Purnima Manthena & Anr vs Dr. Renuka Datla & Ors

2. The steeled stand off encased in the decision impugned, projects the members of a family, daughters against their mother in particular, in a combative formation in their bid to wrest the reins of a company, Biological E. Limited (for short, hereinafter to be referred to as “the company”) engaged in the business of pharmaceutical products and vaccines. The differences that had surfaced soon after the demise of Dr. Vijay Kumar Datla, the predecessor-in-interest of the contending family members, who at his death, was the Managing Director of the company, have grown in acrimonious content with time, stoked by the intervening events accompanied by a host of litigation. The present appeals stem from the judgment and order dated 15.4.2015 rendered by the High Court of Judicature at Hyderabad, for the State of Telangana and State of Andhra Pradesh, in Company Appeal No. 17 of 2014 preferred by the respondent Nos. 1, 2 and 3 herein, under Section 10F of the Companies Act, 1956 (for short hereinafter to be referred to as “the Act”) assailing the order dated 6.8.2014 passed by the Company Law Board, Chennai Bench (for short, hereinafter to be referred to as “CLB”) in Company Petition No. 36 of 2014 filed by them.

While entertaining the instant appeals, this Court by order dated 12.5.2015, having regard to the considerations referred to therein and as accepted by the learned counsel for the parties, did make an endeavour to effect an amicable settlement through mediation which, however, did not fructify. The learned counsel for the parties, as is recorded in the order dated 21.7.2015, on instructions, vouched that the day-to-day functioning of the company, however would be allowed to continue. The appeals, in this backdrop have, thus, been analogously heard on merits for disposal. We have heard Mr. P.S. Raman, learned senior counsel for the appellants in Civil Appeal arising out of S.L.P. (C) No. 12831 of 2015 (who are also respondent Nos. 4 & 5 in SLP (C) No. 12835 of 2015 and 5 & 6 in SLP (C) No. 20338 of 2015), Mr. Shyam Divan, learned senior counsel for the appellant in Civil Appeal arising out of S.L.P. (C) No. 12835 of 2015 (who is also respondent No. 5 and 4 in SLP (C) No. 12831 of 2015 and SLP (C) No. 20338 of 2015 respectively), Mr. P.P. Rao, learned senior counsel for the appellant in Civil Appeal arising out of S.L.P. (C) No. 20338 of 2015 (who is also respondent No. 6 in S.L.P. (C) Nos. 12831 of 2015 and 12835 of 2015) and M/s. Parag P. Tripathi and Sajan Poovaiah, learned senior counsel for Dr. Renuka Datla ( respondent No. 1 in all the three Appeals).

6. A skeletal account of the facts in the bare minimum, as available presently on the record, would outline the contours of the respective assertions.

7. The company, which was initially promoted by the father of respondent No. 1, with time took in its fold, Mr. Venkata Krishnam Raju Datla, the father of Dr. Vijay Kumar Datla (since deceased and husband of respondent No.1). After the demise of the father of respondent No. 1, Dr. Vijay Kumar Datla, who was inducted as the Chairman and Managing Director of the company on 1.5.1972 stewarded, nurtured and nourished it from strength to strength. The respondent No. 1, his wife, joined him initially as a Medical Director, as she is a qualified medical professional and w.e.f. 29.8.1991, was drafted in as the Executive Director of the company. Dr. Vijay Kumar Datla, who continued as the Chairman-cum-Managing Director of the company over the years, expired on 20.3.2013 and at his death, he, respondent No. 1 and Mr. G.V. Rao (respondent No. 6) did constitute the Board of Directors of the company. Noticeably Dr. Vijay Kumar Datla, in his individual capacity, then did hold 81% of the shares thereof. 8 As the facts evince, Mr. G.V. Rao (respondent No. 6) offered his resignation as a director vide his letter dated 6.4.2013 with immediate effect. It has been pleaded, however, on behalf of the appellant that Mr. G.V. Rao (respondent No. 6), on being requested by the family not to abandon the company at its hour of crisis, its guardian and mentor Dr. Vijay Kumar Datla having departed, did reconsider his decision and addressed another letter dated 9.4.2013 to the Board of Directors expressing his inclination to continue as the Director of the Board, intimating as well that thereby he was withdrawing his resignation letter dated 6.4.2013.

9. On the same day i.e. 9.4.2013, a meeting of the Board of Directors was convened by Mr. G.V. Rao, in the capacity of a Director of the company, which was attended amongst others, by the three daughters of the respondent No.1 i.e. Ms. Purnima Manthena (respondent No. 4), Ms. Indira Pusapati (respondent no. 5) and Ms. Mahima Datla (appellant). The respondent No. 1 did not attend the meeting and as the minutes of the proceedings would record, leave of absence was granted to her. In the same meeting, Mrs. Indira Pusapati (respondent No. 5) was inducted as the Director of the company to fill up the casual vacancy caused by the death of Dr. Vijay Kumar Datla. Mr. G.V Rao (respondent No. 6), was authorised, inter alia, to verify all acts and deeds as would be necessary, expedient and desirable to give effect to the resolutions adopted. 10 Thereafter, on 10.4.2013 and 11.4.2013 as well, meetings of the Board of Directors of the company were held. In these meetings also, respondent No. 1 did not attend and leave of absence was granted. In the meeting dated 10.4.2013, along with two directors namely; Mr. G.V. Rao (respondent No. 6) and Ms. Indira Pusapati (respondent No. 5), Mrs. Purnima Manthena (respondent No. 4) and Ms. Mahima Datla (appellant), amongst others, were present. The meeting took note of a will dated 14.2.2005, said to be executed by Dr. Vijay Kumar Datla in favour of Ms. Mahima Datla (appellant) and resolved to transmit the equity shares held by him and as referred to in the aforesaid will, in favour of Ms. Mahima Datla (appellant). In the same meeting, it was further resolved to appoint Ms. Mahima Datla (appellant) and Ms. Purnima Manthena (respondent No. 4) as the Additional Directors of the company, to hold the said office up to the conclusion of next annual general meeting. Mr. G.V. Rao (respondent No.

11 In its next meeting held on 11.4.2013, in which respondent No. 1 was absent and leave of absence was granted to her, Ms. Mahima Datla (appellant) was appointed as the Managing Director of the company for a period of three years w.e.f. 11.4.2013. It was resolved as well to request the Chairman to advise respondent No. 1 to officially communicate the appointment of Ms. Mahima Datla (appellant) as Managing Director of the company.

Though the pleaded assertion of respondent No. 1 is that she was neither noticed nor informed of the meetings held on 9.4.2013, 10.4.2013 and 11.4.2013 and that the proceedings thereof were a nullity, as the meeting dated 9.4.2013 could not have been validly convened by Mr. G.V. Rao (respondent No. 6), who had, prior thereto, resigned from the company and further that the meeting dated 9.4.2013 was sans the prescribed quorum, the progression of events attest that on 15.4.2013, a letter had been addressed by her (respondent No. 1) to the constituent fraternity of the company, conveying the news of appointment of her daughters i.e. Mrs. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No.

5) and Ms. Mahima Datla (appellant) as the Directors of the Board thereof, with particular reference to the appointment of Ms. Mahima Datla (appellant) as the Managing Director, thereby seeking the “blessings and guidance” of all concerned for enabling her to discharge her new responsibility. Respondent No. 1, however, at a later point of time, did allege exertion of pressure and undue influence by the other Directors to which she wilted, being in an anguished and forsaken state of mind, still mourning the sudden demise of her husband, Dr. Vijay Kumar Datla. While the matter rested at that, the respondent No. 1, Mrs. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No. 5) and Ms. Mahima Datla (appellant) addressed a letter dated 24.5.2013 to the Board of Directors conveying the decision of the members of the HUF on consensus to divide 4594 shares thereof (HUF) held by Dr. Vijay Kumar Datla, in equal shares. They also appended to the letter, a Memorandum Of Undertaking to this effect and requested the company to effect transmission of shares in their favour, on the said basis. Incidentally on the same day i.e. 24.5.2013, a meeting of the Board of Directors was convened in which, as respondent No. 1 was absent, leave of absence was granted to her. In the said meeting, amongst other, taking note of the Memorandum Of Understanding referred to in the aforementioned letter dated 24.5.2013 signed by the respondent No. 1 and Mrs. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No. 5) and Ms. Mahima Datla (appellant), 4594 equity shares held by Dr. Vijay Kumar Datla (HUF) were transmitted in their favour in equal shares.

16. On the receipt of notice of the Annual General Meeting of the company, which was scheduled to be held on 28.11.2013, respondent No. 1 filed an application under Section 409 of the Act before the CLB, which was registered as Company Petition No. 1 of 2013, seeking principally a declaration that the appointments of her three daughters namely; Ms. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No.

5) and Ms. Mahima Datla (appellant) as Directors of the company by virtue of the meetings held on 9.4.2013, 10.4.2013 and 11.4.2013 to be a nullity. While seeking a further declaration that Mr. G.V. Rao (respondent No. 6) having resigned from the Board of Directors of the company on 6.4.2013 with immediate effect, he was neither entitled to continue as the Director nor did he have any authority to convene the aforesaid meetings and transact the business therein, she also prayed that all acts, deeds and decisions taken in and pursuant to the resolutions in the said meetings be adjudged to be void and not binding on the company. Apart from seeking a permanent injunction restraining her three daughters namely; Ms. Purnima Manthena (respondent No. 4), Ms. Indira Pusapati (respondent No. 5), Ms. Mahima Datla (appellant) and Mr. G.V. Rao (respondent No. 6) from functioning as Directors of the company, by way of interim relief, she prayed for a restraint on the ensuing Annual General Meeting fixed on 28.11.2013 and to appoint two ad hoc Directors for administering the day-to-day affairs of the company along with her.

17. By its ruling dated 17.12.2013, the CLB, after considering the rival pleadings and the documents laid before it, observed on a prima facie evaluation of the facts portrayed, that the respondent No. 1 had recognised her three daughters Ms. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No. 5) as the Directors and Ms. Mahima Datla (appellant) to be the Managing Director of the company. It was of the view that, though she received the letter of withdrawal of resignation of Mr G.V. Rao-respondent No. 6, she had not responded thereto either accepting or rejecting the same. On an appraisal of the pleaded facts and the documents on record, the CLB returned a finding that there was neither any change in the Board of Directors nor in the management of the company nor there was any likelihood of change in the ownership of the company nor any likelihood of the new management taking over the company nor any change in the shareholding pattern of the company and concluded in the context of Section 409 of the Act that respondent No. 1 had not made out any ground for grant of any interim relief, as prayed. Noting the assertion of the respondents therein that the company had the necessary reserves to meets its debts and that Mahima Datla (appellant herein) had stood as a guarantor for the loans obtained from the banks, the CLB was, thus, of the view that the apprehension of the respondent No. 1, as expressed, was not substantiated by any documentary evidence. Having recorded that the respondent No. 1 was continuing as the Executive Director of the company and that Mahima Datla (appellant herein) being associated with its affairs was well acquainted therewith and that in the proposed Annual General Meeting to be held on 18.12.2013 (which got deferred to this date from 28.11.2013), the company was going to transact the business, as notified, which did not disclose any proposed change in the management or the ownership or taking over by external agency, the CLB declined to grant stay of the said meeting. This was more so, in view of the statutory mandate qua Annual General Meeting of a company under the Act. The respondent No. 1 was left at liberty to participate in the said Annual General Meeting and the company was permitted to conduct the same and take resolutions as per the notice. The resolutions to be passed in the Annual General Meeting were, however, made subject to the outcome of the Company Petition No.1 of 2013.

18. Though the respondent No.1, being aggrieved by this order, did prefer an appeal under Section 10F of the Act being Company Appeal No. 1 of 2014, she participated in the Annual General Meeting held on 18.12.2013 in which, resolutions on the appointment of the appellants as Directors/Managing Director and amongst others, the enhanced remuneration of respondent No. 1 were adopted. Eventually on 24.2.2014, the appeal stood disposed of as infructuous on the concurrence of the parties to join for the necessary endeavours for early disposal of the Company Petition No. 1 of 2013.

19 Close on the heels of the disposal of aforesaid Company Appeal No. 1 of 2014, the respondent No. 1 instituted a suit being O.S. No. 184 of 2014 in the Court of Chief Judge, City Civil Court, Hyderabad substantially traversing the above facts and seeking a decree for a declaration to be the absolute owner of the shares of the company as enumerated in Schedule A to the plaint, on the strength of a will claimed to have been executed in her favour by Dr. Vijay Kumar Datla (since deceased) and a direction to the defendants therein to transfer the same by recording her name in relation thereto and to hand over the possession of the share certificates to her. Her alternative prayer, without prejudice to this relief, was for delineating her extent of claim to the shares in the capacity of a working spouse/widow of late Dr. Vijay Kumar Datla.

21 The respondent No. 1, in her renewed pursuit for redressal of her grievances as perceived by her, next instituted another petition before the CLB, which was registered as Company Petition No. 36 of 2014 under Sections 111A, 237, 397,398,402,403,404,406 of the Act, 1956 and Sections 58 and 59 of the Companies Act, 2013. As the pleaded assertions made therein would attest, those were in substantial reiteration of the facts narrated hereinabove, with the added imputation that the respondents therein were contemplating to transfer and consign the undertakings of the company to other companies incorporated and managed by the appellant herein and other Directors so as to enable them, to dispose of the said assets through their companies and appropriate the proceeds to their benefits to the irreparable loss and detriment to the company i.e. Biological E. Limited and its genuine shareholders. She, however admitted, that the concerned Directors in the meanwhile, had filed a scheme of arrangement under Sections 391 to 394 of the Act before the High Court of Andhra Pradesh for demerger of the undertakings of the company as listed out in the said petition. A copy of the scheme of arrangement was also appended to the petition alleging over all mis-management and oppression by the Directors therein in particular, consciously driving the company and its shareholders to a state of ruination chiefly through the process of demerger. The respondent No.1 prayed for a declaration of the acts of the said Directors to be oppressive and prejudicial to the interest of the company and to appoint an administrator and/or Special Officer to manage the affairs thereof by superseding the existing Board of Directors. In the alternative, she also prayed for constitution of a committee comprising of her representative to function as the administrator and/or Special Officer for the management and control of its affairs. She reiterated her prayer for (i) declaring the Board meetings held on 9.4.2013, 10.4.2013 and 11.4.2013 as void ab-initio, (ii) removal of the appellant herein and the other Directors from the office of the Directors of the company and (iii) adjudging the transmission of 400951 equity shares held by Dr. Vijay Kumar Datla (since deceased) to the appellant (Ms. Mahima Datla) as illegal, null and void. A declaration to adjudge the resolutions passed in the Board meetings held on or after 20.03.2013 and also the Annual General Meeting held on 18.12.2013 as non est was also sought for. By way of interim relief, she prayed for supersession of the Board of Directors and appointment of interim administrator and/or Special Officer to assume the charge of the affairs of the company and in the alternative, prayed for constitution of a committee comprising of her representative to discharge the said role.

23. The respondent No. 1 herein, being aggrieved, preferred an appeal being Company Appeal No. 17 of 2014 which has since been allowed by the judgment and order dated 15.4.2015 impugned in the instant batch of appeals.

24 The High Court, as the decision assailed would reveal, traversed the entire gamut of the facts involved as available from the company petition and the documents appended thereto and recorded its findings on all the aspects of the discord and eventually granted the following reliefs.

“1. An ad hoc Board of Directors constituted with appellant No. 1 as the Executive Director and respondent Nos. 2 to 4 as the Directors of respondent No. 1-company. Appellant No. 1 shall discharge the functions of the Managing Director of the company.

The Company Law Board shall keep C.P. No. 36 of 2014 pending till O.S. No. 184 of 2014 is finally disposed of.” 25 The appeal was allowed and the accompanying applications were disposed of as infructuous. In arriving at its penultimate conclusions, leading to the arrangement configured by the operative directions, as extracted hereinabove, the High Court elaborately delved into the factual details bearing on all facets of the surging disputes between the parties, tracing from the issue of validity or otherwise of the continuance of Mr. G.V. Rao as the Director of the company, to the imputation of mis- management and oppression, allegedly indulged in by the appellants and other Directors including the perceived imminent possibility of slicing off the assets of the establishment through a process of demerger. 26 En route to the final deductions, the High Court did dwell upon the validity of the Board meetings held on 9.4.2013, 10.4.2013 and 11.4.2013 in particular and also of the Annual General Meeting conducted on 18.12.2013, the claim made by the respondent No. 1 in her suit based on a will claimed to be executed in her favour by Dr. Vijay Kumar Datla (since deceased), the letter dated 15.4.2013 written by the respondent No. 1 as well as the accusation of manipulation of the transfer of the majority of the shares of the company in favour of Ms. Mahima Datla (appellant). It held in no uncertain terms, that in fact there was no Board of Directors legally in existence, thus necessitating a workable arrangement for regulating the conduct of the affairs of the company. Having regard to the contesting claims to the shares on the basis of two wills and the pendency of the suit instituted by the respondent No. 1, the High Court construed it to be appropriate to proceed on the premise that the appellant, her sisters and the respondent No. 1 had more or less equal shares. In the backdrop of this determination, the High Court, being of the view, that it would be preferable to make an interim arrangement to conduct the administration of the company, without the induction of an outsider as an administrator/receiver, issued the above-mentioned directions to ensure the same.

27 As would be evident from the steps enumerated in the impugned judgment and order in this regard, an ad hoc Board of Directors was directed to be constituted with respondent No. 1 as the Executive Director and her three daughters as the Directors with the rider that the respondent No. 1 would discharge the functions of the Managing Director of the company. Thereby, the ad hoc Board was allowed to continue to function till the suit i.e. O.S. No. 284 of 2014 was disposed of and appropriate orders in the pending Company Petition No. 36 of 2014 were passed. It was ordered that the CLB would keep the Company Petition No. 36 of 2014 pending till the suit was finally disposed of. 28 To put it differently, by the impugned verdict, the existing Board of Directors was substituted by an ad hoc body adverted to hereinabove and the respondent No. 1 was entrusted with the charge of office of the Managing Director of the company. Further the arrangement, as directed, was to continue till the disposal of the suit. The restraint on the CLB from proceeding with Company Petition No. 36 of 2014 till the suit was decided, understandably was to postpone the adjudication therein, till after the final determination of the issues in the suit. For all essential purposes, therefore, the adjudication of Company Petition No. 36 of 2014 was made conditional on the disposal of the suit.

31. Without prejudice to these demur, the learned senior counsel for the appellants emphatically argued that not only in the attendant facts and circumstances, Mr. G.V. Rao did lawfully continue as the Director of the company, he having withdrawn his resignation prior to the date of the meeting on 9.4.2013, they urged as well that all the meetings of the Board held on or from 9.4.2013 including the Annual General Meeting were to the full knowledge of respondent No. 1 and the contentions to the contrary, are factually untenable. Referring to the letter dated 15.4.2013 of the respondent No. 1, whereby she acknowledged the induction of the Mahima Datla (appellant) as the Managing Director of the company and her two other daughters as the Directors of the company, wishing them success on the new venture, they maintained that her complaint qua this letter, after a lapse of one year, being an after thought, was thus of no relevance or significance. According to the learned senior counsel, even assuming without admitting that the meetings of the Board of Directors held on 9.4.2013, 10.4.2013 and 11.4.2013 and thereafter were invalid as imputed by respondent No. 1, the same got sanctified in the Annual General Meeting held on 18.12.2013, in which she participated without any cavil. The learned senior counsel urged, that having regard to the situation eventuated by the sudden demise of Dr. Vijay Kumar Datla and the urgent need to attend to the day-to-day affairs of the company, a duly constituted Board of Directors, was an imperative necessity, and thus the steps taken by Mr. G.V. Rao to convene the meetings dated 9.4.2013,10.4.2013 and 11.4.2013, to that effect is even otherwise saved by the doctrine of necessity. Further the issues raised by her in Company Petition No. 36 of 2014 being substantially the same in Company Petition No. 1 of 2014, in which the CLB declined to grant injunction to the conduct of the annual General Meeting which was to be held on 18.12.2013, the High Court ought not to have on an extensive evaluation of the same facts afresh, overhauled the set-up of the company in the manner done at the preliminary stage and that too in absence of any tangible and legally cognizable evidence of oppression and/or mis-management of the affairs thereof. They argued as well, that as the suit filed by the respondent No. 1 was pending adjudication and the scheme of demerger involving the company was also subjudice before the High Court in a separate proceeding being Petition Nos. 721-722 of 2014, the apprehension expressed on behalf of the respondent No. 1 of imminent alienation of the properties of the company at their whims to irreparably wreck the existence thereof, was grossly belied, and thus, could not have been a consideration for superseding the existing Board of Directors and replacing it by an ad hoc body with the respondent No. 1 as the Managing Director. They urged that the interim arrangement modelled by the High Court making it co-terminus with the suit tantamounts to grant of reliefs claimed in the Company Petition No. 36 of 2014 finally, pending disposal of the proceeding before the Board and on this count alone, the impugned decision is liable to be interfered with.

35. We have extended our anxious consideration to the weighty and dialectical assertions exhaustively touching upon the aspects of the debate, both legal and factual. Understandably, as the impugned judgment stems from an appeal under Section 10F of the Act, great emphasis has been laid, both in favour and against the maintainability thereof as well as the manner and extent of scrutiny of the materials available on record, judged from the point of view of the nascent stage of the proceedings before the CLB, at which the appeal had been carried to the High Court. Admittedly, the appeal preferred by the respondent No. 1 under Section 10F of the Act has been against an order dated 6.8.2014 of the CLB, declining to grant the interim relief in entirety while securing the office of the respondent No. 1 as the Executive Director of the company and noting the pendency of the demerger proceeding as well as the undertaking on behalf of the contesting Board of Directors that the properties of the company except as would be required by way of demerger, would not be alienated. To reiterate, by order dated 6.8.2014, the CLB deferred the consideration of the prayer for further interim relief and granted time to the contesting respondents therein to file their pleadings. It is a matter of record that till the stage of filing of the appeal under Section 10F of the Act before the High Court, the contesting Board of Directors in the proceeding before the CLB had not filed their pleadings.

20 As the flow of the developments thereafter would demonstrate, the respondent No. 1 withdrew the Company Petition No. 1 of 2013 in July, 2014 with a liberty to approach the appropriate forum for appropriate reliefs in a manner known to law. The Company Petition No.1 of 2013, was, accordingly closed.

All the decisions shall be taken by the Board based on unanimity and consensus. If consensus on any aspect relating to the day-to-day affairs of the company is eluded among the Board members, appellant No. 1, as the Managing Director, shall approach the Company Law Board for appropriate directions.

The ad hoc Board shall continue to function till O.S. No. 184 of 2014 is disposed of and appropriate orders in C.P. No. 36 of 2014 are passed thereafter.

50. In the instant case, though the CLB, as a matter of fact, did not record any view on the merits of the case while deferring the consideration of the interim relief , being satisfied with the undertakings offered on behalf of the appellants and other contesting Directors, the High Court has, by the impugned decision, decisively furnished its views and conclusions on all vital issues, as a consequence, leaving little or none for the CLB to decide. This is not the role of the appellate forum as is contemplated under Section 10F of the Act qua the stage from which the appeal had been preferred from the order of the CLB.

54. The appeals are, thus, allowed in the above terms. The CLB and the Civil Court would decide the proceedings before them on their own merits, without being in any way influenced by any observation made herein. No costs.

OCTOBER 6, 2015.