Ntpc (Up) Ltd vs Swadesh Polytex Ltd.
1998 Latest Caselaw 332 Del

JUDGMENT

Vijender Jain, J.

1. This application has been filed by the plaintiffs-applicants to amend para-53 of the plaint by inserting paras-53 (A), (B), (C), (D), (E), (F), (G), (H) and (I), which are to the following effect:

53.A. That a notice for holding 27th AGM of the defendant No. 1 Company on 5.12.1997 was issued on 29.10.1997. The said notice of the AGM provided for the following in its agenda:

Ordinary Business

1. To consider and adopt the Balance Sheet as on 31st March, 1997 and the Profit and Loss Account of the Company for the year ended on that date and the report of the Board of Directors and Auditors thereon.

2. To declare dividend.

3. To appoint a Director in place of Shri K.L. Koul, who retires by rotation and being eligible offers himself for re-appointment.

4. To appoint Auditors and to fix their remuneration and for that purpose to pass the following Resolution as a Special Resolution:

"Resolved that pursuant to Section 224A and other applicable provisions, if any, of the Companies Act, 1956 M/s. Thakur Vaidynath Aiyar & Company, Chartered Accountants be and are hereby appointed Auditors of the Company to hold such office from the conclusion of this meeting until the conclusions of the next Annual General Meeting on such remuneration as may be fixed by the Board of Directors of the Company."

Special Business

5. To consider, and if thought fit, to pass with or without modification, the following Resolutions, as Ordinary Resolutions:

5.1. Resolved that Shri A.K. Mukhopadhyay, be and is hereby appointed as Director of the Company, liable to retire by rotation.

5.2. "Resolved that Shri S. Natarajan, be and is hereby appointed as Director of the Company, liable to be retired by rotation. ,

5.3. "Resolved that Shri H.S. Dubey, be and is hereby appointed as Director of the Company, liable to be retired by rotation.

5.4. "Resolved that Shri R.P. Sharma, be and is hereby appointed as Director of the Company, liable to be retired by rotation.

5.5. "Resolved that Shri V. Balasubramanian, be and is hereby appointed as Director of the Company, liable to be retired by rotation, subject to the decision of Civil Court, Ghaziabad pending disposal of the application in suit.

5.6. Resolved that pursuant to the provisions of Articles 110 and 113 of the Articles of Association of the Company read with the provisions of Sections 198,269,309, 310 and Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956 (including any statutory modifications or re-enactments thereof, for the time being in force) and subject to the limits specified in Schedule XIII to the said Act, Shri P.N. Veda Narayanan be and is hereby re-appointed as Managing Director of the Company on the following terms and conditions for a period of two years w.e.f. 11.8.97 to 16.8.99.........." by rotation.

53.B. That on 5.12.1997 the AGM was called for wherein the plaintiffs demanded that a poll be held with respect to all the items on the agenda since they did not have any faith in the fair functioning of defendant No. 6 as Chairman of the Company. The plaintiffs also demanded that defendant No.5 be made a promoted Chairman with respect to Item No. 5.6 since it related to the reappointment of defendant No. 6 himself who had the power of an casting vote in the situation.

53.C. That on the demand of poll by the plaintiffs the defendant No. 5 adscrutinizers the meeting to 8.12.1997 for taking the poll. It may be mentioned here that the said adjournment itself was contrary to the provisions of the Companies Act inasmuch as it violated the provisions of Section 180(2) of the Companies Act which stipulates that a poll demanded on any other question not being a question relating to adjournment of a meeting, shall be taken at such time not being later than 48 hours from the time when the demand was made. It is most respectfully submitted that stipulated period of 48 hours had expired before-taking of the poll on 8.12.1997.'

53.D. That on 8.12.1997 the defendants and more specifically defendant No. 5 conducted the meeting in a most undemocratic and high-handed manner. The defendant No. 6 appointed two persons i.e. P.C. Goel and A.N. Kukreja as scrutinizers of the poll. It is most respectfully submitted that the appointment of said scrutinizers is against the provisions of the Companies Act as the said scrutinizers were not independent persons but were employed by the defendants and more specifically the defendant Nos. 2 and 3 to represent them in certain proceedings before the Hon'ble Company Law Board. Both the scrutinizers are Company Secretaries who have represented the defendant Nos. 2 and 3 and/or the Companies in which they have a substantial interest in various proceedings before various Tribunals and Forums. Thus, the said scrutinizers are not impartial scrutinizers as is required under Section 184 of the Companies Act. The objections regarding appointment of scrutinizers were raised by the plaintiffs' at the meeting itself and vide their separate letters dated 11.12.97, 15.12.97 and 17.12.97.

53.E. That despite the request of the plaintiffs to appoint impartial scrutinizers, vide their letter dated 22.12.1997, the plaintiff No. 1 Company was informed of the fact that the adjourned 27th AGM would be held on 16.1.1998. This is indicative of the fact that the concerned defendants were manipulating the proxy votes and ballot papers specially because they had refused all requests and demands of inspection of the votes raised by the plaintiffs. The plaintiffs also apprehend that the counting of votes shall not be done correctly and even valid votes cast by the plaintiffs would be invalidated on frivolous grounds.

53.F. The modus operandi adopted by defendants 1 to 10 excluding defendant No. 5 is that they have rejected the votes of plaintiffs and other Financial Institutions which would have ensured a numerical victory in favour of the plaintiffs. Further, the defendants 1 to 10 except defendant No. 5 have fabricated, forged and/or manipulated proxies of shareholders from the public who represent approximately 27% voting in favour of Gaurav Swarup. Thus, while a clean voting of about 49%, including 33% of plaintiff No. 1, has been rejected, proxies of about 8.9% votes in favour of Gaurav Swaroop which is highly suspect, have been accepted. During the Local Commissioner proceedings held on 20.1.1998 when the results were published in the newspapers, the Local Commissioner and the Advocates of the parties were informed, by the defendant No. 1, that out of 62 existing votes, 21 were rejected. Amongst the rejected ballots it is important to note that ballots of following persons/entities which had voted in favour of plaintiffs had been rejected :

REJECTED BALLOTS:

      S.No.      Name of ballot caster                 No. of shares
     
      113       Arun Sedwal
      15        NTC (UP) through P.S. Cheema,            13,10,750
                authorised signatory

      43        Life Insurance Corporation of India      176575
      45        Oriental Insurance Company through       300
                Ashok Gupta
      61        IFCI                                     69,4OO
      71        IDBI                                     3,14,300
      81        UTI through Harsh Sahai                  32375
      97        Central Bank of India                    1480
      115       United India Insurance Company Limited   125
     123        New India Assurance Company              2450




     103        N.K. Katyal                              1100


 

     The  same is evident from the objections/apprehensions  filed  by the  Counsel  of the plaintiffs with the  Local  Commissioner  on 20.1.98 and the report of the Local Commissioner.
 

     53.G.     The  fact  that the results have been doctored  by  the defendant Nos.1 to 10 except defendant No.5 and more specifically defendants  6  to  10, is clear from a letter  addressed  by  the Counsel of the defendant No. 6 to the Local Commissioner which is dated  24.1.98  which  records that subsequently  the  number  of rejected ballots is 16 whereas the number of rejected ballots was 21  as  shown to the Local Commissioner. It  is  uncontrovertibly that  when  the  results are admitted to have  been  declared  on 20.1.98, the change in accepted number of ballots on a later date indicate  a continuous manipulation of results. That it is  reliably learnt that subsequently 5 ballot papers which could not  be rejected on any valid grounds, have been accepted as valid by the defendant No. 6.
 

     53.H.     That  it is significant to note that although  the  authorisation of the plaintiff and financial institutions and  more specifically  of the plaintiff No. 1 which is the sweeping  vote, have  not  been  accepted by defendant No. 1 to  5  on  frivolous grounds. It is most respectfully submitted that the authorisation of  the plaintiffs No. 1 and 2 and other  financial  institutions are  valid and strictly in accordance with provisions of  Section 187  of the Companies Act. The rejection of the ballots  cast  by the  said parties are on illegal, invalid and  frivolous  grounds and liable to be rectified.
 

     53.I.     That  is  important  that the defendant Nos.  1  to  10 except  defendant No. 5 in active connivance with  three  scrutinizers  have manipulated poll results. The misconduct on the  part of  the  said defendants is clear from the fact  that  the  three scrutinizers  were not independent scrutinizers, but  are  consultants/  employees of defendant Nos. 1 to 10 and are thus on  their pay. The plaintiff's have very strong grounds to believe that the three scrutinizers have played a significant role in  manipulating the  results. In fact, the conduct of defendants 1 to  10  except defendant No, 5 has been so brazen and in total disregard of  all principles  of fairness and corporate democracy, that it must  be immediately set aside."
 

2.   Another  amendment is sought to the effect that in place  of  original para-54 of the plaint, the plaintiffs-applicants intend to substitute para-54 to the following effect:

"The cause of action first arose when the defendants actively conspired and connived with each other and manipulated the proceedings of the meetings of the Board of Directors held on 14.8.1997 and 29.8.1997. The cause of action further arose when the defendants 6 to 9 were declared appointed in various capacities detailed hereinabove in the aforesaid meetings in an illegal and mala fide manner. The cause of action arose further on 5.12.1997 when the meeting of the 27th AGM was adjourned to 8.12.1997 and also on 8.12.1997 when the poll was held in contravention of fairness and transparency. The cause of action arose on 16.1.1998 when the AGM was adjourned. The cause of faction further arose on 20.1.1998 when the results of the poll held were declared. The cause of faction is continuing since the said defendants No. 6 to 9 are acting and holding themselves out as having been validly appointed as Chairman-cum-Managing Director (in the case of defendant No. 6) and Directors (in the case of Defendants 7 to 9). The cause of action further arose on 5.12.1997 when the 27th AGM was held in blatant violation of all principles of fairness and transparency. That the cause of action further arose when the said AM was adjourned from time to time to 8.12.1997, 16.1.1998 and 7.2.1998. That the cause of action further arose on 20.1.1998 when the results of the poll held on 8.12.1997 were published in leading daily newspapers. That the cause of action further arose on 24.1.1998 when the Counsel for defendant No. 6 wrote to the Local Commissioner that the number of rejected ballots was 16, as opposed to the position which existed on 20.1.1998 when the number of rejected ballots was 21. The cause of action is further continuing since the said persons are indulging in various acts of commission and omission in such alleged capacities, which are patently ultra vires and detrimental to the public interest, and the interest of the defendant No. 1 company in particular."

3. Amendments are also sought in paras-57 and 58 of the plaint. The suit was originally filed, inter alia, praying that the meetings of the Board of Directors held on 14.8.1997 and 29.8.1997 of the defendant Company be declared illegal, beyond jurisdiction and ultra vires. Further declaration was sought that the appointment of defendant No. 6, as Chairman and Managing Director was illegal and the appointment of defendant Nos. 7 to 9 as Additional Directors was also illegal.

4. A decree for permanent injunction was sought against defendant No. 6 from his continuing to function as Chairman and Managing Director and defendant Nos. 7 to 9 as Additional Directors. Further a restraint order was sought against the defendant Company from implementing any decision taken in the Board Meetings held on 14.8.1997 and 29.8.1997.

5. On 18.8.1997 this Court passed an interim order directing that the decision taken in the meeting of the Board 'of Directors to be held on 18.11.1997 pursuant to the notice issued by defendant No.1 dated 12.11.1997 would be subject to the orders of this Court, On 2.12.1997 with the consent of the parties and without prejudice to the rights and contentions, this Court ordered that let the Annual General Meeting scheduled to be held on 5.12.1997 be held as per the Agenda of the meeting. Further, it was made clear that the resolution passed in that meeting shall not be implemented without the leave of this Court. On 29.12.1997 in IA No. 11720/97, which was filed by the plaintiff, in view of the apprehension expressed by the plaintiff that it should be protected by ensuring that the results were declared in a fair and impartial manner, the Court appointed Court Commissioner to initial all the ballot papers as well as all the proxies, which were received by defendant No. 1. Court passed certain other directions to the Court Commissioner. On 19.1.1998 in IA Nos. 501-502/1998 this Court further directed that the ballot papers, Section 187 Authorisation of the Financial Institutions and N.T.C. be placed in Court in a sealed cover, which was done by the defendants. In the backdrop of these developments, present application, IA No. 1109/1998 for amendment, was filed. It has been contended before me by applicants that application for amendment has become necessitated on account of subsequent events, which have taken place in the matter.

6. Mr. Arun Jaitley, learned Counsel appearing for the plaintiff-applicant has contended that the amendment is necessary to do complete justice between the parties. He has further contended that the amendments are necessary in order to avoid multiplicity of suits. He had argued that the subsequent events are continuing cause of action on which original suit was filed. In support of his contentions, he has cited Mohammad Khalil Khan & Others Vs. Mahbub Ali Mian and Others, ;

Oskar Louis Vs. K V. Sardha, Rameshwar & Others Vs.Jot Ram & Anr., and Shikharchand Jain Vs. Digamber Jain Praband Karini Sabha & Others .

7. On the other hand, Mr. P.V. Kapur, learned Counsel appearing for the defendant Nos. 2 to 4, has contended that the cause of action, for which the suit was filed by the plaintiff, occurred on the basis of decision of meeting of 14.8.1997 on the ground that the appointment of defendant No. 6 as Chairman and Managing Director as well as defendant Nos. 7 to 9 as Additional Directors was illegal and void. As a matter of fact, by the proposed amendment, the plaintiffs are trying to add new cause of action inasmuch as the Annual General Meeting of the defendant No. 1 -Company, the election result and the appointment of scrutinizers are different and distinct cause of actions for which the plaintiff ought to have filed separate suit, therefore, Mr. Kapur has contended that all the paras, i.e. paras 53 (A) to (I) as enumerated above, give separate cause of actions for which separate evidence has to be led and the same are not connected with the relief sought in the suit and hence the application for amendment should be dismissed. He has further contended that the amendments sought for in the prayer clause is also an independent relief, which has not been sought in the original plaint and all these prayers, which have been sought for by the plaintiff-applicant, are different bundle of facts and have nothing to do with the prayer of the plaintiff as maintained in the original suit. He has further contended that the amended relief depends upon new set of facts and give a separate cause of action and hence no amendment should be allowed.

8. Mr. Kapur has further contended that relief in the original plaint was limited to the meetings of 14.8.1997 and 29.8.1997. The Court did not stay either the election or could not have gone in the process of election and if the amendment is allowed, the plaintiff would be seeking similar reliefs in the suit 'without filing fresh suit and, therefore, Mr. Kapur contends that this application is mala-fide. He has further contended that if the amendment is allowed, the amended suit would be beyond all well-settled proposition of law regarding amendment. In support of his contentions, he has cited the case of Vineet Kumar Vs. Mangal Sain Wadhera, .

Mr. G. Ramaswamy, learned Counsel appearing for defendant No. 6, while endorsing the arguments of Company, i.e. defendant No. 1, contended that suit was filed on 12.11.1997 and the Annual General Meeting of defendant No. 1-Company was fixed for 5.12.1997 for ratification of the appointment of Chairman and Managing Director, defendant No. 6, and Additional Directors, defendant Nos. 7 to ' 9, the plaintiff filed an application, IA No. 1350/1998 on 12.12.1997 in which the contents of the said application are same as the application, which has been filed for amendment i.e. IA No. 1109/1998. Mr. Ramaswamy has contended that the bare perusal of internal pages 5 and 6 of the IA No. 1109/1998, i.e. pages 849 and 850 of the paper book, would show that the same are identical as in IA No. 1350/ 1998. He has further contended that the power of Courts regarding amendments is exercised literarily but there is no power, which will enable one distinct cause of action to be substituted for another and the plaintiff has simply filed the amendment application to circumvent the relief as the same was beyond the scope of the suit originally filed by the plaintiff. He has further contended that para-54 of the original plaint is proposed to be completely substituted by new para-54 as incorporated above. He has also contended that no prejudice would be caused to the plaintiffs if they choose to file separate suit for distinct cause of actions.

10. I have given my careful consideration to the submissions advanced by the learned Counsel appearing for the parties. It is not disputed that the financial institutions as well as the plaintiff together have got 49% of share in the defendant No. 1 -Company whereas the other Swarup Group has got approximately 25% of share in defendant No. 1-Company. In the original plaint serious and grave allegations of collusion between defendant No.6 and Swarup Group has been made in paras 48, 49 and 50 of the original plaint against the method and manner in which appointment of defendant No. 6 as Chairman and Managing Director as well as appointment of defendant Nos. 7 to 9 as Additional Directors were made. Para-53 of the original plaint read as under:

The Board of Directors under the Chairman and Managing Director illegally appointed in the circumstances, as stated above, will engage themselves in various acts which gravely affect the interest of the Company. Immediately after the illegal assumption of the office by the defendant No. 6, the Directors of Swarup Group and the defendant No. 6 had started indulging in many illegal actions which will change the character and the control of the Company and is detrimental to the interest of the plaintiff. Thus, the dishonesty of their actions and design manifest from the following:

(a) The plaintiffs apprehend that in the circumstances, as stated above, and with a Chairman who has shown no regard to fairness or probity, the Swarup Group has already started using the Board of Directors as a vehicle for their self serving dishonest designs and intentions. The plaintiffs submit that the Minutes of the Board Meeting held on 29.8.1997 may not be recorded truly. They have sent a letter dated 21.8.1997 giving their narrative of the events that took place on that day. The Minutes have not yet been received and the plaintiffs anticipate that the said Minutes will be forged and will include matters which were neither discussed nor agreed to. This is manifest from the fact that a letter has been received by the plaintiffs dated 29.8.1997 wherein it was made to appear that a decision has been taken by the Board at the meeting held on 14.8.1997 in respect of Rights Issue. This is dishonesty of an extreme kind coming from a retired senior IAS officer holding illegal charge of CMD of SPL. This subject of Rights Issue was not discussed in the meeting and the item was deferred. It is incredible that the letter makes a reference to a decision stated to have been taken in the Board Meeting. It is a part of the plan hatched by the Swarup Group in which the sixth defendant has unabashedly connived to bring about a basic and far reaching alteration in the share structure, a first step to secure control of the Company. It is submitted that the entire thing is forged and no decision has been taken at the said Board Meeting.

In hot haste, the Directors of Swarup Group assisted by the defendant No. 6 have proceeded to induct three persons as additional Directors. This item again was not on the agenda and was never taken up in the meeting. Here again the decision is stated to have been made with the supporting vote of the defendant No. 6 ' As already stated his very presence in and conduct of Board meeting after 16.8.1997 is illegal. Thus, the decision to induct the defendant nos. 7 to 9 as Additional Directors is a decision taken without any legal basis. The said three persons cannot be treated as Directors of the Company and entitled to act on its behalf. The said appointments are totally illegal and the Swarup Group in connivance with the defendant No. 6 has brought about the situation in which persons illegally occupying and now functioning on the board is greatly detrimental to the Company. These actions per se and patently illegal actions they will take to undermine the interest of the company and the present shareholders and extend the tentacles of their grip over the company and its affairs."

11. Therefore, the disputes essentially were between the plaintiff and the method and manner of appointment of defendant Nos. 6 to 9 by Board of Directors of Company. When the suit was filed only the meetings of 14.8.1997 and 29.8.1997 had taken place, therefore, the plaintiffs filed the suit. The subsequent events, i.e. ratification of these appointments by the Annual General Meeting, which was held on 5.12.1997, appointment of scrutinizers by defendant No. 6, rejection of proxies and ballot papers and authorisation under Section-187 of the financial institutions and the plaintiff are the events of the same sequence, which started on 14.8.1997 and 29.8.1997. It cannot be said for a moment that all these facts are separate cause of actions. If the Court at the first instance would have stayed all the resolutions of the meetings held on 14.8.1997 and 29.8.1997, nothing further could be done by the defendants. It is on account of the fact that the Court allowed the annual general meeting to be held and elections to be conducted, the need for filing the present application arose. May be, that was done in order to have business of the defendant No. 1-Company run in a smooth manner without any let and hindrance on account of any stay from this Court but, to say, that holding of annual general meeting for ratification of the appointment of Chairman and Managing Director and Additional Directors pursuant to the meetings held on 14.8.1997 and 29.8.1997 are two separate cause of actions and distinct bundle of facts is too farfetched an argument. Both facts are inter-woven and existing on one and another. In Oskar Louis v. K.V. Sardha's case (supra) it was held:

"Is the above argument sustainable, is the question before me. To get an answer, one has to ascertain the meaning of the word 'cause of action'. Generally stated it means every fact which it is necessary to establish to support right or obtain judgment. To put it differently, it means bundle of essential facts which it is necessary for the plaintiff to prove before he can succeed in the case. It can as well be said to be the media upon which the Court arrives at a conclusion in the suit in favour of the plaintiff. Yet another shade of meaning is this: "A cause of action means every fact which will be necessary for the plaintiff to provide if traversed in order to support his right to the judgment."

12. At this stage, while deciding the application for amendment, the Court has not to go on the merit of the controversy, the cardinal principle of allowing the amendment is that the Court should avoid multiplicity of litigation. What has to be looked by the Court at this stage while disposing of the application for amendment is that by proposed amendment whether the nature of the suit is altogether changed; whether amendments sought for are Mala fide; and whether by allowing of the amendment the period of limitation is going to be extended. Even the authority cited by Mr. Kapur, Vineet Kumar v. Mangal Sain Wadhera's case (supra) is of no help as the Apex Court held that where the amendment does not constitute an addition of a new cause of action, or raise a new case, but amounts to no more than adding to the facts already on records, the amendment would be allowed even after the statutory period of limitation. In the case before me, it is in the interest of justice and to do complete justice between the parties that subsequent events, which have taken place, should be allowed to be amended by this application.

In Rameshwar & Others v. Jot Ram & Other's case (supra), Supreme Court held :

"............Likewise, where the right to the remedy depends, under the statute itself, on the presence or absence of certain basic facts at the time the relief is to be ultimately granted, the Court, even in appeal, can take note of such supervening facts with fundamental impact. Venkateswarlu (supra), read in its statutory setting, falls in this category. Where a cause of action is deficient but later events have made up the deficiency, the Court may, in order to avoid multiplicity of litigation, permit amendment and continue the proceeding, provided no prejudice is caused to the other side............"

13. I do not see that this application is mala fide or in any way extends the period of limitation. The suit is at very early stage, issues have not yet been framed. I do not think that any prejudice is caused to the defendants by allowing this amendment application. The test in allowing the amendment is as to what was the cause of action which gave occasion and formed the foundation for original suit and whether the same was different from the cause of action which gave occasion for the amendment application, in the present case it cannot be said that bundle of facts are different from original facts.

14. In view of the above discussions, the application for amendment is allowed.

15. Nothing said in this order shall be an expression of opinion on the merit of the case.

Suit No. 1957/1997

Let amended plaint be filed within one week. Amended written statement thereto be filed within two weeks thereafter and amended replication be also filed before the next date of hearing.

List this matter on 14th May, 1998, the date already fixed.

Application allowed.