Madras High Court
Mrs.Mangalam vs Citrex Products Limited on 15 September, 2014
Author: M.Sathyanarayanan
Bench: Sanjay Kishan Kaul, M.Sathyanarayanan
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 15..09..2014
CORAM:
The Honourable Mr.SANJAY KISHAN KAUL, CHIEF JUSTICE
and
The Honourable Mr.Justice M.SATHYANARAYANAN
-------
O.S.A.No.159 of 2013
1. Mrs.Mangalam
2. Dr.R.Ganesh
3. P.Rammohan
4. V.Gopal
5. Sumathi Rathinakumar
6. Revathi Gopal Appellants in
both the appeals.
Vs.
1. Citrex Products Limited,
Rep. by its Director,
V.Rajendran,
AJ 81, Anna Nagar,
Chennai 600 040.
2. R.Padma
3. R.Ganesh Raj
Rep. by his authorized Power of Attorney Holder,
V.Rajendran,
S/o.P.N.Vallinayagam,
AJ 81, Anna Nagar,
Chennai 600 040.
4. Rajeswari Sathish
5. R.Satish Raj
6. V.Rajendran
7. Usha Selvarathinam
8. P.Selvarathinam
9. M.Jeya
10.K.Mahalingaswamy
11.N.Ayyamperumal
12. Viswapriya Financial Service & Securities Limited,
Rep.by its Managing Director,
R.Subramanian,
75/C, 2nd Main Road, Gandhi Nagar,
Adyar, Chennai 20.
13.Custodial Services India (P) Ltd.,
Rep. by its Director V.Gopal,
E-27, Anna Nagar East,
Chennai 600 102.
14.Long Short Investments (P) Ltd.,
Rep. by Director V.Rengaswamy,
D1, 24, Desika Road,
Mylapore, Chennai 4.
15. Thamaraparani Investment Pvt. Ltd.,
Rep. by its Director V.Gopal,
4/35, Swaminathan Nagar Extension,
Kotivakkam, Chennai 41.
16. Vis Ram Financial Services Pvt.Ltd.,
Rep. by its Director P.Rammohan,
A-2, 24 Desika Road, Chennai-4.
17. K.Balasubramanian
18. P.Subramanian
19. M.Rathinakumar
20. S.Chandrasekar
21.Subiksha Trading Services Pvt. Ltd.,
Rep. by its Managing Director,
R.Subramanian,
No.99/5, MGR Nedunsalai,
Negalkeni, Chromepet, Chennai-44.
22. Bala Deshpandey,
Nominee Director,
Subhiksha Trading Pvt.Ltd.,
ICICI Venture Fund Management Co. Ltd.,
Raheja Plaza, 4th Floor,
No.17, Commiserate Road,
D Souza Circle, Bangalore 560 025.
23. R.Hariharan Respondents in
both the appeals.
Appeals filed under Order XXXVI Rule 9 of the O.S.Rules read with Clause 15 of the Letters Patent against the common order passed in Application Nos. 2887 & 2888 of 2012 in C.S.No.51 of 2005 dated 13.12.2012 on the file of this Court.
For Appellants ::: Mr. R.Murari, Senior Counse
for M/s.Hema Srinivasan
For Respondents ::: Mr. R.Swaminathan
1, 2, 4 to 9 & 11
Judgment Reserved on: 27.08.2014
Judgment Delivered on:15.09.2014
C O M M O N J U D G M E N T
THE HONBLE CHIEF JUSTICE These appeals raise the issue of maintainability of the plaint inter-alia seeking relief of rectification of register in the context of the jurisdiction vested with the Company Law Board under Section 111 of the Companies Act, 1956.
2. A suit was filed by 11 plaintiffs (respondents 1 to 11 herein) against 18 defendants, out of which six are appellants before us, seeking return of 900 shares, in view of the loan having been discharged. The alternative relief claimed is to declare the transfer of 900 shares as null and void. The third relief prayed is for continuation of original plaintiffs 2 to 6 as Directors of the first plaintiff-company, while the original plaintiffs 2,3,5 to 11 to continue as shareholders of the first plaintiff-company and for a declaration that the Agreement of Sale dated 02.06.1997 and 25.08.1995 were null and void.
3. It is the case of the original plaintiffs that the first plaintiff-company (first respondent herein) participated in the auction on 25.9.1992 to purchase the properties, as set out in the schedule to the plaint together with the plant, machineries and buildings with a bid of Rs.80 lakhs. The said auction was cancelled and consequently, a second auction was held wherein the first plaintiff submitted a bid of Rs.100 lakhs on deferred payment basis and 25% of the bid amount was paid. Under a Deed of Sale dated 28.7.1993, the plant and machineries were sold to the first plaintiff on deferred sale basis.
4. The 6th plaintiff is stated to have promoted a Company called M/s.Metafilms (India) Limited and was looking out for a property to set up a unit when he came across an advertisement published by the then management of the first plaintiff offering sale of five acres of suit property. However, since the sale was on deferred basis, and the Tamil Nadu Industrial Investment Corporation (in short TIIC), which had auctioned the property was not willing to give consent for sale, the sixth plaintiff decided to purchase the entire 30 acres, for which a Memorandum of Understanding dated 23.11.1994 was entered into between the shareholders of the first plaintiff-company and the 3rd, 5th and 6th plaintiffs through the process of acquiring the entire shareholding of the original shareholders of the first plaintiff-company, which was 900 equity shares of Rs.10/- each, as against the Authorised Share Capital of Rs.10 lakhs. There were obligations of discharging the dues of the financial institutions, induction on the Board, handing over of possession of assets, etc. In the course of implementation of the above MOU, it was found, according to the original plaintiffs, that the earlier management had not disclosed the liabilities to the tune of approximately Rs.13 lakhs. This led to certain disputes whereby payments were not made to the earlier shareholders. There was also an issue which arose about the payment of balance consideration due to TIIC. Faced with this financial problem, the original plaintiffs state that they came across an advertisement issued by the first defendant-company (respondent no.12 herein) in early 1997 offering loan on the security of immovable property with attractive terms. Negotiation took place inter se the parties, when it was informed that the promoters of the first defendant-company had floated several companies, firms and concerns, and therefore, payments had to be made to any one of them, as per the instructions of the 6th and 7th defendants (respondents 17 & 18 herein). A mortgage deed is stated to have been signed, but the agreement was executed by the second defendant (respondent-13 herein), which is stated to be a Company. Certain documents were also signed in the office of the Bank, but the original plaintiffs claim that several of them were blank. The monies were thus claimed to have been paid to the original plaintiffs through different companies/entities.
5. It is, thereafter, that the original plaintiffs approached TIIC for one time settlement of Rs.97,92,677.15/-, which was paid through various deposits. There were other transactions also inter se the parties and it is the case of the original plaintiffs that while the liabilities were practically extinguished in a surreptitious manner, the returns filed of the first plaintiff-company reflected the transfer of shares in favour of defendants 6, 8 to 15, as also the removal of the relevant plaintiffs as Directors. The 6th plaintiff also claims that what he purportedly executed on 2.6.1997 was only a mortgage deed, which he has prayed for cancellation. There are also allegedly different transactions of immovable property and the original plaintiffs seek setting aside of the agreement of sale of immovable property dated 25.08.1995. The allegation thus is that of misuse of documents which resulted in various other proceedings. In the conspectus of the aforesaid dispute that the present suit has been filed alleging that the adjustment of amounts has been made in such a manner that the original plaintiffs had actually repaid the loan, as reflected in para-33 of the plaint.
6. On the other hand, the original defendants disputed the claim and claimed that it lent sums of money to the relevant respondents herein and share certificates numbering 900 had been handed over with duly executed share transfer deeds and Power of Attorney authorizing the sale. 600 shares out of 900 shares were sold in the year 2000 to the appellants, who are original defendants 10 to 15, while the remaining shares were sold to certain other defendants. The Register of Members also is stated to have been accordingly corrected.
7. In the present appeals, we are concerned with two applications filed by the appellants bearing Applications Nos.2887 & 2888 of 2012 for striking off the pleadings and consequently, the corresponding reliefs in the suit in relation to the transfer of shares, since this would fall within the exclusive jurisdiction of the Company Law Board. It is also the plea of the appellants that two distinct causes of action have been combined with leave under Clause 14 of the Letters Patent and thus, the other reliefs claimed in the suit could not be clubbed with the issue of shareholdings. In that context, a reference was made to an earlier Application No.5636 of 2011. In fact, according to the appellants, a reference ought to have been made to the application filed in 5637/2011, which was filed for striking off the prayers (a), (b) and part of (c) under Order VI Rule 16 of the Code of Civil Procedure, 1908, which had been withdrawn by the appellants with a prayer to file a fresh application for which leave was granted on 5.3.2012. Application No.5636 of 2011 had been filed for striking of the first respondent-first plaintiff company herein from the array of plaintiffs as being improperly represented. The said application was dismissed and an appeal is stated to be pending against the same.
8. It is the applications bearing nos.2887 & 2888 of 2012, which form the subject matter of the impugned order passed by the learned single Judge on 13.12.2012 dismissing the same with costs of Rs.10,000/- each.
9. The learned single Judge, on a consideration of these applications opined that the sum and substance of the suit was that different transactions are challenged on the basis of fraud and misrepresentation between the parties, over which even other litigations are pending. After noticing the same, there is really no consideration of the merits of the controversy, if one may say so. But the learned single Judge has rejected the applications on the ground that the appellants had come to Court with unclean hands and made wrong and deliberate mis-statements. This finding was passed on what was really confusion over the orders passed on application nos. 5636 & 5637 of 2011.
10. Since in Application No.2888 of 2012, a reference was made to Application No.5636 of 2011 and the same being withdrawn with a liberty to file a fresh application as granted on 08.01.2011, the learned single Judge found that the said application actually had been dismissed on merits. This was what was stated to be a mistake.
11. Learned counsel appearing for the appellants has explained that this was basically a typographical error, as undoubtedly Application No.5636 of 2011 seeking to strike off the first plaintiff from the array of parties had been dismissed on merits against which an appeal is pending. It is Application No.5637 of 2011, which dealt with the issue of striking off the pleadings and consequently the corresponding reliefs being in substance for rectification of register of members of the Company, which exclusively fall within the domain of the Company Law Board. That application was withdrawn and two separate applications being I.A.Nos. 2887 & 2888 of 2012 were filed for dismissal of the suit qua the appellants and for striking out the pleadings more specifically relating to the issue of transfer of shares.
12. On a perusal of the records, we find force in the contention of the learned counsel for the appellants in this behalf that the reference really was being made in Application No.5637 of 2011, which is apparent from the prayer made therein and the prayer made in Application No.2888/12. Application No.5637 of 2011 had in fact been withdrawn with a liberty to file a fresh application for which orders were passed on 05.03.2012. Thus, all that had to be done is that the reference so made in Application No.5636 of 2011 in Application No.2888 of 2012 be read as Application No.5637 of 2011.
13. We find that there is no case made out of appellants having approaching this Court with unclean hands or made any wrong deliberate mis-statement so as to entitle dismissal of the applications with costs of Rs.10,000/- each and for that reasons, the impugned order assailed is liable to be set aside.
14. The aforesaid left us with two choices i.e. (i) to remand the matter back for fresh consideration of these two applications on merits, or (ii) leaving us to consider the merits itself.
15. Both the learned counsel for the parties at the inception made it clear that they are advancing arguments even on the merits of the case, and in fact we did hear elaborate submissions on this behalf.
16. We, thus, proceed to decide these two applications on its merits. We may note that we had asked both the parties to produce documents including register of members. Both the parties produced the original registers. The appellants claimed that it was being maintained in an electronic form. The respondents produced the register, which they claim to be the original register. Suffice to say that there are serious disputes even on as to who are in possession of the original records (i) whether the records of the appellants are really original records or, (ii) whether the records of the contesting respondents are the original records. In fact, that would be the matter to be decided on merits whether in the suit or before the Company Law Board, as we are only concerned with the issue as to whether there is such exclusive jurisdiction conferred on the Company Law Board as to oust the jurisdiction of the Civil Court.
17. We may also note that earlier the jurisdiction vested with the Company Court under Section 155 of the said Act, which dealt with the powers of the Court to rectify the Register of Members. But that provision was deleted with effect from 31.05.1991 by the Companies (Amendment) Act, 1988 and the powers under Sections 111 and 111-A were conferred on the Company Law Board. Section 111 of the said Act deals with the powers to refuse registration and appeal against refusal, while Section 111-A deals with rectification of register of transfer.
18. In this context, learned counsel for the appellants referred to Canara Bank vs. Nuclear Power Corporation of India Limited and others, 1995 (84) Company Cases 70 (SC). The application of the appellant therein pending under Section 111 of the said Act was transferred to Special Court constituted under the provisions of Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The appeal was directed against the decision of the Company Law Board that its jurisdiction to deal with matters relating to securities provided by the said Act was not affected by the Special Court Act. While referring to Section 111 of the said Act, more specifically sub-section (7), it was observed that the Company Law Board performs the functions where theretofore performed by Courts of civil judicature under Section 155 of the said Act. The Company Law Board thus had exclusive jurisdiction in regard to all these matters.
19. The relevant paragraph (para-31) reads as follows:-
Now, under Section 111 of the Companies Act, as amended with effect from 31st May, 1991, the CLB performs the functions that were theretofore performed by Courts of civil judicature under Section 155. It is empowered to make orders directing rectification of the companys register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the companys register; and any question which it is necessary or expedient to decide. It may make interim orders. Failure to comply with any order visits the company with a fine. In regard to all these matters, it has exclusive jurisdiction (except under the provisions of the Special Court Act, which is the issue before us). In exercising its function, under Section 111 the CLB must, and does, act judicially. Its orders are appealable. The CLB, further, is a permanent body constituted under a statute. It is difficult to see how it can be said to be anything other than a Court, particularly for the purposes of Section 9A of the Special Court Act.
20. We may, however, extract sub-section (7) in the context of the aforesaid observations, which reads as under:-
(7) On any application under this Section, the Company Law Board-
(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register.
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.
21. It was, thus, urged that the power under Section 111 of the said Act was wide and comprehensive in all matters and in fact, ousts the jurisdiction of a Civil Court.
22. In M/s.Ammonia Supplies Corporation (P) Limited Vs. M/s.Modern Plastic Containers Private Limited and others, 1998 (94) Company Cases 310 (SC), the appeal arose qua proceedings under Section 155 of the said Act. The Full Bench of the Delhi High Court held that the powers under Section 155 of the said Act was summary in nature and it was the discretion of the Company Court to decide whether it would adjudicate disputes under Section 155 of the said Act in terms of its discretion under Section 446(2) or to send it back to Civil Court for adjudication. In fact, the question of law framed by the Supreme Court was Whether in the proceedings under Section 155 of the Companies Act, the Court has exclusive jurisdiction in respect of all the matters raised therein or have only summary jurisdiction?.
23. In the aforesaid context, it was observed in paragraph-27 that so far exercising of power for rectification within its field there could be no doubt the Court, as referred under Section 155 read with Section 2(11) and Section 10, is the Company Court alone which has exclusive jurisdiction. Similarly, under Section 446 the Court refers to the Company Judge which has exclusive jurisdiction to decide matters what is covered under it by itself.
24. Learned counsel for the contesting respondents, on the other hand, submitted that even in M/s. Ammonia Supplies Corporation (P) Limited case (supra), it has been observed that the true nature of matter should be looked into and if it really is not an issue relating to rectification of register, the adjudication should be by a Civil Court. Unless the jurisdiction is expressly or implicitly barred under a statute for violation or redress of any such right civil Court would have jurisdiction.
25. Learned counsel relied upon Dwaraka Prasad Agarwal vs. Ramesh Chandra Agarwala, 2003 (3) CTC 184 (SC) to contend for the proposition that the dispute regarding rival claim of parties as to whether one party has illegally been dispossessed had to be tried by a civil court and that bar of jurisdiction of civil court is not to be readily inferred.
26. Another case referred to by the learned counsel is of Standard Chartered Bank vs. Andhra Bank Financial Services Limited, AIR 2006 SC 3626. In the context of the Special Court Act, it was observed that qua transfer of bonds it would be appropriate to transfer the suit and the application under Section 11 of the said Act to the Special Court and the Special Court was clothed with the jurisdiction of the civil Court and the limitation of jurisdiction of the Company Law Board would not apply. In this judgment, a reference has been made in paragraph-28 to the judgment in M/s. Ammonia Supplies Corporation (P) Limited case (supra) by setting out the ratio of that judgment to be that the jurisdiction exercised by the Company Court under Section 155 of the said Act (corresponding to Section 111 of the present Act, before its amendment by Act 31 of 1988) was somewhat summary in nature and that if a seriously disputed question of title arose, the Company Court should relegate the parties to a suit, which was the more appropriate remedy for investigation and adjudication of such seriously disputed question of title. We may say with respect that it appears that this ratio has been not correctly culled out as that was the ratio of the Full Bench of the Delhi High Court, but the Honble Supreme Court opined to the contrary.
27. On consideration of the conspectus of the aforesaid facts and the law cited at the Bar, we are of the view that in the given facts of the case, the nature of transactions, and the plaint, as laid, it would not be appropriate to bifurcate the reliefs and compel the original plaintiffs to sue for part of the cause before the Company Law Board under Section 111 of the said Act, while for the remaining cause, undisputably, the suit would have to proceed. It is trite to say in view of the said judicial pronouncements that there cannot be ouster of the civil court, unless it is specifically said so. The jurisdiction conferred under Section 111 of the said Act relates to only rectification of register and not to immovable properties. Thus, can it be said that the plaint as laid has clubbed inappropriately different cause of action? The answer to this, in our view, is in the negative. The plaint has to be read as a whole.
28. The details as to how the appellants came into the picture have been set out. The original plaintiffs had, in fact, in an auction bid for the property, but later on found some difficulty in making payment, which were to be made, on deferred sale basis. It was at that stage that the financial arrangements through the first defendant are stated to have been arrived at. It is specifically alleged that disbursements of amount was through different companies/entities. The banking arrangement is alleged to be such that the 6th plaintiff withdrew some amount and even deposited in the account. The payments made to TIIC were from different sources, after one time settlement was arrived at, which included the first and the sixth plaintiff and the sister concern and the liability of TIIC was cleared with the result TIIC got all their dues, as it was threatening to exercise powers under Section 29 of the State Financial Corporation Act. In this process, the actual loan advanced by the appellants is stated to have been repaid and thus, the mortgaged loan agreement stood discharged. Some part of the real estate was transferred by sale deeds of 5th and 6th plaintiffs amounting to 10 acres. In the year 2001, the first plaintiff leased out 12 acres to M/s.Larsen and Toubro Limited. One acre together with two godowns ad-measuring 10000 sq.ft are stated to have been leased out by the 6th plaintiff to M/s. Paharpur Industries Limited for their godown purposes, while 1.5 acres of land and building measuring an extent of 6000 sq.ft was leased out to one M/s.Jayaram Shetty and Manivannan, apart from the land acquired by the Government of India for widening NH5. One acre of land was sold to one Mr.S.Radhakrishnan through a registered document.
29. The plaintiffs have alleged that despite all these transactions, the first defendant orally informed the 6th plaintiff that according to them, over Rs.2 crores was still outstanding. The health of the 6th plaintiff not being good to pursue the issue, whereafter the returns filed of the first plaintiff with the Registrar of Companies were found out through search and it was deciphered that the contesting defendants were claiming to be in absolute control and management of the first plaintiff contrary to what has been asserted by the remaining plaintiffs.
30. On the complaint being filed before the Commissioner of Police, the 6th defendant was arrested on 01.08.2004 and it is on the petition for his bail being filed that series of transactions of share certificates, transfer deeds, irrecoverable power of attorney, etc, which were alleged to be fraud, came to day light. The case of the plaintiffs is that only loan was supposed to be extended for clearing the dues of TIIC for which documents of title had been handed over and under the garb of same, various documents were executed and fraud played.
31. We have dealt with these facts in detail only to bring to light that the transaction in question is not the one of shareholding alone, but its origination is from purchase of property in auction. It is an intertwined transaction and certainly land transaction cannot form part of adjudication before the Company Law Board. It is not possible to disentangle and make transactions into two parts to be adjudicated by two different forums, apart from the fact that there would be also possibility of conflict of judgment arising in this case. In such nature of transaction, it cannot be said that the civil Court is not divested of the power to try such suit. We are thus of the view that on merits these two applications are liable to be dismissed.
32. We, thus, order as under:-
(i) Application Nos. 2887 & 2888 of 2012 filed before the learned single Judge stand dismissed on merits, but for the reasons set out by us, not on account of the reasons, as accorded in the impugned order.
(ii) The findings of concealment of facts and misrepresentation before the learned single Judge are set aside.
(iii) The costs of Rs.10,000/- imposed by the learned single Judge in each of the aforesaid applications are also set aside.
33. The appeals are thus disposed of in the aforesaid terms leaving the parties to bear their own costs.
Index:/No (S.K.K., CJ) (M.S.N.,J)
pv/- 15..09..2014
The Honble Chief Justice
and
M.Sathyanarayanan, J
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O.S.A.Nos.159 & 160 of 2012
Delivered on: 15..09..2014