Gurpartap Singh & Anr vs M/S Vista Hospitality Pvt Ltd & ...
2013 Latest Caselaw 3996 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                           Reserved on: 23rd August, 2013
%                                    Date of decision: 9th September, 2013

+      CO.A(SB) 22/2013 WITH CO. APPL. 833/2013

       GURPARTAP SINGH & ANR                  .....Appellants
                    Through: Mr.Virender    Ganda,       Senior
                             Advocate with Mr. Rakesh Kumar
                             and Mr.Aditya Nayyan, Advocates.

                     versus

       M/S VISTA HOSPITALITY PVT LTD & ORS. ..... Respondents
                     Through: Mr.Ravi Gupta, Sr.Adv. with
                               Mr.Ashish    Aggarwal      and
                               Mr.Varun Sharma, Advocates for
                               R-2 to 5.

CORAM:
MR. JUSTICE R.V. EASWAR

                               JUDGMENT

R.V. EASWAR, J.:

1. This is an appeal filed by one Shri Gurpartap Singh and Smt. Geeta

Partap Singh under section 10F of the Companies Act, 1956 („Act‟, for

short) impugning the order passed by the Company Law Board in C.P.

No.7(ND)/2013 and CA No.41/2013 on 13.03.2013.

2. It is necessary to give a brief background of the facts leading to the

filing of the present appeal. The respondent-company, Vista Hospitality

Private Ltd. was incorporated on 10.01.2003, with the appellants as the

original promoters and directors. Pursuant to a joint venture agreement,

hereinafter referred to as JVA, entered into between the appellants and

the respondents herein on 21.12.2007 there was a restructuring of the

shareholding as well as the board of directors under which the appellants,

the Gurpartap group, came to hold 65% and the respondents, the Jhankar

group, came to hold 35% of the shares in the company. The board of

directors consisted of 5 directors nominated by the Gurpartap group and 3

directors nominated by the Jhankar group. Upto the year 2010, the affairs

of the company were running smoothly. Sometime early in the year 2011,

it appears that disputes over the functioning of the company and the

conduct of its business arose between the two groups. There were

allegations and rebuttals that the respondents were trying to entice away

the clientele of the company to their concern, Jhankar Banquets, which

was operating opposite to the company and thereby causing loss. It was

also alleged by Gurpartap group that the Jhankar group was acting to the

detriment of the company‟s business.

3. In the above situation, the Gurpartap group, the appellants herein,

filed a petition before the Company Law Board (CLB) in C.P. No.

101(ND)/2012 under sections 397-398 of the Act alleging oppression and

mismanagement and sought reliefs by way of permanent injunction

against the Jhankar group (i) from diverting the business of the company

to their own business and (ii) from acting contrary to the understanding

arrived at in the JVA and (iii) to pass orders directing the parties to make

offers for buying out the other party‟s shares even before the expiry of the

lock-in period of five years which was to expire on 20.12.2012 and (iv) to

direct that respondent No.3 was not capable of being appointed a director

of the company.

4. The aforesaid company petition was mentioned before the CLB on

30.08.2012, on which date it would appear that the respondents took the

plea that the petition was not maintainable in view of the provision in the

JVA for arbitration and wanted to move an appropriate application. The

plea was allowed and on the next day, the respondents filed an

application under section 8 of the Arbitration and Conciliation Act, 1996

which was numbered as C.A. No. 468/2012. The appellants filed their

reply to the application. Some attempt at a settlement appears to have

been made which did not fructify.

5. The application filed by the respondents in CA No.468/2012 was

taken up for hearing by the CLB on 14.01.2013. What happened on that

date as well as the next two dates was a matter of intense debate and

considerable arguments were advanced on that point before me which I

will refer to at the appropriate juncture. I will for the present only notice

what was stated in the orders passed by the CLB on 14.01.2013 and

16.01.2013 and the letter dated 15.01.2013 written by the appellants to

the CLB.

6. On 14.01.2013, the order passed by the CLB was this:

"Arguments were part heard. To continue on 16.01.2013 at 10.30 am as item No.2.

Sd/-

(Justice D.R. Deshmukh) Chairman"

On 15.01.2013, a letter was written by the appellants (respondents

before the CLB in the application) which is as below: -

"To, The Bench Officer, Company Law Board, C.G.O. Complex, Paryavaran Bhawan New Delhi

Reg.: Company Petition in the matter of "Shri Gurpartap Singh & Anr. Versus M/s. Vista Hospitality Private Limited & Ors." before the Hon'ble Company Law Board, Principal Bench, New Delhi Sir,

This is with reference to the filing of the fresh Company Petition u/s 397-398 read with Section 402 of the Companies

Act, 1956 in the above said matter, a copy of which is enclosed herewith.

Kindly note that earlier Company Petition being C.P. No.101(ND) of 2012 was filed before the Ho'ble Bench u/s 397-398 read with Section 402 of the Companies Act, 1956. The last date of hearing in the said petition was 14.01.2013 and the next date of hearing in the matter is 16 th January, 2012.

The Petitioners would like to withdraw the said Company Petition i.e. 101 (ND) of 2012, which is pending before the Hon'ble Bench and coming up for hearing on 16th January, 2013 and would seek a liberty to file the fresh company petition before the Hon'ble Bench.

The Petitioners would serve the present company petition along with its annexures on the Respondents on 16th January, 2013 i.e. the next date of hearing fixed in the said C.P. No.101(ND) of 2012 on which date the Petitioners are proposed to withdraw the said C.P. No.101(ND) of 2012 and will serve the company petition to the Respondents.

Take notice that we have filed the accompanying Company Petition under Section 397, 398 read with Section 402 of the Companies Act, 1956 against the Respondents. The above said petition is likely to be listed on 17th day of January, 2013 at 2.30 P.M.

Please find attached herewith the copy of the Petition along with Annexures.

Thanking you

Yours faithfully Sd/-

(Rakesh Kumar) Advocate

CC to: 1. M/s. Jhankar Banquets Private Limited, G-87, Preet Vihar, Delhi - 110092

2. Shri Mahesh Kapoor, G-87, Preet Vihar, Delhi- 110092

3. Smt. Usha Kapoor, G-87, Preet Vihar, Delhi- 110092

4. Shri Balvinder Sachdeva, D-72, Lajpat Nagar, New Delhi-110024 (Counsel for the aforesaid Respondents will be duly served in the forthcoming hearing in C.P. No.101(ND) of 2013 on 16th January, 2013).

Encl.: Copy of Petition along with Annexures"

The petition filed on 15.01.2013 under cover of the above letter

was numbered as CP No. 7(ND)/2013.

On 16.01.2013, the CLB passed the following order:

"Counsel for the Petitioner sought leave to withdraw the petition with liberty to file a fresh petition on a fresh cause of action. Prayer is not opposed. Leave granted. Petition is dismissed as withdrawn.

Sd/-

(Justice D.R. Deshmukh) Chairman"

7. It would appear that after the above order was passed, the

applicants before the CLB (Jhankar group) filed an application in CA No.

41/2013 for dismissal of the C.P. No. 7(ND)/2013. This application was a

composite application for dismissal of the petition both under section 8 of

the Arbitration and Conciliation Act, 1996 and under Order VII, Rule 11

of the Code of Civil Procedure (CPC) read with Regulation 44 of the

CLB Regulations.

8. CP No. 24(ND)/2013 was thereafter filed by the Jhankar group in

February, 2013 under sections 397-398 of the Act alleging oppression

and mis-management on the part of the Gurpartap Singh group, the

appellants herein. That petition remains to be disposed of by the CLB as

on date.

9. The CLB passed orders in C.P. No.7(ND)/2013 and CA No.

41/2013 on 13.03.2013. The following are its findings:

a) The petition filed earlier by the petitioner in CP

No.101(ND)/2013 was withdrawn by the petitioner on 16.01.2013

with liberty to file a fresh petition on a "fresh cause of action".

The petition filed thereafter in CP No. 7(ND)/2013 does not

disclose any fresh cause of action, which it must, under Order VII,

Rule 11 of the CPC.

b) The fresh petition does not disclose any fresh cause of

action. The averments in paragraphs 6.1 to 6.50 and 6.55 to 6.64

are identical with the averments in the earlier petition which was

withdrawn. In fact, the fresh petition was signed and filed on

15.01.2013, even before the withdrawal of the earlier petition on

16.01.2013.

c) The petitioners being in control and management of the

company by virtue of their majority shareholding "have failed to

substantiate any oppressive act by the minority, i.e., the

Respondents or to satisfy on the existence of a situation justifying

winding up of R-1 company. Therefore on both counts the

application under section 397, 398, 402 of the Companies Act must

fail as held in S.P. Jain v. Kalinga Tubes Ltd. (1965) 2 SCR 720.

d) It can be said "with absolute certainty that after the

withdrawal of the earlier petition on 16.01.2013 no fresh cause of

action has arisen in favour of the Petitioners to file a fresh petition

u/s. 397,398 & 402 of the Companies Act 1956 against the

Respondents".

In the aforesaid view of the matter, the CLB held that the CP

No.7(ND)/2013 was liable to outright rejection for not having disclosed

any fresh cause of action under Order VII, Rule 11 of the CPC. That part

of the application filed by the Jhankar group which was based on Section

8 of the Arbitration and Conciliation Act was however rejected. The CA

No.41/2013 filed by Jhankar group was thus partly allowed and the main

company petition filed by Gurupartap Singh (appellants herein) was

dismissed for non-disclosure of any fresh cause of action.

10. It is the aforesaid order of the CLB that is impugned in the present

appeal.

11. Sections 397 and 398 of the Companies Act read with Section 402

of the said Act confer wide powers and ample jurisdiction upon the CLB

to pass such orders and give such directions as it thinks fit to achieve the

object. These powers are without any limitation or restriction and the

only limitation on the exercise of such powers is that there should be a

nexus between the order that may be passed by the CLB and the object

sought to be achieved by these Sections. In order to reach the conclusion

that the company‟s affairs are being conducted in a manner prejudicial to

public interest or in a manner oppressive to any member or members, it is

open to the CLB to hold a thorough inquiry into the allegations made in

the petition. If the allegations are found correct, the CLB is empowered

to make such order as it thinks fit, with a view to bringing to an end the

matters complained of. In order that the CLB may make an order under

Section 397, it must be satisfied firstly that the affairs of the company are

being conducted in a manner oppressive to any member or members;

secondly that the facts would justify the making of a winding-up order on

the ground that it is just and equitable that the company be wound up and

thirdly that a winding-up order would unfairly prejudice the applicant or

applicants.

12. Considering the vast and unlimited powers exercisable by the

Company Law Board with reference to the petitions filed under Sections

397 and 398 of the Act it would be first necessary to examine whether the

petition can be disposed of on preliminary or technical grounds. In the

present case there are two preliminary or technical grounds on which the

company petition filed by the appellants herein before the CLB was

dismissed. The first is that the petition was not maintainable since it was

filed by the majority shareholders who held 65% of the total shareholding

in the company. The argument on behalf of the appellants on this point

was that so long as the requisite conditions of Section 399 are satisfied,

the petition should be held maintainable even if it is filed by shareholders

having a majority shareholding. Section 399 specifies the members of a

company who shall have the right to apply under Section 397 or Section

398. Clause (a) of sub-section (1) of the Section provides that in the case

of a company having a share capital not less than 100 members of the

company or not less than 1/10th of the total number of its members

whichever is less or any member or members holding not less than 1/10 th

of the issued share capital of the company may apply. The company

involved in the present case being a company having a share capital, it is

open to any member or members holding at least 1/10 th of the issued

capital to approach the CLB under Section 397 or Section 398. This is

the only condition which, according to the learned counsel for the

appellants, needs to be satisfied and there is no requirement that a petition

against oppression and mis-management should be filed only by minority.

13. The Calcutta High Court in Ramashankar Prosad and Ors. Vs.

Sindri Iron Foundry (P) Ltd. and Ors., AIR 1966 Calcutta 512 seems

to have decided this issue for the first time in India. In that case the

argument put forth was that the petition was not maintainable because it

was filed by the majority. In support of the argument, reliance was

placed on the judgment of the Supreme Court in Shanti Prasad Jain vs.

Kalinga Tubes, AIR 1965 SC 1535. The Division Bench of the Calcutta

High Court rejected this argument. Distinguishing the English

Companies Act, under which only a minority can file a petition against

oppression and mis-management by the majority, the Division Bench

held that the English Act did not contain a section like Section 399 of the

Indian Act which, according to the Calcutta High Court, was a code by

itself as to the qualification necessary for filing an application under

Sections 397 and 398. It appears to have also been argued before the

Court that Section 399 only fixed the lower limit of the qualification of

the shareholders and not the upper limit. This argument was also rejected

by holding that if the Legislature had only fixed a lower limit, but no

upper limit as to the qualification for relief and if the object of the section

is to prevent a mischief and to remove oppression and mis-management

of the companies, there was no reason why an upper limit should be

implied so as to bring the section in line with the English section.

According to the Court, the section was of a remedial nature and,

therefore, the proper construction thereof should be to give the words

used their widest amplitude. The Calcutta High Court also dealt with the

argument based on the judgment of the Supreme Court in Shanti Prasad

Jain (supra). The argument was rejected in the following words: -

"61. No doubt in Shanti Prosad Jain's case, 1965 SCA 556: (AIR SC 1535) the Supreme Court referred extensively to the English decisions and observed more than once that it was the minority which had the right to complain of oppression by majority. But Shanti Prosad Jain's case 1956 SCA 556: (AIR 1965 SC 1535) was one of complaint by a minority and the court was not called upon to go into the question as to whether a majority which had been paralysed by the wrongful acts of a minority could seek the protection

of the court under that section. Indeed, speaking of Section 397 read with Section 399 the court observed "it gives a right to members of a company who comply with the conditions of Section 399 to apply to the court for relief under Section 402 of the Act or such other reliefs as may be suitable in the circumstances of the case if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying." This quotation goes to show that in the view of the Supreme Court a member or members applying under Section 397 had to qualify under Section 399."

14. The position was dealt with also by the Kerala High Court in Dr.

V. Sebastian and Ors. Vs. City Hospital P. Ltd. and Ors., (1985) 57

Company Cases 453 by a learned Single Judge (M.P. Menon, J.). The

learned judge held as under: -

"It is true that ss. 397 and 398 are intended primarily to protect the minority interests. In ordinary cases, the majority will be able to protect itself by controlling the directors at general body meetings. But, where the majority is prevented from doing so, despite the clear indication in the articles that majority rule based on the right to demand poll should operate as a correcting influence, the majority becomes an artificial minority entitled to claim protection under ss. 397 and 398. When the directors with the majority backing, oppress the minority and misconduct the affairs of a company, occasion arises for interference by the courts. But, when the directors, with only minority support, seek to stifle the majority by taking advantage of some defect or error, I think such a situation can also be remedied in a like manner. The Calcutta High Court has held in Sinduri Iron Foundry (P.) Ltd., In re [1964] 34 Comp Cas 510, that such a remedy is available to the majority when it is rendered ineffective by the wrongful acts of a minority. (The decision

was confirmed in appeal - See Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd., AIR 1966 Cal 512)."

In J. P. Srivastava & Sons (P) Ltd. and Ors. Vs. Gwalior Sugar Co. Ltd.

and Ors., (2005) 1 SCC 172 the Supreme Court noted that any member/

members of a company may apply under Sections 397 and 398 of the Act

to the CLB complaining of mis-management or oppression "provided

such member or members have the requisite shareholding as prescribed

under Section 399 to do so".

15. In the light of the above authorities it appears to me that the

objection raised by the respondents both before the CLB as well as before

me that the petition before the CLB was not maintainable because it was

filed by the majority shareholders, cannot be upheld.

16. I will now proceed to consider the other preliminary ground on

which the petition was held not maintainable by the CLB. Before I do so,

it is necessary to bear in mind, having regard to the object and purpose of

Sections 397 and 398 and the very wide and unbridled powers given to

the CLB under Section 402, that the CLB should be extremely reluctant

to reject the petition in the threshold itself on highly technical grounds.

In Jer Rutton Kavasmaneck and Ors. Vs. Gharda Chemicals Ltd. and

Ors., (2001) 106 Company Cases 25 (Bom.), the learned Single Judge

(S. S. Nijjar, J., as he then was) was confronted with a situation where, in

an application under Section 397 and 398 of the Companies Act, counsel

for the respondents had taken an objection that the company petition was

not maintainable and should be dismissed under Order VII Rule 11 (a) of

the Code of Civil Procedure, 1908 as disclosing no cause of action. It

must also be noted that in the days before the establishment of the CLB,

petitions complaining of oppression and mis-management were being

filed before and dealt with by the High Courts. Under Rule 6 of the

Companies (Court) Rules, 1959, the provisions of CPC, so far as they are

applicable, applied to all proceedings under the Companies Act. Even so,

the objection of the respondents in that case that the company petition

should be dismissed in limine on the ground that it did not disclose any

cause of action was rejected. The reasoning of the Bombay High Court

runs thus: -

"I am of the considered opinion that the judgment in Khimji M. Shah v. Ratilal Damodardas Modi, [1988] ML] 38 ; [1990] 67 Comp Cas 185 (Bom) has correctly interpreted the law laid down by the Supreme Court. Even the Supreme Court in the case of Kalhiga Tubes Ltd. [1965] 35 Comp Cas 351; AIR 1965 SC 1535, has held that facts and events leading up to the filing of the petition are relevant. Keeping the aforesaid proposition of law in view, the court is now required to see as to whether sufficient facts have been pleaded to make out an arguable case of oppression as well as mismanagement. It is a settled proposition of law that

whilst exercising powers under Order 7, rule 11, the courts act with utmost caution. Dismissal of a petition at the threshold leads to very serious consequences. The courts in India as well as in England have been very reluctant to reject the plaint at the threshold. Order 7, rule 11(a) of the Code of Civil Procedure provides that the court may reject the plaint/petition if it discloses no cause of action. A similar provision occurring in Rules of the Supreme Court, Order 18, rule 19 in England was considered in the case of Drum- mond-Jackson v. British Medical Association [1970] 1 All ER 1094, wherein Lord Pearson observes as follows (page 1101):

"Over a long period of years it has been firmly established by many authorities that the power to strike out a statement of claim as disclosing no reasonable cause of action is a summary power which should be exercised only in plain and obvious cases....."

Similar views expressed by other judges are also noticed in that judgment which are as follows:

"In Nagle v. Feilden, [1966] 1. All ER 689, 695, Danckwerts L.J. observes:

"The summary remedy which has ,,been applied to this action is one which is only to be applied in plain and obvious cases, when the action is one which cannot succeed or is in some way an abuse of the process of the court'."

Salmon L.J. at page 697 observes:

"It is well settled that 'a statement of claim should not be struck out and the plaintiff driven from the judgment seat unless the case is unarguable'."

Thus, the rule appears to be that the plaint can be rejected in plain and obvious cases when the action is one which cannot succeed or is in some way an abuse of the process of the court. The plaint should not be struck out unless the case is unarguable. In the same judgment, Sir Gordon Willmer observed as follows (page 1105):

"The question whether a point is plain and obvious does not depend on the length of time it takes to argue. Rather the question is whether, when the point has been argued, it has become plain and obvious that there can be but one result."

Thus, it becomes clear that the petition could be struck out only if the case put forward is unarguable."

Thereafter, at page 44 of the report the High Court observed as under: -

"At this stage the court is not required to decide the petition on the merits. The petition could be held to be demurrable only if the claim put forward cannot be established even if all the allegations made in the petition are accepted to be true. Such is not the position here. Very complicated questions of fact and law have been raised. It is only at the final hearing of the petition that the court would be able to decide the issues as to whether the dividend squeeze could amount to an oppression. The court would also have to decide as to whether or not transfer of shares made in contravention of the articles of association would amount to an act of oppression. The court would also have to decide as to whether or not the remuneration received by respondent No. 2 is an act of oppression. These are all matters which require detailed consideration

and have to be decided on the merits at the final hearing of the petition."

17. It appears to me, on a careful reading of the judgment of the

Bombay High Court (supra), that the CLB cannot dismiss a petition under

Section 397/ 398 of the Act as not maintainable, unless the petition raises

issues which are absolutely unarguable or frivolous or in a case where the

petition does not disclose the satisfaction of the basic requirements of

these sections. In this light, I proceed to examine the question whether

the CLB was justified in rejecting the company petition on the ground

that it did not disclose any fresh cause of action within the meaning of

Order VII Rule 11 of the CPC.

18. Order VII Rule 11 of the CPC is in the following terms: -

"R.11. Rejection of plaint. - The plaint shall be rejected in the following cases: -

(a) Where it does not disclose a cause of action;

(b) Where the relief claimed is undervalued, and the plaintiff, on being required by the Court to correct the valuation within a time to be fixed by the Court, fails to do so;

(c) Where the relief claimed is properly valued, but the plaint is written upon paper insufficiently stamped, and the plaintiff, on being required by the Court to supply the requisite stamp-paper within a time to be fixed by the Court, fails to do so;

(d) Where the suit appears from the statement in the plaint to be barred by any law:"

19. The first question for consideration now is whether the provisions

of the CPC are applicable to proceedings before the CLB; and the further

question to be considered is whether, if those provisions are applicable to

the proceedings before the CLB, the CLB was right in dismissing the

fresh petition filed on 15.01.2013 on the ground that it did not disclose a

fresh cause of action.

20. I would for the moment assume that the provisions of the CPC are

applicable to the proceedings before the CLB. Even so, I am unable to

agree with the CLB that the fresh petition filed on 15.01.2013 did not

disclose any fresh cause of action. It is necessary to bear in mind the

sequence of the events leading to the filing of the fresh petition. In the

first petition filed by the appellants herein in Company Petition

No.101(ND)/2012, several allegations were made and several acts were

brought to the notice of the CLB which according to the petitioners

constituted oppression and mis-management on the part of the

respondents. When the petition came up for hearing on 14.01.2013,

arguments were heard in part and they were to continue on 16.01.2013.

For the present I would proceed on the assumption that there was no

suggestion from the CLB on that date that the petition may be withdrawn

and a fresh petition may be filed. On 15.01.2013, the petitioner (Guru

Partap Group) filed a fresh petition before the CLB under cover of a letter

of even date. A perusal of the letter shows that it refers to the hearing

which took place on 14.01.2013 and also to the fact that the next date of

hearing was 16.01.2013. Thereafter, the petitioners state that they would

like to withdraw Company Petition No.101(ND)/2012, which is to come

up for hearing on 16.01.2013 and would seek liberty to file the fresh

petition before the CLB. The copy of the petition along with the relevant

annexures were annexed to the letter and filed before the CLB as per

endorsement made thereon (Diary No.214/ 16.01.2013). On 16.01.2013

the CLB passed an order stating that the petitioner sought leave to

withdraw Company Petition No.101(ND)/2012 with liberty to file a fresh

petition on a fresh cause of action. Since the prayer was not opposed,

leave was granted and the petition was dismissed as withdrawn. When

the fresh petition which was numbered as Company Petition

No.7(ND)/2013 was mentioned on 22.01.2013 and notice was issued, it

was noticed by the CLB that Company Application No.41/2013 had been

filed in the meantime by the respondent under Section 8 of the Arbitration

and Conciliation Act, 1996 and also on the basis of Order VII, Rule 11 of

the CPC. The petitioner was granted a week‟s time to file a reply in the

aforesaid application. The matter was directed to be listed on 15.02.2013,

on which date it was heard. The application in Company Application

No.41/2013 as also the fresh company petition in C.P. No.7(ND)/2013

were disposed of by order dated 13.03.2013.

21. It further needs to be noted that in the fresh petition filed on

15.01.2013, the petitioner added paragraphs 6.51 to 6.54 and in these

paragraphs had drawn the attention of the CLB to the fact that the lock-in

period of 5 years mentioned in the JVA for transfer of shares between the

petitioners and the contesting respondents had already expired on

21.12.2012 and it was because of this that the earlier Company Petition

No.101(ND)/2012 was withdrawn with liberty to file a fresh petition.

The other contents of the fresh petition were mere repetition of the

contents of the earlier petition. The argument on behalf of the appellants

was that by withdrawing the earlier petition the petitioners did not admit

that there was no cause of action and that having regard to the fact that

the contents of the earlier petition were retained in the fresh petition, with

the addition of the reference to the fact that the lock-in period had expired

on 20.12.2012, the fresh petition was in substance and in effect a

continuation of the earlier petition with an additional fact being brought

to the notice of the CLB. The contention further is that the earlier cause

of action was not abandoned by the petitioners. My attention was also

drawn to the reply filed by the petitioners (appellants herein) to the

application filed by the respondents under Order VII, Rule 11 before the

CLB, particularly to the averment in paragraph 15 that the petitioner

chose to file the fresh petition on a fresh cause of action, which did not

mean that the cause of action which constituted the basis for filing the

earlier petition had lapsed and that the fresh petition was "carrying the

said cause of action in addition to the subsequent cause of action arising

in favour of the petitioners and against the respondents.......". These

arguments were countered on behalf of the respondent by submitting that

there was no fresh cause of action which arose after the filing of the first

petition on the basis of which the fresh petition filed on 15.01.2013 could

be justified, that the relief sought by the petitioner in the fresh petition is

identical to the relief sought in the earlier petition and that the withdrawal

of the first petition by the petitioners gave a vested right to the respondent

and that in these circumstances the CLB was justified in law in

dismissing the fresh petition as not based on any fresh cause of action.

22. Having considered the rival submissions on this point, I am of the

view that the contentions advanced on behalf of the appellant should

prevail. I have already opined that the CLB should be reluctant to strike

out any proceedings before it on technical grounds. This is particularly

so with reference to proceedings under Sections 397 and 398 of the Act

alleging oppression and mis-management and seeking remedies. It

should be the effort of the CLB to bring to an end all matters complained

of and towards this end the CLB is empowered to make such order as it

thinks fit. It is the interest of the company that is the paramount

consideration under Section 397/ 398. Therefore, the permission granted

by the CLB to the petitioners to withdraw the petition and file a fresh

petition on a fresh cause of action should not be viewed on the basis of

the parameters for a strict implementation of Order VII Rule 11 (a) of the

CPC. It should be looked at more as a substantive compliance,

particularly when the fresh petition did not abandon or omit the earlier

cause of action but merely added one more cause of action namely the

expiry of the lock-in period on 20.12.2012. Obviously it was during the

pendency of the first petition that the lock-in period expired. The expiry

of the lock-in period undoubtedly facilitated a possible arrangement

under which the CLB could direct either party to acquire the shares of the

other party. It was only with a view to bringing this to the notice of the

CLB that the petitioners withdrew the earlier petition and filed a fresh

petition. In substance and effect this was merely an amendment or an

addition to the earlier petition and to the contents thereof. The expiry of

the lock-in period could have even been brought to the notice of the CLB

in the course of the oral submissions made before the CLB. The

withdrawal of the first petition might even have been prompted by the

discovery, in the course of the argument before the CLB on 14.01.2013,

that the lock-in period had expired. In my view the CLB was not justified

in preferring to adopt a very technical approach.

23. In any case as held by the Supreme Court in Shanti Prosad Jain

vs. Kalinga Tubes Ltd. (supra) it is necessary for the petitioner who has

filed a petition under Section 397 of the Act to show that the conduct

complained of was oppressive and "this requires that events have to be

considered not in isolation but as part of a consecutive story. There must

be continuous acts on the part of the majority shareholders, continuing

up to the date of petition, showing that the affairs of the company were

being conducted in a manner oppressive to some part of the members".

This observation shows that the acts complained of as being oppressive

have to be viewed in a wholesome manner and without dissecting them

into separate, disjunctive or component parts of oppression. What is

complained of is oppression and such oppression may be the result of

several continuous acts, all of which constitute what the Supreme Court

describes as a consecutive story. It is neither proper nor necessary to look

at each act of oppression disjointedly. Viewed from this angle also, there

is no justification, in proceedings under Section 397 of the Act, to insist

on a fresh petition being filed only on the basis of a fresh cause of action.

I would even venture to say that in a petition under Section 397, there is

no room for such theories as fresh cause of action. The observations of

the Supreme Court cited above also add strength to my view, that what

was brought to the notice of the CLB in the fresh petition was only one

more development after the filing of the petition, which would be a

relevant development, which the CLB ought to note while passing orders

under Section 402 with a view to bringing to an end the matters

complained of. On this basis I would further venture to think that the

CLB was not also justified in insisting on a fresh petition being filed only

on a fresh cause of action. The approach of the CLB, with respect, seems

to me highly technical, an approach not called for and even indicted by

the spirit of Sections 397 and 398.

24. The above discussion of mine is on the assumption that the

provisions of the CPC are applicable to the proceedings before the CLB.

In fairness to the arguments advanced before me, I must also deal with

the question whether the provisions of the CPC are applicable to

proceedings before the CLB. I may start with a very basic common sense

approach prompted by the very rationale of constituting specialised

tribunals to deal with issues arising out of special legislation. The Central

Administrative Tribunal (CAT) deals with service matters relating to

employees of the Central Government; the Income Tax Appellate

Tribunal deals with issues arising out of assessments made under the

Income Tax Act, 1961. Similarly, the CLB exclusively deals with issues

arising out of the working of the Companies Act, 1956. All these

Tribunals have been given power to regulate their own procedure. In

exercise of such power, rules/ regulations have been framed by these

Tribunals. It has been uniformally held that in order to make the

functioning of these specialised Tribunals effective, the strict provisions

of the CPC, Indian Evidence Act, 1872 etc. are not applicable to the

proceedings before such Tribunals. It is quite normal to find in the

enactment constituting these Tribunals a provision which makes only

some of the provisions of the CPC applicable to proceedings before them.

So far as the CLB is concerned, Section 10-E(4-C) provides as follows: -

"(4-C) Every Bench referred to in sub-section (4-B) shall have powers which are vested in a Court under the

Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters namely:

(a) discovery and inspection of documents or other material objects producible as evidence;

(b) enforcing the attendance of witnesses and requiring the deposit of their expenses;

(c) compelling the production of documents or other material objects producible as evidence and impounding the same;

(d) examining witnesses on oath;

(e) granting adjournments;

(f) reception of evidence on affidavits."

25. The other sub-sections which are relevant are the following: -

"(4-D) Every Bench shall be deemed to be a Civil Court for the purpose of section 195 and [Chapter XXVI of the Code of Criminal Procedure, 1973] and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code and for the purpose of section 196 of that Code.] [(5) Without prejudice to the provisions of sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the discharge of the functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion.]

[(6) Subject to the foregoing provisions of this section, the Company Law Board shall have power to regulate its own procedure.]"

26. Pursuant to the power given under sub-section (6) of Section 10E

the CLB has framed the Company Law Board Regulations, 1991

governing the proceedings before it. Similar provisions occur in the

Income Tax Act, 1961 also. Section 255 read with Section 131 of the

said Act, confers upon the Income Tax Appellate Tribunal the following

powers which are vested in a Court under the CPC when trying a suit in

respect of the following matters, namely (a) discovery and inspection, (b)

enforcing the attendance of any person, including any officer of a banking

company and examining him on oath, (c) compelling production of books

of accounts and other documents and (d) issuing commissions. Section

255(6) further provides that the proceedings before the Tribunal shall be

deemed to be a judicial proceeding within the meaning of Sections 193

and 228 and for the purpose of Section 196 of the Indian Penal Code, and

further that the Tribunal shall be deemed to be a civil court for all the

purposes of Section 195 and Chapter XXXV of the Code of Criminal

Procedure. Sub-section (5) of Section 255 of the Income Tax Act, 1961

confers upon the Income Tax Appellate Tribunal the power to regulate its

own procedure and the procedure of the Benches thereof in all matters

arising out of the exercise of its powers or of the discharge of its

functions, including the places at which the Benches shall hold their

sittings. Pursuant to this power, the Income Tax Appellate Tribunal has

framed the Income Tax Appellate Tribunal Rules, 1963 regulating its

functioning.

27. Thus wherever the legislature so desired, specific provisions were

enacted in the statutes creating the Tribunals as to the extent of the

applicability of the provisions of the CPC in the functioning or the

proceedings before such Tribunals. The result is that except the

provisions of the CPC which have been so made applicable, the other

provisions are not applicable. In Union of India vs. Madras Bar

Association, (2010) 11 SCC 1, the Supreme Court has observed as under:

-

"(iii) While courts are governed by detailed statutory procedural rules, in particular the Code of Civil Procedure and the Evidence Act, requiring an elaborate procedure in decision making, tribunals generally regulate their own procedure applying the provisions of the Code of Civil Procedure only where it is required, and without being restricted by the strict rules of the Evidence Act."

28. The aforesaid observations cover not only the CLB but also

Tribunals in general.

29. The position, therefore, is that unless specifically conferred, the

provisions of the CPC are not applicable to CLB. My attention was also

drawn to the following judgments in which a similar proposition was

accepted: -

(i) B. Subha Reddy vs. S.S. Organics Ltd., (2009) 151 Comp Cas 190 (AP).

(ii) K. Muthusamy and P. Durai vs. S. Balasubramanian and Ors., (2012) 106 CLA 120 (MAD.).

(iii) Ultrafilter GMBH vs. Ultrafilter (India) P. Ltd. and Anr., (2012) 106 CLA 163 (KAR.).

30. It is, however, possible to postulate an argument that though the

provisions of the CPC are not applicable to CLB, there is no prohibition

in applying the principles evolved in the CPC. There can be no quarrel

with such an argument, subject to the caveat that the well recognised

principles embedded in the elaborate provisions of the CPC can be

invoked to the proceedings before the CLB with a view to suppressing the

mischief and advancing the cause of justice. This seems to be the

purpose of Regulation 44 of the CLB Regulations. Even if this argument

is given effect to, I do not think that the CLB in the present case was

justified in any manner in throwing out the fresh petition on the basis of

the principle behind Order VII Rule 11(a). In addition to the reasons

which I have earlier given, on the basis of the vast powers conferred upon

the CLB in petitions complaining of oppression and mis-management and

the expectation of the Companies Act that the disputes arising out of acts

of oppression and mis-management should be effectively put an end to by

the CLB, I would add that the principle embedded in Order VII Rule

11(a) ought not to have been invoked in the present case to defeat the

right of the appellants to the remedy against acts of oppression and mis-

management allegedly committed by the respondent, without even

examining the petition on merits. As rightly contended on behalf of the

appellants, section 397(2) requires the CLB to form an opinion, that the

affairs of the company are being conducted in a manner prejudicial to

public interest or in a manner oppressive to any member or members. It

is difficult to visualise the possibility of such an opinion being formed by

the CLB without examining the acts of the oppression and mis-

management complained of or without inquiring into the question

whether there is substance in the complaint or not. The CLB not only has

to form such an opinion but shall further pass such order as it thinks fit

with a view to bringing to an end the matters complained of. It needs no

emphasis that the interests of the company are paramount in moulding the

relief and the remedy under Section 397 is an alternative to winding-up.

A company is a corporate personality and is normally promoted to foster

economic growth of the country. Its proper functioning is, therefore,

essential for the economic strength of the country. The provisions of

Section 397 and 398 are a step towards ensuring that companies formed

for this purpose do not get derailed because of lack of probity or merely

because of egoistic disputes between the men behind the company.

Rejection of the petition filed under Section 397/ 398 of the Act on a

technical or a preliminary ground leaves the disputes unsettled which

goes against the mandate of the provision. The disputes are allowed to

linger and that is not good for the company or the public interest. Having

these factors in mind I am unable to uphold the dismissal of the fresh

company petition filed by the appellants herein before the CLB on the

basis of the principle embedded in Order VII, Rule 11(a) of the CPC,

even assuming that there is no bar on the principles embedded in the CPC

being invoked to proceedings before the CLB.

31. There is one more reason for my view. Though the appellant‟s

petition before the CLB was dismissed as not maintainable for not

disclosing a fresh cause of action, the petition filed by the respondents

before the CLB in C.P. No.24(ND)/2013, also under Sections 397 and

398 of the Act, complaining of acts of oppression and mis-management

against the appellants, is still stated to be pending before the CLB

pursuant to an order passed by the CLB on 19.02.2013. On this date the

CLB passed an order for listing the petition filed by the respondents

herein along with the fresh petition filed by the appellants before the

CLB. However, the fresh petition filed by the appellants was dismissed,

though the petition filed by the respondents was adjourned and is kept

pending. When both the petitions were initially directed to be listed

together for hearing it would have been just and equitable that the mutual

allegations were examined and an opinion was formed as to whether the

affairs of the company were being conducted in a manner prejudicial to

public interest or oppressive to any member or members and it was

eminently desirable that the CLB passed an order with a view to bringing

to an end the matters complained of. Taking up both the petitions

together for hearing would have given an opportunity to the CLB to see

the points of view of both the sides in order to arrive at a just decision.

This is one more reason which, in my view, ought to have prevailed upon

the CLB and persuaded it not to throw out the fresh petition filed by the

appellants herein on the basis of principle behind Order VII, Rule 11(a)

of the CPC.

32. Regulation 44 of the CLB Regulations, 1991 reads as under: -

"44. Saving of inherent power of the Bench - Nothing in these rules shall be deemed to limit or otherwise affect the

inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench."

33. The above rule shows that the inherent power of the Bench is

preserved subject to the condition that such power shall be exercised only

for the ends of justice or to prevent abuse of the process of the Bench. It

is difficult to fathom how the filing of the fresh petition by the appellants

herein was contrary to the ends of justice or can be said to result in the

abuse of the process of the Bench. The CLB could have examined the

merits of the fresh petition and taken a decision on the merits and could

have also decided the petition filed by the respondents at the same time.

In other words both the petitions which are under Sections 397 and 398 of

the Act could have been disposed of in a consolidated manner. The

impugned order dated 13.03.2013 shows that the CLB was of the opinion

that the petitioners could not satisfy that a situation existed which justify

the winding-up of the company. The only reason for this conclusion

given by the CLB in paragraph 3 of the impugned order is that the

petitioners were in control of the management of the company to the

exclusion of the respondent and being in majority have failed to

substantiate any oppressive act by the minority. That the petitioners were

the majority shareholders of the company was the only ground put against

them on merits and it was presumed, without examining the various

allegations made in the fresh petition, that a minority cannot act against

the majority under any circumstances. There is no other reason given on

the merits of the allegations and it appears to me that the CLB, with

respect, expressed its opinion on merits without actually examining them.

There is no reference to any of the allegations made in the fresh petition

or to the contents of the elaborate pleadings in the petition. The order of

the CLB which is impugned before this Court, therefore, does appear to

me to be unsustainable, in so far as it purports to reject the petition also

on merits.

34. It was argued on behalf of the appellants that it would be a

contradiction to say, on the basis of Section 8 of the Arbitration and

Conciliation Act, 1996 that in view of the specific clause in the JVA, the

disputes between the parties should be referred to arbitration and also say,

in the same breath, that there is no fresh cause of action. This

contradictory stand, according to the learned counsel for the appellants,

was taken by the learned counsel for the respondents which, according to

him, cannot bear scrutiny. When the respondents filed Company

Application No.41/2013 on the ground that in view of the arbitration

clause, the CLB would have no jurisdiction to entertain the petition filed

by the appellants herein and also in the same application took a ground

that there was no fresh cause of action in filing the fresh petition, they

were to some extent taking a contradictory stand. If there were disputes

which needed to be referred to arbitration, for the very same reason, it can

also be said that there was a continuing cause of action on the basis of

which the fresh petition may be entertained. This position need not,

however, be examined further because I have already taken the view that

in the very nature of things, acts of oppression and mis-management are a

continuous story and they cannot be dissected into separate causes of

action. I have also expressed the view that by filing the fresh petition, the

petitioners (appellants herein) were merely bringing to the notice of the

CLB another aspect of the JVA which may assist the CLB in dealing with

the petition on merits. The CLB ought not to have disposed of the

petition on merits, without actually examining the merits of the

allegations made in the petition.

35. In the course of the arguments the learned counsel for the

appellants took up the position, inter alia, that the earlier petition was

withdrawn at the suggestion of the CLB, which was made after it was

noticed that the lock-in period of 5 years had expired on 20.12.2012 and

the petition having been withdrawn at the suggestion of the CLB, the

CLB was not justified in refusing to entertain the fresh petition on the

ground that it disclosed no fresh cause of action. This was strongly

contested by the learned counsel for the respondents, the argument being

that there was nothing in the orders passed by the CLB to suggest that the

first petition was withdrawn at the behest of the CLB with liberty to file a

fresh petition on a fresh cause of action and that the Judge‟s record is

final and nothing can be permitted to be stated by the parties against the

same. I do not consider it necessary to examine this aspect of the matter

despite the elaborate arguments advanced by both the sides on this issue.

I have preferred to rest my decision on the assumption that there was no

such suggestion by the CLB and that in withdrawing the earlier petition

and filing the fresh petition, the petitioners (appellants herein) were

acting on their own.

36. For the above reasons I am of the view that the impugned order

passed by the CLB on 13.03.2013 in Company Petition No.7(ND)/2013

and Company Application No.41/2013 should be set-aside. I hold

accordingly and remand the matter to the CLB which will now deal with

the petitions filed by the appellants herein under Section 397 and 398 and

dispose them of on merits and in accordance with law. It is for the

consideration of the CLB whether the cross-petition filed by the

respondents herein (C.P. No.24(ND)/2013) before the CLB under the

above sections should also be heard along with the petition filed by the

appellants herein.

37. The appeal is allowed in the aforesaid terms, with no order as to

costs. The Co. Appl. No.833/2013, consequently stands disposed of.

(R.V. EASWAR) JUDGE SEPTEMBER 09, 2013 hs