CA No. 25/2012 in CP No. 4/1991. Case: Bhupinder Rai and Another Vs S.M. Kannappa Automobiles (P.) Ltd.. Company Law Board

Case Number:CA No. 25/2012 in CP No. 4/1991
Party Name:Bhupinder Rai and Another Vs S.M. Kannappa Automobiles (P.) Ltd.
Counsel:For Appellant: S.S. Naganand, Senior Counsel and S. Indumati Ravi and For Respondents: P.S. Raman & P.M. Arvind Pandian, Senior Counsel, Sriranga, T.K. Bhaskar, Ms. Priyadarshini, P.R. Raman, Anirrudh Krishnan, Pushpa Menon & Arun Srikumar
Judges:Kanthi Narahari, Member (J)
Issue:Code of Civil Procedure (CPC), 1908 - Rule 17; Code of Civil Procedure (CPC), 1908 - Rule 2; Companies Act, 1956 - Sections 101, 10F, 111, 111A, 269, 397, 397, 398, 399, 400, 401, 402, 397, 398, 399, 400, 401, 402, 398, 402
Judgement Date:October 17, 2012
Court:Company Law Board
 
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Order:

Kanthi Narahari, Member (J), (Chennai Bench)

  1. The present application is filed under regulations 17 and 44 of the Company Law Board Regulations, 1991 read with order 6, rule 17 of the Code of Civil Procedure, 1908 ('Code'). Shri Naganand, learned senior counsel appearing for the applicants submitted the brief facts of the case. It is submitted that the applicants/petitioners have filed the above company petition praying that this hon'ble Board may be pleased to declare that the purported allotment of 6,000 shares in favour of respondent Nos. 6 and 7 at the meeting of the Board stated to have been held on 24th September, 1990 as void, illegal and inoperative and direct rectification of the register of members of the company by deleting the names of respondents 6 and 7 from the register of members to the extent of 3,000 shares each allotted to them on 24th September, 1990. The applicants are desirous of urging additional grounds and prayers in support of their petition. The contentions now being urged as additional grounds are purely legal contentions and are necessary for proper adjudication of the questions in issue in the present proceedings.

  2. He submitted that there are broadly four groups of shareholders and the purported allotment made in the year 1990 in respect of 6,000 shares is bogus, motivated and illegal. The present application is filed seeking amendment, since the hon'ble High Court of Karnataka permitted filing of additional pleadings. Therefore, the present application is made seeking the following amendments. It is submitted that no new facts are being brought in except some provisions of law.

    2.1. Add the following additional grounds after ground No. (xviii):

    (xix) It is submitted that the purported allotment of 6,000 shares in favour of respondent Nos. 6 and 7, on the face of it, is for a collateral purpose. Neither was the allotment of additional shares bona fide, nor was it in the interest of the company, nor was a proper and legal procedure followed to make the allotment. The motive for the allotment was mala fide, the only motive being to gain control of the company. The hon'ble Supreme Court, in the case of Dale & Carrington Invt. (P.) Ltd. v. P K Prathapan [2004] 62 CLA 245 (SC): [2005] 1 SCC 212, in similar circumstances, held that the entire allotment of shares was oppressive and was liable to be set aside. In Pearson Education Inc. v. Prentice Hall India (P.) Ltd. [2006] 80 CLA 234 (Del.), the hon'ble Delhi High Court has held that even one such act would be sufficient to constitute oppression and mismanagement if it disturbs the equity stakes decisively by bringing down the equity share of the petitioners. The said decisions arc squarely applicable to the facts of the present ease. The allotment of 6,000 shares in favour of respondent Nos. 6 and 7 is wholly oppressive and is liable to be set aside under section 397 of the Companies Act, 1956 ('the Act').

    (xx) The allotment of 6,000 shares in favour of respondent Nos. 6 and 7 is wholly oppressive to the petitioners. Having regard to the fact that respondent is a small domestic company, a quasi-partnership having been formed from a partnership firm, it would be just and equitable to wind up the respondent No. 1-company as there is complete breakdown of mutual good faith and trust on account of respondent No. 7's conduct. This has also been so found by the Division Bench of hon'ble High Court in OSA No. 46 of 2006 and connected cases disposed of on 22nd March, 2012 (now reported SM Kannappa Automobiles (P.) Ltd. v. Bhupinder Rai [2012] 110 CLA 156 (Kar.)}. Winding up would prejudice the petitioners and, therefore, alternate relief under sections 397 and 398 is warranted to protect the company and the interest of its members, the petitioners herein.

    2.2. Add the following additional prayers:

  3. Declare that the purported allotment of 6,000 shares in favour of the respondent Nos. 6 and 7 at the meeting of the Board stated to have been held on 24th September, 1990, as prejudicial to the interests of the company and oppressive to the petitioners, and consequently set aside the said allotment.

  4. Remove respondent Nos. 2, 5 and 7 as directors of the company and disqualify them to hold office as directors of respondent No. 1-company.

    In support of his submissions, the learned senior counsel relied upon the following decisions.

    (i) Orders passed in CA Nos. 24 and 25 of 2008 in CP No. 55 of 2008 dated 23rd January, 2009 (CLB, Chennai). In the matter of BEML Ltd. v. BEML Mid-West {now reported [2009] 91 CLA 115 (CLB)}:

    In view of my foregoing conclusions, on the amendment of pleadings, in the present case and after due application of the propounded legal proposition, summarised, the strength of various decisions of the Supreme Court and different High Courts in Ashok Millal v. Uniworth Resorts Ltd. (supra), I am inclined to allow the prayer of the applicant for amendment of the main petition, as claimed in CA No. 24 of 2008, rejecting the opposite plea that the proposed amendments would 'constitute a totally new case arising of a new cause of action as well as totally new relief's all of which are totally beyond the scope of the petition and thereby this issue is answered in the affirmative.

    (ii) In the matter of Karedla Suryanarayan v. Sri Ram Dass Motor Transport (P.) Ltd. [1998] 28 CLA 233 (CLB)/ [1998] 92 Comp Cases 275 (CLB)... It is of the view that

    Since, on most of the occasions, when subsequent events are sought to be brought on record either through an amendment to the main petition or through an application, certain interim relief's are also sought for, as happened in this application. Since in such cases, the main petition itself would be pending and there would have been no occasion for us to find out whether the petitioners have made out a case for grant of relief thereof any interim relief prayed for in such applications containing subsequent events could only be related to maintenance of status quo in regard to the affairs of the company. No relief which would upset the status quo can be granted when the allegations in the main petition are yet to be assessed by the Company Law Board. Thus, our conclusion, on the issue of subsequent events, is that there is no bar to subsequent events being brought on record and being considered by us also but such consideration would be only to mould the relief to be granted in case the petitioner succeeds in the main petition and any interim relief granted, based on subsequent events, would be limited to status quo being maintained in regard to the affairs of the company.

    (iii) In the matter of Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2006] 36 CLA 152 (Bom.)/[2001] 106 Comp Cases 25. It is held:

    The Division Bench was referring to the judgment of this court in the case of Khimji M Shah, In re. [1988] MLJ 38. 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 decision of the Division Bench makes it clear that the decision of the Supreme Court in Kalinga Tubes Ltd., In re. [1965] 35 Comp Cases 351 was not dealing with the case of an amendment application and is, therefore, not applicable to the facts and circumstances of this case.

    (iv) In the matter of Charanjit Khanna v. Khanna Paper Mills Ltd. [2011] 103 CLA 33 (Del.). It is held that-

    In view of aforesaid, the present appeal is allowed and the CLB is directed to take the amended composite petition on record. However, as the CLB has not reached any conclusion with regard to the contentions raised by the respondents, in its application being CA No. 213 of 2007, the respondents are granted liberty to raise the said issues before the CLB, who would deal with the same while disposing of the composite petition.

    (v) In the matter of Rajesh Kumar Aggarwal, In re. AIR 2006 SC 1647.... Paras 18, 19 and 20.

  5. Respondent No. 1 filed reply to the application. Shri T K Bhaskar, learned counsel appearing for this respondent opposed the present application and submitted that the present application is an abuse of process of this court and of law, and is an indirect attempt to try and enlarge the scope of the instant proceedings, which cannot and should not be permitted. The amendment, if allowed, will introduce an altogether new case, going beyond the narrow confines of section 111 of the Act under which the present petition has been instituted. As such, the application cannot be entertained. It is not in dispute that the present petition is one under section 111 of the Act only and the extent and scope of the power of the CLB in dealing with proceedings under section 111 of the Act is now well settled. The summary nature of the proceedings and the fact that the CLB cannot exercise powers under sections 397, 398 and 402 of the Act whilst considering a petition under section 111 of the Act is well accepted in law. However, a bare reading of the proposed amendments to the petition will show that the petitioner is seeking to extend the scope of the present proceedings by indirectly making references to the provisions of sections 397, 398 and 402 of the Act. They are seeking to urge and add additional relief's, which relief's cannot be granted in exercise of powers under section 111 of the Act. As such, their motion for amendment must fail.

  6. He further submitted that this petition had been filed in the year 1991, alleging that the names of respondent Nos. 6 and 7 had wrongly been entered in the members' register of the company, in respect of 3,000 shares each. The petition was filed invoking the limited power of this hon'ble Board, under section 111 of the Act. In 1994, the petition was found by this Board to be devoid of all merit, and dismissed. Thereafter, the petitioners took the matter in appeal under section 101 of the Act, to the High Court of Karnataka. In the course of final hearing in 2012, the High Court...

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