K. Kannan, J.
Dismissal by the Company Law Board on non-maintainability:
1. The appeal has been filed under Section 10F of the Companies Act, 1956, against the order of the Company Law Board passed in C. P. No. 76 of 2005 (Raghbir Singh v. Sikri Multiplex Cinema P. Ltd. [2008] 143 Comp Cas 470) and connected applications dismissing the petition filed by the appellants herein complaining of oppression and mismanagement. The petition was dismissed on a preliminary objection taken by the respondents that the petition was not maintainable.
II. Acts of oppression and mismanagement, nature of:
2. The particular acts complained of as constituting oppression and mismanagement were the return of allotment of shares on May 10, 2000, in relation to the first respondent-company in Form No. 2 dated May 30, 2000, with the Registrar of Companies which had been changed by the second respondent in a fresh Form No. 2 dated May 30, 2000. The changes were in respect of the names of the allottees as well as the number of shares allotted. The other act complained of was, Form No. 32 filed in respect of the alleged appointment of the third respondent as director as having been made on May 20, 2001 and also making reference to cessation of office of the third petitioner on his alleged resignation on the basis of signatures of the third petitioner, allegedly forged at the second respondent's instance. The further complaints of the appellants were that the Registrar of Companies failed to take appropriate action on the fabricated and manipulated reference of the allotment in Form No. 2 and the wrong details given in Form No. 32 and further that the second respondent had siphoned off funds of the company to his own benefits.
III. Background facts:
3. Now to the nature of the company and relations between the parties: The first respondent-company having its registered office at Ludhiana had been incorporated on January 10, 2000, under the Companies Act, 1956, with the object of acquiring land for the purpose of establishing a multiplex cinema theatre. The authorised share capital of the company was Rs. 1.50 crores divided into 15,00,000 equity shares of Rs. 10 each. The paid-up capital was Rs. 83,20,000. The shareholders were the first petitioner--Raghbir Singh and his two sons, namely, Paranjit Singh (third petitioner) and Kamaljit Singh (second respondent). The sons had subscribed equally 1,000 equity shares of Rs. 10 each and as per the articles of association, the third petitioner and the second respondent had been appointed as the first directors of the company. The second petitioner--Harjit Singh was another son of the first petitioner--Raghbir Singh held no shares at its incorporation.
IV. The first company petition and circumstances that led to civil suits:
4. The alleged forged nature of resignation of the father-Raghbir Singh from the company had been a subject of reference and complaint in an earlier petition filed in C.P. No. 15 of 2004 referring to the same acts as constitruling oppression and mismanagement but later when a report had been called for from the Central Forensic Scientific Laboratory (for brevity 'CFSL') on the genuineness or otherwise of the alleged letter of resignation, there had been some delay in securing the report and hence the petition was withdrawn with liberty to apply a fresh one as per the Company Law Board's order dated March 22, 2005. There was yet another reason for the withdrawal on account of the fact that the proceedings were sought to be stayed on the ground of investigation being carried out pursuant to a complaint filed before the police in FIR No. 54 dated April 10, 2004. The second respondent had approached the High Court of Punjab and Haryana for anticipatory bail in the matter. The High Court, while passing the order on August 2, 2005, granted the anticipatory bail but observed that the disputed documents like the letter of resignation dated May 31, 2001 and a family settlement set up by the respondents dated September 16, 2002, under the terms of which the petitioners were alleged to have forsaken their interests in the affairs of the company, shall be kept in abeyance for a period of six months and that the parties could approach the civil court for appropriate remedies.
V. Nature of civil suits:
(i) Civil Suit No. 662 of 2004:
5. After the order of the High Court on August 2, 2005, Civil Suit No. 662 of 2004 had been filed against respondents Nos. 2 to 4 contending themselves to be shareholders of the company. The relief of injunction was sought for against respondents Nos. 2 to 4 and Ludhiana Improvement Trust against any transfer or creation of encumbrances in respect of the theatres-The Sikri Multiplex P. Ltd., in favour of any person without the consent of the plaintiffs. The suit contained reference to the initial incorporation and the subsequent allotment of shares, the essential particulars of which pertain to a decision of the board of directors in its meeting dated May 10, 2000, to allot 8,30,000 equity shares at Rs. 10 each to all the petitioners and the second respondent to inject more funds into the company. The father had been allotted 1,79,000 shares. Petitioners Nos. 2 and 3 and the second respondent were, respectively, allotted 1,79,000,1,97,000 and 1,95,000 shares. M/s. Sikri Exports P. Ltd., which had been floated by the members of the family held 80,000 shares. The pattern of holding was such that the first petitioner held 21.6 per cent, of the paid-up capital, the second petitioner held 21.6 per cent. of the paid-up capital and the third petitioner held 23.85 per cent, and together the petitioners held possession of 67.05 per cent, of the total shareholding. Petitioners Nos. 1 to 3 had themselves the major shareholders in M/s. Sikri Exports P. Ltd., and had a reckoning of the latter company's holding between the petitioners and M/s. Sikri Exports P. Ltd., held approximately 80 per cent, of the shares of the company.
(ii) The core contentions in first suit:
6. The complaint against the second respondent was that he had a fabricated resignation letter of the first petitioner with the intention to grab the management of the company and had filed Form No. 32 on June 5, 2002, recording the alleged fact of his resignation in a meeting purported to have been held on May 31, 2001. Both the meeting as well as the signature of the first petitioner had been denied by the petitioners. According to them, the second respondent further manipulated records to show that his wife had been indicated as a director in a meeting held on May 20, 2001, when no such meeting took place and no such notice regarding the said meeting had also been received by the petitioners at any time. The definite basis of the suit was that the first petitioner was still the director of the company and petitioners Nos. 2 and 3 were the shareholders of the company and that they were entitled to have control over the business of the company as such. The averments in the plaint would reveal that they had already filed a company petition complaining of oppression and mismanagement and that they had also lodged the criminal complaint and it was still pending investigation. The cause of action for the suit was reconstitution of the board as attempted by the respondent on the basis of forged meetings and letter of resignation and the apprehended conduct of the respondents in attempting to create encumbrances over the properties. It could be noticed that although no declaration had been sought by the plaintiffs that the letter of resignation or the board resolutions were not valid, the claim for injunction itself had been made on such assumptions by treating the plaintiffs as director and shareholders of the company, respectively. It could also be noticed that the claim for injunction itself would not have been possible without a finding as regards the status of the plaintiffs continuing as the directors and shareholders of the company.
(iii) The second suit by father:
7. Yet another suit filed by the first plaintiff was a suit seeking for decree of declaration to the effect that a memorandum of family settlement alleged to have been executed by the plaintiff with reference to several properties including the multiplex was null and void. A permanent injunction had also been sought by the first plaintiff restraining the parties in suit from claiming any benefit under the alleged family settlement dated September 16, 2002. The father had arrayed all his sons and wife as party-defendants. One Manjit Singh, who is not a party in the company petitions was second defendant in the suit and his wife was the fifth defendant in the suit, (iv) The core issue in second suit:
8. A declaratory action regarding the family settlement became essential in view of the fact that the defence taken by the second defendant at all times prior to the institution of the suit to lend credence to the genuineness of the letter of resignation.
(v) Basis of family arrangement, a plea in defence to explain the resignation of the father:
9. According to the second defendant, under the terms of the family arrangement dated September 16, 2002, following things had taken place:
(i) The father had secured Rs. 86,40,000 pursuant to an award of Arbitration Tribunal that was made a rule of the court by decision of the hon'ble Supreme Court when the first petitioner's brother gave the amount as consideration for relinquishment by him of two theatre premises, namely, Arora Palace and Mini Arora Palace and this amount was utilised for setting up a multiplex. The respondent-company had been formed in the names of the second respondent and the third petitioner who were defendants Nos. 1 and 4 in the above suit.
(ii) The memorandum of family settlement dated September 16, 2002, surfaced for the first time in the court proceedings when the petition had been filed by the petitioners complaining of oppression and mismanagement and referring to the forged nature of a letter of resignation and the holding of board meetings purporting to appoint the third respondent as a director of the company.
(vi) Father's plea regarding family settlement:
10 With reference to the memorandum of family arrangement, the father Raghbir's contention was that it was the result of undue influence, misrepresentation, forgery and coercion. The allegation of the father was that the second respondent had threatened to kill him and other members of the family through a contract killer on March 27, 2004, which was a subject of complaint under FIR No. 54 dated April 10, 2004 at P.S. Sarabha Nagar, Ludhiana. When the second respondent was making strenuous attempts for disposing of the multiplex cinema premises, the third petitioner had independently filed a suit before the Civil Judge (Junior Division), Ludhiana and the case is still pending. The plaint makes a reference to the fact that in the anticipatory bail filed by the second respondent before the High Court there had been a reference to the liberty given to the parties to approach the civil court for appropriate reliefs. The justification pleaded by the second defendant had been that by virtue of the family settlement none of the plaintiffs had any right in the multiplex cinema theatre.
(vii) Suit by father was to neutralise the strength of defence on the basis of family arrangement:
11. The declaration had been sought to take away the sting out of the second respondent's armoury that the documents itself was not genuine and that the second defendant could not rely on the same to explain away his conduct. The cause of action alleged the suit was the defence taken by the second respondent in the company petition that had been filed earlier complaining of oppression and mismanagement. Again, it could be noted that the first petitioner had not sought for any declaration that he was the director of the company but sought the relief of declaration with reference to the family arrangement and the relief of injunction against the defendants mentioned in the suit for taking any benefit under the family arrangement was to stave off any claim by the second respondent as a person being in exclusive control of the affairs of the company by virtue of the so-called understanding between the parties to let the second respondent and his suits to manage the affairs of the multiplex. The reference to the family arrangement itself becomes relevant to consider how the parties had attempted to divide their assets as per the contentions of the second respondent.
VI. Cause for withdrawal of first company petition and possible explanation for a fresh company petition:
12. The first Company Petition No. 15 of 2004 had been withdrawn only because civil suits had been filed and the criminal complaints were pending investigation. Evidently, the petitioners knew that the subject of adjudication complaining of oppression and mismanagement could not be pursued without a finding of facts whether the petitioners were still the shareholders of the company and whether the so-called resignation of the first petitioner should be accepted as true or rejected as brought about by forged instruments. The order of the High Court on August 2, 2005, in the anticipatory bail petition gave rise to two lines of action : one, institutions of two suits to legitimise the petitioners' action complaining of oppression and mismanagement; two, the directions of the High Court that the family settlement and the resignation letter should be kept in abeyance for a period of six months was taken as a shot in the arm of the plaintiffs to file a petition again complaining of oppression and mismanagement. The order of the High Court was conceived by the petitioners as restoring their status as directors of the company and the shareholding position as not having been upset in the manner set forth by the second respondent. The third petitioner Paranjit Singh believed himself to be restored to the position as a director.
13. In my view, the order of the High Court keeping in abeyance the resignation letter and the board resolutions for a particular period was only to offer a cooling of period to bury the hatchet and if at all, not to precipitate their discord further by counselling the parties to obtain an appropriate adjudication before the civil court. It could never have been intended that such observation for keeping the disputed documents in abeyance to revive all the rights asserted by the parties to make way for yet another petition before the Company Law Board but that was how exactly it was conceived by the petitioners and they moved the Company Law Board with a petition for complaining of oppression and mismanagement.
VII. Congruence of issues to be resolved before the Company Law Board and civil courts:
14. The preliminary objections had been filed by the respondents on the ground that the order of the High Court itself provided for keeping in abeyance the disputed documents for a period of six months and the six months period having expired, there was no cause of action for the petitioners to continue the petitions. The Company Law Board examined the petition by making reference to filing of the fresh petition in C.P. No. 76 of 2005 (Raghbir Singh v. Sikri Multiplex Cinema P. Ltd. [2008] 143 Comp Cas 470) as having been filed relying on the observations of the High Court keeping the documents in abeyance for six months. The Company Law Board adopted a strange reasoning that expiry of six month period and the dismissal of the SLP had the effect of taking away the rights of the petitioners to claim oppression and mismanagement. The Company Law Board also made reference to the fact that the C.P. No. 15 of 2004 had been withdrawn on the grounds, inter alia, that the CFSL's report had not been obtained but actually a report had also come and there was no new cause of action or new facts than what had been set forth in C.P. No. 15 of 2004. The Company Law Board also observed that the petitioners were really engaged in sharp practice of forum-shopping and had made reference to the family arrangement as an admitted fact. All the adverse inferences that the Company Law Board has made are indeed quite unnecessary for, the Company Law Board could have easily seen that the issues of oppression and mismanagement raised were squarely the issues, which were to be adjudicated before the civil court. The validity of the alleged resignation letter, the resolution inducting the third respondent as a director and the exclusive control attempted to be taken by the second respondent on the basis of family arrangement, which was denied, are all matters which fall for consideration only before the civil court. None of the matters, which are complained of as constituting oppression and mismanagement could be adjudicated upon by the Company Law Board without resolving the issues which fall for consideration before the civil court, which are outlined above.
15. The Company Law Board cannot be expected to adjudicate on matters where there are disputed questions of fact and there are civil suits pending to resolve the very same disputes. The petition before the Company Law Board was required to be dismissed not on the ground that the petition had become infructuous or that the High Court's order had operated itself and revived the effect of either the resignation letter or the family settlement as wrongly observed by the Company Law Board. On the other hand, the petition was required to be dismissed on the ground that points for adjudication sought before the Company Law Board were merely the issues for adjudication before the civil court, which had been filed prior to the filing of the second company petition. The result in the suit will have a definite bearing on the entitlement or otherwise of the control assumed by the second respondent and it would be impermissible to take the disputed questions of fact relating to the entitlement of the petitioner to continue as a director or to treat petitioners Nos. 2 and 3 as shareholders as finally established to examine the contentions whether there had been any oppression and mismanagement. Since the family arrangement itself refers to several items of properties and the respective allotment of the various items of properties to different parties, it would be only appropriate that the parlies seek before the civil court before which cases are pending for interim direction relating to the management of the multiplex. The congruity of issues for consideration before the civil court and the Company Law Board are so compelling that the petitioners could not have sought for any relief before the Company Law Board without adjudication of the findings of fact before the civil court.
16. Learned Counsel for the respondent cites several decisions in support of his contention that the dismissal of the petition was justified. I am merely detailing them for the sake of comprehensive treatment of the case by reference to several contentions raised by the respective counsel. He refers to a decision in Caparo India Ltd. (U.K.) v. Caparo Maruti Ltd. [2007] 140 Comp Cas 481 (Delhi), which dealt with the case of a complaint under Section 397 of the Companies Act and the court had an occasion to consider the extent that a company court would traverse in an appeal under Section 10F of the Companies Act. It said that when the Company Law Board exercised its equitable jurisdiction in a given set of circumstances where the board of directors and management of the company had taken a normal business decision and exercised its powers, it would not be proper to interfere with the equitable discretion in an appeal under Section 10F of the Act. In Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad : AIR2005SC809 , the hon'ble Supreme Court dealt with several aspects relating to what would merit consideration in petitions under Sections 397 and 398 and while referring to the powers of the company court under Section 10F it had held that adjudicating of question of title as to share was not contemplated under Section 397, especially when a civil suit was pending in respect of the same. In Gordon Woodroffe and Co. Ltd. (U.K.) v. Gordon Woodroffe Ltd. [1999] 97 Comp Cas 582, the Madras High Court had held that a mere change of ownership of shares would not constitute oppression and mismanagement and a company court would not go into the question of title to shares in an appeal under Section 10F of the Act. In Poonamchand Kothari v. Rajasthan Tube . [1996] 87 Comp Cas 842, where the Rajasthan High Court had made a reference to a decision of the Privy Council in Burland v. Earle [1902] AC 83, 93, that it was a normal principle of law relating to joint companies that the court will not interfere with internal management of companies acting within the powers and in fact has no jurisdiction to do so and also its actions are recognisable only by a civil court under Section 9 of the Civil Procedure Code, 1908, unless the jurisdiction of the civil court is either expressly or were by necessary implications barred.
17. The questions of law that had been raised in the case whether there had been acts of oppression and mismanagement could not be answered without resolving the dispute of the civil suit relating to the validity of the resignation letter and the entitlement of petitioners Nos. 2 and 3 to treat themselves as shareholders of the company. The alleged wrongful allotment and adjustment of shares that constitute the core issue of oppression and mismanagement again are the issues that would fall for consideration only in the civil suit before which the relief of injunction is sought. The relief of injunction itself has a basis only for examining the claims of the petitioners that they could not be divested over the control of the company. While the parties would not normally be barred from approaching the Company Law Board from securing the reliefs complaining of oppression and mismanagement by the institution of a civil suit, such a bar would definitely operate in a case where finding in a civil court will have a direct bearing for consideration of the issues before the Company Law Board and such civil suits are already pending. It is not as if the Company Law Board cannot itself decide issues of forgery, fraud, etc., but it is a case where civil suits have already been filed and it would be inappropriate to let the Company Law Board adjudicate on the same, although packaged to make it appear as though it is an open and shut case of oppression and mismanagement.
VIII. Conclusion:
18. The appeal is, therefore, dismissed giving, however, liberty to the petitioners to approach the Company Law Board again if the status of entitlement as directors and shareholders of the company are established before the civil court. There shall, however, be no directions as to costs.