S.Balasubramanian, - (1.) IN this order, I am considering application CA 72 of 2004 filed by the 1st respondent seeking for dismissal of CP 32 of 1996 on the ground that the petition is not maintainable in terms of Section 399 of the Companies Act, 1956 (the Act).
(2.) This petition alleging acts of oppression and mismanagement in the affairs of 14th respondent- M/s Alaukik Trading and Investment Pvt Ltd- (the company) was filed in 1996. The main allegations in the petition are that even though the 1st petitioner was the majority shareholder in Alaukik holding 84% equity shares, additional equity shares to the extent of 1500 shares were allotted to the 1st respondent in exclusion of other shareholders of the company with the view to gain majority in the company and that there had been illegal transfer of shares of the company. Even though a number of interim orders were passed from time to time, the hearing of the main petition was being deferred till 1999, mainly on the ground that there was a preexisting civil suit filed by the petitioners on similar issues. Later on, it was reported that the civil suit had been withdrawn. Thereafter, on 24.11.1999, the counsel for the petitioners suggested that since the matter pending before the High Court was coming up for hearing in the next few clays, the matter before this Bench may be heard on a later date. On 7.2.2000, counsel from both the sides sought for adjournment on the same ground that the final hearing of the appeal in Gujarat High court was coming up for hearing shortly. Similar request was made by the counsel for both the sides on 12.3.2001 except that the matter was coming up for hearing in the supreme Court. Thereafter, on 3.12.2001, at the instance of the counsel for the respondents, an interim order was passed in relation to the properties of the company with the direction that the petition would be heard on 8th to 10th May 2002. When the matter came up before this Bench on 3.2.2004, the counsel for the respondents submitted that the SLP and other connected appeals were on daily board of the Supreme Court and as such sought for deferment of the hearing. This was not acceptable to the petitioners who insisted on hearing the petition on merits. Since, the hearings on earlier occasions were deferred with the consent of both the sides, and that now the petitioners were not willing for deferment, I suggested to the counsel for the respondents to obtain an order of stay from the Supreme Court and to enable him to approach the Supreme Court, I adjourned the matter to 1.3.2004. On this day, the respondents filed an application stating that they had already filed an application before the Supreme Court for staying the proceeding before this Bench, but the same was not taken up for hearing and as such sought for adjournment once again on the ground that the matter was on daily board of the Supreme Court. This application was opposed by the petitioners and as such I directed the counsel to commence their arguments. Since, the counsel for the respondents questioned the maintainability of the petition, I asked the counsel for the petitioners to argue both on the maintainability and on the merits also which he did. However, the counsel for the respondents desired to file a written application challenging the maintainability of the petition and the same was permitted. Accordingly, the present application was filed. In the hearing held on 23.3.2004, the counsel for the respondents complained that the reply to the application was handed over to him only on that day and as such sought for time to file a rejoinder. In view of this, the counsel for the petitioner submitted that his reply might be treated as withdrawn and he be permitted to make oral arguments on the same, which was not objected to by the counsel for the respondents. Accordingly, counsel for both the sides argued on the maintainability and the counsel for the petitioner concluded his arguments on the merits of the case also. The matter was adjourned to 6.4.2004 for reply arguments by the counsel for the respondents. On this day, the counsel for the respondents submitted that the Gujarat High Court had stayed further proceeding before this Bench till 30th April 2004. Therefore, this matter was fixed for further hearing on 7th May 2004, on which date the counsel for the petitioners produced a copy of the order of Gujarat High Court directing this Bench to pass a speaking order on the maintainability of the petition before deciding on the merits of the petition. Both the counsel desired to file written submissions on the maintainability of the petition, which they did subsequently. Hence, this order on maintainability of the petition. The main grounds for challenging the maintainability of the petition are that the Division Bench of Gujarat High Court has held that by illegal allotment of shares in GIC-the 1st petitioner company-, the 2nd petitioner's group had taken control of the Board of that company. In view of this finding, according to the respondents, the Board was illegally constituted and therefore the decision to file this petition taken by an illegal Board has no validity and if the findings of the Gujarat High Court are confirmed by the Supreme Court, then, the respondents' group would control the Board of GIC and it would withdraw this petition. In that case, the 2nd petitioner by herself cannot independently maintain this petition in terms of Section 399. Secondly, when the respondents made the above submission before this Bench, the Senior Advocate appearing for the petitioners submitted that this petition could be treated as one filed by the 2nd petitioner alone, in which case the 2nd petitioner herself cannot maintain the petition as she would not satisfy either the shareholding requirement or numerical requirement of Section 399 of the Act.
(3.) SHRI Krishan Kumar appearing for the respondents/ applicant submitted: The 1st petitioner company- M/s Gaekwad Investment Corporation Pvt Ltd (GIC) was established by late Fateh Singh Rao P. Gaekwad. He also established Baroda Rayon Corporation Limited. GIC controls Baroda Rayon. GIC held 84% shares in Alaukik which was incorporated in 1971. All these companies are family companies of members of Maharaja of Baroda. Presently, there are two groups - one is S.P. Gaekwad Group (the petitioners) and second is Mrunalindevi Paur Group (the respondents). GIC was under the control of Paur Group. However, by illegal allotment of further shares in that company, SP Gaekwad Group gained control of that company including the Board of Directors. Paur Group filed a petition under Sections 397/398 of the Act before Gujarat High Court challenging the allotment in and composition of the Board of GIC. Even though, a Single Judge of that High Court dismissed the said petition, on appeal, in its judgment dated 9.8.2000, the Division Bench has held that all the allotments made beyond the original issued capital were invalid as also the composition of the Board of Directors. In the judgment, the Division Bench has also directed that all directors of GIC stood removed forthwith and that they would not be involved in the affairs of the company in any manner. In view of these findings/directions, the 1st petitioner did not have the sanction of a validly constituted Board of Directors at the time of filing of the petition and as such it cannot maintain the petition. Further, by an interim order dated 26.9.1995, the High Court had appointed Mr. Justice C.T. Dighe as the Chairman of GIC as well as Alaukik, stipulating that there would be no change in the composition of the Board of both these companies and that all decisions taken by the Board during the pendency of the appeal would be subject to the orders that would be passed ultimately in the appeal. Since the present petition before the CLB was filed only in June, 1996 and that the Division Bench has held that the Board of the company had been illegally constituted, the decision taken to file this petition in 1996, being subject to the final order in the appeal, can no longer be maintained by the 1st petitioner. The Gaekwad Group has now filed a Special Leave Petition before the Supreme Court challenging the judgment of the Division Bench of the Gujarat High Court and the Supreme Court has also directed that the terms of the interim order of the High Court dated 26.9.1995 would continue to prevail till the disposal of the SLP and therefore, it would be appropriate that the proceeding before this Bench is stayed till that time.;