Dr. Bais Surgical And Medical ... vs Dhananjay Pande And Ors.
2005 Latest Caselaw 258 Bom

JUDGMENT

A.H. Joshi, J

1. Learned Counsels agree for final disposal of appeal at motion hearing. Hence, heard for final disposal.

This is an appeal arising out of interim arrangement ordered by the Company Law Board, Principal Bench (hereinafter referred to as CLB for brevity).

Facts of the case

2. The background of the case, in brief, can be seen from page 91 of Paper Book, is that the dispute pertains to share holding, the control and management of the Company who is appellant No. 1 as was pleaded in the earlier litigation, respondent No. 1 claimed to have been holding 49% shares, while other group referred as Dr. Bais Group claimed 51% shares. In the earlier round before it, the CLB found that respondent No. 1 herein was shown to have applied for shares and paid a sum of Rs. 14, 95,998/- as share application money and was also appointed as Director of the Company and then as Managing Director, and the CLB in its order dated 2-12-2004 in said Company Petition inter alia passed an order directing allotment of shares to the respondent No. 1 herein.

3. The appellant claimed that in a special general meeting of the Company, for which notice was issued on 15-11-2004, authorised share capital of the Company was increased and for enabling the Company to be in a position to acquire land and the building in which the Hospital has been housed, additional share capital of 6 lacs shares having face value of Rs. 6 crores was allotted to Dr. Bais Group, while shares as ordered by the CLB were allotted to the respondent No. 1 without prejudice to his rights and subject to decision of Company Appeal No. 7 of 2004 filed by Dr. Bais Group and the Company against the CLB's Judgment and order dated 2-12-2004.

According to the Company, the information in Form 5 and Form No. 23 was duly and punctually furnished to the Registrar Companies, Maharashtra at Mumbai, relating to increase in share capital and issue of additional share capital etc.

4. The subject Company Petition in which the impugned interlocutory order has been passed is filed by the present respondent No. 1 representing mainly that the increase in authorised capital and consequent issue of additional share capital has been done on illegal foundation, by disputing illegality of the meeting etc. in which said business was transacted. It is alleged that all these actions have been taken in order to circumvent the Judgment of the CLB delivered on 2-12-2004, which is also violative of the memorandum of understanding reached between the two groups, that this has been done in order to undermine the holding and voting power of the present respondent No. 1. According to the respondent No. 1, the agreement sought to be entered into by the appellant Company with the respondent No. 2 amounted to an act gravely prejudicial to the interest of the Company and prejudicial to the interest of the respondent No. 1, herein and amounts to an act of mis-management and of oppression of the respondent No. 1 and therefore, respondent No. 1 was entitled to maintain the petition under Sections 397 and 398 of Companies Act read with Section 402 thereof.

5. It is seen that at the first hearing, the matter was moved with a short notice, and was taken up for passing urgent orders till the parties file their pleadings etc., and CLB passed an order to operate during the intervening period.

6. It is this order dated 10-1-2005 which is challenged in this appeal. Heard Learned Advocate Shri V. R. Thakur instructed by Shri D. V. Chauhan for the appellant and Shri M. G. Bhangde for respondent No. 1. Both the learned Advocates have filed their written notes of submissions and cited the Judgments which they have relied upon. The respondent No. 2 were neither noticed nor served. The order impugned being extremely in brief can better be referred for its reproduction.

ORDER

Petition mentioned and interim reliefs sought. The status quo in regard to the property and shares is to be maintained as of date. Its mentioned by Counsel for the parties that no final management agreement has been entered into. Replies to the petition to be filed by 10-2-2005 and rejoinder by 10-3-2005. The petition will be heard on 17-3-2005 at 10.30 a.m.

Interim arrangement is continuing. It is also stated that the land and buildings have not yet been registered in the name of the Company.

Sd/-

Preliminary Objections and Finding Thereon

7. Learned Advocate Shri M. G. Bhangde raised preliminary objection for hearing of appeal by Division Bench on the ground that referring to powers of Single Judge as prescribed in Chapter 1 Rule 2(1)(a)(V) that the power to hear appeals from order of a Judicial or quasi-Judicial Forum under Local law or special enactment did lie before Single Judge. Mr. Bhangde has also pointed out from the Judgment Maharashtra Power Development Ltd. v. Dabhol Power Company. That similar appeal was heard by Single Judge at the principal seat of this Court and its appeal was heard by Division Bench. Mr. Bhangde relies upon this Judgment though he fairly admits the position that the point of proper form was neither raised, addressed or adjudicated in said reported Judgment.

8. In reply Mr. V. R. Thakur relied upon a Judgment Stredewell Leathers (P) Ltd. v. Bhankapur Simbhaoli Beverages (P) Ltd. and Ors. In this case, main question that had arisen was not about strength of bench but was about territorial jurisdiction, and Hon'ble Apex Court held that the High Court within whose Territorial Jurisdiction the Regd. Office of the Company was situated was the Court which had jurisdiction and not the place within whose territory the CLB or its Bench was located.

In this Judgment, however, the question as to bench strength was also addressed, discussed and Lordships of Apex Court have opined even on this point. These observations are contained in para 13 and dictum is that the jurisdiction to hear and decide the appeal under Section 10F of the Companies Act shall lie before Division Bench.

9. Mr. Bhangde then objected maintainability of appeal on the ground that an appeal was available only on a question of law, while no question of law was raised nor did it arise. This point is dealt with while dealing with the merits of appeal.

10. Learned Advocate Mr. V. R. Thakur tendered questions of law and also tendered copy of notice under Section 13 of Securitization Act and urged that the Company needed to be protected from calamity and such protection shall be possible only if interim order is set aside.

Submissions of Appellants

11. Mr. Thakur placed reliance on citation namely :--

(1) 2005 CL 123 Page 110, Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Ors. Nanalal Zaver and Anr. v. The Bombay Life Assurance Col, Ltd. and Ors.

Mr. Thakur has relied upon these Judgment in order to bring home his plea that the Petition by respondent No. 1 before CLB was not bona fide action. And rather was vexatious. According to Mr. Thakur, action taken by Directors was for protecting the interest of Company, with best judgment they had. Their actions according to Mr. Thakur did neither amount to mis-management or prejudicing Company's interest nor did it have any semblance of oppression.

According to Mr. Thakur it has already come on record that half of the net worth of the Company was eroded way back prior to 2002 and sales had come to stand still and Company was adding to losses by incurring trading losses.

These facts also can be seen from CLB's Judgment dated 2-12-2004.

According to Mr. Thakur, the Company was saved from difficulties due to additional investment done by Dr. Bais Group to repay Bank loans of one of the Bank and by bringing additional funds from the respondent No. 2 under the management agreement in the offing and that due to these actions future losses can be avoided and drastic action by Bank can also be prevented.

12. Learned Advocate Mr. Bhangde on the other hand asserted and supported his client's plea as taken in the petition under Section 397 and pleaded that it was a clear case of actions to undermine the holding and control of the respondent No. 1.

Mr. Bhangde disputed that the notice under Section 17 of Securitization Act by SBI did really pose any threat. He did not very seriously dispute the eroded net worth of the Company, or the fact that the activity has restarted due to the help of the respondent No. 2. Mr. Bhangde has also filed written notes of his submissions. All that he emphasis is that the order of CLB under appeal is of short lived transitional nature and passed awaiting hearing of said interlocutory application on merits. He, therefore, urged that C. L. Board was about to hear the question of interim relief and there were no grounds for entertaining the appeal.

13. Questions to be decided in this appeal are as follows:

(1)    Does the order under appeal suffers from any legal or error of jurisdiction.
 

(2)    Is the order impugned unsustainable and call for interference?
 

(3)    What order? 
 

14. As it is seen what the Company was likely to get, in turn, of allotment of additional share capital to Dr. Bais Group is, in fact, acquisition of assets i.e. land and building in which the hospital is being run which is uptil now exclusively owned by Dr. Bais. The CLB has recorded that status quo in regard to property and shares is to be maintained as can be seen from the underlined portion of the order quoted hereinabove. The parties are common on the ground that the execution of the sale deed in favour of the Company is still not completed. There is no other property owned by the Company which is either to be alienated or any apprehension in regard thereto is capable of being expressed and noticed. The order impugned reveals that the act of the Company of increasing the share capital and its allotment is also complete and what is to be done if order impugned is to be obeyed to maintain status quo in that regard. According to the parties, there is no act of further increasing share capital or allotment of further shares in the offing. In this background, order of status quo as to the shares and property viewed from any angle is innocuous inasmuch as it does not serve the purpose of the respondent No. 1 whatsoever, nor could it be said to be causing any prejudice to the appellants herein. The observation of the CLB that the management agreement sought to be entered into with respondent No. 2 is not so far entered is simply recording of the statement of fact and not in the nature of recording of an undertaking. Even an injunction in that regard cannot be read to have been passed or in operate against the appellant.

15. If the Court would like to examine as to what are the grounds and reasons which led the CLB to pass an order of interim arrangement. It is seen from whatever points urged before the CLB apart from what could be seen from the contents of the application under Sections 397 and 398 of Company Act, the application for interim relief and other documents relating to earlier litigation, it would turn out to be an act of fishing expedition. However, in order to meet the apprehensions expressed, CLB seems to have passed impugned transitory arrangement.

16. Ordinarily in a challenge of present nature where an order serving the nature of a short lived and almost ex parte and ad hoc arrangement, the challenge ought to be based on such grounds that the order could be seen to be such that by no stretch of interpretation of pleadings, such order could be wholly sustained. A challenge answering such an acid test does not crystallise from pleadings and submissions made on the part of the appellant. The appellants have, therefore, failed in making out a case for entertaining such appeal.

17. In this fact background, it would amount to pre-judging of the issue if the present appeal is entertained and this Court enters into the arena by examining the illegality and proprierty of the order.

18. Looking to the nature that no prejudice whatsoever is seen to have been caused to the appellants due to the impugned order to the parties, it would be proper to leave the parties to avail option of approaching the CLB and on completing their pleadings to move the CLB for disposal of the application for interim relief.

19. In view of above discussion, the questions No. 1 and 2 are answered against the appellant. It is held that impugned order does not call for any interference.

20. In the result, appeal is dismissed. Parties shall bear their respective costs.

21. Findings and observations are from what emerged prima facie. The CLB need not and shall not feel in any manner influenced thereby since it shall decide the interlocutory application on merits on completion of pleadings and documents.