Kanthi Narahari - (1.) THE present application is filed under regulations 17 and 44 of the Company Law Board Regulations, 1991 read with order 6, rule 17 of the Code of Civil Procedure, 1908 ('Code'). Shri Naganand, learned senior counsel appearing for the applicants submitted the brief facts of the case. It is submitted that the applicants/petitioners have filed the above company petition praying that this hon'ble Board may be pleased to declare that the purported allotment of 6,000 shares in favour of respondent Nos. 6 and 7 at the meeting of the Board stated to have been held on 24th September, 1990 as void, illegal and inoperative and direct rectification of the register of members of the company by deleting the names of respondents 6 and 7 from the register of members to the extent of 3,000 shares each allotted to them on 24th September, 1990. The applicants are desirous of urging additional grounds and prayers in support of their petition. The contentions now being urged as additional grounds are purely legal contentions and are necessary for proper adjudication of the questions in issue in the present proceedings.
(2.) HE submitted that there are broadly four groups of shareholders and the purported allotment made in the year 1990 in respect of 6,000 shares is bogus, motivated and illegal. The present application is filed seeking amendment, since the hon'ble High Court of Karnataka permitted filing of additional pleadings. Therefore, the present application is made seeking the following amendments. It is submitted that no new facts are being brought in except some provisions of law. 2.1. Add the following additional grounds after ground No. (xviii): (xix) It is submitted that the purported allotment of 6,000 shares in favour of respondent Nos. 6 and 7, on the face of it, is for a collateral purpose. Neither was the allotment of additional shares bona fide, nor was it in the interest of the company, nor was a proper and legal procedure followed to make the allotment. The motive for the allotment was mala fide, the only motive being to gain control of the company. The hon'ble Supreme Court, in the case of Dale and Carrington Invt. (P.) Ltd. v. P K Prathapan : [2004] 62 CLA 245 (SC) : [2005] 1 SCC 212, in similar circumstances, held that the entire allotment of shares was oppressive and was liable to be set aside. In Pearson Education Inc. v. Prentice Hall India (P.) Ltd. : [2006] 80 CLA 234 (Del.), the hon'ble Delhi High Court has held that even one such act would be sufficient to constitute oppression and mismanagement if it disturbs the equity stakes decisively by bringing down the equity share of the petitioners. The said decisions arc squarely applicable to the facts of the present ease. The allotment of 6,000 shares in favour of respondent Nos. 6 and 7 is wholly oppressive and is liable to be set aside under section 397 of the Companies Act, 1956 ('the Act'). (xx) The allotment of 6,000 shares in favour of respondent Nos. 6 and 7 is wholly oppressive to the petitioners. Having regard to the fact that respondent is a small domestic company, a quasi -partnership having been formed from a partnership firm, it would be just and equitable to wind up the respondent No. 1 -company as there is complete breakdown of mutual good faith and trust on account of respondent No. 7's conduct. This has also been so found by the Division Bench of hon'ble High Court in OSA No. 46 of 2006 and connected cases disposed of on 22nd March, 2012 (now reported SM Kannappa Automobiles (P.) Ltd. v. Bhupinder Rai : [2012] 110 CLA 156 (Kar.)}. Winding up would prejudice the petitioners and, therefore, alternate relief under sections 397 and 398 is warranted to protect the company and the interest of its members, the petitioners herein. 2.2. Add the following additional prayers: 18. Declare that the purported allotment of 6,000 shares in favour of the respondent Nos. 6 and 7 at the meeting of the Board stated to have been held on 24th September, 1990, as prejudicial to the interests of the company and oppressive to the petitioners, and consequently set aside the said allotment. 19. Remove respondent Nos. 2, 5 and 7 as directors of the company and disqualify them to hold office as directors of respondent No. 1 -company. In support of his submissions, the learned senior counsel relied upon the following decisions. (i) Orders passed in CA Nos. 24 and 25 of 2008 in CP No. 55 of 2008 dated 23rd January, 2009 (CLB, Chennai). In the matter of BEML Ltd. v. BEML Mid -West {now reported, [2009] 91 CLA 115 (CLB)}: In view of my foregoing conclusions, on the amendment of pleadings, in the present case and after due application of the propounded legal proposition, summarised, the strength of various decisions of the Supreme Court and different High Courts in Ashok Millal v. Uniworth Resorts Ltd. (supra), I am inclined to allow the prayer of the applicant for amendment of the main petition, as claimed in CA No. 24 of 2008, rejecting the opposite plea that the proposed amendments would 'constitute a totally new case arising of a new cause of action as well as totally new relief's all of which are totally beyond the scope of the petition and thereby this issue is answered in the affirmative. (ii) In the matter of Karedla Suryanarayan v. Sri Ram Dass Motor Transport (P.) Ltd. : [1998] 28 CLA 233 (CLB)/ : [1998] 92 Comp Cases 275 (CLB)... It is of the view that Since, on most of the occasions, when subsequent events are sought to be brought on record either through an amendment to the main petition or through an application, certain interim relief's are also sought for, as happened in this application. Since in such cases, the main petition itself would be pending and there would have been no occasion for us to find out whether the petitioners have made out a case for grant of relief thereof any interim relief prayed for in such applications containing subsequent events could only be related to maintenance of status quo in regard to the affairs of the company. No relief which would upset the status quo can be granted when the allegations in the main petition are yet to be assessed by the Company Law Board. Thus, our conclusion, on the issue of subsequent events, is that there is no bar to subsequent events being brought on record and being considered by us also but such consideration would be only to mould the relief to be granted in case the petitioner succeeds in the main petition and any interim relief granted, based on subsequent events, would be limited to status quo being maintained in regard to the affairs of the company. (iii) In the matter of Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd., [2006] 36 CLA 152 (Bom.)/ : [2001] 106 Comp Cases 25. It is held : The Division Bench was referring to the judgment of this court in the case of Khimji M Shah, In re., [1988] MLJ 38. The Division Bench also held that it is necessary that with a view to see that there is no multiplicity of proceedings, amendments should be allowed. The aforesaid decision of the Division Bench makes it clear that the decision of the Supreme Court in Kalinga Tubes Ltd., In re., [1965] 35 Comp Cases 351 was not dealing with the case of an amendment application and is, therefore, not applicable to the facts and circumstances of this case. (iv) In the matter of Charanjit Khanna v. Khanna Paper Mills Ltd. : [2011] 103 CLA 33 (Del.). It is held that - In view of aforesaid, the present appeal is allowed and the CLB is directed to take the amended composite petition on record. However, as the CLB has not reached any conclusion with regard to the contentions raised by the respondents, in its application being CA No. 213 of 2007, the respondents are granted liberty to raise the said issues before the CLB, who would deal with the same while disposing of the composite petition. (v) In the matter of Rajesh Kumar Aggarwal, In re. : AIR 2006 SC 1647.... Paras 18, 19 and 20. Respondent No. 1 filed reply to the application. Shri T K Bhaskar, learned counsel appearing for this respondent opposed the present application and submitted that the present application is an abuse of process of this court and of law, and is an indirect attempt to try and enlarge the scope of the instant proceedings, which cannot and should not be permitted. The amendment, if allowed, will introduce an altogether new case, going beyond the narrow confines of section 111 of the Act under which the present petition has been instituted. As such, the application cannot be entertained. It is not in dispute that the present petition is one under section 111 of the Act only and the extent and scope of the power of the CLB in dealing with proceedings under section 111 of the Act is now well settled. The summary nature of the proceedings and the fact that the CLB cannot exercise powers under sections 397, 398 and 402 of the Act whilst considering a petition under section 111 of the Act is well accepted in law. However, a bare reading of the proposed amendments to the petition will show that the petitioner is seeking to extend the scope of the present proceedings by indirectly making references to the provisions of sections 397, 398 and 402 of the Act. They are seeking to urge and add additional relief's, which relief's cannot be granted in exercise of powers under section 111 of the Act. As such, their motion for amendment must fail.
(3.) HE further submitted that this petition had been filed in the year 1991, alleging that the names of respondent Nos. 6 and 7 had wrongly been entered in the members' register of the company, in respect of 3,000 shares each. The petition was filed invoking the limited power of this hon'ble Board, under section 111 of the Act. In 1994, the petition was found by this Board to be devoid of all merit, and dismissed. Thereafter, the petitioners took the matter in appeal under section 101 of the Act, to the High Court of Karnataka. In the course of final hearing in 2012, the High Court of Karnataka observed that some additional documents and affidavits had been led before it for the first time, in 2002, which this hon'ble Board had no chance to consider; as such, it deemed it fit to remand the case, for consideration of the additional materials so filed. The order of remand is, thus, only to de novo consider the case of the petitioners as regards these evidentiary aspects which have been specifically referred to by the High Court in its order of remand; specifically, there is no scope given to the parties to set out a new cause of action altogether. The liberty accorded by the High Court to the parties was only to file additional pleadings and documents in respect of their stated case, as is clear from the minutes of the order of the hon'ble High Court. The respondents submit that, as a matter of fact, when the appeal filed by them was pending before the High Court, these petitioners had made an attempt to withdraw the present petition (and also the appeal), and they had sought for liberty from the High Court to initiate fresh 'appropriate' proceedings under section 397 of the Act, in respect of the same cause of action (i.e., the allotment of 6,000 additional shares in favour of respondent Nos. 6 and 7). The High Court did not consider the application. It now appears that the petitioners are seeking to indirectly do herein, what they were not successful in doing before the High Court. They have not approached this Board with clean hands, as they have not disclosed their application directed at a similar result, which was filed before the High Court. It is clear that, by specifically refraining from invoking the powers of this Board under sections 397 to 402 of the Act in respect of the entries in the members' register pertaining to the aforementioned 6,000 shares, when they first filed this petition in 1991, the petitioners have given up any claims they may have had that the said entries were in pursuance of a share allotment that was oppressive to their rights as shareholders, or that the said allotment was an instance of mala fide exercise of power by the Board. Such being the case, the petitioners cannot now be permitted to set up a new case founded on allegations of oppression/mala fides, in an indirect fashion, in respect of the same shares. They cannot be permitted to seek to introduce by way of an amendment what they were not permitted to do by way of fresh proceedings. They cannot be permitted to resile from their own admitted position that their petition under section 111 will not entitle them to relief's on the grounds of alleged mala fides actuating the said share allotment. When the allotment of shares has never before been impugned on the grounds of mala fides or oppression, under appropriate provisions of the Act, and what has been challenged is only an alleged erroneous entry in the members' register, there is no scope in law to now introduce a fresh case on these new grounds after 21 1/2 years of the allotment of shares. The company would like to also state that these shares have changed hands on several occasions, and that there was no injunction granted in favour of the petitioners to restrain shareholders from exercising their right to transfer these shares, although the petitioners had specifically sought for an interim order from the High Court. That being the case, the company has duly acted on all transfer forms lodged with it, and has recognised duly executed share transfer forms, and acted on them. The interests of persons who have now acquired shares from the original allottees of the additional shares are sacrosanct; they have accrued and vested rights in the shares, which will be placed at risk if the proposed amendment were to be entertained, and if the very allotment of these shares were to now be impugned. It is in the interests of the company that the vested and accrued rights of its shareholders be protected; the same cannot be jeopardised at this stage, by allowing the proposed amendment. The company also wishes to state that it too has accrued rights, by virtue of the allotment of shares made by it in the year 1990. The company had received valuable consideration prior to making the impugned allotment. Subsequently, the petitioners only sought for a rectification of the members' register by invoking section 111 of the Act, by alleging that there had been a failure of consideration for the said allotment, and that there had been a violation of the articles of association in making the allotment, and that the entry in the members' register was erroneous on these grounds. The company has an excellent case on merits to show that it has received full consideration for the allotment of 6,000 shares, at par, and that its Board has acted strictly in accordance with the articles of the company in making the aforesaid allotment, and that there is consequentially no error in its members' register. The company has undoubtedly benefited from the investment of Rs. 6 lakh made in 1990, and it has altered its position by deploying the funds received by it, and has, thus, vested and accrued rights in the accruements from the investment. If the clock were to be reversed on this investment at this stage, by assailing the share allotment on altogether new grounds imputing mala fides to the actions of the Board, then the company may be exposed to the risk of returning all accruements to the investing shareholders, which will be disastrous for the company and against the interests of its shareholders. He further submitted that the present petition is under remand jurisdiction and only remand order is to be considered. The present amendment is not covered by the remand order on the ground that the points raised by way of amendment is (i) oppression; (ii) quasi -partnership; (iii) converting the petition under section 397; and (iv) removal of directors. As stated supra, the petition was filed under section 111 of the Act seeking rectification of the register of members only. However, the points raised by way of amendment were not sought in the petition but wanted to be brought in by way of amendment cannot be allowed. In support of his contentions, the learned counsel relied upon the following citations. On the point of remand he relied upon the judgment of the Madras High Court reported in the matter of Konappa Mudaliar v. Kusalaru : AIR 1970 Mad. 328: The question whether it was open to the lower appellate court to apply the provisions of the Limitation Act, 1963 notwithstanding the order of remand directing it to consider the question from the point of view of article 142 of the Limitation Act, presents no difficulty whatsoever. It was not open to the lower appellate court to do anything but to carry out the terms of the order of remand, which it has done. 4.1. On the point of amendment, relied upon the order of the CLB reported in the matter of T N Narendra v. Lakeside Medical Centre (P.) Ltd. : [2007] 77 CLA 287 (CLB)/ : [2008] 4 Comp LJ 157... at para 17 it is of the view: It is, therefore, clear that the proposed amendments are entirely on a different cause of action. Moreover, the grievance on account of non -transmission of 280 shares of late Nanjundaiah in favour of the consenter has arisen after filing of the company petition and the relief's which are sought by the applicants do not fall within the scope of the company petition. It has been held in Subhash Chand Agarwal v. Associated Limestone Ltd. : [1998] 2 Comp LJ 329 (CLB), that an amendment petition cannot be allowed to make out a fresh case, if the petitioner fails to make out a case in the original petition. In view of this, the prayer for amendment of the company petition is not permissible under law. 4.2. Also, on the point of remand, relied upon the decision reported in the matter of N K Mohapatra v. State of Orissa : [1995] 16 CLA 295 (Ori.)/AIR 1994 Ori. 301.... Para 12.;