IN THE HIGH COURT OF JUDICATURE AT MADRAS. DATED: 21/05/2002 CORAM THE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIAN C.M.A.No.923 of 2000 and C.M.A.No.924 of 2000 C.M.A.No.923 of 2000 1. M/s.Micromeritics Engineers Pvt. Ltd. 2. S.Sounder 3. Mrs.Vasantha Kumari 4. S.Siddarthan 5. Velayutham ..... Appellants. -Vs- S.Munusamy ..... Respondent C.M.A.No.924 of 2000: 1.Microparticle Engineers Private Ltd. 2.S.Soundar 3.Mrs.Vasantha Kumari 4.Siddarthan. 5.R.Velayutham. ... Appellants. vs. Mrs.Senthamarai Munusamy ... Respondent The C.M.As. are filed against the order of the Company Law Board, Principal Bench, Chennai dated 21.5.2000 in C.P.Nos.68 and 69 of 1998 . In both C.M.As. !For appellant :: Mr.T.V.Ramanujam, Sr.counsel for Mr.W.C.Sridhar. ^For respondents :: Mr.R.Murari :JUDGMENT The appeals are filed against the order of the Company Law Board, Principal Bench, sitting at Chennai dated 21.5.2000 made in C.P.Nos.68 and 69 of 1998. The respondents in C.P.No.6 9 of 1998 are the appellants in C.M.A. No.923 of 2000 and the respondents in C.P.No.68 of 1998 are the appellants in C.M.A. No.924 of 2000. The petitioner in C.P.No.69 of 1998 is the respondent in C.M.A.No.923 of 2000 and the petitioner in C.P.No.68 of 1998 is the respondent in C.M.A.No.924 of 2000. 2. The appeals deal with two companies, viz., M/s. Micromeritics Engineers Pvt. Ltd. and M/s.Microparticle Engineers Pvt. Ltd. As far as Microparticle Engineers Pvt. Ltd. is concerned, it was incorporated on 13.1.1992 under the Companies Act, 1956 (hereinafter referred to as `the Act'). The respondent in C.M.A.No.924 of 2000, by name, Senthamarai Munusamy along with S.Sounder, the second appellant and one Nalini Chandrasekar were holding shares in the said company and all of them were holding 99 0 shares each. Later on, Nalini Chandrasekar transferred her shares equally to the second appellant Sounder and the respondent Senthamarai Munusamy with the result the second appellant Sounder was holding 1485 shares out of 2970 shares initially allotted by M/s.Microparticle Engineers Pvt.Ltd. 3. The respondent Senthamarai Munusamy approached the Company Law Board stating that on perusal of the records of the Registrar of Companies, she found that further shares were alleged to have been allotted on 16.4.1997 to the close relatives of the second appellant, Sounder. According to the respondent Senthamarai Munusamy, the allotment was ex facie illegal and invalid, and hence, she approached the Company Law Board for oppression of her rights as a member of the company. 4. Before considering the issues raised in the appeal, it is relevant to mention here that M/s. Microparticle Engineers Pvt. Ltd., as already observed, was incorporated on 13.1 .1992 under the provisions of the Act and having its registered office at 298, 4th Floor, Khaleel Shiraji Estate, Fountain Plaza, Pantheon Road, Egmore, Chennai-8 and the authorised share capital of the company is Rs.5,00,000/- consisting of 5,000 equity shares of Rs.100/- each and the paid up capital of the company is Rs.3 lakhs. The main objects of the company are to manufacture, produce, treat, process, manipulate, trade, etc. Its ancillary objects are set out in the memorandum of association. According to the respondent Senthamarai Munusamy, she was the promoter and a Director of the company, M/s.Microparticle Engineers Pvt. Ltd. and subscribed her name in the memorandum of association as promoter. I have already set out the shares held by the second appellant, Sounder as well as the respondent Senthamarai Munusamy along with one Nalini Chandrasekar. 5. In 1985, the husband of the respondent herein, by name, Munusamy, who is the respondent in the other appeal in C.M.A.No.924 of 2000, along with one Chandrasekar and Sounder, second appellant herein, formed a partnership firm in the name and style, M/s.Micromeritics Engineers Pvt. Ltd. and its nature of business, inter alia, was the manufacture and supply of machines for mixing, dispersion and size reduction and the company was catering mainly to the requirement of printing ink, paint and ceramic industries. The business of the firm, M/s.Micromeritics Engineers Pvt. Ltd. expanded resulting in the acquisition of assets and in 1992, M/s.Micromeritics Engineers Pvt. Ltd. the first appellant was incorporated to take over the business o f the firm, M/s. Micromeritics Engineers Pvt.Ltd. It is relevant to mention here that M/s.Micromeritics Engineers Pvt. Ltd. took over the business of the associate firm, M/s.Micromeritics Engineers Pvt. Ltd. 6. The case of the respondents in both the matters before the Company Law Board was that both the companies, viz., M/s. Micromeritics Engineers Pvt. Ltd. and M/s.Microparticle Engineers Pvt. Ltd. are really partnership business firms and the management, day-to-day administration and effective continuance of the companies depended upon the mutual trust and confidence which each director and shareholder had upon the other. The respondents Senthamarai Munusamy and Munusamy approached the Company Law Board on several allegations and it is not necessary to set out the same and the main reason which the Company Law Board weighed for granting the relief sought for was regarding the allotment of shares in favour of appellants 3 to 5, by name, Vasantha Kumari, S.Siddarthan and R.Velayutham and induction of appellants 4 and 5 as Directors on 1.5.1998 and the removal of the respondents Senthamarai Munusamy and Munusamy as Directors on 2.5.1 998 which, according to the Company Law Board, constituted a chain of acts of oppression against the respondents. The Company Law Board took the view that in the Board Meetings held on 18.4.1998 and 25 .4.1998 to consider the induction of additional Directors and to accept the resignation of the respondents from directorship of the companies, there was no quorum and hence the decision to convene Extraordinary General Meeting on 1.5.1998 was invalid. The Company Law Board took the view that the decision taken in the Extraordinary General Meeting was invalid and the quorum was maintained in the Extraordinary General Meeting only as a result of allotment of shares to appellants 3 to 5. The Company Law Board held that the allotment of shares to ap pellants 3 to 5 was invalid and the decision taken to accept the resignation of the respondents in the Board Meeting held on 2.5.1998 was also invalid as there was no quorum for the meeting. As far as the letter of resignation of one of the respondents is concerned, it was not valid and the Company Law Board took the view that the allotment of shares in favour of appellants 3 to 5 was invalid and appellants 4 and 5 could not hold any share in the companies. As far as the Board Meeting held on 14.4.1997 is concerned, the Company Law Board took the view that the Board did not find that any notice of the Meeting was sent to the respondent and in the absence of proof of notice, the Company Law Board was inclined to hold that even assuming that there was a Meeting on 14.4.1997, there might not have been quorum to transact any business and hence, the business transacted without quorum was invalid. As far as the allotment of shares in the Board Meeting held on 14.4.1997 is concerned, the Company Law Board found that there are contradictions as the minutes indicated that the company had received application for allotment of shares along with the amount due, whereas in the counter statement filed before the Company Law Board it has been stated that appellants 3 to 5 were having credits in the books of the companies which were set off against the allotment of shares. The Company Law Board also found that there was no document produced by the appellants in respect of receipt of allotment money by the companies and there was no evidence regarding additional funds. The Company Law Board found that both the companies did not act bona fide in the allotment of shares in favour of appellants 3 to 5. The Company Law Board therefore came to the conclusion that appellants 3 to 5 are not holding any qualifying share in the companies and they cannot be regarded as additional Directors. The Company Law Board also noticed that in the minutes, the Board has recorded its appreciation of the services rendered by the respondent Senthamarai Munusamy during her tenure as a Director of the company, but in the counter a contra-statement has been made that the respondent Senthamarai Munusamy never entered the company premises and nor was she involved in the company affairs. In this view of the matter, the Company Law Board felt that it is not necessary to go into the other submissions made. The Company Law Board held that the alleged act of financial mismanagement was not substantiated by the respondents herein. The Company Law Board has also not accepted the plea of appellants 2 to 5 that the Company Law Board should wait till the outcome of the civil suit instituted by the parties. The Company Law Board ultimately held that the allotment of shares on 14.4.1997 in favour of appellants 3 to 5 are invalid and appellants 4 and 5 cannot be regarded as additional Directors and the removal of the respondents from the directorship on 2.5.1998 was invalid and these would constitute a chain of acts of oppression against the respondents herein. The Company Law Board held that by the act of the second appellant the respondents have been reduced to minority shareholders and excluded from the management and control of the companies and only the relatives of the second appellant were benefitted by the allotment of shares. In this view of the matter, the Company Law Board has passed the following order: "(a) setting aside the allotment of shares impugned in these petitions in favour of respondents 3 to 5 and rectify the register of members of the Companies; (b) setting aside inclusion of the respondents 4 and 5 as directors of the Companies; (c) setting aside the resolutions dated 2.5.98 removing the petitioners from the office of director of the Companies; and (d) reconstituting the Board of Directors of the Companies with immediate effect with the petitioners and the 2nd respondent as directors of the Companies." The Board ultimately held that appropriate order that would be passed in the case would be that the second appellant herein should take one company and the respondents should take another company and run the respective companies independently for which a lot would be taken in the presence of the Bench of the Company Law Board and in this view of the matter, the Company Law Board disposed of both the Company petitions and it is against the order, the present C.M.As. have been filed. 7. By consent of both the parties, the C.M.As. were heard together. Mr.T.V.Ramanujam, learned senior counsel appearing for the appellants in both the appeals submitted that there is no material to show that the affairs of the company were conducted in the manner prejudicial to the interest of the public or in any manner oppressive to the interest of any member of the company. According to him, section 397 of the Companies Act is not attracted as nothing has been done in the manner prejudicial to the public interest or in the manner oppressive to the interest of any member of the company. He has also submitted that section 398 is also not attracted by reason of the alleged change in the constitution of the Board and there is nothing to show that the affairs of the company were conducted in the manner prejudicial to the interest of the members or public. Learned senior counsel submitted that the allotment of shares is valid. He submitted that the resolutions dated 24.2.1997 and 20.3.1997 were not challenged though copies of the resolutions were produced before the Company Law Board and a reference has been made in the written arguments. Learned senior counsel submitted that the provisions of section 195 of the Companies Act are attracted and a presumption has to be drawn in favour of the validity of the resolutions. He therefore submitted that there was absolutely no material to show the burden was discharged, and hence the presumption would operate. He also submitted that the non-production of the original minutes is immaterial as there was no notice issued for the production of the original minutes book. His main submission was that the respondent has not challenged the resolutions dated 24.2.1997 and 20.3.1997. Learned senior counsel submitted that the delay in filing the resolutions with the Registrar of Companies has no effect at all and the copies of the resolutions have been filed in May, 1998 and the company petition has been filed in November, 1998 after having made inspection of the records available with the Registrar of Companies, but the respondents have not challenged the resolutions dated 24.2.1997 and 2 0.3.1997. Learned senior counsel submitted that the resolution dated 14.4.1997 was passed bona fide and the presumption under section 195 would operate. As regards the payment of share moneys, even assuming that there are certain discrepancies that would not make the resolutions invalid. According to the learned senior counsel, the mere alleged discrepancies in the resolution would not make the resolutions invalid attracting the provisions of sections 394 and 395 of the Companies Act. His submission is that the allotment of shares in favour of respondents 3 to 5 was bona fide and within the jurisdiction of the Directors and it cannot be regarded as an act of oppression. As regards the balancesheet, learned senior counsel submitted that non-signing by one of the Directors is not a matter of oppression, but however, it is an isolated act and not an act of oppression. 8. Learned senior counsel referred to section 53 of the Companies Act and submitted that as per the requirement of section 53 of the Act, notice was sent by certificate of posting. He submitted that Munusamy has been attending the Office and he referred to various documents to show that he has signed the declaration and attended the Office. He therefore submitted that one of the Directors was present and when he failed to cooperate and attend the meeting, he cannot take advantage of his own wrong. As far as the convening of the Extraordinary General Meeting is concerned, he submitted that when one of the Directors was not cooperating with the remaining Director, on the basis of the principles laid down under section 169 of the Companies Act, the second appellant has convened the Extraordinary General Meeting. Learned senior counsel submitted that the petitioner in each of the company cases has been given notice and they have not sent any reply raising objections. He submitted that the act of the second appellant did not amount to oppression. Mr.T.V.Ramanujam, learned senior counsel submitted that the Company Law Board has not considered the material evidence in this case and minutes book was relied upon for certain other purposes and it has chosen to ignore the minutes book altogether. He submitted that the explanation of Munusamy was accepted and the findings of the Company Law Board are contrary to law and without any evidence. Learned senior counsel submitted that the relief granted was without jurisdiction as there are two different companies and it is not open to the Company Law Board to allot to one group one company and separate orders should have been passed regarding the relief. Learned senior counsel submitted that the Company Law Board was wrong in setting aside the allotment of shares and no grounds have been made to interfere under sections 397 and 398 of the Companies Act. Learned senior counsel submitted that the civil suit is pending and the Company Law Board should have awaited the outcome of the civil court. 9. Mr.Murari, learned counsel for the respondent, on the other hand, submitted that no question of law is involved. His main submission was that the Company Law Board has considered the material evidence and on the basis of appreciation of evidence, the finding has been arrived at and therefore no question of law is involved in this matter. Learned counsel submitted that presumption under section 195 of the Companies Act cannot be availed of as original minutes book was not produced and the minutes book produced is no t the one which was maintained during the regular course of business. Learned counsel submitted that the provisions of sections 397 and 398 of the Act are fully attracted on the facts of the case as there was continuous course of action of conduct to oppress the respondents and therefore the provisions of sections 397 and 398 are fully attracted. He submitted that the respondents have trusted the second appellant and permitted him to operate the company's bank accounts in the interest of the company but the moneys were diverted for other purposes. He referred to the resolutions passed, the date of filing of resolutions with the Company Law Board and the notice and reply by the counsel, and submitted that only from the reply, the respondent came to know that there was allotment of shares illegally and only from the reply it was found that the allotment of shares was made by resolution dated 16.4.1997 to the kith and kin of the second appellant. Leaned counsel submitted that no certificate of posting was produced in respect of meeting held on 14.4.1997 and it was found as a fact that notice was not given to the respondent. He also referred to the terms of the resolutions and submitted that the resolution ex facie clearly shows that no meeting was held and the return of the allotment was also not filed within 3 0 days from the date of allotment. As far as the resolutions dated 20 .3.1997 and 24.2.1997 are concerned, the appellants have not referred to the resolutions dated 20.3.1997 and 24.2.1997 in the counter affidavit and in the counter filed before the Company Law Board they referred to the resolution dated 14.4.1997 and since no reliance was placed on the resolutions dated 20.3.1997 and 24.2.1997, the question of challenging the same did not arise. He also submitted that the copies were produced before the Company Law Board and it does not mean that the respondent has to challenge each and every one of the resolutions. His submission was that when the presumption under section 195 of the Act is not available, it is not necessary that evidence should be adduced as the appellants' documents clearly establish that the minutes books were fabricated. As far as the meeting held on 18.4.199 8 is concerned, no notice was sent and in the absence of any evidence for the despatch of the letter, learned counsel submitted that the Company Law Board held that no notice was sent. Learned counsel further submitted that even if the notice was sent, it is not possible to hold the meeting with a single Director and it is not open to the Single Director to convene the Extraordinary General Meeting on 1.5.1 998 for the purpose of introducing additional directors and for accepting the alleged resignation of the respondents. Learned counsel submitted that under the regulation 75 of the Table-A of the Schedule I to the Companies Act there was no quorum and the regulation also does not apply. As far as section 169 is concerned, it deals with general body meeting and it is not relevant for the purpose of the case. Since the respondent has not agreed that the meeting could not be held on 1.5.1998, the appointment of additional directors and the special resolutions passed on 1.5.1998 are all void. Learned counsel submitted that the facts clearly establish that the actions taken by the second appellant are without any basis and the only intention was to take over the control of the company. Learned counsel submitted that the respondents have not submitted the resignation and the Company Law Board has accepted as a fact that there was no resignation at all. Learned counsel submitted that the passing of resolution accepting the alleged resignation clearly shows that the second appellant has adopted the means to exclude the respondents from the company which would constitute oppression of the management. As far as the relief granted by the Company Law Board is concerned, the Company Law Board has very wide power and in exercise of the power the Company Law Board directed one party to sell the shares of one company to the other party and when the company Law Board found that there are two companies, it directed the appellants to take one company and directed the respondent to take another company. As far as the pendency of the civil suit is concerned, learned counsel submitted that the respondents were aware of the civil suit only after the filing of the petition before the Company Law Board and the petition was filed before the Company Law Board only in 1998 and only after the filing of the petition, the respondent came to know of the institution of the civil suit. Learned counsel submitted that the Company Law Board has jurisdiction under sections 397 and 398 of the Act and the pendency of the suit is not a bar for the Company Law Board to consider the matter. Learned counsel submitted that the second appellant has used the dubious method to exclude the respondents from the company to put them in financial loss and various acts of the second appellant clearly show that the second appellant have indulged in the act of oppression and mismanagement of the company and the Company Law Board has rightly come to the conclusion that the petition is liable to be ordered and it has done so. 10. I have carefully considered the submissions of the learned counsel for the parties. It is necessary to set out here the jurisdiction of this Court in appeal under section 10F of the Act. This Court in an appeal under Section 10F filed against the order of the Company Law Board is empowered to decide any question of law arising out of the order of the Company Law Board and the terms of the section clearly show that on the question of fact, this Court is not entitled to reappraise the evidence let in before the Company Law Board. The Delhi High Court in MOHD. JAFAR v. NAHAR INDUSTRIAL ENTERPRISES LTD. (19 97) 4 COMP.LJ 201), following the decision of the Supreme Court in the case of C.I.T. v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 5 89), held that an appeal lies before the High Court from out of the decision of the Company Law Board on any question of law arising out of the order passed by the Company Law Board and when a question of law was neither raised before the Company Law Board, nor considered by it, it would not be a question arising out of its order notwithstanding that it might arise on the findings given by it. This Court in MALLESWARA FINANCE & INVESTMENTS CO. v. C.L.B. (82 Comp. Cases 836) has held that an appeal under section 10F before this Court can be entertained on a question of law that arises out of that order and on the question of fact, the appeal does not lie. This Court also held that the question whether the increase in share capital is proper or not is a pure question of fact and no appeal is maintainable against the decision arising out of the question. Therefore it is clear that the findings rendered by the Company Law Board on the increase in share capital and the allotment of shares to various relatives of the appellant-2 and inclusion of appellants 4 and 5 as directors of the company and removing the respondents from the office of the Directors of the company and reconstitution of the company's Board are all questions of fact as the findings have been rendered on materials on record and they are supported by evidence. Though the appeal is liable to be rejected on the very short ground, however, considering the elaborate arguments advanced by Mr.T.V.Ramanujam, learned senior counsel for the appellants, this Court is inclined to go into the merits of the submissions. 11. As far as