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TMI Blog2013 (2) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as CLB) allowed the amendment application filed by respondent Nos. 1 and 2. 4. The appellants have formulated following questions of law in the Memorandum of Appeal which arise for consideration of this Court :- 1. Whether a company petition under section 397/398 of the Companies Act, 1956 which has become infructuous/does not survive/is dead, since the only alleged act complained of has come to an end, can be amended to introduce a completely new and fresh alleged cause of action ? 2. Whether a company petition under section 397/398 of the Companies Act, 1956 can be amended to introduce a completely new and fresh alleged cause of action ? 3. Whether after holding that the events sought to be introduced by an amendment are not subsequent events, but constitute a fresh cause of action, an amendment to a company petition under section 397/398 can be allowed to introduce such events ? 4. Where a company petition is instituted under section 397/398 of the Companies Act, 1956 on the premise that the board of directors of the company have convened an EOGM, whether an EOGM requisitioned by shareholders under section 169 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition No. 87 of 2010 seeking orders and direction under sections 397, 398, 402, 403 and 433(1) of the Companies Act, 1956. 9. According to the appellants, on or about 5th May, 2001, Kavasmaneck/Rebello Group including respondent Nos. 1 to 5 voted against a resolution inter alia resolving to revert to appellant no.1's original status i.e. private limited company, due to certain amendments in the Companies Act, 1956. As a result of the resolution having been defeated, appellant no.1 acquired the status of a public limited company and continues to remain a public limited company. 10. On or about 8th September, 2008 the respondent Nos. 1 and 2 unconditionally withdrew the said Company Petition 77 of 1990 and Respondent no. 7 and 8 herein continued the said petition. 11. On 14th November, 2008 the Company Petition No. 77 of 1990 was dismissed by a judgment and order of this Court. The said order remains unchallenged and has become final and binding and conclusively holds that Appellant no. 1 is a public company and its shares are freely transferable. The said order and judgment not only binds Respondent no. 4 and 5, but also binds the Appellant and Respondent No. 1 and 2 herein. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21. On 12th November, 2010, the EOGM of appellant no.1 was held on 12th November, 2010 but was adjourned to 10th December, 2010 in view of the pending appeal No.2 of 2011. 22. On 9th December, 2011, the appellant no.1 thereafter also issued a circular dated 9th December, 2010 and intimated its shareholders that the said EOGM was being adjourned in view of the pending proceeding in relation to the same (i.e. Company Appeal No.2 of 2011) and would be held within a period of 2 months for which fresh notice would be issued. 23. Thereafter the Company Appeal No.2 of 2011 was tagged along with Company Appeal No. 24 of 2010 for hearing and was heard together. 24. On 14th June, 2011 this Court by its judgment and order dated 14th June, 2011 dismissed the said Company Appeal No. 24 of 2010 and held inter alia that appellant no.1 is a public company and that Article 57 of the Articles of Association is unenforceable. The said order however continued an injunction granted at an ad-interim stage of the appeal with certain modification whereby appellant Nos. 2 and 3 are restrained from selling, transferring, alienating, pleading, encumbering or in any manner creating any third party right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny subsequent date for considering the resolutions mentioned in the notice dated 25th April, 2012. 30. On 21st May, 2012, the CLB by its ad-interim order dated 21st May, 2012 permitted the appellants to hold the EOGM on 22nd May, 2012 but restrained the respondents from implementing the resolution, if passed till further orders in the said Company Application. 31. On 22nd May, 2012, the EOGM was conducted on 22nd May, 2012 and the resolution for the deletion of Article 57 from the Articles of Association of the appellant no.1 was passed. 32. In the year 2012, the appellant no.1 thereafter filed a Company Application No. 85 of 2012 in Company Petition No. 87 of 2010 for seeking a vacation/modification of the ad-interim order dated 21st May, 2012. 33. In June 2012, the respondent Nos. 1 and 2 filed a further Company Application No. 91 of 2012 to further amend Company Petition No. 87 of 2010 with a view to introduce inter alia a challenge to the conduct of the EOGM dated 22nd May, 2012 and to seek an injunction against the appellants restraining them from implementing the resolution dated 22nd May, 2012, deleting article 57 from the Articles of Association of appellant no.1. 34. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to amend the Company Petition No. 87 of 2010 by introducing certain averments. 43. Mr. Subramanian, the learned senior counsel appearing for the appellants made the following submissions :- (a) Company Petition (87 of 2010) filed by the respondent no.2 under sections 397 and 398 of the Companies Act, 1956 itself became infructuous. The said petition was filed to prevent holding of EOGM on 12th November, 2010 called by notice dated 16th October, 2010 by the appellants under Article 76 of the Articles of Association read with Section 28 and in compliance with the provisions of sections 171 to 173 of the Companies Act, 1956. This court in Company Appeal (2 of 2011) passed an order dated 10th November, 2010 that the resolution passed at the EOGM shall not be implemented. The appellant adjourned the meeting and informed the shareholders that fresh notice would be given if the EOGM was to be held later. The appellants did not hold any EOGM called by the company by notice issued on 16th October, 2010. This court passed an order dated 8th August, 2011 allowing the prayers of respondent nos. 1 and 2 to withdraw the Company Appeal (2 of 2011) in view of appellants' adjourning the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel placed reliance upon portion of the judgment of this court in case of Sitaram Krishna Padhye v. Chimandas Fathechand 1928 (30) Bombay Law Reporter 1300 which reads thus :- "..........We have, now been asked at this late stage to allow an amendment which would have the effect of introducing not only the evidence which has been already given, which in my judgment; for the reasons already given by me was wholly inadmissible, but which might also allow the amending party to introduce other evidence hereafter if a new trial were granted. In my opinion such an amendment would raise a cause of action entirely different from the cause of action arising upon the hundis sued upon in the present suit, Accordingly it seems to me that in such circumstances an amendment ought to be refused, even upon the terms of the party asking for the amendment paying the whole of the costs thrown away. In a case where an entirely different cause of action is raised, I think that the proper course is to leave the party to bring a fresh suit ab initio, if so advised." 45. Dr. Saraf, the learned counsel appearing for respondent nos. 7 and 8 supported the appellants in impugning the order passed by the CLB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f they have any grievance as directors of a company, such grievance cannot form the subject-matter of a petition under section 397 and/or section 398 of the Companies Act. It is undoubtedly correct that petitions under section 397 deal with applications by members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. Similarly, section 398 deals with applications by members of the company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company or that a material change has taken place in the management or control of the company and by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. These are all applications by members. In the case of Lundie Brothers Ltd., In re, a petitioner, who was one of three directors and shareholders in a private company, presented a petition for relief under section 210 of the English Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "6. Mr. Chinoy who appeared for respondents Nos. 1, 2 and 4 to oppose the amendments, stated that he had no objection to respondents Nos. 6, 7 and 8 being added as party-respondents to the Company Petition No. 573 of 1984. He, however, submitted that rest of the amendments should not be allowed because, according to him, these amendments deal with the events subsequent to the filing of Company Petition No. 573 of 1984. It is his contention that such subsequent events cannot be gone into in deciding a Company petition under sections 397 and 398 of the Companies Act. In support he relied upon a decision in the case of Rajamundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao reported in A.I.R. 1956 S.C. 213. In this case the applicants had obtained the consent of not less than 1/10th of the members of the Company while filing a petition under sections 397 and 398 of the Companies Act. After the petition was presented some of the shareholders withdrew their consent. The Court held that this subsequent withdrawal of consent is not relevant if the petition had the support of the requisite number of members at the time when the petition was presented. This case does not support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which incorporates subsequent events if the amendment is otherwise necessary for proper determination of issues between the parties. In the case of Promode Kumar Mittal v. Southern Steel Ltd., reported in the Calcutta High Court observed in a petition under sections 397 and 398 of the Companies Act that the Court can take notice of all subsequent events to grant reliefs finally after trial in a company matter and the interim orders passed from time to time by the Court in all applications, the meetings held under the Chairman appointed by the Court, and the resolutions passed by majority shareholders and directors present therein are all relevant. In the case of Inder Kumar Jain v. Osra Bottling Co. (P.) Ltd., reported in the Delhi High Court has held that on an analogy of Order VI, Rule 17 of the Code of Civil Procedure, the High Court has power to grant leave to amend a pleading in a petition under section 397 or 398 of the Companies Act, 1956 for relief against mismanagement or oppression in the affairs of a Company. In the case of Bastar Transport and Trading Co. v. Court of Wards, reported in the Court has held that the provisions of the Code of Civil Procedure, so far as ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposition of law that whilst exercising powers under Order 7, Rule 11 the courts act with utmost caution. Dismissal of a petition at the threshold leads to very serious consequences. The courts in India as well as in England have been very reluctant to reject the plaint at the threshold. Order VII, Rule 11 (a) of the C.P.C. provides that the Court may reject the plaint/petition if it discloses no cause of action. Similar provision occurring in Rules of Supreme Court Order 18, Rule 19 in England was considered in the case of (Drummond-Jackson v. British Medical Association and others), 1970 All. E.R. 1094 wherein Lord Pearson observes as follows: "Over a long period of years it has been firmly established by many authorities that the power to strike out a statement of claim as disclosing no reasonable cause of action is a summary power which should be exercised only in plain and obvious cases.........." Similar views expressed by other Judges are also noticed in that judgment which are as follows. "In Nagle v. Feilden, 1966 (1) All. E.R. at page 695 Danckwerts, L.J., observes: "The summary remedy which has been applied to this action is one which is only to be applied in plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. On the other hand it has been pleaded as well as argued that the shares have to be sold only to the members in order to maintain the principle of proportionality which was the underlying idea of the incorporation of the Company. 17. Keeping the aforesaid facts and circumstances in view, it would not be possible for this Court to hold that the petition is demurrable. Once the petition is held to be maintainable, the petitioners are entitled to bring on record all matters which are germane to decide the issue of oppression. The Orissa High Court in the case of M/s. Kalinga Tubes Ltd. and others v. Shanti Prasad Jain and others, framed various issues in paragraph 7 of the judgment. Issue No. 1 was as follows: "(i) Is the petition demurrable and liable to dismissal in limine?" The Division Bench noticed the submissions in paragraph 8 of the judgment made by the learned Attorney-General to the effect that the petition does not make out a case under sections 397 and 398 of the Act and the petitioner could not be permitted to supplement the allegation by subsequent affidavits filed. It is noted by the Division Bench that the petition was filed on 14th September, 1960. The Company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent affidavits are more or less pieces of evidence in support of the averments of material facts pleaded in the petition. Respondent 2 also filed a subsequent affidavit, as already stated, even without permission of the Court. Most of the subsequent affidavits merely place facts already pleaded by both parties. The subsequent affidavits would, therefore, be taken into consideration, but facts transpiring subsequent to the petition would be excluded from consideration." Thus the two affidavits were treated as pieces of evidence in support of the averments of material facts pleaded in the petition. The two affidavits were, therefore, taken into consideration excepting the facts transpiring subsequent to the petition but the subsequent events were excluded only for the purpose of deciding the question of whether the petition is demurrable. I am of the opinion that once the Court comes to the conclusion that the petition is maintainable then subsequent events can also be considered in order to do complete justice between the parties and to make appropriate orders for removing the oppression. 18. The aforesaid judgment of the Division Bench was taken to the Supreme Court by way of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner to amend the Petition No. 62 of 1986 on 3rd September, 1993. The proposed amendment was for challenging Resolution dated 10th November, 1992 and the issue of prospectus dated 24th August, 1993. This was clearly a case of bringing subsequent events on the record in order to establish the facts already pleaded in the petition. 19. The learned Single Judge of the Gujarat High Court noticed the judgment of the Madras High Court in the case of S. Narayanan and others v. Century Flour Mills Ltd. and others, 1987 (1) Com. L.J. 25. In that case section 397 of the Act was being considered by the Madras High Court. Certain transactions had taken place subsequent to the filing of the petition which was sought to be brought on record by amendment. It was submitted that the subsequent allegations cannot be looked into nor are the applicants entitled to rely upon them. While repelling the said submissions, the Court observed as follows:- "Section 397 provides that any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members may apply to the Court for an order und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 26 of 1993 to 30 of 1993 with Civil Application Nos. 54 of 1993 to 58 of 1993. The Appeal was decided by a Division Bench consisting of G.T. Nanavati & B.C. Patel, JJ. The Division Bench whilst upholding the judgment of the learned Single Judge noticed the submissions made before the learned Single Judge to the effect that the facts and events which are sought to be introduced as additional facts and grounds establishing the mismanagement and oppression are already made in the petition. It was also averred that the amendments seek to bring events which have transpired recently i.e. subsequent to the filing of the petition and which have a necessary and direct bearing on the manner in which respondent Nos. 2 and 3 have and are continuing to mismanage the company and oppress its shareholders. It was also submitted that the amendment was on the same subject matter and the amendment was also with a view to avoid multiplicity of proceedings. It was further contended that the new events indicating a fresh cause of action for filing a new petition would not come in the way of the petitioner in getting the petition amended as the same was meant for supplementing the main contention. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring to the judgment of this Court in the case of Khimji M. Shah (supra). The Division Bench also held that it is necessary that with a view to see that there is no multiplicity of proceedings, amendments should be allowed. The aforesaid decisions of the Division Bench makes it clear that the decision of the Supreme Court in Kalinga was not dealing with the case of amendment application and is, therefore, not applicable to the facts and circumstances of this case. 21. At this stage the Court is not required to decide the petition on merits. The petition could be held to be demurrable only if the claim put forward cannot be established even if all the allegations made in the petition are accepted to be true. Such is not the position here. Very complicated questions of fact and law have been raised. It is only at the final hearing of the petition that the Court would be able to decide this issues as to whether the dividend squeeze could amount to an oppression. The Court would also have to decide as to whether or not transfer of shares made in contravention of the Articles of Association would amount to an act of oppression. The Court would also have to decide as to whether or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uance of permanent prohibitory injunction and which is pending. In order to avoid multiplicity of suits it would be a sound exercise of discretion to permit the relief of declaration of title and recovery of possession being sought for in the pending suit. The plaintiff has alleged the cause of action for the reliefs now sought to be added as having arisen to him during the pendency of the suit. The merits of the averments sought to be incorporated by way of amendment are not to be judged at the stage of allowing prayer for amendment. However, the defendant is right in submitting that if he has already perfected his title by way of adverse possession then the right so accrued should not be allowed to be defeated by permitting an amendment and seeking a new relief which would relate back to the date of the suit and thereby depriving the defendant of the advantage accrued to him by lapse of time, by excluding a period of about 11 years in calculating the period of prescriptive title claimed to have been earned by the defendant. The interest of the defendant can be protected by directing that so far as the reliefs of declaration of title and recovery of possession, now sought for, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this stage of considering the application for amendment of the CP for incorporation of certain events which according to the respondents, and rightly so contended, are not subsequent to the date of filing of the CP but are fresh cause of action but are hereby allowed for determination of the issues between the parties and for the purpose of framing the reliefs to avoid multiplicity of litigation, the proposed amendment, it is noted would not constitutionally or fundamentally change the nature and character of the Petitioner's case in the Company Petition, it is noted that no prejudice would be caused to the Respondents if the amendments are allowed, for proper effective and just adjudication of the matter. The Applicants are allowed to file the amended CP within three weeks. The Respondents are allowed to file Counter Affidavits within three weeks of receipt of the amended CP. Rejoinder within three weeks thereafter. 50. I have heard the learned counsel and have given my anxious consideration to the rival submissions made by the learned counsel. 51. On perusal of the impugned order passed by the CLB allowing company application (73 of 2012) filed by respondent nos. 1 to 3 seeki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant are distinguishable in the facts of this case. In the application for amendment, the applicants had pleaded that the acts complained of which were sought to be brought on record by amendment were further acts of oppression and mismanagement which allegations would have to be gone into in the company petition on its own merits. 52. The respondent nos. 1 to 3 have impugned the order dated 13th August, 2012 passed by the CLB thereby vacating and modifying the ad interim order dated 21st May, 2012 and thereby allowing the company application filed by the respondent nos. 1 and 2 by filing company appeal (L) (41 of 2012) which appeal was heard along with the present appeal and is being disposed of by the separate order and judgment simultaneously. While arguing the said appeal, both the parties have already made their rival submissions in respect of all the issues which were raised not only in the Company Application No. 85 of 2012 but also in Company Application No. 73 of 2012 which was filed by respondent nos. 1, 2 and 3 herein. The learned senior counsel Mr. Samdani appearing for respondent nos. 1 to 3 herein had submitted that in view of the submissions made by both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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