IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 24-10-2009 Coram The Honourable Mr.Justice N.PAUL VASANTHAKUMAR Company Appeal No.16 of 2009 & M.P.Nos.1 and 2 of 2009 Company Appeal No.20 of 2009 & M.P.Nos.1 and 2 of 2009 Company Appeal No.16 of 2009 1. S. Krishnakumari 2. R. Johendran 3. K. Chelladurai ... Appellants Vs. 1. G.Vijayalakshmi @ Brindha 2. S. Nanditha 3. Tiruppur Textiles Private Limited, Tiruppur 4. S. Vijay Krishna 5. Chandrakumar P.Asher 6. The Andhra Bank, Tiruppur Branch at Kamaraj Road, Tiruppur. 7. Vijayeswari Ring Travellers Pvt. Ltd., Regd Off:No.3/317, Vellankurichi Road, Peelamedu, Coimbatore. 8. Sovereign Engineers Pvt. Ltd., Regd. Off: Kurichi Industrial Estate, Pollachi Road, Kurichi Post, Coimbatore. ... Respondents
Company Appeal No.20 of 2009
1. M/s.Tiruppur Textiles Private Limited,
having its registered office at
No.1, Anupparpalayam,
Post Box No.153,
Tiruppur-641603.
2. S. Vijay Krishna
3. M/s.Vijayeswari Ring Travellers Private Limited,
having its registered Office at
Coimbatore Private Industrial Estate,
Industrial Estate Post,
Kurichi, Coimbatore 641 021
rep.by its Director S.Vijay Krishna
4. M/s.Sovereign Engineers Private Limited,
having its Registered Office at
Post Box.No.4415, Industrial Estate Post,
Pollachi Main Road,
Coimbatore 641021
rep.by its Director S.Vijay Krishna
Vs.
1. G. Vijayalakshmi @ Brinda
2. S. Nanditha
3. S. Krishnakumari
4. Chandrakumar P.Asher
5. R. Johendran
6. K. Chelladurai
7. Andhra Bank,
Tiruppur Branch, Kamaraj Road,
Tiruppur 641 603. … Respondents
These Company Appeals are filed under Section 10F of the Companies Act, 1956, against the order dated 13.9.2008 of the Company Law Board/Additional Principal Bench at Chennai, in C.A.No.101 of 2008 in C.P.No.3 of 2007.
For Appellants in C.A.No.16/2009 : Mr.V.Ramakrishnan
For Appellants in C.A.No.20/2009 : Mr.P.H.Arvindh Pandian
For RR.1 & 2 in both : Mr.A.K.Mylsamy
C.A.Nos.16 & 20/2009
For R-5 in C.A.No.16/2009 & : Mr.T.K.Bhaskar
R-4 in C.A.No.20/2009
COMMON JUDGMENT
By consent of the parties these appeals are taken up for final disposal.
2. Company Appeal No.16 of 2009 is filed by the appellants, who are respondent Nos.3 and 5 in C.P.No.3 of 2007 against the order of the Company Law Board dated 13.9.2008 made in C.A.No.101 of 2008. Company Appeal No.20 of 2009 is filed by the respondents 1, 2, 8 and 9 in C.P.No.3 of 2007 against the very same order made in C.A.No.101 of 2008 dated 13.9.2008.
3. Since the very same order is challenged in both these company appeals by the appellants, who are respondents in C.P.No.3 of 2007, these appeals are taken up together and disposed of by this common judgment. For the sake of convenience and easy understanding, the parties will be referred to in this judgment according to their rank in C.P.No.3 of 2007.
4. The only issue arises for consideration in these appeals are as to whether the Company Law Board is right in deleting the name of 4th respondent in the company petition, who is the 5th respondent in Company Appeal No.16 of 2009 and 4th respondent in Company Appeal No.20 of 2009.
5. The case of the appellants are that the respondents 1 and 2, who are sisters, have filed C.P.No.3 of 2007 with the following prayers:
(a) To appoint the petitioners as Directors or their nominee on the Board of the Company
(b) To amend the Articles of Association of the Company to give effect to the proportional representation on the Board.
(c) To declare the transfer of shares by the first respondent Company in the capital of the 8th and 9th respondents are null and void.
(d) To declare that the 8th and 9th respondents continue to be the subsidiary of the first respondent Company.
(e) To appoint an auditor to go into the books and records of the Company and surcharge the respondents whoever responsible for the defalcation of the funds with respect to inter-company transactions as reflected in the balance sheets for the year ending 31.3.2005 and 31.3.2006.
(f) To pass an order of injunction, restraining the respondents from selling, alienating or encumbering any of the immovable assets of the company.
(g) To pass an order of injunction, restraining the 7th respondent from granting any further facility for any new venture which the company intends to carry on.
(h) To appoint an administrator by superceding the Board of the Company.
The above said prayers were made by contending that the first respondent in the Company Petition was incorporated as private limited company on 19.1.1956 under the Companies Act, 1956 (Act VII of 1913) with the object to carry on the spinning of yarn from cotton. After the incorporation, the paid-up capital of the Company was increased to 7,50,000 consisting of 7,500 equity shares of Rs.100/- each. G.T.Krishnaswamy Naidu and his wife Vijayammal were holding 2,000 and 1,000 shares respectively and the said G.T.Krishnaswamy Naidu’s sons G.T.K.Rajasekaran, G.T.K.Sivasubramaniam, G.T.K.Parthasarathy and G.T.K.Shanmugasundaram were allotted 1000 shares each. One third party by name Asher, who is in no way related to the said G.T.Krishnaswamy and his family was allotted 500 shares. Thus, the entire paid-up capital was held by the family members of G.T.Krishnaswamy Naidu, except 500 shares, which were allotted to the said P.Asher, in whose name the licence was initially granted by the Government of India for the Textile Mill. G.T.K.Rajasekar, one of the sons of G.T.Krishnaswamy Naidu was adopted by T.R.Narayanaswamy and thereafter he was no longer associated with the Company. His 1000 shares were allotted to his son Ranganathan.
6. According to the petitioners, after the death of T.G.Krishnaswamy Naidu and his wife Vijayammal, their shares were equally transferred to their three sons. It is stated in the company petition that as on 31.3.2006 the paid-up capital of the Company was Rs.90,00,000/- consisting of 90,000 equity shares of Rs.100/- each. The first and second petitioners held 13,800 shares each out of 90,000 equity shares and as such they were holding more than 10% of the paid-up capital. Consequently they claim that they are entitled to file application under sections 397 and 298 of the Companies Act, 1956, regarding oppression and mismanagement of the Company by respondents 2 to 6 in the company petition.
7. The company petitioners are daughters of G.T.K.Shanmugasundaram, one of the sons of late G.T.Krishnaswamy Naidu, who was one of the Directors of the Company till his death. The petitioner’s father died on 6.11.2000 leaving behind his wife Geetha and the petitioners. The members of the Board of the Company were only G.T.Krishnaswamy Naidu and his sons along with the 4th respondent. During the lifetime of G.T.K.Sivasubramaniam, he was functioning as Managing Director of the Company and he adopted the second respondent, son of late G.T.K.Parthasarathy in the year 1974 and after the demise of G.T.K.Sivasubramaniam in the year 1985, the second respondent is appointed as Managing Director of the Company and he is in control and management of the affairs of the Company. The Company had three subsidiary companies as on 24.12.1975. They were,
(1) Tirupur Gin & Press Private limited
(2) Vijayeswari Ring Travellers Private Limited (8th Respondent), and
(3) Sovereign Engineers Pvt. Ltd. (9th Respondent)
According to the petitioners, as on today, the said subsidiary companies are no longer subsidiaries and after introduction of Section 43A of the Companies Act, 1956, the company became a Public Limited Company with effect from 1.4.1976.
8. It is averred in the company petition that after the death of the petitioner’s father on 6.11.2000 they were making representations to the second respondent through their relatives and friends that the petitioners be associated with the management of the company and they should be made as Directors of the company. The 4th respondent became Director of the Company with effect from 19.12.1969. As on date, the Company has three Units viz.,
(1) Spinning Divisions, Unit No.1, Anupparpalayam, Tiruppur-641652
(2) Unit No.2, 1486, Avanashi Road, Peelamedu, Coimbatore-641004
(3) Unit No.3, Jubilee Unit, 15 Velampalayam Village, Tirupur-641652
The first petitioner got married and settled at Hyderabad and the second petitioner got married and settled at Coimbatore. The efforts taken by the petitioners through their relatives and friends having been not materialised, this petition is field stating that the second respondent has got majority of shares and he brought in his own ‘yes-men’ on the Board so that he will have absolute control over the affairs and management of the Company. The petitioners are not receiving notices for the Extraordinary General Body meetings and no such general body meeting was held for the past six years. The second respondent and his associates have taken undue advantage of the petitioners’ silence by presuming that the petitioners have given their consent/approval for various acts of mismanagement on the divergence of the funds of the company to the companies in which the second respondent has interest, which is detrimental to the interests of the company and its shareholders. By citing various instances of mismanagement by all the members of the Board, the petitioners contend that the second respondent and his associates should not be allowed to deal with any of the immovable assets of the company or to encumber the same. It is also stated in the petition that due to the conduct of the second respondent and his associates, petitioners have lost their confidence as they are excluded from the participation of the management and having regard to the sound financial position of the companies, it would not be in the interest of the company to wind up and the petitioners being minority shareholder.
9. One of the prayer made in the company petition is to appoint an auditor to go into the books and records of the company and surcharge the respondents whoever responsible for the defalcation of the funds with respect to inter-company transactions as reflected in the balance sheets for the year ending 31.3.2005 and 31.3.2006 and to pass an order of injunction restraining the respondents from selling, alienating or encumbering any of the assets of the Company and to appoint an administrator by superceding the Board of the Company.
10. For the said company petition, 4th respondent, who is one of the Director, filed separate counter affidavit denying the contentions raised in the company petition. It is stated in the counter affidavit that the intention behind the petitioners are to enter into the management of the first respondent company and extract huge money from the respondents and also to cause hardship to the business and development of the company for their personal benefits. It is further stated in the counter affidavit that the allegations made in the company petition are not true. Originally his father had the licence to commence the business, which was transferred to the Company by his father and thereafter he was appointed as Director of the Company and after his demise, the 4th respondent was inducted in the Board as Director. It is stated in the counter affidavit that the allegation of acting as ‘yes-man’ are denied and the Directors are keeping arms-length distance in their relationship and running the company successfully and they are all independent Directors, who are all having vast professional experience in their respective field in leading the Company in a profitable manner. It is also stated in the counter affidavit that the other Directors are also professionally qualified and have their own independent income and they are not receiving any remuneration from the first respondent Company right from their induction in the Board. In paragraph 7 of the counter affidavit it is stated that the action of the second respondent and the independent Directors were only for the interest and welfare and growth of the company alone and not detrimental to the growth of the company. The allegations made in the company petition are more evasive and not specific and therefore the allegations made are to be treated as baseless.
11. The said counter affidavit was filed with due authentication and a separate affidavit was also filed authenticating the contents in paragraphs 1 to 12 of the counter affidavit as correct on 22.2.2007. After filing the said counter affidavit the 4th respondent filed C.A.No.213 of 2007 in October, 2007, with a prayer to withdraw the counter statement or in the alternative ignore the counter statement and delete his name from the array of respondents and transpose him as third petitioner and prosecute the company petition along with the petitioners. The said application was resisted by the appellants herein and the Company Law Board by order dated 23.5.2008 dismissed the same. The said order passed in C.A.No.213 of 2007 has not been challenged and the same has become final. After the disposal of the said application, the petitioners in the company petition filed a memo on 9.6.2008 stating that the petitioners have decided to give up 4th respondent from the array of parties and to permit the petitioners to carry out the amendment in the Company petition in accordance with the application filed by them. For carrying out the amendment of the cause title only the petitioners have filed C.A.No.101 of 2008 before the Company Law Board.
12. The said memo and application were opposed by the appellants herein by contending that the earlier application filed in C.A.No.213 of 2007 by the 4th respondent having been dismissed on 25.3.2008, the present memo filed is not maintainable. It is further contended in the counter affidavit that the petitioners having made allegations against all the individual Directors including 4th respondent by treating him on par with respondents 2, 3, 5 and 6 and relief is also sought against the 4th respondent, the prayer made to delete the name of 4th respondent alone from the array of parties in the company petition, without giving any reason, cannot be ordered, particularly when the allegations as well as the prayer remained as such.
13. The Company Law Board by order dated 13.9.2008 allowed the memo filed by the petitioners and ordered to delete the name of the 4th respondent from the array of parties. Consequently application filed in C.A.No.101 of 2008 for amending the cause title in company petition was also ordered, against which the present company appeals are filed.
14. The contention of the appellants in these appeals are that the 4th respondent is necessary and proper party to the company petition having regard to the pleading in the company petition and the findings rendered by the Company Law Board in its order dated 23.5.2008 made in C.A.No.213 of 2007. The presence of the 4th respondent is necessary to enable the Company Law Board to effectively and completely adjudicate upon, settle all questions and grant complete relief. In the memo filed for deletion, no reason was stated and the Company Law Board granted relief merely for asking. Filing memo before the Company Law Board is not maintainable under the Company Law Board Regulations 1991. The orders passed in C.A.No.213 of 2007 and 101 of 2008 are self-contradictory.
15. The respondents in these appeals filed counter affidavit stating that there is no question of law involved in these appeals and the grounds raised are only questions of fact. The earlier memo filed for deletion was not considered due to the pendency of C.A.No.213 of 2007 and after the disposal of the same on 25.3.2008, the deletion prayer was considered based on the memo filed and ordered and for carrying out the amendment after deletion, C.A.No.101 of 2008 was ordered on 13.9.2008.
16. Mr.V.Ramakrishnan and Mr.P.H.Arvindh Pandian, learned counsels appearing for the appellants in their respective appeals argued that the allegations made against the 4th respondent in the company petition having not been withdrawn and the relief sought for to appoint the Administrator by superceding the Board of the Company having not been amended, the petitioners have no right to pray for deletion of the name of 4th respondent, against whom also allegations are made and relief is sought for. The 4th respondent is a necessary and proper party and without his presence in the company petition the issues raised in the company petition cannot at all be adjudicated. The allegations having been made against all the Directors including the 4th respondent as ‘Yesmen’ of the 2nd respondent, the petitioners cannot give up 4th respondent alone on the pleadings and the counter affidavit filed in the company petition. Section 402(g) of the Companies Act, 1956, empowers the Company Law Board to go into all the aspects when oppression and mismanagement is alleged. The Company Law Board committed an error in entertaining the memo without application and as such the Company Law Board has violated Section 397 and 398 of the Act. As per section 403 of the Act, interim order can be passed only in applications. The memo filed in which order is passed, is not an application. Hence Company Law Regulation No.17 and Form No.2 have not been followed by the Company Law Board while entertaining the memo. Since there is procedural violation while ordering the memo without any application, the Company Law Board has violated the rules and regulations, which is a question of law coming under the purview of Section 10F of the Companies Act, 1956, and therefore the company appeals are maintainable. The learned counsels also submitted that in the memo filed for deletion, no reason is stated and the 4th respondent was the Director at the time of the alleged mismanagement and the Company Law Board’s order reserving right, if necessary to call for the 4th respondent by issuing notice at the time of final hearing, is unsustainable. The learned counsels also cited several judgments in support of their submissions.
17. Mr.A.K.Mylsamy, learned counsel appearing for the respondents/company petitioners on the other hand submitted that the petitioners having filed the company petition, have got a right to delete a party in the proceedings and therefore they are entitled to give up 4th respondent and by ordering deletion of the name of the 4th respondent, no prejudice would be caused to other respondents/appellants herein. No question of law is raised or arises for consideration to invoke Section 10F of the Act for entertaining these appeals.
18. Mr.T.K.Bhaskar, learned counsel for the 4th respondent submitted that the right to hear the 4th respondent is reserved by the Company Law Board, if required and the appellants cannot be allowed to raise the grievance of the 4th respondent that his rights will be prejudiced and the same can be questioned only by the 4th respondent and prayed for dismissal of the appeals.
19. I have considered the rival submissions, pleadings as well as the orders passed in C.A.No.213 of 2007, memo filed, C.A.No.101 of 2008 and the company application filed by the 4th respondent in C.P.3 of 2007 on 26.7.2008 as well as the counter affidavit filed therein. The company petition is filed on the ground of oppression and mismanagement by the Directors, specifically stating that the Directors including the 4th respondent in the company petition functioned as ‘yesman’ of the second respondent and various decisions were taken with regard to the affairs and management of the company, which are detrimental to the company and its shareholders. There is no one in the Board to protect the interest of the petitioners. The company petitioners have prayed among other things,
– to appoint an auditor to go into the books and records of the
Company and surcharge the respondents whoever responsible for
the defalcation of the funds with respect to inter-company
transactions as reflected in the balance sheets for the year ending
31.3.2005 and 31.3.2006.
– to appoint an administrator by superceding the Board of the
Company.
From the perusal of the above prayers it is evident that specific relief is also sought against the 4th respondent in the company petition. The petitioners in the company petition having prayed for such reliefs in the company petition, have rightly impleaded all the Directors including the 4th respondent in the company petition. If all the Directors are not impleaded, such a prayer could not have been made in the company petition and it will be hit by non-joinder of proper and necessary parties.
20. The 4th respondent in the company petition also filed a counter affidavit and denied the averments made in the company petition and prayed for dismissal of the company petition with costs. It is also stated in the counter affidavit that the alleged close relationship between the Directors are denied and the Directors are keeping arms-length distance in their relationship and running the company efficiently and they are all independent Directors and they are appointed only on the basis of their experience in the relevant field and to their capacity they contribute to the Company and the Company is running in a profitable manner. It is also stated in the counter affidavit that the other Directors are professionally qualified and have their independent income of their own.
21. Respondent No.4 has filed C.A.No.213 of 2007 and prayed for permission to withdraw the counter statement and permit him to join as petitioner in the company petition. The said company application was resisted by the appellants and on 23.5.2008 the Company Law Board after considering the application on merits, dismissed the said company application by observing as follows:
“The main grievance of the petitioners in company petition is that they have not been taken on board of the Company and seeking amendment of Articles of Association to give effect to the proportional representation on the board. As seen from the pleadings and submissions of Counsel for the applicant it is evident that the applicant though he is not a family member of GTK, he was associated with the Company for more than three decades and continued to be the director of the Company till date. However, the petitioners in the main petition belongs to the family member of GTK have not been appointed as directors of the Company. Hence it cannot be said that he is having identity of interest along with the petitioners. The learned Counsel for applicant relied upon the judgment in R.Dhanasundari Vs. A.N.Umakanth and others (F-Supra), where the court held at para 10 that the circumstances under which such transposition could be ordered is clearly spelt out in the second limb of the rule, which directs the court to have due regard to the question, whether the applicant has substantial question to be decided as against any of the other respondents. The court found that there is identity of interest between plaintiff and defendants who transposed themselves by order of court below as plaintiff in that suit. The learned counsel for respondents No.1 & 2 while relying on para 12 of the very same judgment submitted that the Hon’ble Court considered the judgment passed in Nagoor Gani (1988 (2) MLJ 171) wherein the Court considered the scope of Order 23 Rule 1A of CPC and held in para 12 of that judgment, “The principle that follows this rule is that there must be an identity of interest between the plaintiff and such a defendant who wants to transpose as a plaintiff”. As per the principles and law laid down in that case, there must be an identity of interest along with the petitioner against the respondents. But in this case there is no identity of interest as stated supra. I agree with the submission of the learned Counsel for the respondents that the applicant prima facie has not made out any substantial case to prove his identity of interest along with the petitioner against the respondents. It is on record that the petitioners are not willing to sell their shares whereas the applicant is willing to sell his shares which shows that there is no identical interest. In my view it is also to be seen whether the success of the petitioners in the company petition would result in automatic success of the applicant who seeks transposition. The applicant seeking an order for transposition on the basis that the petitioners have not been taken on the Board and if they succeed in the petition, they will be entitled to be inducted on the Board of Directors of the Company and thus his prayer in this present application would be automatically fulfilled.
In view of the foregoing facts and legal submissions, I find that there is no identity of interest of the applicant along with petitioners against the respondents. Accordingly Issue No.(ii) is also answered in negative. Accordingly, the C.A.No.213 of 2007 in C.P.No.3 of 2007 is dismissed.”
Admittedly the said order has not been challenged and the said findings have become final and the parties are bound by the said order.
22. The petitioners in company petition have chosen to file a memo on 9.6.2008 i.e, after the order passed in C.A.No.213 of 2007 on 23.5.2008 and the contents of the memo reads as follows:
“1. The petitioners have decided to give up the 4th respondent in the Company petition from the array of parties.
2. The petitioners state that while the Company Application 213 of 2007 was pending on the file of this Hon’ble Bench, the petitioners’ counsel has already made an endorsement that the name of the 4th respondent be deleted from the array of parties on 31.01.2008.
3. Therefore, the petitioners pray that this Hon’ble Bench may be pleased to record the fact of the 4th respondent being deleted from the array of parties and consequently permit the petitioners to carry out the amendment to the Company Petition in accordance with the application filed by them.”
The Company Law Board on the basis of the memo permitted deletion of the name of 4th respondent in the company petition and in the application filed in C.A.No.101 of 2008 permitted the petitioners to carry out the amendment.
23. From the narration of the above undisputed facts it is evident that without filing any application as required under Regulation 17 of the Company Law Board Regulations, 1991, deletion of the name of the 4th respondent was ordered on the basis of the the memo. Regulation 17 reads thus:
“17. Contents of interlocutory application.- An application filed subsequent to the filing of the petition applying for any interim order or direction shall, as far as possible, be in Form No.2 in Annexure II and shall be accompanied by an affidavit verifying the application in the manner laid down in regulation 14:
Provided that it shall not be necessary to present a separate application to seek an interim relief or direction, except for condonation of delay in filing the petition, if, in the original petition, the same is prayed for.”
Regulation 17 provides for filing of miscellaneous application as prescribed under Form No.2, for getting any order during pendency of the company petition.
24. The learned counsels for the appellants contended that when the regulation contemplates filing of application, it is not open to the petitioners to bye-pass the regulation, which are having statutory force, and filing memo for deletion of the name of the 4th respondent in the company petition is a statutory violation and therefore the memo ought not to have been entertained and permission ought not to have been granted by the Company Law Board and the same is a question of law arises for consideration in these appeals under section 10F of the Companies Act, 1956.
25. The learned counsels for the respondents on the other hand submitted that Regulation 44 confers inherent powers to the Company Law Board to pass orders that may be necessary for the ends of justice or to prevent abuse of the process of the Bench. The Company Law Board, no doubt is vested with the inherent powers, however having regard to the dismissal of C.A.No.213 of 2007 on 25.3.2008 and another application filed to treat the 4th respondent as petitioner even before the order is passed in the memo, without challenging the said order, refusing such a prayer by the very same Company Law Board, the 4th respondent only abused the process of the Bench. Hence, the inherent power is not entitled to be exercised in favour of the 4th respondent at the instance of the petitioners in the company petition, who are also fully aware of the proceedings.
26. If the power could not be exercised by the Company Law Board on the premise of inherent powers, the only alternative is to follow Regulation No.17 by filing an application for interim order or direction and a statutory form is also prescribed for the same. The said procedures is mandatory in nature, to be followed by the Company Law Board. A Division Bench of this Court considered whether an order could be passed in violation of the statutory requirements and what is the effect of the said order in the decision reported in (2009) 6 MLJ 56 (Kothari Industrial Corporation Limited v. Kotak Mahindra Bank Ltd.). In the said decision it is held that ordering winding up of a company contrary to the statutory requirements and violation of mandatory requirements is illegal. It is also held that when there is an express provision, the inherent power cannot be availed and only in the absence of express provision, inherent power could be exercised in exceptional cases. It is further held that Company Law is a special law and it provides certain inbuilt mandatory safeguards to be followed by the Company Court while passing orders and winding up as envisaged in the Company Court Rules.
27. Applying the principles contained in the above decision to the facts of this case, I hold, the proceedings of the Company Law Board being covered under the Company Law Board Regulation, 1991, the procedures contemplated is bound to be followed by the Company Law Board while disposing of any matter as an interim measure or finally. The said violation of the regulations committed by the Company Law Board is a statutory violation and the same is a question of law, arises in this case for interference under section 10F of the Companies Act, 1956.
28. The 4th respondent is also a proper and necessary party in the company petition as the allegations are made against all the Directors including the 4th respondent. Without the presence of the 4th respondent, effective adjudication of the company petition is not possible, particularly when the petitioners have not chosen to amend the prayer in the company petition till date. The conduct of the 4th respondent also cannot be appreciated due to the following reasons:
The 4th respondent has chosen to file C.A.No.213 of 2007 to transpose him as petitioner and to withdraw the counter affidavit filed in the company petition. By an elaborate order dated 23.5.2008 the said application was dismissed. Thereafter the petitioners have filed the memo on 9.6.2008 and the said memo was also hotly contested by the parties including the 4th respondent and when orders are reserved by the Company Law Board, 4th respondent filed another application before the Company Law Board with supporting affidavit dated 26.7.2008 with a prayer to take on record him as applicant and grant similar relief which it may grant to the petitioners in the main company petition. The said application filed is not maintainable as the 4th respondent has not chosen to challenge the findings and the dismissal order made in C.A.No.213 of 2007.
The above conduct of the 4th respondent establishes the fact that he is trying to circumvent the order made in C.A.No.213 of 2007 dated 23.5.2008, which is an abuse of the process of the Bench.
29. It is well settled proposition of law that whether the presence of the respondent is necessary for complete and effective adjudication of the proceeding though no relief is sought against the proper party. In the decision reported in AIR 1997 SC 64 : (1996) 5 SCC 379 : JT 1996 (7) SC 53 (Aliji Momonji & Co. v. Lalji Mavji & Others) it is held that whether or not a party is necessary and proper party, depends upon the facts of the case. In paragraph 5 of the Judgment it is held as follows:
“5. The controversy is no longer res integra. It is settled law by catena of decisions of this Court that where the presence of the respondent is necessary for complete and effectual adjudication of the dispute, though no relief is sought, he is a proper party. Necessary party is one without whose presence no effective and complete adjudication of the dispute could be made and no relief granted. The question is whether the landlord is a necessary or proper party to the suit for perpetual injunction against the Municipal Corporation for demolition of demised building? The landlord has a direct and substantial interest in the demised building before the demolition of which notice under Section 351 was issued. In the event of its demolition, his rights would materially be affected. His right, title and interest in the property demised to the tenant or licensee would be in jeopardy. It may be that the construction which is sought to be demolished by the Municipal Corporation was made with or without the consent of the landlord or the lessor. But the demolition would undoubtedly materially affect the right, title and interest in the property of the landlord. Under those circumstances, the landlord necessarily is a proper party, though the relief is sought for against the Municipal Corporation for perpetual injunction restraining the Municipal Corporation from demolition of the building. Under those circumstances, the question of the commercial interest would not arise. In Ramesh Hirachand Kundanmal case this Court had pointed out in para 18 of the judgment that the notice did not relate to the structure but to two chattels. Original lessee from the landlord had no direct interest in that property. Under these circumstances, it was held that the second respondent has no direct interest in the subject-matter of the litigation and the addition thereof would result in causing serious prejudice to the appellant and the substitution or the addition of a new cause of action would only widen the issue which was required to be adjudicated and settled. It is true, as pointed out by Shri Nariman that in para 14, this Court in that case had pointed out that what makes a person a necessary party is not merely that he has relevant evidence to give on some of the questions involved; that would only make him a necessary witness. It is not merely that he has an interest in the correct solution of some question involved and has thought of relevant arguments to advance. The only reason which makes it necessary to make a person a party to an action is that he should be bound by the result of the action and the question to be settled, therefore, must be a question in the action which cannot be effectually and completely settled unless he is a party. The line has been drawn on a wider construction of the rule between the direct interest or the legal interest and commercial interest. It is not necessary for the purpose of this case to go into the wider question whether witness can be a proper and necessary party when the witness has a commercial interest. This Court in New Redbank Tea Co. (P) Ltd. v. Kumkum Mittal has pointed out that Respondent 11 who filed a suit for specific performance in the High Court was sought to come on record in the suit in which he had no direct interest in the pending matter. Under those circumstances, this Court had held that Respondent 11 was neither necessary nor proper party in the leasehold interest involved in the suit. In Union of India v. Distt. Judge the Union of India who ultimately had to bear the burden of payment of the compensation was held to be a necessary party under Order 1 Rule 10 CPC for determination of the compensation in respect of the acquired land. In Bihar SEB v. State of Bihar the same question was also reiterated and it was held that the Electricity Board was a person interested and also a necessary party. In Anil Kumar Singh v. Shivnath Mishra similar question was answered holding that the respondent was a necessary party.”
In (2006) 4 MLJ 593 (S.Krishnan v. Rathinavel Naicker), V.Ramasubramanian, J., laid down the tests to be applied for determining the right of a party to implead another, in a pending suit or other proceeding in paragraph 17, which reads thus:
“17. In a nut-shell, the tests to be applied for determining the right of a party to implead another, in a pending suit or other proceeding, may be crystallized into the following categories:
a) If without his presence, no effective and complete adjudication could be made;
b) If his presence is necessary for a complete and effectual adjudication of the dispute though no relief is claimed against him;
c) If there is a cause of action against him;
d) If the relief sought in the suit or other proceedings is likely to be made binding on him;
e) If the ultimate outcome of the proceedings is likely to affect him adversely;
f) If his role is really that of a “necessary witness” but is sought to be camouflaged as a “necessary party”;
If a party to a litigation satisfies the Court that the person sought to be impleaded, passes any one or more of the above tests, then he is entitled to get the discretion of the Court exercised in his favour. The above tests are not exhaustive and at times, even if a person falls under any one of the above categories, the Court may refuse to implead him. To quote an example, a subsequent purchaser of a property, which forms the subject matter of the suit, may satisfy the tests (d) and (e) above mentioned and yet the Court may decline to implead him on the basis of the doctrine of lis pendens. Therefore, the above list is only a broad statement of the principles that could be culled out from judicial precedents.”
30. Applying the above said tests to the facts of this case, particularly with regard to the prayer made in the company petition, the I hold that the 4th respondent is bound to be retained as party respondent in the company petition. Deletion of his name permitted by the Company Law Board on the basis of the memo filed by the Company petitioners is unsustainable and the said order is set aside.
31. The Company Appeals are allowed. No costs. Connected miscellaneous petitions are closed. The learned counsels apearing for the appellants as well as respondents submitted that the Company Law Board may be directed to dispose of C.P.No.3 of 2007 within a given time. Hence the Company Law Board is directed to dispose of C.P.No.3 of 2007 before the end of January, 2010.
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