1 coapp-lod-48-11.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPEAL (LOD) NO.48 OF 2011 IN COMPANY PETITION NO.116/397-398/CLB/MB/2008 Alibante Developments Ltd (Cyprus) .. Appellant versus Matheran Realty Pvt Ltd & Ors .. Respondents Mr.Pradeep Sancheti, Sr.Advocate a/w Mr.Rahul Chitnis, Ameya Gokhale, Arunadhri Iyer, Meghna Rajadhkshya, Ankil Lal i/by Khaitan & Co for the appellant. Mr.Nikhil Sakhardande a/w Sharan Jagtiani, Chirag Mody and Amesha Sharda i/by DSK Legal for the respondents. CORAM : S.C.DHARMADHIKARI, J. 2nd December 2011. P.C.: Heard parties. This appeal under section 10F of the Companies Act, 1956, is directed against the oder dated 3rd October 2011 passed by the Company Law Board, Mumbai Bench in Company Petition No.116/397-398/CLB/MB/2008. 2} The appellant before me is the original petitioner. The company petition that was filed before the Company Law Board has been 2 coapp-lod-48-11.doc dismissed by the impugned order. Inviting my attention to the grounds in the Memorandum of Appeal and particularly the questions of law as framed by the appellant, it is argued by Mr.Sancheti, learned senior counsel appearing on behalf of the appellant, that the Company Law Board was in complete error in dismissing the petition by the impugned order and particularly after it has held that a case for issuing directions for buying or selling out the share of the appellant-petitioner is made out. Once the Company Law Board comes to a conclusion that if a case is made out for issuance of directions under section 402 of the Companies Act, 1956, then, dismissing the petition amounts to clear error of law. The petition then could not have been dismissed. 3} It is next contended that the order of the Company Law Board to the extent that it concludes that the original respondent No.1 and respondent No.8 are two distinct entities having independent status and existence in law, is perverse and contrary to the materials on record. Mr.Sancheti submits that respondent No.8 is a wholly owned subsidiary of the respondent No.1. If the appellant is a shareholder of the respondent No.1, but the acts of omission and commission of the respondent No.1 and particularly allowing the respondent No.8 to take over major assets and properties, is nothing but an oppression and mismanagement then, the Company Law Board committed a gross error of law in dismissing the petition. 4} Mr.Sancheti places strong reliance upon the decision of the Hon'ble Supreme Court of India in the case of Needle Industries (India) 3 coapp-lod-48-11.doc Ltd v. Needle Industries Newey (India) Holding Ltd reported in (1981) 3 SCC 333 and a decision relying upon this view rendered subsequently in the case of M.S.D.C.Radharamanan vs. M.S.D Chandrasekara Raja and Another reported in (2008) 6 Supreme Court Cases 750. 5} On the other hand, both Mr.Sakhardande and Mr.Jagtiani appearing on behalf of the contesting respondents submit that the findings rendered are purely of facts and consistent with the materials placed before the Company Law Board. Once they cannot be termed perverse, then, no question of law arises for determination and consideration in this appeal. It is, therefore, submitted that the Company Law Board did not issue any directions, but the penultimate para of the impugned judgment must be read as only recording the submissions of the learned senior counsel appearing for the petitioner. Beyond that, the Company Law Board has not issued any directions for valuation nor has directed that the matter would appear at a later date for any such purpose. Consistent with the issues framed and the findings recorded thereon, the petition under sections 397 and 398 of the Companies Act, 1956 has been dismissed. Both counsel have argued that the decisions of the Supreme Court relied upon, do not lay down any general rule, but hold that once there is a case of oppression or mismanagement made out or it is demonstrated that there is a complete deadlock,that the directions in terms of section 402 of the Companies Act, 1956 should be issued and the Court's power is not restricted to only prevent the oppression and mismanagement. For all these reasons, it is submitted that the appeal be dismissed. 4 coapp-lod-48-11.doc 6} As far as the impugned order is concerned, it proceeds to answer the issues framed. As far as the issues that were framed arising out of the pleadings they are “Whether there is any contravention of the provisions relating to notices for the Board and General Meetings as enumerated in the Share Holder Agreement and the Articles of Association?”. As far as this aspect is concerned, Mr.Sancheti and in my opinion has not rightly addressed the Court. The findings of fact recorded are based on the materials produced by the parties and I do not find any infirmity much less of such nature so as to give rise to any question of law. Therefore, finding on issue No.1 need not detain me. Issue No.2 was “Whether the petitioner was offered shares in respondent No.8-Company and whether any dilution of economic shareholding of the petitioner has taken place?”. 7} As far as that aspect is concerned, what the Company Law Board has noted is that the appellant-petitioner is the share holder holding 42.24% of the paid up capital of the respondent No.1. It has entered into Share Subscription Agreement dated 26th July 2007 with respondent No. 2, original petitioner and respondent No.3. As far as Share Holders Agreement is concerned, i.e dated 26th July 2007, the Board consists of four Directors, the investor-respondent No.3 and the promoters i.e the appellant and respondent No.2. The appellant has nominated one Mr.Max Fysh as its Director who was also appointed as Chief Executive Officer in July 2007. What the Company Law Board has noted in the impugned order is, the grievance that the respondent No.1 alloted 5 coapp-lod-48-11.doc shares of respondent No.8 to respondent No.3 without allotting them to the appellant which amounts to dilution of the economic share holding of the petitioner in the subject company. The position emerging, according to the Company Law Board, from the record is, that the respondent No. 8 is a subsidiary of respondent No.1. True it is, that it is such a subsidiary, but I do not see how that entity could be said to be not having independent legal assistance. The respondent No.3 entered into an Investment Agreement dated 2nd April 2008 whereby the respondent No.3 became 32.25% of the equity shareholding in respondent No.8. The respondent No.8 has only two shareholders, namely, respondent Nos.1 and 3. The complaint was that a Board meeting was held of respondent No.8 and no notice of same was given to the appellant. There was no approval of Board of Directors of respondent No.1 either. Yet, increase of capital of respondent No.8 has taken place whereby the appellant-petitioner's holding is adversely affected. The respondents pointed out to the Company Law Board that the appellant has invested a sum of Rs.1.60 crores only whereas the respondent No.3 has invested Rs.82 crores with respondent No.1. The respondent No.3 further invested a sum of Rs.20 crores with respondent No.8. The Directors of respondent No.8 in the meeting held on 2nd April 2008 decided to accept the investment from respondent No.3. The appellant nominated a Director, but he did not attend or participate in the meeting of respondent No.8. That apart, the appellant could not have claimed that it is entitled to said notice. Ultimately, this was a case where the allotment of shares of respondent Nos.3 to 8 can be said to be a decision which could have been reached independently by respondent 6 coapp-lod-48-11.doc No.8. There is nothing on record which would demonstrate that by this process there is dilution of economic shareholding of the appellant in respondent No.1. The appellant is not a member of respondent No.8. It is in this context that the Company Law Board observes that respondent No.8 is an independent entity. 8} To my mind, once again this is a finding of fact which has been rendered consistent with the materials produced including the agreements on record and the affidavits/replies of parties. This is a case where Company Law Board has not committed any perversity by ignoring any vital piece of evidence or has misconstrued or misinterpreted contents of any documents. Ultimately, this is not an appeal which could be said to be a continuation of an inquiry and investigation into factual matters. This is a appeal restricted to question of law arising out of the impugned order passed in the proceedings before the Company Law Board. Once, I find that the findings of fact on issue No.2 cannot be said to be perverse or giving rise to question of law, particularly after the appellant's rights in respondent No.1 are not adversely affected by the exercise undertaken, then, there is no warrant for interfering in this appellate jurisdiction. I am not in agreement with Mr.Sancheti that the question of law as framed by the appellant in this memorandum of appeal will squarely arise for consideration and determination of this Court. For all these reasons, I do not find any merit in this appeal and it is dismissed. 7 coapp-lod-48-11.doc 9} The reliance placed on the decisions of the Hon'ble Supreme Court must be seen in the context of the enumeration of the powers of the Company Law Board/Court exercising jurisdiction under section 397 and section 397 of the Companies Act, 1956. 10} My attention is invited to section 402 of the Companies Act, 1956 by Mr.Sancheti. The section itself opens with these words “ Without prejudice to the generality of the powers of the Court under section 397 and 398, any order under either section may provide for the aspects covered by clauses (a) to (g)”. There cannot be any dispute about the fact that the Tribunal possesses powers so as to take care of the grievances in relation to oppression and mismanagement. If any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members he may apply to the Tribunal and seek relief under section 397 provided he has a right to apply under section 399 of the said Act. After satisfying the Court or the Tribunal that he has such right, he can seek a relief to prevent oppression of minority. Similarly, in cases of mismanagement, a complaint can be made that the affairs of the company are being conducted in the manner prejudicial to the public interest or in a manner prejudicial to the interest of the company or that material change not being change brought about by any of the creditors including debenture holders or any class of shareholders of the company has taken place in management or control of the company whether by an alteration in its Board of Directors or Manager or in the ownership of the company's 8 coapp-lod-48-11.doc shares or if it has no share capital in its membership or in any other manner by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to the public interest or in a manner prejudicial to the interest of the company. To deal with both eventualities and to grant that relief so as to take care of oppression and mismanagement, that the Tribunal can in its order provide for regulation of the conduct of the company's affairs in future for protection of the interest of the members of the company and to prevent oppression by other members. In the case of MSDC (supra), the facts before the Hon'ble Supreme Court were of such nature that there existed a deadlock situation. It was opined that in such circumstances, it will be impossible for both the groups to carry on business as there was incompatibility between them. It is in this context that the Hon'ble Supreme Court observes that ordinarily a case where oppression has been made ground for the purpose of invoking jurisdiction of the Board that a finding of fact to that effect will be necessary to be arrived at. After finding of fact is arrived, the jurisdiction of the Company Law Board to pass any order or further order in the interest of the company is not restricted and that is what is highlighted in paras 15, 20, 21 and 23 and 24 of this decision. Mr.Sancheti in all fairness has invited my attention to paras 25 and 26 of this decision. Therefore, once there was a case made out of two shareholders and two Directors having animosity and that comes in the way of proper functioning and also affects the smooth management of the affairs of the company that the directions under section 402 were thought deemed fit and necessary. 9 coapp-lod-48-11.doc 11} This decision reiterates the principle which has been laid down in the decision of the case of Needle Industries (supra). Therefore, even the case of Needle Industries (supra) must been seen as interpreting various provisions and particularly confering jurisdiction to take care of oppression and mismanagement of the company. While exercising such jurisdiction the legislature envisages that the Court must possess powers so as not only to deal with the case of both nature but to remove deadlocks and allow functioning of companies and its affairs to be carried out smoothly and efficiently. In such circumstances, I do not see how the principles laid down in these decisions are of any assistance to the appellant in the peculiar facts of this case. For all these reasons, the appeal fails and it is dismissed. Since the appeal is dismissed, company application does not survive and the same is disposed off accordingly. 12} At this stage, Mr.Chitnis, learned counsel appearing on behalf of the appellants prays that ad-interim order granted by this Court on 4th November 2011 may be continued for a period of four weeks so as to enable the appellant to challenge this order in the higher Court. The said order grants ad-interim order in terms of the prayer clause (a) of the Company Application. That order has been continued till date. However, Mr.Sakhardande and Mr.Jagtiani, both state that this order is based on the ad-interim order of the Company Law Board passed on 15th December 2008 and which was continued till the dismissal of the company petition by the impugned order. Once the dismissal is upheld, there is no reason to continue this ad-interim order, are the submissions 10 coapp-lod-48-11.doc of both sides and particularly when the complaint is that the smooth and efficient functioning and management of the affairs of the respondent No.8 is affected. 13} After hearing both sides on this issue and finding that the appellant cannot have any grievance in relation to the working and mismanagement of respondent No.8 as it being not a shareholder of the same, which finding of fact has been confirmed by me, then, there is no reason to continue the ad-interim order any further. The request in that behalf is rejected. 14} Appeal dismissed. No costs. (S.C.DHARMADHIKARI, J)