TMI Blog2009 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 - N. PAUL VASANTHAKUMAR, J. V. Ramakrishnan and P. H. Arvindh Pandian for the Appellant. A. K. Mylsamy and T. K. Bhaskar for the Respondent. JUDGMENT N. Paul Vasanthakumar, J. By consent of the parties these appeals are taken up for final disposal. 2. Company Appeal No. 16 of 2009 is filed by the appellants, who are respondents Nos. 3 and 5 in C. P. No. 3 of 2007 against the order of the Company Law Board dated September 13, 2008, made in C. A. No. 101 of 2008. Company Appeal No. 20 of 2009 is filed by respondents Nos. 1, 2, 8 and 9 in C. P. No. 3 of 2007 against the very same order made in C. A. No. 101 of 2008 dated September 13, 2008. 3. Since the very same order is challenged in both these company appeals by the appellants, who are respondents in C. P. No. 3 of 2007, these appeals are taken up together and disposed of by this common judgment. For the sake of convenience and easy understanding, 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, which were allotted to the said P. Asher, in whose name the licence was initially granted by the Government of India for the Textile Mill. G. T. K. Rajasekar, one of the sons of G. T. Krishnaswamy Naidu was adopted by T. R. Narayanaswamy and thereafter he was no longer associated with the company. His 1,000 shares were allotted to his son Ranganathan. 7. According to the petitioners, after the death of T. G. Krishnaswamy Naidu and his wife Vijayammal, their shares were equally transferred to their three sons. It is stated in the company petition that as on March 31, 2006, the paid-up capital of the company was Rs. 90,00,000 consisting of 90,000 equity shares of Rs. 100 each. The first and second petitioners held 13,800 shares each out of 90,000 equity shares and as such they were holding more than 10 per cent, of the paid-up capital. Consequently, they claim that they are entitled to file application under sections 397 and 398 of the Companies Act, 1956, regarding 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. Krishnaswa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings and no such general body meeting was held for the past six years. The second respondent and his associates have taken undue advantage of the petitioners' silence by presuming that the petitioners have given their consent/approval for various acts of mismanagement on the divergence of the funds of the company to the companies in which the second respondent has interest, which is detrimental to the interests of the company and its shareholders. By citing various instances of mismanagement by all the members of the board, the petitioners contend that the second respondent and his associates should not be allowed to deal with any of the immovable assets of the company or to encumber the same. It is also stated in the petition that due to the conduct of the second respondent and his associates, the petitioners have lost their confidence as they are excluded from the participation of the management and having regard to the sound financial position of the companies, it would not be in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authenticating the contents in paragraphs 1 to 12 of the counter affidavit as correct on February 22, 2007. After filing the said counter affidavit the fourth respondent filed C. A. No. 213 of 2007 in October, 2007, with a prayer to withdraw the counter statement or in the alternative ignore the counter statement and delete his name from the array of respondents and transpose him as the third petitioner and prose cute the company petition along with the petitioners. The said application was resisted by the appellants herein and the Company Law Board by order dated May 23, 2008, dismissed the same. The said order passed in C. A. No. 213 of 2007 has not been challenged and the same has become final. After the disposal of the said application, the petitioners in the company petition filed a memo on June 9, 2008, stating that the petitioners have decided to give up the fourth respondent from the array of parties and to permit the petitioners to carry out the amendment in the company petition in accordance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memo filed and ordered and for carrying out the amendment after deletion, C. A. No. 101 of 2008 was ordered on September 13, 2008. 19. Mr. V. Ramakrishnan and Mr. P. H. Arvindh Pandian, learned counsels appearing for the appellants in their respective appeals argued that the allegations made against the fourth respondent in the company petition having not been withdrawn and the relief sought for to appoint the administrator by superceding the board of the company having not been amended, the petitioners have no right to pray for deletion of the name of the fourth respondent, against whom also allegations are made and relief is sought for. The fourth respondent is a necessary and proper party and without his presence in the company petition the issues raised in the company petition cannot at all be adjudicated. The allegations having been made against all the directors including the fourth respondent as "yes- men" of the second respondent, the petitioners cannot give up the fourth respondent alone on the pleadings 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 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counter affidavit filed therein. The company petition is filed on the ground of oppression and mismanagement by the directors, specifically stating that the directors including the fourth respondent in the company petition functioned as "yes-men" of the second respondent and various decisions were taken with regard to the affairs and management of the company, which are detrimental to the company and its shareholders. There is no one in the board to protect the interest of the petitioners. The company petitioners have prayed among other things, to appoint an auditor to go into the books and records of the company and surcharge the respondents whoever was 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, to appoint an administrator by superceding the board of the company. From the perusal of the above prayers it is evident that specific relief is also sought against the fourth respondent in the company petition. The petitioners in the company petition having prayed for such reliefs in the company petition, have rightly impleaded all the directors including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the circumstances under which such transposition could be ordered is clearly spelt out in the second limb of the rule, which directs the court to have due regard to the question, whether the applicant has substantial question to be decided as against any of the other respondents. The court found that there is identity of interest between the plaintiff and the defendants who transposed themselves by order of court below as plaintiff in that suit. Learned counsel for respondents Nos. 1 and 2, while relying on paragraph 12 of the very same judgment, submitted that the hon'ble court considered the judgment passed in Nagoor Gani [1988] 2 MLJ 171, wherein the court considered the scope of Order 23, rule 1A of the CPC and held in paragraph 12 of that judgment : 'the principle that follows this rule is that there must be an identity of interest between the plaintiff and such a defendant who wants to transpose as a plaintiff. As per the principles and law laid down in that case, there must be an identity of interest along with the petitioner against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers to carry out the amendment. 28. From the narration of the above undisputed facts it is evident that with out filing any application as required under regulation 17 of the Company Law Board Regulations, 1991, deletion of the name of the fourth respondent was ordered on the basis of the memo. Regulation 17 reads thus : "17. Contents of interlocutory application. An application filed subsequent to the filing of the petition applying for any interim order or direction shall, as far as possible, be in Form No. 2 in Annexure II and shall be accompanied by an affidavit verifying the application in the manner laid down in regulation 14 : Provided that it shall not be necessary to present a separate application to seek an interim relief or direction, except for condonation of delay in filing the petition, if, in the original petition, the same is prayed for." 29. Regulation 17 provides for filing of miscellaneous application as prescribed under Form No. 2, for getting any order during the pendency of the company petition. 30. Learned counsels for the appellants contended that when the regulation contemplates filing of an application, it is not open to the petitioners t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inbuilt mandatory safeguards to be followed by the company court while passing orders and winding up as envisaged in the Companies (Court) Rules, 1959. 33. Applying the principles contained in the above decision to the facts of this case, I hold, the proceedings of the Company Law Board being covered under the Company Law Board Regulations, 1991, the procedures contemplated is bound to be followed by the Company Law Board while disposing of any matter as an interim measure or finally. The said violation of the regulations committed by the Company Law Board is a statutory violation and the same is a question of law that arises in this case for interference under section 10F of the Companies Act, 1956. 34. The fourth respondent is also a proper and necessary party in the company petition as the allegations are made against all the directors including the fourth respondent. Without the presence of the fourth respondent, effective adjudication of the company petition is not possible, particularly when the petitioners have not chosen to amend the prayer in the company petition till date. The conduct of the fourth respondent also cannot be appreciated due to the following reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights would materially be affected. His right, title and interest in the property demised to the tenant or licensee would be in jeopardy. It may be that the construction which is sought to be demolished by the Municipal Corporation was made with or without the consent of the landlord or the lessor. But the demolition would undoubtedly materially affect the right, title and interest in the property of the landlord. Under those circumstances, the landlord necessarily is a proper party, though the relief is sought for against the Municipal Corporation for perpetual injunction restraining the Municipal Corporation from demolition of the building. Under those circumstances, the question of the commercial interest would not arise. In Ramesh Hirachand Kundanmal v. Municipal Corporation of Greater Bombay case [1992] 2 SCC 524, this court had pointed out in paragraph 18 of the judgment that the notice did not relate to the structure but to two chattels. Original lessee from the landlord had no direct interest in that property. Under these circumstances, it was held that the second respondent has no direct interest in the subject-matter of the litigation and the addition thereof would r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tests to be applied for determining the right of a party to implead another, in a pending suit or other proceeding in paragraph 17, which reads thus : "17. In a nut-shell, the tests to be applied for determining the right of a party to implead another, in a pending suit or other proceeding, may be crystallised into the following categories : ( a )If without his presence, no effective and complete adjudication could be made ; ( b )If his presence is necessary for a complete and effectual adjudication of the dispute though no relief is claimed against him ; ( c )If there is a cause of action against him ; ( d )If the relief sought in the suit or other proceedings is likely to be made binding on him ; ( e )If the ultimate outcome of the proceedings is likely to affect him adversely; ( f )If his role is really that of a 'necessary witness' but is sought to be camouflaged as a 'necessary party'. If a party to a litigation satisfies the court that the person sought to be impleaded, passes any one or more of the above tests, then he is entitled to get the discretion of the court exercised in his favour. The above tests are not exhaustive and at times, even if a person ..... X X X X Extracts X X X X X X X X Extracts X X X X
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