V.L. Sridharan and Another vs Econo Valves P. Ltd. and Others

P. Jyothimani, J.—These appeals are filed u/s 10F of the Companies Act, 1956 against the order of the Company Law Board dated May

11, 2010, by which the Company Law Board allowed the application filed in C A. No. 112 of 2009 (Econo Valves P. Ltd. v. V.L Sridharan

[2010] 156 Comp Cas 355) by respondents Nos. 1 to 3 and consequently dismissed the company petition in C. P. No. 81 of 2009 filed by the

appellants.

The first respondent-company is a private limited company stated to have been promoted by the appellants having substantial stake as on

December 13, 2006. the second and third respondents have entered into two agreements with the appellants offering to purchase the appellants''

shareholding in the first respondent-company, viz., (i) shareholders agreement; and (ii) agreement to sell all technical processes for the manufacture

of plug valves and various other types of valves on December 14, 2006:

(a) It is the case of the appellants that while as per the shareholders'' agreement, the consideration in respect of both the agreements has to be paid

and according to the appellants, respondents Nos. 2 and 3, after paying the first stage of consideration and obtaining majority of shares, failed to

pay the balance amount and there was a failure on the part of respondents Nos. 2 and 3 in performing their obligation under the said agreement,

which resulted in filing of applications in O. A. Nos. 667 and 668 of 2009 by the appellants u/s 9 of the Arbitration and Conciliation Act, 1996 in

which a direction was given by this Court against respondents Nos. 1 and 2 to furnish security.

(b) It is stated that 45,600 shares were transferred in favour of respondents Nos. 2 and 3 as on December 14, 2006. Respondents Nos. 4 and 5

were appointed as additional directors of the first respondent-company. The first appellant, who is stated to have continued to be the director and

managing director, has also been appointed as the chief operating officer of the first respondent-company from December 14, 2006 and as per the

shareholders'' agreement, respondents Nos. 2 and 3 have also agreed to acquire 14,018 equity shares representing 23.36 per cent. interest in the

paid up share capital and they also received transfer forms and share transfer certificates and in spite of the first appellant''s readiness, respondents

Nos. 2 and 3 did not make payment as per the agreement.

(c) it is the case of the appellants that respondents Nos. 2 and 3 increased the share capital of the first respondent-company from Rs. 1 crore to

Rs. 2 crores in an extraordinary general meeting conducted on June 4, 2007 and in respect of the increased share capital, further allotment of

shares were made in favour of respondents Nos. 2 and 3 to the extent of 71,400 and 68,600 equity shares respectively under a board resolution

dated October 10, 2007, which according to the appellants is against the articles of association.

(d) After such transfer, it is the case of the appellants that respondents Nos. 2 to 5 attempted to control the first respondent-company at the

exclusion of the first appellant by conducting meeting at Nagpur, outside the place of the first respondent-company which is at Chennai. It is the

case of the appellants that in the meeting purported to have been conducted by the above respondents on September 21, 2009, removed the first

appellant from all his roles and responsibilities as managing director of the first respondent-company by taking away the cheque signing authority

and the first appellant''s salary was also discontinued from September, 2009.

(e) It is due to the above said conduct, the appellants alleging oppression and mismanagement, filed the company petition under Sections 397 and

398 of the Companies Act before the Company Law Board and the Company Law Board on September 24, 2009, granted an order of injunction

restraining respondents Nos. 2 to 5 from convening and holding any board meeting without leave of the Board and from taking any steps to amend

the articles of association of the first respondent-company without leave of the Board.

(f) Respondents Nos. 1 to 3 filed company application in C. A. No. 112 of 2009 questioning the maintainability of the company petition and for

dismissal of the same, apart from filing the application in C. A. No. 113 of 2009 u/s 8 of the Arbitration Act. It is stated that the earlier order

passed by the Company Law Board on September 24, 2009 came to be modified on the application filed by the respondents. It is stated that the

Company Law Board modified the order permitting the respondents to hold board meeting to approve and adopt the accounts of the first

respondent''s company for the year 2008-09 for submitting the same to the bankers stating that finality shall be subject to the outcome of the

company petition.

(g) It is stated that the statutory auditors of the company, viz., M/s. Venkatramani and Associates functioning for 28 years, also submitted

resignation on February 5, 2010. It is also stated that in an emergent general body meeting stated to have been conducted by the respondents on

March 13, 2010, M/s. Agarwal Chhallani and Co. was appointed as statutory auditors. It is stated that the said auditors are directors of a group of

companies ""NECO Group of Industries"", to which the transfer of shares of the first respondent-company is stated to have been effected.

(h) It is stated that the Company Law Board on an application filed by the appellants in Application No. 47 of 2010, restrained the respondents

from implementing the resolution for appointment of the said auditors. In the meantime, on the filing of the said company application in C. A, No.

112 of 2009 by respondents Nos. 1 to 3, the Company Law Board passed an order allowing the said application and holding that the company

petition filed by the appellants under Sections 397 and 398 of the Companies Act is not maintainable and vacated the interim orders stated above.

The Company Law Board having taken note of the admitted facts of transfer of shares effected by the appellants in the following manner:

(a) transfer of 30,600 shares by the first appellant to the second respondent;

(b) transfer of 455 shares by the first appellant to the second respondent; and

(c) transfer of 14,545 shares by the second appellant in favour of the third respondent

held that it constituted 76 per cent. of total number of shares. After the authorised share capital of the first respondent-company which was

originally rupees one crore came to be increased to two crores, having found that in the board meeting held on October 10, 2007, the increased

shares to the value of Rs. 1,40,000 were transferred to respondents Nos. 2 and 3, the Company Law Board held that both the appellants jointly

held 14,410 shares equivalent to 7.20 per cent. while respondents Nos. 2 and 3 held 1,85,590 shares to the extent of 92.80 per cent. Therefore,

having found that the appellants jointly have not constituted more than one-tenth of the members of the company, the Company Law Board came

to the conclusion that the company petition is not maintainable.

The Company Law Board has also found that in the board of directors meeting of the first respondent held on December 14, 2006, it was

resolved to approve the transfer effected by the appellants in favour of respondents Nos. 2 and 3 and in the consequent board meeting dated

October 10, 2007, it was resolved to allot 1,40,000 equity shares to respondents Nos. 2 and 3 further resolving to authorise the first appellant and

respondent No. 5 to make necessary entries in the books of account and in fact, returns were filed by the first appellant and in the annual general

body meetings held on September 29, 2007 and September 29, 2008, the first appellant participated in which the shareholdings of the first

appellant holding 328 shares was found to be 0.164 per cent. while the second and third respondents along with their groups were holding

1,85,600 shares to the extent of 9.08 per cent. and others were holding 14,072 shares to the extent of 7.036 per cent. Taking note of the letter

written by the first appellant dated November 16, 2007, admitting that the second appellant is no more a director of the company and she is also

not a shareholder since her shares were completely transferred and finding that in spite of the said letter, the appellants chose to file the company

petition to set aside the allotment made on or after December 14, 2006 and to restore the original shareholding pattern as on December 13, 2006

and that in the meeting there was no challenge by the first appellant in respect of the said shares, the Company Law Board came to the conclusion

that the entire dispute rests on the shareholders'' agreement dated December 14, 2006, that said dispute has been raised by the appellants in

respect of payment which is only a dispute attracting the breach of agreement and therefore, no relief can be asked for before the Company Law

Board. Accordingly, the Company Law Board passed the order holding that the company petition is not maintainable and dismissed the same.

The order is challenged by the appellants on various grounds including that the further increase of shares or allotment was not taken into

consideration; that the appellants complied with the requirements of Section 399 of the Companies Act; that even before deciding the validity or

otherwise of the further increase of share capital, it cannot be held that the appellants have not conformed with the requirements of qualifying shares

for filing the petition u/s 399 of the Companies Act; that the transfer stated to have been effected to NECO Limited to the extent of 14,400 shares

is against the articles of association; that all these are substantial issues that are to be decided and even before deciding the same, on the

maintainability of requirement of qualifying shares, the company petition was dismissed which is not correct; that inasmuch as it amounts to

rejection of plaint, utmost care should have been taken by the Company Law Board; that the Company Law Board ought to have gone into the

merits of the case before deciding the question of maintainability; that the shareholders'' agreement is binding on the first respondent-company

which fact has been brushed aside by the Company Law Board; that the acts of respondents Nos. 2 to 5 are continuous acts of oppression and

misconduct which include removal of the first appellant from the post of director without convening a meeting of the board when the appellants

challenged the increase in the authorised share capital; that unless and until the merit of the same is decided, the appellants cannot be thrown out;

that the Company Law Board dismissed the company petition at the threshold which is not correct; that the Company Law Board has failed to

consider the question of law which is a mixture of law and fact which cannot be decided in the preliminary stage and that as per the judicial

precedents, the Company Law Board has no power to decide the matter on preliminary issues.

Mr. R. Murari, learned Counsel appearing for the appellants on the above said facts would contend that even though the shareholders

agreement is not disputed by the appellants, the acts against the shareholders'' agreement and also against the articles of association in increasing

the authorised share capital by which the appellants are said to have been relegated to a minor position holding less than one-tenth shares itself, are

all acts of oppression and unless and until the correctness of the same is decided, it is not proper or legal for the Company Law Board to throw

out the appellants at the preliminary stage:

(a) It is his further submission that when in the main company petition the appellants questioned the validity of further issue of share capital to the

extent of 1,40,000 shares in favour of respondents Nos. 2 and 3, unless the same is decided, the company petition cannot be decided on the

question of maintainability for want of required number of shares to maintain a petition u/s 399 of the Companies Act.

(b) He would strongly rely upon the judgment of the Andhra Pradesh High Court in C. A. Nos. 19 and 20 of 2005 dated July 3, 2009 (B. Subba

Reddy v. S.S. Organics Ltd. reported in [2009] 151 Comp Cas 190 , wherein it was held that under the Companies Act, there are no powers

conferred on the Company Law Board to decide preliminary issues and the Company Law Board cannot exercise the powers of the civil court

under the Civil Procedure Code, 1908, except what is explained u/s 10E(4C) of the Companies Act.

(c) It is his submission that as per the provision of Section 10E of the Companies Act, except those mentioned in the said provision, no other

provisions of the CPC are applicable. He would also rely upon a Division Bench judgment of the Karnataka High Court reported in ( Mr. Vijayan

Rajes and Mrs. Madhumathi, V. Rajes Vs. M.S.P. Plantations Private Limited, to substantiate his contention that for the purpose of deciding the

eligibility of a member of a company to maintain a petition u/s 399 of the Companies Act, the qualification in respect of the requisite shareholdings

in the company of such person prior to the act of oppression complained of has to be taken into consideration and not the qualifying shares after

the act of oppression complained of.

(d) He would also rely upon the judgment of this Court in S.V.T. Spinning Mills P. Ltd. v. M. Palanisami [2009] 151 Comp Cas 233 for the

proposition that the Company Law Board cannot decide on the issue of maintainability if it involves appreciation of evidence and other factors. It is

his submission that the shareholding position of the appellants being the promoters of the company should have been considered for the purpose of

eligibility to move a petition u/s 397 of the Companies Act as on the date of the shareholders'' agreement, viz., December 14, 2006 and even as

per the terms of the said agreement, on the said date, the appellants had more than 10 per cent. of interest in the paid-up share capital of the

company and it was, only subsequent to the said shareholders'' agreement, the conduct of oppression by respondents Nos. 2 to 5 was revealed by

unauthorised transfer of shares against the provisions of the articles of association, apart from the unauthorised increase of share capital which

requires appreciation of evidence and therefore, the decision of the Company Law Board in rejecting the company petition on maintainability has

to be set aside.

(e) It is his further submission that u/s 10E(4C) of the Companies Act, there are only six instances where the CPC is applicable and apart from

those exhaustive circumstances, it is not open to the Company Law Board to decide anything in the name of maintainability. He has also referred to

various Company Law Board Regulations to substantiate his contention.

On the other hand, it is the contention of Mr. Karthik Seshadri, learned Counsel for respondents Nos. 1 to 3 that the main company petition

itself was filed in the year 2009, which is based on two agreements, viz., the shareholders'' agreement and the technical know-how agreement

dated December 14, 2006 and nowhere in the company petition, the appellants have challenged the validity of shares which are admitted to have

been transferred in favour of respondents Nos. 2 and 3 and on the other hand, it is the specific case of the appellants that they were consciously

and voluntarily agreeable to sell their shares and the complaint is that the consideration for transfer of shares has not been paid in full. According to

him, when the validity or otherwise of the transfer of shares has not been challenged by the appellants in the main company petition, an overall

reading of the entire company petition shows that it is only the contractual right which the appellants sought to enforce in the company petition

under the guise of treating it as oppression and mismanagement:

(a) It is his submission that the agreement to transfer of shares entered into by the appellants was in their individual status and that has nothing to do

with the affairs of the company and therefore, the appellants have no locus standi to maintain the petition u/s 397 of the Companies Act.

(b) It is his submission that the appellants have made a misstatement before the Company Law Board on the very first hearing to the effect that out

of four members of the company, the appellants constituted two in number and in combination, they held more than one-tenth of the total members

of the company. He would vehemently submit that the very conduct of the appellants in invoking Section 9 of the Arbitration and Conciliation Act,

1996 shows the interest of the appellants in obtaining money as per the transactions. He would submit that Section 399 of the Companies Act has

to be construed strictly.

(c) It is his submission that on the facts of the present case, the judgment of the Andhra Pradesh High Court relied upon by the appellants should

be treated as per incurium. He has placed reliance on the judgment of the Supreme Court in Canara Bank Vs. Nuclear Power Corporation of

India Ltd. and Others, . It is his submission that the term, ""court"" has to be construed comprehensively which may include certain Tribunals and

according to him, the Company Law Board should also be construed as a court for limited purpose.

(d) He has also submitted that the powers of the Company Law Board u/s 402 are vast and such powers are not ousted in respect of the

Company Law Board on reading of Order 14, Rule 2 of the Civil Procedure Code. He would insist on the judgment of the Division Bench of this

Court in Om Sakthi Renergies Limited Vs. Megatech Control Limited and A.P. Transco, and the judgment of the Supreme Court in I.T.I. Ltd. Vs.

Siemens Public Communications Network Ltd., and the order of the Company Law Board in Morgan Ventures Ltd. v. Blue Coast Hotels and

Resorts Ltd. [2010] 155 Comp Cas 431 to assert his stand that the Company Law Board''s powers are vast. It is his submission that inasmuch as

the appellants have not questioned the transfer which was effected and the transfer itself is in the individual capacity of the appellants, it cannot be

termed as the affairs of the company.

(e) It is his submission that the validity or otherwise of the transfer can be questioned by the appellants in a different forum. He would submit that

the Company Law Board''s order is in substantial compliance. It is his submission that as far as the transfer of shares, which is alleged by the

appellants as not valid, is concerned, the substantial compliance of the provisions of the Act is sufficient to hold as to the validity of such transfer

and in this context, he would rely upon the judgment in J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, .

(f) It is his submission that the appellants having filed an application u/s 9 of the Arbitration and Conciliation Act, 1996 cannot now go back and

say that the position as it stood on December 14, 2006 has to be taken note of for the purpose of deciding about the locus standi of the appellants

in maintaining the petition u/s 397 of the Companies Act.

I have heard learned Counsel for the appellants and the respondents and referred to the impugned order and given my anxious thoughts to the

issues involved in this case.

These appeals being ones filed u/s 10F of the Companies Act, which are maintainable on any question of law, arise from the orders of the

Company Law Board. A reference to the pleadings in these appeals show that the major complaint made by the appellants being the petitioners in

the original company petition filed under Sections 397 and 398 of the Companies Act is revolving around the shareholders'' agreement dated

December 14, 2006 and another agreement entered on the same day for the purpose of transfer of technical know-how of the first respondent-

company in favour of the second and third respondents by the appellants being the promoters of the first respondent-company.

The company petition in C. P. No. 81 of 2009 came to be filed by the appellants complaining oppression and mismanagement of the affairs of

first respondent-company by respondents Nos. 2 and 3 subsequent to the said agreement dated December 14, 2006 and the said company

petition came to be filed on September 18, 2009 before the Company Law Board. It is also an admitted fact that based on the said agreements,

the appellants approached this Court u/s 9 of the Arbitration and Conciliation Act, 1996 by filing O. A. Nos. 667 and 668 of 2009, in which this

Court on April 30, 2010 issued direction against respondents Nos. 2 and 3 to furnish security for an amount of Rs. 3 crores. A reference to the

averments made in the company petition filed by the appellants show that as per the said agreements dated December 14, 2006, the appellants

transferred 45,600 shares out of 60,000 equity shares of the company to the second and third respondents and that constituted 76 per cent. of the

total number of shares of the first respondent-company, and it is also not in dispute that they executed necessary instrument for transferring such

shares as per the provisions of the Companies Act.

After such transfer, the second and third respondents were holding 76 per cent. of stake in the first respondent-company, while the appellants

were having 24 per cent. stake. It is seen that pursuant to the said two agreements, on December 14, 2006, viz., the date of agreements, the

second and the third respondents waived Rs. 15 million and Rs. 5 million respectively under the shareholders agreement and the agreement for sale

of technical process for manufacture of plug valves and various other types of valves. As stated above, for the balance amount, the appellants

approached this Court by filing the application u/s 9 of the Arbitration and Conciliation Act.

It is stated by the second and third respondents that the appellants preferred an application u/s 11 of the Arbitration and Conciliation Act

before the High Court of Judicature at Bombay in Nagpur Bench and an honourable retired judge came to be appointed as the arbitrator, in which

it is stated that the appellants were participating. It is seen that the share capital of the first respondent-company came to be increased from Rs. 1

crore to Rs. 2 crores and further allotment of shares was made to the extent of 1,40,000 fully paid up equity shares by allotting 71,400 shares to

the second respondent and 68,600 shares to the third respondent on October 10, 2007 in the meeting of the board of directors. It is not in dispute

that the first appellant participated in the said meeting and at that time, he was the chairman of the board.

After the said further allotment, the shareholding pattern of the company as stated by the appellants in the company petition was as follows:

Both the appellants together-14,410 shares-7.20 per cent.

Respondents Nos. 2 and 3-1,85,590 shares-92.80 per cent.

However, according to respondents Nos. 2 and 3, after further allotment the shareholding pattern is,

First appellant-328 shares-0.164 per cent.

Respondents-1,85,600 shares-92.808 per cent.

Others-14,072 shares-7.036 per cent.

Therefore, on the date of further issue of share capital, viz., October 10, 2007, even if the appellants'' shares along with others, as stated by

respondents Nos. 2 and 3, are put together, the shareholding pattern is 7.20 per cent. in respect of the appellants, as admitted by them. That

position continued admittedly till the date of presenting of the company petition filed by the appellants under Sections 397 and 398 of the

Companies Act.

In the company petition, the appellants specifically admitted that they were paid Rs. 150 lakhs on or about December 14, 2006 by the second

respondent and thereafter, the appellants transferred the shares in the following manner:

First appellant-31,055 equity shares

Second appellant-14,545 equity shares.

Out of which the second respondent acquired 30,600 equity shares and the third respondent acquired 15,000 equity shares and the said transfer is

specifically stated to have been approved in the board meeting held on December 14, 2006, in which the first appellant was the chairman. As per

the agreements, it is stated in the company petition that the balance amount of Rs. 1.50 crores was payable on March 31, 2008, March 31, 2009

and March 31, 2010 at Rs. 50 lakhs, Rs. 25 lakhs and Rs. 75 lakhs respectively. It is also specifically admitted in the company petition filed by the

appellants that they agreed in the extraordinary general meeting held on February 4, 2007 for increasing the authorised share capital from Rs. 1

crore to Rs. 2 crores, and allotment was made to respondents Nos. 2 and 3 in the resolution dated October 10, 2007. However, the appellants

have chosen to state that they have not agreed for the increase of such shares and it is an unilateral increase of shares, even though it is stated that

respondents Nos. 2 to 5 have given certain assurance that the appellants'' interest in the company would be taken care of and therefore, they have

agreed.

There are other averments in the company petition which are relating to the conduct of respondent No. 5. It is specifically stated in the

company petition that the appellants have agreed to transfer their shares in the first respondent-company on the bona fide belief that the same could

be adhered to its obligation in letter and spirit. It is stated that after major shares were transferred, the conduct of respondents Nos. 2 to 5 became

fraudulent and they were attempting to act contrary to the terms of the agreements and detrimental to the interest of the company. It is, with the

above said averments, the company petition came to be filed by the appellants for the following reliefs:

In view of what has been stated hereinabove and in view of the facts and circumstances of the present case, most respectfully prayed that this

hon''ble board be pleased to:

Declare that acts of respondents Nos. 2 to 5 as fraud, deceit and oppressive to the shareholders of the company in general and the petitioners in

particular and constitute acts of mismanagement;

Direct respondents Nos. 4 and 5 or any one claiming through them from interfering with the day-to-day management of the company;

To declare all the share allotment of respondent No. 1 company on or after December 14, 2006 as null and void and to restore the original

shareholding pattern as on December 13, 2006;

Declare that respondents Nos. 4 and 5 are unfit to act as directors of respondent No. 1 company by reason of their conduct, disabled

themselves from acting as directors of the company and they are unfit to continue as director in the best interest of the company and to remove

them from the office of the director and appoint such other person or persons as this hon''ble Board may deem fit;

Direct respondents Nos. 2 to 5 to compensate the company for the loss caused to the company due to their oppressive acts and

mismanagement of the company''s assets;

Declare that the acts of respondents Nos. 2 to 5 qua respondent No. 1 does not bind the petitioner in his capacity as a director/managing

director of respondent No. 1 as he has been sidelined as regards to the non-filing of the annual returns of respondent No. 1 for the past 2 years;

Declare that the increase of equity shares from Rs. 1 crore to Rs. 2 crores made in the extraordinary general meeting dated June 4, 2007 as null

and void;

Order and direct respondent Nos. 2 to 5 to bear the cost of these proceedings and pass such further or other orders as this hon''ble Board may

deem fit and necessary in the facts and circumstances of the case to put an end to the acts of oppression and mismanagement by respondents Nos.

2 to 5.

The major relief is based on the allegation of fraud, deceit and oppression against respondents Nos. 2 to 5 to the shareholders of the company

in general and the appellants in particular. Therefore, on the broad analysis, it is clear that admittedly on the date of presentation of the company

petition by the appellants before the Company Law Board under Sections 397 and 398 of the Companies Act, the shareholding pattern of the

appellants jointly was not more than 7.20 per cent. of the share capital of the first respondent-company. It is also not in dispute that before the

transfer and further allotment of shares on December 14, 2006 and October 10, 2007 respectively, the appellants jointly were holding 24 per cent.

of shareholdings.

It is, in those circumstances, the Company Law Board took note of the averments made by the appellants in the company petition that out of

four members of the first respondent-company, the appellants were two, apart from respondents Nos. 2 and 3 who were holding major shares.

Having found that it is not true as per the details of members furnished in the annual return of the company up to September 30, 2006 that besides

the appellants there were 31 other members in the first respondent-company as on September 30, 2006 and having found that even going by the

annual return, cut of total number of persons of the company, viz., 33 members, the appellants were not constituting one-tenth of the total members

as on September 30, 2006 and after referring to the further issue of share capital as per the resolution of the board in which the first appellant

participated and also based on the letter of the first appellant dated November 16, 2007, wherein it is stated that the second appellant who is his

wife, is no more a director of the company as she has resigned with effect from December 14, 2006, and that the first appellant has chosen to file

the company petition in the year 2009 by joining with his wife, the second appellant, to restore the original shareholding pattern as on December

13, 2006, the Company Law Board held that the claim of the appellants is only in respect of the agreement for transfer of shares and since the

appellants are not holding the required number of shares as well as control of members, viz., 10 per cent., the company petition is not maintainable.

The contention of Mr. R. Murari, learned Counsel for the appellants by heavily relying upon the Division Bench judgment of the Karnataka

High Court in Mr. Vijayan Rajes and Mrs. Madhumathi, V. Rajes Vs. M.S.P. Plantations Private Limited, is that for the purpose of maintaining a

petition before the Company Law Board under Sections 397 and 398 of the Companies Act, the qualifying shareholdings must be looked into not

as it was on the date of presentation of the petition, but on the date of oppression alleged. That was a case where the appellant before the Division

Bench who is the son of the second respondent was functioning as the managing director of the company after his return from U.S.A. and after his

marriage with the second appellant, she also became a director and in a board resolution passed on December 28, 1995, the first appellant was

removed from the post of director and the third and fourth respondents were appointed as directors of the company which was protested by the

first appellant on the ground that it was mala fide and in contravention of an order of injunction granted by a civil court and that the removal was

not in accordance with the provisions of the Act and not in consonance with the articles of association of the company. It was, on the basis of the

alleged oppression by the majority against minority, the petition under Sections 397 and 398 was presented by the appellants. There was a further

allegation of mala fide and fraud against the majority and based on the earlier resolution dated December 20, 1995, by which time the first

appellant was holding the post of managing director, a meeting was convened on March 9, 1996 after removal of the first appellant in which 455

numbers of preference shares in the company were redeemed and 245 numbers of equity shares of Rs. 1,000 each were allotted in favour of the

second respondent. When that petition was resisted by the respondents on the ground that the appellants ceased to be the directors of the

company as per the procedure adopted by the respondents and in the manner known to law, there arose an issue of maintainability of the company

petition. The Company Law Board dismissed the petition as not maintainable on the ground that after March 9, 1996, by virtue of redemption

process which was held to be valid, the appellants especially the first appellant, who was the managing director of the company on December 28,

1995, were held to have no locus standi. It was in that context, the Division Bench held as follows (page 428 of 151 Comp Cas):

The reasoning given by the Company Law Board does not appeal to us. If the finding is to be that the persons presenting the petition do not

qualify for presenting a petition u/s 399 of the Act, no further question arises and the petition was to be dismissed at the threshold. But the

Company Law Board has viewed the working of the Section 399 of the Act in the converse way, which is not a proper understanding of the

provisions of Section 399. But, on authority, it has been established that for the purpose of examining as to whether the petitioning members qualify

for maintaining a petition u/s 399 of the Act, the question to be looked into is as to whether the petitioners constitute the requisite number of

members or they had the requisite shareholding in the company prior to the acts complained of. If the date of presentation of the petition should be

looked into in a technical way, it could defeat the very purpose of the legislative enactment of Sections 397 and 398 of the Act, as the overbearing

majority shareholders can simply by high handed action or even for other purpose and by oppressive methods, dismember the minority

shareholders and leave them with no remedies, as the dismembered minority shareholders technically do not qualify for maintaining a petition u/s

399 of the Act, being not a member at all. As the minority shareholders will be complaining only after the acts occurred and when they have been

removed from the membership of the company, the understanding and interpretation to be given to Section 399 is only so as to further the object

of relief to be given in a situation governed by Sections 397 and 398 of the Act and not to foreclose the options to an aggrieved person and to

deny the very relief sought to be extended to a complaining minority share-holder/s envisaged under Sections 397 and 398 of the Act.

Therefore, in that case, based on the conduct of the board in removing the managing director by a resolution which was objected to by a

protest and subsequently, based on the redemption of equity shares and allotment of further shares to the second respondent, the Company Law

Board concluded without going into the validity or otherwise of the redemption in detail which required appreciation of evidence, that the

appellants therein have lost their locus standi. In fact, it cannot be disputed that in cases where the main issue of oppression and mismanagement

which requires appreciation of evidence, certainly the company petition cannot be thrown out on the ground of maintainability.

While construing the term, ""member"", as defined u/s 2(27) of the Companies Act and also as defined in Section 41 of the Act which provides

for a deemed member who is a subscriber to the memorandum and on registration, entitled to be a member and other persons who are entered in

the register of members, in the context of Sections 397 and 398 of the Companies Act, the Supreme Court in World Wide Agencies P. Ltd. v.

Mrs. Margaret T. Desor [1990] 67 Comp Cas 607 : [1990] 1 BCC 536, rejected the contention that the term ""member"" in the context of

Sections 397 and 398 of the Companies Act has to be strictly construed and held as follows (paged 612 of 67 Comp Cas):

On behalf of the appellants, it was contended that the right which is a specific statutory right, is given only to a member of the company and until

and unless one is a member of the company, there is no right to maintain an application u/s 397 of the Act. Mr. Nariman contended that there was

no automatic transmission of shares, in the case of death of a shareholder, to his legal heir and representatives, and the board has discretion and

can refuse to register the shares. Hence, the legal representatives had no locus standi to maintain an application under Sections 397 and 398 of the

Act. Mr. Nariman submitted that the rights under Sections 397 and 398 of the Act are statutory rights and must be strictly construed in the terms

of the statute. The right, it was submitted, was given to ''any member'' of a company and it should not be enlarged to include ''any one who may be

entitled to become a member''.

The Supreme Court held (pages 615 and 616 of 67 Comp Cas):

We are clearly of the opinion that, having regard to the scheme and the purpose of Sections 397 and 398 of the Act, the reasoning on a pari

materia provision of the English Act would be a valuable guide. The said construction, appears to us, to further the purpose intended to be fulfilled

by petitions under Sections 397 and 398 of the Act. It facilitates solution of problems in case of oppression of the minorities when the member is

dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by

Pennycuick J., does not militate against either equity or justice. We would, therefore, adhere to that construction. In this connection, it may be

mentioned that, in the 1972 edition of Gore-Browne on Companies, it has been stated as follows (p. 798):

It has recently been settled that the personal representatives of a deceased member, even though they are not registered as members, are entitled

to present a petition u/s 210. In Jermyn Street Turkish Baths Ltd. In Re [1970] 3 All ER 57 (Ch. D), Pennycuick J., held that on its true

construction Section 210 required that the word ""member"" should include the personal representatives of a deceased member, on whom title of his

shares devolved by operation of law''.

Therefore, in cases where the name of a member has not been registered in the list of members, either due to transmission of shares or transfer

of shares, etc., and if he is a deemed member and entitled to come within the shareholding limits of Section 397 of the Companies Act, certainly

any such application cannot be thrown out on the technical ground since the said provision is attracting the equitable jurisdiction of the court.

By referring to various judgments, I had an occasion to deal with the said issue in S.V.T. Spinning Mills Pvt. Ltd. and Others Vs. M.

Palanisami and Others, . That was a case where the Company Law Board held that the complaint of a person that his name has not been duly

registered in the list of members of the company has to be decided along with the main petition and therefore, rejected the claim that the company

petition itself has to be dismissed on the ground of maintainability. In such situation, I held as follows (page 249 of 151 Comp Cas):

The applicability of Sections 397 and 398 of the Companies Act is an equitable jurisdiction which is intended to protect the minority members of

the company from any oppression and mismanagement at the hands of the majority members. It is in that background, the Supreme Court has held

that the wider meaning of the term ''member'' should be given in the context of Sections 397 and 398 of the Companies Act. On the facts and

circumstances of the case, especially in the circumstance that the respondents filed a composite application, viz., the company petition seeking

reliefs including the issuance of duplicate share certificates, I am of the considered view that the claim of the respondents herein in the company

petition cannot be thrown out at the threshold without even going into the merits of the issue raised by the respondents under the guise of deciding

the question of maintainability as a preliminary issue.

But, the facts of the present case are different as narrated above that the appellants admittedly effected transfer of shares by executing

necessary documents on December 14, 2006, by which their interest in the shareholding pattern of the first respondent came to be reduced to 24

per cent. and that thereafter, by the further allotment of shares in the annual general body meeting held on September 23, 2007 and September 29,

2008 and by virtue of further issue of shares and allotment of the same to the second and third respondents, holding of share capital by the first

appellant became 0.164 per cent. and in respect of others it became 7.036 per cent. and respondents Nos. 2 to 5 held 92.8 per cent. as claimed

by respondents Nos. 2 and 3. Even as per the claim of the appellants, if it is taken that the contention of the appellants is correct that the second

appellant has still retained shares, the percentage of share capital held by them on the dates stated above was only 7.20 per cent.

It is true that having participated in the meeting especially the first appellant being the husband of the second appellant, the appellants chose to

file the company petition under Sections 397 and 398 of the Companies Act alleging oppression and the petition came to be filed in the year 2009.

Therefore, it is clear that after the shareholding of the company was reduced to less than 10 per cent. of the total share capital as early as in

October, 2007, the appellants chose to approach the Company Law Board by raising the plea of oppression and mismanagement under Sections

397 and 398 of the Companies Act in 2009, nearly after 2 years. It is not in dispute that at the time when they filed the company petition before

the Company Law Board in 2009, they were not having the minimum number of shares as required u/s 399 of the Companies Act. Therefore, the

above said facts of the case cannot be compared to the earlier decision which was strongly relied upon by learned Counsel for the appellants and

the facts of the present case require an independent decision and appreciation of a totally different situation.

If it is the case of the appellants that on the date of complaining oppression, the appellants were competent to maintain the company petition u/s

397 of the Companies Act, as per the requirements of Section 399(1) and majority of shares was sought to be taken away by way of oppression

or mismanagement resulting of which the shareholding of the appellants was reduced, certainly the question of maintainability cannot be decided to

throw away the case of such persons without deciding the merits of the matter. But, astonishingly on the facts of the present case, admittedly the

resolution was passed in the presence of the first appellant who was holding the post of the managing director at that time on October 10, 2007 for

further allotment of shares in favour of respondents and the appellants agreed by resolution to transfer the shares pursuant to the further increase of

share capital. After following the statutory requirements on the basis of the agreements entered into between the appellants and respondents Nos.

2 and 3 in respect of transfer of shares and receiving a part of the sale consideration and on the basis that further consideration was not paid as per

the agreements dated December 14, 2006 and for the purpose of enforcing the terms of the agreement, the appellants, after waiting for a period of

2 years, approached the Company Law Board by filing the company petition on the ground of oppression and mismanagement. Therefore, the

intention of the appellants is really not opposing either the further issue of shares or transfer of majority of shares to respondents Nos. 2 to 5 and it

is only because respondents Nos. 2 and 3 failed to pay the consideration for transfer of shares as per the agreements dated December 14, 2006,

the appellants have approached the Company Law Board. This can utmost be held to be a claim by the appellants against respondents Nos. 2 and

3 for breach of the terms of agreements entered into between the parties on December 14, 2006. In such circumstances, the appellants having

waited for a considerable period of time, have to necessarily prove that they have a right to file company petition under Sections 397 and 398 of

the Companies Act. In my considered view, that should be the construction of Section 399(1) of the Companies Act, 1956 which is as follows:

Right to apply under Sections 397 and 398.-(1) The following members of a company shall have the right to apply u/s 397 or 398:

(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total

number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company,

provided that the applicant or applicants have paid all calls and other sums due on their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.

Even the literal interpretation of the words in Section 399(1) of the Act, if applied to the facts of the present case, I have no hesitation to hold

that the appellants have miserably failed to prove their right to apply under Sections 397 and 398 of the Companies Act.

A further reference was made by learned Counsel for the appellants to the provisions of Section 10E of the Companies Act relating to the

constitution of the Board of Company Law Administration, especially Sub-sections (4C), (4D), (5) and (6) which are necessarily to be construed

as a point of relevance. To appreciate the same, it is necessary to extract Section 10E of the Act which is as follows:

10E. Constitution of Board of Company Law Administration.- (1) As soon as may be after the commencement of the Companies (Amendment)

Act, 1988, the Central Government shall, by notification in the Official Gazette, constitute a Board to be called the Board of Company Law

Administration.

(1A) The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it, by or under this Act or any

other law, and shall also exercise and discharge such other powers and functions of the Central Government under this Act or any other law as

may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law.

(2) The Company Law Board shall consist of such number of members, not exceeding [nine], as the Central Government deems fit, to be

appointed by that Government by notification in the Official Gazette:

Provided that the Central Government may, by notification in the Official Gazette, continue the appointment of the chairman or any other member

of the Company Law Board functioning as such immediately before the commencement of the Companies (Amendment) Act, 1988, as the

chairman or any other member of the Company Law Board, after such commencement for such period not exceeding three years as may be

specified in the notification.

(2A) The members of the Company Law Board shall possess such qualifications and experience as may be prescribed.

(3) One of the members shall be appointed by the Central Government to be the chairman of the Company Law Board.

(4) No act done by the Company Law Board shall be called in question on the ground only of any defect in the constitution of, or the existence of

any vacancy in, the Company Law Board...

(4B) The Board may, by order in writing, form one or more Benches from among its members and authorise each such Bench to exercise and

discharge such of the Board''s powers and functions as may be specified in the order; and every order made or act done by a Bench in exercise of

such powers or discharge of such functions shall be deemed to be the order or act, as the case may be, of the Board.

(4C) Every Bench referred to in Sub-section (4B) shall have powers which are vested in a court under the Code of Civil Procedure, 1908 (5 of

1908), while trying a suit, in respect of the following matters, namely:

(a) discovery and inspection of documents or other material objects producible as evidence;

(b) enforcing the attendance of witnesses and requiring the deposit of their expenses;

(c) compelling the production of documents or other material objects producible as evidence and impounding the same;

(d) examining witnesses on oath;

(e) granting adjournments;

(f) reception of evidence on affidavits.

(4D) Every Bench shall be deemed to be a civil court for the purposes of Section 195 and (Chapter XXVI of the Code of Criminal Procedure,

1973 (2 of 1974)), and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of Sections 193 and

228 of the Indian Penal Code, 1860 (45 of 1860), and for the purpose of Section 196 of that Code.

(5) Without prejudice to the provisions of Sub-sections (4C) and (4D), the Company Law Board shall in the exercise of its powers and the

discharge of its functions under this Act or any other law be guided by the principles of natural justice and shall act in its discretion.

(6) Subject to the foregoing provisions of this section, the Company Law Board shall have power to regulate its own procedure.

The contention of learned Counsel for the appellants is that when Section 10E(4C) only categorises certain circumstances in giving the power

of a court under the Civil Procedure Code, it should be presumed that the other provisions of the CPC are excluded and therefore, the Company

Law Board is not having the power to decide the question of maintainability of the company petition. It is his submission that the principles of

natural justice and the discretion that has been contemplated u/s 10E(5) of the Act on the Company Law Board must be in consonance with

Section 10E(4C) and in accordance with the Companies Act and therefore, the discretion cannot be exercised by the Company Law Board for

holding a company petition as not maintainable without going into the merits of the matter.

To substantiate his contention, he would rely upon the judgment of the Andhra Pradesh High Court decided in Company Appeal Nos. 19 and

20 of 2005 by judgment dated July 3, 2009, B. Subba Reddy v. S.S. Organics Ltd. reported in [2009] 151 Comp Cas 190 . A reference to the

facts of the said case shows that a company petition was filed challenging the allotment of 20 lakhs shares of a company excluding the petitioners

before the Company Law Board and the said petition was moved complaining violation under Sections 111A, 163, 196, 237(b), 397, 398, 402,

403, 406 and 408 of the Companies Act alleging the said act as misappropriation and oppression. When an application was moved by the

respondents on the ground that the allotment of shares against which the oppression and mismanagement was alleged, was pursuant to an order

passed by the BIFR dated February 12, 2002 and that the allotment of said shares was made on April 25, 2003, the Company Law Board,

considering the plea raised by counsel that Section 26 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) does not provide

for bifurcation of the subject-matter of action as it is available u/s 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996, has rejected the said

contention by relying upon the judgment of the Supreme Court in Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya and Another, and concluded

that the management and the statutory violations set out in the company petition could be bifurcated and dealt with separately. In the petition

challenging the order of the Company Law Board holding that the company petition is not maintainable on the ground that the Company Law

Board has no jurisdiction to decide preliminary objections, while referring to the contention that the Company Law Board has jurisdiction to decide

about the preliminary issues, the High Court held that the regulations framed as per Section 10E(6) of the Companies Act, viz., Company Law

Board Regulations, 1991 do not enable the Company Law Board to decide the preliminary issues. The High Court also relied upon the judgment

of the Supreme Court dealing with the contravention of the Government directives relating to reservation of SC/ST in IOB reported in All India

Indian Overseas Bank SC and ST Employees'' Welfare Association and Others Vs. Union of India (UOI) and Others, , in which the power of the

National Commission such as a civil court in granting injunction, etc., was dealt with, and held that the Company Law Board cannot decide the

preliminary issues on the question of maintainability. The relevant portion of the judgment of the Andhra Pradesh High Court is as follows (page

193 of 151 Comp Cas):

The contentious issue in these two appeals is whether the Company Law Board is vested with the power to entertain applications to decide

preliminary issues. It is no gainsaying that the Company Law Board is a creature of a statute u/s 10E of the Companies Act. Its proceedings are

governed by the regulations made by the Company Law Board u/s 10E(6) of the Companies Act. These regulations known as Company Law

Board Regulations, 1991 (hereafter called ''the Regulations''), promulgated by the Company Law Board do not contain any regulation, which

specifically confer power on the Company Law Board to decide preliminary issues. The respondent filed an interlocutory application under

Regulation 44 of the Regulations, which in the considered opinion of this Court does not even remotely suggest that the power to decide

preliminary issues inheres in the Company Law Board.

Section 10E(4C) of the Companies Act is to the effect that every Bench of the Company Law Board shall have powers which are vested in a

court under the Code of Civil Procedure, 1908 (CPC), while trying a suit in respect of only the following matters : (a) discovery and inspection of

documents, (b) enforcing the attendance of witnesses, (c) compelling production of documents or material objections, (d) examining witnesses on

oath, (e) granting of adjournments, and (f) reception of evidence on affidavits. This would show that all the powers under the CPC are not vested

in the Company Law Board.

In this context, a reference may be made to the decision of the Supreme Court in All India Indian Overseas Bank SC and ST Employees''

Welfare Association and Others Vs. Union of India (UOI) and Others, . In the said case, the National Commission for Scheduled Castes and

Scheduled Tribes directed the executive director of the Indian Overseas Bank (IOB) to stop promotion process pending further investigation into

the allegation of contravention of the Government directives relating to reservation for SC/ST employees in IOB. Accordingly, IOB stayed the

promotions. IOB Officers'' Association and other candidates challenged the same before the Delhi High Court by filing a writ petition. On the

ground that National Commission had no power to issue interim orders, the writ petition was allowed. The same was challenged by the All India

Indian Overseas Bank SC and ST Employees'' Welfare Association. Reliance was placed on Clauses (5) and (8) of Article 338 of the

Constitution of India in support of the contention that the Commission had power to pass such orders. The hon''ble Supreme Court after

considering Clauses (5) and (8) of article 338 of the Constitution of India and also the earlier decision in M.V. Rajwade v. Dr. S.M. Hassan AIR

1954 Nag 71 and Dr Baliram Waman Hiray Vs. Justice B. Lentin and Others, (in relation to Section 4 of the Commissions of Inquiry Act, 1952),

laid down as under (page 611):

Interestingly, herein, in Clause (8) of article 338, the words used are ""the Commission shall...have all the powers of the civil court trying a suit"". But

the words ""all the powers of a civil court"" have to be exercised ""while investigating any matter referred to in Sub-clause (a) or inquiring into any

complaint referred to in Sub-clause (b) of Clause (5)"". All the procedural powers of a civil court are given to the Commission for the purpose of

investigating and inquiring into these matters and that too for that limited purpose only. The powers of a civil court of granting injunctions,

temporary or permanent, do not inhere in the Commission nor can such a power be inferred or derived from a reading of Clause (8) of Article 338

of the Constitution.''

Learned Counsel for the respondents have not placed before this Court any provision of Companies Act or Regulations (except Regulation 44)

which confers the power on the Company Law Board to decide the preliminary issues as per Order XIV, Rule 2 of the CPC. It must, therefore,

be held that the Company Law Board has no power to decide preliminary issues nor can exercise powers under CPC other than those conferred

u/s 10E(4C) of the Companies Act.

On a careful consideration of the findings of the learned judge in the above said case, I am of the considered view that the reasonings contained

therein cannot be applicable to the case on hand, for more than one reason. First of all, when admittedly the court or Company Law Board is

entitled to decide as to the act of oppression and mismanagement complained of as per Sections 397 and 398 of the Companies Act, in my

considered view, to decide at the first instance as to the competence of a person to file such petition and that decision is depending upon the

mandatory requirements of qualifications imposed on a member of the company to approach the court or the Company Law Board under Sections

397 and 398 of the Act, as stipulated u/s 399(1) of the Act which makes it abundantly clear that only the persons or members having not less than

one-tenth total number of members or members holding one-tenth of the issued share capital of the company are entitled to maintain such petition

under Sections 397 and 398 of the Companies Act is a power available to the Company Law Board, when Section 399 itself empowers the

Company Law Board to decide about the competency of the person to maintain such petition under Sections 397 and 398 of the Act, it is not

known as to how it is claimed that the company Law Board or the court is not entitled to decide about the maintainability of the petition on the

ground that the person who approaches the Company Law Board or the court has no qualification as prescribed u/s 399(1) of the Act.

Therefore, when the statutory provision of the Companies Act itself is very clear that unless and until the persons have the qualifications

enshrined u/s 399(1) of the Act, they have no right even to file a company petition under Sections 397 and 398 of the Act, in my considered view,

such power need not be traced to either the CPC or any other law. In such circumstances, the contents of Section 10E(5) as enumerated supra,

which not only enable the Company Law Board to be guided by the principles of natural justice but also its discretion, gives abundant power to the

Company Law Board to exercise its discretion to find out as to the person who files the petition before it under Sections 397 and 398 of the Act

as to whether he is having the right to make such petition as required u/s 399(1) of the Act, which can certainly be decided as a preliminary issue

before going into the merits of the case. Therefore, the power given to the Company Law Board u/s 10E(4C) of the Companies Act, as in the case

of a civil court governed by the Code of Civil Procedure, can only be termed to be an addition to the powers which are already available to the

Company Law Board, to be exercisable as per its discretion u/s 10E(5) of the Act. Inasmuch as it is not the case of the appellants that the

Company Law Board has not exercised its discretion in a proper manner, in my considered view, it is not possible to accept the contention of

learned Counsel for the appellants Mr. Murari that as per the judgment of the Andhra Pradesh High Court, these appeals have to be allowed. With

great respect, I disagree with the findings of the learned judge in the above said judgment.

Further, while dealing with the petition under Sections 397 and 398 of the Act, the power of the Company Law Board, as contained in Section

402 of the Act, is on just and equitable ground, in the opinion of the Board. One other aspect which has to be remembered in this case is that it is

not as if by holding that the company petition filed by the appellants as not maintainable, the jurisdiction of the Company Law Board in dealing with

such situation afresh if the appellants are able to succeed in their efforts in invalidating the transfer of shares and thereafter obtaining the right to

maintain an application under Sections 397 and 398 of the Act as required u/s 399(1) of the Act by way of fresh application, inasmuch as there is

no ouster of jurisdiction of the Company Law Board by the impugned order passed by it, especially when it is certainly open to the appellants to

avail the remedies in the manner known to law to redress the grievance in respect of transfer of shares effected, in my considered view, there is no

grievance in existence for the appellants.

The observation of the Supreme Court relied upon by learned Counsel for the appellants in the judgment rendered in J.P. Srivastava and Sons

P. Ltd. v. Gwalior Sugar Co. Ltd. [2004] 122 Comp Cas 696 : [2005] 1 SCC 1723, in paragraph 48, which is as follows (page 716 of 122

Comp Cas):

The object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under Sections 397 and 398 is

clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However it is of interest that the

English Companies Act contains no such limitation. What is required in these matters is a broad commonsense approach. If the court is satisfied

that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation

is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement.

Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be

broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there

is substantial compliance with the rules read as a whole and no prejudice is caused (see: Thakur Pratap Singh Vs. Shri Krishna Gupta and Others,

In our judgment, Section 399(3) and Regulation 18 have been substantially complied with in this case.

is not helpful to the case of the appellants.

That was a case where the members of the company were family members and there was a difference of opinion on the demise of certain

family members and a compromise was entered into without the knowledge of one of the parties and after the compromise was broken, partition

of shares was effected. In that case, a contention was raised that equivalent to 10 per cent. of the petitioners'' shareholding in the company was

made only with regard to equity share capital of the company, while Section 399(1) of the Act has required the petitioners to have 10 per cent. of

total issued share capital which would include preference shares and therefore, the shareholdings claimed by the petitioners who moved the petition

under Sections 397 and 398 of the Companies Act did not amount to 10 per cent. of such total. It was on that basis, while referring to various

case laws on the subject, the Supreme Court made the above said observation. In any event, the issue involved in the present case cannot be said

to be technical. Apart from want of right on the part of the appellants in maintaining the petition under Sections 397 and 398 of the Act, the very

conduct of the appellants in approaching the court u/s 9 of the Arbitration and Conciliation Act, 1996 for preserving their right pending arbitration

proceedings regarding the dispute under the said agreements dated December 14, 2006, clearly shows the interest of the appellants to enforce the

said agreements.

While dealing with Section 111 of the Companies Act, 1956, as it stood then, where, as against the refusal of the company to register transfer

of shares, an appeal was provided to the Central Government, which power has subsequently been vested with the Company Law Board and of

course, to the Tribunal, after the same has been constituted, the Supreme Court, by making an analogy between the powers of a ""court"" and a

Tribunal"", in M.S. Madhusoodhanan and Another Vs. Kerala Kaumudi Pvt. Ltd. and Others, held that such decision of the Central Government

which is judicial in nature falls under Article 138 of the Constitution of India. It was held as follows (page 32 of 117 Comp Cas):

Transfer of shares by Mani and his children to Madhusoodhanan :

In C. P. No. 26 of 1987, Mani and his group prayed for rectification of the share register of Kerala Kaumudi by deleting the name of

Madhusoodhanan as a shareholder in respect of the shares which Mani and his group had transferred to him in 1985. The prayers proceed on the

basis that there was in fact a transfer of shares in 1985 which was, after two years, sought to be set aside. The grounds on which this was asked

for were:

A. The consideration for the transfer had not been agreed upon and no consideration had in fact been paid.

B. No proper documents had been executed effecting the transfer.

C. Neither Valsa nor Sukumaran Mani, a minor had any knowledge of the transfer and the transfer of their shares was invalid.

D. Section 108 of the Companies Act, 1956 had not been complied with in respect of any of the transfers.

The learned single judge rejected all four contentions, and in our view, rightly. The Division Bench held in favour of Mani and his group on grounds

which are legally and factually unsustainable for the reasons stated in the following paragraphs.

The documentary evidence relating to the transfer, shows without a shred of doubt that there was a valid transfer of shares. To begin with the

minutes of the meeting held on March 19, 1985 [exhibit R-62(a)], which were signed by Mani, records:

Shares of Sri M. S. Mani. All the shares in Kerala Kaumudi owned by Sri M. S. Mani and family would be pledged by him to Sri M. S.

Madhusoodhanan who shall extend financial facilities to Sri M. S. Mani. The loan will be paid with 22 per cent. interest by Sri Mani when Sri M.

S. Madhusoodhanan shall release the shares of Sri M. S. Mani. The modus operandi of the transaction shall be decided in consultation with

barrister P. K. Kurien of Menon and Pai.

The intention of Mani and his group to transfer their shareholding to Madhusoodhanan is evident from this. Although the mode of transfer was

subsequently changed, this intention was affirmed at the board meeting of Kerala Kaumudi held on April 23, 1985. The fifth and sixth resolutions

as appearing in the minutes of the meeting (exhibit P62(b)) which were also signed by Mani read as under:

Sri M. S. Mani

Letter of resignation from the direct directorship of Kerala Kaumudi (P.) Ltd. effective from April 23,1985, afternoon submitted by Sri M. S. Mani

was approved by the board.

(6) Shares owned by Sri M. S. Mani and family in Kerala Kaumudi (P.) Ltd.

Shares owned by Sri M. S. Mani and family in Kerala Kaumudi (P.) Ltd. will be transferred to Sri M. S. Madhusoodhanan forthwith on a

consideration to be mutually agreed between the transferor and the transferee. The liabilities of Sri M. S. Mani to the Income Tax Department,

etc., up to March 31,1985 should be settled by Kerala Kaumudi (P.) Ltd. before finally deciding a consideration for the share transfer. The Kerala

Kaumudi (P.) Ltd. undertakes to discharge the liabilities arising on account of personal guarantees given by Sri M. S. Mani for the company.

(emphasis supplied)

By referring to various judgments and passages from Hallsbury, the Supreme Court has ultimately held as follows (page 34 of 117 Comp Cas):

The questions as to what would be the reasonable price for the shares, the mode of its determination and whether any consideration has

already been paid by Madhusoodhanan to Mani are considered subsequently.

The minutes of the board meeting held on May 21, 1985 (exhibit P6 (C)), of the Kerala Kaumudi record that the following share transfer

deeds were placed before the board, namely, the deeds relating to the transfer of 222 shares by M. S. Mani to Madhusoodhanan, 84 shares by

Valsa Mani to Madhusoodhanan, 84 shares by Sukumaran Mani to M. S. Mani and 84 shares by Mani to Madhusoodhanan. The board

resolution goes on to record:

After discussion the share transfers were approved by the board and the managing director and any other director was authorised to sign the

relative new share certificates to be issued in favour of Sri M. S. Madhusoodhanan and to affix the common seal of the company in the share

certificates in the presence of the company secretary.

While dealing with Section 9 of the Arbitration and Conciliation Act, 1996, in the light of Section 115 of the Code of Civil Procedure, even

though the Act does not provide for the applicability of the Code specifically and in the circumstance that u/s 37(2) of the Arbitration and

Conciliation Act, 1996, a second appeal remedy is not available, the Supreme Court in I.T.I. Ltd. Vs. Siemens Public Communications Network

Ltd., by holding that the remedy of revision would not cease to be available u/s 115 of the Civil Procedure Code, laid down that the issue to be

decided is as to whether there is an express bar of applicability of the Code, in the following words (page 516 of [2002] 5 SCC:

We do not agree with this submission of learned Counsel. It is true in the present Act application of the Code is not specifically provided for

but what is to be noted is : is there an express prohibition against the application of the Code to a proceeding arising out of the Act before a civil

court ? We find no such specific exclusion of the Code in the present Act. When there is no express exclusion, we cannot by inference hold that

the Code is not applicable.

While dealing with a similar issue in the context of Arbitration Act, 1940, referring to the above said judgment in I.T.I. Ltd. Vs. Siemens Public

Communications Network Ltd., , the Division Bench presided over by A. P. Shah CJ (as he then was) in Om Sakthi Renergies Limited Vs.

Megatech Control Limited and A.P. Transco, held as follows:

It is also required to be noted that this is not a case of lack of territorial jurisdiction, but only a waiver of a contractual clause. If a party allows

the trial court to proceed to judgment without raising the objection as to the place of suing and takes a change of verdict in his favour, he clearly

waives the objection and will not subsequently be permitted to raise. The present proceedings u/s 9 are in effect final proceedings. The objection to

the jurisdiction though taken before the trial court should have been pressed to its normal and failure to do so would amount to waiver as per

Section 21 off the Code of civil Procedure. it is true that Section 21 of the CPC is not specifically made applicable to the proceedings arising under

the Act, but there in no express prohibition against the application of the Code to the proceedings arising out of the Act before the civil court. In

I.T.I. Ltd. Vs. Siemens Public Communications Network Ltd., , a two judge Bench of the Supreme Court has clearly held that the jurisdiction of

the civil court to which a right to decide a lis between the parties has been conferred can only be taken away by a statute in specific terms and such

exclusion of right cannot be easily inferred because there is always a strong presumption that the civil court has the jurisdiction to decide all

questions of civil nature therefore, if at all there has been an inference the same should be in favour of the jurisdiction of the court rather than the

exclusion of such jurisdiction and there being no such exclusion of the Code in specific terms except to the extent stated in Section 37(2) of the Act

an inference that merely because the Act has not provided the CPC to be applicable, the Code is inapplicable cannot be drawn.

In such view of the matter, I am of the considered view that the findings of the Company Law Board in the impugned order cannot be either

treated as perverse or against the law or that the Company Law Board considered irrelevant materials so as to enable this Court to interfere with

the same u/s 10F of the Companies Act on the basis of any question of law. The appeals fail and the same are dismissed accordingly. No costs.

Connected miscellaneous petitions are closed.