Judgment:
1. In the Company Petition filed under Sections 397, 398, 402 and 403, Schedule-XI read with Section 543 of the Companies Act, 1956, ("the Act") by the petitioner alleging acts of oppression, mismanagement and fraud in the affairs of M/s Das Lagerwey Windturbines Ltd ("the Company") at the hands of respondents 2 & 3 as members of the Company in/ active collusion and association with respondents 5 & 6, not being members of the Company and respondents 8 to 13, the leasing companies seeking reliefs against, among others, the respondents 5 & 6, the latter have filed applications in CA Nos. 24 & 25/2003 for striking off their names as the respondents 5, 6 in the Company Petition.
2. The facts, in brief as stated in the Company Petition are that the third respondent had promoted the first respondent-Company with the main object of carrying on business in manufacture and marketing of Lagerwey Wind Turbines in India. By virtue of the collaboration agreements entered into among the petitioner and the respondents 2 & 3, the petitioner holds about 25 per cent and the respondents 2 & 3 each 37.50 per cent respectively of the equity capital of the Company. The first respondent-Company was to import the wind turbine generators manufactured by the second respondent; add the Indian components and services and thereafter, erect the wind mills as per the specification of the ultimate customer. Accordingly, the first respondent-Company would identify and enter into contracts with the customers in India and place orders on the second respondent for components of the wind turbines. During the period from 1995 to 1997 the first respondent-Company sold and installed about 100 Largerway Wind Turbines. Towards the end of 1996, the Dutch Government was granting an export subsidy in the form of a grant under the Mileey Programme in respect of the wind turbines manufactured and exported by a company in Netherlands. The third respondent with the object of misappropriating the grant under the Mileev Programme and taking away the business and assets of the first respondent-Company promoted the fourth respondent in January, 1997 in breach of his fiduciary obligations to the respondent-Company and started manufacturing and selling turbines in contravention of the collaboration agreement entered into between the first respondent-Company and the second respondent. While normally the first respondent-Company was to enter into contracts with the clients in India, import the wind turbine generators manufactured by the second respondent and erect the wind mills, the second respondent had directly entered into contract in January, 1997 with the fifth respondent for setting up of a 20 MW wind mill in Muppandal, in connivance with the sixth respondent, who was the Managing Director of the fifth respondent. Thus, through a systematic fraud with collusion of the fifth respondent, the third respondent took complete control of the projects and the interests in contracts of the first respondent-Company, through the fourth respondent to the detriment of the business interests of the first respondent-Company. Thus, the first respondent-Company was fraudulently deprived of the benefits of establishing the project by the second and third respondents in collusion with the fifth respondent and shared the secret profits among themselves. Furthermore, the respondents 2 & 3 shared the benefits of the grant provided by the Netherlands Government in connivances with the respondents 4, 5 & 6, thereby causing huge losses to the first respondent-Company, its shareholders and also to the exchequer of the Government of India. The grant provided by the Netherlands Government amounting to over Rs. 54 crores for the project of the fifth respondent is nowhere accounted in the books of any of the parties. The respondents 2 & 3 have been obtaining and misappropriating the grant since the year 1997 in violation of the collaboration agreement and pursuing their business outside the policies of the first respondent-Company. Consequently, the first respondent-Company has become a defunct company burdened with borrowings presently facing recovery proceedings before the Debt Recovery Tribunal. In these circumstances, the petitioner, while claiming various remedies against the respondents have specifically sought against the respondents 5 & 6, the following reliefs :- (a) to terminate and set aside the lease agreements entered into among the respondents 4, 5 and the leasing companies; and ; (b) to direct the respondents to restore all the benefits including diversion of profits, business, assets taken away from the first respondent-Company, back in its favour.
3. Shri C. Aryama Sundaram, the learned Senior Counsel, appearing for the applicants-respondents 5 & 6 submitted: The fifth respondent is a public limited company of which the sixth respondent was the Managing Director at the relevant point of time.
The grievance of the petitioner is that the first respondent-Company was deprived of the benefits of a Wind Turbine project by various fraudulent arrangements said to have been entered into by the respondents 2 to 6. Furthermore, the fifth respondent had entered into leasing agreements in regard to Wind Turbine Generators in contravention of its obligations under the grant from the Dutch Government. In this connection, the learned Senior Counsel pointed out that the first respondent-Company was not a party to the agreement by which the fifth respondent obtained the grant from the Dutch Government and further that the respondents 5 & 6 were at no point of time either shareholders or involved in the management or control or conduct of business -of the first respondent-Company, in which case these respondents can neither be arrayed parties in a complaint under Section 397/398 nor mulcted with any liability by the Company Law Board. Moreover, the respondents 5 & 6 had never entered into any agreement with the first respondent-Company. Thus, there was no privity" of contract among the parties. The respondents 5 & 6 were at no point of time in any relationship of fiduciary duty or trust towards the first respondent-Company. The learned Senior Counsel, while exhaustively reading through the relevant portions of the Company Petition dealing with the purported acts of collusion and fraud on the part of the respondents 5 & 6, denied any such collusion with the other respondents depriving the first respondent-Company of the benefits of the project and any such claim, which is under dispute would be outside the jurisdiction of the CLB. The petitioner's complaint against the participation of the respondents 5 & 6 in the oppression and mismanagement of the first respondent-Company does not fall within the scope of Section 397/398. The reliefs provided under Clauses (a), (b), (c) of Section 402 would arise only in relation to the affairs of the Company and the reliefs under Clauses (d), (e) & (f) would not apply to the respondents 5 & 6. Section 402(g) can neither be invoked against the respondents 5 & 6, especially when the scope and object of the provisions of Section 397/398 are to bring to an end the acts of oppression and mismanagement in the affairs of the Company. In regard to Schedule-XI read with Section 543, they cannot be enforced against these respondents, not being officers of the first respondent-Company. The petitioner cannot deal the affairs of the fifth respondent, questioning its accounting method and obligations nor claim any relief in the present proceedings. The respondents 5 & 6 are neither necessary nor proper parties to the present proceedings, in the light of the relevant provisions of the Code of Civil Procedure, 1908 as interpreted by the Apex court in Ramesh Hirachand Kundanmal v. Municipal Corporation of Greater Bombay - (1992) 2 SCC 524. The respondents 5 & 6 are entitled to sponsor the wind turbine project and enter into the contract availing the subsidy from the Dutch Government and there is no prohibition in entering into leasing agreements. These are all the transactions lawfully entered into by the respondents 5 & 6, which cannot be subject matter of the present proceedings. The learned Senior Counsel pointed out that any members of a company can complain under sections 397/398, when its affairs are being conducted in a manner prejudicial to public interest or interest of the company or in a manner oppressive to any member or members. These acts must be continuous upto the date of petition and cannot cover the past transactions, in support of which reference has been made to C.B. Pardhanani v. M.B. Pardhanani (Kar.) - [1990] 69 CC 106 to show that the object of Section 398 is not to rake up the past and compensate any alleged loss caused to the company in the past and that Section 397 is attracted only as a preventive measure. Thus, under Section 397 and 398, the CLB is not empowered to give relief in respect of the past and concluded transactions which are no longer continuing.
The prayers, therefore, made in the Company Petition, invoking sections 397 and 398 are outside the scope of these provisions. The learned Senior Counsel, while concluding his arguments pointed out the damage and resultant loss suffered by the respondents 5 & 6 on account of their impleadment and, therefore, sought to strike off their names from the Company Petition, ceding the liberty to enforce the attendance of the respondents 5 & 6 for their evidence in future, if need be, while considering the merits of the Company Petition.
4. Shri Shankaranarayanan, learned Counsel appearing for the petitioner contended that at this stage, no arguments could be advanced on the maintainability of the present petition, but only as to whether the applicants are proper and necessary parties. The main grievance of the petitioner is that the assets, benefits etc. belonging to the first respondent-Company were taken away to third parties by the Board of Directors of the company and the third respondent in connivance with the respondents 5 & 6, committed breach of fiduciary duties in accomplishing such illegal acts, details of which are more fully set out in the Company Petition. While deciding the Company Petition, the CLB would necessarily deal with the role played by the respondents 5 & 6 in the matters complained of by the petitioner. The allegations made against them are serious and no adjudication is feasible in the Company Petition without hearing respondents 5 & 6 and, therefore, they are necessary and appropriate parties. The term "party" as defined in Rule 2(p) of the Company Law Board Regulations, 1991 it is rather very wide.
Furthermore, Section 405 widens the scope of the CLB, by which, any person who desires that he should be heard can become a party and the CLB is empowered to implead him as a party. Since the respondents 2, 3, 4 committed fraud in connivance with the respondents 5 & 6, they become appropriate party, without Whom disputes cannot be adjudicated. They cannot be the witnesses of the petitioner in the Company Petition, more so when their evidence would only be hostile to the petitioner and therefore, the plea of these respondents cannot be entertained. Shri Shankaranaryanan, further contended that Clause (g) of Section 402 is independent of the other clauses and the CLB in exercise of its power under Section 402(g) is empowered to grant appropriate reliefs against the respondents 5 & 6. For these reasons, the learned Counsel sought for dismissal of both the applications.
5. I have considered the arguments of the learned Counsel. The issue is whether the applicants shall be struck off from the array of parties.
The question of either striking out or adding a party to a proceeding to enable the Judicial Authority to effectually and completely adjudicate upon and settle the issues involved must be considered in the light of the principles of the provisions of Order 1 Rule 10(2) of the Civil Procedure Code, 1908. The Apex Court in Municipal Corporation of Greater Bombay (supra), while considering the question of impleadment of a party laid down, the following essential requirements: * A necessary party is one without whom no order can be made effectively.
* A proper party is one in whose absence an effective order can be made, but whose presence is necessary for a complete and final decision on the question involved in the proceeding.
* A party must be directly or legally interested in the subject matter of the litigation, i.e., he can say that the litigation may lead to a result, which will affect him legally that is by curtailing his legal rights.
Keeping the above tests in mind, the application of the respondents 5 & 6 shall be decided. The main issue under dispute is that the respondents 2, 3 and 4 committed fraud in connivance with the respondents 5 & 6, thereby the assets, profits, business etc. belonging to the first respondent-Company were smuggled away in favour of third parties, ultimately reducing the Company to be a defunct company. The petitioner, aggrieved by the various alleged acts of fraud and mismanagement in the affairs of the Company is claiming the following reliefs: (i) to supersede the present Board of Directors of Das Lagerwey by appointing a new set of directors to function as per law and in the best interests of the company; (ii) to appoint two nominees of the petitioner in the board of directors of Das Lagerwey and to amend the articles of association of Das Lagerwey as as to ensure that the petitioner would have at least one fourth representation in the Board of directors of Das Lagerwey; (iii) to remove VRR, the third respondent herein, from the Board of directors of Das Lagerwey and declare that he is not entitled to be a director of Das Lagerwey or any other company for a period of 5 years; (iv) to direct the respondents to restore all the benefits including diversion of profits, business, assets taken away from the first respondent-Company, back in its favour; (v) to direct initiation of misfeasance proceedings against VRR under Section 543 of the Companies Act and direct him to repay the money and funds misappropriated by him from Das Lagerwey and to" restore the properties taken away by him from Das Lagerwey with interest; (vi) to terminate and set aside the ease agreements entered into among the respondents and the leasing companies; (vii) to declare that the affairs of Das Lagerwey ought to be investigated and direct the Central Government to appoint one or more competent persons to investigate the affairs of the company and to deal with the offenders on the basis of the report in accordance with law.
Against this background, the question that arises for my consideration is whether the presence of the respondents 5 & 6 is absolutely necessary for adjudicating the contentious issues. The argument advanced on behalf of the petitioner is that the respondents 2, 3 & 4 committed fraud in collusion with the respondents 5 & 6. While considering the matters complained of in the Company Petition, there would necessarily be need to examine the part played, if any, by the respondents 5 & 6 in such alleged illegalities. Any order that may be passed in favour of the petitioner, would affect the respondents 5 & 6 legally. When the legal rights of the respondents 5 & 6 are likely to be affected, there cannot be any doubt that these respondents are legally interested in the subject matter of the litigation. At this juncture, it shall be observed that several lease agreements entered among the leasing companies, the fifth respondent and the fourth respondent (pages 106 to 150 of Petition-Vol.II) categorically show that the fifth respondent had taken, on the basis of an operating lease number of wind mills as supplied by the second respondent through the first respondent- Company for a specified period of years. The petitioner is seeking to set aside these lease agreements entered into among the respondents 4, 5 and the leasing companies, which cannot be effectively adjudicated, without hearing the respondents 5 & 6.
Similarly, while according to the respondents 5 & 6, the first respondent-Company was not a party to the agreement, by which fifth respondent obtained the grant from the Dutch Government, it is the case of the petitioner that the first-respondent was a beneficiary in the grant agreement. In this connection, Article 2 of the grant agreement (pages 97 & 98 of vol.11 of petition) assumes greater importance, according to which a portion of the project amount was to be disbursed in favour of the first respondent-Company. Consequently, the relief of restoration of the profits, properties etc. by the respondents 5 & 6 in favour of the first respondent-Company, if any, cannot be determined, without giving an opportunity of being heard to them, in conformity with the principles of natural justice. I am, therefore, prima-facie, of the opinion that the respondents are directly as well as legally interested in the subject matter of litigation. Thus, for an effectual, complete and final decision on these questions involved in the present proceedings, the presence of the respondents 5 & 6, in my view, becomes absolutely necessary. At the same time, I hasten to add that whether the alleged participation of the respondents 5 & 6 in the oppression and mismanagement of the first respondent-Company falls within the ambit of Section 397 & 398 and whether the provisions of Section 402(g) empower this Board to grant any relief against the respondents 5 & 6, not being member of the first respondent-Company shall be adjudicated only at the time of considering the Company Petition on merits.
Therefore, I do not propose to examine the arguments advanced by the learned Senior Counsel on the merits of the Company Petition, Having found that all the tests approved by the Supreme Court in Municipal Corporation of Greater Bombay on the question of impleadment of parties to a proceeding are satisfied, there is no merit in the plea of the applicants and therefore, the applications are, dismissed, with directions that respondents 5 & 6 will file counter by 25.04.2004 and rejoinder to be filed by 15.05.2004. The petition will be heard as and when the proceedings in CRP No. 1050/2003 on the file of High Court of Madras are finally disposed. Ordered accordingly.