C.A.P.P. No.32 of 2007 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.A.P.P. No.32 of 2007 (O&M) Date of decision: 19.03.2009 2. C.M.A. No.184 of 2007 3. C.M.A. No.161 of 2008 In the matter of:- Raghbir Singh and Ors. ............Appellants Vs. M/s Sikri Multiplex Cinema Pvt. Ltd. and Ors. .............Respondents Present: Mr. A.K. Chopra, Sr. Advocate with Mr. Amit Sethi, Advocate and Ms. Roopa Pathania, Advocate. Mr. Amit Rawal, Advocate and Mr. S.P. Sharma, Advocate. CORAM: HON'BLE MR. JUSTICE K. KANNAN 1. Whether Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to the Reporters or not ? Yes 3. Whether the judgment should be reported in the Digest?Yes -.- K.KANNAN, J. I. Dismissal by CLB on non-maintainability:- 1. The appeal has been filed under Section 10-F of the Companies Act against the order of the Company Law Board passed in C.P. No.76 of 2005 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 C.A.P.P. No.32 of 2007 (O&M) -2- 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 10.05.2000 in relation to the 1st respondent company in Form No.2 dated 30.05.2000 with the ROC which had been changed by the 2nd respondent in a fresh Form No.2 dated 30.05.2000. 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 3rd respondent as Director as having been made on 20.05.2001 and also making reference to cessation of office of the 3rd petitioner on his alleged resignation on the basis of signatures of the 3rd petitioner, allegedly forged at the 2nd respondent's instance. The further complaints of the appellants were that the ROC 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 that further the 2nd respondent had syphoned 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 1st respondent-company having its registered office at Ludhiana had been incorporated on 10.01.2000 under the Companies Act with the object of acquiring land for the purpose of establishing a multiplex cinema theatre. The authorized 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 C.A.P.P. No.32 of 2007 (O&M) -3- shareholders were the 1st petitioner-Raghbir Singh and his two sons namely Paranjit Singh (third petitioner) and Kamaljit Singh (second respondent). The sons had subscribed equally 1000 equity shares of Rs.10/- each and as per the Articles of Association, the 3rd petitioner and the 2nd respondent had been appointed as the first directors of the company. The 2nd petitioner-Harjit Singh was another son of the 1st petitioner-Raghbir Singh but held no shares at its incorporation. IV. The 1 st 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 constituting 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 22.03.2005. 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 10.04.2004. The 2nd respondent had approached the High Court of Punjab and Haryana for anticipatory bail in the matter. The High Court, while passing the order on 02.08.2005 granted the anticipatory bail but observed that the disputed documents like the letter of resignation dated 31.05.2001 and a family settlement set up by the respondents C.A.P.P. No.32 of 2007 (O&M) -4- dated 16.09.2002 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 02.08.2005, Civil Suit No.662 of 2004 had been filed against respondents No.2 to 4 contending themselves to be shareholders of the company. The relief of injuction was sought for against respondents No.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 10.05.2000 to allot 8,30,000 equity shares at Rs.10/- each to all the petitioners and the 2nd respondent to inject more funds into the company. The father had been allotted 1,79,000 shares. Petitioners No.2 and 3 and 2nd 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 80000 shares. The pattern of holding was such that the 1st petitioner held 21.6% of the paid up capital, the 2nd petitioner held 21.6% of the paid up capital and the 3rd petitioner held 23.85% and together the petitioners held possession of 67.05% of the total shareholding. The petitioner Nos.1 to 3 had themselves the C.A.P.P. No.32 of 2007 (O&M) -5- major shareholders in M/s Sikri Exports (P) Ltd. and had a reckoning of the latter company's holding between petitioners and M/s Sikri Exports (P) Ltd held approximately 80% of the shares of the company. (ii) The core contentions in 1st suit 6. The complaint against the 2nd respondent was that he had a fabricated resignation letter of the 1st petitioner with the intention to grab the management of the company and had filed Form No.32 on 05.06.2002 recording the alleged fact of his resignation in a meeting purported to have been held on 31.05.2001. Both the meeting as well as the signature of the 1st petitioner had been denied by the petitioners. According to them, the 2nd respondent further manipulated records to show that his wife had been indicated as a director in a meeting held on 20.05.2001, 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 1st petitioner was still the director of the company and the petitioners No.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 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 C.A.P.P. No.32 of 2007 (O&M) -6- 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 as continuing 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 of the parties in suit from claiming any benefit under the alleged family settlement dated 16.09.2002. 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 suit and his wife was the 5th defendant in suit. (iv) The core issue in 2nd suit 8. A declaratory action regarding the family settlement became essential in view that the defence taken by the second defendant at all times prior to the institution of the suit to lend credence genuineness of the letter of resignation. C.A.P.P. No.32 of 2007 (O&M) -7- (v) Basis of family arrangement, a plea in defence to explain the resignation of father 9. According to second defendant, under the terms of the family arrangement dated 16.09.2002, 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 1st 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 utilized for setting up a multiplex. The respondent-company had been formed in the names of the 2nd respondent and the 3rd petitioner who were defendants No.1 and 4 in the above suit. (ii) The memorandum of family settlement dated 16.09.2002 surfaced for the first time in 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 3rd 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 C.A.P.P. No.32 of 2007 (O&M) -8- influence, misrepresentation, forgery and coercion. The allegation of the father was that the 2nd respondent had threatened to kill him and other members of the family through a contract killer on 27.03.2004, which was a subject of complaint under FIR No.54 dated 10.04.2004 at P.S. Sarabha Nagar, Ludhiana. When the 2nd respondent was making strenuous attempts for disposing of the multiplex cinema premises, the 3rd 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 2nd 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 2nd defendant had been that by virtue of the family settlement none of the plaintiffts had any right in the multiplex cinema theatre. (vii) Suit by father was to neutralize the strength of defence on the basis of family arrangement 11. The declaration had been sought to take away the sting out of the 2nd respondent's armoury that the documents itself was not genuine and that the 2nd 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 2nd respondent in the company petition that had been filed earlier complaining of oppression and mismanagement. Again, it could be noted that the 1st 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 the injunction against the defendants mentioned in the suit for taking any benefit under the family arrangement was to stave off C.A.P.P. No.32 of 2007 (O&M) -9- any claim by the 2nd 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 2nd respondent and his suits to manage the affairs of the multiplex. The reference to the family arrangement itself become relevant to consider how the parties had attempted to divide their assets as per the contentions of the 2nd respondent. VI. Cause for withdrawal of 1 st 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 1st petitioner should be accepted as true or rejected as brought about by forged instruments. The order of the High Court on 02.08.2005 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 2nd respondent. The 3rd petitioner Paranjit Singh believed C.A.P.P. No.32 of 2007 (O&M) -10- himself to be restored to the position as 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 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 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 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 month's period having expired, there was no cause of action for the petitioners to continue the petitions. The Company Law Boad examined the petition by making reference to filing of the fresh petition in C.P. No.76 of 2005 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 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 C.A.P.P. No.32 of 2007 (O&M) -11- 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 3rd respondent as a director and the exclusive control attempted to be taken by the 2nd 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. Company Law Board cannot be expected to adjudicate on matters where there are disputed questions of fact and there are civil suits which are 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 court had operated itself and revived the effect of either the resignation letter or the family settlement as wrongly observed by C.A.P.P. No.32 of 2007 (O&M) -12- 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 2nd company petition. The result in the suit will have a definite bearing on the entitlement or otherwise of the control assumed by the 2nd 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 No.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 parties 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 1.Caparo India Ltd (U.K.) (Co.A.(SB) No.24 of 2004, 2. Machino Plastics Ltd. (Co.A. C.A.P.P. No.32 of 2007 (O&M) -13- (SB) No.25 of 2004 Vs. 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 10-F 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 10-F of the Act. In Sangramsinh P. Gaekwad and others Vs. Shantadevi P. Gaekwad (dead) through LRs and others (2005) 11 SCC 314, 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 Company Ltd., U.K. Vs. Gordon Woodroffe Ltd. Chennai and others 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 question of title to shares in an appeal under Section 10-F of the Act. In Poonamchand Kothari Vs. Rajasthan Tube Manufacturing Co.Ltd. And others (1996) 87 Comp Cas 842 (Raj) where Rajasthan High Court had made a reference to a decision of the Privy Council in C.A.P.P. No.32 of 2007 (O&M) -14- Burland Vs. 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 powers and in fact has no jurisdiction to do so and also its actions are recognizable 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 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 the petitioners No.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 injuction 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 C.A.P.P. No.32 of 2007 (O&M) -15- 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. (K. KANNAN) JUDGE March 19, 2009 Pankaj*