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TMI Blog2012 (6) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 1956 ("the Act"), they challenge the judgment and order of the Company Law Board passed on October 19, 2009, in a proceeding initiated under sections 397, 398, 402, 403 and 406 of the Act. This petition was registered as C.P. No. 57 of 2004. In the petition, the petitioners have alleged/various illegal acts on the part of the existing management of the company, and the prayers of the petitioner centre around preventing the existing management from running the affairs of the company. Before the Company Law Board, the respondents contested the proceeding, and the main thrust of their defence was that the petition was filed with an oblique motive and this was a proxy war being fought on behalf of the members of the Birla family, referring to the industrial house known in the commercial world by their surname. There is an ongoing probate proceeding in connection with the estate of Priyamvada Devi Birla (PDB) in which some of the members of the Birla family and respondent No. 3 are involved as contesting parties. 2. In the judgment under appeal, along with the main petition, several other interlocutory applications were also considered and directions and orders have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders had no complaint. The qualitative issue never arose. As a matter of fact it could not have arisen at all in that case. The petitioners therein were employees of Shaw Wallace and the Employees Union had complained to the Government about the mismanagement in the company. The Government ordered an inspection and on the basis of the inspection report, while the employee shareholders filed a petition under section 397/398, the Government itself filed a petition under section 408. Since the petitioners therein were employees of the company itself, they had vital interest in ensuring better management in the company. Further, the petition was essentially one under section 398 and a large number of instances in the affairs of the company had been alleged as mismanagement. Insofar as the reliance of Shri Sarkar on Killick Nixon Ltd. v. Bank of India [1985] 57 Comp. Cas. 831 (Bom.), is concerned, it is to be noted that in that case, the transferor of the shares whose name continued in the register of members gave a power of attorney to the transferees to file a petition under section 397/398. A challenge was taken that the transferees, not being the members, had no personal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Sarkar argued that no court can enquire as to how the petitioners got qualification. I would have given some thought, if the petitioners had gathered or collected existing members to meet the qualification. However in the present case, 109 members were created, that too, by a single member, who himself had acquired shares only a few days before he transferred the shares to the consenters. Thus, it is quite obvious that a single shareholder became 109 shareholders. As a court of equity, this Board cannot shut its eyes when a person creates 100 members only to qualify to file a petition under section 397/398. While, as a proposition of law, I do not want to hold that there should be personal interest for the petitioners, yet, in the present case, the consenters do not have real interests in the affairs of the company as shareholders, but acquired shares only to lend their signatures to enable filing of this petition. Shri Datar relevantly referred to the judgment of the Supreme Court in J.P. Srivastava and Sons P. Ltd. v. Gwalior Sugar Co. Ltd. [2004] 122 Comp. Cas. 696 ; [2005] 1 SCC 172, wherein regarding section 399, the Supreme Court has observed (page 716) : 'The object of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares recently cannot voice any grievance relating to alleged acts of oppression/mismanagement in the past. These issues, I am of the view do not raise any point of law but have raised factual issues." 5. Two unreported decisions of this court have been referred to by learned counsel for the respondents, being Bansidhar Agarwalla & Co. Ltd. v. Smt. Malati Devi Agarwalla [A.P.O.T. No. 31 of 2007, A.C.O. No. 16 of 2007 decided on July 30, 2007] and Mayank Kocher v. CLB [2008] 143 Comp. Cas. 613/ 87 SCL 248 (Cal.) to contend that an appeal under the said provision of law can be dismissed at the initial stage itself. A decision of this court in the case of Bhagwati Developers(P.) Ltd. v. Peerless General Finance & Investment Co. Ltd. [2004] 51 SCL 204 /[2005] 128 Comp. Cas. 444., has been cited in support of the contention that finding of fact by the Company Law Board cannot be interfered with in an appeal under section 10F of the Act. 6. It is also the contention of the respondents that the applicants do not have sufficient stake to maintain the action. To sustain a petition alleging oppression and mismanagement, it has been argued that the applicants would have to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts enquiry on the preliminary issue of maintainability alone. As I have discussed in the earlier part of this order, the Board at the initial stage of the proceeding postponed adjudication on the maintainability point. The issues raised on different interlocutory applications were dealt with first in the judgment and the maintainability point was decided in the last part of the judgment. The judgment also addresses the questions on merit of the petition. 11. I accept the submission made on behalf of the respondents that preliminary issues which may strike at the root of a proceeding ought to be adjudicated first. The hon'ble Supreme Court in the cases of N.V. Srinivasa Murthy (supra) and T.K. Lathika (supra), has prescribed such a course, though the proceedings involved in those two cases were under different provisions of law. In this appeal, however, the respondents seek dismissal of the appeal at the threshold stage, before admission. I do not think this cannot be done under the law, but such a course can be adopted only in exceptional cases, where an outstanding case as regards ineligibility of the appellants is made out in maintaining the appeal, or otherwise some fundamental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan, i.e., his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same. 14. In view of the ratio of the decisions of the hon'ble Supreme Court in the cases of Sumitomo Heavy Industries (supra) and Daya Singh's case (supra) in my opinion, a judgment dismissing a similar petition solely on the ground of being mala fide might not have had warranted interference, except on the limited test of perversity. But has the Company Law Board applied the mala fide test alone in the petitioner's case ? 15. The term mala fide connotes ill motive or bad faith. In paragraph 19 of the judgment of the Company Law Board, to which I have referred to in the earlier part of this order, the Company Law Board itself has made a distinction between the expression "motive" and "qualitative aspect of a member". There is clear indication in this paragraph that it was upon consideration of quality of the applicant members of the company, the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection raised before admitting the appeal is rejected for this reason. The applicability of the judgments of the hon'ble Supreme Court in the cases of Rustom Cavasjee Cooper (supra) and Neptune Assurance Co. Ltd. (supra) in the factual context of this appeal would have to be considered only when the judgment is considered in greater detail, which, in my opinion would be the proper course in this appeal. 17. There is another ground on which I am inclined to reject the preliminary objection.: Section 10F of the Act permits a party aggrieved by an order of the Company Law Board to appeal before the High Court on any question of law. In the judgment under appeal, the Board decided the rights of the parties in different applications arising out of the main petition. The judgment also addresses the controversy on merit. If at this stage I dismiss the appeal only on the point of maintainability, the other issues which the Board decided on merit and in connection with the other applications would become res judicata between the parties, and if those issues are raised in any subsequent proceeding between the parties, it would not be possible for the aggrieved party to make out its case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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