1 IN THE HIGH COURT OF JUDICUATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPEAL NO.51 OF 2009 IN CLB COMPANY APPLICATION NO.102 OF 2007 IN CLB COMPANY PETITION NO.55 OF 2008 1. Ravi Kiran Agarwal & Anr. ) 301, The Angle 2, Krishna Sanghi Path ) Mumbai 400 007 ) 2. Mr. Pujit Aggarwal ) 301, The Angle 2, Krishna Sanghi Path ) Mumbai 400 007 )..Appellants Vs. 1. Moolchand Shah ) S/o Mr. (Late) Sampat Raj 16 CD, ) Abhilasha Buildng, 46, August Kranti ) Marg, Mumbai 400 036 ) 2. Chunnilal Shah ) S/o. Mr. (Late) Sampat Raj, ) 15/24, Navjivan Society, Lamington Road) Mumbai 400 008 ) 3. Raksha Shah ) D/o Moolchand Shah 16 CD, ) Abhilasha Buildng, 46, August Kranti ) Marg, Mumbai 400 036 ) 4. Bharat Shah ) S/o Moolchand Shah 16 CD, ) 2 Abhilasha Buildng, 46, August Kranti ) Marg, Mumbai 400 036 ) 5. Chetan Consultants Pvt Ltd. a Company) having its registered office at ) Abhilasha Buildng, 46, August Kranti ) Marg, Mumbai 400 036 ) 6. Mr. Mafatlal S. Bafna ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 ) 7. Mr. Ramesh Bhimani ) 1301/B, Vaishali Apartments, Luv Lane ) Byculla, Mumbai 400 010 ) 8. Rajendra Bafna ) Loyalka Apartments, 2nd floor, flat No.22 ) Siri Road, Chowpatty, Bandstand, ) Mumbai 400 006 ) 9. Vidya Pravin Balota ) 78/80, Pipewala Building, 1st Floor, ) Room No.11, Gulalwadi, Kika Street, ) Mumbai 400 004 ) 10. Kaliash Bafna ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 ) 11. Rekha Vinod Seth ) 133-B, Heera Panna Building, Haji Ali ) Bhulabhai Desai Road, Mumbai-26 ) 12. Namita Bafna ) 4/13, Navjivan Society Lamington Road ) 3 Mumbai 400 008 ) 13. Kamla Bafna ) Legal Heir of Renuka Bafna- deceased ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 ) 14. Kamla Bafna ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 ) 15. Kamla Bafna ) Legal Heir of Mrs. Bhagudevi Bafna ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 ) 16. Chetan Bafna ) 4/13, Navjivan Society Lamington Road ) Mumbai 400 008 )..Respondents Mr. Atul Rajyadhyaksha, Sr. Advocate with Mr. Pankaj Vernekar and Ms. Kirtida Chandarana i/b Mehernosh Humranwala for the Apellants Mr. Aspi Chinoy, Sr. Advocate with Mr. Mohit Arora, Ms. Pinky Patel and Mr. Mahesh Shukla i/b Desai & Diwanji for Respondent No.5 Mr. Janak Dwarakadas, Sr. Advocate with Mr. Sharan Jagtiani i/b M/s. Desai & Diwanji for Respondent Nos. 6 to 16 ORAM: DR. D.Y. CHANDRACHUD, J. DATE: 12th November , 2009 4 ORAL JUDGMENT : 1. Admit, 2. With the consent of Counsel, the Appeal is taken up for hearing and final disposal. It has been stated before the Court that, Respondent Nos.1 to 4 have been duly served. An Affidavit of service shall be filed within a period of one week from today. 3. The Appeal seeks to impugn the correctness of an order passed by the Company Law Board on 10th December 2008, by which, an Application filed by the Appellants for impleadment in proceedings under Sections 397 and 398 of the Companies Act 1956 was dismissed. 4. The Fifth Respondent was incorporated on 9th December 1987. On 18th April 1995, a Memorandum of Understanding (MOU) was entered into between the Appellants and Respondent Nos. 6 to 16, who are 5 shareholders of the Fifth Respondent. Under the MOU, the Appellants agreed to purchase 1200 equity shares of the Fifth Respondent held by Respondent Nos. 6 to 16, representing 60% of the equity share capital of the Company for a consideration of Rs.48 crores. Each share was valued of Rs.4 lacs. Under the MOU, the Appellants paid an amount of Rs.5.13 crores to Respondent Nos. 6 to 16 towards the first installment of the purchase price. According to the Appellants, the original share certificates alongwith the share transfer forms were handed over to them and 525 shares were transferred in the name of the Appellants. 5. Respondent Nos. 1 to 4 instituted a Company Petition under Sections 397 and 398 of the Companies Act 1956 to which the Fifth Respondent and Respondent Nos. 6 to 16, have been impleaded as parties. The Appellants filed an Application on 8th March 2007, for being impleaded as 6 Respondents to the Petition. The Application for impleadment records that the Appellants are majority shareholders of the Company and that in pursuance of the MOU entered into by them with Respondent Nos.6 to 16, an amount of Rs.5.13 crores has been paid. The Appellants claim to have a right, title and interest in 1200 equity shares of the Company representing 60% of the equity capital and in the property owned by the Company, pursuant to and in terms of the MOU. It was on this basis that an order of impleadment was sought. 6. The Company Law Board held by its order dated 13th April 2009 that the Appellants were not entitled to impleadment under Section 405 of the Companies Act. According to the Company Law Board, the expression ‘any other person’ under Section 405 must be read ejusdem generis with the expression “ any person” in Section 402(e) of the Companies Act, 1956. 7 7. Counsel appearing on behalf of the Appellants urged that the Company Law Board was fundamentally in error in circumscribing the power of the Board to implead “any person” under Section 405 to only those categories of persons stipulated under Section 402 (e) of the Act. It was urged that the Company Law Board, misapplied the principle of ejusdem generis when, as a matter of first principle, it cannot be attracted. 8. Section 397 provides that 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, is entitled to apply to the Board. If the Company Law Board finds substance in the allegations and comes to the conclusion that to wind up a company would unfairly prejudice the members, it is empowered to make such orders as it thinks fit with a 8 view to bringing to an end the matters complained of. Section 398 entitles a member of a Company who complains of the affairs being conducted in a manner prejudicial to public interest or to the interest of the Company to apply for an order. The Company Law Board is empowered to pass such order as it thinks fit with a view to bringing to an end or preventing the matters complained of or apprehended. Under clause (b) of sub section (1) one of the grounds on which, the Board can be moved is that a material change has taken place in the management or control of the Company, whether by an alteration in its Board of Directors, Manager or in the ownership of the Company’s shares, or if it has no share capital, in its membership and that by reason of such change, there should be a likelihood 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. These provisions elucidate the basis and 9 foundation of a Petition filed by a member of a Company complaining of mismanagement or oppression as the case may be. Wide powers are conferred upon the Company Law Board to deal with the situation. The Company Law Board is entitled to make such orders as it thinks fit in order to bring to an end the matters complained of under section 397(1) or under sub section 2 of section 398, to prevent the matter complained of or apprehended. 9. Section 402 of the Act, provides as follows : “Without prejudice to the generality of the power of the Tribunal under section 397 or 398, any order under either section may provide for - (a) the regulation of the conduct of the company’s affairs in future; (b) the purchase of the shares or interest of any members of the company by other members thereof or by the company; 10 (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely:- (i) the managing director, (ii) any other director, (iii) the Manager, (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned. 11 (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. (g) any other matter for which in the opinion of the Tribunal it is just and equitable that provision should be made.” 10. Section 402 is without prejudice to the generality of the powers of the Board under sections 397 or 398. Section 402 describes the nature of the reliefs that can be granted in a petition under Sections 397 or 398. The illustrations which are contained in clauses (a) to (g) of section 402, are, but examples of the nature of the reliefs that can be granted in a Petition under Sections 397 and 398. Clauses 12 (a) to (g) of Section 402 are not exhaustive of the reliefs that can be granted by the Board but are only illustrative of the wide powers that are granted upon the Board with a view to ameliorating a situation of oppression and mismanagement. 11. Clause (d) of section 402 interalia provides for, the termination or modification of an Agreement between the Company and one of the following persons namely, the Managing Director, Director or Manager. Clause (e) similarly provides for the termination or modification of an Agreement between the Company and any person not referred to in clause (d). The proviso to clause (e) however, stipulates that such relief shall not be granted except after due notice to the party which will be affected. 12. Section 405 then provides as follows: 13 “If the managing director or any other director or the Manager, of a company, or any other person, who has not been impleaded as a respondent to any application under Sections 397 or 398 applied to be added as a respondent thereto, the Tribunal shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly. 13. Section 405 of the Act, deals with the power of the Company Law Board to implead additional Respondents to an application under Sections 397 or 398. Under section 405, if the Managing Director or any Director or a Manager of a company or any other person, has not been impleaded and such person applies to be added as a Respondent, the Company Law Board is empowered to pass an order added him as Respondent, if sufficient cause for doing so is established to the satisfaction of the Board. The Company Law Board in the present case inferred that 14 the power to add or implead a party as a Respondent to an Application under Sections 397 or 398 is to add only those parties who are referred to in clause (d) and (e) of section 402. The Board applied the interpretative tool of ejusdem generis. The principle of ejusdem generis would have no application, where the Court is required to construe, two separate statutory provisions which operate in different fields. Section 402 illustrates the powers which can be exercised by the Company Law Board on an Application under Sections 397 and 398. Section 402 is not an exhaustive catalogue of the powers of the Board. Section 405 deals with the addition of parties. There is no reason on justification for confining the words “any other person” under Section 405 to those categories of persons who are elucidated in clause (e) of the Section 402. As a matter of first principle, it would be impermissible to do so. On an Application under Sections 397 and 398 the Board has, as already noted earlier, wide powers to pass orders as it 15 thinks fit to bring to an end the matters of complained of and, under section 398(2), to even prevent the matters complained of or apprehended. The exercise of those wide powers, may in a given situation affect the interest of third parties. To hold that a third party liable to be affected by an order under section 397 and 398, would not be entitled to be heard on the ground that, it does not fall within the description of ‘a person’ in clause (e) of section 402 who has an agreement with the company would be fundamentally violative of the basic postulate of natural justice. Nothing, except a clear statutory provision to that effect should lead the court to adopt such a construction. If Parliament intended to contemplate the addition of only those persons who had Agreements with the Company, there was nothing to prevent the addition of those words. The words “any other person” in Section 405 are not restricted by a stipulation that such person must have an Agreement with the Company. Hence, the words 16 “any other person” must be given their plain and natural meaning so as to include any person whose interest would be affected by an order that is sought in the application under section 397 and 398. The Board misapplied the principle of ejusdem generis. The principle of ejusdem generis is that when particular words pertaining to a class category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. The rule applies when i) The Statute contends an enumeration of specific words; ii) The subject of enumeration constitutes a class or category; iii) The class or category is not exhausted by the enumeration; iv) General terms follow upon the enumeration; and v) there is no indication of a different legislative intent. [G.P.Singh on the Principles of Statue Interpretation, 9th Edition page 420.] This principle can have no application in construing word “any other person” in 17 section 405 which operates in a field untrammeled by section 402. 14. The Company Law Board has in the present case diluted its finding that the expression “any other person” under section 405 must be construed with reference to section 402(e) by holding that occasions may arise to implead other persons on the facts of each case. The Board noted that shareholders who are not parties may apply on the apprehension that, any relief granted would affect their interest or employees or creditors may also apply on the same ground. The Board held that notwithstanding the ‘strict’ provisions of section 405, it may have to use it discretion in deciding on the basis of the facts of each case, where the application for impleadment has shown sufficient cause to be impleaded as a Respondent. The residual discretion which the Board assumes to it, would itself indicate that the provisions of Section 405 cannot be 18 construed in the manner in which they were construed in the earlier part of the judgment. The interpretation that has been placed by the Board on the provisions of section 405 is erroneous and has to be disapproved. The power of the Board under section 405 to implead any other person, is a wide power which is conditioned, only by the satisfaction of the Board, that there is sufficient cause for doing so. Where the relief that is sought in the application under Sections 397 or 398 is liable to affect the interest of a third party, an order of impleadment would be warranted. The impleadment of the party may be considered necessary, or in the facts of a case, proper in order to enable the Board to render a full, final and complete adjudication of the dispute. By its very nature, the power cannot be restricted to predefined categories and must be exercised in order to advance the underlying purpose and object of the provisions of Sections 397 and 398. 19 15. After laying down the interpretation of section 405, the Board has proceeded to deal with the Application for impleadment on facts. In the present case, it has been stated before the Court that an Arbitration proceeding has been initiated by the Appellants for specific performance of the MOU dated 18th April 1995. The Arbitral proceeding is pending. The Board was of the view that the entitlement of the Appellants to the shares covered by the MOU is yet to be established and consequently, the Appellants cannot seek any benefits arising out of the shares, until that entitlement is adjudicated upon. The Board was of the view that no dispute has been raised in the Petition relating to any shareholding. 16. On behalf of the Appellants, it has been submitted that the view which has found favour with the Board overlooks the reliefs that have been sought in the Petition under 20 Sections 397 and 398. The grievance of the original Petitioners in the Petition under Sections 397 and 398 is that the Company has failed to file its balance sheet and returns after April 1990 and the Petitioners have not received any notice for a Board meeting or of the Annual General Meeting. Among the reliefs that have been sought in the Petition, apart from a direction for holding a meeting of the Board of Directors, finalization of the accounts and the holding of the Annual General Meeting, is a restraint on the alienation of the immovable properties of the company. Prayer (e) of the Petition reads as follows : “(e) The Respondent be directed to maintain the status quo qua the shareholding pattern of the Respondent Company as it stood on April 1, 1990 as also the composition of the Board as it stood on April 1, 1990.” 21 17. According to the Appellants the relief that has been sought in prayer (e) for the maintenance of the status-quo qua the shareholding Pattern of the Company, as it stood on 1st April 1990 and the composition of the Board as on that date would directly impinge upon the rights which the Appellants claim for the specific performance of the MOU dated 18th April 2005. According to the Appellants, Respondents No.6 to 16 hold 1220 shares, whereas Respondent Nos. 1 to 4 hold 650 shares. Out of the 1220 shares held by Respondent Nos. 6 to 16, the MOU requires the transfer of 1200 shares to the Appellants. In pursuance of the MOU, the Appellants claim to have paid an amount of Rs.5.13 crores. According to the Appellants, the grant of reliefs in terms of prayer (e) of the Petition for the maintenance of the status-quo qua the shareholding pattern would effect the entitlement of the Appellants to seek specific performance of the MOU, in as much as, the performance of the MOU is liable to affect the 22 shareholding pattern. On the other hand, it was submitted on behalf of Respondent Nos.6 to 16 that the MOU shall not alter shareholding pattern per-se. The Company Law Board noted in paragraph 13 of its judgment, the submission that some of the prayers in the Petition, if granted, would affect the interest of the Appellants . The Board however, has not specifically considered prayer (e). 18. The Appeal before this Court arises under section 10F of the Companies Act 1956 and is confined to a question of law. For the reasons already indicated, this court has come to the conclusion that the interpretation that has been by the Board on the provisions of section 405 is erroneous. Having decided the question of law relating to the interpretation of the section 405, it would be, but appropriate for this Court to remit the proceedings back to the Company Law Board for a decision afresh, on the application for impleadment. The Board is a primary fact 23 finding authority and should be left to determine the question of impleadment in the light of the interpretation that has been placed by this Court on the provisions of section 405. Before concluding, it would be necessary to observe that in adverting to the rival submissions, which have been urged on behalf of the parties in regard to the effect of the MOU, this Court has had no occasion to render any finding of fact on the effect of the MOU or on the entitlement of the Appellants thereunder. In order to facilitate a fresh determination, the impugned order of the Company Law Board dated 13th April 2009 is set aside. 19. The proceedings are remitted back to the Company Law Board, which shall pass an order upon remand after hearing the parties. All the rights and contentions of the parties are kept open. 24 20. The Appeal is allowed in these terms. There shall be no order as to costs. (Dr. D.Y.Chandrachud,J)