TMI Blog2009 (8) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... hether there is any implied or express bar to the maintainability of the suit? - Section 9 of the CPC, states that the civil court shall have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred. HELD THAT:- For the purpose of examining the above question, the court is accepting as correct the averments in the plaint as originally filed. For the sake of completeness, although the application for amendment has not yet been allowed, this court has also kept in purview the plaint as sought to be amended. The amendments, if allowed, would add to the prayers in the suit to seek a declaration that the resolutions passed at the AGM/Poll held on 25th September 2008/26th September 2008 would be null, void and non est. The amendment does not seek to delete the mandatory injunction originally sought directing the appointment of an independent Chartered Accountant to carry out a fresh audit of the books of account of DSIL. Further the prayer of removal of the auditor (Defendant No.14) as auditor of DSIL and directing the appointment of another auditor in place thereof also remains. In effect, the suit even after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and distinct from what is being presently agitated before the CLB. Likewise u/s 397, it is called upon to adjudicate on whether the affairs are being conducted in a manner oppressive to any member or members . Further, both u/s's 397(2) and 398 (2), the CLB may with a view to bringing to an end the matters complained of, make such order as it thinks fit. The inevitable conclusion is that the jurisdiction of the civil court is impliedly barred. A perusal of the application filed on 28th February 2008 would show that the very averments made in the plaint, i.e out about the investments in DSIL and in DHL and other facts set out in the plaint have been included in the application before the CLB. It is not, therefore, possible to accept the plea of the learned Senior counsel for the Plaintiff that what constitute the subject matter of the suit is different and distinct from what is being presently agitated before the CLB. To this Court, it appears that the facts of the present case are different inasmuch as the plaintiff here has already approached two other fora namely the CLB with a petition u/s 397 and 398 as well as the SEBI and SAT. This is, therefore, not a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ('DSIL'), Defendant No. 1 and thereby being its single largest shareholder. On 22nd September 2008, the plaintiff received the Annual Report and audited accounts of DSIL for the year ending 31st March 2008, which had been approved by the Board of Directors of DSIL on 25th June 2008. According to the plaintiff, the Annual Report and audited accounts revealed that they were grossly inaccurate and/or lacking in several material particulars and do not reflect a true and fair view of the Company's affairs, apart from being in violation of the provisions of the Companies Act, 1956 ('Act'), the provisions of the Listing Agreement with the Bombay Stock Exchange (BSE) and the Company's own Code of Business Conduct and Ethics. It is claimed that these constituted unjust and unlawful acts of the Defendants which were likely to cause irreparable harm and injury not only to the plaintiff but also to over one lakh other shareholders of the Defendant No. 1 company. 3. Tracing the background to the present suit, it is stated in the plaint that Versa Trading Limited ('VTL') was a wholly owned subsidiary of DSIL. In September 2002, DSIL sold 50.02% of its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom it had sold the remaining 49.98% shares held by it in VTL, enquiries revealed that they were sold to DCM Hyundai Limited ('DHL'). Also AIL, RSL and INL sold their 50.02% shares in VTL to DHL. 6. On 16th October 2007, a resolution was passed by the Board of Directors of DSIL by which 7 lakh share warrants were to be issued to the Promoters/Promoter Group companies including VTL. 6.99 lakh warrants in the sum of Rs. 18.63 crores were allotted to VTL. This despite the fact that VTL had a negative net worth and was prohibited by the Reserve Bank of India ('RBI') by an order dated 24th November 2001 from transacting the business of a non-banking financial institution. Also, VTL was not authorized by its Memorandum and Articles of Association to make such investments. The minutes of the meeting of the Board further show that rights issue was never discussed in detail and Letters of Intent had been received by the proposed allottees including VTL. 7. On 18th October 2007, a notice was sent to the shareholders of DSIL under Section 192A of the Act stating that the purpose of the preferential issue was to raise funds for working capital purposes and supplementing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otment of shares although it required only Rs. 12 crores. Further the actual receipt of moneys of Rs. 18.9 crores was not evidenced except for the certificate given by Defendant No. 14 A.G. Ferguson Co. No information was given as to the utilization of the moneys allegedly raised for the payment of cane arrears. The plaintiff also stated that it had come to know that DSIL had raised Rs. 87.752 crores from the Sugar Development Fund and a consortium of Banks between April 2007 and April 2008 of which Rs. 45.752 crores was specifically earmarked for the purpose of payment and sugarcane arrears. Therefore, the reason given for raising funds through allotment of shares was apparently false. It is submitted by the plaintiff that reasons given by DSIL for raising funds has kept changing from time to time. It is further pointed out that although the shares were to be allotted in three tranches, DSIL issued the entire shares by 1st April 2008. Further, 20.7 lakhs shares were allotted to VTL. 11. On 26th March 2008, a resolution was passed by the Board of Directors of VTL stating that it was now a wholly owned subsidiary of DHL which had proposed to extend its financial year by six mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Annual Report of DSIL. The plaint acknowledges that there is pending litigation before the CLB, this Court and the Securities Appellate Tribunal ('SAT') in which the DSIL had been bearing the cost of litigation initiated/defended by it. However, the promoters of DSIL have been benefited by the fraud and it is solely at their behest and for their benefit that the litigation was being carried out in the name of DSIL. According to the plaintiff, the Auditors (Defendant No. 14) of DSIL had also committed a breach of the provisions of the Act by failing to report the above position in their Report. The plaintiff alleges that there is a breach of fiduciary duty cast on the Board of Directors and the individual directors have been arrayed as Defendant Nos. 2 to 11. In para 14 of the plaint, numerous irregularities in the Annual Report and the Accounts have been set out. According to the plaintiff, the Defendants had violated Sections 209 to 211, 215, 217, 219 and 227 of the Companies Act, 1956 and several provisions of the Listing Agreement with the Bombay Stock Exchange including but not limited to Clause 32, Clause 41, and Clause 49. 15. In para 19 of the plaint, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso filed IA No. 11686 of 2008 under Order XXXIX Rules 1 and 2 read with Section 151 of CPC in which prayer was made for an ad interim injunction to restrain the defendants from proposing or passing the resolution adopting or from giving effect to the Annual Report and Audited Accounts for the year ending 31st March 2008 at the Annual General Meeting (AGM) proposed to be held on 25th September 2008 and for a direction for a fresh audit of the books of account of DSIL to be carried out by an independent and qualified Chartered Accountant. 18. On 23rd September 2008, this Court directed summons to issue in the suit and notice in the aforementioned application. However, no interim injunction was granted since it was felt that if the resolution in question were stayed, irreparable injury could be caused to DSIL. The court took note of the contention of learned Senior counsel for Defendant No. 1 who appeared on caveat and pointed out that similar points were urged by the plaintiff before the CLB and before SEBI/SAT but without success. 19. After the AGM was held on 25th September 2008 and the resolution in question passed, the plaintiff filed IA No. 12823 of 2008 under Order VI Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he removal of Defendant No. 14 as an Auditor is barred since there is specific procedure outlined in Section 225 of the Act for removal or appointment of an Auditor. That cannot be short circuited by resorting to a civil suit. (e) At the AGM held on 25th September 2008 the plaintiff was represented by Mr. Anil K. Mittal who demanded poll on several items on the agenda. Poll was accordingly taken on the following day i.e. 26th September 2008. The result thereof was announced by the Chairman based on the scrutinizer's report. All the seven agenda items were passed with more than the requisite votes. Since the plaintiff had participated in the said meeting it should be deemed to have abandoned the present proceedings and therefore the cause of action leading to the filing of the present suit did not survive any more. (f) Towards implementation of the said resolutions, copy of balance sheet, profit and loss account and related documents were filed with ROC at New Delhi and they were taken on record by the said office. The Annual Report has also been uploaded on SEBI's web-site on 29th September 2008 in terms of the Listing Agreement. Reappointments/ appointments of the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It does not bar the maintainability of the suit itself. In any event, the relief concerning the removal of the auditor has not been claimed by the plaintiff before CLB or the SAT and, therefore, not hit by Section 41(h) SRA. Further, notwithstanding Section 34 SRA, the common law remedy is not taken away. It is submitted that none of the grounds on which the Defendants seek rejection of the plaint are spelt out in Order VII Rule 11 CPC. It is submitted that this is not a case where there is no disclosure of cause of action, or where the plaint contains a statement whereby the suit appears to be barred by any law. As regards the proceedings before the SAT, it is submitted that the reliefs sought before that authority are different from those sought in the petition before the CLB and in the present suit. The proceedings before the SAT primarily concern the violation of the SEBI Takeover Code. It is therefore submitted that Section 15 Y SEBI Act does not bar the present suit. Reference has been made to a large number of decisions including CDS Financial Services (Mauritius) Limited v. BPL Communications Limited [2004] 121 CC 374 (Bom), Jaypee Cement Ltd., in re. [2004] 62 CLA 329 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted. By an oral statement at the bar, the plaintiff cannot seek to restrict the relief being sought for in the suit. It is submitted that suit is also bad for misjoinder of parties. 27. It is submitted that the test is really whether the relief being sought in the suit is expressly or impliedly barred by law. There is a clear bar in terms of the Act to entertaining the suit for the same relief as is sought before the CLB. It is submitted that after the enactment of the Act and, in particular, Sections 397, 398 and 402 thereof the relief against oppression and mismanagement can no longer be termed as a common law right. It is contended that there is an express bar to claiming the relief of removal of the auditor without following the procedure under Section 225 of the Act. 28. Mr. Ganju, learned Senior counsel refers to the various decisions including Anil Gupta v. J.K. Gupta 2002 (110) CC 610 (P H), Kamal Kumar Dutta v. Ruby General Hospital Limited (2006) 7 SCC 613, Khetan Industries Pvt. Limited v. Manju Ravindraprasad Khetan AIR 1995 Bombay 43, Bennet Coleman and Co. v. Union of India 1997 (47) CC 92, M/s. Ammonia Supplies Corporation (P) Limited v. Modern Plastic Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent Chartered Accountant to carry out a fresh audit of the books of account of DSIL. Further the prayer of removal of the auditor (Defendant No. 14) as auditor of DSIL and directing the appointment of another auditor in place thereof also remains. In effect, the suit even after the proposed amendments continues to be one seeking the relief of declaration and consequential injunction. 31. The question is whether the suit framed as such is impliedly barred? According to the Defendants, the plaintiff has already elected to go before two other fora - the CLB and the SAT. Pending before the CLB is a petition filed by the plaintiff complaining of oppression and mismanagement within the meaning of the Act. The provisions of that Act and in particular Sections 397 and 398 have been held to be a complete code. The question whether the issues arising out of the management of the affairs of a company can be adjudicated in a civil suit and whether such suit is impliedly barred in view of the remedy available under the Act, has come up before the courts earlier. 32. In Bennet Coleman Co. v. Union of India (supra) the Division Bench of the Bombay High Court explained the scope a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court (vide Section 402} while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers. 33. Emphasizing that the powers of the Court were wide, given the object that is sought to be achieved by the exercise of such power under Sections 397 and 398, it was explained that Clauses (a) to (g) of Section 402 indicate the widest amplitude of the court's power . It was then explained as under: An examination of the aforesaid Sections clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed there under and the object sought to be achieved by these Sections and beyond this limitation which arises by necessary implication it is difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as impliedly barred in relation to the question of oppression or mismanagement. The aggrieved persons could certainly approach the CLB. Notice was taken of the judgment of the Supreme Court in Ammonia Supplies Corporation (P) Limited v. Modern Plastic Containers Pvt. Limited AIR 1998 SC 3153. 37. In Ammonia Supplies Corporation (P) Limited (supra) the Supreme Court was considering the question whether an application for rectification of the register of members in terms of Section 155 of the Act and disputes arising there under can be agitated before the civil court. It was held that in the first place the civil court was required to examine on the facts of each case whether the application made was for rectification or 'something else'. It was held that it was necessary to remove the cloak and examine what the dispute actually was about. It was further explained as under: 26. ...In case any claim is based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the Court feels such claim does not constitute to be a rectification but instead seeking adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim made in the suit does not contain any aspect which cannot be adjudicated by the CLB. Under Section 402(g) of the Act, the power of the CLB would include the passing of an order which may provide for any other matter for which in the opinion of the Tribunal it is just and equitable that provision should be made. Under Section 398(1) of the Act, the scope of the power of the CLB is to determine whether the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company . Likewise under Section 397, it is called upon to adjudicate on whether the affairs are being conducted in a manner oppressive to any member or members . Further, both under Sections 397(2) and 398(2) of the Act, the CLB may with a view to bringing to an end the matters complained of, make such order as it thinks fit. The inevitable conclusion is that the jurisdiction of the civil court is impliedly barred. 41. If there was any doubt whether the issues sought to be raised in the civil suit can be agitated before the CLB, that stands removed by the conduct of the plaintiff itself in filing a further application before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy financial burden on the company by the purchase of equipment and also lease of the hospital which were against the interests of the company and could not have been approved by the majority. It was held that the principle in Foss v. Harbottle (1843) 2 Hare 461 could not be a bar to granting the reliefs sought for in the suit. Negativing the argument that there was a remedy available before the CLB under Sections 397 and 398 of the Act, it was held that the scope of an application under those Sections was limited. It was further held: It is intended to prevent only continuing wrongs and does not enable the shareholders to challenge concluded transactions. Moreover, the provisions are essential intended against the tyranny of the majority against the minority shareholders. With respect, this Court is unable to accept the conclusion arrived at by the Kerala High Court, although reliance was placed upon the judgment in Avanthi Explosives P. Limited v. Principal Subordinate Judge Tirupathi [1987] 62 Comp Cas 301 (AP). It must be recalled that these decisions were given at a time when the judgment of the Supreme Court in M/s. Ammonia Supplies Corporation (P) Limited (supra) was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of 25th July 2001. 46.2 The plaintiff challenged the impugned action on three grounds namely; (a) that the conduct of the Defendant was actuated by mala fides; (b) the transaction required the consent of the shareholders under Section 293(1)(A) of the Act; and (c) if the transaction were completed without the approval of the company in a general meeting, it would be ultra vires the company. A preliminary objection was raised by the Defendant that the arguments based on mala fides were really in substance an allegation of oppression and mis-management by the majority shareholders coming under the purview of Sections 397 and 398 of the Companies Act and that the plaintiff should have approached the Company Law Board for appropriate reliefs. 46.3 The Division Bench of the Bombay High Court in CDS Financial Services (Mauritius) Limited v. BPL Communications Limited took note of the legal position arising from the earlier decisions of the Supreme Court in Dhulabhai v. State of Madhya Pradesh and Raja Ram Kumar Bhargava v. Union of India. It also took note of the later decision in Ammonia Supplies Corporation Private Ltd. v. Modern Plastic Containers Pvt. Ltd. as well as the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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