IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07-09-2011 Coram THE HONOURABLE MRS. JUSTICE R. BANUMATHI and THE HONOURABLE MR. JUSTICE B. RAJENDRAN Letter Patent Appeal Nos. 129 to 131 of 2002 and C.M.P. Nos. 8586, 8588, 8602, 8605 of 2002 C.M.P.Nos. 413, 414, 415 and 416 of 2011 L.P.A. No. 129 of 2002 1. Amalgamations Limited (Now Amalgamations (P) Ltd) No.124, Old No.81 Dr. Radhakrishnan Salai Chennai – 600 004 2. A. Sivasailam (died) (second appellant died Memo recorded vide order of court dated 7.9.2011 made in memo (present in court) 3. A. Krishnamoorthy .. Appellants Versus 1. Shankar Sundaram 2. Simpsons & Co Ltd., 861/862, Anna Salai Chennai – 600 002 3. Addisons Paints & Chemicals Ltd., Hazur Gardens Sembium, Chennai – 11 4. India Pistons Limited Hazur Gardens Sembium, Chennai – 11 5. Shardlow India Limited Hazur Gardens Sembium, Chennai – 11 6. Tractors & Farm Equipment Limited 35, Nungambakkam High Road Chennai – 600 034 https://hcservices.ecourts.gov.in/hcservices/ 7. TAFE Access Limited 35, Nungambakkam High Road Chennai – 600 034 8. Southern Tree Farms Limited 35, Nungambakkam High Road Chennai – 600 034 9. Associated Publishers (Madras) Limited 865, Anna Salai Chennai – 600 002 10. Bimetal Bearings Limited Strip Mill Plant Huzur Gardens Sembium, Chennai – 11 11. I.P. Rings Limited Arjay Apex Centre 24, College Road Chennai – 600 006 12. Wallace Cartwright & Company Limited 55/56, St. James Street London, S.W.IA 1 LQ U.K. 13. W.J. Groom & Company Limited 55/56, St. James Street London, S.W.IA 1 LQ U.K. 14. Amco Batteries Limited 3rd Floor, Tower Block Unity Buildings J.C. Road Bangalore – 560 002 15. Amalgamations Valeo Clutch Limited 'J' Gardens G.N.T. Road, Chennai – 600 010 16. Tafe (USA) Inc., d. Memphis Tennessee 38117 U.S.A. 17. Amco Power Systems Limited Hebbal – Bellary Jabalpur Road Byadrayampura Bangalore – 560 091 https://hcservices.ecourts.gov.in/hcservices/ 18. Madras Hi-tech Circuits Limited C8 & C9, Madras Export Processing Zone Chennai – 600 002 19. R.G.N. Price & Co Chartered Accountants 861, Anna Salai Chennai – 600 002 20. S. Balasubramaniam Director Addisons Paints & Chemicals Limited Huzur Gardens, Sembium Chennai – 600 001 21. P.V. Sundaram Director Addisons Paints & Chemicals Limited Huzur Gardens, Sembium Chennai – 600 001 .. Respondents L.P.A. No. 130 of 2002 Amalgamations Limited (Now Amalgamations (P) Ltd) No.124, Old No.81 Dr. Radhakrishnan Salai Chennai – 600 004 .. Appellant Versus Shankar Sundaram .. Respondent L.P.A. No. 131 of 2002 1. Simpsons & Co Ltd., 861/862, Anna Salai Chennai – 600 002 2. Addisons Paints & Chemicals Ltd., Hazur Gardens Sembium, Chennai – 11 3. India Pistons Limited Hazur Gardens Sembium, Chennai – 11 4. Shardlow India Limited Hazur Gardens Sembium, Chennai – 11 https://hcservices.ecourts.gov.in/hcservices/ 5. Tractors & Farm Equipment Limited 35, Nungambakkam High Road Chennai – 600 034 6. TAFE Access Limited 35, Nungambakkam High Road Chennai – 600 034 7. Southern Tree Farms Limited 35, Nungambakkam High Road Chennai – 600 034 8. Associated Publishers (Madras) Limited 865, Anna Salai Chennai – 600 002 9. Bimetal Bearings Limited Strip Mill Plant Huzur Gardens Sembium, Chennai – 11 10. I.P. Rings Limitex Arjay Apex Centre 24, College Road Chennai – 600 006 11. Wallace Cartwright & Company Limited 55/56, St. James Street London, S.W.IA 1 LQ U.K. 12. W.J. Groom & Company Limited 55/56, St. James Street London, S.W.IA 1 LQ U.K. 13. Amco Batteries Limited 3rd Floor, Tower Block Unity Buildings J.C. Road Bangalore – 560 002 14. Tafe (USA) Inc., d. Memphis Tennessee 38117 U.S.A. 15. Amco Power Systems Limited Hebbal – Bellary Jabalpur Road Byadrayampura Bangalore – 560 091 .. Appellants Versus https://hcservices.ecourts.gov.in/hcservices/ 1. Shankar Sundaram 2. Amalgamations Limited (Now Amalgamations (P) Ltd) No.124, Old No.81 Dr. Radhakrishnan Salai Chennai – 600 004 3. A. Sivasailam (died) (R3 deceased memo recorded vide order of court dated 7.9.2011 made in memo (memo presented in court) 4. A. Krishnamoorthy 5. Amalgamations Valeo Clutch Limited 'J' Gardens, G.N.T. Road Chennai – 600 010 6. Madras Hi-tech Circuits Limited C-8 & C-9 Madras Export Processing Zone Chennai – 600 002 7. R.G.N. Price & Co Chartered Accountants 861, Anna Salai Chennai – 600 002 8. S. Balasubramaniam Director Addisons Paints & Chemicals Limited Huzur Gardens, Sembium Chennai – 600 001 9. P.V. Sundaram Director Addisons Paints & Chemicals Limited Huzur Gardens, Sembium Chennai – 600 001 .. Respondents LPA No. 129 and 131 of 2002: Appeals filed under Clause 15 of the Letters Patent against the order dated 03.06.2002 made in C.M.A. No. 2018 of 2000 on the file of this Court. LPA No. 130 of 2002: Appeal filed under Clause 15 of the Letters Patent against the order dated 03.06.2002 made in C.M.A. No. 2036 of 2000 on the file of this Court. https://hcservices.ecourts.gov.in/hcservices/ L.P.A. No. 129 of 2002: For Appellants :Mr. Anil B. Divan senior counsel for Mr. Krishnasrinivasan AR Ramanathan & P. Dwarakesh For Respondents : Mr. K. Ravi for R1 for M/s. Rugan and Arya along with M/s. Aishwarya and Mr. Murugan : Mr. Adeesh Anto for RR2 to 18 L.P.A. No. 130 of 2002 Appellant : Mr. Krishna Srinivas for M/s. Ramasubramaniam Associates For Respondents : Mr. K. Ravi for M/s. Rugan and Arya along with M/s. Aishwarya and Mr. Murugan LPA No. 131 of 2002 For Appellants : Mr. Anil B. Divan, Senior Counsel for Mr. Krishna Srinivasan A.R. Ramanathan & P. Dwarakesh For Respondents : Mr. K. Ravi for R1 for M/s. Rugan and Arya along with Ms. Aishwarya & Mr. Murugan : Mr. Adeesh Anto for RR2 to 6 COMMON JUDGMENT B. RAJENDRAN, J These letters patent appeals arise out of the common order dated 03.06.2002 passed by the learned single Judge in C.M.A. No. 2018 and 2036 of 2000. Inasmuch as the issues involved in all these appeals are one and the same and the parties to the appeals are also same, by consent of counsel for both sides, the appeals are taken up together and are disposed of by this common judgment. 2. All these proceedings are concerned with the affairs of management of a Company called Amalgamation Private Limited, which is the holding company of several other companies, which are all either 100% owned and controlled by the holding company and some of the subsidiary companies themselves are holding companies, which are sought to be arrayed as parties in the Company Petition by the respondent by taking out an company https://hcservices.ecourts.gov.in/hcservices/ application before the Company Law Board for necessary action under Section 397 of the Companies Act, hereinafter referred to as the Act. 3. The proceedings originated by filing of Company Petition No. 94 of 1999 filed by Shankar Sundaram, respondent in the appeals, complaining of oppression and mismanagement by the majority group under Sections 397 and 398 of the Act. In the said Company Petition No. 94 of 1999, the deceased Srisailam, Director and one Krishnamoorthy have filed Company Application No. 48 of 2000 mainly to delete the name of subsidiary companies from the array of parties in the Company Petition and also to dismiss the Company Petition itself as not maintainable in view of certain preliminary objections raised by the holding company. 4. The Company Law Board allowed the Company Application No. 48 of 2000 by ordering to delete the names of the subsidiary companies from the array of parties, however rejected the prayer for dismissing the main Company petition on the preliminary objection itself. The Company Law Board further directed that the holding company shall give reply on all the allegations in the company petition, including those concerning subsidiary companies. The Company Law Board also gave liberty to the respondent to seek investigation into the affairs of the subsidiary company by filing separate petition under Section 214 (2) read with Section 235 of the Companies Act. 5. Aggrieved by the said order of the Company Law Board, the petitioner in C.P. No. 94 of 1999 and respondent in the Letter Patent Appeal namely Shankar Sundaram filed C.M.A. No. 2018 of 2000 against that part of the order of the Company Law Board ordering to delete the name of the subsidiary companies from the array of party. The holding company namely Amalgamations Limited filed separate appeal against the portion of the order of the Company Law Board granting liberty to the respondent to file separate petition under Sec. 214 (2) read with Sec.235 of the Companies Act for appropriate direction in C.M.A. No. 2036 of 2000. 6. Though these appeals were taken up together, by two separate orders passed on 03.06.2002, the learned single Judge allowed C.M.A. No. 2018 of 2000 filed by Shankar Sundar and dismissed the appeal filed by the holding company in C.M.A. No. 2036 of 2000. 7. Aggrieved by the order of the learned single Judge, LPA Nos. 129 and 131 of 2002 were filed. LPA No. 129 of 2002 was filed by the holding Company represented by Mr. Sivasailam and Mr. Krishnamoorthy. LPA No. 130 of 2002 was filed by the holding company itself against the order in CMA No. 2036 of 2000. LPA No. 131 of 2002 was filed by the subsidiary companies, whose names are sought to be included by the respondent. Thus, all the three appeals are before us. https://hcservices.ecourts.gov.in/hcservices/ 8. The brief facts about the case is that the company application was filed by the respondent Shankar Sundaram, who is holding 10% share in the Amalgamations Limited, which is the holding company. The company has got 38 subsidiaries and some of the subsidiaries are in turn holding companies of other subsidiaries. The respondent has arrayed only 17 subsidiaries as respondents in the company application and he sought certain relief against some of the subsidiaries in terms of Section 402 of the Companies Act. It is also an admitted fact that the respondent was holding 10% share in the main holding company namely Amalgamation Limited, but does not hold any share in any of the subsidiary company, except in one company. Therefore, on this background, the company as well as some of the subsidiaries have questioned the maintainability of the very company petition itself against the subsidiaries inasmuch as the respondent does not fulfil the requirements of Section 399 of the Companies Act as far as the subsidiaries are concerned. Therefore, they have filed application before the Company Law Board in the Company Petition to decide this as a preliminary issue before considering the company petition on merits. It was also contended that the preliminary objection goes to the root of the matter in terms of Section 399 of the Companies Act, as far as subsidiaries are concerned. 9. The main contention raised as preliminary objection by the holding company is that none of the allegations made in the company petition have been substantiated and consequently the Company petition cannot be maintained against the subsidiaries inasmuch as the respondent is not a share holder in any of the subsidiary companies. Further it was contended that all the subsidiary companies are independent entities and therefore, to invoke the provisions of Section 397 and 398 of the Act against these subsidiary companies, the respondent should fulfil the requirements contemplated under Section 399 of the Companies Act. 10. On behalf of the holding company, it was contended that even among the subsidiaries named in the petition, as against 7 respondents (respondents 9, 10, 14, 15, 17, 18 and 19) no allegations were made or any relief is claimed; as against 8 respondents (respondents 4, 6, 7, 11, 12, 13, 16 and 20) allegations were made but no relief claimed. Only as against two (Respondents 5 and 8) allegations were made and relief claimed. When no allegations are made against many of the subsidiaries and even relief has not been sought for, definitely, these are motivated as against the main company and therefore, they pleaded for removal of the subsidiaries from the array of parties. It was mainly contended that the company petition itself was filed with an oblique motive and not for setting right the wrong alleged to have been committed by the company. Some of the subsidiaries would contend that the main petition was filed only to tarnish the image and reputation of the holding company, which is one of the most reputed companies in the South. Further, only https://hcservices.ecourts.gov.in/hcservices/ after counter has been filed, in the rejoinder, some of the allegations were made against the company without any basis. It was also contended that the respondent was not the original promoter of the company and only a share holder by devolution of interest. 11. The interesting question of law which arises in these appeals for consideration, as discussed by the Company Law Board as well as by the learned single Judge, is whether the affairs of the holding company would include the affairs of the subsidiary company in a petition filed under Section 397, 398, 402 and 403 of the Act. The further question is whether by impleading the subsidiary companies as the respondent, a share holder of the holding company, without satisfying the provisions of Section 399 of the Act in respect of the subsidiary companies can claim relief in respect of the subsidiary companies in terms of Section 402 of the Act also. 12. We have heard the counsel for all the parties concerned and perused the materials on record. The appellant is aggrieved by the order passed by the learned single Judge, reversing the order passed by the Company Law Board and also directing that the petition can be filed even against the Subsidiary companies under Sections 397 and 398 of the Act and setting aside the order of the Company Law Board. 13. The main ground of attack of the appellant was that the maintainability of the petition namely Company Application against the subsidiaries inasmuch as the respondent does not fulfil the requirements of Section 397 of the Act as far as the subsidiaries are concerned. 14. Shri. Anil Diwan, learned Senior counsel appearing for the appellants in O.S.A. No. 129 and 131 of 2002 would mainly contend as follows:- (i) The inclusion of the subsidiary companies in terms of Section 399 of the Act in so far as subsidiaries are concerned itself is a preliminary issue and therefore it was rightly decided by the Company Law Board as it goes to the root of the matter. It was further contended by the learned Senior Counsel that whatever allegations have been made against the holding company have not been made against the subsidiary company. (ii) The company petition cannot be maintained against the subsidiary companies as the respondent is not a share holder in any of the subsidiary companies, which is also an admitted fact. A share holder of the holding company cannot file a petition under Sections 397 and 398 of the Act whereas a holding company share holder can do anything under Section 235 availing the principles as enunciated under Section 214 (2) but not in regard to Sections 397 and 398 of the Act. (iii) There are no allegations made against many of the subsidiary companies and there are some allegations made in respect of the some of the subsidiary companies without seeking https://hcservices.ecourts.gov.in/hcservices/ any relief and this would only reveal the intention of the respondent to degrade the institution and hence, such an application cannot be maintained. (iv) Even though the Appellant company was incorporated in the year 1963 and the respondent became a share holder only in the year 1993, that too by devolution by share and he was not a part of the management of the appellant company. Therefore, according to the learned Senior Counsel, the company petition was filed by the respondent only to tarnish the image of the company. The respondent sought prayer (d) in the company petition thereby he attempted to compel and force the appellant company to give him an office of profit in the company. (v) The learned Senior counsel would further contend that conveniently, the removal of his father from the fifth respondent company was suppressed by the respondent in the company petition and it is only an act taken in vengance. According to the learned Senior counsel, the subsidiary companies are all separate and independent entities and therefore, the company petition filed by the respondent is not maintainable. (vi) The learned Senior Counsel would raise a legal plea that it is not as though the respondent is without any remedy. Even under Section 399 (4) of the Act, any member of the Company, without holding the required 1/10th share in that company, can still maintain a petition against that company under Section 397 and 398 subject to authorisation of the Central Government. It is not the case of the respondent that he sought such remedy before the Central Government, whereas, without obtaining the same, straightaway, the respondent had rushed to the Company Law Board and therefore also, the company Petition is not maintainable under law. (vii) The words 'affairs of the company' used in Section 397 and 398 would only denote that particular company and it does not include the affairs of the subsidiary company as was held by the learned single Judge. In this context, reliance was also placed by the learned Senior Counsel to the decision reported in (Ishar Alloy Steels Limited vs. Jayaswala Neco Limited) 2001 (105) Company Cases Page No.1 (SC) (viii) The learned Senior Counel also pointed out that the learned single Judge relied on the decision in (Life Insurance Corporation of India vs. Hari Das Mundhra and others) 1966 (36) Company Cases 371 and wrongly applied it to the facts of the case, whereas, in that case, the very subsidiary company was only treated like a department of the holding company, which is not so in the present case. (ix) The decisions rendered by the Calcutta High Court are not in consonance with the principle which is now brought forward especially in this case, the applicability of the company application under Section 399 of the Act was not taken into consideration. In fact, the learned Senior Counsel has taken us to the provisions of Sections 214, 235, 237, 239, 397, 398, 401 and 402 of the Act to demonstrate that the company petition against the subsidiary companies is not maintainable. https://hcservices.ecourts.gov.in/hcservices/ (x) The learned Senior counsel also placed reliance in the decision reported in (Hungerford Investment Trust Limited vs. Turner Morrison & Co Ltd.,) ILR 1972 (1) Cal 286 to bringforth the fact that the parties were directed to be impleaded in that case only because of the consent and the inclusion of subsidiary cannot be treated as an automatic right. (xi) The learned Senior Counsel further contended that Section 214 (2), read with Sections 235, 257, 239 and 243 would unequivocally demonstrate that the respondent herein has remedy available to him under these sections provided a case has been made out and does not have any equitable right to file the company petition against the subsidiaries without satisfying the mandatory requirement contemplated under Sectin 399 of the Companies Act. In other words, if a case is made out against any of the subsidiaries, on investigation either under Section 235 or 237, only the Central Government may present a petition under Section 397 and 398 against the subsidiaries before the Company Law board and not the respondent herein. For this proposition, the learned Senior Counsel for the appellant relied on the decision reported in (State of Jharkhand and others vs. Ambay Cements and another) 2005 1 SCC 368 SC wherein it was stated that if the law requires a particular matter to be dealt in a particular manner, it has to be done only in that manner. (xii) The learned Senior Counsel further argued that the learned single judge failed to take into consideration the provisions of Sections 235, 237 and the consequent power under Section 239 and 243 of the Act as the legislature has categorically made it clear to stipulate different conditions required to invoke the two provisions namely Sections 235 (2) and 399 (4) of the Act. When it was categorically stated that the members of the holding company can invoke Section 235 with the aid of Section 214 (2) as they alone are the members of subsidiary, but when it came to Section 397 and 398, they restricted it with a condition precedent that he should qualify under Section 399 (4) of the Act. Therefore, the legislature has consciously not conferred the right to member of holding company to file a petition under Section 397 and 398 of the Act in respect of the subsidiary company. (xiii) Lastly, the learned Senior counsel for the appellant would contend that in deciding upon the maintainability of the company application, only the averments made in the petition need to be looked into and the subsequent events or production of records or documents at a later point of time cannot be taken into consideration for deciding the maintainability of the company application. 15. Mr. Krishna Srinivas, learned counsel appearing for the appellant in LPA No. 130 of 2002 would contend that even as against the main company, the respondent has not made out any case in respect of Sections 397 and 398 of the Act as the respondent himself has participated in all the meetings, accepted the resolutions, in certain resolutions, he had seconded and signed in all the balance sheet and therefore, it is not open to https://hcservices.ecourts.gov.in/hcservices/ the respondent, at this stage, to spike against the company. It was further argued that the whole episode carried out only by him in a vindictive manner to seek a plum post in the management and the fact that he is seeking a plum post in a very good company would indicate the intention of the respondent herein and the company application was not filed for the welfare of the company and it was filed in his own personal interest. Therefore, even as against the company, when no case is made out, the respondent cannot make out any case against the subsidiary company as well. Under those circumstances, the company petition itself has to be dismissed in limine. Though the Company Law Board has not granted such relief, the main company petition itself has to be dismissed in the preliminary stage itself as it does not warrant any investigation. 16. (i) Mr. Ravi, learned counsel appearing for the respondent would contend that the holding company is being conducted in a manner oppressive to the interest of the respondent and therefore, he has prayed for a direction under Section 235 (2) of the Act praying for investigation by an inspector into the affairs of the holding company and its subsidiaries, which are appellants in LPA Nos. 131 of 2002. Therefore, according to the learned counsel for the respondent, the company petition is a composite petition under Sections 397, 398 and 235 (2) of the Act and it cannot be construed as a petition under Section 397 and 398 of the Act against the subsidiaries of the holding company. The holding company has no independent, distinct business, apart from those of its subsidiaries. (ii) The learned counsel for the respondent would further contend that the holding company is in the nature of a family partnership and it was a closely guarded company consisting of its family members, especially it was dealt with by two persons Shri. Sivasailam, since deceased and Mr. Anandakrishnan, who ran the business in the company as a one-man- show. Therefore, the affairs of the holding company includes the affairs of the subsidiary as well. In this context, the learned counsel for the respondent relied on the decision reported in (Life Insurance Corporation of India vs. Hari Das Mundhra and others) 1966 (36) Company Cases (DB) 371 (Allahabad) and also the decision reported in AIR 1976 SC 1317 and also the decisions rendered by the Calcutta High Court in (Bajrang Prasad Jalan and others vs. Mahabir Prasad Jalan and others) AIR 1999 (Calcutta) 156. (iii) The learned counsel for the