1. In this order I am considering Company Petition No. 86 of 2007 filed by M/s Sai Sugars Limited, Mr. Rajinder Kumar Jain and Mr. Ghanshyam Das Gupta under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the "Act") against Sh. Deepak Sabharwal and Ors. praying that the allotment of shares shown by the R-1 be declared as null and void; the appointment of R-2, R-3 and R-4 and R-5 be declared as null and void; to ask the R-1 to stop violating the provisions of the Act; status quo of the company as on 28^th March 2007 be restored; to remove the Respondent from the directorship to remove the mismanagement permanently; to order R-1 to sell his and his family members' shares to the petitioner on the valuation to be done by an independent body under the guidance of the Hon'ble Bench and leave the company or purchase the shares of other shareholders at the value so fixed; and to wind up the company.
2. The undisputed facts of the case are: Sai Sugar Ltd. was incorporated on 19^th October 2005 having its registered office at 104 Magnum House II, Karampura, Commercial Complex, New Delhi-15. The authorized share capital of the company is Rs. 25,00,000/- divided into 2,50,000/- equity shares of Rs. 10/- each and its issued, subscribed and paid up capital is Rs. 7,10,000 divided into 71,000 equity shares of Rs. 10/- each. The main objects of the company are to set up, establish and carry on in India or elsewhere outside India the business as manufacturers, produces, processors, wholesalers, retailers, buyers, seller, traders, brokers, importers, exporters, suppliers, stockists, commission agents, distributors or otherwise deal in sugar gur, khandsari sugar, sugar candy, sugar chocolates, toffees and other allied terms and things made from or with the held of sugar, etc.
3. Sh. Sanjay Mishra Counsel for the respondents raised preliminary objections regarding the maintainability of the petition. It was contended that the present petition has been filed by the company, M/s Sai Sugars Limited as Petitioner No. 1 without any authorization by the Board of Directors of the Company. Petitioner No. 1 cannot be shareholder in the company itself and it cannot file the present petition as it does not fulfil the basic requirement under Section 397(1) which reads "397 (1) Any members of a company who complain 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 (including any one or more of themselves) may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of Section 399" (the Tribunal to be read as the 'Company Law Board'). It was further argued that the subject matter of the alleged petition is the company itself and the same cannot be arrayed as a petitioner in a Section 397/398 petition, the petition is bad in law for mis-joinder of parties, hence liable to be rejected.
4. It was argued that P-2 and P-3 have themselves submitted that the company having been named as a Petitioner in this petition does not work to deem the same as fatal to the case of the P-2 and P-3, the Respondents' plea of maintainability would work qua only the Petitioner No. 1 i.e. the company in the Petition No. 86 of 2007 that without prejudice to their rights and contentions in the Petition they have no objection to the removal of the name of the company from the array of parties to partly satisfy the objection taken by the Respondents and the Petition may be directed to be proceeded with the names of the P-2 and P-3. It was argued that the Petition is having no merits in the present form, hence the petitioners should withdraw this petition, however, they would have no right to file the fresh petition. It was argued that where a plaintiff omits to sue in respect of, or intentionally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished.
Further, it was contended that deletion of the name of the company as petitioner will not serve the maintainability of the present petition and it will be non-joinder of defendants as without the company in the present petition what shall remain would be the personal dispute and petition between the two parties and not the company petition and hence liable to be rejected.
5. Further, it was contended that the Petitioners who were shareholders and directors of the company until 14-6-2007, have not come with clean hands and have knowingly not disclosed and have misrepresented that the company is not doing any business, in fact, the company is presently engaged in setting up a combo project worth Rs. 600 crores for the Manufacture of Sugar Ethanol. Co. Power generation with sugarcane crushing capacity of 1200 metric tones per day. The Company applied for licence and the Govt., of Himachal Pradesh had granted the license for setting up of the plant in District Una (Himachal Pradesh) vide letter dated 2.1.2006. The Company applied for land for the above project purpose along with application money Rs. 10 lacs and was allotted 70 acres of land in December, 2006 for which payment of Rs. 2.62 Crores was to be made by 30-6-2007 as per letter dated 18/6/2007 issued by DIC Una, H.P. Government. In order to meet the project cost and cost of land, it was principally decided that P-2 and P-3 may invest at least Rs. 80 crores in the Company while other promoters/ directors may contribute the rest of the funds of about Rs. 120 crores, and rest 400 crores were estimated to be loan from Banks /F.Is. The P-2 and P-3 refused to invest the money as they were not interested in further investment in the company and started making frivolous complaints to the Registrar of Companies alleging violation of the provisions of the Companies Acts, 1956; and to the company's bankers namely, Punjab National Bank to freeze the operations vide letter dated 3-5-2007 whereas it was very much in the knowledge of the P-2 and P-3 that a cheque had been issued to the General Manager, District Industries Centre, Una, Himachal Pradesh against demand settled for Rs. 17.20 lacs in place of Rs. 2.62 crores to be paid on or before 31.3.2007 whereas for balance payment an extension was sought from them upto 30^th June, 2007 which was duly sanctioned by the General Manager, DIC, Una, H.P.It was argued that the conduct of the petitioners speaks for themselves and they are bent upon to close the operations of the company any how and also not to invest any further money for setting up the project.
Petitioners had also not disclosed in their petition that they had attended all Board meetings during 25-10-2005 to 14-02-2007 and the First AGM held on 28-03-2007 and are a part and parcel to the decisions taken therein from time to time. They have thereafter not attended the board meetings until they ceased to be directors on 14-06-2007 when in the second AGM they retired by rotation and were not re-appointed. They have also signed the Annual Accounts for the year ended 31-03-2006 but this fact was also not disclosed in petition, nor was the same filed along with the petition. Further, it was pointed out that the majority shareholders of the company have no faith or confidence P-2 and P-3 in view of their activities against the interest of the company and are guilty of breach of trust after March, 07 and are accordingly in the second AGM held on 14-06-2007, P-2 and P-3 were not appointed as directors of the company on their retirement by rotation. Even without authority of the board or of the shareholders during first AGM on 28.3.2007 they willingly filed incomplete first Annual Return of the company and other documents which were incorrect and prejudicial in manner to the Registrar of companies. They made vague allegations in a complaint to the Registrar of Companies also.
6. Further, it was argued that the petition is not maintainable in the absence of the mandatory averment relating to winding of the company, in terms of Section 397(2)(b) of the Act.
7. Sh Ramakant Pathak, Counsel for the petitioners responding to the respondents' preliminary objections on maintainability contended that the respondents in the reply of the petition have objected that the petition is not maintainable in the eyes of law because (a) as per the requirement of Sections 397 and 398 of the Companies Act, 1956 only the members can be the petitioners, the company Sai Sugars Ltd. is not the Member of itself so it cannot be the petitioner; and (b) the petition is bad in law for mis-joinder of the parties. It was pointed out that the petitioners had arrayed the company as a petitioner under the bonafide belief that as they were not opposed to the interest of the company and the proper management of its affairs of the company be included as a Performa party as no relief was being claimed against the company. It was done as a measure of abundant caution to thwart any attempt on part of the respondents from setting up any plea of the petitioners having given up their right to claim preferential rights in management of the affairs of the company by virtue of being the majority directors and its substantial shareholding in the company.
8. Further, it was pointed out that at the time of deciding about the filing the petition there were only three directors in the company i.e.
P-2 and P-3 and R-1. By falsifying the documents the respondents had filed Form 32 for appointment of R-2 as Director of the company. It was agued that filing of separate Form 32 for cessation of Mr. Pramod Kumar Khindri just after the First AGM and for appointment of R-2 on 30^th April 2007 is a clear evidence of the same. Since at the time of filing of the petition two directors out of the three directors decided to file the petition after passing of the resolution in the Board it cannot be said that the petition was filed without any approval of the Board.
9. Sh Ramakant Pathak further argued that on going through the objection taken by the respondents on the basis of Section 397 and Section 398 requiring that only the shareholders may be the petitioners, the petitioners are able to respect their view only to the extent that the same would hit the right of the company and would hold qua P-l i.e. the company only and not the P-2 and P-3 as the P-2 and P-3 are the members of the company and fulfil the requirement of Section 399 of the Companies Act, 1956 for filing the petition under Section 397/398. Further, it is not stated by the respondents that the P-2 and P-3 are not qualified to be the petitioners.
10. Further, it was argued that as per Order 1 Rule 9 of the Code of Civil Procedure 1908 "No suit shall be defeated by reason of the mis-joinder of the parties, and the court may in every suit deal with the matter in controversy so far as regards the right and interest of the parties actually before it." So the plea of the respondents that the petition is bad in law for mis-joinder and liable to be rejected is itself not valid and mis-joinder shall not be the reason of making the petition not maintainable. The fact that the company having been named as a petitioner in this petition does not work to deem the same as fatal to the case of the P-2 and P-3. The respondents' plea would work qua the P-1 i.e the company, in the Petition No. 86 of 2007 and the petitioners do not object to the removal of the name of the company from the array of parties named as the petitioners. The P-2 and P-3 individually meet the requirement of eligibility under Sections 397 and 398 of the Companies Act, 1956 and meet the requirements of Section 399 of the Companies Act, 1956. The P-2 and P-3 hold 10000 fully paid up equity shares of Rs. 10/- each which is 28.16% collectively out of total shares of 71,000 equity shares of Rs. 10/- each. It was argued that without prejudice to the rights of P-1 in the petition they have no objection to the removal of the name of the company from the array of parties to partly satisfy the objection taken by the respondents and the petition may be directed to be proceeded with the names of the P-2 and P-3. It was contended that sight cannot be lost of the fact that the respondents are mismanaging the affairs of the company and all that they angle to have is time to cover their tracks and to perpetuate mismanagement of the company's affairs. It was argued that it is in the interest of justice that the objection and its technical or venial breach cannot be allowed to come' in its way. The case is one where the P-1 has come to be named as a party whereas it could not be so named.
However, the inclusion being, for the reason shown, demonstrates bonafide belief and further the cause of action is maintainable qua the remaining petitioners who are admittedly qualified and entitled to maintain and seek the relief prayed, the petition qua them is not hit by the objection taken and is maintainable. It was argued that this view is fully supported by the provisions of order 1 Rule 10(2) CPC, 1908.
11. Sh Ramakant Pathak further argued for the petitioners that this Hon'ble Bench has abundant inherent powers to ensure deliverance of justice at any stage of the case and in the present situation of the law the petition of P-2 and P-3 merits favourable consideration. As such the plea set up by the respondents that the petition is not maintainable in entirely is not correct as out of the three petitioners two are satisfying the requirement of the law and they must be heard.
It was prayed that the name of the petitioner No. 1 (Sai Sugars Ltd. - the company) be struck off from the petition.
12. I have considered the pleadings and arguments of the parties on the preliminary objections raised regarding maintainability of this petition. The petitioners have not been able to the meet the respondents' arguments on maintainability of the C.P. Considering the provisions of Section 397 as well as Section 398 of the Act I find no way to allow the petition to be maintained in the present form. The provisions of these two Sections under which the present petition has been filed read as under: 397 (1) Any members of a company who complain 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 (including any one or more of themselves) may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of Section 399 (the Tribunal to be read as the "Company Law Board").
(2) If, on any application under Sub-section (1), the Tribunal is of opinion- (a) 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; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
(a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or (b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether an alteration in its Board of directors or manager or in the ownership of the company's share, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may, apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of Section 399.
(2) If, on any application under Sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to brining to an end or preventing the matters complained of or apprehended, make such order as it think fit.
The respondents' contention that M/s Sai Sugar Ltd wherein the parties are members and shareholders and that "the company's affairs" are that of M/s Sai Sugar Ltd. wherein the alleged acts of oppression and mismanagement have been made the basis of this petition can in no way be arrayed as petitioner No. 1, is tenable. Though the petitioners themselves have partly accepted the respondents' objection regarding including the company namely M/s Sai Sugar Ltd., in which the petitioners and respondents hold shares and are members and directors as well, in the array of parties and have also offered a solution by way of stating that they have no objection to the striking out the name of the company as petitioner No. 1 from the petition, it does not in any way resolve the issue of maintainability of the petition raised by the respondents. Without M/s Sai Sugar Ltd. being arrayed as a respondent in whose affairs these acts of oppression and mismanagement have been alleged, this Board finds no way to grant relief, if required, which can be given effect only by M/s Sai Sugar Ltd. with a view to bringing to an end the matters complained of.
13. The petitioners' contentions that without the company i.e. P.1, P.2 and P.3 have the necessary qualification as laid down in Section 397/398 read with Section 399 of the Act to maintain this petition and that Order 1 Rule 9 of the CPC, 1908 applies are also rendered untenable in view of the provisions of Sections 397 and 398 read with Section 399 in the context of P.1 and the inability of the Company Law Board to pass such order as it thinks fit with a view to brining to an end the matters complained of in the affairs of the P.1. Even otherwise only the principles laid down in the CPC apply and the same cannot be applied in the present situation in view of the inability of the Company Law Board to grant proper reliefs in this C.P in the present form.
14. Since the C.P. No. 86 /2007 is found not maintainable in the present form I can in no way proceed to consider the respondents' other preliminary objections raised as well as this case on merits. C.P. No.86/2007 is hereby dismissed being not maintainable. All interim orders stand vacated.
C.P. No. 86/2007 is disposed off in the above terms. No order as to cost.