1. In this company petition filed under Sections 397, 398, 402 & 403 of the Companies Act, 1956 ("the Act") alleging acts of oppression and mismanagement in the affairs of M/s. Cheran Enterprises Private Limited ("the Company") and seeking directions, inter-alia (a) to declare that the board meeting of the Company reportedly held on 21/22-09-2005 and the resolutions passed therein are null and void; (b) to restrain the Company from giving effect to any of the resolutions passed at the board meeting held on 21/22-09-2005; (c) to amend the Articles of Association of the Company to the effect that (i) no policy decision is taken in the subsidiaries by the Company in any general meeting without the affirmative vote of the first petitioner; and (ii) no quorum for any meeting of the board of directors of the Company would be possible without the presence of the first petitioners' nominee; (d) to restrain the respondent Nos. 3 & 4 or any other nominee of the respondent Nos. 2 & 5 from holding the board meeting on 12.11.2005; and (e) to appoint an independent valuer assess the value of the Company and the loss suffered it on account of the breach committed by the second respondent under the JV Agreement and to surcharge the respondent Nos. 2 to 5 who have acted in concert for having caused loss to the company, the petitioners have come forward with the present application under Regulation 44 of the Company Law Board Regulations 1991, for amendment of the company petition by incorporating certain averments in relation to, among others, Odessey America Re-insurance Corporation ("OARC") and claiming additional reliefs, for the reasons stated therein, in support of which Shri Karthik Seshadri, learned Counsel, submitted: o The second petitioner and his wife promoted the Company in November 2003 with the main object of establishing industrial estates, information technology parks, health activities etc. The second respondent, a wholly owned subsidiary of OARC part of the 'Fairfax Group' of companies has been formed under the laws in force in Mauritius for the purpose of investing in the Company. By virtue of an arrangement between the petitioners, the respondent Nos. 2 to 5 (the third respondent, being principal officer of First Capital Insurance Company, a group company of OARC, the fourth respondent, representative of the second respondent and the fifth respondent being son of the third respondent) and others, the first petitioner and the respondent Nos. 2 & 3 would hold shares in the capital of the Company in the ratio of 45:45:10 for the purpose of undertaking through the Company the business of acquiring, constructing, developing of immovable properties for establishing information technology parks, residential, commercial buildings etc. After a series of discussions, the understanding between the parties came to be reduced into writing on 30.01.2004, in terms of a Joint Venture Agreement, pursuant to which the second respondent invested monies to the tune of Rs. 75 crores in the form of equity in the Company and was required to seek and obtain a Syndicated Credit Facility to a tune of Rs. 300 crores against the security of a corporate guarantee to be issued by OARC, which is one of the fundamental requirements of the JV Agreement (Clause 9.1). However, OARC failed to provide the requisite corporate guarantee to enable the Company to obtain any Syndicated Credit Facility in terms of the JV Agreement. In view of the breach of this fundamental term of the JV agreement by the second respondent and OARC, the Company could not carry on any business. It has, therefore, become necessary to amend the company petition to implead OARC, as the sixth respondent to the present proceedings.
o The second respondent is a mere investment vehicle of OARC and in reality the investment in the Company was that of OARC. The second respondent with its registered office in Mauritius has no operations except to route investments of OARC in order to derive tax benefits.
OARC is necessary and proper party in order to come to a just and proper decision in the present proceedings. The amendments sought to be introduced to the company petition do not in any way alter the cause of action and are based on the very same cause of action.
o The prayer for surcharging OARC in terms of the JV agreement can be enforced only when OARC is made a party to the present proceedings. OARC's presence is necessary for a complete and final decision on the question involved in the present proceedings and without which, no effective order can be made, especially when OARC is directly interested in the subject matter of the litigation.
These are the essential requirements for impleadment of a party as laid down by the apex court in Hirachand Kundanmal v. Municipal Corporation of Greater Bombay followed by this Board inA. Vellayan v. Cynosure Investments (P) Ltd. (2006)2 CLJ 272.
o The second respondent had arranged a term loan of US $ 66 million, in the name of the Company from G.E. Capital Services India Limited, against the security of an irrevocable and unconditional guarantee of OARC, as borne out by in principle letter of approval dated 13.09.2004 issued by G.E. Capital Services India Limited, upon receipt of which the Company remitted the upfront fees of US $ 50,000 to G.E. Capital Services India Limited. However, OARC did not furnish any irrevocable corporate guarantee in favour of the lending institution. As a result, the sanctioned loan was never released to the Company, resulting in refund of the upfront fees remitted by the Company. Thus, OARC committed breach of the terms of the JV agreement, causing huge losses to the Company. These facts are pleaded in the counter statement filed by the petitioners herein in C.P. No. 76 of 2005 initiated by the second respondent. The prime role of OARC is defined in the JV agreement, which is barely denied by the respondents in the present proceedings. The representations and warranties of OARC are set out in the share pledge agreement dated 30.01.2004. The second respondent cannot make any commitment on behalf of OARC in honouring the terms of the JV agreement which are enumerated in para 9.1 of the company petition. OARC played vital role in formation and funding of the Company. Hence, OARC is a necessary party to the present proceedings in order to enforce the terms of the JV agreement on account of the default committed by OARC.2. Shri Sriram Panchu, learned senior Counsel, while opposing the amendments to the company petition submitted: o The pleadings now sought to be introduced by way of the proposed amendments are quite unnecessary for determining the questions in dispute between the parties. The application is nothing but an abjure of the process of this Bench.
o OARC is neither a shareholder of the Company nor it is involved in the day-to-day management of the Company.
o The second respondent is not a mere investment vehicle of OARC, but a distinct entity, incorporated under the laws of Mauritius and is governed by an independent board of directors.
o OARC is not a party to the JV agreement and therefore, the question of any breach on its part does not arise.
o OARC is neither a proper nor necessary party. The essential tests to decide whether a person is a necessary party are laid down by the Supreme Court in Deputy Commissioner v. Ramakrishna Nair . They are (i) there must be a right to some relief against such party in respect of the matter involved in the proceedings in question (ii) it should not be possible to pass an effective decree in absence of such party, which have been followed by this Board in Kishore Kundan Sippy and Sri Kundan Hashmatrai Sippy v. Samrat Shipping & Transports Systems Pvt. Ltd. (2003) 115 CC 868. The Supreme Court in Kasturi v. Iyyamperumal held that (a) by virtue of Order 1 Rule 10(2) of the Code of Civil Procedure, necessary parties in a suit are determined when there must be a right to some relief against such party in respect of the controversies in question; and (ii) no effective decree can be passed in the absence of such party; (b) strangers to the contract are neither entitled to the right, nor subject to the liabilities which arise out of it; strangers can neither enforce the contract nor can recover damages for its breach; (c) necessary parties are those persons in whose absence no decree can be passed by the court or there must be a right to some relief against some party in respect of the controversy in question and proper parties are those whose presence would be necessary to enable the court to effectually and completely adjudicate upon all question in the suit; and (d) strangers to the contract are neither proper nor necessary parties and are not entitled to join as defendants in the suit.
o OARC never committed any acts of omission or commission of oppression or mismanagement in the affairs of the Company so as to invoke the jurisdiction of Section 397/398. There are no pleadings either in the petition or the proposed amendments that OARC is in any way responsible for any acts of oppression or mismanagement.
This defect can neither be cured nor the lacuna filled up by other evidence, oral or documentary.
o The JV agreement (Clause 9.1) contemplates that the Company shall seek and obtain a Syndicated Credit Facility, which shall be secured by a corporate guarantee furnished by OARC. The petitioners, no where in the pleadings ever pleaded that the Company had secured a Syndicated Credit Facility which is a pre-requisite before issuance of a corporate guarantee by OARC. o When a complaint is made in regard to the violations of statutory or contractual rights, a shareholder may initiate proceeding in a civil court and therefore, for breach of the alleged terms of the J V Agreement, the petitioners must approach a competent civil court and not the CLB as laid down in Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad have already referred to arbitration and OARC is a party to such arbitration proceedings. The very same issues which have been raised before the CLB are pending consideration of the arbitrators.
o The object of the present application is to cause harassment, damage the reputation and goodwill of OARC and drag an innocent foreign party into the proceedings in which it has no role to play.
o The petitioners have not made any prayer against OARC in the original pleadings and cannot now be achieved through amendments as sought by them.
o The obligations imposed on the petitioners under the J V agreement namely, (a) obtaining of a Syndicated Credit Facility before 31.12.2004; (b) commencement of construction of the IT Park property before January 2006 have not been discharged by them. The petitioners mortgaged the assets of the subsidiary companies prior to the investments made by the second respondent and sold the properties developed under the name of Cheran Towers, without disclosing the details to the respondents. This shows the lack of faith on the part of the petitioners.
o By virtue of Section 542 under Schedule XI, it is only when OARC is found guilty of carrying on the business of the Company for fraudulent purpose, OARC can be made liable for such fraudulent acts, but not otherwise. In the event of OARC is found liable, the CLB, in exercise of the powers under Section 402(g) may cause notice to OARC and invoke Section 542, safeguarding the interests of the Company.
3. I have considered the arguments advanced for the parties. The issue that arises for my consideration is whether the prayer for amendment of the company petition is justified in the facts and circumstances of the present case. While the petitioners seek to implead OARC, being proper and necessary party to the present proceedings, it is vehemently opposed by the respondents. In the present backdrop of rival claims, the legal proposition laid down in several of the decisions cited by either side assumes relevance, which is broadly summarised here below: a) A necessary party is one without whom no order can be made effectively.
b) 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.
c) A party proposed to be added must have direct and legal interest in the controversy involved in the litigation.
d) There must be a right to some relief against such party in respect of the controversies involved in the proceedings.
e) A proper party is one whose presence before the court would be necessary to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the suit although no relief in the suit is claimed against such person.
f) A stranger to the contract is neither a necessary party nor proper party.
It is on record that the petitioners and the respondent Nos. 2 & 3 are the only shareholders in the Company. The fourth respondent is nominee of the second respondent on the board of the Company and the fifth respondent is son of the third respondent. The second respondent is wholly owned subsidiary of OARC, both of which are reportedly have independent board of directors. OARC is neither a shareholder in the Company nor involved in the day-to-day management of the Company. The main acts of oppression and mismanagement alleged in the affairs of the Company are: o The respondent Nos. 2, 3 & 5 in spite of the undertaking to tie up a Syndicated Credit Facility of Rs. 300 crores in favour of the Company committed a material default in honouring their commitment as per the JV Agreement. Consequently, the Company has not commenced any business activities, as envisaged by the J V Agreement.
o A telecom company namely, Data Access India Limited (DAIL) with its registered office at New Delhi was facing financial difficulties and DAIL. was available for sale. The second petitioner, in accordance with the decision of the board of directors of the Company entered into an agreement in May 2004 with Siddartha Ray, promoter of DAIL and his associates for acquiring 76% control over DAIL. At the instance of the respondent Nos. 2 to 4, it was decided that the investment in DAIL must be carried out directly by OARC and not through the Company. Accordingly, the second petitioner incorporated a new company by name Cheran Holding Private Limited (CHPL) in June 2004. CHPL did not have adequate capital to acquire DAIL and therefore the Company had transferred a sum of Rs. 35.30 crores in favour of CHPL in order to acquire the shares of DA1L from Siddartha Ray and his associates, in accordance with the decision taken by the Board of Directors of the Company at the meeting held on 24-06-2004. However, in August 2004 the Board of Directors of the Company decided to withdraw from their decision to invest in CHPL for acquiring the shares of DAIL. Accordingly, OARC had on 13.08.2004 transferred a sum of US $ 17million in favour of Data Access US, a wholly owned subsidiary of DAIL. Data Access US had on 19.08.2004 transferred the said amount of US $ 17 billion to DAIL, instead of transferring the funds into account of CHPL, on account of certain criminal acts of Siddartha Ray and his associates.
Thereafter, the second respondent took steps to transfer from DAIL, an amount of Rs. 78.45 crores remitted by Data Access US, to CHPL, which in turn transferred a sum of Rs. 35.30 crores to the Company, thereby realising the sum utilised for acquiring the shares of DAIL from Siddartha Ray and associates by CHPL. Further CHPL, out of the remaining balance transferred a sum of Rs. 18.05 crores to KCP Associates Holdings Private Limited (KCPAHPL) and further sum of Rs. 25 crores in favour of Sporting Pastime (India) Private Limited (SP1L). Due to several moves and complicated transactions which were interconnected in the Company, DAIL and CHPL, serious disputes arose between the petitioners and the respondents. In the meanwhile, Siddartha Ray instigated the filing of a winding up petition against DAIL before the Delhi High Court in October 2004. A number of creditors of DAIL intervened in the matter and sought orders of attachment of the funds in the hands of CHPL, among others, the company CHPL, KCPAHPL and SPIL. The Income Tax authorities attached the bank accounts of these companies and huge demands for alleged defaults of DAIL, on account of which the entire funds came to be blocked. However, DAIL has now been ordered to be wound up by an order of the Delhi High Court.
o The various issues relating to revival of DAIL came to be deliberated by the Board of Directors from time to time, since its revival would go long way in protecting investments of the shareholders in the venture. At the board meeting held on 21.09.2005, the respondent Nos. 3&4 instead of transacting the business as per the agenda, came out with a proposal to terminate the JV agreement, contrary to the decision taken at the board meeting held on 22.08.2005 for revival of DAIL. Accordingly, the second respondent wanted Rs.l 15 crores in return for their investment of Rs. 75 crores in the Company, while terminating the J V Agreement, instead of arranging a Syndicated Credit Facility of Rs. 300 erores, even after a lapse of more then 2 years from the date of formation of the Company. The third respondent and the second respondent acting through the fourth respondent and other persons had come with this specific agenda of coercing the second petitioner to concede to the unreasonable terms of the Company. The "Term Sheet" put forth by the respondent Nos. 3 & 4 would show that second respondent did not desire to continue with the Company or be a member of the Company and the second respondent was insisting to get Rs.l 15 crores, which was never acceptable to the petitioners.
The second petitioner refused at the board meeting to concede to any of the demands for termination of the JV Agreement and therefore, meeting was adjourned without any decision. However, it later transpired that the respondent Nos. 3&4 continued the board meeting and transacted as many as 17 items of business and purportedly passed resolutions. All illegal resolutions passed with malafide intention of usurping the Company and the management from the second petitioner, being null and void are not binding on the Company or the petitioners. The termination of JVA cannot be the subject matter of the board, since those issues are not pertaining to the management of the Company.
o At the board meeting convened on 12.11.2005, the respondent Nos. 2 to 4 have proposed to review the various decisions which have taken over a period of time including the directors of the Company and its subsidiaries, review the financial and accounting controls and procedures, hiring of consultants, replacing of the Managing Director, approving a new name of the Company, new registered office and future plans for the Company and the JV Agreement, with the sole object of removing the second petitioner from the office of Managing Director of the Company. The respondent Nos. 2 to 4 with their strength in the board namely, 2:1 are taking all steps to take over the Company from the second petitioner.
o The respondent Nos. 2 to 5 acting in breach of trust reposed on them by the petitioners, cannot seek to extract money from the petitioners merely because the petitioners are not amenable to their demands.
It is far from doubt that the above charges are levelled only against the respondent Nos. 2 to 5. The petitioners are aggrieved on account of non-adherence to the terms and conditions of JV Agreement by the respondent Nos. 2 to 5 and the reported usurpation of the Company from the second petitioner, who is its Managing Director. OARC being an independent and distinct corporate entity and not being a shareholder is in no way involved in the conduct complained of by the petitioners.
OARC is not answerable for the purported acts of oppression and mismanagement raised against the respondents herein. OARC being merely holding company of the second respondent cannot be mulct with any prejudices or liabilities for the alleged acts of omission or commission in the affairs of the Company at the hands of the second and other respondents. The main grievance against OARC is that it failed to extend any corporate guarantee securing a Syndicated Credit Facility obtained by the Company. OARC is not a party to the JV agreement. This agreement has not been signed by OARC. OARC being stranger to the JV Agreement is neither necessary nor proper party to the proceedings.
OARC's presence is not required before declaring that resolutions passed at the board meeting held on 22.09.2005 are invalid; or for restraining the Company from giving effect to the resolutions passed at the said board meeting; or for appointing an independent valuer to assess the value of the Company or the losses suffered on account of breach of the terms of the JV Agreement; or for amending the memorandum of association of the Company, as claimed in the company petition. The issues in dispute can and completely adjudicated and the reliefs be granted without the presence of OARC, provided the petitioners establish their case in the present litigation. OARC need not be a party in order to come to a complete and final decision on the questions involved in the present proceedings. It is, in my view, quite possible to pass an effective order without any difficulty in the present company petition in the absence of OARC. The amendments sought to be introduced may not alter the cause of action, but would definitely enlarge the scope of the present petition so as to bring OARC within the jurisdiction of the CLB. The amendments are substantial in nature and materially different in the light of the allegations set out in the company petition and would constitute a new case of enforcing the terms of JV agreement against OARC. This is evident from the fact that even if every one of the reliefs as claimed is granted, it will not operate against OARC. Whereas, with the amendment now proposed, OARC may suffer by virtue of any possible order, which may be passed by the Bench. There are no specific pleadings regarding the default committed by OARC in providing a corporate guarantee. No relief has either been claimed against OARC. The plea of default by OARC raised by the petitioners herein, in their counter statement filed in the company petition No. 76 of 2005, in my view will not go in their aid to enforce any claim against OARC in the light of the observations of the Supreme Court in Sangramsinh P.Gaekwad and Ors. v. Shantadevi P.Gaekwad (supra), the relevant portion of which runs thus: (a) It is now well settled that a case for grant of relief under Sections 397 and 398 of the Companies Act must be made out in the petition itself and the detects contained therein cannot be cured nor the lacuna tiled up by other evidence oral ox documentary; (b) If no relief could be granted having regard to the pleadings contained therein, it is inconceivable in law that such relief would be granted on the basis of the pleadings made in other proceedings. It is, therefore, not necessary that OARC should be required to be brought in as a respondent. The petitioners on the basis of the pleadings and the reliefs claimed by them are not entitled to seek any relief against OARC and amendments cannot be allowed to achieve this objective. The grievances against OARC following from the JV Agreement must be agitated in a civil proceeding but not in a proceeding under Section 397 as laid down by the Apex Court in Sangramsinh P.Gaekwad and Ors. v. Shantadevi P. Gaekwad (supra). It is observed that the petitioners have already referred the disputes to arbitration, which include the loss of Rs. 740 crores reportedly suffered by the Company on account of non fulfilment of the terms of JVA, wherein OARC is also a party to the said proceedings. The CLB, in my considered view, is not the appropriate forum to enforce the contractual obligations in terms of the J V Agreement against OARC and it would not constitute oppression in the affairs of the Company. For these reasons, the prayer for impleadment of OARC does not satisfy the legal proposition enunciated in the various decisions cited supra and therefore, the application is liable to be dismissed. Ordered accordingly.