1993 (5) TMI 125 - HC - Companies Law

Appeals allowed, judgment set aside in Companies Act case.

Palghat Exports (P.) Ltd. Versus TV. Chandran

Palghat Exports (P.) Ltd. Versus TV. Chandran - [1994] 79 COMP. CAS. 213 (KER.) Issues Involved:1. Whether the facts established attract the invocation of sections 397 and 398 of the Companies Act, 1956.2. Whether the company court has travelled beyond the pleadings.3. Whether the absence of a separate petition u/s 543 affects the reliefs granted.4. Whether the petition was filed with the ulterior motive of recovering the money invested by the petitioners.Summary:Issue 1: Invocation of Sections 397 and 398 of the Companies Act, 1956The case revolves around the invocation of sections 397 and 398 of the Companies Act, 1956, concerning the conduct of the company's affairs in a manner prejudicial to public interest and oppressive to certain members. The company court initially granted substantial reliefs to the petitioners, including the deposit of Rs. 35,000 towards the value of movables sold, the purchase of shares from the petitioners, and furnishing accounts of the company's finances. However, the appellants contended that the facts did not justify the invocation of these sections, arguing that the business was closed in 1986 and thus not subject to action under sections 397 and 398, which are intended to address ongoing oppressive conduct.The court emphasized that sections 397 and 398 are preventive and aimed at terminating or preventing ongoing oppressive conduct, not addressing past acts. The court noted that the petitioners' complaints related to the years 1985-86, and the petition was filed in 1988, indicating that the alleged oppressive acts were not ongoing at the time of filing. The court concluded that past closed affairs do not fall within the scope of section 397, which requires present continuous wrongs.Issue 2: Examination Beyond PleadingsThe appellants argued that the company court overstepped its jurisdiction by considering events that occurred after the filing of the petition and beyond the pleadings. The court agreed, stating that no evidence can be considered regarding facts not pleaded. The court cited precedents emphasizing that the examination should be confined to the complaints in the petition and not extend to subsequent events. The court found that the company judge had indeed considered events post-filing, which was unjustified and beyond the scope of sections 397 and 398.Issue 3: Separate Petition u/s 543The appellants contended that the reliefs granted by the company court were unsustainable in the absence of a separate petition u/s 543 of the Act. The court did not delve deeply into this issue, as it had already decided to dismiss the petition on other grounds.Issue 4: Ulterior Motive of Recovering MoneyThe court noted that the primary object of the petition, as admitted by the petitioners, was to recover the money invested in the company. This was seen as an ulterior motive not aligned with the purpose of section 397, which is to address oppressive conduct, not personal grievances or recovery of investments. The court referenced the decision in Bellador Silk Ltd., In re, which held that a petition filed with the ulterior motive of recovering money is an abuse of the process and should be dismissed.Conclusion:The court allowed the appeals, set aside the judgment of the company court, and dismissed the application, C.P. No. 27 of 1988, on the grounds that the petition did not meet the criteria for action under sections 397 and 398, the company court overstepped the pleadings, and the petition was filed with an ulterior motive. No order as to costs was made.