1. The applicant-petitioners have invoked the equitable jurisdiction of the Company Law Board by filing C.P. No. 46 of 2006, in June 2006, under Sections 397 & 398 of the Companies Act, 1956 ("the Act"), with a view to bringing to an end the acts complained of in the affairs of M/s Uniworth Resorts Limited ("the Company") and claiming, against the respondents, the following reliefs: (a) to declare that the agreement dated 08.03.2006 is illegal and void ab initio; (b) to annul and set aside the further issue and allotment of shares in favour of the respondents 5 & 6; and restore the shareholding pattern as of 31.03.2003 of the Company or enhance the shareholding of the petitioners to 50% by transfer of shares; and (c) to declare that the appointment of the fourth respondent as a director with effect from 06.05.2005 is illegal, null and void.
2. The applicant-petitioners, during pendency of the company petition, have come out in April, 2007 with the present company application (C.A.No. 131 of 2007) inkier Order 6 Rule 17 of Code of Civil Procedure read with Rule 6 of the Companies Court Rules, seeking to amend the company petition mainly on the ground that there are certain subsequent facts, which were not known on the date of filing of the company petition, but subsequently came to their knowledge, due to antedating and manipulations of records of the Company by the respondents. The CLB on weighing the rival contentions raised in C.A. No. 131 of 2007, passed on 27.07.2007, the following order: Heard the Parties on CA No. 131 & 132/07. Considering the contents of the amendment application and the legal submissions as well plethora of case laws relied upon parties as well as Regulation 46 of the CLB, to consider real controversies between the parties and to avoid multiplicity of litigation 1 allow the petit totter to amend C.P. No. 46/2006. Petitioner to file amendment petition within a week's time. Respondent to file reply to the amended petition within four week thereafter, adjourned to 8.10.2007 at 2:30 pm and 9.10.2007 and 10.10.2007 at 2:30 pm.
3. The respondents, aggrieved by the CLB order, preferred an appeal in A.P.O.T. No. 451 of 2007 in ACO No. 152 of 2007 and A.P.O.T. No. 460 of 2007 in ACO No. 156 of 2007 under Section 10F of the Act, upon which the Calcutta High Court by an order dated 05.09.2007, was pleased to set aside the CLB order with direction to hear the matter afresh. Shri U.K. Chaudhary, learned Senior Counsel, pursuant to the aforesaid High Court order, advanced arguments de novo and sought appropriate directions, in terms of C.A.No.435 of 2007 thus: As at 31.03.2001, the authorised capital of the Company was Rs. 10,00,000/- consisting of 1,00,000 ordinary shares of Rs. 10/- each and the issued and paid up capital was Rs. 18,000/- consisting of 1800 equity shares of Rs. 10/-each, whereby equal shareholding of 50% : 50% was maintained between Ashok Mittal group comprising of both the petitioners, Shri Kalian Prakash. Shri B.C. Pant and Smt.
Renu Pant and Ajey Prakash Lohia (seventh respondent group), which remained the same way till 25.03.2002.
The seventh respondent had on 26.03.2002, at the back of the petitioners and without any notice to them, increased the issued and paid up capital of the Company upto Rs. 1,00,000 consisting of 10,000 equity shares of Rs. 10/- each and allotted 8200 shaves in favour of the respondents 5 & 6, which arc under the control of the seventh respondent. Similarly, the seventh respondent had on 28.10.2002, without the knowledge of the petitioners, increased the issued and paid up capital of the Company upto Rs. 5,00,000 comprising of 50,000 equity shares of Rs. 10/- each and allotted 40,000 shares to the respondents 5 & 6. Form No. 2 in respect of the allotment made on 28.10.2002 was filed with the Registrar of Companies only on 27.06.2006, alter a lapse of four years. The petitioners came to know, on receipt of a copy of the plaint in O.S. No. 98 of 2006 on the file of Kolkata High Court, filed on behalf of the eighth respondent, about the increase in the issued and paid up capital of the Company in March and October, 2002 and the illegal allotment of 48,200 shares to the respondents 5 & 6 in equal proposition, namely, 24,100 equity shares of Rs. 10/- each.
At the extra-ordinary general meeting allegedly held on 31.03.2006, the seventh respondent had increased the authorised capital of the Company from Rs. 10,00,000 to Rs. 2,00,00,000. Form No. 5 notifying the increase in authorised capital was filed with the ROC only on 14.07.2006. The seventh respondent, without any notice to the petitioners, had allotted on 03.04.2006, 17,57,000 equity shares of Rs. 10/- each to M/s. Indoworth (India) Ltd., upon the alleged conversion of Zero Coupon Convertible Debentures (ZCDs). However, Form No. 2 in respect of this allotment was filed only on 21.07,2006, with the Registrar of Companies. The impugned increase in authorised share capital as well as allotment is nothing but an illegitimate hijacking of the Company, with the illegitimate dishonest device to defraud the petitioners and their group members.
The seventh respondent allegedly entered into an agreement on 12.04.2006 in respect of the landed property belonging to the Company, in order to defraud the petitioners and circumvent the interim order dated 21.04.2006 of the High Court of Kolkata made in G.A. No. 1236 of 2006 in C.S. No. 98 of 2006, prohibiting the transfer of the shareholding in favour of any third part). The seventh respondent, further in collusion with Shri Piyush Patel illegally entered into an antedated transfer deed, circumventing the order of the High Court.
The constitution of the board of directors came to be changed at the behest of the seventh respondent and Shri Piyush Patel. Accordingly, Shri Mahesh Sharma, Shri Piyush Patel and Shri Rajesh Patel have been reportedly appointed with effect from 03.04.2006, 15.05.2006 and 19.09.2006 respectively. Form No. 32 in respect of Shri Mahesh Sharma as well as Shri Piyush Patel was filed only on 07.07.2006 and 15.06.2006 respectively, after (sic) of the company petition. Shri Rajesh Pate was admittedly inducted in the board only after filing of the company petition. The petitioners and the third respondent have been purportedly removed from the office of director with effect from 04.09.2006 and Form No. 32 came to be filed only in November 2006. The fourth respondent had resigned from the directorship of the Company, in terms of his resignation dated 04.09.2006. These illegal acts of the seventh respondent came to the knowledge of the petitioners only subsequent to filing of the petition, necessitating the present application for amendment of the company petition.
The proposed amendments are not based on any new cause of action, but on the original cause of action, which is continuous cause of action pleaded in the main petition and the amendments have been sought before the trial of the proceedings started, as brought out by a list of events placed before the Bench. The petitioners have not intentionally relinquished any portion of their claim and, therefore, the principles of Order 2 Rule 2 of Code of Civil Procedure, 1908 are not applicable. The petitioners are not attempting to sue afresh but, only seeking to amend the pleadings and the facts forming part of the amendments were not within the knowledge of the petitioners. As and when the petitioners came to know of the allotments, which have the impact of reducing the shareholding of the petitioners from 50% to 1.82%, they have come out with the present amendment application. There is no need to challenge the issuance of ZCDs to impugne the allotment of 17,57,000 shares by conversion of ZCDs. The amendments sought by the petitioners, which include replacement of the existing paragraphs, are nothing but an extension of the original cause of action for the main petition. The object underlying the amendment application is to avoid any multiplicity of proceedings and to ensure effective adjudication of the contentious issues regarding the impugned allotments, which adversely affected their shareholding position in the Company. No inconsistent pleas have been taken by way of the proposed amendments. The plea of fraud has already been set out in different terms by the petitioners and such plea now raised is not a fresh one. The prayer of the applicants will not in any way prejudice the respondents, or deprive their rights, who are entitled to file their additional counter on the averments set out in the amended petition.
The provisions of Order 6 Rule 17 of CPC dealing with amendment of pleadings provides that the Court (now CLB) may at any stage of the proceedings allow either party to alter or amend his pleadings in such manner and on such terms as may be just and all such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties.
In view of the above subsequent events and developments, the petitioners have now claimed the following reliefs: (i) to annul and set aside the allotment of 8,200 shares made on 26.03.2002 in favour of the respondents 5 & 6; (ii) to set aside the allotment of 40,000 shares made on 28.10.2002 in favour of the respondents 5 & 6; (iii) to annul and set aside the increase in the authorised capital made at the extra ordinary general meting held on 31.03.2006; (iv) to annul and set aside the allotment of 17,57,000 shares made on 03.04.2006 in favour of M/s lndoworth (India) Ltd., which are sold to Shri Piyush Patel, thereby restoring the shareholding pattern as on 31.03.2001; (v) to declare that the agreement dated 12.04.2006 is illegal and void, ab initio; (vi) to declare that the removal of the petitioners from the directorship of the Company is bad; (vii) lo declare that the appointment of Shri Mahesh Sharma, Shri Piyush Patel, and Shri M. Rajesh Patel, as directors of the Company is bad in law; and (viii) to order under Section 237(b) an investigation into the affairs of the Company.
Shri U.K. Chaudhary, learned Senior Counsel, in support of his legal submissions, relied on the following decisions:Baldev Singh and Ors. v. Manohar Singh and Anr. to show that the courts should extremely be liberal in granting the prayer for amendment of pleadings without causing serious injustice or irreparable loss to the otherside and without substituting one distinct cause of action for another and without changing the subject matter of the suit by means of amendment.Rajesh Kumar Aggarwal and Ors. v. K.K. Modi and Ors.
to show that the object of Order 6 Rule 17 is that the courts should allow all amendments that may be necessary for determining the real question in controversy between the parties provided it does not cause injustice or prejudice to the other side.
The rule of amendment is essentially a rule of justice, equity and good conscience and the power of amendment should be exercised in the larger interest of doing full and complete justice to the parties before the court. The court always gives leave to amend the pleadings of a party unless it is satisfied that the party applying was acting mala fide. The amendment to pleading should be liberally allowed since procedural obstacles ought not to impede the dispensation of justice. The Court should also take notice of subsequent events in order lo shorten the litigation, to preserve and safeguard the rights of both parties and to subserve the ends of justice.Pankaja and Anr. v. Yellapppppa (Dead) By Lrs. and Ors.
: to show that the jurisdiction to allow or not allow an amendment being discretionary, the same will have to be exercised on a judicious evaluation of the facts and circumstances in which the amendment is sought. There is no absolute rule that in every case where a relief is barred because of limitation an amendment should not be allowed. If the granting of an amendment really subserves the ultimate cause of justice and avoids further litigation the same should be allowed. There can be no straitjacket formula for allowing or disallowing an amendment or pleadings. Each case depends on the factual background of that case.Om Ptakash Gupta v. Ranbir B. Goyal the Court may permit under Order 6 Rule 17 CPC any subsequent event being introduced into the pleadings by way of amendment, as it would be necessary to do so for the purpose of determining the real question in controversy between the parties.Estralla Rubber v. Dass Estate (T) Ltd. that the amendment of pleadings, as fairly settled in law under Order 6 Rule 17 is to be allowed if such an amendment is required for proper and effective adjudication of controversy between the parties and to avoid multiplicity of judicial proceedings, subject to certain conditions such as allowing the amendment should not result in injustice to the other side. Any amendment is to lie allowed when it does not cause serious prejudice to the opposite side.Sampath Kumar v. Auyyakannu and Anr. to show that Order 6 Rule 17 CPC confers jurisdiction on the court to allow either party to alter or amend his pleadings at any stage of the proceedings and on such terms as may be just. Such amendments as are directed towards putting forth and seeking determination of the real questions in controversy between the parties shall be permitted to be made. The question of delay in moving an application for amendment should be decided not by calculating the period from the date of institution of the suit alone but by reference to the stage to which the hearing in the suit has proceeded. Pre-trial amendments arc allowed more liberally than those which are sought to be made after the commencement of the trial or after conclusion thereof. In the former case generally it can be assumed that the defendant is not prejudiced because he will have full opportunity of meeting the case of the plaintiff as amended. In the latter cases, the question of prejudice to the opposite party may arise and that shall have to be answered by reference to the facts and circumstances of each individual case. No straitjacket formula can be laid down. The fact remains that a mere delay cannot be ground for refusing a prayer for amendment.
4. Shri H.L Tikku, learned Senior Counsel representing the second petitioner, in support of the application for amendment of the company petition submitted: By virtue of Regulation 46 of the Company Law Board Regulations 1991, the CLB has the power to allow the amendment for the purpose of determining the real question or issue raised in any proceeding before it. The decisions relied on by the respondents in their replies having arisen in connection with civil suits are inapplicable to the proceedings initiated under Section 397 and 398 of the Act. The main grievances of the petitioners relate to (a) illegal allotment of 8200 shares made on 26.03.2002 in favour of the respondents 5 & 6; (b) illegal allotment of 40,000 shares made on 28.10.2002 in favour of the respondents 5 & 6; (c) illegal allotment of 17,57,000 shares made on 03.04.2006 in favour of M/s. Indoworth (India) Limited by conversion of ZCDs; and (d) illegal removal of the petitioners on 04.09.2006 from the office of director of the Company. These oppressive actions came to light only after filing of the company petition on account of the delayed filing of the statutory returns by the Company with the Registrar of Companies, thereby the respondents have played a fraud on the petitioners. The Supreme Court in Rajesh Kumar Aggarwal v. K.K. Modi , while dealing with Order 6 Rule 17 of Code of Civil Procedure categorically held that the rule of amendment is essentially a rule of justice, equity and good conscience and the power of amendment should be exercised in the larger interest of doing full and complete justice to the parties before the Court. The court always gives leave to amend the pleadings of a party unless it is satisfied that the party applying was acting in a manner malafide. Furthermore, it has been held in Union of India v. Kopran Limited (2006) Vol. 134 CC 665 that the CLB is a quasi judicial authority to be guided by the principles of natural justice in the exercise of its powers and discharge of its functions under the Act and it shall act in its discretion. The CLB may in exercise of its powers grant leave to amend the pleadings in terms of the prayer made in the application, especially when the petitioners were never acting malafide. The CLB will give findings even when any inconsistent statements are made by the parties in order to render justice between the parties.
5. Shri C.A. Suudaram, learned Senior Counsel, while opposing the prayer of the applicants for amendment of the pleadings, submitted: The amendment of pleadings cannot be allowed after commencement of the trial unless, inspite of due diligence, the proposal for amendment could not have been raised before the trial has commenced.
If the issues which are sought to be raised by way of amendment were within the knowledge of the party nut failed to raise originally, will not entitle him to seek for any amendment, after the pleadings are completed.
Any amendment a mounting to a different and fresh cause of action and any substitution of an entirely new case in the place of the previously pleaded case is impermissible under Order 6 Rule 17 of CPC and beyond the powers of the CLB. The Supreme Court held in (i) Municipal Corporation of Greater Bombay v. Lala Pancham and Ors.
that (a) a party should not be allowed to make out a case by way of an amendment to the pleadings; and (b) an amendment which seeks to bring allegations of fraud when the main petition is silent on the same cannot be brought; (ii) Ajendaprasadji N. Pande v. Swami Keshavprakeshdasji N. that (a) a totally new and inconsistent case cannot be allowed, by way of amendment; (b) grant of any amendment after commencement of the proceedings which would cause serious prejudice to the contesting parties must be declined; (c) amendment of the pleadings cannot be allowed, if the trial has commenced, unless in spite of due diligence, the matter could not be raised before the commencement of trial, (iii) B.K. Narayana Pillai v. Parameshwaran Pillai that no amendment of the pleadings is permissible if the proposed amendments (a) alter or substitute a new cause of action on the basis of which original lis was raised or defence taken; (b) contradict the admitted position of facts or mutually destructive allegations of facts; and (c) defeat a legal right accruing to the opposite party on account of lapse of time; (iv) A.K. Gupta & Sons Ltd. v. Damodar Valley Corporation that a party is not allowed by amendment to set up a new case or a new cause of action or introduce a new set of ideas to the prejudice of any right acquired by any party on account of lapse of time; (v) The Madras High Court held in Kumaraswami Gounder v. D.R. Nanjappa Gounder that any application for amendment cannot be allowed when the amendment sets up a totally different cause of action which ex-facie cannot stand on a line with the original pleading. A pleading would only be amended if it is to substantiate, elucidate and expand the pre-existing facts already contained in the original pleadings; but under the guise of an amendment a new cause and a case cannot be substituted and the courts cannot be asked to adjudicate the alternative case instead of the original case; and (v) The Privy Council held in Kanda and Ors. v. Waghu AIR 1950 Privy Council 68 that the powers of amendment must be exercised in accordance with the legal principles and cannot be allowed when an amendment involves the setting up of a new case, or when the real matter in controversy between the parties stands altered. This Board disallowed the amendment to the company petition in (a) C.G. Holdings Private Limited and K.C. Palanisamy v. Cheran Enterprises Private Limited and Ors. (2007) 75 SCL 534 on the ground that the proposed amendments involved substantially and materially different allegations constituting a new case by which a third party would suffer by virtue of any possible order passed by the Board; and (b) T.N. Narendra v. Lakeside Medical Centre Private Limited (2007) 137 CC 786 on the premises that (i) the amendment was on an entirely different cause of action; and (ii) amendment would bring out a completely new case on totally different cause of action, which was neither pleaded nor argued by the petitioners, inspite of being aware of the same. The consequences of relinquishment or omission to sue in respect of reliefs arising from the same cause of action dealt in Order 2 Rule 2 of CPC are elaborated in Mohammad Khalil Khan and Ors. v. Mahbub Ali Mian and Ors. .
The petitioners have specifically pleaded in the main petition that the paid up capital of the company was Rs. 5 lakhs. The aforesaid increase in share capital took place in the year 2002, much prior to the date of the company petition, namely 13.06.2006. Nevertheless, the petitioners failed to plead appropriately in the petition. The respondents have explicitly stated in their reply filed in August, 2006 the reasons and circumstances for the disputed allotment of 48,200 shares. There is, therefore, no need for amending the petition so as to set aside the allotment of 48,200 shares and the petitioners cannot improve their ease by way of amendment, after coming to know the defence taken by the respondents. The allotment of 48,200 shares on 26.03.2002 and 28.10.2002 was within the knowledge of the petitioners at the time of filing of the petition and therefore, the prayer for amending the company petition to challenge the allotment of shares by way of fraud is not permissible. The petitioners have prayed for restoration of the shareholding pattern of the Company as at 31.03.2003. This cannot be a typographical error, as submitted in the course of arguments on behalf of the petitioners. The application for amendment does not specify the year 31.03.2003 as a typographical error, but only in the rejoinder to the reply such suggestion has been putforth by the petitioners, who cannot improve the case in rejoinder. The petitioners were completely aware of the present shareholding pattern of the Company at the time of filing of the company petition, as borne out by the averments made therein.
The petitioners were quite aware of the issuance of the ZCDs to the creditors of the Company, which is reflected in the audited balance sheet for the year 31.03.2003 and yet the petitioners failed to challenge such issuance of ZCDs. The petitioners omitted to impugne the issuance of ZCDs and thereby relinquished their claim, which is hit by Order 2 Rule 2 of CPC and cannot be sued at this stage by way of an amendment. The petitioners despite being aware, deliberately omitted to question the issuance of ZCDs which were to be converted, being inherent, into equity and cannot challenge the conversion and allotment of 17,57,000 shares made in April 2006 in favour of M/s.
Indoworth (India) Limited, upon which interest has accrued on it and were subsequently sold in favour of Shri Piyush Patel and the petitioners, therefore, cannot be permitted, without leave of this Bench, to challenge the issuance of shares upon conversion of ZCDs and the subsequent transfer to Shri Piyush Patel. Moreover, fresh allegations against third parties cannot be introduced by means of amendments. These third parties are neither parties nor is there any prayer against them in the main petition. The petitioners are introducing by way of these amendments, an entirely new cause of action against third parties.
The petitioners are aware of the sale of land belonging to the Company, by reason of a civil suit filed by the eighth respondent, which ought to have been raised in main petition. Moreover, the petitioners have completely given up their prayer challenging the agreement dated 08.03.2006 and, therefore, the petitioners cannot be allowed to replace the existing para 6 of the company petition, thereby challenging the sale of land by way of an amendment. The amendment on the other hand, if allowed as sought by the petitioners it would defeat and take away substantial legal and vested right of the respondents.
The petitioners are not seeking to amend the petition but they are filing a fresh petition on the pretext of amendment to the original petition. The present application clearly discloses the words "replace", instead of "insert", thereby the petitioners are seeking to replace the original pleadings and make out totally a new case on the fresh cause of action, which cannot be allowed. The amendments for replacing all paragraphs would involve completely new facts and prayers. The petitioners are claiming entirely new reliefs by which the reliefs originally claimed will be replaced by a new set of prayers thereby giving up the earlier prayers and converting the main petition into a new petition. If the original prayers do not survive any longer on account of the amendments, the company petition has to be dismissed and it cannot be converted into a new petition by way of any amendments. The averments constituting the amendment are inconsistent and contradictory to the original pleadings in the main petition. When the petitioners bring out totally a new case by seeking replacement of the company petition with new facts and pleadings and allegation of fraud on the basis of different and distinct cause of action, such an amendment cannot be permitted. By allowing the proposed amendments, the rights of the respondents are deprived and hence the petitioners may file a fresh petition under Section 397/398 on the new cause of action and for new reliefs.
The petitioners have not disclosed the source of knowledge about the subsequent facts, which were reportedly unknown to them on the date of filing of company petition. The petitioners ought to have pleaded the facts which were within their knowledge sought to be raised in the amendment application before commencement of the final hearing of the company petition, but having failed to do so, the petitioners cannot be allowed to bring the amendments on record by way of an amendment at this belated stage. The application suffers from delay and laches. The petitioners could have known the facts sought to be introduced by way of amendment by exercising due diligence by them.
Thus, the application is not bonafide but filed with an ulterior motive of misleading the Bench. The application for amendment is a clear abuse of process of law. The reference to the present company petition in the proposed amendment, under the head "Matter not Previously Filed or Pending in any other Court", is self contradictory and pre-supposes the dismissal of the original petition filed by the petitioners and replaces the same with a new petition.
6. Shri Narinder Sharma, learned Counsel for the seventh respondent, while adopting the arguments of Shri C.A. Sundaram, learned Senior Counsel, submitted: The seventh respondent is not a member or director, having any interest in the affairs of the Company. The petitioners have not sought any relief either main or interim, against this respondent in the company petition, but scandalous allegations are made in the amendment application against the respondent. The petitioners have raised for the first time the plea of fraud on the part of the respondents, in the amended application. The petitioners are attempting to introduce a new case on the basis of a new cause of action, which is prohibited by principles of Order 6 Rule 17 of CPC, according to which no party can be allowed to depart from its pleading later on except as stated therein.
The seventh respondent has already sought directions of this Bench to strike off the name from array of the parties in the main petition. The prayers in the amendment application are against this respondent and if the amendment application is allowed, serious prejudice will be caused.
The application has been filed at a highly belated stage after completion of pleadings and after part hearing of the final arguments in the main petition and is making out a new case altogether. The amendments proposed completely change the original cause of action and are contrary to the original cause of action, which cannot be allowed. The grant of the present amendments as sought by the petitioners at this stage would cause serious prejudice to the contesting respondents. The present application has been preferred in order to delay the disposal of the company petition.
7. I have considered the elaborate arguments advanced for the parties.
The issue for consideration is whether the proposed amendments to the main petition can be pressed into service in the facts of the present case, before which, I thought it lit to summarise the settled legal proposition on amendment of pleadings in the light of the relevant provisions of the CPC and the CLB Regulations, 1991 and as elucidated in a number of eases cited, supra, thus: (i) The court may at any stage of the proceedings allow either party to alter or amend his pleadings for the purpose of determining the real questions in controversy between the parties, in such manner and on such terms as may be just and necessary. Nevertheless, no application for amendment shall be allowed after the trial has commenced unless the court comes to the conclusion that in spite of due diligence, the party could not have raised the matter before the commencement of trial. (Order 6 Rule 17) (ii) The CLB may at any time, and on such terms as it may think fit, amend any defect or error in any proceeding before it and shall make necessary amendments for the purpose of determining the real question or issue raised by or depending on such proceeding.
(Regulation 46).
(iii) The prayer for amendment of pleadings must be construed without causing serious injustice or irreparable loss to the other side and without substituting a new cause of action in the place of original lis or without altering the subject matter in controversy between the parties or setting up a new or alternative case to the prejudice of any right acquired by any party.
(iv) The power of amendment being essentially a rule of justice, equity and good conscience has to be exercised liberally, when the party applying was not acting malafide (a) for determining the real question in controversy between the parties, without causing prejudice to the other side; (b) for doing of full and complete justice to the parties; (c) for proper and effective adjudication of the controversy between the parties and to avoid multiplicity of judicial proceedings; (d) for taking notice of the subsequent events to shorten the litigations for the purpose of determining the real question in controversy between the parties; and (e) for substantiating, elucidating and expanding the preexisting facts already contained in the original pleadings.
(v) There may not be any straightjacket formula for allowing or disallowing an amendment of the pleadings. If the granting of an amendment achieves the cause of justice and avoids further litigation, it should be allowed. The power of amendment should be exercised on judicious evolution of the facts and circumstances, in which the amendment is sought. An amendment can be allowed even where a relief is barred by limitation. Pre-trial amendments are allowed more liberally than those which are sought to be made after the commencement of the trial or after conclusion thereof. A mere delay cannot a ground for refusing the prayer for amendments.
(vi) The CLB, a quasi judicial authority guided by the principles of natural justice may in exercise of its power and discretion grant leave to amend the pleadings provided the party approaching was never acting malafide. A total new and inconsistence case can not be introduced by way of amendments. No amendments can be allowed (a) after commencement of proceedings, unless despite of due diligence the matter could not be raised before the commencement of trial; (b) where the amendment defeats a legal and vested right accrued to the opposite party; and (c) where inconsistent and contradictory or mutually destructive allegations of facts are introduced by way of amendments.
8. The amendments sought to be introduced must be examined against the above legal background, towards which the acts of oppression and mismanagement set out originally in the main petition and the grievances sought to be agitated by way of amendments of pleadings assume utmost relevance and importance. They are- (i) the illegal and unauthorized increase of the issued and paid up capital of die Company upto Rs. 5,00,000/- and the illegal allotment of the increased shares exclusively in favour of the respondents 5 & 6, without any valid board meeting; (ii) the illegal and unauthorized issue and allotment of 24,100 shares each with oblique motive in favour of the respondents 5 & 6, companies owned and managed by the seventh respondent, being outside shareholders, in violation of Clause 4 of the articles of association of the Company and without satisfying the requirements of Section 81 of the Act, thereby reducing the shareholding of the petitioners group as on 31.03.2003 from 50% to 1.8%.; (iii) the illegal and unauthorized appointment of the fourth respondent as a director with effect from 06.05.2005; (iv) the entrustment of the day-to-day affairs of the Company with the seventh respondent by the board of directors despite the fact that the seventh respondent is neither a director nor a shareholder of the Company; (v) the collusive course of action of the seventh respondent with the respondents 2 & 3 in the unauthorized increase and issue of shares after March 2003 in favour of the respondents 5 & 6 and deprivation of the petitioners of their right to participate in the affairs of the Company; (vi) the unauthorized execution of an agreement dated 08.03.2006 by the seventh respondent in favour of the eighth respondent for sale of the landed properties belonging to the Company; (vii) the unauthorized execution of yet another agreement by the seventh j respondent in respect of the landed property and the entire j shareholding of the Company resulting in civil suit filed by the eighth respondent in (a) C.S. No. 98 of 2006 before the High Court of Calcutta seeking for inter-alia an order of injunction restraining among others, the petitioners and the respondents save the fourth respondent herein : from disposing of or encumbering all the shares in the Company (b) C.S. No. 46 of 2006 for an order of permanent injunction restraining among others the respondents 1, 6 & 7 herein in any way selling or encumbering the property of the Company without the consent of the eighth respondent, and (c) status-quo order dated 24.01.2006 made in C.S. No. 46 of 2006; (viii) the gross mis-management in the affairs of the Company at the instance of the respondents 2 to 7; and (ix) non-issue of notices of board meeting and general meetings and non-receipt of annual returns, balance sheets and the status of the unsecured loan accounts extended by the petitioners in spite of repeated demands of the petitioners, and denial of inspection of the Company's records to the petitioners.
The petitioners arc now seeking to amend substantially the main petition in the following manner: 9. According 10 the petitioners, they came to know, consequent upon the inspection of the documents of the Company in the office of the Registrar of Companies, pursuant to receipt of a copy of the plaint in C.S. No. 98 of 2006 and G.A. No. 1236 of 2006 about (i) illegal increase of the paid up capital upto Rs. 5 lakhs; (ii) the agreement entered into between the respondents 7 & 8 for sale of the Company's landed property; (iii) illegal allotment of 4100 shares each in favour of the respondents 5 & 6, on 26.03.2002; and (iv) illegal allotment of 20,000 shares each in favour of the respondents 5 & 6 on 28.10.2002.
The assertion of the petitioners that Form No. 2 came to be filed with the Registrar of Companies, belatedly only on 27.06.2006, after tiling of the company petition on 13.06.2006 and, therefore, the petitioners became aware of the increase in paid up capital and the issue of further shares for the first time only after tiling of the company petition are found to be contrary to the balance sheet for the year ended 31.03.2003 filed on 26.12.2003; balance sheet for the year ended 31.03.2004 filed on 10.11.2004 and balance sheet for the year ended 31.03.2005 filed on 12.12.2005, disclosing the paid up capital of Rs. 5 lakhs of the Company. If the petitioners had exercised resonable diligence, they could have known the issue of further shares in March 2002 and in October 2002, which came to be issued only after the increase of the paid up capital upto Rs. 5 lakhs, as borne out by the balance sheets for the period between 31.03.2003 and 31.03.2005 and, therefore, the petitioners cannot take any advantage on account of the belated filing of Form No. 2 so as to avoid both the increase of the paid up capital upto Rs. 5 lakhs and further issue of shares in favour of the respondents 5 & 6. The claim of the Company that the annual returns filed with the Registrar of Companies on 11.10.2002 and 26.12.2003 do reflect the increase in the shareholding pattern of the Company and the impugned allotments in favour of the respondents 5 & 6 has not been repudiated by the petitioners. The petitioners originally sought to set aside the further issue of allotment of shares in favour of the respondents 5 & 6 and restore the shareholding pattern as on 31.03.2003, whereas the proposed amendments are being introduced under the guise of typographical error as of 31.03.2003. It is relevant to observe that the amendment application does not even whisper about the typographical error sought to be advanced at the time of arguments The petitioners cannot, therefore, seek to further elaborate, in the facts of the present case, the allegations already pleaded, which is otherwise permissible, in relation to the increase of paid up capital upto Rs. 5 lakhs and the allotment of 48,200 equity shares in favour of the respondents 5 & 6, by way of amendments, in terms of the present application.
10. The grievances on account of the increase of authorized capital of the Company from Rs. 10 lakhs to Rs. 2 crores and the consequent allotment of 17,57,000 equity shares of Rs. 10/- each in favour of M/s Indoworth (India) Limited upon conversion of ZCDs as well as change in the constitution of the board of directors of the Company sought to be introduced by way of amendments must be appreciated in the light of documentary evidence before the Bench. The balance sheets for the period ended between 31.03.2003 and 31.03.2005 would show under the head unsecured loan the issue of 1,75,700, ZCDs of Rs. 100/- each amounting to Rs. 1,75,70,000/-, while the authorized capital of the Company accounted for Rs. 10 lakhs during the relevant period of time.
According to the Company, the authorized capital of the Company came to be increased at an extra ordinary general meting of the Company held on 31.03.2006 from. Rs. 10 lakhs to Rs. 200 lakhs by creation of 19,00,000 equity shares of Rs. 10/- each, upon which Form No. 23 was filed on 13.07.2006 with the Registrar of Companies. Form No. 5 showing the increase of the authorized capital of the Company from Rs. 10 lakhs to Rs. 200 lakhs was filed on 14.07.2006. The petitioners therefore, could be attributed to have knowledge of the increase of the authorized capital to Rs. 200 lakhs and the impugned allotments of 17,57,000 equity shares of Rs. 10/- each by conversion of ZCDs only after filing of Form No. 23 or Form No. 5 or Form No. 2 or annual returns as the case may be, which all happened only after filing of the company petition on 13.06.2006. These subsequent events could not have been agitated at the time of filing of the company petition, despite the fact that the petitioners ought to have known the issuance of ZCDs, as reflected in the balance sheet for the period ended between 31.03.2003 and 31.03.2005. The mere issuance of ZCDs would not establish the increase of the authorized capital of Rs. 10 lakhs to Rs. 200 lakhs and the subsequent allotment of impugned shares by conversion of such ZCDs which took place only after filing of the company petition. The defence that the petitioners have relinquished their claim by not questioning the issuance of ZCDs, thereby suffering disability under Cider 2 Rule 2 of CPC, will arise only when the enhancement of the authorized capital and the allotment of equity shares by conversion of ZCDs, being subsequent events, are brought on record by way of amendment of the pleadings and not at this stage as put forth on behalf of the respondents. It is further relevant to point out that the application for impleadment (C.A. No. 122 of 2007) is pending and hence the fortification of the respondents that fresh allegations cannot be made against third parties does not merit any consideration.
11. The constitution of board of directors of the Company by appointment of Shri Piyush Patel, Shri Mahesh Sharma and Shri Rajesh Patel as directors and by the removal of the petitioners and the third respondent from the office of director came to be notified by filing Form No. 32 "admittedly alter filing of the company petition and further Shri Rajesh Patel became a director only after filing of the company petition and, therefore, the petitioners are justified to raise the disputes relating to the appointment and removal of directors by way of amendment to the company petition.
12. All the averments governing the amendments introduced in paragraph 4(B) (C), (D) and (F) are flowing from paragraph 4 (A) of the amendment application, the merits of which have already been dealt with hereabove except the allegations relating to yet another agreement dated 12.04.2006 executed by the seventh respondent in respect of the landed property of the Company, which forms part of Clause 6.2 of the company petition. The petitioners, despite being aware of the second agreement executed by the seventh respondent, have not originally choosen to cancel it, but are challenging belatedly by way of amendment of the existing reliefs. The proposed amendment to replace the existing para 4.6 at page I 1 of the company petition, dealing with misuse of the power by the seventh respondent in collusion with the respondents 2 & 3 towards increase of the paid up capital and the impugned allotments of shares after March 2003, in favour of the respondents 5 & 6, as contemplated in para 4(E) of the amendment application, is fraught, apart from the allotment of shares challenged in the company petition, with the introduction of new sets of facts including the plea of fraud which are prejudicial to the rights of the contesting parties which must be rejected, being impermissible under law, in the light of a number of decisions cited in support of the respondents.
13. The amendment as proposed in paragraph 4 (G) of the amendment application by substituting the existing paragraph No. 18 with the recitals that "...tin petitioners have earlier filed C.P. No. 46 of 2006, and connected applications before this Hon'ble Board, but no writ petition or suit before any other court covering the matters in respect of the present petition has been filed" categorically concludes that the petitioners under the guise of the amendment are seeking to invoke a fresh the equitable jurisdiction of the CLB under Sections 397 and 398 of the Act.
14. The petitioners by claiming entirely new reliefs thereby giving up the reliefs already claimed in the existing company petition except those relating to the allotment of shares (48,200) in favour of the respondents 5 & 6 are attempting to convert the existing company petition into a new petition. The petitioners have not claimed any relief against the seventh respondent, whereas, serious charges are sought to be raised by means of amendments which are being new cannot be permitted, as held in Ajendapmsadji N. Pande v. Swami Keshavprakeshdasji N. (Supra). The relief of ordering an investigation into the affairs of the Company under Section 237(b) of the Act on account of the alleged fraudulent conduct of the seventh respondent falling beyond the scope of the original pleadings cannot be entertained. Nevertheless, the events which have taken place subsequent to filing of the company petition under Section 397/398, could be introduced by way of amendment, for the purpose of determining the real question in controversies, as held in Om Prakash Gupta v. Ranbir B.Goyal (Supra). Therefore, the increase of the authorised capital from Rs. 10 lakhs to Rs. 200 lakhs, the allotment of 17,57,000 equity shares of Rs. 10/- each in favour of M/s ladoworth (India) Ltd. by conversion of ZCDs and the reconstitution of the board of directors of the Company along with appropriate reliefs in this behalf, alone can be brought into the existing company petition by means of suitable amendments, which will not prejudice the contesting respondents, who will have adequate opportunity to meet the case of the petitioners, as amended in order to avoid multiplicity of judicial proceedings as held in Estralla Rubber v. Dass Estate (P) Ltd. (Supra). All the other averment sought to be incorporated by way of replacement of several of the existing paragraphs, through the mechanism of amendment application, being contrary to the principles governing amendment of pleadings, as elucidated in several of the decisions, cited supra, are not permissible.
15. The petitioners, in the light of my aforesaid conclusions are directed to file the amended petition only in regard to the events which took place subsequent to the company petition in terms of this order by 09.05.2008 and the respondents are at liberty to file their additional reply with reference to the amended company petition by 30.05.2008. The matter will be heard on a date IO be notified in due course. Ordered accordingly.