AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 1261
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....al No. 29 of 2014 has been filed by Vital Construction Private Limited (for short, 'Vital'). 4. Company Appeal No. 30 of 2014 has been filed by Native Buildcon Private Limited (for short, 'Native'). 5. Some of the respondents before the Company Law Board (for short, 'the Board'), in a petition filed by respondent no. 1/ petitioner under Sections 397 and 398 read with Sections 402 and 403 of the Companies Act, 1956 (hereinafter to be referred as 'the Act'), have approached this Court impugning the interim order dated 5.3.2014, passed by the Board. 6. The petition was filed by respondent no. 1 before the Board claiming that it is a company registered in Mauritius, which invested Rs. 123,57,03,000/- in the Perpetual Infracon Private Limited- respondent no. 2 (hereinafter to be referred as 'Perpetual'). CPI India Real Estate Ventures Limited- respondent no. 1 (for short, 'CPI') was to hold 50% shares of newly incorporated Perpetual, whereas Five Star Promoters Private Limited- respondent no. 3 (for short, 'Five Star'), was to hold 49.90% shares. Ocean Build Mart Private Limited - respondent no. 4 (for short, 'Ocean....
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....Cas 371 (All) and Madras High Court judgment in Shankar Sundaram vs Amalgamations Limited, Chennai (2002) 111 Comp Cas 252 (Mad), it was submitted that the provisions of Section 399 of the Act have been interpreted to include subsidiary of a holding company against which allegations of oppression and mismanagement could be made. That too, if the subsidiary company is a kind of branch where entire control and management is with the holding company. Even if the case of the respondent no. 1/ petitioner is stretched to any limit, the appellants have no direct relation with respondent no. 1/petitioner. The appellants are not the subsidiaries of Perpetual, the company in which respondent no. 1 made investment of Rs. 123,57,03,000/-. Hence, to rope in the appellant in the case of alleged oppression and mismanagement of Perpetual is totally misconceived. The Board while directing audit of the accounts of the appellant- Triangle Builders & Promoters Private Limited and also passing other restrain orders has exceeded its jurisdiction. It has travelled beyond the scope of Sections 397 and 398 of the Act. Rather the provisions have been re-written, in the sense that instead of 'the company....
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....iding the application filed by the present appellants for deletion of their names, in the petition filed alleging oppression and mismanagement. In fact, with the observations /findings recorded by the Board against the present appellants, the prayer made in the applications for deletion of their names filed by respondent nos. 8 and 9, before the Board have in a way been rendered infructuous. The Board was required to record a specific finding that the petition filed by CPI against the present appellants was maintainable in terms of Section 399 of the Act. 14. A perusal of the impugned order passed by the Board shows that it was proceeding totally beyond the provisions of the Act and in fact has re-written the same. The jurisdiction under Sections 397 and 398 of the Act could not be expanded to the extent it has been done. Section 399 of the Act clearly defines as to the persons, who are entitled to invoke the same. Even for recording the findings regarding alter ego, no reason as such has been assigned. If one person is controlling 10 companies, it will not mean that with the filing of a petition under Sections 397 and 398 of the Act against one company in which investment had b....
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....case. In support of his plea, reliance was placed upon T. Arivandandam vs T. V. Satyapal and another (1977) 4 SCC 467 and Church of Christ Charitable Trust and Educational Charitable Society vs Ponniamman Educational Trust (2012) 8 SCC 706. 19. On the other hand, Mr. Sunil Gupta, learned Senior Counsel appearing for CPI India Real Estate Ventures Limited, respondent no. 1, submitted that it is not in dispute that the application under Sections 397 and 398 of the Act has been filed against Perpetual Infracon Private Limited. He did not dispute the fact that such an application can be filed by a party on fulfillment of conditions laid down in Section 399 of the Act. However, he submitted that many times to examine the affairs of the company with reference to oppression and mismanagement, its dealings, contracts, agreements with other individual(s), companies or its relations with shareholders, directors are also required to be examined. In those circumstances, they become necessary parties. In case the petitioner before the Board fails to implead them, the Board is duty bound to do that for grant of effective relief. Wide powers have been conferred on the Board under Sections 397-....
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....2009 with Triangle Builders. Then Triangle invested money in Native and Vital, which they invested back in Triangle. All these companies are controlled by Kabul Chawla. This is the reason that they have been impleaded as party to the proceedings. They are necessary parties. It was nothing else but round of tripping. The result of the aforesaid transactions by the Company was reduction in value of the investment made by CPI India Real Estate Ventures Limited. 23. It was further submitted that the appellants have been impleaded as parties to the proceedings before the Board so that they may not have grievance that any order was passed at their back. They are being afforded due opportunity of hearing. It was for the reason that they are likely to be affected by the order which could be passed by the Board. They were necessary parties to assist the Board in the petition filed by CPI India. There was no information supplied by the company for the 3-5 years. CPI was not having track of money invested by it. The Board had merely directed for auditing the account of Perpetual and Triangle and stay of sale of properties by respondent nos. 10 to 20. Respondent nos. 10 to 20 before Board a....
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....d be passed without affording opportunity to the person concerned. 27. Certain conditions have been laid down in section 399 of the Act for maintainability of a petition against the Company only to avoid frivolous litigation. In support of the arguments, reliance was placed upon judgments of Hon'ble the Supreme Court in Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 and J. P. Srivastava and Sons (P) Limited and others vs Gwalior Sugar Company Limited and others (2005) 1 SCC 172. 28. In support of his plea regarding alter ego and lifting of veil, reliance was placed upon judgments of Hon'ble the Supreme Court in New Horizons Limited and another vs Union of India and others (1995) 1 SCC 478 and Balwant Rai Saluja and another vs Air India Limited and others (2014) 9 SCC 407. While going through the impugned order passed by the Board, Mr. Gupta submitted that at the very outset a preliminary objection was raised by the appellants that the petition against them was not maintainable. Subsequently formal applications were also filed. The Board in its order has dealt with all the issues in detail. Merely because specific number of the ap....
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....lain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the [Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the [Tribunal] is of opinion- (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ; the [Tribunal] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to [Tribunal] for relief in cases of mismanagement.- (1) Any members of a company who complain - (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner pr....
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....) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the [Tribunal] under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the [Tribunal] dealing with the application may order such member or members to pay to any other person or persons who are parties to the application. 400. Notice to be given to Central Government of applications under sections 397 and 398. - The [Tribunal] shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order under that section. 401. Right of Central Government to apply under sections 397 and 398.- The Central Government may itse....
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....onditions as appear to it to be just and equitable. 404. Effect of Alteration of Memorandum or Articles of Company by order Under Section 397 or 398.- (1) Where an order under section 397 or 398 makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make without the leave of the [Tribunal], any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (2) Subject to the provisions of sub-section (1), the alterations made by the order shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act ; and the said provisions shall apply accordingly to the memorandum or articles as so altered. (3) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same. (4) If default is made in complying with the provisions o....
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....der Section 397 or 398 of the Act, where the result can be alteration in the Memorandum or Articles of a company. The fact that a clause in the Memorandum or Articles can be deleted or modified by the Board while dealing with application under Sections 397 or 398 of the Act was not even disputed by learned counsel for the parties. 36. Section 405 of the Act gives liberty to the Managing Director, Director or Manager of the company or any other person to move an application for being impleaded as party to the proceedings, in case they are likely to be affected by the order passed. 37. In the case in hand, the relations between the companies, who are party to the litigation, though complicated, are noticed below:- Total share holding linkage between the Company-Perpetual and Kabul Chawla Sr. No. Name of the company Shareholding pattern (i) Perpetual Infracon Private Limited CPI 50%, Five Star 49.90%, Ocean holds 0.10% (ii) Five Star Promoters Private Limited BPTP Limited 100% (iii) BPTP Limited Kabul Chawla and the entities controlled by him 88.12% (iv) Triangle Builders & Promoters Private Limited BPTP Limited 100% (v) Vita....
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.... was invested. CPI is not even being provided the details. The petition under Sections 397/398 of the Act has been filed against Perpetual, the company, as CPI is fully eligible for that in terms of Section 399 of the Act. The other companies have been impleaded as parties as they are likely to be affected by the order, which may be passed by the Board considering the fact that Perpetual had transactions with those companies, which may have to be reversed in case provisions in the Articles of the company are amended or deleted. Section 405 of the Act clearly provides for addition of any such party to proceedings under Section 397 or 398 of the Act. 41. The maintainability of petition against Perpetual has not been disputed by Perpetual. The dispute is sought to be raised by the Triangle, Vital and Native. The grievance of the Triangle is that vide interim order, its accounts have been directed to be audited, whereas the grievance raised by Vital and Native is that certain observations have been made against them. 42. As has already been discussed above while dealing with the petition under Sections 397-398 of the Act, the Board can even terminate, set aside or modify any agre....