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AMALGAMATIONS LIMITED versus SHRI SHANKAR SUNDARAM

High Court of Madras

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Amalgamations Limited v. Shri Shankar Sundaram - C.M.A.No.2036 of 2000 [2002] RD-TN 320 (3 June 2002)



IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED:3/6/2002

CORAM:

THE HON'BLE MR.JUSTICE N.V.BALASUBRAMANIAN C.M.A.No.2036 of 2000

and

C.M.P.No.19597 of 2000

....

Amalgamations Limited,

No.81, Dr.Radhakrishnan Salai,

Chennai 600 004.

.. Appellant. vs.

Shri Shankar Sundaram

.. Respondent. The appeal is filed against the order of the Company Law Board, Principal Bench, New Delhi in C.A.No.48 of 2000 in C.P.No.94 of 1999 dated 18.10.2000.

For appellant :: Mr.Anil B.Divan, Sr.counsel & Mr.S.Ganesh, Sr.counsel for M/s.S.Ramasubramaniam & Associates. For respondent :: Mr.Arvind P.Datar, Sr.counsel for M/s.Gupta & Ravi. .....

:JUDGMENT



This appeal is preferred against that part of the order of the Company Law Board rejecting certain preliminary objections raised by the appellant and also against the order where the Company Law Board has not dealt with certain preliminary objections raised by the appellant and also against certain directions given by the Company Law Board in its order.

2. The respondent herein has preferred a company petition, C.P.No.9 4 of 1999 before the Company Law Board under sections 397 and 398 of the Companies Act against the appellant herein and also against other 22 persons. The appellant herein has raised certain preliminary objections to the effect that in a company petition under sections 397 and 398 of the Companies Act against the holding company, no relief can be granted in respect of the management of subsidiary companies. The Company Law Board, by the impugned order has upheld certain preliminary objections raised by the appellant and directed deletion of the names of subsidiaries and directors from the array of party/ respondents in the company petition. As against that part of the order of the Company Law Board, the respondent herein has preferred an appeal in C.M.A.No.2018 of 2000 on the file of this Court and by judgment of even date in C.M.A.No.2018 of 2000, I did not agree with the reasonings of the Company Law Board and allowed the appeal preferred by the respondent herein, who is the appellant in that appeal.

3. In this appeal, the appellant is canvassing the correctness of certain directions given by the Company Law Board directing the appellant company to file its reply on the allegations made in the company petition including those in respect of subsidiary companies. Since I have held that the order of the Company Law Board directing deletion of the names of subsidiaries and directors from the array of parties is not legally sustainable, the direction given by the Company Law Board directing the appellant herein to file its reply on the allegations made in respect of its dealings with the subsidiaries cannot be said to be beyond its power and jurisdiction and therefore no interference is called for in respect of that part of the order of the Company Law Board. 4. The appellant herein also raised certain other preliminary objections which are set out in the annexure-A to the application in C.A.No.48 of 2000 on the file of the Company Law Board. The first preliminary objection was that the company petition under sections 397 and 398 of the Companies Act is not maintainable as against the subsidiaries of the appellant company in which the respondent is not having any shareholding at all. As already observed by me, that part of the order of the Company Law Board has been dealt with in C.M.A.No.2018 of 2000.

5. The second preliminary objection was that the company petition is not maintainable even as against the appellant company, because the respondent herein was a party to the resolutions passed by the appellant company in the General Meeting appointing the respondents 2 and 3 in the company petition as directors of the appellant company and approving and adopting the annual accounts of the company and declaring dividend on the basis thereof. The third objection was that the company petition has been filed only because the respondent had demanded a position of profit in one of the profit-making subsidiaries which was not granted by the respondents 2 and 3 in the company petition and the company petition has been filed only to pressurise the respondents 2 and 3 in the company petition to grant the demands of the respondent herein and hence, the company petition should not be entertained in exercise of discretion under sections 397 and 398 of the Companies Act by the Company Law Board.

6. The Company Law Board has considered the question of maintainability of the company petition against the appellant company and held that it cannot be considered as a preliminary issue as the respondent herein is holding 10 shares in the appellant company and the question whether waiver, estoppel or acquiescence would disentitle the respondent herein from claiming the reliefs sought for has to be considered on merits of the case.

7. The submission of Mr.Anil B.Divan, learned senior counsel for the appellant is that the Company Law Board has not considered the preliminary objections raised by the appellant viz., the company petition has been filed only because the respondent herein demanded a position of profit in one of the profit-making subsidiaries, but the same was not granted by the respondents 2 and 3 in the company petition. The submission of Mr.Anil B.Divan, learned senior counsel is that the respondent herein was attending numerous General Body Meetings of the appellant company and voted for the election of respondents 2 and 3 in the company petition and even more, has seconded the resolution. Learned senior counsel submitted that the position continued even upto the General Meeting held on 30.9.1999, less than one year before the date of filing of the company petition. He referred to the proposals of various Annual General Meetings of the appellant company wherein accounts, directors' report and auditors' reports were adopted and submitted that the meetings were attended by the respondent herein and he either proposed or seconded the resolutions. Learned senior counsel also referred to the proposal for declaration of dividend and submitted that the respondent has approved and seconded the proposal for declaration of dividends. Learned senior counsel also referred to the resolution regarding reappointment of auditors and submitted that the respondent has approved, seconded and voted in favour of the resolution. He also submitted that the respondent has also received without any protest the dividend declared and paid to the shareholders by the appellant company. He therefore submitted that the relief claimed by the respondent herein in the company petition is totally inconsistent with and directly contrary to the resolutions in which he was a party. Learned senior counsel also referred to the letters of the respondent herein dated 25.9.1997, 14.10.1997, 24.9.1998 and 2 0.8.1999 addressed to the respondents 2 and 3 in the company petition calling upon them to give him an acceptable position in the Amalgamations Limited and giving an unequivocal assurance that if any position is given, he would have no grievance at all. Learned senior counsel submitted that there is no complaint or grievance regarding the working and management of the appellant company or any of its subsidiaries, nor is there any claim apart from that of the respondent herein for a suitable position in the group companies. Learned senior counsel referred to the letter dated 20.8.1999 wherein the respondent has raised for the first time certain grievances regarding the management of Additions Paints & Chemicals Ltd. and submitted that the letters clearly establish the existence of facts relating to the basis of the plea of waiver, acquiescence or estoppel. He there submitted that the basic facts on which the appellant has put forward preliminary objections clearly and unequivocally prove that there is waiver, acquiescence or estoppel on the part of the respondent herein and it is not necessary for the appellant to adduce any evidence, if any, to prove any fact for the purpose of enabling it to raise and sustain the preliminary objections. Learned senior counsel therefore submitted that the non-consideration of the objections by the Company Law Board would directly be contrary to the judgment of this Court in SAROJ GOENKA AND ORS v. NARIMAN POINT BUILDING SERVICES AND TRADING (P) LTD. (1 995-5- CLJ 282). He referred to the submission made by the learned senior counsel for the respondent and submitted that the submission makes it clear that the company petition has been filed only with an oblique and mala fide motive to pressurise the respondents 2 and 3 in the company petition to accept the demands of the respondent for a position for himself and also for his father. Learned senior counsel submitted that the company petition under sections 397 and 398 of the Companies Act can be filed only for the relief to shareholders in the capacity of shareholders, but the grievance of the respondent clearly shows that he is raising the grievance as a family member. He further submitted that under the Articles of Association and the Memorandum of Association of the company, no shareholder is entitled to any office or profit or position in the group companies, and the grievance of the respondent is not that of a shareholder, but merely on the basis of a member of the family. Learned senior counsel submitted that the fact that the respondent has participated in various resolutions because he thought that his demand made in his capacity as a member of the family and not as a shareholder would be granted, is in law no answer at all to the plea of waiver, acquiescence or estoppel. Learned senior counsel submitted that the facts are admitted and undisputed and the company petition has been filed only as an abuse of process of court and it has not been filed by the respondent herein to obtain any genuine relief as a shareholder of the appellant company.

8. Mr.Arvind P.Datar, learned senior counsel appearing for the respondent submitted that the main grievance in the company petition by the respondent herein is that the respondent family owns the same number of shares as held by the respondents 2 and 3 in the company petition and one another and the respondent herein has been sidelined and victimised by the respondents 2 and 3 in the company petition out of personal vendetta. According to him, the respondents 2 and 3 are using their majority for enormous personal aggrandizement. He referred to salaries and commissions from subsidiary companies to the extent of Rs.3 crores, fleet of imported cars paid for by various subsidiaries, foreign residences and other benefits. According to the learned senior counsel, the important positions in the group are given only to the children of the second respondent in the company petition and there are lack of probity, fraudulent conduct and breach of trust. Learned senior counsel referred to the relevant paragraphs in the company petition wherein the respondent herein made allegations against the second respondent in the company petition. Mr.Arvind P.Datar, learned senior counsel submitted that all the branches in the family should be given equal treatment and if one or two groups use their majority to deprive the other groups of their right of management and right to share in the profits, it would be clearly an act of oppression. He referred to various allegations made in the company petition in respect of mismanagement, cancellation of orders, non-availability of funds, etc. In so far as Additions Paints and Chemicals Ltd. is concerned, learned senior counsel referred to certain allegations regarding foreign exchange transactions. His submission is that the aspect of management position is only incidental and not the main subject matter of the company petition. He referred to various acts of mismanagement and the role played by the father of the respondent herein and submitted that the respondent herein has raised serious questions of fact and the respondent herein has explained in the company petition as to why he has voted in the meetings, and in that background, the question of waiver, acquiescence or estoppel has to be considered.

9. Mr.Anil B.Divan, learned senior counsel, in his reply, reiterated the submissions earlier made by him. His submission was that there is no answer to the preliminary objections on the question of waiver, acquiescence or estoppel. According to him, the company petition has been filed only to pressurise the respondents 2 and 3 in the company petition to grant a position in the appellant group companies to the respondent herein. His submission was that the company petition has been filed with an object to extract benefits to which the respondent herein has no right as a shareholder. Both the counsel referred to number of decisions in support of their respective submissions.

10. I have carefully considered the submissions of the learned senior counsel for the appellant as well as the learned senior counsel for the respondent. The Company Law Board has been constituted by the Companies (Amendment) Act, 1988 and under section 10E(1A) of the Companies Act, the Company Law Board is empowered to discharge such powers and functions as may be conferred on it by the Company law or any other law. It shall also exercise such other powers and discharge such other functions as may be conferred on it by the Central Government by notification in the Official Gazette. The Company Law Board, under section 10E(4C), inter alia, is vested with the powers of a Civil Court under the Code of Civil Procedure, 1908 to try a suit in respect of discovery and inspection of documents or other material objects producible as evidence, to enforce attendance of witnesses and to require the deposit of their expenses, to compel the production of documents or other material objects producible as evidence and to impound the same, and to examine witnesses on oath. The Company Law Board, under sub-section (5) of section 10E of the Companies Act in the exercise of its powers and the discharge of its functions under the Company law, or any other law, shall be guided by the principles of natural justice and shall act in its discretion. The Company Law Board shall have the power to regulate its own procedure. The nature of the powers conferred on the Company Law Board clearly shows that it has wide powers in hearing petitions under sections 397 and 39 8 of the Companies Act and to pass such orders as it thinks fit.

11. I have gone through the copies of the letters addressed to the respondents 2 and 3 in the company petition dated 25.9.1997, 14.10.1997, 24.9.1998 and 20.8.1999. All the letters have been written by the respondent herein either to the second respondent or third respondent in the company petition or both. I have also gone through the list of Annual General meetings of the appellant company which were attended by the respondent herein. I am of the view the questions whether there is waiver, estoppel or acquiescence and whether the respondent herein has filed the company petition because the respondents 2 and 3 in the company petition did not grant a suitable position of profit in the appellant group companies to the respondent herein are not pure questions of law. I am of the view, it is for the respondent herein to explain the circumstances and the context in which the above mentioned letters were written and only on the basis of evidence that may be let in, the questions whether there is waiver, estoppel or acquiescence and whether the company petition has been filed with a view to get a suitable position or profit in the appellant company can be decided. I am of the view that without further evidence, it is not possible to establish the factual aspects of the matter. The evidence may be either statements made by witnesses in relation to the matter in dispute or oral evidence. It is not a case where certain facts are admitted by the company petitioner, who is the respondent herein and in the company petition, he has set out in paragraph Nos.6.14 and 6.15 the circumstances under which he voted for the resolutions. In my view, it is a matter for evidence and it is well settled that it is open to him to establish the allegations made in the company petition. I am of the view when the respondent herein has not admitted the contents of the letters and he has a right to explain under what circumstances the letters were written and in which context he has voted for the resolutions, the Company Law Board was perfectly justified in taking the view that the said questions cannot be decided as preliminary issues and only after evidence is taken, on merits of the matter, the questions raised by the appellant can be decided.

12. The Company Law Board, as already held, is the final fact finding authority and the petitioner in the company petition has a right to lead evidence, either oral or documentary, before the Company Law Board. Hence, the question of fact regarding waiver, estoppel or acquiescence cannot be decided as a preliminary issue. Further, the questions raised are not pure questions of law that go to the root of the matter affecting the jurisdiction of the Company Law Board and when the Company Law Board has jurisdiction to decide the matter on the facts of the case, I am of the view, the Company Law Board has adopted the right course in rejecting the preliminary objections raised by the appellant herein. Further, the Company Law Board has the power and it is also its duty to analyse the evidence that may be let-in in support of the allegations made in the company petition and to draw proper a proper conclusion on the analysis of evidence.

13. In so far as the judgment of this Court in SAROJ GOENKA AND ORS. v. NARIMAN POINT BUILDING SERVICES AND TRADING (P) LTD. (1995) 5 CLJ 282) is concerned, this Court has held that as long as the decision or the determination of such a question law is within the jurisdiction of the Company Law Board, it could not be held that pending determination of such issue, the Company Law Board could not or was not competent to entertain interim applications and pass interim orders which were necessary for ensuring the final reliefs, which the petitioners may be entitled to get, failing which it may be possible in a given case that the ultimate success in the case may become futile when the very subject matter of the proceedings may not be available or it may become impossible to realise the fruits of the proceedings. This Court, no doubt, laid down the law as under: "It follows that it cannot be laid down as a trite proposition of law that even in cases where the point as to maintainability involves mixed question of law and fact, it cannot be tried as a preliminary issue. In the normal circumstances, where the case does not involve pleadings running into hundreds of pages and several issues, the issue relating to maintainability can be tried along with the other issues, because trial of such a case would not occupy longer time and would not subject the parties to long trial. But, in cases where the pleadings run into several hundreds of pages or several issues arise, it would not be just and proper to subject the parties to the trial of the entire case for the purpose of deciding the issue of maintainability. If in such cases the maintainability issue is decided as a preliminary issue, it would be convenient for both the parties, because in the event it is held that the petition is not maintainable, several other issues involved in the case need not be tried and the evidence need not be adduced in a case like this, there will be a large volume of evidence which will have to be adduced as a several issues are to be raised." This Court held that where it involves mixed question of law and fact, it would depend upon the facts and circumstances of each case and such an issue could not be tried as a preliminary issue.

14. On the facts of the case, the respondent herein, who is the petitioner in the company petition, has raised serious allegations against the appellant herein and respondents 2 and 3 in the company petition. The Company Law Board considered the allegations and held that it would not be proper to decide the question of waiver, estoppel or acquiescence as a preliminary issue. Though the various letters written by the respondent herein were not considered by the Company Law Board and it has not addressed the question whether the company petition is maintainable in view of the letters written by the respondent, in my view, serious questions of fact which are disputed are involved and the Company Law Board is perfectly justified in rejecting the preliminary objections raised by the appellant herein and not rendering any finding on the effect of the letters written by the respondent.

15. As far as the other decision relied upon by Mr.Anil B.Divan, learned senior counsel, viz., the decision of the Chancery Division in RE BELLADOR SILK, LTD. (1965-1- ALL ER 667) is concerned, the Chancery Division has held that the presentation of the petition in order to bring pressure to bear to achieve a collateral purpose is an abuse of the process of the Court. However, the applicability of the decision would depend upon the of facts to be ascertained, and before the establishment of the facts, I am of the view, the decision of the Chancery Division cannot be applied.

16. The next decision that was relied on is the decision of the Delhi High Court in SHRIMATI ABNASH KAUR v. LORD KRISHNA SUGAR MILLS LTD. AND OTHERS (44 C.C.390), but the principle laid down by the Delhi High Court, viz., where the petition is filed obviously for an ulterior purpose with an oblique motive and with mala fide intention, has to be considered only at the conclusion of the final hearing, and the said decision of the Delhi High Court is not applicable as the facts have to be established before the Company Law Board.

17. In PALGHAT EXPORTS PVT. LTD. v. T.V.CHANDRAN (79 C.C.213) the Kerala High Court held that the personal grievance is not a ground to maintain a petition under section 397 of the Companies Act. This decision is also not applicable at the present stage. I have already held that the petitioner has a right to lead evidence and explain the circumstances under which the letters, on which a heavy reliance has been placed by the learned senior counsel for the appellant, were written. 18. The decision of the Rajasthan High Court in MAHARANI YOGESHWARI KUMARI v. LAKESHORE PALACE HOTEL (1995) 3 CLJ 418) is an authority on the question when the principle of waiver or acquiescence would apply. It is relevant to notice here that the said judgment was rendered not on a preliminary issue, but only after the conclusion of the trial and hence, the question whether the said decision would apply to the instant case would depend upon the evidence that may be let in by the parties before the company Law Board.

19. In CHANDER KRISHAN GUPTA v.PANNALAL GIRDHARILAL (1996) 5 CLJ 5 65) B.N.Kirpal,J. (as His Lordship then was) held that where the petitioner having himself been a party to the appointment of respondent as a director of the company, cannot be heard to say that the induction of the said respondent as a director would be an act of oppression on the petitioner. As already held, it is for the company petitioner/respondent herein to explain the circumstances under which he was a party to the induction of the second respondent as Chairman of the group companies during the course of hearing before the Company Law Board and the applicability of the decision would ultimately depend upon the facts that may be established before the Company Law Board at the time of final hearing.

20. As rightly pointed out by Mr.Arvind P.Datar, learned senior counsel that in the cases, on which reliance has been placed by Mr. Anil B.Divan, learned senior counsel for the appellant, the question of waiver, estoppel or acquiescence was decided not as a preliminary issue, but at the conclusion of final hearing of the case along with other issues. No doubt, as held by the Division Bench of this Court in Saroj Goenka's case, cited supra, it would depend upon the facts and circumstances of each case whether the issue raised by the appellant can be decided as a preliminary issue or not.

21. Under section 3 of the Evidence Act, a fact is said to be proved, when the Court, upon consideration of evidence, comes to the conclusion that even a normal and prudent man, in the circumstances of the case, would act upon the proposition that the fact exists. I am of the view, by the very production of the letters sent by the respondent herein, it cannot be said that the facts stated in the letters have been proved. The respondent herein has a right to lead evidence on the contents of the letter and only on collocation of facts, it will be open to the Company Law Board to draw an inference as to the existence of the facts stated in the letters. Therefore, it cannot be stated that the contents of the letters are proved in the absence of any explanation or evidence on the letters from the company petitioner.

22. I have gone through the company petition filed before the Company Law Board and the counter affidavit filed by the appellant herein, and the Company Law board has rightly held that the question whether waiver, estoppel or acquiescence would disentitle the respondent herein who is having 10 shares in the appellant company has to be considered on merits of the case. I find that the Company Law Board has exercised its discretion properly on proper grounds. Though the Company Law Board has not stated anything about the effect of various letters written by the company petitioner, however, the Company Law Board has rightly not chosen to consider those letters and it is apparent from the order of the Company Law Board that the third preliminary objection was also rejected by it. I hold that the Company Law Board has exercised its discretion properly and I do not find that any case has been made out to interfere in the discretion exercised by the Company Law Board in rejecting and refusing to entertain the preliminary objections Nos.2 and 3 raised by the appellant herein.

23. I have already held that the Company Law Board has given certain directions directing the appellant company to file its affidavit on the allegations in the petition including those in respect of its dealing with the subsidiaries and in view of my judgment in C.M.A.No.2 018 of 2000 of even date no exception can be taken against that part of the order of the Company Law Board. The appellant has also questioned the direction of the Company Law Board giving the liberty to the respondent herein to file a separate petition before the Company Law Board in terms of section 214(2) read with 235 of the Companies Act. The Company Law Board has not committed any error in recognising the statutory right given to the respondent herein under the law to file a petition under section 214(2) read with 235 of the Companies Act. I do not find any error in that part of the order of the Company Law Board as well.

24. Accordingly, the appeal stands dismissed. However, in the circumstances of the case, there will be no order as to costs. Consequently, connected C.M.P.No.19597 of 2000 is closed. Index: Yes/No

Website: Yes/No

na. 3-6-2002 To

The Company Law Board, Principal Bench, New Delhi. 


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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