2017 (3) TMI 1897 - SC - Companies Law

Maintainability of petition - Oppression and Mismanagement - lifting of Corporate Veil - HELD THAT - The appellant shall have the right to take all points including the point of tearing of the corporate veil so far as the Section 397/398 Petition is concerned. Further, the subsidiary companies against whom the appellant has not made any allegations in the Petition and no relief has been sought for against need not be added as parties. However, Respondent Nos. 8, 9, 13, 14, 16, 17 and 18 and Respondent Nos. 4 and 7 should be added as parties and the appellant shall be at liberty to argue on the grounds in the said Petition and the prayer regarding the alleged mis-management of the companies in question in case the corporate veil is lifted. The Section 397/398 Petition is maintainable as the appellant holds 10% of the share capital in the holding company. Appeal disposed off.

Summary

Issues:
1. Jurisdiction of National Company Law Tribunal in corporate disputes.
2. Maintainability of Section 397/398 Petition.
3. Treatment of subsidiary companies in the Petition.
4. Correct interpretation of the Companies Act, 1956.

Jurisdiction of National Company Law Tribunal:
The Supreme Court, comprising Hon'ble Mr. Justice Pinaki Chandra Ghose and Hon'ble Mr. Justice Rohinton Fali Nariman, granted leave and decided to refer the disputes to the National Company Law Tribunal. The Court emphasized that the Tribunal should handle the case independently and in accordance with the law, without being influenced by any observations made by the High Court.

Maintainability of Section 397/398 Petition:
The appellant was granted the right to raise all points, including the tearing of the corporate veil, in the Section 397/398 Petition. The Court held that the Petition was maintainable as the appellant held 10% of the share capital in the holding company. It was clarified that the High Court's decision to treat the Company Petition under Section 397/398 and not Section 235 of the Companies Act, 1956, was upheld.

Treatment of subsidiary companies:
The Court ruled that the subsidiary companies against whom no allegations were made in the Petition need not be added as parties. However, specific subsidiary companies and certain respondents were directed to be added as parties. The Court highlighted that if the corporate veil is lifted, the holding and subsidiary companies would be considered as one entity for the purpose of granting relief in the Petition.

Correct interpretation of the Companies Act, 1956:
The Supreme Court clarified that the High Court's decision regarding the treatment of the Company Petition under Section 397/398 and not Section 235 of the Companies Act, 1956, was correct. The judgment upheld the view that the subsidiary companies should not be struck from the array of parties, as they would be regarded as one entity if the corporate veil is lifted. The Appeals were disposed of with these terms.