2014 (1) TMI 1960 - HC - Companies Law

Appellants allowed to amend pleadings adding oppression grounds under Sections 397-398 against share allotment challenge

Bhupinder Rai S/O Mr. Lajpat Rai Major and Vijay Kumar Narang S/O Mr. Sahntiolal Narang Versus SM Kannappa Automobiles PVT. LTD., Narotham C.K.,T.V. Mohandas Pai, K.N. Lokenath, Sudharshan Kumar Manchanda, Bharath Bhooshan Narang, Vaibhav Narang, Sheethal Narang and Smt. Chitra Narang, Bangalore

Karnataka HC allowed appellants to amend pleadings challenging allotment of 6000 shares to respondents. Court found amendment sought to add legal grounds ... Amendment of the pleadings - seeking declaration that the purported allotment of 6000 shares in favour of respondent at the meeting of the Board allegedly held on 24-9-1990 is void, illegal and inoperative - HELD THAT:- It is found that challenge to the allotment of 6000 shares to the respondents was on the ground of malafides and for collateral purpose, namely, to benefit the respondents at the cost of other share holders. The appellants specifically contended that exercise of power by respondent Nos.2 to 5 in the company petition for allotment of 6000 shares is vitiated by fraud. In other words, they played fraud on the appellants allotting the shares behind their back, prejudicially affecting their rights. In short, it was contended that allotment of six thousand shares in favour of the respondents was not for the benefit of the Company but it was for fraudulent and malafide purpose of controlling the Company. The allotment of share was also challenged on the ground that it was for an improper motive and against the interest of the Company. From bare perusal of the grounds sought to be introduced by the appellants, it is clear that the additional grounds do not travel beyond the purported allotment of 6000 shares. By way of amendment, it was contended that the entire allotment of shares was oppressive. Thereby, in other words, the appellants have endeavoured to introduce a legal ground to challenge the said allotment contending that the entire allotment of shares was oppressive and hence liable to be set aside - It is true that by way of amendment they have added the prayer/relief under Sections 397 and 398 of the Act but that by itself cannot be a ground for rejecting the application. By way of an amendment, the appellants have not deviated from original challenge to the improper allotment of 6000 shares. Moreover, there is no legal bar in filing a composite petition before CLB under Sections 111, 397 and 398 of the Act. The basic ground of challenge that there is no legal infirmity in the order of the CLB also deserves to be rejected outright on the ground that the CLB overlooked the mandate of the order passed in terms of minutes of the order. The order in terms of the minutes is an order in invitum which is binding on both parties which agreed before this Court for allowing/permitting the parties to file further pleadings and documents as they may choose - The appellants are directed to carry out amendment within two weeks from the date of receipt of this order. It is open to the respondents to file Written Statement/reply if they so desire within six weeks from today. Once the amendment is carried out, it is open to the appellants to move the CLB for hearing of the company petition. Parties through their counsel are directed to appear before the Chairman or before the appropriate Bench of CLB, as the case may be, on 24.02.2014. Issues Involved:1. Amendment of pleadings in a company petition.2. Scope of the order of remand by the High Court.3. Whether the proposed amendment changes the nature of the original case.4. Limitation and legal infirmity in the CLB's order.5. Maintainability of a composite petition under Sections 397, 398, and 111 of the Companies Act, 1956.Issue-wise Detailed Analysis:1. Amendment of Pleadings:The appellants sought to amend the pleadings in a company petition to challenge the allotment of 6000 shares as oppressive and to seek relief under Sections 397 and 398 of the Companies Act, 1956. The CLB rejected the application for amendment, stating that the proposed amendment was beyond the scope of the remand order, altered the nature of the original case, and was barred by limitation. The appellants argued that the amendment was necessary to address the real question in controversy, i.e., the improper allotment of shares, and that the CLB erred by considering the merits of the amendment at this stage.2. Scope of the Order of Remand:The High Court had previously set aside the CLB's order and remanded the case for de novo adjudication, allowing the parties to file additional pleadings and documents. The appellants contended that the order in terms of the minutes allowed them to amend the pleadings without needing a separate application, as the remand order permitted additional pleadings. The CLB's assumption that the order was a consent order and that the amendment was beyond the scope of remand was challenged by the appellants.3. Nature of the Original Case:The appellants maintained that the proposed amendment did not change the basic nature and character of the company petition, which originally challenged the allotment of shares on grounds of fraud and malafides. The amendment sought to introduce a legal ground of oppression without deviating from the original challenge. The High Court acknowledged that a composite petition under Sections 397, 398, and 111 is legally permissible, as supported by the Delhi High Court's judgment in Charanjit Khanna's case.4. Limitation and Legal Infirmity:The respondents argued that the amendment was barred by limitation and changed the nature of the relief sought. They cited the appellants' previous decision not to initiate separate action for misappropriation as a relinquishment of rights. The High Court, however, found that the amendment related to the original challenge of share allotment and that delay alone was not a sufficient ground to deny the amendment. The CLB's oversight of the remand order's mandate was deemed a legal infirmity.5. Maintainability of Composite Petition:The High Court recognized the maintainability of a composite petition under Sections 397, 398, and 111, emphasizing that the amendment did not introduce a new case but sought additional relief within the original challenge's framework. The judgment of the Delhi High Court, confirmed by the Supreme Court, supported this view, highlighting that allegations of oppression and mismanagement are often intertwined with issues under Section 111A.Conclusion:The High Court set aside the CLB's order, allowing the amendment of pleadings, and directed the appellants to carry out the amendment within two weeks. The respondents were given the opportunity to file a written statement if desired. The Chairman of the CLB was requested to assign the company petition to an appropriate Bench for expedited disposal. The decision underscores the importance of addressing the real questions in controversy and ensuring procedural fairness in corporate disputes.