2014 (4) TMI 1213 - HC - Companies Law

Oppression and mismanagement - violation of the SEBI Act, Take Over Regulations, PFUTP and DIP Guidelines - Held that - The fact that some of the acts complained of may also violate the SEBI Act or Regulations made thereundere would not prevent the respondent from pursuing the remedies under Sections 397 and 398 of the Act. To hold otherwise would mean that the respondent has to elect whether he can complain against statutory violations under the SEBI Act or initiate proceedings under Sections 397-398 of the Act. The two proceedings as discussed are completely different in their nature and occupy a different and distinct jurisdictional field. Thus unable to accept that the two proceedings are mutually exclusive. Whether the proceedings filed by respondent no. 1 are an abuse of process of law? - Held that -Apart from the conclusion that the SEBI Act and the statutory regulations and guidelines framed thereunder have not been violated, it is doubtful whether any other observations made by SEBI would preclude respondent no.1 from ventilating his grievance before the CLB. The order dated 25.04.2012 passed by SAT seems to imply that respondent no.1 is at liberty to agitate all his grievances before the CLB. Even if it is assumed that any question raised before the CLB is concluded between the parties in proceedings before SEBI, the same would not prevent respondent no.1 from pursuing its petition before the CLB. It is not necessary for this Court to decide whether any grievance raised by respondent no.1 before the CLB is barred by the principles of issue estoppel and it will be open for the parties to place their contentions with respect to this aspect before the CLB. And, the CLB shall consider the same in accordance with law. The present appeal is dismissed as being devoid of any merit

Summary

Issues Involved:
1. Maintainability of proceedings before the Company Law Board (CLB) given the parallel proceedings before the Securities and Exchange Board of India (SEBI).
2. Allegations of mismanagement and oppression under Sections 397 and 398 of the Companies Act, 1956.
3. Jurisdictional overlap between SEBI and CLB.
4. Abuse of process of law and issue estoppel.

Issue-wise Detailed Analysis:

1. Maintainability of Proceedings Before CLB:
The appellant contended that the proceedings before the CLB were not maintainable as the grievances raised by respondent no.1 before SEBI were similar to those raised before the CLB. SEBI had already adjudicated on these grievances, and respondent no.1 was pursuing parallel proceedings, which was impermissible. The appellant argued that the petition before the CLB and the proceedings before SEBI (and the appeal pending before the Supreme Court) were parallel proceedings and, therefore, the petition before the CLB was not maintainable.

2. Allegations of Mismanagement and Oppression:
Respondent no.1 alleged that the issuance of 7,00,000 preferential warrants to the promoters was not to augment the company's long-term working capital but to increase the holding of the promoters. They claimed this was done to the exclusion of other shareholders and at a price below the market value, which was oppressive to minority shareholders and prejudicial to the company's interests. The petition before the CLB sought to declare the issuance of these warrants as null and void, alleging that the company's affairs were being conducted in a manner oppressive to minority shareholders.

3. Jurisdictional Overlap Between SEBI and CLB:
The court examined the scope of inquiry before SEBI and the CLB. SEBI adjudicated on statutory violations of the SEBI Act, Takeover Regulations, DIP Guidelines, and PFUTP Regulations. The CLB, however, dealt with issues of mismanagement and oppression under Sections 397 and 398 of the Companies Act, 1956. The court noted that the two proceedings were distinct in nature and occupied different jurisdictional fields. SEBI's role was to protect investors and ensure compliance with securities laws, while the CLB addressed the conduct of a company's affairs in terms of fairness and probity towards shareholders.

4. Abuse of Process of Law and Issue Estoppel:
The appellant argued that the proceedings before the CLB were an abuse of process as respondent no.1 had already raised similar issues before SEBI and SAT. The court, however, found that respondent no.1 had the right to pursue grievances regarding mismanagement and oppression before the CLB. The fact that SEBI had adjudicated on statutory violations did not preclude the CLB from examining the conduct of the company's affairs. The court also noted that the appellant had previously argued before SEBI and the High Court that the CLB was the appropriate forum for such disputes, and thus, the appellant could not now contend otherwise.

Conclusion:
The court concluded that the proceedings before the CLB were maintainable despite the parallel proceedings before SEBI. The issues of mismanagement and oppression raised before the CLB were distinct from the statutory violations adjudicated by SEBI. The court dismissed the appeal, directing that the CLB proceedings be concluded expeditiously within six months and imposed a cost of `5,000/- on the appellant.