2012 (9) TMI 422 - HC - Companies Law

Grievance of oppression and mismanagement u/s 397 and 398 - application for withdrawal of the proceedings - Held that - That a proceeding under Section 397 could not be equated with a civil suit where the learned Judge could not have any say if a plaintiff wants to withdraw his suit and a proceeding under Section 397 could not be withdrawn and/or dismissed merely at the whims of the parties. The resistance to allow withdrawal and/or dismissal must come from someone who had authority to resist the same. A non-party can only resist dismissal or withdrawal if he is able to show that continuance of the said proceeding would benefit him. In the instant case, Amita brought the action making allegation against the then management. After her death her sons sold off their shares. They categorically asserted before us that they were no more shareholders of the company - Status of Ajit is yet to be decided either in the proceeding under Section 111A or in his suit, thus in absence of such decision his prayer for substitution in case of original petitioners, could not be acceded to.

Summary

Issues Involved:
1. Withdrawal of Section 397 proceedings.
2. Authority of Sujit Chatterjee to represent the company.
3. Ajit's claim to be recognized as a shareholder and his application for substitution in the Section 397 proceedings.
4. Status of shares and past litigations involving the company and its shareholders.

Detailed Analysis:

1. Withdrawal of Section 397 Proceedings:
The primary issue was the withdrawal of the Section 397 proceedings initiated by Amita Sen alleging mismanagement and oppression. The proceedings were pending since 1985 and were sought to be withdrawn by Amita's sons in 2007. The application for withdrawal was dismissed as not pressed, leading to confusion about the status of the main proceedings. The court noted that the proceedings were kept pending without active steps from either party until 2006. The learned Single Judge dismissed the application for correction of the withdrawal order, expressing doubt about whether the main proceeding was indeed withdrawn.

2. Authority of Sujit Chatterjee to Represent the Company:
Ajit challenged the authority of Sujit Chatterjee to make an application on behalf of the company for the dismissal of the Section 397 proceedings. The learned Single Judge held that Sujit was duly authorized to make such an application. The court noted that Sujit had represented the company in earlier proceedings without objection from Ajit, who had benefited from the said affidavit. The court concluded that the challenge to Sujit's authority was not contemporaneously raised and thus could not be upheld.

3. Ajit's Claim to be Recognized as a Shareholder and His Application for Substitution:
Ajit claimed to be the beneficiary of 7,761 shares inherited from his parents and elder brother. He sought to be substituted in the Section 397 proceedings initiated by Amita Sen. The court held that Ajit could not be substituted as he was not yet recognized as a shareholder in the company's register. His application for rectification of the shareholders' register was pending before the Company Law Board. The court emphasized that Ajit's grievance was independent and could not be pursued through substitution in Amita's personal grievance proceedings.

4. Status of Shares and Past Litigations Involving the Company and Its Shareholders:
The court provided a detailed history of past litigations involving the company's shareholders, including suits filed by Maidhan Das Agarwal and his family members. These suits were primarily related to the ownership and transmission of shares. The court noted that Ajit's claim to shares was based on inheritance and deeds of gift, which were not contemporaneously submitted to the company. The court highlighted that Ajit's prayer for mutation and transmission of shares was pending consideration before the Company Law Board.

Orders:
The court referred to several orders relevant to the appeals, including:
- The order of status quo regarding shareholding dated June 21, 1985.
- The dismissal of the application for withdrawal of the Section 397 petition on April 12, 2007.
- The dismissal of Ajit's application for being added as a party and the application for correction of the order dated April 12, 2007, on March 11, 2010.
- The dismissal of appeals arising from these orders by the Division Bench on August 5, 2010, and September 22, 2011.
- The dismissal of the Section 397 proceedings by the learned Single Judge on July 5, 2011.

Summing Up:
The court concluded that the Sen family had virtual control of the tea estate, and the Agarwals, represented by Ajit, tried to intervene in the company's affairs. Ajit's prayer for mutation and transmission of shares was pending before the Company Law Board. The court held that Ajit could not be substituted in the Section 397 proceedings initiated by Amita Sen, as his grievance was independent and he was not yet recognized as a shareholder.

Present Status:
The company was under the control of the Gargs, and Ajit was yet to be recognized as a shareholder.

Contentions:
- Mr. Pratap Chatterjee argued that Ajit had an active interest in the company's affairs and the Section 397 proceedings could not be dismissed at the company's instance.
- Mr. Ratnanko Banerjee contended that Ajit's claim was delayed and his prayer for intervention could not be acceded.
- Mr. S.N. Mukherjee supported the company's position, arguing that Ajit's actions were not in the company's welfare.
- Mr. P.C. Sen and Mr. S.B. Mukherjee argued that Ajit had no locus standi to intervene in the Section 397 proceedings.

Result:
The court upheld the learned Single Judge's judgment and order, dismissing Ajit's appeals. The court directed that the observations made in the judgment should not prejudice Ajit's pending suit or proceedings before the Company Law Board.

Direction:
Urgent Xerox certified copy of the judgment was to be provided to the parties on their usual undertaking.