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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO. A.(SB) 9/2011
CHARANJIT KHANNA
AND ORS. ..... Appellants
Through Mr. Salil Sagar, Senior
Advocate with Mr. Arun K.
Sinha, Mr. Samrath Sagar,
Mr. Radhesh Makrandi, Mr.
Purushottam Jha and Mr.
Varun Singh, Advocates
versus
M/S. KHANNA PAPER MILLS LTD.
AND ORS. ..... Respondents
Through Mr. Neeraj Kishan Kaul,
Senior Advocate with Mr.
S.M. Sundaram, Advocate
Reserved on : 22nd March, 2011
% Date of Decision: 20th April, 2011
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.
JUDGMENT
MANMOHAN, J :
1. The present appeal has been filed under Section 10F of the
Co.A.(SB) 9/2011 Page 1 of 11
Companies Act, 1956 (for short ‘the Act’) challenging the order
dated 24th November, 2010 passed by the Company Law Board (for
short ‘CLB’) in Company Application No. 213/2007 in Company
Petition No. 61/2007 whereby the said petition was dismissed as not
maintainable. However, the appellants were given liberty to file a
petition for rectification of the register of members under Section
111A of the Act and in the event of their being successful in the said
petition, they were granted further liberty to file a petition under
Sections 397/398 of the Act.
2. The relevant facts of the present case are that appellants are
real brothers, nephews and nieces of Mr. Brij Mohan Khanna,
respondent no. 2 and respondent no. 1 is a family company. The
appellants filed a company petition under Sections 397 and 398 of
the Act being Co. Pet. No.61/2007 before CLB against respondents
on the ground of oppression and mismanagement. Per contra,
respondents filed Company Application No.213/2007 challenging
the maintainability of the petition. The appellants in response moved
an application bearing CA No.313/2008 for amendment of the
Company Petition 61/2007 by incorporating relief under Section
Co.A.(SB) 9/2011 Page 2 of 11
111A of the Act. However, the CLB dismissed the appellants’
petition on the ground that since the names of appellants no longer
appear in the register of members, they were lacking in requisite
eligibility under Section 399 of the Act to maintain such a petition.
As stated hereinabove, the appellants were granted liberty to file a
petition under Section 111A of the Act for rectification of the
register of members.
3. Mr. Salil Sagar, learned senior counsel for appellants submits
that when the company petition was filed before CLB, appellants
were not aware that their names had been removed from the register
of members. He states that it was only when the maintainability issue
was raised by the respondents that the appellants came to know the
said fact and accordingly, appellants applied for amendment of the
petition. He further contends that neither any document nor any
evidence was produced by respondents to show that prior to filing of
Company Application No. 213/2007 before CLB, appellants were
aware that their names had been removed from the register of
members.
4. Mr. Sagar next submits that the CLB has failed to appreciate
Co.A.(SB) 9/2011 Page 3 of 11
that a composite petition is maintainable in law and in fact, CLB has
been entertaining composite petitions. He further states that when
the title/transfer to shareholding is in dispute, requirement of Section
399 of the Act is not relevant. In this regard, Mr. Sagar relied upon
following judgments :-
a) Satish Chandra Sanwalka & Ors. Vs. Tinplate Dealers
Association, 2001 (107) CC(CLB) 98.
b) Turner Morrison Ltd. & Anr. Vs. Jenson & Nicolson India
Ltd., 1998 (93) CC 347
c) C. Vasudevamurthy Vs. Associated Oxides P. Ltd. & Ors.,
(2009) 150 CC 339 (CLB).
5. Mr. Sagar relied upon Sangramsing PC Gaikwad & Ors. Vs.
Sahantidevi P. Gaikwad, 2005 (123) CC 566 SC wherein the
Supreme Court held that the jurisdiction of the Court to grant
appropriate relief under Section 397 of the Act is indisputably of
wide amplitude.
6. Mr. Sagar lastly submits that since the appellants came to
know the fact of removal of their names from the register of
members through CA 213/2007, the cause of action accrued to
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appellants during the pendency of the petition, and, therefore,
amendment in CP 61/2007 incorporating pleas under Section 111A
of the Act should have been allowed by the CLB.
7. On the other hand, Mr. Neeraj Kishan Kaul, learned senior
counsel for respondents submits that the present appeal is liable to be
dismissed as it does not disclose any question of law. He further
submits that as the appellants had signed the share transfer deeds and
also parted with their respective share certificates to respondent
No.2, the company petition was not maintainable.
8. To oppose the maintainability of the composite petition, Mr.
Kaul relied upon the judgments of Gujarat High Court in Gulabrai
Kalidas Naik & Ors. Vs. Laxmidas Lallubhai Patel and Ors.(1997)
47 CC 151 (Guj) and Punjab and Haryana High Court in Ved
Prakash & Ors. Vs. Iron Traders Pvt. Ltd. & Ors. (1961) 31 CC
122 (P&H).
9. Mr. Kaul also points out that the original petition was filed by
the appellants in CLB on 22nd May, 2007 and though the respondents
challenged the maintainability of the petition on the very same date,
the amendment application was filed belatedly after a gap of one
Co.A.(SB) 9/2011 Page 5 of 11
year. Mr. Kaul next submits that in a case where the share
certificates have been admittedly parted with, the remedy available
to the person aggrieved is under Section 111A of the Act and not
under Sections 397/398 of the Act. Accordingly, he submits that the
appeal is liable to be dismissed.
10. Having heard the parties, I am of the view that the present
appeal is not an appeal on facts but it gives rise to a question of law,
namely, whether a composite petition under Section 397 and/or 398
read with Section 111A of the Act is maintainable.
11. In my opinion, it cannot be said as a proposition of law that no
composite petition under Sections 397, 398 and 111A of the Act is
ever maintainable. In fact, in a large number of petitions filed under
Sections 397 and/or 398 of the Act, the primary allegation of
oppression and mismanagement is that the faction that is in control
of the company has either intentionally reduced the rival faction to
less than 1/10th of the total number of members of the company or
removed the rival faction from the register of members. In such
cases where allegation of oppression and mismanagement is
inexplicably intertwined with the issue of maintainability of the
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petition under Section 399 of the Act, a composite petition has to be
held as maintainable. To ask a petitioner to file two separate
petitions in such circumstances would not only be unfair but would
also result in unnecessary delay.
12. Moreover, neither Ved Prakash & Ors. (supra) nor Gulabrai
Kalidas Naik & Ors. (supra) lay down the proposition of law that a
composite petition under Section 111A read with Sections 397/398
of the Act is not maintainable in any circumstances. In fact, in the
case of Ved Prakash & Ors. (supra) the separate petition for
rectification of register of members had been dismissed and no suit
had been filed prior to filing of petition under Sections 397 and 398
of the Act, even though specific liberty had been granted by the civil
Court. The Gujarat High Court in Gulabrai Kalidas Naik & Ors.
(supra) has held that it is not in all cases that a composite petition
under Section 155 (now Section 111) and Sections 397/398 of the
Act is not maintainable.
13. In the present case, the respondents are opposing the
maintainability of the appellants’ petition under Section 397/398 of
the Act on the ground that the appellants had not only signed the
Co.A.(SB) 9/2011 Page 7 of 11
share transfer deeds and parted with their respective share
certificates but they were also throughout aware about removal of
their names from the register of members of the company. However,
after a detailed perusal of the impugned order, I find that though the
CLB has painstakingly noted the submissions of both the parties, yet
it has not adjudicated upon the same. In fact, CLB has given no
finding/conclusion on the contentions raised by the respondents
while opposing the maintainability of the petition except observing
that the appellants were at liberty to file a petition under Section
111A of the Act and in the event they succeed in the said petition,
they would be at liberty to file a petition under Sections 397/398 of
the Act. The impugned order to my mind is a non-reasoned one to
this extent.
14. I am further of the opinion that if the respondents’
submissions with regard to maintainability of the appellants’ petition
under Section 397/398 of the Act are correct, then the CLB should
not have even granted liberty to the appellants to file a petition under
Section 111A of the Act.
15. Moreover, from a perusal of the impugned order, it is apparent
Co.A.(SB) 9/2011 Page 8 of 11
that the CLB has not dealt with the amendment application filed by
the appellants, except observing that it was infructuous. The
Supreme Court in Rajesh Kumar Aggarwal & Ors. Vs. K.K. Modi &
Ors., AIR 2006 SC 1647 has held that all amendments which are
necessary for determining the real question in controversy between
the parties should be allowed provided it does not cause injustice or
prejudice to the other side. The Supreme Court has further held that
at the time of allowing the amendment application, the merit of the
amendment is not to be considered and a liberal approach is to be
adopted. The relevant observation of the Supreme Court in the
aforesaid case are reproduced hereinbelow:-
“17. Order VI, Rule 17 consists of two parts. Whereas
the first part is discretionary (may) and leaves it to the
court to order amendment of pleading. The second
part is imperative (shall) and enjoins the court to
allow all amendments which are necessary for the
purpose of determining the real question in
controversy between the parties.
18. In our view, since the cause of action arose during
the pendency of the suit, proposed amendment ought to
have been granted because the basic structure of the
suit has not changed and that there was merely change
in the nature of relief claimed. We fail to understand if
it is permissible for the appellants to file an
independent suit, why the same relief which could be
prayed for in the new suit cannot be permitted to be
incorporated in the pending suit.
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19. As discussed above, the real controversy test is the
basic or cardinal test and it is the primary duty of the
court to decide whether such an amendment is
necessary to decide the real dispute between the
parties. If it is, the amendment will be allowed; if it is
not, the amendment will be refused. On the contrary,
the learned Judges of the High Court without deciding
whether such an amendment is necessary have
expressed certain opinions and entered into a
discussion on merits of the amendment. In cases like
this, the court should also take notice of subsequent
events in order to shorten the litigation, to preserve
and safeguard the rights of both parties and to
subserve the ends of justice. It is settled by a catena of
decisions of this Court that the rule of amendment is
essentially a rule of justice, equity and good
conscience and the power of amendment should be
exercised in the larger interest of doing full and
complete justice to the parties before the Court.
20. While considering whether an application for
amendment should or should not be allowed, the court
should not go into the correctness or falsity of the case
in the amendment. Likewise, it should not record a
finding on the merits of the amendment and the merits
of the amendment sought to be incorporated by way of
amendment are not to be adjudged at the stage of
allowing the prayer for amendment. This cardinal
principle has not been followed by the High Court in
the instant case.”
16. In view of aforesaid, the present appeal is allowed and the
CLB is directed to take the amended composite petition on record.
However, as the CLB has not reached any conclusion with regard to
the contentions raised by the respondents in its application being
Company Application 213/2007, the respondents are granted liberty
Co.A.(SB) 9/2011 Page 10 of 11
to raise the said issues before the CLB, who would deal with the
same while disposing of the composite petition.
17. With the aforesaid observations, the present appeal is allowed,
but with no order as to costs.
MANMOHAN, J.
APRIL 20, 2011
js/rn/ms
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