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TMI Blog2014 (1) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... tap group, came to hold 65% and the respondents, the Jhankar group, came to hold 35% of the shares in the company. The board of directors consisted of 5 directors nominated by the Gurpartap group and 3 directors nominated by the Jhankar group. Upto the year 2010, the affairs of the company were running smoothly. Sometime early in the year 2011, it appears that disputes over the functioning of the company and the conduct of its business arose between the two groups. There were allegations and rebuttals that the respondents were trying to entice away the clientele of the company to their concern, Jhankar Banquets, which was operating opposite to the company and thereby causing loss. It was also alleged by Gurpartap group that the Jhankar group was acting to the detriment of the company's business. 3. In the above situation, the Gurpartap group, the appellants herein, filed a petition before the Company Law Board (CLB) in C.P. No. 101(ND)/2012 under sections 397-398 of the Act alleging oppression and mismanagement and sought reliefs by way of permanent injunction against the Jhankar group (i) from diverting the business of the company to their own business and (ii) from acting contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is with reference to the filing of the fresh Company Petition u/s 397-398 read with Section 402 of the Companies Act, 1956 in the above said matter, a copy of which is enclosed herewith. Kindly note that earlier Company Petition being C.P. No.101(ND) of 2012 was filed before the Ho'ble Bench u/s 397-398 read with Section 402 of the Companies Act, 1956. The last date of hearing in the said petition was 14.01.2013 and the next date of hearing in the matter is 16th January, 2012. The Petitioners would like to withdraw the said Company Petition i.e. 101 (ND) of 2012, which is pending before the Hon'ble Bench and coming up for hearing on 16th January, 2013 and would seek a liberty to file the fresh company petition before the Hon'ble Bench. The Petitioners would serve the present company petition along with its annexures on the Respondents on 16th January, 2013 i.e. the next date of hearing fixed in the said C.P. No.101(ND) of 2012 on which date the Petitioners are proposed to withdraw the said C.P. No.101(ND) of 2012 and will serve the company petition to the Respondents. Take notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.101(ND)/2013 was withdrawn by the petitioner on 16.01.2013 with liberty to file a fresh petition on a "fresh cause of action". The petition filed thereafter in CP No. 7(ND)/2013 does not disclose any fresh cause of action, which it must, under Order VII, Rule 11 of the CPC. (b) The fresh petition does not disclose any fresh cause of action. The averments in paragraphs 6.1 to 6.50 and 6.55 to 6.64 are identical with the averments in the earlier petition which was withdrawn. In fact, the fresh petition was signed and filed on 15.01.2013, even before the withdrawal of the earlier petition on 16.01.2013. (c) The petitioners being in control and management of the company by virtue of their majority shareholding "have failed to substantiate any oppressive act by the minority, i.e., the Respondents or to satisfy on the existence of a situation justifying winding up of R-1 company. Therefore on both counts the application under section 397, 398, 402 of the Companies Act must fail as held in S.P. Jain v. Kalinga Tubes Ltd. (1965) 2 SCR 720. (d) It can be said "with absolute certainty that after the withdrawal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or technical grounds. In the present case there are two preliminary or technical grounds on which the company petition filed by the appellants herein before the CLB was dismissed. The first is that the petition was not maintainable since it was filed by the majority shareholders who held 65% of the total shareholding in the company. The argument on behalf of the appellants on this point was that so long as the requisite conditions of Section 399 are satisfied, the petition should be held maintainable even if it is filed by shareholders having a majority shareholding. Section 399 specifies the members of a company who shall have the right to apply under Section 397 or Section 398. Clause (a) of sub-section (1) of the Section provides that in the case of a company having a share capital not less than 100 members of the company or not less than 1/10th of the total number of its members whichever is less or any member or members holding not less than 1/10th of the issued share capital of the company may apply. The company involved in the present case being a company having a share capital, it is open to any member or members holding at least 1/10th of the issued capital to approach t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one of complaint by a minority and the court was not called upon to go into the question as to whether a majority which had been paralysed by the wrongful acts of a minority could seek the protection of the court under that section. Indeed, speaking of Section 397 read with Section 399 the court observed "it gives a right to members of a company who comply with the conditions of Section 399 to apply to the court for relief under Section 402 of the Act or such other reliefs as may be suitable in the circumstances of the case if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying." This quotation goes to show that in the view of the Supreme Court a member or members applying under Section 397 had to qualify under Section 399.' 14. The position was dealt with also by the Kerala High Court in Dr. V. Sebastian v. City Hospital (P.) Ltd. [1985] 57 Comp. Cas. 453 by a learned Single Judge (M.P. Menon, J.). The learned judge held as under: - "It is true that ss. 397 and 398 are intended primarily to protect the minority interests. In ordinary cases, the majority will be able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition was not maintainable and should be dismissed under Order VII Rule 11 (a) of the Code of Civil Procedure, 1908 as disclosing no cause of action. It must also be noted that in the days before the establishment of the CLB, petitions complaining of oppression and mis-management were being filed before and dealt with by the High Courts. Under Rule 6 of the Companies (Court) Rules, 1959, the provisions of CPC, so far as they are applicable, applied to all proceedings under the Companies Act. Even so, the objection of the respondents in that case that the company petition should be dismissed in limine on the ground that it did not disclose any cause of action was rejected. The reasoning of the Bombay High Court runs thus: - "I am of the considered opinion that the judgment in Khimji M. Shah v. Ratilal Damodardas Modi, [1988] ML] 38 ; [1990] 67 Comp Cas 185 (Bom) has correctly interpreted the law laid down by the Supreme Court. Even the Supreme Court in the case of Kalhiga Tubes Ltd. [1965] 35 Comp Cas 351; AIR 1965 SC 1535, has held that facts and events leading up to the filing of the petition are relevant. Keeping the aforesaid proposition of law in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there can be but one result." Thus, it becomes clear that the petition could be struck out only if the case put forward is unarguable.' Thereafter, at page 44 of the report the High Court observed as under: - "At this stage the court is not required to decide the petition on the 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 the 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 the remuneration received by respondent No. 2 is an act of oppression. These are all matters which require detailed consideration and have to be decided on the merits at the final hearing of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs constituted oppression and mis-management on the part of the respondents. When the petition came up for hearing on 14.01.2013, arguments were heard in part and they were to continue on 16.01.2013. For the present I would proceed on the assumption that there was no suggestion from the CLB on that date that the petition may be withdrawn and a fresh petition may be filed. On 15.01.2013, the petitioner (Guru Partap Group) filed a fresh petition before the CLB under cover of a letter of even date. A perusal of the letter shows that it refers to the hearing which took place on 14.01.2013 and also to the fact that the next date of hearing was 16.01.2013. Thereafter, the petitioners state that they would like to withdraw Company Petition No.101(ND)/2012, which is to come up for hearing on 16.01.2013 and would seek liberty to file the fresh petition before the CLB. The copy of the petition along with the relevant annexures were annexed to the letter and filed before the CLB as per endorsement made thereon (Diary No.214/ 16.01.2013). On 16.01.2013 the CLB passed an order stating that the petitioner sought leave to withdraw Company Petition No.101(ND)/2012 with liberty to file a fresh peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier petition had lapsed and that the fresh petition was "carrying the said cause of action in addition to the subsequent cause of action arising in favour of the petitioners and against the respondents ...... ". These arguments were countered on behalf of the respondent by submitting that there was no fresh cause of action which arose after the filing of the first petition on the basis of which the fresh petition filed on 15.01.2013 could be justified, that the relief sought by the petitioner in the fresh petition is identical to the relief sought in the earlier petition and that the withdrawal of the first petition by the petitioners gave a vested right to the respondent and that in these circumstances the CLB was justified in law in dismissing the fresh petition as not based on any fresh cause of action. 22. Having considered the rival submissions on this point, I am of the view that the contentions advanced on behalf of the appellant should prevail. I have already opined that the CLB should be reluctant to strike out any proceedings before it on technical grounds. This is particularly so with reference to proceedings under Sections 397 and 398 of the Act alleging oppression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd without dissecting them into separate, disjunctive or component parts of oppression. What is complained of is oppression and such oppression may be the result of several continuous acts, all of which constitute what the Supreme Court describes as a consecutive story. It is neither proper nor necessary to look at each act of oppression disjointedly. Viewed from this angle also, there is no justification, in proceedings under Section 397 of the Act, to insist on a fresh petition being filed only on the basis of a fresh cause of action. I would even venture to say that in a petition under Section 397, there is no room for such theories as fresh cause of action. The observations of the Supreme Court cited above also add strength to my view, that what was brought to the notice of the CLB in the fresh petition was only one more development after the filing of the petition, which would be a relevant development, which the CLB ought to note while passing orders under Section 402 with a view to bringing to an end the matters complained of. On this basis I would further venture to think that the CLB was not also justified in insisting on a fresh petition being filed only on a fresh cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) granting adjournments; (f) reception of evidence on affidavits." 25. The other sub-sections which are relevant are the following: - "(4D) Every Bench shall be deemed to be a Civil Court for the purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code and for the purpose of section 196 of that Code. (5) Without prejudice to the provisions of sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the discharge of the functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion. (6) Subject to the foregoing provisions of this section, the Company Law Board shall have power to regulate its own procedure." 26. Pursuant to the power given under sub-section (6) of Section 10E the CLB has framed the Company Law Board Regulations, 1991 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in general. 29. The position, therefore, is that unless specifically conferred, the provisions of the CPC are not applicable to CLB. My attention was also drawn to the following judgments in which a similar proposition was accepted: - (i) B. Subba Reddy v. S.S. Organics Ltd. [2009] 96 SCL 466 (AP). (ii) K. Muthusamy and P. Durai vs. S. Balasubramanian and Ors., (2012) 106 CLA 120 (MAD.). (iii) Ultrafilter GMBH v. Ultrafilter (India) (P.) Ltd. [2011] 167 Comp. Cas. 434 (Kar.). 30. It is, however, possible to postulate an argument that 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. Even if this argument is given effect to, I do not think that the CLB in the present case was justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LB on the basis of the principle embedded in Order VII, Rule 11(a) of the CPC, even assuming that there is no bar on the principles embedded in the CPC being invoked to proceedings before the CLB. 31. There is one more reason for my view. 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act against the majority under any circumstances. There is no other reason given on the merits of the allegations and it appears to me that the CLB, with respect, expressed its opinion on merits without actually examining them. There is no reference to any of the allegations made in the fresh petition or to the contents of the elaborate pleadings in the petition. The order of the CLB which is impugned before this Court, therefore, does appear to me to be unsustainable, in so far as it purports to reject the petition also on merits. 34. It was argued on behalf of the appellants that it would be a contradiction to say, on the basis of Section 8 of the Arbitration and Conciliation Act, 1996 that in view of the specific clause in the JVA, the disputes between the parties should be referred to arbitration and also say, in the same breath, that there is no fresh cause of action. This contradictory stand, according to the learned counsel for the appellants, was taken by the learned counsel for the respondents which, according to him, cannot bear scrutiny. When the respondents filed Company Application No.41/2013 on the ground that in view of the arbitration clause, the CLB would have no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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