BHUPINDER RAI Vs. S.M. KANNAPPA AUTOMOBILES (P.) LTD.

JUDGEMENT

(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.

(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: