Ashok Mittal vs Mr. Ram Parshotam Mittal And Ors.
2008 Latest Caselaw 330 Del

ORDER

Shiv Narayan Dhingra, J.

1. By this application under Order 39 Rule 1 and 2 CPC, Plaintiff has sought an interim order restraining Defendants to consider and act upon Agenda Items No. 3 and 4 in the forthcoming meeting of the Board of Defendant No. 5 Company.

2. Plaintiff is one of the Directors of the Defendant No. 5 Company while Defendants No. 1 and 2 are also Directors on Board of the Company. Defendant No. 2 is wife of Defendant No. 1, Defendants No. 4and5 are additional Directors. The notice of Board Meeting was issued on 17.12.2007 and Agenda Items No. 3and4 are as under:

3. To consider reappointment of Shri R.P. Mittal as Managing Director of the Company for a further period of 5 years from 1.1.2008.

4. To fix date, time and place for convening Extra Ordinary General Meeting to approve the reappointment of Shri R.P. Mittal as Managing Director.

3. Plaintiff seeks injunction against carrying on meeting agenda in respect of above-mentioned two items on the ground that Defendant No. 1, who is sought to be appointed as Managing Director of Defendant No. 5 Company was not qualified in terms of provisions of Companies Act. Plaintiff has relied upon Section 267 and 316 of the Companies Act to canvass that Defendant No. 1 was not competent enough to be appointed as Managing Director. Sections 267 and 316 of the Companies Act read as under:

267. Certain persons not to be appointed managing directors.-- No company shall, after the commencement of this Act, appoint or employ, or continue the appointment or employment of, any person as its managing or whole-time director, who--

(a) is an undischarged insolvent, or has at any time been adjudged an insolvent;

(b) suspends, or has at any time suspended, payment to his creditors, or makes, or has at any time made, a composition with them; or

(c) is, or has at any time been, convicted by a Court of an offence involving moral turpitude.

316. Number of companies of which one person may be appointed managing director--(1) No public company and no private company which is a subsidiary of a public company shall, after the commencement of this Act, appoint or employ any person as managing director, if he is either the managing director or the manager of any other company (including a private company which is not a subsidiary of a public company), except as provided in Sub-section (2).

(2) A public company or a private company which is a subsidiary of a public company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company (including a private company which is not a subsidiary of a public company. Provided that such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(3) Where, at the commencement of this Act, any person is holding the office either of managing director or of manager in more than two companies of which each one or at least one is a public company or a private company which is a subsidiary of a public company, he shall within one year from the commencement of the Companies (Amendment) Act, 1960, choose not more than two of those companies as companies in which he wishes to continue to hold the office of managing director or manager, as the case may be; and the provisions of Clauses (b) and (c) of Sub-section (1) and of Sub-sections (2) and (3) of Section 276 shall apply mutates mutants in relation to this case, as those provisions apply in relation to the case of director.

(4) Notwithstanding anything contained in Sub-sections (1) to (3), the Central Government may, by order, permit any person to be appointed as a managing director of more than two companies if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

4. It is submitted that Section 267(b) of the Companies Act was attracted in this case since Defendant No. 1 has played fraud with several persons. The modus operandi of Defendant No. 1 was to incorporate companies, lure investors in the company, thereafter misappropriate the funds and send the company into liquidation. The Counsel for the Plaintiff argued that the disqualification as stated in Section 267(b) of the Companies Act is also attracted, if a person acting as a Managing Director or Director of a Company plays fraud with the creditors and the company of which he is a Director or Managing Director is not able to make payment or suspends payment to creditors. It is stated that Defendant No. 1 was declared defaulter of Reserve Bank of India since he cheated PNB and failed to pay to the creditors and financial institutions viz. IFCI, ICICI, IDBI, PNB, UBI, Bank of India and South Indian Bank. It is submitted that he cheated the above banks/financial institutions through companies viz. M/s Mittal Fertilizers Limited, M/s Mittal Ispat Limited and M/s Sharda Castings Limited. Since he as Managing Director had not conducted the affairs of above companies in a prudent manner and the creditors were not paid, he was disqualified from becoming Director of Defendant No. 5 Company. Learned Counsel for the Plaintiff argued that this Court can pierce the veil and see that the person behind playing fraud with the creditors or banks was Defendant No. 1.

5. In order to establish a case under Section 316 of the Company Act against Defendant No. 1, it is stated by the Plaintiff that Defendant No. 1 cannot become Managing Director of Defendant No. 5 company as he was already a Managing Director of more than two other companies viz. M/s Mittal Ispat Limited and M/s Sharda Castings Limited etc.

6. A perusal of Section 267 of the Companies Act would show that disqualification under this Section is personal. A combined reading of Section 267(a)(b)and(c) makes it clear and if a person, who is sought to be appointed as Managing Director in his individual capacity was suffering from a disqualification as specified under Section 267(a)(b)and(c) then only, he cannot be allowed to become Managing Director. This disqualification is not attracted, if a person is alleged to have mismanaged the affairs of another company or the another company in which he was Director or Managing Director has not been able to pay debts of some creditors. The Counsel for the Plaintiff then argued that Defendant No. 1 in his individual capacity stood as guarantor for the loan given to the institutions and despite being a guarantor he failed to make payment to the creditors. The Plaintiff has filed many documents along with the suit but has not filed any document showing that Defendant No. 1 in his individual capacity failed to make payment to his creditors or at any time made a composition with any of them or at any time past or present, suspended the payment to his creditors. I, therefore, consider that Section 267 of the Companies Act will not be attracted in this case.

7. The Defendant in the WS has denied that he was Managing Director of M/s Mittal Ispat Limited or M/s Sharda Castings Limited. Learned Counsel for the Defendant pointed out that Plaintiff himself was a Director in these companies and if Defendant No. 1 had been a Managing Director. Plaintiff would have been in custody of Annual Report and other documents showing that Defendant No. 1 was Managing Director of these companies. Plaintiff has not those documents deliberately since they would have gone against Plaintiff. He stated that share capital of these companies was less than Rs. 5 crore and as per Companies Act, the company was not obliged to have a Managing Director. It was specifically denied that Defendant No. 1 was Managing Director in M/s Mittal Ispat Limited and M/s Sharda Castings Limited.

8. In order to succeed in application under Order 39 Rule 1 and 2 CPC, Plaintiff has to show that he has a good prima facia case and balance of convenience was in favor of the Plaintiff and the Plaintiff would suffer irreparable loss. The Plaintiff has not succeeded on either of the three grounds, Plaintiff has failed to show that he has good prima facia case, Plaintiff failed to show that Defendant No. 1 suffered from any disqualification to be appointed as Managing Director, Plaintiff also failed to show that he was going to suffer any irreparable loss.

9. Plaintiff Counsel claimed that Plaintiff was holder of Preference Shares and since Plaintiff had not been paid dividends for two years, the Plaintiff was entitled to vote in the Board Meeting and General Body Meeting as a Shareholder and the entire effort of Defendant No. 1 is to deprive the Plaintiff of the fruits of its investment. The investment made by the Plaintiff as claimed to be much more than that of other shareholders together. The issue whether the Plaintiff has right to vote is already sub-judiced before the Appeal Court since a Single Judge of this Court held against the Plaintiff and Plaintiff. This therefore is no ground to grant injunction.

10. I find that the instant application has no force and is hereby dismissed.