Bombay High Court
Vidarbha Bottlers Pvt. Ltd vs Devilal Hardeolal Jaiswal And Ors on 23 September, 2015
Bench: A.S. Chandurkar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR.
COMPANY APPEAL NO.5 OF 2012
IN
COMPANY PETITION NO.80/397-398/CLB/MB/2010
APPELLANTS: 1. Vidarbha Bottlers Private Limited, a
Company registered under the
Companies Act, 1956, having its
registered office at Chich Bhavan,
ig Village Khapri, Wardha Road, Nagpur
(Maharashtra).
2. Mr. Suresh S/o Bhayalal Jaiswal,
3. Mr. Sanjeet S/o Suresh Jaiswal,
4. Mr. Amresh S/o Suresh jaiswal,
5. Mrs. Chhayadevi W/o Suresh Jaiswal,
6. Mrs. Kiran W/o Ravindra Jaiswal,
7. Mrs. Rita Wd/o Vijaykumar Jaiswal,
8. Mrs. Premsheela W/o Rajkumar
Jaiswal,
9. Mrs. Saloni W/o Sanjeet Jaiswal,
10. Mr. Prashant S/o Suresh Jaiswal,
11. Mrs. Anuja W/o Prashant Jaiswal,
All residents of 14/C, Chhaya Villa,
Dhantoli, Nagpur.
-VERSUS-
RESPONDENTS: 1. Devilal Hardeolal Jaiswal,
(Ori. Petitioners)
2. Vishal Devilal Jaiswal,
3. Vaibhav Devilal Jaiswal,
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4. Mrs. Nirmaladevi Devilal Jaiswal,
All Residents of 226, Ganesh Vandan,
Hill Road, Shivaji Nagar, Nagpur.
5. Mrs. Vaishali Jaiswal, Resident of
Loknath Tower, Dhantoli, Nagpur.
Mr. A. M. Gordey, Senior Advocate with Mrs. R. D. Raskar, Advocate for
the appellants.
Mr. S. P. Dharmadhikari, Senior Advocate with Mr. D. V. Chavan,
Advocate for respondents.
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CORAM: A.S. CHANDURKAR, J.
DATE ON WHICH SUBMISSIONS WERE HEARD: 04-08-2015.
DATE ON WHICH JUDGMENT IS PRONOUNCED: 23-09-2015.
ORAL JUDGMENT :
1. This appeal filed under Section 10F of the Companies
Act, 1956 (for short the said Act) takes exception to the order dated
7-8-2012 passed by the learned Member, Company Law Board
Mumbai (for short the Board). By said order, the parties to the
proceedings were directed to make sealed bids to buy/sell their
shareholdings.
2. A brief reference to the relevant facts would be
necessary. The appellant No.1 is a Company registered under
provisions of the said Act. One group of shareholders comprises of
appellant Nos.2 to 11 while the other group comprises respondent
Nos.1 to 5. Both the groups had filed proceedings before the Board
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under provisions of Sections 397 and 398 of the Act. The
appellants' group had filed Company Petition No.46 of 2005 while
respondents' group had filed Company Petition No.46 of 2005.
Both these petitions were heard together and by judgment dated
7-5-2008, the Board dismissed Company Petition No.76/2007 and
allowed Company Petition No.46/2005. The illegal increase and
allotment of thirty thousand equity shares in favour of appellant
Nos.2, 3 & 4 was declared as null and void and after setting aside
the same, status quo ante was restored. A further liberty was given
to consider appointing of Auditors for carrying out investigative
audit. An option was also given to the parties to buy/sell their 50%
shareholding at Rs.2,70,00,999/- or at a value as on 31-3-2008
whichever was higher.
3. After aforesaid order was passed, there was some
exchange of communications between the parties and ultimately
two company appeals came to be filed by the group representing
appellant Nos.2 to 11. The appeals were accompanied by
applications for condoning delay. This Court on 4-2-2011 dismissed
both the applications for condonation of delay on the ground that
the delay in filing the appeals was more than 60 days and there
was no jurisdiction to condone the delay beyond said period. This
order was not challenged any further. In the meanwhile,
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respondents filed Company Petition No.80/2010 against the
Appellants under Sections 397 and 398 of the said Act. It was
prayed that the shares of the Company be valued and appellant
Nos.2 to 11 be directed to sell their 50% shareholding in the
Company to the respondents' group. The present appellants filed
reply to aforesaid Company Petition and took the stand that the
proceedings itself were not maintainable and that the petitioners
before the Board were trying to execute the earlier order dated
7-5-2008. During pendency of said proceedings, the learned
Member of the Board passed an order on 7-8-2012. It was held that
with a view to end the matters complained of and to regulate the
conduct of the affairs of the Company, it was necessary to direct
the parties to make sealed bids and buy/sell their respective
holdings. It is this order which is the subject matter of challenge in
the present appeal.
4. Shri A. M. Gordey, the learned Senior Counsel for the
appellants made the following submissions:
(a) That Company Petition No.80/2010 filed by the
respondents under Sections 397 and 398 of the said Act was not
maintainable. It was submitted that by filing said proceedings, the
respondents were attempting to execute the order passed in
Company Petition No.46/2005. According to the learned Senior
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Counsel, it was open for the respondents to execute said order by
having recourse to the provisions of Section 634A of the said Act. In
fact, there was no cause of action for filing the subsequent
Company Petition and there were no pleadings therein as regards
any act of oppression or mismanagement warranting invocation of
such jurisdiction. It was, therefore, submitted that in such
proceedings which were not maintainable, the impugned order
could not have been passed.
(b)
ig That in any event, no case was made out by the
respondents before the Board under provisions of Sections 397 and
398 of the said Act as a basis for passing the impugned order. In
fact, there was no foundation available for exercise of powers by
the Board in the present case. It was submitted that by the earlier
adjudication, the disputes had been settled and options had already
been given in the earlier order dated 7-5-2008. It was, therefore,
submitted that in absence of relevant facts for the purposes of
invoking jurisdiction by the Board, the impugned order in absence
of such foundation could not have been passed.
(c) That the impugned order was unreasoned and hence,
not sustainable. Neither had any prima facie finding been recorded
before passing the impugned order nor was any satisfaction
recorded by the learned Member warranting passing of the
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impugned order. It was, therefore, submitted that absence of
reasons in the impugned order vitiates the same rendering it
unsustainable. In that regard reliance was placed on the judgments
of the Supreme Court in The Siemens Engineering and
Manufacturing Co. of India Ltd. v. The Union of India and another
AIR 1976 Supreme Court 1785, Mohinder Singh Gill and another v.
The Chief Election Commissioner, New Delhi and others AIR 1978
Supreme Court 851 and Oryx Fisheries private Ltd. Vs. Union of India
and Ors (2010) 13 SCC 427. It was submitted that the impugned
order itself was oppressive and it defeated the object sought to be
achieved by Sections 397 and 398 of the said Act.
5. The aforesaid submissions were countered by Shri S. P.
Dharmadhikari, the learned Senior Counsel on behalf of the
respondents by urging that :
(a) There were sufficient pleadings in the Company
Petition as regards various events that had occurred after
30-6-2008. It was submitted that the Company Petition was based
on various events that had transpired after the earlier proceedings
were decided. Reference in that regard was made to various
averments in the Company Petition and it was, therefore, submitted
that the same was liable to be entertained on merits. It was further
submitted that in the earlier order dated 7-5-2008 only the
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directions issued in para 29 thereof were executable. The
observations made in para 30 of said order did not result in passing
any executable order. Only an option was given to buy/sell
respective shareholdings. It was, therefore, submitted that no
attempt was being made to execute the earlier order by filing
subsequent Company Petition.
(b) That the Board had sufficient powers to pass such
orders as it deemed fit if any act of oppression or mismanagement
was brought to its notice. It was submitted that the impugned order
was passed with a view to put an end to the deadlock and also with
a view to end the matters complained of. It was submitted that
these wide powers had been duly recognized by the Division Bench
of this Court in Bennet Coleman and Co. Versus Union of India and
others (1977) 47 Company Cases 92. It was further submitted that
even the Supreme Court had recognized the wide amplitudes of
such powers in its judgment in M.S.D.C. Radharamanan Versus
M.S.D.Chandrasekara Raja and another (2008) 6 SCC 750.
Reference was also made to the judgment of learned Single Judge
of the Delhi High Court in Venture India Properties P. Ltd. & Ors
Versus Capt. Manmohan Singh Kohli & Ors, 2011(123) DRJ 520.
(c) That the impugned order had been passed after due
consideration of the earlier proceedings as well as the facts
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occurring after the earlier adjudication. It was submitted that the
reading of the impugned order as a whole along with the factual
background would indicate that the impugned order had been
passed after the learned Member of the Board found that the
deadlock between the shareholders continued to operate. The
impugned order had been passed after hearing the respective
parties and after being satisfied that a case for issuing the
impugned directions had been made out.
(d)
ig That the appeal under Section 10F of the said Act did
not give rise to any question of law and, therefore, there was no
reason to interfere in the appeal.
6. I have given due consideration to the respective
submissions and I have gone through the various documents filed
on record. Before proceeding further, it would be apposite to refer
to the legal position with regard to the scope of powers under
Sections 397, 398 and Section 402 of the said Act:
(a) In Bennet Coleman and Co. (supra), it was held that
"the position is clear that while acting under Section 398 read with
Section 402 of the Companies Act the Court has ample jurisdiction
and very wide powers to pass such orders and give such directions as
it thinks fit to achieve the object and there would be no limitation or
restriction on such power that the same should be exercised subject to
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the other provisions of the Act dealing with normal corporate
management or that such orders and directions should be in
consonance with such provisions of the Act.
(b) The Court is not bound by provisions of Section 402 of
the said Act if in a particular fact situation the further relief is
warranting even without a finding of oppression and the Board
may grant such relief to do substantial justice - Sangramsingh P.
Gaekwad and others Vs. Shamlatadevi P. Gaekwad (Dead) through
LRs and others (2005) 11 SCC 314.
(c) The powers under Section 402 of the said Act are
residuary in nature and in addition to the powers available under
Sections 397(2) and 398(2) of the said Act to enable the Board to
make such order as it thinks fit with a view to bring to an end or to
prevent the matters complained of or apprehended under Section
398(1) of the said Act - Manish Mohan Sharma & others Vs. Ram
Bahadur Thakur Ltd. and others (2006) 4 SCC 416.
7. The facts on record indicate that the appellant No.1
Company was incorporated on 13-3-1987 with a share capital of
Rs.15,00,000/-. The authorized share capital was increased to
Rs.25,00,000/- on 19-9-1991. Both groups had ten thousand shares
each while five thousand shares remained unsubscribed. The
Board of Directors comprised of six directors, three belonging to
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each group. According to the respondents, on 31-3-2005, the
appellants group without due notice held an Annual General
Meeting and increased the share capital from Rs.25,00,000/- to
Rs.50,00,000/-. As a result of said shares being allotted to the
group of the appellants, their shareholding became 80% while that
of the respondents was 20%. The respondents had, therefore, filed
Company Petition No.46/2005 to question the allotment of shares
effected on 31-3-2005. According to the respondents, they were
willing to sell/buy shares at a value of Rs.27,00,00,999/- but this
offer was refused by the appellants who, in turn, filed Company
Petition No.76/2007. As stated above, both these petitions were
decided by the Board on 7-5-2008 and the illegal increase and
allotment of 30,000/- equity shares was set aside. The Board in
said order had given an option to the parties to buy/sell their 50%
shareholdings at a particular value. This order setting aside the
illegal increase and allotment of thirty thousand shares with further
liberty to consider appointing auditors to carry out the investigative
audit for preceding five years has attained the finality.
8. It would be necessary to briefly notice the averments
made in Company Petition No.80/2010 filed by the respondents. In
para 6.10 it is averred that the present appellants did not take any
steps to give effect to the judgment dated 7-5-2008 in Company
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Petition No.46/2005. It is also stated that the statutory records of
the Company had not been amended/corrected in terms of said
judgment. In para 6.11, it is averred that despite requests by the
respondents, the appellants did not convene any Board meeting
between 11-8-2008 and 15-8-2008 nor had the investigative audit
being conducted. In para 6.21, it is averred that after the earlier
proceedings were decided, the respondents had been kept away
from the affairs of the Company and were not informed about its
matters. No notices were received either of any Board meetings or
the Annual General Meeting. In para 6.23, it is averred that the
appellant No.1 Company had not filed statutory reports under the
said Act for the years from 2005-2006 onwards. In para 6.42, there
is a reference made to letters received from certain Cooperative
Banks where the Appellant No.1 - Company had its accounts and it
was informed that the credit balance available was nil. In para
6.45, there is a reference to a notice of default dated 12-8-2010
received from the Registrar of Companies calling upon the
respondents to show cause why action should not be taken for
contravention of various provisions of the said Act. In para 6.47
and 6.51, it is averred that aforesaid aspects have caused serious
prejudice to the respondents as well as their interests in the
Company. It is on the basis of aforesaid pleadings that it was urged
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that the subsequent Company Petition was tenable in law.
9. In the reply filed on behalf of the appellants, it has
been stated that the respondents had themselves prohibited the
audit of the Company from being carried out and that the
respondents had also prevented holding of any Board meeting due
to their non-cooperation. It is also stated that the appellants were
entitled to receive various amounts from the respondents and it
was denied that any amounts had been siphoned of.
ig The learned Member while passing the impugned order
has referred to the facts and circumstances of the case and has
taken into consideration the earlier order passed by the Board.
It has then observed with a view to end the matters complained of
and to regulate the conduct of its affairs that the impugned order
directing parties to make sealed bids was passed.
10. From the aforesaid, it is clear that the respondents had
sought to make out a case of oppression and mismanagement by
relying upon the various events that had occurred after the earlier
proceedings were decided. It was stated that no Board meetings
were held and show cause notices were being issued by the
Registrar of Companies on account of non-compliance with various
provisions of the said Act. Reference was also made to the financial
affairs of the Company after the earlier proceedings were decided.
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It, therefore, cannot be said that Company Petition No.80/2010
filed by the respondents was not maintainable. Merely because
reference was made to the earlier proceedings decided on 7-5-
2008, that by itself would not render the present proceedings
untenable. The earlier adjudication could be referred to
demonstrate the conduct of the appellants while making out a case
of oppression and mismanagement. That the earlier order dated
7-5-2008 could be executed under provisions of Section 634-A of
the said Act would not mean that the earlier adjudication had to be
altogether ignored when it is the case of the respondents that
despite earlier orders, the deadlock in the management of the
affairs of the Company continued. The submission made on behalf
of the appellants that the subsequent Company Petition was not
tenable, therefore, cannot be accepted.
11. The nature and scope of powers available under
Sections 402 and 403 of the said Act have been held to be wide
enough to enable passing of appropriate orders with a view to
achieve the object as contemplated by Sections 397 and 398 of the
said Act. As held by the Supreme Court in M.S.D.C. Radharamanan
(supra), the Board has sufficient power to pass an order to protect
the interests of the Company. It was observed that on noticing a
deadlock in the conduct of the affairs of the Company, the Board
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can pass an order keeping the interests of the Company in mind.
The observations in aforesaid decision as well as judgment in
Venture India Properties (supra) support the case of the
respondents. Hence, considering the true purport of Sections 397,
398 and 402 of the said Act, it cannot be said that the learned
Member of the Board fell into error in passing the impugned order.
12. Perusal of the impugned order does not indicate that
the same is unreasoned as canvassed on behalf of the appellants.
The same indicates that it has been passed after considering the
facts and circumstances of the case and after considering the earlier
orders passed. By observing that it intended to end the matters
complained of and with a view to regulate the conduct of the
affairs of the Company in future, it is clear that due consideration
of relevant aspects has been taken after which the impugned
directions have been issued. It is well settled that the length of an
order is not always decisive. If there is due reflection and
consideration of relevant aspects, the order even if brief can be
sustained. As observed by the Supreme Court in Board of Trustees
of Martyrs Memorial Trust and another vs. Union of India (2012) 10
SCC 734, all long judgments or orders are not great nor are brief
orders always bad.
The proposition of law as laid down in Siemens
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Engineering and Manufacturing Company Limited (supra),
Mohindersingh Gill (supra) and Oryx Fisheries (supra) can hardly
admit of any doubt. However, in the present case, it has been found
that the impugned order has been passed after considering all
relevant aspects and hence, the same cannot be termed as
unreasoned for it to be set aside on said count. Hence, said
submission also cannot be accepted.
13. In view of aforesaid discussion, it is clear that the
appeal does not give rise to any question of law as contemplated by
provisions of Section 10F of the said Act to warrant interference.
The learned Member of the Board has rightly applied the settled
legal position as regards the powers under Sections 397 and 398 of
the said Act to the facts arising before it and has proceeded to issue
necessary directions. The same are aimed with a view to regulate
the smooth conduct of the affairs of the Company and to end the
matters complained of. Thus, in absence of the appeal giving rise to
any question of law, the impugned order does not deserve to be
interfered with. The appeal, therefore, fails. The same is
accordingly dismissed with no order as to costs.
14. At this stage, request is made for continuing the interim
order granted by this Court for a period of four weeks. The request is
opposed by the learned Counsel for the respondents. However, as the
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interim order is operating since long, it is continued for a period of four
weeks from today.
JUDGE
//MULEY//
