V SUNDARARAJAN AND R GOVINDARAJAN Vs. R R SPINNING MILLS LTD

JUDGEMENT

(1.) TWO groups of shareholders, each group holding about 22 per cent, shares in R. R. Spinning Mills (P.) Ltd., filed two separate petitions, namely, C. P. No. 25 of 1995 on June 14, 1995, and an unnumbered petition dealt with in File No. 5/8/97-CLB (PB) dated February 7, 1997, alleging acts of oppression and mismanagement in the affairs of R. S. Spinning Mills Private Limited. While in C. P. No. 25, one of the prayers itself was that in view of the strained relationship between the parties, respondents Nos. 2 and 3 should be ordered to purchase the shares held by the petitioners in that petition at the market value to be arrived at by the auditors or any other independent valuer, in the second petition, the prayer was that the second and third respondents should be ordered to sell their shares to the petitioners in that petition.

(2.) When both the petitions were taken up for consideration on February 12, 1997, the petitioners in both the petitions expressed their desire to put an end to the disputes by selling their shares constituting roughly 44 per cent, collectively in the company to the respondents' group at the fair value to be determined by a valuer appointed by the Company Law Board. The respondents were also agreeable to this proposition. Accordingly, we recorded an order on that day to that effect, stipulating therein that till the valuation report was received by us, the proposed rights issue shall not be made. On February 13, 1997, we recorded an order appointing one Shri Rudra Kumar, chartered accountant, Madras, to value the shares of the company.

(3.) ON January 9, 1998, the petitioners submitted an application for withdrawal of the petitions, the prayer for which was objected to by the respondents. Counsel for the petitioners, Shri Subba Reddy, submitted that in view of certain developments that have taken place recently, the petitioners did not wish to pursue the petitions and as such they would like to withdraw the same. The main reason adduced by him in this regard was that the shareholders of the company are closely related. While respondents Nos. 2 and 3 against whom allegations have been made, were together all along, recently, respondent No. 2 has decided, to keep peace in the family, to join the petitioners group. Together with the shareholding of respondent No. 2, the petitioners' group will now become a majority in the company and as such they do not wish to part with their shares. He submitted, that, the consent given by the petitioners for selling their shares on February 12, 1997, cannot bind them inasmuch as it was only a proposal for appointment of a valuer and not a final compromise. The question of binding the petitioners to the order dated February 12, 1997, would arise only when a firm price had been agreed between the parties. The valuation was only for guidance. It was submitted, even after the receipt of the valuation report, the parties had been given the liberty on December 19, 1997, to react to the proposal of fixing the price per share at Rs. 873. In other words, according to him, there was no binding agreement between the parties which had been recorded in any of the orders of the Company Law Board. He submitted that as per Order 23, Rule 1, a plaintiff has an unqualified right to withdraw from a suit and once such a prayer is made, the court is bound to allow such withdrawal. The maximum the court could order is payment of cost, but it cannot refuse permission for withdrawal. For this proposition, he relied on Hulas Raj Baij Nath v. Firm K.B. Bass and Co., AIR 1968 SC 111; Shaik Hussain and Sons v. M. G. Kanniah, AIR 1981 SC 1725; Konkan Trading Co. v. Suresh Govind Kamat Tarkar, AIR 1986 SC 1009 and Teja Singh v. Union Territory of Chandigarh, AIR 1982 Punj 169 [FB]. He also submitted that since there has been no finality in the terms of compromise recorded in the order dated February 12, 1997, the petitioners are at liberty to withdraw the petitions as decided in Jayawant Raj v. Choksi and Co. [1997] 2 SCC 518, according to which a dispute not finally having been resolved and compromise being contingent, there is no finality. Therefore, he submitted that the petitioners are at liberty to withdraw the petitions since no final order stipulating the terms of sale of shares has been passed by the Company Law Board. He further submitted, that, the order dated February 12, 1997, only indicates that the respondents' group would purchase the shares. Now, respondent No. 2 has filed an affidavit that he has not authorised respondent No. 3 to agree for the purchase of shares and, therefore, even the order dated February 12, 1997, cannot be implemented even if it is binding on the petitioners. He also submitted that respondent No. 2 has no objection to dismissal of the petitions as withdrawn. Under these circumstances he submitted that the prayer for withdrawal should be allowed.