside the jurisdiction of the Company Law Board namely respondents 12, 13, 16 in LPA No. 129 of 2002 and incorporated under foreign laws and situate outside the jurisdiction of the Company Law Board to which Companies Act itself does not apply, is it still open for the Company Law Board or the Court to conclude that the subsidiary companies can also be questioned in an application filed against the holding company. The learned Senior Counsel for the appellant would further contend that the Company Law Board had correctly pointed out that when these subsidiary companies are totally distinct and separate, that cannot be questioned in one single application. Therefore, the learned senior counsel points out that the qualification in Section 399 of the Act which provides that only a member of the company, as stipulated in Section 399 of the Act has to satisfy in respect of the subsidiary company is legal and correct. But in so far as Sec. 235 of the Act is concerned, by invoking the provisions under Section 214 (2) he may file petition separately under Section 235 of the Act, but not entitled to file petition under Section 397 of the Act. The relief to be granted is only to seek for investigation, but that cannot be considered to be one which entitle him to seek for winding up of the company in this application under Section 397 of the Act nor this can be treated or converted into an application under Section 235 of the Act. Therefore, the argument of the respondent that the company application filed before the Company Law Board is a cumulative application which combines the provisions of Sections 397, 398 and 235 of the Act cannot be accepted.
31. With this background, we analyse the decisions relied on by both sides. The learned Senior Counsel appearing for the appellant relied on the decision reported in (V.S. Krishnan vs. Westfort Hi-tech Hospital Limited and others) 2008 (3) SCC 363 for the proposition that in the appeal filed before the High Court as against the order passed by the Company Law Board, only a question of law can be decided and as far as fact is concerned, the Company Law Board is the final authority. The jurisdiction of the appellate Court is restricted to the question as to whether on the facts noticed by the Company Law Board and placed before it, an inference can reasonably be arrived at such conclusion. In para-16 of the said judgment, it was held as follows:-
"16. It is clear that Section 10-F permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e., the Company Law Board is the final authrity on facts unless such findings are perverse, based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate Court under Section 10-F is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate Court would interfere under Section 10-F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) Omission to construe (sic consider) relevant materials.
32. In the present case on hand, we do not find any reason to interfere with the order passed by the Company Law Board, which has given sufficient reasons. Further, even question of law, as we have clearly stated, Section 399 of the Act imposes a specific condition for invoking Section 397 and 398 of the Act and this factual position has not been dealt with in detail by the learned single Judge.
33. Reliance was placed to the decision reported in (Hanuman Prasad Bagri and others vs. Bagress Cerals Private Limited and others) 2001 4 SCC 420 for the proposition that it is a mandatory requirement for the respondent to make out a case for winding up against the company in which he alleges oppression. In this case, the Honourable Supreme Court held that the petitioner who filed the petition for winding up of the company must make out a case on just and equitable ground, otherwise, no relief can be granted. In the case on hand, as pointed out earlier, there is no allegations made or no relief is sought for against many of the subsidiary companies and no case is made out by the respondent as against the subsidiary companies. Inasmuch as no case has been made out by the respondent against the subsidiary companies, the relief sought for by the respondent to include the subsidiary companies also in the company petition cannot be granted as per the above decision of the Honourable Supreme Court. Therefore, the decision of the learned single Judge, in ordering to include the subsidiary companies also in the company Petition, is not correct.
34. In (J.P. Srivatsava and Sons Pvt Ltd., and others vs. Gwalior Sugar Co Ltd and others) Volume 122 Company Cases 696 it was held by the Honourable Supreme Court as follows:-
"The object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under Section 397 and 398 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad commensense approach. If the Court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course there are some rules which are vital and go to the root of the matter which cannot be broken........."
35. It is evident from the above decision that the Honourable Supreme Court has categorically held that the Court has to necessarily satisfy that the prescribed qualification have been complied with or not. That is why the Honourable Supreme Court used the word 'prescription of a qualifying percentage is clearly to ensure that frivolous litigation is not indulged in by persons". In this case, it was alleged by the appellant that the intention of the respondent in filing the present company application is only to get some benefit of plum posting in any one of the subsidiary companies.
36. In the decision reported in (Shanthi Prasad Jain vs. Kalinga Tubes Limited etc.,) AIR 1965 SC Page 1535, the Honourable Supreme Court held as follows:-
"13. ..........However, it was being felt for sometime that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why S.210 was introduced in the English Act to provide an alternative remedy where it was felt that though a case had been made out on the ground of just and equitable cause to wind up a company, it was not in the interest of the share-holders that the company should be wound up and that it would be better if the company was allowed to continue under such directions as the Court may consider proper to give.....
"14. ..........It gives a right to members of a company who comply with the conditions of S.399 to apply to the Court for relief under S.402 of the Act or such other relief as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. the Court then has power to make such orders under S.397 read with S.402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just equitable that the company should be wound up. The law, however has not defined what is oppression for purposes of this Section, and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this Section."
32. We now come to the case under S.398. It provides that any members of a company who have rights to apply in virtue of S.399 may complain (i) that the affairs of the company are being conducted in a manner prejudicial to the interest of the company, or (ii) that a material change has taken place in the management or control of the company and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company. On such application being made, if the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the matter of management or control of a company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. This Section only comes into play as the marginal note shows, when there is actual mismanagement or apprehension of mismanagement of the affairs of the company. It may be contrasted with S.397 which deals with oppression in the minority shareholders, whether there is prejudice to the company or not..........
35. Nor is there any ground for holding that because of the change which took place in the management after July 1959 it was likely that the affairs of the company would be conducted in a manner prejudicial to its interests. The change that took place after july 1958 was that the appellant no longer remained the chairman of the company and the patnaik and Loganathan groups practically managed the company without the appellant. But as the High Court has pointed out there were no facts before the court to come to the conclusion that in the affairs of the company being conducted in a manner prejudicial to its interest. In this connection reliance is placed on certain matters which transpired after the application was filed on September 14, 1960. These matters, however, cannot be taken into account for the application has to be decided on the basis of the facts as they were when the application was made......
37. In the present case on hand, even in the Company Petition, as stated supra, there was not even any specific allegation made against the subsidiary companies. Further, the comparision made to English Law makes it clear that in English Law, under Section 210, there is no qualification prescribed, whereas Section 397 of the Act is subject to the fulfilment of eligibility as contemplated under Section 399 of the Act.
38. The Division Bench of this Court in the judgment reported in (Micromeritics Engineers Private Limited and others vs. S. Munusamy) Volume 122 Page No.150 Company Cases, (Madras) held that the phrase "the company" has been used only to emphasis the fact that the members of that company alone could give a complaint with reference to the affairs of that company. The relevant portion of the judgment can usefully be extracted hereunder as follows;-
"......But according to the learned Senior Counsel appearing for the appellants, the Company Law Board should pass such orders only with respect to "the company" and should not pass a combined order with respect to two different companies. Learned Senior counsel pointed out that the phrase "the company" and "a company" as mentioned in the above said provisions.
Under Section 397 of the Act, the phrase "the company" is used only to emphasise that the members of that company alone can give a complaint with reference to the affairs of that company. It is nothing to do with the powers of the Company Law Board. Even under Section 398 (2) of the Act, if the Company Law Board on any application filed under Section 398 (1) of the Act is of the opinion that the affairs of the company are being conducted as mentinoed under Section 398 (1) of the Act or that by reason of any material change mentioned in the said provisions in the management and control of the company, it is likely that the affairs of the company will be conducted as stated under Section 398 (1) of the Act, the Company Law Board may with a view to bring to an end or preventing the matters complained of, make such order as it thinks fit. The said provision no doubt deals with the power of the Company Law board with respect to a particular company. Even Section 402 (b) of the Act gives special power to the Company Law Board to order providing for the purchase of shares or interest of any members of the company by other members thereof or by the company.
On reading of Sections 397, 398 (2) and 402 (b) of the Act, it is clear that the Company Law Board has to deal with the affairs of a particular companyand also give liberty to purchase of shares by other members of the said company or by the same company; otherwise, the Company Law Board cannot permit the third parties to purchase shares of the company under Section 402 (b) of the Act. In the present case, the Company Law Board found that the acts of oppression have been established in each company separately. From the above said direction given by the Company Law Board, it is clear that the Company Law Board is not permitting any third parties to purchase the shop........If the order of the Company Law Board is implemented, either Munusami or Senthamarai should go out of the respective company and the outgoing person should sell his shares to the remaining Shareholder. Sounder also should go out of any one of the said companies by selling his shares of that company, if he is going out of microparticle Engineer Private limited, to Senthamarai or if he is going out of Micromeritics Engineers Private Limited, he has to sell his shares of that company to Munusami. Sounthar can run any one of the companies and manage the affairs independently....."
From the above, it is clear that the Company Law board is not permitting any third parties to purchase the shares and the direction is to sell the shares to the existing shareholder of a particular company, and the above method is also adopted only on the basis of complaint given by the shareholder of a particular company and not on the basis of complaint of third parties. Hence, it cannot be said that the Company Law Board has exceeded its jurisdiction as contemplated under the above-said provisions."
39. In fact, the Company Law Board relied upon the decision reported in Hungford case and rightly arrived at a conclusion that it will be improper and illegal to join subsidiaries in the company application on facts and circumstance of the case. But the Company Law Board has held that the main company petition under Section 397 of the Act is not demurable or objectionable in the absence of subsidiary companies and their directors and share holders and in approprate case, they would come under the expression affairs of the company meaning the affairs of the holding company" Further, it was also held that "Therefore, when a person is not a member of a company, his alleging oppression and invoking the provisions of Section 397 against that company does not arise. Therefore, a shareholder of a holding company cannot complaint of oppression by a subsidiary in which he is not a member as there is no legal relation between him and the subsidiary company."
40. Therefore, the proposition of law that the affairs of the company would mean the affairs of the subsidiaries also cannot be accepted as it creates a legal fiction to treat the members of the holding company as members of the subsidiary company. This section can be implemented only in so far as Section 235 of the Act invoking Section 214 (2) of the Act and not for Section 397 and 398 of the Act. When the intention of the legislature is clear to include only one company simplicitor, we cannot put our own words into that. In fact, for this proposition also, the learned Senior Counsel relied on the decision reported in (Vijay Narayan Thatte and others vs. State of Maharashtra and others (2009) 9 SCC 92 wherein the Honourable Supreme Court held that when a plain gramatical meaning of law and literal rule of interpretation is very clear and when there is a conflict between law and equity, law as such must prevail.
41. The company Law Board has rightly held that "Thus, notwithstanding our findings that the affairs of a company do not include the affairs of its subsidiaries, we find that the petitioner has not has not even prima facie established that the inclusion of the subsidiaries either as necessary or proper parties to adjudicate his allegations against the holding company. Therefore, we are of the view that the prayer of the respondent subsidiaries and their directors to delete their names from the array of parties should be granted."
42. Mr. Ravi, learned counsel for the respondent relied on the judgment of the Division Bench of Allahabad High Court reported in (Life Insurance Corporation of India vs. Hari Das Mundhra and Others) 1966 (36) Company Cases 371 for the proposition that even under Section 397 and 398 of the Act, for lifting the corporate veil, the Court can still hold that the affairs of the company can mean the affairs of not only the holding company but affairs of the subsidiary company. The relevant portion of the decision is extracted hereunder.
"Having cleared the minor hurdles, we now reach the citadel of controversy whether the Court should in considering the complaint of a member of the Corporation about mismanagement of the affairs of the corporation by, and misfeasance of, its directors, confine the probe strictly to the affairs of the Corporation and the company, a subsidiary of it.....
"....As already stated the Corporatin owns 100 per cent share capital. During the material period, of the five directors of the company, three belonged to the board of directors of the Corporations; the remaining two must also have held office by the grace of the Corporation for it was the beneficial owner of the entire share capital of the company....
"....It is no exaggerated truth to say that the directors of the Corporation were treating the company as a mere department of the Corporation and its directors as managers of that department. The appellant Haridas Mundhra describe it as an 'asset' of the Corporation in their petition and written statement. By and large the two bodies were fused together so that the adversity of one inevitably created a crisis in the other....
"....It is not necessary to hold that their entire share capital; control of the voting power in the existing companies is enough to place them at the head of the multitiered pyramid of industrial enterprises. The device of the holding company gives rise to vertical and horizontal combines. It is obvious that these combines cannot be profitably exploited without the head, that is, the holding company. It exercised unified control over the pyramided subsidiaries through the contrivance of inter-corporate accountancy and the management.
"Lastly, the balance sheet and the profit and loss account of the holding company may give little information to the shareholder, who is not an insider, to enable him to detect abuses and misfeasance. The danger is obvious."
"Section 314 (1) provides that no director of a company shall ordinarily hold any office or place of profit except that of managing director, etc., under its subsidiary unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company. The underlying object seems to be to prevent improper maximisation of earnings by directors at the costs of the shareholders of a company and for that purpose a subsidiary is counted as a part of the Company. Section 375 (1) generally prohibits the managing agent of a company from engaging in any business which is of the same nature, as, and from directly competing with, the business carried on by that company or by its subsidiary. This again shows that Parliament is treating a subsidiary as a part of the holding company. We then come to two sections which, to my mind, almost clinch the matter in favour of the realistic argument. Sub-section (1) of Section 318 provides for payment by a company to a managing director or director-manager or a director under whole time employment of compensatin for loss of office or for retirement from office. But sub-section (3) (e) forbids such payment "where the director is guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary or holding company thereof.....
"....Section 210 provides that every annual general meeting of a company the board directors of the company shall lay before the company a balance sheet and a profit and loss account for the year ending. Sub-section (1) of Sectino 211 prescribes that a balance sheet shall give a true and fair view of the state of affairs of the company. Sub-section (20 similarly prescribes that a profit and loss account shall also give 'a true and fair view of the profit and loss of the company"
"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 than as separate personified institutions for purposes of ownership of capital, control of the subsidiary by the present'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."
"..In such a case, the courts will not permit themselves to be blinded or deceived by mere forms of law, but regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require."
"An analysis of these cases and others shows that Courts are willing to lift the corporate veil where it is used to defeat public convenience, to justify wrong, to protect fraud, or to defend crime............ Furthermore, they are prone to caste aside the corporate mask and give recognition to the economic entity of a group of companies."
43. When we look into the judgment, it was clearly stated that the affairs of the company namely subsidiary company has become a department of the corporation and therefore it was held that since the object of the section is to liquidate mismanagement in the affairs of the company and in that context, it was held that the affairs of the Corporation will also include the affairs of the department or branches. In this case, as held by us, there are listed company, there are companies with joint venture, companies with foreign colloboration and they are totally independent entities having its own responsibilities. Under those circumstances, can those companies be treated as a department of the holding company, as claimed by the respondent. Therefore, the reliance placed by the counsel for the respondent on the decision reported in LIC case mentioned above will not be applicable to the facts and circumstance of the case on hand. 44. The learned counsel for the respondent also relied on the decision of the Calcutta high Court reported in (Bajrang Prasad Jalan and others vs. Mahavir Prasad Jalan and others) 1998 Indian Law (Calcutta) 231 for the very same proposition with regard to lifting of corporate veil and also to point out the circumstances under which the corporate veil can be lifted. The relevant portion of the judgment is extracted hereunder:-
"Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the viel, or fraud or improper conduct is intended to be prevented, or taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in relaity, part of one concern. it is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since, they must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc., "27. 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.
"28. In M/s. World Wide Agencies Pvt Ltd., vs. Mrs. Margrat T. Desor reported in 1989 Indlaw SC 348, the Apex Court rejected an objection to the effect that the appellants before it were not members of the company as their nominess had not been recorded in the register of members."
".....the said provisions are clear indication that although holding companies and subsidiary companies are treated to be separates but there are many restrictions and qualifications in relation thereto. But there cannot be any doubt whatsoever that for the purpose of considering a matter of oppression, the action on the part of the majority shareholders of a holding company may also be applied in the case of the subsidiary companies as holding companies hold majority shares in the subsidiary companies particularly when both holding company and subsidiaries are family companies and for that limited purpose the Corporate viel can be lifted."
45. When we peruse the decision cited supra, in the last paragraph in para No.97, it was clearly held that "the only property of all these companies is an immovable property situate at No.36, Chowringhee Road and it does not have any other business nor does run any industry" and therefore, it was held that the question as to whether who manages the company takes the backseat. Therefore, in that context, the Court held that whether a direction to sell shares by minority shareholders to the majority shareholders would serve the purpose. The facts in that case and the facts in the case on hand are entirely different and therefore, the same is not applicable to the facts of this case.
46. The learned counsel for the respondent also relied on the English decision reported in (Rackind and others vs. Gross and others) (2005) 1 WLR 3505 to contend that the word 'affairs of the company' can include the affairs of the subsidiary company and the Courts have the power to make an order to regulate the future management of the affairs of the holding company. The learned counsel for the respondent also relied on the English Law (Companies Act, 1948 - Chapter 38 - Part IV - Management and Administratin) wherein Seciton 210 dealing with 'Alternative remedy to winding up in cases of oppression contemplates thus:-
"(2) If on any such petition the Court is of opinion-
(a) that the company's affairs are being conducted as aforesaid; and
(b) that to wind up the comany would unfairly prejudice that part of the members but otherwise the facts would justify the making of a winding up order on the grount that it was just and equitable that the company should be wound up."
47. It is to be mentioned that the Law in England is totally different from the Law prevailing in our Country. In fact, the Section of English Law does not have any restriction when compared to Section 399 of the Act. Therefore, the English decision relied on by the learned counsel for the respondent cannot be made applicable to this case.
48. The Company Law Board has rightly concluded that the company petition is essentially a petition against the holding company. Therefore the Company Law Board found that without even going into the merits of the case and ordering investigation into the affairs of the holding company, the Court cannot definitely order for investigation into the affairs of the subsidiary companies. In fact, if it is found, after hearing the petition that the order of investigation can be made into the affairs of the holding company, then the provisions of Section 239 would come into play and it is for the inspectors, to be appointed by the Central Government, to decide as to whether the business of the subsidiary also required to be investigated. In fact, this has been held by the Division Bench of this Court in the decision reported in (Micromeritics Engineers Pvt Ltd., and others vs. S. Munusamy) 2004 122 Company Cases 150 also, which is mentioned supra. Therefore, we hold that the Company Law Board has rightly stated that there need not be any direction and gave liberty to the respondent in case the respondent desires that there should be a direction for investigation into the affairs of any of the subsidiary company, it is always open to him to file separate applications in terms of Section 214 (2) read with Section 235 of the Act. When this safeguard was given by the company Law Board, it is not open for the respondent, at this stage, to contend that because the company application filed by him is a combined application, it has to be taken up together along with the main company petition when he has not complied with Section 399 (4) of the Act.
49. In any view of the matter, as we have found that the respondent has not even made any allegations against the subsidiary company or claimed any relief against most of the subsidiary companies in the main company petition and as per the decisions of the Honourable Supreme Court mentioned supra, the subsidiary companies cannot be included in the Company Petition. Hence, the order passed by the learned single Judge, setting aside the order of the Company Law Board deleting the subsidiary companies from the array of parties, is not correct. Inasmuch as the subsidiary company cannot be made as a party to the company petition, we are inclined to allow LPA Nos. 129 and 131 of 2002.
50. At the same time, in so far as LPA No. 130 of 2002 is concerned, which is filed by the holding company challenging that portion of the order of the Company Law Board rejecting certain preliminary objections raised by the appellant and against the order of the Company Law Board in not dealing with certain preliminary objections raised by the appellant and against certain directions given by the Company Law Board, as rightly pointed out by the learned single Judge, the Company Law Board has not made any error in recognising the statutory right of the respondent herein under Law to file a petition under Section 214 (2) read with Sec. 235 of the Act. Further, in view of the fact that we have categorically held that the order of the Company Law Board ordering to delete the names of the subsidiary companies from the array of parties in the Company Petition and permitting the holding company to file objections relating to the objections made against them is valid, we do not find any reason to interfere with the order passed by the learned single Judge in C.M.A. No. 2036 of 2002 and therefore, the relief sought for in LPA No. 130 of 2002 cannot be granted.
51. In the result, we allow LPA Nos. 129 and 131 of 2002 by setting aside the order dated 03.06.2002 passed by the learned single Judge in C.M.A. No. 2018 of 2000 and restore the order passed by the Company Law Board deleting the names of the subsidiary companies from the array of parties from the Company Petition No. 48 of 2000. Consequently, we dismiss the LPA No. 130 of 2002 by confirming the order dated 03.06.2002 passed by the learned single Judge in C.M.A. No. 2036 of 2000. However, there shall be no order as to costs. Connected miscellaneous petitions are closed.
52. After pronouncing the order, the learned counsel appearing on either side submitted that at the time when the Company Petition was filed, the Company Law Board was at Delhi and now the jurisdiction has been vested with the Company Law Board at Madras and therefore, the files relating to the case may be ordered to be transmitted to the Company Law Board at Madras and a direction may be issued to the Company Law Board, Madras to dispose of the matter at an early date.
53. Taking into consideration the above submission of the counsel on either side and having regard to the fact that the Company Petition No. 94 of 1999 is pending for quite long time, we only make an observation that the Company Law Board at Delhi shall transmit the files relating to the Company Petition No. No. 94 of 1999 to the Company Law Board at Madras at an early date and thereafter the Company Law Board, Madras shall take up the main Company Petition and dispose off the same as expeditiously as possible.
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