1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPEAL NO.27 OF 2007 IN COMPANY APPLICATION NO.320 OF 2007 IN COMPANY PETITION NO.55 OF 2007 E Ventures Capital Pte.Ltd. ..Appellant. V/s. Ministry of Corporate Affairs & Anr. ..Respondents. WITH COMPANY APPEAL NO.28 OF 2007 IN COMPANY APPLICATION NO.319 OF 2007 IN COMPANY PETITION NO.55 OF 2007 Vivek Vaishnav & Ors. ..Appellants. V/s. Ministry of Corporate Affairs & Anr. ..Respondents WITH COMPANY APPLICATION NO.1063 OF 2007 AND COMPANY APPLICATION NO.1213 OF 2007 IN COMPANY APPEAL NO.27 OF 2007 IN COMPANY APPLICATION NO.320 OF 2007 IN COMPANY PETITION NO.55 OF 2007 E Ventures Capital Pte.Ltd. ..Appellant. V/s. Ministry of Corporate Affairs & Anr. ..Respondents WITH 2 COMPANY APPLICATION NO.1064 OF 2007 AND COMPANY APPLICATION NO.1264 OF 2007 IN COMPANY APPEAL NO.28 OF 2007 IN COMPANY APPLICATION NO.319 OF 2007 IN COMPANY PETITION NO.55 OF 2007 Vivek Vaishnav & Ors. ..Appellants. V/s. Ministry of Corporate Affairs & Anr. ..Respondents WITH COMPANY APPEAL NO.1 OF 2008 WITH COMPANY APPLICATION NO.5 OF 2008 IN COMPANY APPLICATIN NO.479 OF 2007 IN COMPANY APPLICATION NO.389 OF 2007 IN COMPANY PETITION NO.55 OF 2007 Vivek Vaishnav & Ors. ..Appellants. V/s. Ministry of Corporate Affairs & Anr. ..Respondents WITH COMPANY APPEAL NO.2 OF 2008 WITH COMPANY APPLICATION NO.4 OF 2008 IN COMPANY APPLICATION NO.479 OF 2007 IN COMPANY APPLICATION NO.389 OF 2007 IN COMPANY PETITION NO.55 OF 2007 E Ventures Capital Pte.Ltd. ..Appellant. V/s. Ministry of Corporate Affairs & Anr. ..Respondents 3 Mr.R.A.Dada, Sr.Counsel a/w. Ms.M.R.Dada, Mrs. Parvati Kaushik and J.P.Kapadia i/b. Little & Co. for appellant. Mr.R.B.Raghuvanshi A.S.G. a/w M.S.Bhardwaj, Afroz Shah, N.D.Sharma & Ms.S.V.Bharucha for respondent NO.1. Mr.Ranbir Krishan i/b. Udwadia & Udeshi for Respondent No.2. Mr.V.A.Thorat,Sr.Counsel a/w Mr.Gautam Ankhad i/b. Ashwin Ankhad & Assoc. for Respondent No.3. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : JANUARY 31, 2008. DATE : JANUARY 31, 2008. DATE : JANUARY 31, 2008. P.C. : P.C. : P.C. : 1. All these four Appeals can be conveniently disposed off by common order, as the issues are overlapping and between the same parties. 2. Essentially the Order passed by the Company Law Board on 17th May, 2007, 19th July, 2007, 22nd August, 2007 and 25th October, 2007 are subject matter of these four appeals. All these orders have been passed by the Company Law Board at the interlocutory stage, during the pendency of the Reference proceedings initiated by the Respondent No.1 under section 250 of the Companies Act being Company Petition No.55 of 2007. By the said Company Petition, the Respondent No.1 had sought following reliefs: 4 "(a) that any transfer of shares shall be void. (b) that where those shares are to be issued shall not be issued and any issue thereof or any transfer of the right to be issued therewith, shall be void. (c) that no voting right shall be exercisable in respect of those shares. (d) that no further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof and any issue of such shares or any transfer of the right to be issued therewith shall be void. (e) that Hon’ble Board may during the pendency of the reference may exercise its powers of interim relief and allow that status quo as on 31.03.05. (f) pass any other order or orders as deemed fit and proper. 3. The said Reference was moved exparte before the Company Law Board on 17th May, 2007 when following Order came to be passed: ". Heard ex-parte. Considering the facts and circumstances of the case, the relief prayed for at items (a) to (e) at page 7 of the C.P. No.55/07 at para 10 are hereby allowed with the liberty to the respondents to apply. The Petitioner is hereby directed to serve copy of petition alongwith the order on the respondents forthwith and file an affidavit for compliance. Respondents are allowed four weeks’ time to file reply to the C.P. The petitioner is allowed three weeks’ time to file the rejoinder. Adjourned to 14/8/2007 at 10.30 a.m."(emphasis supplied) 5 The Order records that the liberty was granted to the Respondent in the said Petition to apply after they were served for appropriate direction, as may be advised. 4. Significantly, the Appellants before this Court are not parties to the proceedings before the Company Law Board. After the aforesaid Order, the Respondent No.2 herein moved the Company Law Board for permitting the Respondent No.2 to conduct AGM of the said Company being Company Application No.263 of 2007. Hearing on the said Application was deferred till 14th August, 2007 when following order was passed. ". Heard the parties on C.A.203/7 R 2 objects to the hearing as the application has not been served on it. The applicant is required to serve a copy of the application on the R-2 as well as on the Petitioner in C.P.No.55/07 forthwith. Petitioner in C.P.No.55/07 states categorically that they have no objection to the holding of the AGM. R-2 also objects to the other respondents specifically other than R-1 and R-2 not being respondents in the CP. Petitioner in CP also states that an observer be appointed (namely Shri V.S.Rao, R.D.Western Region) for the A.G.M. Considering the facts and circumstances of the case, the Applicant is allowed to hold AGM forthwith subject to the CLB’s order dated 17/5/2007, to make it amply clear it is directed that the AGM be held forthwith but the voting rights in the AGM to 6 be held shall be as on 31.3.05 as per the status quo order granted vide my order dated 17/5/2007 and Shri V.S.Rao shall be present in the AGM as and observer who shall submit his report to the Union of India with a copy to CLB forthwith. Meanwhile the parties are allowed to file reply to the CA. Adjourned to 14/08/2007 at 10.30 a.m." (emphasis supplied) 5. As the Respondent No.2 was granted liberty to hold Annual General Body Meeting and the interim relief already granted on 17th May, 2007 was affecting the rights of the Appellants herein, the Appellants had questioned the correctness of the order passed by the Company Law Board dated 17th May, 2007 and 19th July, 2007, which are reproduced in the earlier part of this Order by way of Writ Petition before Delhi High Court being Civil Writ Petition No.5768 of 2007 and Writ Petition No.5769 of 2007. The Delhi High Court granted liberty to the Appellants to go back before the Company Law Board and apply for appropriate direction, as may be advised. In the circumstances, the Appellants once again moved the Company Law Board in the pending Application being Company Application Nos.319 of 2007 and 320/07, which was taken up for consideration on 22nd August, 2007, when the Company Law Board proceeded to pass following order: 7 ". Heard the applications of C A No.319/07 and 32 of 07 in C P No.55/07 as well as the petitioner and the Respondents of C.P.No.55/07. The applicants are not respondents in C.P.No.55/07 which has also been heard as provided in my order dated 17/5/2007. Application Nos. 319 and 320 are identical seeking relief by way of prayer that my order dated 17/5/2007 in CP No.55 of 2007 u/s.250(2) of U.O.I. and my order dated 19/7/2007 in C.A.No.263/07 of R-1 (seeking permission to hold AGM which was allowed to be held under the supervision of Local Commissioner appointed in that respect) to vacate, discharge and set aside and allow the applicants to exercise their power to vote at the AGM as granting status quo anti restricting voting rights as on 31.3.2005 was not tenable on facts and in law as the applicants were the genuine shareholders holding 66% shares in R.1. Company. R-1 chose not to reply to the C.A.Nos.319/07 and 320/07 of the applicants. R-2 replied and stated that the CLB’s order dated 17/5/2007 and 19/7/2007 not be modified as R-2 supported the Petitioner’s case and had in fact moved CLB u/s.237(b) to investigate into the affairs of its associate (i.e.) R-1) and was in full support of the petitioner in its CP u/s. 250(2) of the Act. However, R-2 reiterated that the applicant’s offer of off loading their shareholding in favour of R-2 or accepting the situation that R-2 becomes the Holding Company of R-1 may be considered. Considering the arguments, pleadings and the case laws cited by the applicants, who according to the petitioner in C.P.No.55/07 are not even the respondents in the CP (as the equity of R1 has allegedly been diluted), I find that the applicants have not been able to make out their case as to what irreparable loss would be caused to them if the voting rights in R-1 (which is an associate of R-2) in which 83% shareholding is that of the Public Financial Institutions are restricted as on 31.3.2005 when the R-2 had 100% equity in R-1 which as on date allegedly stands diluted to 24%. In the present circumstance of the case when R-1 and R-2 are not seeing eye to eye and the shareholding of Public 8 Institutions allegedly, fraudulently and surreptitiously stands diluted. The applicants arguments have been on merits of the case whether order u/s 247 or lifting of corporate veil is justified or not rather than proving their bonafides and proving that irreparable loss would be caused in case they are not allowed to cast their votes. I find no justification in allowing the applications. Application Nos. 319 and 320 are hereby dismissed. However, if the applicants are genuine purchasers of shares they may proceed to obtain proxies for the AGM on 31/8/2007. . As regards the respondent No.2’s arguments on CP No.55/07 w.r.t. this Board’s order dated 17/5/2007 - 19/7/2007 - they support the petitioner. . As regards R-1’s arguments and pleadings and the documents and decisions relied upon, I find that their argument of non-maintainability of CP 55/07 is not tenable. As the Petitioner has fulfilled the pre-requisite of Section 250 by showing good reasons and making justified order u/s 247. R-1’s further argument that the petitioner has not made out its case is also not tenable in view of the fact that no cogent arguments and evidence has been brought on record as to how the 100% shareholding of R-2 in R-1 got diluted to 24% and even the very fact that R-2 has proceeded against R-1 u/s 237(b) to investigate into the alleged fraudulent unilateral acts of R-1 proves only the petitioner’s case for investigation u/s 247 and now seeking this Board’s approval to proceed unhinder into its investigation by seeking restriction of the damage by way of asking for voting rights to be frozen as on 31.3.2005 is fully justified. Hence, CLB’s orders dated 17/5/2007 and 19/7/2007 u/s 250(2) shall continue to operate till further orders." (emphasis supplied) 6. After the abovesaid Order was passed on the Applications preferred by the Appellants, on 23rd 9 October, 2007, the Company Law Board was moved by the Respondent No.3-Holding company when following order came to be passed. ". C.A.No.389/07 partly argued. The applicant seeks modification of CLB’s order dated 17/5/2007 in respect of (a) and (d). The petition in CP No.55/07 states that the order was sought for investigation u/s 247 and now since the investigation report has been received an application shall be made seeking vacation of the CLB’s order. The Non-applicants/intervenors whose shares are sought to be purchased seek time for two weeks to respond in this matter. The applicant objects to this. Adjourned to 14/11/2007 at 2.30 p.m."(emphasis supplied) Inspite of the above said Order that the matter was to be considered further on 14th November, 2007, it is the case of the Appellants that the Respondent No.3 once again gave fresh notice to the parties including the Appellants that the Company Law Board will be moved on the 25th October, 2007 in pending Company Application No.389 of 2007, which was already adjourned to 14th November, 2007. That intimation was given in the morning at about 9.45 a.m. by fax to the parties. However, when the advocates appeared before the Company Law Board at about 2.15 p.m., Company Application No.47 of 2007 was served on the advocates, in which further relief was sought by the Respondent No.3. This was objected to by the 10 advocates appearing for the Appellants. However, that objection came to be turned down and following Order came to be passed on 25th October, 2007. ". C.A.No.479/07 mentioned. Parties argued. R-2 has made this application seeking permission to infuse funds in terms of AGM Resolution for infusion of capital to the extent of Rs.2.5 crores to meet out urgent financial crisis, their hardship due to lack of capital/resources to meet its monetary requirements to settle liabilities incurred during the course of business failing which irreparable loss and injury would be caused to it. R-1 has no objection to this prayer. Petitioner in CP No.55/07 has no objection to this. The non-applicants/ intervenors state that they had a notice regarding mentioning by R-2 for preponement of hearing in CA NO.389/07. The notice was sent by fax at 9.42 a.m., and the CA No.479/07 has been served at 2.15 p.m. The prayer clause in the application is different now in the application served at 2.15 p.m. The intervenor insisted that the new application is not maintainable and they need time to file reply to the application which according to them is a misuse of the process of law. I have considered the arguments made by the parties. R-2 had while arguing CA No.389/07 on 23.10.07 insisted on infusion of capital as decided in the AGM and had even objected to the intervener’s request for adjournment on 23.10.07 to 14/11/2007 to be able to give reply to the CA No. 389/07, it was reiterated by R-2 that even on 23.10.2007, the interveners had in principle agreed to infusion of the capital in principle, their only prayer was to have some more time to be able to work out the modalities in respect of settling the matter w.r.t. transfer of their shareholding. Today again, settlement is not denied. R-2 has been able to make out a prima facie case. The balance of convenience is also in favour of R-2. R-1 has no objection. The Petitioner in C.P. No.55/07 has no objection. In this view of the matter, the 11 R-2’s prayer in C.A. No.479/07 at page 3 at (a) is hereby allowed. C.A.No.389/07 shall be heard on 14/11/2007 at 2.30 p.m as listed earlier."(emphasis supplied) 7. As aforesaid, the Appellants have essentially questioned the correctness of the order dated 17th May, 2007, 19th July, 22nd August, 2007 and 25th October, 2007 by way of present Appeals. 8. During the pendency of these Appeals the Respondent No.1 moved the Company Law Board praying for withdrawal of the main reference being Company Petition No.55 of 2007. That request came to be accepted by the Company Law Board on 14th November, 2007, when following order was passed. ". C A No.512/07 mentioned. Heard. Vide this C A No.512/07 the petitioner who had sought order u/s 250(2) for the purpose of investigation u/s 247 till the completion of investigation, now seeks vacation of the order u/s 250(2) as investigation report u/s 247 has seen been received and order u/s 250(2) is no longer required. Prayer is hereby allowed. Proxy Counsel for the Non-applicants/intervenor seeks adjournment in the matter. In view of the matter order u/s 250(2) stands vacated w.e.f.today i.e.14.11.07. I see no justification in adjourning any C A in C P No.55/07 as C P No.55/07 itself does not survive. The petition stands dismissed. sd/- 14.11.07 . As I was reading over the order, the proxy counsel wished to hand over a totally 12 illegible fax copy stating that it is an order of the Hon’ble Bombay H.C. in the proceedings stating that the orders of CLB shall be subject to the order of the Bombay H.C."(emphasis supplied) The main reason presented before the Company Law Board on behalf of the Respondent No.1 was that the investigation was already completed and no further action was pending for the purpose of continuing reference under section 250 of the Act. 9. In view of the above development, the Respondents have taken preliminary objection regarding maintainability of these Appeals on the argument that consequent to the withdrawal of the main reference, nothing survives for consideration in the present Appeals. Inasmuch as the Appellants have taken exception to only the interlocutory orders passed by the Company Law Board and with the withdrawal of the reference, the correctness of the said interlocutory orders cannot be put in issue. Having realised this position, Counsel for the Appellants seeks liberty to carry out amendment so as to permit the Appellants to even challenge the Order dated 14th November, 2007. 10. In my opinion, to do substantial justice to 13 the parties in the fact situation of the present case, it is imperative that liberty as prayed for by the Appellants should be granted. The Appellants are permitted to carry out necessary amendments in the course of the day, so as to ask for further relief of setting aside the Order dated 14th November, 2007 passed by the Company Law Board, as reproduced earlier. I am inclined to allow the Appellants to carry out that amendment as aforesaid, as I am of the view that the impugned orders passed by the Company Law Board are not only unusual orders but manifestly wrong approach in dealing with the grievance made by the Appellants. The net result of those Orders, if allowed to be continued, is that, the Appellants have been rendered remediless, though adverse Orders have been passed directly affecting their rights, without their concern being addressed by the Court of competent jurisdiction one way or the other on merits. I am in agreement with the submission canvassed on behalf of the Appellants that Company Law Board in the first place passed exparte order on 17th May, 2007, which directly affected the Appellants before this court- as the concerned shares stood in the name of the Appellants in the records of the Company Register even as of today. However, when the Appellants moved the Company Law Board placing on 14 record the genuinness of their transaction, the Company Law Board in turn opined that the grievance of the Appellants cannot be looked into, as they are not parties to the Petition. Notably, the Appellants had moved the Board pursuant to liberty given by the Delhi High Court, but the issues raised by them remained unaddressed. In the mean time, during the pendency of the reference the Company Law Board proceeded to accept the request of the Respondent No.2 Company to increase the authorised share capital, which action was denying the participation of the Appellants in the AGM as well as to avail of the increased authorised share capital as the cut-off date for eligibility was fixed as on 31st March, 2005. Suffice it to observe that interim orders passed by the Company Law Board were not only mandatory orders passed, but also directly affected the Appellants. Significantly, when the Appellants raised issues about the correctness of the approach of the Board, the questions raised by the Appellants remained unaddressed. At the same time, the Company Law Board proceeded to permit the Respondent No.1 to withdraw the main reference. The totality of the situation is that the Company Law Board by interim direction passed mandatory orders, which were admittedly adverse to the Appellants and at the same 15 time, the questions raised by the Appellants have not been addressed at all. Such approach cannot stand the test of judicial scrutiny. 11. In the circumstances, in the peculiar facts of the present case, in my opinion, it is appropriate that the order passed on 14th November, 2007 as well as 22nd August, 2007, both these orders should be and are hereby set aside. 12. Instead, the Company Petition No.55 of 2007 is restored to the file to its original number as well as Company Application Nos.319 of 2007 and 320 of 2007 respectively shall also stand restored to the file of the Company Law Board, to be considered by it in the first instance on its own merits afresh, before allowing Company Petition No.55 of 2007 to be withdrawn by the Respondent No.1. All questions in those proceedings will have to be addressed uninfluenced by the earlier order or observations, if any, including the present order. 13. Although the investigation under section 247 is already completed and report has already been filed to the Central Government and the investigation under section 235 is in progress, I am inclined to 16 relegate the parties, as indicated earlier, so that the issues raised by the Appellants arising from the interlocutory orders are addressed by the Court of first instance on its own merits. At the same time it is made clear that the investigation under section 235 in progress and the steps to be taken on the basis of the Report under section 247 shall not be affected, in any manner, whatsoever. That process may continue in accordance with law. 14. It is also made clear that in the event the Appellants succeed in persuading the Company Law Board for recall of the Order dated 17th May, 2007 and 19th July, 2007, it will be open to the Appellants to urge before the Company Law Board that in that event the Appellants should be allowed to participate in the increased share capital ordered under Order dated 25th October, 2007 of the Company Law Board. 15. It is made clear that although the Order dated 22nd August, 2007 has been set aside under this order, that per se does not mean that the direction to hold AGM on 31st August, 2007 has been set aside by this order. However, the correctness of the direction to hold the AGM will be subject to the 17 outcome of the proceeding before the Company Law Board. 16. All Appeals are disposed off on the above terms. 17. In view of the disposal of the Company Appeals, nothing will survive for consideration in the applications. Hence disposed off accordingly. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)