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2014 (1) TMI 634 - DELHI HIGH COURTDismissal of petition under Section 397/ 398 - Oppression and mismanagement - Non-disclosure of any fresh cause of action - Whether the CLB was justified in rejecting the company petition on the ground that it did not disclose any fresh cause of action within the meaning of Order VII Rule 11 of the CPC - Held that:- CLB cannot dismiss a petition under Section 397/ 398 of the Act as not maintainable, unless the petition raises issues which are absolutely unarguable or frivolous or in a case where the petition does not disclose the satisfaction of the basic requirements of these sections - It should be the effort of the CLB to bring to an end all matters complained of and towards this end the CLB is empowered to make such order as it thinks fit. It is the interest of the company that is the paramount consideration under Section 397/ 398. Therefore, the permission granted by the CLB to the petitioners to withdraw the petition and file a fresh petition on a fresh cause of action should not be viewed on the basis of the parameters for a strict implementation of Order VII Rule 11 (a) of the CPC. It should be looked at more as a substantive compliance, particularly when the fresh petition did not abandon or omit the earlier cause of action but merely added one more cause of action namely the expiry of the lock-in period on 20.12.2012. Obviously it was during the pendency of the first petition that the lock-in period expired. The expiry of the lock-in period undoubtedly facilitated a possible arrangement under which the CLB could direct either party to acquire the shares of the other party. The expiry of the lock-in period could have even been brought to the notice of the CLB in the course of the oral submissions made before the CLB. The withdrawal of the first petition might even have been prompted by the discovery, in the course of the argument before the CLB on 14.01.2013, that the lock-in period had expired - though the provisions of the CPC are not applicable to CLB, there is no prohibition in applying the principles evolved in the CPC. There can be no quarrel with such an argument, subject to the caveat that the well recognised principles embedded in the elaborate provisions of the CPC can be invoked to the proceedings before the CLB with a view to suppressing the mischief and advancing the cause of justice. This seems to be the purpose of Regulation 44 of the CLB Regulations. CLB in the present case was not justified in any manner in throwing out the fresh petition on the basis of the principle behind Order VII Rule 11(a). In addition to the reasons which I have earlier given, on the basis of the vast powers conferred upon the CLB in petitions complaining of oppression and mis-management and the expectation of the Companies Act that the disputes arising out of acts of oppression and mis-management should be effectively put an end to by the CLB, I would add that the principle embedded in Order VII Rule 11(a) ought not to have been invoked in the present case to defeat the right of the appellants to the remedy against acts of oppression and mis-management allegedly committed by the respondent, without even examining the petition on merits. It is difficult to visualise the possibility of such an opinion being formed by the CLB without examining the acts of the oppression and mis-management complained of or without inquiring into the question whether there is substance in the complaint or not. The CLB not only has to form such an opinion but shall further pass such order as it thinks fit with a view to bringing to an end the matters complained of. It needs no emphasis that the interests of the company are paramount in moulding the relief and the remedy under Section 397 is an alternative to winding-up. A company is a corporate personality and is normally promoted to foster economic growth of the country. Its proper functioning is, therefore, essential for the economic strength of the country. The provisions of Section 397 and 398 are a step towards ensuring that companies formed for this purpose do not get derailed because of lack of probity or merely because of egoistic disputes between the men behind the company. Rejection of the petition filed under Section 397/ 398 of the Act on a technical or a preliminary ground leaves the disputes unsettled which goes against the mandate of the provision. Though the appellant's petition before the CLB was dismissed as not maintainable for not disclosing a fresh cause of action, the petition filed by the respondents before the CLB in C.P. No.24(ND)/2013, also under Sections 397 and 398 of the Act, complaining of acts of oppression and mis-management against the appellants, is still stated to be pending before the CLB pursuant to an order passed by the CLB on 19.02.2013. On this date the CLB passed an order for listing the petition filed by the respondents herein along with the fresh petition filed by the appellants before the CLB. However, the fresh petition filed by the appellants was dismissed, though the petition filed by the respondents was adjourned and is kept pending. When both the petitions were initially directed to be listed together for hearing it would have been just and equitable that the mutual allegations were examined and an opinion was formed as to whether the affairs of the company were being conducted in a manner prejudicial to public interest or oppressive to any member or members and it was eminently desirable that the CLB passed an order with a view to bringing to an end the matters complained of. Taking up both the petitions together for hearing would have given an opportunity to the CLB to see the points of view of both the sides in order to arrive at a just decision. Therefore, impugned order passed by the CLB should be set-aside. I hold accordingly and remand the matter to the CLB which will now deal with the petitions filed by the appellants herein under Section 397 and 398 and dispose them of on merits and in accordance with law - Decided in favour of Petitioner.
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