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TMI Blog2010 (4) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... preliminary issues of maintainability of the petition as well as on merits considering the allegations attracting the provisions of section 397/398 of the Act are left open to be decided at a later stage depending upon the outcome of the hearing under section 11A(4)(b) of the Act. Parties would be at liberty to move at a later stage for consideration whether it is necessary to examine the question of admission or otherwise of the petition for reliefs sought under section 397/398 of the Act. The petitioner is at liberty to apply under section 235 (2) of the Act. However, this is not the stage to consider applicability of section 250(3) of the Act. Interim reliefs to continue till further orders. There is no way to consider impleader's application at this stage. It is deemed to be dismissed for being not maintainable at this stage seeking impleadment in the present company petition, however, the impleader is at liberty to file a fresh company petition or the impleader's application shall stand revived for consideration only if the parties move under section 397/398 after the decision on petition under section 111A of the Act. 63. Company Application No.255 of 2008 is dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is that CP No.48/2008 is not maintainable because the respondent/petitioner-company does not have the requisite qualification as required under section 399 of the Act to maintain a petition under section 397/398 of the Act ; the petitioner-company does not hold any shares in the respondent-company, it is not an existing shareholder, it cannot maintain the present petition on the basis that it seeks entitlement to certain shareholding ; it is its own case that it has sought a declaration that the petitioner-company is a shareholder. Respondents rely upon the confirmations and admissions made by petitioner in the petition : In prayer clause 8(ii) the petitioner has sought a declaration that the CLB should declare it a shareholder of the appellant-company. In prayer clause 8(iii) the petitioner has sought a declaration that it is a holder of 99.99 per cent equity shares of the appellant-company. This declaration can be made only by a civil court. In para 6.18 of the petition, the petitioner has averred of its request to the respondent-company to either allot shares or refund the money. The same position is reiterated in letter dated 9th December, 1999 addressed by petitioner to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved the petitioner-company's request on the condition that the same would be used only for the refund of the institutional dues. On 1st June, 1999, 20th July, 1999, 9th December, 1999 the petitioner-company sought refund of money from the respondent-company or allotment of shares for the same amount. On 17th August, 2000 statutory notice was issued by the petitioner-company to the respondent-company under section 434(1)(a) of the Act, the notice was never received by the respondent-company. On 7th June, 2001 the petitioner called upon the respondent-company and obtained balance confirmation for a sum of ₹ 2,94,58,200. On 10th August, 2001 petitioner filed winding up petition (under section 433), No. 1179 of 2001 before the hon'ble High Court at Bombay. Through the composite petition No. 48/2008 filed before the CLB the petitioner-company is basically seeking declaration for the allotment of shares in the respondent-company for an amount of ₹ 3.58 crore, i.e., for the very same money for which the petitioner-company had already sought refund and filed the winding up petition in the High Court of Bombay. The petitioner-company had consistently shown the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by filing multiple petitions before different forums based on the same cause of action. The petitioner-company has admittedly invoked simultaneously two jurisdictions for the same cause of action, i.e.: winding up petition before the Bombay High Court (CP No.1179 of 2001); and petition under sections 397 and 398 (CP No.48 of 2008). Both these petitions are being actively pursued by the petitioner-company simultaneously. The present petition is, therefore, hit by res judicata and also by the doctrine of comity of judgments that is likely to result in conflicting decision by the two independent judicial authorities. It was contended by Shri S A Dewan, counsel for the applicant that in this matter the doctrine of election applies as the petitioner-company has filed the winding up petition at hon'ble Bombay High Court. It has contended that respondent-company is indebted to the petitioner-company to the extent of ₹ 2,94,58,200 which has been even confirmed by the respondent-company however, the petitioner-company's claim is of ₹ 3,58,98,580.95. This is a case of commercial insolvency. The case of the respondent-company's contention that the petitioner-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sums of money to the respondent-company for its proposed project and since the respondent-company has failed to return the said amount it should be wound up; on the one hand the petitioner-company is praying for winding up of the R-1-company and on the other hand it is seeking allotment of shares in the very same company. It has been argued that the petitioner-company could never have made investment in the respondent-company as per its own Board resolutions because of the conditions being, namely, (a) obtaining the approvals of the financial and term lending institutions/banks ; (b) obtaining the approvals of the Central Government under section 372 of the Act and section 30B of the Monopolies and Restrictive Practices Act ('MRTP') Act ; (c) the funds were to be first made available for the implementation of the expansion/modernisation scheme of the company ; and (d) the funds were to be actually made available out of the convertible debenture issue. It was argued that petitioner-company has admitted that the respondent-company is indebted to them by an admitted amount of ₹ 2,94,58,200 ; the admission in a pleading are binding on a maker; judicial admission is admis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h read as under : '23. The doctrine of election is a branch of rule of estoppel , in terms whereof a person may be precluded by his actions or conduct or silence when it is his duty to speak, from asserting a right which he otherwise would have had. The doctrine of election postulates that when two remedies are available for the same relief, the aggrieved party has the option to elect either of them but not both.' Furthermore, reliance was placed on the case law in R.N Gosain v. Yashpal Dhir AIR 1993 SC 352 wherein it was held that: '10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage - {See : Verschures Creameries Ltd. v. Hull Netherlands Steamship Co. Ltd. [1921] 2 KB 608, at 612 Scrutton, LJ} According to Halsbury's Laws of England, 4th edn., vol. 16, [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Section 111A deals With only one type of substantive application and this type of application is covered by section 111A(3). Section 111A(1) defines the meaning of the expression company as used in section 111A. Section 111A(2) declares that shares or debentures and any interest therein is freely transferable. Section 111A(4) empowers the CLB to issue interim order suspending the voting rights. Section 111A(5) declares that a person who holds shares or debentures would be entitled to transfer such shares or debentures and exercise voting rights in respect thereof unless these voting rights have been suspended by the order of the CLB. Section 111A(6) provides for the exercise of voting rights by transferees of shares. Section 111A(7) extends the application of certain sub-section of section 111 insofar as may be to section 111A. The entire scheme of section 111A shows that none of the sub-section contemplate any application, save and except section 111A(3). The plain language of section 111A(3) indicates that any and every application under that provision must relate to the transfer of shares or debentures. This is not the case here. At no point of time, has petitioner lodged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of register upon transfer of shares. Even in respect of section 111(7), the scope is limited to determination of title in respect of a person who has moved an application for rectification of register, which could be either under sub-section (2) or (4). It is not that any person can move a substantive application for rectification of register under section 111(7) without moving an application for rectification. Therefore, the determination is only an incidental to the main scope of section 111. This is clear from the language of sub-section (7). (7) On any application under this section, the tribunal. - (a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, fee register;.... It was argued that for a substantive application for determination of title in respect of a public limited company or in case of a rectification of register in a scenario other than through transfer of shares, the person will have to approach the civil court. It is not that he is left without remedy. To support its contentions the applicant/respondent-company placed reliance on the judgments in Gopal Krishna B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 111A in relation to the public limited companies, which was contained in sub-section (4) of section 111 of the Act. It is, thus, clear that the plaintiff would not be entitled to approach the CLB for seeking the reliefs that are prayed for in the civil suit and, therefore, there is no question of jurisdiction of the civil court being barred by the availability of remedy to the plaintiff under section 111A of the Act. 9. Unfortunately, in the present case, we find that the petition is not a composite petition, even though the reliefs sought at paragraphs k, I, m and nof page 73 of the petition, are on rectification of the register of members, which when allowed, would entitle the second and the third petitioners to the shares allegedly wrongfully cancelled. We examined, whether we could, even in the absence of the mention of section 111 in the title to the petition, consider this issue first before going through the other issues. We find that it may not be possible to do so in view of the change in the provisions of law that has been brought into effect by the Depositories Act, according to which section 111 has been made applicable only to private limited companies and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents may have a deplorable case but it does not matter. But what has to be seen is that the intention is expressed in the notice given for winding up. In the petition filed for winding up when they elect to go for winding up, they have already made an unambiguous position, it is devoid of any ambiguity, they treat themselves as a creditor. It may be a mutually destructive plea as destructive and inconsistent stand which cannot be reconciled in law. On the same facts single winding up petition having been filed on the same set of transaction they cannot wear two hats now to file a petition under section 397/398. The petitioner in the capacity as creditor having filed a petition under sections 433, 434 and 439 of the Act before the Bombay High Court (CP No.1179 of 2001) in August 2001 which has been admitted and citation has been issued in the newspapers, as per the said petition, the petitioner has categorically admitted itself as a creditor of the company. The statutory notices dated 18th March, 2000 and dated 17th August, 2000 under section. 434(1)(a) issued by the petitioner-company through its counsel to the R-1, petitioner, consciously and under legal advice, once having electe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completely barred on the grounds of limitation as well, the respondent-company was incorporated in 1984, after six years, resolution is passed by the Board of petitioner-company on 30th August, 1990 for investment of ₹ 13 crore in the respondent-company, thereafter, for seventeen years the petitioner-company failed to agitate its rights as a shareholder. It was pointed out that the petitioner-company has woken up now only when it came to know of the proposed tie up of the respondent-company with a foreign partner. Realising that the project with a foreign partner may take off and it may be profitable to be a shareholder in the respondent-company, the petitioner-company completely changed its stand and decided to agitate its right as a shareholder of the company, whereas all this while it was content claiming to be a lender/creditor. Therefore, it was argued that it is clear that the petitioner-company's conduct has been completely opportunistic and inconsistent to suit its selfish ends. Therefore, even on equitable grounds, the petitioner-company is not entitled to any of the reliefs. It was pointed out that as per the petition itself, last financial transaction between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Bank (supra), held that in a proceeding under section 111, the provision of the Limitation Act would apply. 7. The above judgment when taken on appeal, the Supreme Court upheld the decision of the Calcutta High Court, that the provisions of Limitation Act are applicable to the proceedings under section 111 of the Act. The lis in Smt. Nupur Mitra v. Basubani (P.) Ltd. [1999] 2 Cal. LT HC' 264, before the Calcutta High Court being, whether in a proceeding under section 111, the provisions of the Limitation Act, shall apply, and the judgment of the Calcutta High Court to the effect that provisions of the Limitation Act would apply to a proceeding under section 111 having been affirmed by the Supreme Court, the decision in Smt. Nupur Mitra v. Basubani (P.) Ltd. [1999] 2 Cal. LT HC 264, shall necessarily be applicable to the facts of the present case and cannot be ignored as direction given by the Supreme Court to the CLB in that case, namely, Smt. Nupur Mitra v. Basubani (P.)Ltd. [2002] 108 Comp. Cas. 359. The Kerala High Court in a recent decision, namely, Duroflex Ltd. v. Johnny Mathew [2007] 137 Comp Cas 229/[2007] 77 CLA 261, while considering the question whether section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by the respondents and, therefore, this Board held that the period of limitation cannot strictly be applied in such cases, whereas in the present case, the transfer of shares has never been registered by the bank, but on the other hand, it had refused to register the transfer in the name of the petitioner and it is only the petitioner, who is accused of having forged the signatures of the second respondent. By virtue of section 17 of the Limitation Act, the plea of fraud does not apply, unless there has been fraud on the part of the respondent(s), of the petitioner's right to sue of his/her title. Therefore, these decisions will be of little assistance to the petitioner. 11. Further, it was argued that the respondent/petitioner have not replied/ answered to the judicial admission as contained in the winding up petition. Further, to support its contentions the counsel for applicants/respondents relied upon the case law in the matters of Suhas Chakma v. South Asia Human Rights Documentation Centre(P.)Ltd. [2008] 84 CLA 427(CLB); Ram Gopal Patwari v. Patwari Exports (P.) Ltd. [2008] 142 Comp. Cas. 8 (CLB); Keral Chamber of Commerce Industry v. Metalex Agencies [2008] 86 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the provisions of section 111/111A are not applicable; (c) the petitioner having filed a winding up petition in the Bombay High Court has admitted itself to be a creditor; (d)the petition itself confirms the forum shopping by the petitioner ; and (e) as per the petition itself, last transaction happened in 1993 and the petition, therefore, suffers from delays and laches without any explanation or application for condonation of delay. 13. The respondent/petitioner-company's case is that the petitioner-company [Modi Rubber Ltd. ('MRL')] had contributed an amount of ₹ 3.59 crore towards the promoters' contribution and not as loan/advances, as claimed by the applicant/R-1-company. It is more than 10 per cent shareholder and is to be treated as a shareholder in excess of 10 per cent shares of the company. Despite the lapse of many years, the company had neither commenced the project nor issued or allotted the equity shares to the petitioners as per agreement between the petitioners and the company. The petitioner has invested ₹ 3,58,90,580.95 in the respondent-company and has sought periodical reports from the respondents about the progress made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1993 MFL requested MRL for further release of funds. On 23rd December, 1993 the Board of directors of MRL approved release of ₹ 25 lakh to MFL for payment to IDBI, on 7th March, 1994 the Board of MRL took note of return of cheque of ₹ 25 lakh by MFL as MFL did not propose to get appraisal done. Board desired to know reasons thereof. On 17th May, 1994 and 17th February, 1999 MRL sought approval of IFCI for utilisation of FCD proceeds for investment in MFL for day-to-day working capital during pendency of their final approval. On 1st June, 1999, 27th June, 1999 and 9th December, 1999 letters were written by MRL to MFL for allotment of shares against ₹ 3,58,90,580.95 and send share script or refund the amount. On 18th March, 1999 a legal notice was issued to MFL. On 17th August, 2000 the second legal notice was issued to respondents. On 7th June, 2001 MFL confirmed credit balance of ₹ 294.58 lakh in their books of account in the name of MRL. On 10th August, 2001 the petitioner-company filed a winding up petition against MFL before the Bombay High Court. On applicant/respondent-company's own submissions, the sum in question amounting to ₹ 2,94,76,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respondent-company with a specific understanding as a shareholder which is evident from the various correspondences exchanged between the parties, it is not a case of non-compliance of section 399, the petitioner-company was not issued/allotted shares even to the extent of its investments made, it is an exceptional case where the petitioner-company had been treated as a shareholder till the stage of project appraisal. The very fact that the petitioner has been treated as promoter has not been disputed nor denied. There was an embargo from CCI on releasing of further funds to the respondent till the appraisal of the project by IDBI. 14. It was argued that the conduct of the respondent-company also completely lacked the credibility and bona fides. In the balance sheet as at 31st March, 1993 the share capital has been shown as ₹ 700, ₹ 2.95 crore has been shown as payable to promoters (MRL) but with rejoinder to CA No.255/2008 they have attached a balance sheet as at 31st March, 2007 wherein the amount payable to promoters has been shown as amount payable under the head current liability. The company could not have shown this amount as payable under current liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of the company would not be equitable as most of the times their association with certain types of companies is based on personal relationship or personal dealings. Reliance was placed on the case law in Chatterjee Petrochem (Mauritius) Co v. Haldia Petrochemicals Ltd [2007] 77CLA 408 (CLB), which reads as under : 'In a proceeding under section 397, in the normal circumstances, this Board cannot and will not entertain the claim for specific performance of the contracts. Only the issue whether the petitioners have established that they had and still have legitimate expectations while joining and continuing with the company. While doing so, inevitably, reference may have to be made to the terms of the agreements, not will the view to enforce the terms but only limited to see whether the terms have bearing on the claim of legitimate expectations. Even in Gaekwad case Shri Sundaram in paragraph 162 of its judgment the Supreme Court while observing that in case of violation of contractual or statutory violation, one should approach a civil court, it also held that in extraordinary situation, the same can be considered in a petition under section 397.... This Board has cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or participation in equity but since the shares had not been allotted/the petitioner was asking for refund of the admitted amounts as a creditor. It was pointed out that the subject in that petition was the provisions of sections 433, 434 and 439 of the Act. Section 433 was not only section 433(e) but 433(f) as well. It was argued that even when a statutory notice was given to the applicants/respondents the respondent/petitioner had not waived its right to be allotted shares, this fact was specifically mentioned in the notices as well. In this context the applicants/respondents' stand on the notice was also pointed out that they had contended that it was not a statutory notice and they had also disputed the amounts given for the promoters' equity, they had admitted to the extent to ₹ 2.94 crore as a debt and it was on the stand of the applicants/ respondents that respondent/petitioner had proceeded to pursue the alternative remedy of winding up of the company. It was argued that the CLB should not look at the technicalities of the matter because when it is in derogation of statutory rights it is the substance which is to be looked at and not the technicalities. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Camp, Woodmen of the World v. Nola Newson (Arkansas Supreme Court) 14 (1921) refers], A waiver is the voluntary relinquishment of a known right. To establish it, there must be shown an act or omission on the part of the one charged with the waiver fairly evidencing an intention permanently to surrender the right in question. It may be express or implied (Dunbar v. Furnum 114 ALR refers. A waiver is the intentional relinquishment of a known right. To constitute a waiver, there must be an existing right, benefit, or advantage, knowledge of its existence and an intention to relinquish it. It must be distinctly made, although it may be express or implied (Phoenix Insurance Co. v. Fred J Heath 106 ALR 1391 (refers). Waiver is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct. It may sometimes resemble a form of election, and sometimes be based on ordinary principles of estoppels, although, unlike estoppels, waiver must always be an intentional act with knowledge. Waiver of this kind depends upon consent, and the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent/petitioner-company's case that the petition can be held to be demurrable only if the claim put forward cannot be established even if all the allegations made in the petition are acceptable to be true. Such is the position here. The test is whether, even if the facts pleaded by the petitioner in his petition under section 397 and 399 are assumed to be true, the petition filed by him can be held to be not maintainable. This test is similar to the test applied by a civil court while dealing with the issue of rejection of the plaint under order 7, rule 11, Code of Civil Procedure, 1908 ('CPC'). Very complicated questions of fact and law have been raised in the petition which require detailed consideration and can be decided on merits only at final hearing of the petition Dayagen (P ) Ltd. v. Rajendra Dorian Punj [2008] 87 SCL 314 (Delhi), Dhananjay Pande v Dr. Bats Surgical Medical Institute (P.) Ltd. [2005] 60 SCL 348 (CLB-New Delhi). 20. The counsel for the respondent/petitioner argued that the case of respondent-company is clearly founded on fraud and such a party and his case is liable to be thrown out any state of proceedings as laid down in the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecourse. 22. I have considered the rival submissions. I find that the Company Petition No.48 of 2008 is a composite petition wherein the provisions of sections 111A, 235(2) and 250(3) of the Act have also been invoked along with the provisions of sections 397 and 398 read with sections 402, 403 and 408 of the Act. On considering the pleadings, the Annexures therewith, the arguments and the case law cited by the parties it is noted that the applicant/ respondent-company has preliminary objections regarding the maintainability of company petition No. 48 of 2008. It is argued that the petitioner (MRL) in this company petition does not have the requisite shareholding to have a right to apply as a member for attracting the provisions of sections 397 and 398 read with sections 402, 403 and 408 of the Act. Further, the company petition is not maintainable under section 111A or under section 235(2) or under section 250(3) of the Act, the ingredients of the sections attracted have not been fulfilled. There is no dispute with the general principles laid down in the case law relied upon by the applicants that the petitioner must first prove that he/it is a shareholder [Gulabrai Kalidas Nai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member. Subscribers to MoA will be members on incorporation notwithstanding shares are not allotted to them. Under such a situation, the subscribers are members but not shareholders. In the case of a company-having no share capital there will be members only. The term member and shareholder are synonymous in the case of a company limited by shares and company limited by guarantee having a share capital and also in respect of an unlimited company whose capital is held in definite shares. In respect of these companies a person cannot become a member other than through shareholding. In the case of a company limited by guarantee having no share capital and in the case of an unlimited company where there are no definite shares, a member is not a shareholder as there are no shares to hold. Till the time the documents for transfer of shares are lodged with the company and the company registers the same, the transferor's name will continue to be in the register of members and he will be recognised as member of the company notwithstanding that he had sold the shares. The buyer though has purchased the shares in the eyes of law is not a member of the company, but only a shareholder. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imperative in nature and it has to be interpreted as mandatory having regard to the text and context of the statute irrespective of the fact whether any prejudice is caused. In terms of section 399 of the Act the members fulfilling the requirements thereof have the right to allege oppression and mismanagement in the affairs of the company and can file petition in terms of the said sections. In view of the aforesaid unambiguous provisions of the Act, petitioners are required to satisfy the CLB that petitioner(s) individually or together hold the requisite percentage of shares in the company. It is the requirement of the law that petition under sections 397 and 398 has to accompany documentary evidence in proof of eligibility and status of petitioner(s) that the voting power held by each of them is as per provisions of section 399 of the Act. In other words petitioner(s) has/have to meet the requirement under section 399 either in terms of the number/percentage of shares or in terms of number of shareholders. Further, it has been held in a number of cases that if the shareholding of the petitioner(s) in a petition under sections 397 and 398 of the Act got reduced to below 10 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies to closely held companies for the reasons that not only at the time of coming into association, even when continuing with such association, parties undertake obligations with certain legitimate expectations. The conduct of the parties pursuant to the understanding caused creation of legitimate expectation for the petitioner-company. The petitioners have established that they had and still have legitimate expectations while joining and continuing with the company. In the present case, the records of the company bear adequate evidence that the money was accepted and used for the purpose of the company, as part of the promoters' contribution. As regards the preliminary objection raised on behalf of the respondents that there is no application for shares, it is noted that the words the fact of any person having become a member as used in section 111A(7) indicate not the actual membership but the eligibility of the petitioners to become members. The respondents are aware and have admitted the petitioner-company as promoters and their contribution has been accepted as part of the promoters' contribution meaning thereby that the petitioner-company has been treated as if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of this Board. In the case of Finolex Industries Ltd. (supra) it was held that: Section 111A of the Companies Act, 1956 read with section 28 of the Depositories Act, 1996 - Transfer of shares - Rectification of register on transfer of shares - Whether section 111A has to be interpreted in such a manner that it provides additional benefit to shareholders in public companies which they already enjoyed and continue to enjoy under section 111 - Held, yes.... By virtue of provisions of section 28 of the Depositories Act it cannot be held that section 111A(3) is restricted to rectification of the register only in transfer matters. This would mean that no remedy of rectification is available in case of loss of shares, bad deliveries, theft and forgery. This would be in derogation of the law for the time being in force. Remedy provided in section 111A(3) is in addition to the remedy provided in section 111(4). It was, therefore, to be held that the remedies of appeal and rectification are available to all kinds of shares held in a public company under the proviso to section 111A(2) and section 111A(3) read with sub-section (7) of section 111(A) which would make applicable the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural in nature. 27. There is no quarrel with the general principle that a petition or suit has to be dismissed and thrown out at an initial stage if it is unarguable on the demurrer. The petition can 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. The respondent/petitioner-company has rightly placed reliance on the case of Gharda Chemicals (supra)wherein it is held that a petition can be thrown out only if the case put forward is unarguable. This is not the case here. In any event, disputed questions of fact have arisen which can only be decided at the time of final hearing. Further, there is no quarrel with the respondent's/petitioner's contention that if maintainability is a triable issue then the application for rejection of the petition or suit has to be dismissed and the issue has to be heard along with merits of the case. 28. Next is the applicant/respondent-company's contention that the petitioner itself has elected to be creditor of the company by first issuing legal notice twice and then by filing a winding up petition before the hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and control of the company prejudicial to the interest of the company, then in that case, appropriate order can be passed by the CLB. 29. The provisions contained in sections 397 to 409 of the Act constitute a code by themselves and are not subject to other provisions of the Act; the CLB has wide powers under section 402 of the Act including the power to give directions contrary to other provisions in the Act; the only limitation on the power that CLB could exercise under section 408 of the Act is that there must be a nexus between the complaint made and the reliefs granted; the statutory provisions contained in sections 397, 398, 402 and 403 of the Act confer a statutory right to shareholders and can only be invoked before the CLB; the said provisions are an alternative to winding up and deal with public interest, the representative cause of shareholders and derivative cause of company. If the facts justify interference by the court in exercise of its powers under these two sections 397 and 398 and if the conditions of the two sections are fulfilled, the court ought not to relegate the parties to a series of protracted and costly litigations. There is a difference in a win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also established. The CLB may not grant relief under this section but may make definite observations about the need for putting the company to winding up. Where it is established that winding up would be just and equitable, the CLB will have to decide if an order of winding up Will unfairly prejudice the petitioner. Only then the alternative relief under this section would be allowed. If the facts fall short of a case upon which the company court feels that the company should be wound up on just and equitable grounds in that event no relief can be granted to the petitioners under section 397. The winding up is not a remedy that can be pursued under this section. The principles which apply to winding up are different from those which apply to the proceedings under section 397 in a petition for prevention for minority oppression. The winding up is an extreme remedy and is not resorted to if relief can be granted under section 397. The relief that can be granted by the court under section 433 by ordering winding up of the company may be worse than the malady. An applicant under section 397 need not press for an order of winding up. A relief under this section is an alternative to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief under section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. There must be materials to show when 'just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. A company cannot be wound up merely because there are differences between the shareholders and particularly the CLB has to examine whether the acts of the company were oppressive to any member or members justifying the winding up as just and equitable. It is not necessary that in every case, the relief of winding up should be made. It does not necessarily mean that in every case such winding up order need be passed. The acts which would amount to oppression to the members or mismanagement or material alteration in the control of the company or prejudice to the interest of the company would depend upon facts of each case. However, when the Bench specifically asked the respondent-company as to how were they treating these amounts the applicant's reply was that as per the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case which persuaded it to file the winding up petition to recover what was possible cannot be held against the petitioner-company and it be made to suffer and left remediless. Filing of a winding up petition in the capacity as a creditor would not bar a petitioner making a prima facie case of entitlement to shares from filing a section 397/398-petition alleging oppression and mismanagement. In reply to a specific question as to how the respondents treated the amount expended by the petitioner-company, the applicant had very vaguely answered that the petitioner-company had now made an election for this amount to be treated as a credit/loan and they were ready to refund an admitted amount of ₹ 2.94 crore with reasonable interest of 8 per cent per annum, they were also open to reconcile the difference in the amount claimed to have been paid by them and the amount so far admitted by the R-1-company. A remedy for the recovery of a loan does not lie in the proceedings before the CLB. It was held in the case of Bagrees Cereals (P.) Ltd. v. Hanuman PrasadBagri [2001] 105 Comp Cas 465 that if a debt remained outstanding from the company it would be unreasonable to ask for just an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil suit as well as before the CLB. In the present case the petitioner-company has not waived its rights. In the legal notices sent by the petitioner-company, the respondent-company was asked for allotment of shares, the bare perusal of the legal notices and the petition for winding up clearly establishes that the petitioner had given option to the respondent to allot shares or refund the amounts, the respondent-company deliberately chose not to respond. It is noted that the amount payable to promoter has been shown as amount payable under the head current liability in the rejoinder attaching balance sheet for the year ending 2007 by the respondent-company (MFL). This balance sheet has been filed only during the pendency of this matter before the CLB. The company has not commenced its business as yet and that is why there is development account instead of profit and loss account. The company could not have shown this amount as payable under current liabilities as current liabilities are not long-term liabilities. R-1 has neither been granted nor taken any loans, secured or unsecured, from companies, firms or other parties concerned in the register maintained under section 301 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an agreement in writing can also be dispensed with Ram Kishan v. Kanwar Papers(P.) Ltd.[1990] 69 Comp Cas 209 (HP) refers}. If the company by its own conduct had treated the parties as shareholders and if it is prima facie established from the documents maintained by the company that the petitioner had been participating in one way or the other as members, the prima facie test is satisfied. MFL is aware and has admitted MRL as promoter and its contribution is accepted as part of the promoters' contribution, it is accepted as part of the promoters' contribution meaning thereby that MRL has been treated as if it is a member. It is settled law that persons who wish to file a petition under section 397/398 if are not shown as members rightly or wrongly, they must have the register rectified before they can bring a petition. The percentage holding of a member can be brought down, normally, in two ways. One is omitting his name from the register of members in respect of certain shares, on allotment of further shares, either excluding him from further allotment or by allotting shares to others in a higher proportion. Omission of name may arise on account of transfer of his sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CLB, yet there is an abnormal delay in bringing the matter before the Board, and on this ground alone, the petition should be dismissed, more so when there is no plea for condonation of delay and laches on the part of the petitioners in initiating proceedings before the CLB. The question whether the Limitation Act applies to the proceedings under section 111 of the Act and whether sufficient reason under section 5 and the exception under section 17 of that Act can be attracted was examined by the CLB in a recent case of Shobha Thampi (supra)wherein it was held that the Limitation Act shall apply and the provisions of section 5 as well as section 17 of that Act are applicable in proceedings under section 111 of the Act. But if the facts in the company petition are disputed the question of limitation could not have been determined at a preliminary stage without a decision on facts after the parties had been given an opportunity to adduce evidence. A plea of limitation cannot be decided as an abstract principle of law divorced from facts as in every case the starting point of limitation has to be ascertained which is entirely a question of fact. A plea of limitation is a mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular case. The formation of an opinion cannot be made at the outset but only at the end of the proceedings. Under section 398, there is no such stipulation of forming an opinion regarding the winding up of the company on just and equitable grounds. While some of the allegations could be only classified as oppressive and some of them only as acts of mismanagement, it is also possible that some of the allegation could be classified both as oppressive as well as acts of mismanagement. Therefore, when a combined petition is filed, the CLB has to examine as to which of the allegations are acts of oppression or acts of mismanagement or both and on the basis of its conclusions on the allegations, the CLB has to pass an appropriate order. It is an exceptional case where the petitioner-company has been treated as a shareholder till the stage of appraisal of the proposed project of MFL. This complicated question of facts and law relate to the contribution of ₹ 3,58,90,580,95 by the petitioner-company as promoters towards equity capital of the respondent-company (MFL), and, hence, their claim for entitlement to shares of MFL. It is an arguable matter. It is a triable issue. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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