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2013 (10) TMI 336 - HC - Companies LawMaintability of appeal - Whether the petitioner (ITNL) before the CLB was a member of the SPV so that it can maintain an action under sections 111A, 397, 398 read with sections 402 and 403 of the Act - Held that - ITNL also gave two bank guarantees amounting to app. Rs. 20 crores. The finding of the CLB that Mukund Sapre did not attend the board meetings because there was no background material/documentation supplied with regard to them and also the finding that the petitioner before it had sent a specific request to include the item relating to the allotment of shares in the agenda for the meeting to be held on 20-8-2012 are findings of fact; they are not challenged on the ground of perversity. The learned counsel for the appellants placed reliance on the judgment of the Supreme Court in Chatterjee Petrochem (I) Pvt. Ltd. vs. Haldia Petrochemicals (2011 (9) TMI 842 - SUPREME COURT OF INDIA). Non-allotment of shares in that case was on account of the fact that theperson who claimed to be a member did not attend the meeting. That single fact alone cannot turn the present case. All the facts, including the conduct of the company in treating the person as a member/shareholder, the entries made in the balance-sheet, the reasons for not attending the meeting in which the shares were to be allotted, whether there was any clear and unambiguous abandonment of the claim and similar such facts have to be cumulatively considered; the inference or conclusion would depend upon the facts and circumstances and the conduct of the parties in each case. It would be unsafe to match the colour of one case with that of the other indiscriminately - CLB was right in its view that ITNL was a member for the purpose of maintaining an action under sections 111A, 397 and 398, 399 read with sections 402 and 403 of the Companies Act. Oppression and mismanagement - Rectification of the register of members - Held that - a complicated matter involving serious questions such as fraud or malpractice, manipulation of accounts and finances, etc., requiring detailed investigation and production of elaborate evidence, would be more appropriately tried and decided by a Court of law and not by an arbitrator. It is submitted that there are serious manipulations committed by the appellants such as siphoning off the monies from the SPV to RAHI, back dating board resolutions, fabrication of board resolutions, etc. and in such a situation it would be more appropriate if the CLB decides the matter and not the arbitrator. This argument would arise for consideration only if there was a provision for arbitration of the dispute and it is a question of balancing which course to pursue whether to pursue the dispute in the Court or the CLB, or to go before the arbitrator. Such a situation does not arise on the facts of the present case and, therefore, this argument need not be addressed by me. In the present case, the petition is pending decision before the CLB in which all these allegations will have to per force be examined. Moreover, proceedings under Section 11 of the Arbitration and Conciliation Act are stated to be pending before this Court and, therefore, it would not be appropriate to say anything more with reference to this argument - Appeal dismissed.
Issues Involved:
1. Maintainability of the petition under Sections 111A, 397, 398, 402, and 403 of the Companies Act, 1956. 2. Status of ITNL as a "member" of the SPV. 3. Allegations of mismanagement and oppression by Umesh Kumar Baveja. 4. Applicability of the arbitration clause in the SSA. 5. Combined petition under Sections 111A and 397-398. 6. Interim relief granted by the Company Law Board (CLB). Detailed Analysis: 1. Maintainability of the Petition: The appellants contended that the CLB erred in holding that the petition was maintainable, arguing that ITNL was not a "member" of the SPV within the meaning of Section 41(2) of the Companies Act. The respondents argued that the petition was maintainable under clause 123 of the articles of association, which granted ITNL the right to carry out an internal audit. 2. Status of ITNL as a "Member": The CLB concluded that ITNL was a member of the SPV based on several factors: - ITNL invested Rs. 20 crores to acquire 40% equity in the SPV, which was shown as "share application money pending allotment" in the balance sheet. - ITNL's nominees were on the board of the SPV. - ITNL made specific requests for the allotment of shares, indicating their intent to be recognized as shareholders. The High Court upheld the CLB's view, citing the judgment in Gulabrai Kalidas Naik and Ors. Vs. Laxmidas Lallubhai Patel and Ors., which recognized that a person with an undisputable and unchallengeable title to membership can maintain a petition under Sections 397 and 398 even if not formally entered in the register of members. 3. Allegations of Mismanagement and Oppression: ITNL alleged that Umesh Kumar Baveja acted in a manner prejudicial to ITNL's interests, including: - Violations of the articles of association. - Siphoning off funds of the SPV by entering into transactions with related parties. - Not allotting shares to ITNL despite their investment. - Misappropriation of funds and lack of transparency in financial dealings. The CLB directed an audit at ITNL's cost and ordered the SPV to provide financial statements and accounts for inspection. 4. Applicability of the Arbitration Clause: The appellants argued that the arbitration clause in the SSA should prevail, and the matter should be referred to arbitration. However, the respondents contended that the articles of association, which did not contain an arbitration clause, governed the relationship between the parties. The High Court held that the articles of association, which were amended and did not include an arbitration clause, governed the relationship. Therefore, the arbitration clause in the SSA was not applicable. 5. Combined Petition under Sections 111A and 397-398: The appellants argued that a combined petition under Sections 111A and 397-398 was not maintainable. The High Court referred to the judgment in Charanjit Khanna and Ors. vs. Khanna Paper Mills and Ors., which held that a composite petition is maintainable if the issue of maintainability is intertwined with the allegations of oppression and mismanagement. The High Court noted that the real grievance was based on article 123 of the articles of association, which empowered the parties to appoint internal auditors. Therefore, the combined petition was maintainable. 6. Interim Relief Granted by the CLB: The CLB's interim order directed the SPV to provide an audit at ITNL's cost and allow inspection of financial statements. The High Court upheld this order, noting that the respondents' right to appoint an internal auditor was granted under clause 123 of the articles of association. Conclusion: The High Court dismissed the appeal, upholding the CLB's orders. It concluded that ITNL was a "member" for the purpose of maintaining an action under Sections 111A, 397, and 398, and that the combined petition was maintainable. The arbitration clause in the SSA did not apply, and the interim relief granted by the CLB was justified. The stay order was vacated, and the appeal was dismissed with no order as to costs.
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