K.K. Balu, Vice -Chairman - (1.) IN this company petition filed under Sections 397, 398, 402 & 403 read with Section 235, 237 and Schedule XI of the Companies Act. 1956 ("the Act") on account of the alleged acts of oppression and mismanagement in the affairs of M/s Aruna Theatres and Enterprises Private Limited, at the instance of the respondents 2 to 4, the petitioners have come out with the present application seeking leave of this Bench for implementation of the resolutions passed at the extraordinary general meeting of the Company held on 05.01.2007, in support of which, Shri P.H. Arvindh Pandian, learned Counsel submitted: 1.1 A large number of shareholders of the Company holding about 64% of the paid up capital of the Company sent a requisition dated 14.11.2006 to the board of directors under Section 169 of the Act to convene an extraordinary general meeting for removal of the respondents 2 to 4 from the office of directors and to appoint petitioners 2 to 5. as directors of the Company. The respondents 2 to 4 failed to call a meeting as required under law and therefore, the requisitionists were constrained, in terms of a notice dated 08.12.2006, called an extraordinary general meeting of the Company on 05.01.2007 at the registered office of the Company, upon which, this Bench by an order dated 14.12.2006, restrained the Company from implementing any of the resolutions that may be passed at any such extraordinary general meeting, without leave. Similar order came to be passed by the High Court of Madras in O.A. No. 2 of 2007 in C.S. No. 4 of 2007, filed by one of the shareholders of the Company, namely, 6^th respondent herein, thereby permitted the holding of the extraordinary general meeting held on 05.01.2007, subject to the condition that none of the resolutions shall be implemented without leave of the CLB. 1.2 In the meanwhile, the extraordinary general meeting was duly held and as many as 36 members took part in the meeting, out of whom members holding 5359 shares voted for the resolutions for removal of the respondents 2 to 4, as directors and appointment of petitioners 2 to 5 as directors of the Company, while members holding 1459 shares voted against the resolutions. The Chairman of the meeting deposited with the CLB, the proceedings together with scrutineer's report, original proxy forms, ballot papers etc., which remain under custody of the CLB. The newly constituted board by a majority of the shareholders could not exercise their rights in accordance with law for the purpose of managing the affairs of the Company, especially when the Company is presently not being managed by a duly constituted board. Consequently, some of the minority shareholders are acting detrimental to the interest of the Company by initiating false proceedings before the Debts Recovery Tribunal and obtaining exparte orders, which are against the interest of the Company. In view of the restraint order dated 14.12.2006, the new board is prohibited from representing before the DRT. 1.3 The DRT, on an application made by one of the secured creditors of the Company under the relevant provisions of the Recovery of Debts Due to Banks and Financial Institutions Act. 1993 ("the RDB Act") appointed Hon'ble Justice K. Swamidurai, (Retd.) of High Court of Madras, as Receiver/Administrator in terms of an order dated 17.05.2005, to take over the management and assets of the Company and manage its affairs with assistance of an Advisory Committee, as contemplated therein. The Receiver is at liberty to take any decision as per law in the larger interest of the Company and subject to concurrence of the DRT. However, when the Receiver (a) decided to distribute dividend to the shareholders: (b) and permitted construction of an ATM at the premises of the Company, which would generate an income of Rs. 11,000/ - per month, certain minority shareholders have obtained prohibitory orders from the DRT. Thus, the affairs of the Company are being seriously affected, in view of a few of minority shareholders acting against the interest of the Company. If the duly constituted board is not allowed to function, it would cause serious prejudice to the Company and its shareholders. 1.4 The Company is closely held by family members of six brothers, out of which five families constitute the board (one director from each family) pursuant to the extraordinary general meeting held on 05.01.2007, thereby complying with the maximum limit, as prescribed in the articles of association of the Company. There is, however, no representation on the board of the Company from the family members belonging to (late) Narayana Pillai with 1266 shares, among whom, there are certain disputes on account of inter -se transfer of shares. A large number of members belonging to five of the promoter families controlling 78% of shares have filed affidavits before the Bench expressing support in favour of the newly constituted board of directors of the Company. 1.5 By virtue of Sub -section (1) of Section 34 (Act 51 of 1993), the provisions of this Act, oven -ides the Companies Act, to the extent there is anything inconsistent between the Acts. The DRT is not empowered to remove or divest the management of the Company. Section 17 of the RDB Act empower the DRT to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. Section 18 specifies that no court or other authority shall exercise jurisdiction in relation to the matters specified in Section 17. In view of this, the CLB in exercise of its powers under Section 403, is at liberty to give necessary directions for implementation of the resolutions passed at the extra -ordinary general meeting of the Company held on 05.01.2007, more -so -when the same is not inconsistent with any of the provisions of the RDB Act.
(2.) SHRI v. Ramakrishnan, learned Counsel representing the respondents 1 to 4, opposed the prayer of the applicants for implementing the resolution dated 05.01.2007 on the following, among other, grounds: 2.1 The first respondent Company is one among several family concerns promoted by six brothers, out of whom five brothers are not alive and whose shares are now held by the descendants. The sixth brother is alive and but not a shareholder of the Company. All the shareholders of the Company are closely related to each other. The Company being a quasi -partnership concern, the removal of directors would constitute an act of oppression and mismanagement. This Board in Navin Ramji Shah and Ors. v. Simplex Engineering and Foundry Works Private Limited and Ors. 2007 Vol. 136 CC 770 held that in family companies and companies in the nature of quasi -partnership, directorial complaints can be entertained. The applicants along with other shareholders have unilaterally decided to remove the respondents 2 to 4 herein, representing the family of (late) Kalyanasundaram Pillai, (late) S. Paramasivam Pillai and (late) S. Subramaniya Pillai respectively, as directors of the Company and appoint applicants 2 to 5 in their place, which is improper, illegal and contrary to law, in view of the fact that it is not open to the shareholders to remove the representative of each branch of the family from the office of director and instead decide to appoint some other member of that branch. 2.2 The requisition made by certain members calling for an extra -ordinary general meeting of the Company as well as the company petition is dated 14.11.2006. While, the company petition has been filed before the CLB on 16.11.2006 under Sections 397 & 308 for the alleged act of oppression and mismanagement in the affairs of the Company, the applicants moved the company petition on 20.11.2006, when the respondents 2 to 5 entered appearance. At the hearing held on 28.11.2006 the applicants have not pressed the interim relief claimed in para 9(d), restraining the respondents 2 to 4 from calling and convening any board meetings without the prior sanction of this Bench. During the hearing held on 14.12.2006, this Bench after hearing the parties present, directed inter -alia that the Company as and when convenes any extra -ordinary general meeting pursuant to the requisition given by the shareholders will not implement any of the resolutions which may be passed at such meeting, without leave of this Bench. Consequently, the applicants have come forward with the present application (C.A. No. 41 of 2007) seeking leave to implement all the resolutions passed at the extra -ordinary general meeting of the Company held on 05.01.2007, When the 6^th respondent herein, sought the intervention of the High Court of Judicature at Madras in C.S. No. 4 of 2007 to restrain the Company from holding the extra -ordinary general meeting proposed on 05.01.2007, directed hint to approach the CLB questioning the resolution, if any, passed at the extra -ordinary general meeting and accordingly, closed on 05.01.2007, the interim application (O.A. No. 2 of 2007). The resolutions, merely having been passed by a majority of shareholders need not necessarily be implemented. 2.3 The numerous allegations of oppression and mismanagement in the affairs of the Company, elaborated in the course of the arguments, are past and concluded transactions. The order made on 14.12.2006 restraining the Company from implementing any of the resolutions passed at the extra -ordinary general meeting without leave of this Bench will safeguard the affairs of the Company in future. It is only after considering the claim and counter claim of the contesting parties on merits, this Bench, will decide whether the present directors have committed any act of oppression or mismanagement or act in a manner prejudicial to the interests of the Company and its shareholders, before which the board of directors of the Company cannot be reconstituted by either removing the respondents from the office of director or appointing the applicants as directors of the Company. The Supreme Court in Bank of Maharashtra v. Race Shipping and Transport Co. Private Limited and Anr. 1995 Vol. S3 CC 478 - held that it is not proper for the Court to grant interim orders, which practically are the principal relief sought in the petition. Therefore, any decision to implement the resolution for removal of the directors at this stage will amount to passing an order granting the final relief for reconstitution of the board of directors, as claimed by the applicants in the company petition [para 8(c)]. without even considering its merits, which has been desisted by this Board in T.N. Narendra and Ors. v. Lakeside Medical Centre Private Limited and Ors. (2007) 77 CLA 287. This Bench cannot, therefore, in exercise of the powers vested in Section 403, grant the interim relief sought by the applicants pending disposal of the main petition. In the event of dismissal of the company petition on merits, any interim relief which may be granted at this stage will be harsh and injurious. Furthermore, the applicants have neither made out any prima facie case for granting any interim reliefs. 2.4 In view of (a) the interim order made on 14.12.2006. the board of directors cannot call for any meeting of the board, without leave of this Bench; and (b) with appointment of a Court Receiver, who is in full control of the operations and finances of the Company, there is no scope on the part of the present directors for any financial mismanagement. There is, therefore, no justification for implementing the resolutions for removal of respondents 2 to 4 and appointment of new directors. Any order that may be passed by the CLB will run parallel to the order of the DRT and the CLB has no jurisdiction to pass any order appointing a new board in view of the prohibition contained in Section 34(1) of Debts Recovery Act, which has overriding effect on any other Act. 2.5 The justification sought to be made out by the applicants for, implementation of the resolutions on the ground that the applicants have not been able to make representation before the DRT does not survive any more, in view of the initiative already taken by these respondents for impleadment of all the shareholders of the Company in the main application as well as interim application, pending before the DRT. Any shareholder having any grievance in conduct of the DRT proceedings can henceforth, ventilate his grievances before the DRT and it is not therefore, open to the applicants to make use of the DRT proceedings as an excuse to remove the present board of directors. The applicants having invoked the jurisdiction of the CLB for reconstitution of the board of directors of the Company are attempting to skyjack the proceedings before the DRT. The present board of directors has been duly constituted in accordance with the provisions of Law. Moreover, the day -to -day operations of the Company are being managed by the Receiver in terms of the orders passed by the DRT, as confirmed by the Debts Recovery Appellate Tribunal and therefore, this Bench does not have jurisdiction to pass any interim order, appointing a new board of directors. 2.6 The applicants are presently making out an entirely new case, which has not been set out in the company petition and therefore, the same cannot be considered by the Bench. There has been an arrangement between the legal heirs of (late) S. Subramaniya Pillai. in terms of the Memorandum of Family Arrangement (MOF) dated 03.05.1996, whereby the 4^th respondent shall be the director representing the family members of (late) S. Subramaniya Pillai in respect of their shareholding in the Company. Nevertheless, some of the family members have ignored the said MOF and joined the applicants. In view of this, the applicants are not entitled in equity for any claim for directorship in the Company. Shri A.K. Raghavulu, learned Counsel for the respondents 6 & 7 submitted: 3.1 The branch of (late) S. Narayana Pillai, who is the eldest person and one of the founders, on the board of the Company, to which these respondents belong has been excluded for the past five years, from holding the office of director, thereby successfully excluded from managing the affairs of the Company, compelling these respondents to initiate proceedings in C.P. No. 19 of 2004 and C.P. No. 45 of 2005 praying for reconstitution of the board of directors of the Company. The requisition dated 14.11.2006 issued by the shareholders to call and convene an extra ordinary general meeting, without representation from all six branches of (late) Sankaranarayana Pillai is bad in law. 3.2 In the writ petition (W.P. No. 26915 of 2005) filed in the affairs of the Company, by these respondents the Madras High Court directed by an order dated 15.11.2005 that the parties must maintain status quo as on date in regard to the assets held by the Company, which operates as a bar to hear the present company application. The directors, both the present and intended directors who have swindled the company's funds to a tune of over 10.28 crore are unfit to be on the board of the Company for the reasons set out in the application. (C.A. No. 59 of 2007) filed by these respondents. In these circumstances, the Receiver appointed by the DRT may continue to manage the affairs of the Company. The provisions of the Act 51 of 1993 having over riding effect on the provisions of the Companies Act, the CLB has no power to pass any order implementing the resolutions passed on 05.01.2007 especially when such an order will be repugnant to the order already passed by the DRT. The receiver appointed by the DRT is in full control of the affairs and financial operations of the Company and therefore no irregularity in the affairs of the Company at the hands of any of the shareholders need be apprehended. 3.3 The respondents have filed a civil suit (C.A. No. 4 of 2007) before the High Court of Madras challenging the validity of the extra -ordinary general meeting proposed on 05.01.2007, but the High Court declined to grant any order of interim injunction restraining the Company from holding the meeting only on account of the only fact that the implementation of the resolutions is not automatic but subject to leave of this Bench. 3.4 The affairs of the Company are being looked after by the fifth respondent, appointed by the Debts Recovery Tribunal, who can be approached by all shareholders for conducing the affairs of the Company. The present application is only an attempt on the part of the applicants to get into the office of the director even before the validity of the extra -ordinary general meeting is decided by this Bench and before adjudicating the disputed issues as to whether a new board of directors has to be constituted as claimed by these respondents in the present company, petition. 3.5 The present and past directors have been guilty of mismanagement, misappropriation and breach of trust and the extra -ordinary general meeting came to be convened on 05.01.2007 itself due to internal disputes among the past and present directors and the shareholding of the applicants are under dispute and therefore, the issues as to who are guilty among the past and present directors, for which a separate application (C.A. No. 59 of 2007) has been filed by these respondents, is decided, the present applicants, cannot seek to implement the resolutions passed on 05.01.2007 and install themselves in the office of directors. Furthermore, the relief of constitution of the new board of directors is the subject matter of C.S. No. 19 of 2004 and C.P. No. 45 of 2005, the latter of which has been filed by these respondents and therefore, if the prayer for interim relief as claimed by the applicants is granted, it would amount to granting the main prayer itself and the main petition itself would become infructuous. These respondents are not interested in any of the present or past directors continuing in office of director. It is only on a detailed investigation of the entire accounts and records of the Company, this Bench can come to any conclusion as to who are fit and proper persons to manage the affairs of the Company for which the application (C.A. No. 59 of 2007) is required to be disposed of on merits and until then, the prayer made by the applicants in the present application cannot be entertained for implementing the resolutions passed at the extra -ordinary general meeting held on 05.01.2007.
(3.) SHRI S. Pitchya, learned Counsel, for the respondents 8 to 13. Shri Umashankar, learned Counsel representing the 19^th respondent while making submissions in support of the applicants laid stress in implementation of the resolutions passed at the extra ordinary general meeting held on 05.01.2007.;