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2014 (1) TMI 634 - HC - Companies LawDismissal of petition under Section 397/ 398 - Oppression and mismanagement - Non-disclosure of any fresh cause of action - Whether the CLB was justified in rejecting the company petition on the ground that it did not disclose any fresh cause of action within the meaning of Order VII Rule 11 of the CPC - Held that - CLB cannot dismiss a petition under Section 397/ 398 of the Act as not maintainable unless the petition raises issues which are absolutely unarguable or frivolous or in a case where the petition does not disclose the satisfaction of the basic requirements of these sections - It should be the effort of the CLB to bring to an end all matters complained of and towards this end the CLB is empowered to make such order as it thinks fit. It is the interest of the company that is the paramount consideration under Section 397/ 398. Therefore the permission granted by the CLB to the petitioners to withdraw the petition and file a fresh petition on a fresh cause of action should not be viewed on the basis of the parameters for a strict implementation of Order VII Rule 11 (a) of the CPC. It should be looked at more as a substantive compliance particularly when the fresh petition did not abandon or omit the earlier cause of action but merely added one more cause of action namely the expiry of the lock-in period on 20.12.2012. Obviously it was during the pendency of the first petition that the lock-in period expired. The expiry of the lock-in period undoubtedly facilitated a possible arrangement under which the CLB could direct either party to acquire the shares of the other party. The expiry of the lock-in period could have even been brought to the notice of the CLB in the course of the oral submissions made before the CLB. The withdrawal of the first petition might even have been prompted by the discovery in the course of the argument before the CLB on 14.01.2013 that the lock-in period had expired - though the provisions of the CPC are not applicable to CLB there is no prohibition in applying the principles evolved in the CPC. There can be no quarrel with such an argument subject to the caveat that the well recognised principles embedded in the elaborate provisions of the CPC can be invoked to the proceedings before the CLB with a view to suppressing the mischief and advancing the cause of justice. This seems to be the purpose of Regulation 44 of the CLB Regulations. CLB in the present case was not justified in any manner in throwing out the fresh petition on the basis of the principle behind Order VII Rule 11(a). In addition to the reasons which I have earlier given on the basis of the vast powers conferred upon the CLB in petitions complaining of oppression and mis-management and the expectation of the Companies Act that the disputes arising out of acts of oppression and mis-management should be effectively put an end to by the CLB I would add that the principle embedded in Order VII Rule 11(a) ought not to have been invoked in the present case to defeat the right of the appellants to the remedy against acts of oppression and mis-management allegedly committed by the respondent without even examining the petition on merits. It is difficult to visualise the possibility of such an opinion being formed by the CLB without examining the acts of the oppression and mis-management complained of or without inquiring into the question whether there is substance in the complaint or not. The CLB not only has to form such an opinion but shall further pass such order as it thinks fit with a view to bringing to an end the matters complained of. It needs no emphasis that the interests of the company are paramount in moulding the relief and the remedy under Section 397 is an alternative to winding-up. A company is a corporate personality and is normally promoted to foster economic growth of the country. Its proper functioning is therefore essential for the economic strength of the country. The provisions of Section 397 and 398 are a step towards ensuring that companies formed for this purpose do not get derailed because of lack of probity or merely because of egoistic disputes between the men behind the company. Rejection of the petition filed under Section 397/ 398 of the Act on a technical or a preliminary ground leaves the disputes unsettled which goes against the mandate of the provision. Though the appellant s petition before the CLB was dismissed as not maintainable for not disclosing a fresh cause of action the petition filed by the respondents before the CLB in C.P. No.24(ND)/2013 also under Sections 397 and 398 of the Act complaining of acts of oppression and mis-management against the appellants is still stated to be pending before the CLB pursuant to an order passed by the CLB on 19.02.2013. On this date the CLB passed an order for listing the petition filed by the respondents herein along with the fresh petition filed by the appellants before the CLB. However the fresh petition filed by the appellants was dismissed though the petition filed by the respondents was adjourned and is kept pending. When both the petitions were initially directed to be listed together for hearing it would have been just and equitable that the mutual allegations were examined and an opinion was formed as to whether the affairs of the company were being conducted in a manner prejudicial to public interest or oppressive to any member or members and it was eminently desirable that the CLB passed an order with a view to bringing to an end the matters complained of. Taking up both the petitions together for hearing would have given an opportunity to the CLB to see the points of view of both the sides in order to arrive at a just decision. Therefore impugned order passed by the CLB should be set-aside. I hold accordingly and remand the matter to the CLB which will now deal with the petitions filed by the appellants herein under Section 397 and 398 and dispose them of on merits and in accordance with law - Decided in favour of Petitioner.
Issues Involved:
1. Maintainability of the petition filed by majority shareholders. 2. Applicability of Order VII, Rule 11 of the Code of Civil Procedure (CPC) to the proceedings before the Company Law Board (CLB). 3. Requirement of a fresh cause of action for filing a new petition after withdrawal of the previous one. 4. Examination of the merits of the allegations of oppression and mismanagement. Detailed Analysis: 1. Maintainability of the Petition Filed by Majority Shareholders: The first issue was whether a petition under Sections 397 and 398 of the Companies Act, 1956, could be filed by majority shareholders. The respondents argued that the petition was not maintainable as it was filed by shareholders holding 65% of the share capital. The appellants contended that the only requirement under Section 399 is that the petitioners hold at least 1/10th of the issued share capital. The court referred to several judgments, including Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. and Dr. V. Sebastian v. City Hospital (P.) Ltd., which held that even majority shareholders could file such petitions if they meet the conditions of Section 399. The court concluded that the petition was maintainable as the appellants satisfied the requisite shareholding condition. 2. Applicability of Order VII, Rule 11 of the CPC to Proceedings Before the CLB: The second issue was whether the provisions of the CPC, specifically Order VII, Rule 11, were applicable to the proceedings before the CLB. The court noted that specialized tribunals like the CLB are not strictly bound by the CPC and can regulate their own procedures. Section 10E(4C) of the Companies Act and the Company Law Board Regulations, 1991, allow the CLB to exercise certain powers of the CPC. However, the court emphasized that the CLB should be cautious in dismissing petitions on technical grounds and should focus on substantive justice. The court cited several judgments, including Union of India v. Madras Bar Association, to support the view that the strict provisions of the CPC do not apply to specialized tribunals. 3. Requirement of a Fresh Cause of Action: The third issue was whether the fresh petition filed by the appellants disclosed a fresh cause of action as required under Order VII, Rule 11 of the CPC. The CLB had dismissed the fresh petition on the ground that it did not disclose any new cause of action. The court observed that the fresh petition included additional facts, such as the expiry of the lock-in period, which were relevant to the case. The court held that the fresh petition was essentially a continuation of the earlier petition with additional facts and should not have been dismissed on technical grounds. The court emphasized that acts of oppression and mismanagement should be viewed as a continuous story and not dissected into separate causes of action. 4. Examination of the Merits of the Allegations: The fourth issue was whether the CLB had properly examined the merits of the allegations of oppression and mismanagement. The court noted that the CLB had dismissed the petition without thoroughly examining the allegations. The court cited the judgment in Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd., which held that petitions under Sections 397 and 398 should not be dismissed in limine on technical grounds. The court concluded that the CLB should have examined the merits of the allegations and made a decision based on substantive justice. Conclusion: The court set aside the impugned order of the CLB dated 13.03.2013, which had dismissed the fresh petition filed by the appellants. The matter was remanded to the CLB to be dealt with on merits and in accordance with the law. The court also suggested that the cross-petition filed by the respondents should be heard along with the petition filed by the appellants. The appeal was allowed with no order as to costs.
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