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TMI Blog2009 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding, the parties will be referred to in this judgment according to their rank in C. P. No. 3 of 2007. 4. The only issue arises for consideration in these appeals are as to whether the Company Law Board is right in deleting the name of the fourth respondent in the company petition, who is the fifth respondent in Company Appeal No. 16 of 2009 and the fourth respondent in Company Appeal No. 20 of 2009. 5. The case of the appellants are that respondents Nos. 1 and 2, who are sisters, have filed C. P. No. 3 of 2007 with the following prayers : (a)To appoint the petitioners as directors or their nominees on the board of the company. (b)To amend the articles of association of the company to give effect to the proportional representation on the board. (c)To declare the transfer of shares by the first respondent-company in the capital of the eighth and ninth respondents are null and void. (d)To declare that the eighth and ninth respondents continue to be the subsidiary of the first respondent-company. (e)To appoint an auditor to go into the books and records of the company and surcharge the respondents whoever responsible for the defalcation of the funds with respect to inter-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding oppression and mismanagement of the company by respondents Nos. 2 to 6 in the company petition. 8. The company petitioners are daughters of G. T. K. Shanmugasundaram, one of the sons of late G. T. Krishnaswamy Naidu, who was one of the directors of the company till his death. The petitioners' father died on November 6, 2000, leaving behind his wife Geetha and the petitioners. The members of the board of the company were only G. T. Krishnaswamy Naidu and his sons along with the fourth respondent. During the lifetime of G. T. K. Sivasubramaniam, he was functioning as a managing director of the company and he adopted the second respondent, son of late G. T. K. Parthasarathy in the year 1974 and after the demise of G. T. K. Sivasubramaniam in the year 1985, the second respondent is appointed as a managing director of the company and he is in control and management of the affairs of the company. The company had three subsidiary companies as on December 24, 1975. They were : (1)Tirupur Gin and Press P. Ltd., (2)Vijayeswari Ring Travellers P. Ltd. (eighth respondent), and (3)Sovereign Engineers P. Ltd. (ninth respondent). 9. According to the petitioners, as on today, the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of the company to wind up and the petitioners being minority shareholder. 12. One of the prayer made in the company petition is to appoint an auditor to go into the books and records of the company and surcharge the respondents whoever responsible for the defalcation of the funds with respect to inter-company transactions as reflected in the balance-sheets for the year ending March 31, 2005 and March 31, 2006 and to pass an order of injunction restraining the respondents from selling, alienating or encumbering any of the assets of the company and to appoint an administrator by superceding the board of the company. 13. For the said company petition, the fourth respondent, who is one of the director, filed separate counter affidavit denying the contentions raised in the company petition. It is stated in the counter affidavit that the intention behind the petitioners are to enter into the management of the first respondent-company and to extract huge money from the respondents and also to cause hardship to the business and development of the company for their personal benefits. It is further stated in the counter affidavit that the allegations made in the company petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the application filed by them. For carrying out the amendment of the cause title only the petitioners have filed C. A. No. 101 of 2008 before the Company Law Board. 15. The said memo and application were opposed by the appellants herein by contending that the earlier application filed in C. A. No. 213 of 2007 by the fourth respondent having been dismissed on May 23, 2008, the present memo filed is not maintainable. It is further contended that in the counter affidavit that the petitioners having made allegations against all the individual directors including fourth respondent by treating him on par with respondents Nos. 2, 3, 5 and 6 and relief is also sought against the fourth respondent, the prayer made to delete the name of the fourth respondent alone from the array of parties in the company petition, without giving any reason, cannot be ordered, particularly when the allegations as well as the prayer remained as such. 16. The Company Law Board by order dated September 13, 2008, allowed the memo filed by the petitioners and ordered to delete the name of the fourth respondent from the array of parties. Consequently, the application filed in C. A. No. 101 of 2008 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and the counter affidavit filed in the company petition. Section 402(g) of the Companies Act, 1956, empowers the Company Law Board to go into all the aspects when oppression and mismanagement is alleged. The Company Law Board committed an error in entertaining the memo without an application and as such the Company Law Board has violated sections 397 and 398 of the Act. As per section 403 of the Act, interim order can be passed only in applications. The memo filed in which order is passed, is not an application. Hence the Company Law Regulation No. 17 and Form No. 2 have not been followed by the Company Law Board while entertaining the memo. Since there is procedural violation while ordering the memo without any application, the Company Law Board has violated the rules and regulations, which is a question of law coming under the purview of section 10F of the Companies Act, 1956, and therefore the company appeals are maintainable. Learned counsels also submitted that in the memo filed for deletion, no reason is stated and the fourth respondent was the director at the time of the alleged mismanagement and the Company Law Board's order reserving right, if necessary to call for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any petition. The petitioners in the company petition having prayed for such reliefs in the company petition, have rightly impleaded all the directors including the fourth respondent in the company petition. If all the directors are not impleaded, such a prayer could not have been made in the company petition and it will be hit by non-joinder of proper and necessary parties. 23. The fourth respondent in the company petition also filed a counter affidavit and denied the averments made in the company petition and prayed for dismissal of the company petition with costs. It is also stated in the counter affidavit that the alleged close relationship between the directors are denied and the directors are keeping arms-length distance in their relationship and running the company efficiently and they are all independent directors and they are appointed only on the basis of their experience in the relevant field and to their capacity they contribute to the company and the company is running in a profitable manner. It is also stated in the counter affidavit that the other directors are professionally qualified and have their independent income of their own. 24. Respondent No. 4 has filed C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the respondents. But in this case there is no identity of interest as stated supra. I agree with the submission of learned counsel for the respondents that the applicant prima facie has not made out any substantial case to prove his identity of interest along with the petitioner against the respondents. It is on record that the petitioners are not willing to sell their shares whereas the applicant is willing to sell his shares which shows that there is no identical interest. In my view it is also to be seen whether the success of the petitioners in the company petition would result in automatic success of the applicant who seeks transposition. The applicant seeking an order for transposition on the basis that the petitioners have not been taken on the board and if they succeed in the petition, they will be entitled to be inducted on the board of directors of the company and thus his prayer in this present application would be automatically fulfilled. In view of the foregoing facts and legal submissions, I find that there is no identity of interest of the applicant along with the petitioners against the respondents. Accordingly, issue No. (ii) is also answered in the negative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contended that when the regulation contemplates filing of an application, it is not open to the petitioners to bye- pass the regulation, which are having statutory force, and filing memo for deletion of the name of the fourth respondent in the company petition is a statutory violation and therefore the memo ought not to have been entertained and permission ought not to have been granted by the Company Law Board and the same is a question of law that arises for consideration in these appeals under section 10F of the Companies Act, 1956. 31. Learned counsels for the respondents on the other hand submitted that regulation 44 confers inherent powers to the Company Law Board to pass orders that may be necessary for the ends of justice or to prevent abuse of the process of the Bench. The Company Law Board, no doubt is vested with the inherent powers, however having regard to the dismissal of C. A. No. 213 of 2007 on May 23, 2008 and another application filed to treat the fourth respondent as a petitioner even before the order is passed in the memo, without challenging the said order, refusing such a prayer by the very same Company Law Board, the fourth respondent only abused the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The conduct of the fourth respondent also cannot be appreciated due to the following reasons : "The fourth respondent has chosen to file C. A. No. 213 of 2007 to transpose him as petitioner and to withdraw the counter affidavit filed in the company petition. By an elaborate order dated May 23, 2008, the said application was dismissed. Thereafter, the petitioners have filed the memo on June 9, 2008 and the said memo was also hotly contested by the parties including the fourth respondent and when the orders are reserved by the Company Law Board, the fourth respondent filed another application before the Company Law Board with supporting affidavit dated July 26, 2008, with a prayer to take on record him as applicant and grant similar relief which it may grant to the petitioners in the main company petition. The said application filed is not maintainable as the fourth respondent has not chosen to challenge the findings and the dismissal order made in C. A. No. 213 of 2007." 35. The above conduct of the fourth respondent establishes the fact that he is trying to circumvent the order made in C. A. No. 213 of 2007 dated May 23, 2008, which is an abuse of the process of the Bench. 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the subject-matter of the litigation and the addition thereof would result in causing serious prejudice to the appellant and the substitution or the addition of a new cause of action would only widen the issue which was required to be adjudicated and settled. It is true, as pointed out by Shri Nariman that in paragraph 14, this court in that case had pointed out that what makes a person a necessary party is not merely that he has relevant evidence to give on some of the questions involved ; that would only make him a necessary witness. It is not merely that he has an interest in the correct solution of some question involved and has thought of relevant arguments to advance. The only reason which makes it necessary to make a person a party to an action is that he should be bound by the result of the action and the question to be settled, therefore, must be a question in the action which cannot be effectually and completely settled unless he is a party. The line has been drawn on a wider construction of the rule between the direct interest or the legal interest and commercial interest. It is not necessary for the purpose of this case to go into the wider question whether witness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t times, even if a person falls under any one of the above categories, the court may refuse to implead him. To quote an example, a subsequent purchaser of a property, which forms the subject matter of the suit, may satisfy the tests (d) and (e) above mentioned and yet the court may decline to implead him on the basis of the doctrine of lis pendens. Therefore, the above list is only a broad statement of the principles that could be culled out from judicial precedents." 38. Applying the above said tests to the facts of this case, particularly with regard to the prayer made in the company petition, I hold that the fourth respondent is bound to be retained as a party respondent in the company petition. Deletion of his name permitted by the Company Law Board on the basis of the memo filed by the company petitioners is unsustainable and the said order is set aside. 39. The company appeals are allowed. No costs. Connected miscellaneous petitions are closed. Learned counsels appearing for the appellants as well as the respondents submitted that the Company Law Board may be directed to dispose of C. P. No. 3 of 2007 within a given time. Hence the Company Law Board is directed to dispose o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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