TMI Blog2008 (3) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... l dismissed. - COMPANY APPEAL NO. 3 OF 2008 - - - Dated:- 18-3-2008 - V.V. S. RAO, J. S. Ravi for the Appellant. C. Kodanda Ram for the Respondent . JUDGMENT V.V. S. Rao, J. The appellants herein (hereafter "the petitioners") filed company petition being C. P. No. 69 of 2006, before the Company Law Board (CLB), Additional Principal Bench, Chennai. It was under sections 397, 398, 402 and 403 of the Companies Act, 1956, (the "Act", for brevity) alleging mismanagement and oppression by the majority shareholders of the first respondent-company. They prayed for various reliefs including reconstitution of board of directors of first respondent. By an order, dated December 17, 2007, ( Incable Net ( Andhra ) Ltd. v. Apaksh Broadband Ltd. [2008] 142 Comp Cas 860) the learned Company Law Board disposed of company petition declining to grant reliefs to the petitioners. Against the said order, present company appeal is filed under section 10F of the Act. The short fact of the matter may be noticed for better appreciation of the submissions of the counsel. First respondent M/s. APAKSH Broadband Limited ("APAKSH", for brevity) is a company registered under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i )To direct the first respondent-company to incorporate the share holders agreement dated June 4, 2005, in the memorandum and articles of association of the first respondent-company ; ( ii )To reconstitute the board of directors of the first respondent-company and provide that all policy decisions, and all decisions on key matters be decided by a board of directors at a meeting where at only one nominee from each of the groups, viz ., the fifth respondent, the first petitioner apart from APTS nominee are present ; ( iii )Appoint a chartered accountant to investigate into the investments made by the fifth respondent towards the share capital especially keeping in mind the source of funds for investments in share capital of the first respondent-company ; ( iv )Appoint a team of chartered accountants/chartered engineers to evaluate the quantum of work done by the fifth respondent-company, and declare that the investments of the fifth respondent-company over and above the said quantum of work to have been issued without consideration and consequently annul the said shares and direct the modification of the shareholding of the first respondent-company; ( v )Vest the day-to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Board also considered relevant aspects of matter and dismissed the petition. The Company Law Board constituted under section 10E of the Act shall exercise and discharge powers and functions conferred on it under the Act. Its procedure is regulated by the Company Law Board Regulations, 1991, made under section 10E(6) of the Act. Section 10E(4C) of the Act, which makes applicable, confers certain powers which are vested in the court under the Code of Civil Procedure, 1908, while trying a suit in respect of discovery and inspection of documents, summoning witnesses, summoning documents, examining witnesses on oath, granting adjournments and reception of evidence on affidavits. As per section 10E(4D) of the Act, the Company Law Board shall be deemed to be a civil court for the purpose of section 195 of the Code of Criminal Procedure, 1973 (CrPC) and all proceedings taken before them shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (IPC). Section 10E(5) of the Act adumbrates an important principle of judicial adjudicative resolution. It is to the effect that the Company Law Board, in exercise of its powers and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Secondly, he would contend that the petitioners contributed most of the capital of 21 per cent, (out of Rs. 37 crores or 21.10 per cent.), which they were required to take but they were allotted only 0.01 per cent, of shares whereas fifth respondent contributed less than 20 per cent, of required capital (out of Rs. 113 crores or 64.40 per cent.) but were allotted 57 per cent, of the shares in the first respondent-company. This, he would urge, is an act of oppression. It is contended before the Company Law Board, though the petitioners wanted to lead oral evidence to establish their case and also letter of APTS, dated June 14, 2006, to Government of Andhra Pradesh about progress of the project was sought to be marked, the Company Law Board declined the request and therefore, failed to exercise jurisdiction vested in it. According to learned counsel, if the execution of EPC contract, dated May 10, 2005, by the fifth respondent in collusion with the first respondent, is allowed, it is going to be detrimental and jeopardize the interest of the minority shareholders. The Company Law Board has power under section 402( e ) of the Act to terminate or modify the agreement between company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was signed by the second petitioner ; and ( iv ) annual general meeting held on August 2, 2006, appointed M/s. S. R. Batliboi, chartered accountants, who wanted to inspect accounts of previous year, but the second petitioner objected to such audit, and therefore audit was stopped. He lastly points out that the second petitioner is very much member of the board of the first respondent and he can always raise issues before the board. He also made submissions with regard to progress of work with reference to the Government orders and communication of APTS, which contain positive element. When minority shareholders complained acts of oppression and mismanagement, and sought the relief under sections 397 and 398 of the Act, the first and foremost relevant issue would be with reference to the acts complained, whether shareholders in law can be given locus standi . The corporate governance and management of a company is regulated by pro visions of the Act, rules made thereunder, memorandum and articles of association. Every company shall have atleast three directors collectively called board of directors or the board. In the absence of any constitution of the board as such, members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an sue and be sued as provided under Order XXIX, rule 1 of the Code of Civil Procedure, 1908. It is a dispute between the company and a third party in relation to a contract or otherwise. The shareholders have no right to intervene nor have a right of impleadment. For adjudication of such Us, the shareholders are neither necessary parties nor proper parties. Indeed, EPC contract, dated May 10, 2005, provides for alternative dispute resolution by way of arbitration. Any dispute between APAKSH and AKSH necessarily involves the rights and obligations of the Government of Andhra Pradesh and AFTS as active players in the implementation of the Andhra Pradesh Broadband network project. All these matters are not concern of the shareholders. The Company Law Board rightly came to the conclusion that in case of an injury, it is for the corporation to sue in its own name and individual shareholders have no right of suing for injury suffered by the corporation. That the company is not the property of shareholders is now accepted corporate legal philosophy. No one can better and emphatically say this than quoting from the judgment of justice P. N. Bhagwati (as his Lordship then was) in National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract resulting in financial loss to APAKSH, the same cannot be in the facts and circumstances of this case, be branded as an act of mismanagement and oppression by the majority against minority shareholders. Secondly, any such breach of contract or non-performance of obligations cannot and should not be in relation to only two players respondents Nos. 1 and 5 but such alleged breach can affect the rights and obligations of all the corporate players in the project. In the absence of two other players, namely, the Government of Andhra Pradesh and APTS, the Company Law Board could not have exercised their power under section 402( e ) of the Act. Thirdly, any modification of an agreement by the Company Law Board can be only be after obtaining consent of the parry concerned. It is nobody's case that the Government of Andhra Pradesh, APTS and AKSH gave con sent for modification of EPC contract. Indeed, as rightly pointed out by learned senior counsel for the respondents, the petitioners never prayed to the Company Law Board either to terminate or modify EPC contract between APAKSH and AKSH. A statutorily constituted Tribunal no doubt would be committing an error if they failed to exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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