Research › Search › Judgment

Madhya Pradesh High Court · body

2013 DIGILAW 648 (MP)

In The Matter of Companies Act v. Vishwa Organics Pvt. Ltd.

2013-05-15

SUJOY PAUL

body2013
JUDGMENT Sujoy Paul, J. :- In this company petition filed under section 284 read with section 2(11) of the Companies Act, the petitioners have prayed for a declaration that the impugned Board Meeting and the impugned resolutions passed at the meeting claimed by respondents No. 1 to 5 and 7 as non-existent, fictitious, illegal, void and are of no effect. It is further prayed to restrain respondents No. 2 to 5 from holding out as Directors of respondent No. 1-company and from interfering in any manner in the management and affairs of the company. A direction is prayed for against the respondent No. 6, the Registrar of Companies (ROC) to deregister the two forms 32 filed by respondent No. 7 and to restore the names of petitioners as Directors oh the MCA Portal. 2. However, at the threshold, the respondent No. 1 entered appearance on a caveat and took a primary objection, regarding maintainability of this matter. I.A. No. 1318/2013 is also filed questioning the maintainability and praying for dismissal of the petition. 3. Thus, parties are heard on this I.A. 4. The pivotal question for decision of this I.A. is whether in the facts and circumstances of the case and in view of relief prayed for, whether this petition can be entertained ? 5. Brief facts necessary for adjudication of this aspect are as under : - The case of the petitioners is that they are Directors of the company M/s. Vishwa Organics Pvt. Ltd. as per the annual returns as on 30-9-2011. On the said date respondent No. 2 was neither a first Director nor a Director as on 30-9-2011 as per the annual returns filed before the ROC. Previously, a general meeting of respondent No. 1-company was held on 3rd September, 1998 and another company M/s Gwalior Polypipes Limited (GPL) had been given the power to control the composition of the Directors of respondent No. 1-company for a brief period of less than six months. This was done by insertion of sub-clauses (a) and (b) at the end of clause 39 of Article of Association (AOA) of respondent No. 1-Company. However, in another extraordinary general meeting of respondent No. 1 held on 22nd February, 1999, the AOA of the respondent No. 1 was again amended and aforesaid clauses 39 (a) and (b) so inserted on 3-9-1998 were deleted. However, in another extraordinary general meeting of respondent No. 1 held on 22nd February, 1999, the AOA of the respondent No. 1 was again amended and aforesaid clauses 39 (a) and (b) so inserted on 3-9-1998 were deleted. Resultantly, the company Gwalior Polypipe Limited ceased to have any power to change or control the composition of the management of the respondent No. 1. Statutory Form No. 23 was filed by the company with the ROC on August 29, 2002. Resolutions and receipt thereof are filed as Annexure P-4. As per the annual returns as on 30-9-2011, the petitioners constituted the Board of Directors but during the inspection of the company on MCA Portal, they noticed that respondent No. 7 Laxman Soni, on the instruction of respondent No. 2 Mr. Harish Sahu, has prepared and filed two Forms 32 on behalf of the respondent No. 1-company before the ROC for removing the names of petitioners from the Board of respondent No. 1-company w.e.f. 3-9-2012. In lieu thereof, he showed appointment of respondents No. 3, 4 and 5 as Directors of the company. It is stated that the aforesaid act of the respondents was with an intention to gain control over the management and affairs of the respondent No. 1-company. It is the case of the petitioner that no notices of the Board Meeting allegedly held on 3-9-2012 or the said resolution passed therein were given to the petitioners who were still Directors of the company. The petitioners are aggrieved with the action of respondent No. 6, wherein without verifying the correctness, truthfulness and genuineness of information filed on line by respondent No. 7, he removed the names of the petitioners from MCA Portal. Petitioners lodged the complaint, Annexure P-5, before respondent No. 6. The aforesaid action was challenged on the ground that removal of petitioners from the Office of Directors runs contrary to the provisions of section 284 of the Companies Act, 1956 (hereinafter called as the “Act”). Mandatory requirements enumerated in section 284 were not followed and fulfilled before removing the petitioners. 6. Mrs. Nandita Dubey, learned counsel for the petitioners has relied on various provisions of the Act and submits that this Court has jurisdiction to entertain the present petition. Mandatory requirements enumerated in section 284 were not followed and fulfilled before removing the petitioners. 6. Mrs. Nandita Dubey, learned counsel for the petitioners has relied on various provisions of the Act and submits that this Court has jurisdiction to entertain the present petition. She submits that the definition of “court” read with section 10 of the Act makes it clear that this Court will have jurisdiction to entertain and decide the present matter. In support of her contention, she relied on certain judgments of different High Courts including K. Venkat Rao v. Rochvool (India) Ltd., (2002) 35 SCL 347 (AP); Vitthalrao Narayanrao Patil v. Maharashtra State Seeds Corpn. Ltd., (1990) 68 Comp. Case 608 (Bom.); and Maharaj Kumar Mahendra Singh v. Lake Palace Hotels and Motels (P.)Ltd., (1985) 58 Comp. Case 805 (Raj.). She also relied on a Government of India Notification GSR 636 dated 29-5-1959. It is argued that in exercise of powers conferred by sub-section (2) of section 10 of the Act, certain powers were given to other Courts which would mean that the powers which are not given by this notification shall remain with the High Court. She submits that a proper reading of section 10 read with sub-section (2), (11) of the Act will make it clear that this Court has jurisdiction to entertain this petition. 7. Per Contra, Shri Pravin N. Surange, learned counsel for the respondents No. 1 and 2, submits that section 10 of the Act only deals with the territorial jurisdiction of the Court. He placed heavy reliance on the words employed in section 10 (a) - “in relation to the place”. It is further argued that the allegations of the petitioners amount to mismanagement in the affairs of the company. Hence, petition is not maintainable in the light of section 398 of the Act, which provides for the application to the Company Law Board-CLB. In addition, it is argued that the present petition is registered as “Company Petition” which could not have been registered in view of High Court of M.P. Rules, 2008 (for brevity, the “HC Rules, 2008”). By relying on Rule 14 of Chapter II, it is stated that a reference under section 20 of the Sick Industrial Companies (Special) Act, 1958 or petitions under sections 101, 391, 394, 439, 583 or 584 of the Act alone can be registered as “Company Petitions”. By relying on Rule 14 of Chapter II, it is stated that a reference under section 20 of the Sick Industrial Companies (Special) Act, 1958 or petitions under sections 101, 391, 394, 439, 583 or 584 of the Act alone can be registered as “Company Petitions”. Lastly, it is argued that under Rule 11 of Companies (Court) Rules, 1959 (hereinafter referred to as the “1959 Rules”), there is a list of sections, under which the petition under the Act shall be made but in the said list, section 284 is not mentioned and on this ground alone the petition deserves to be dismissed. He relied on a judgment of this Court in the case of J. P. Srivastava and Sons (Rampur) Pvt. Ltd. and others v. M/s Gwalior Sugar Company Ltd., reported in 2002 (2) MPJR 587. On the strength of this judgment, Shri Pravin N. Surange submits that that the jurisdiction to try this issue is with the Civil Court and this Court has no jurisdiction to decide the present matter. He also relied on following judgments in support of his contention:- “M. G. Doshit v. Reliance Petrochemicals Ltd., (1994) 79 Comp Case 830 (Guj.); K. Radhakrishnan v. Thirumani Asphalts and Felts (P) Ltd. and others, 1998 (1) CTC 682 ; K. K. Maheshwari and another v. Rockhard Building Materials Limited rep. by its Managing Director Mr. S.A.H. Naqvi and others, 1993 (3) ALT 160 ; Prakash Roadlines Ltd. and another v. Vijaya Kumar Narang, (1995) 84 Comp Cas 782 (Kar.); Sachikanta Routray v. Pyari Mohan Routray, (2006) 68 SCL 233 (Orissa); Mr. Ravi Prakash Singh v. Venus Sugar Limited and others, (2007) 140 Comp Case 823 (Delhi); and M.P. Electricity Board, Jabalpur v. M/s. Vijaya Timber Co., AIR 1997 SC 2364 . 8. I have heard learned counsel for the parties and perused the record. 9. The grievance of the petitioners is regarding their removal without following the procedure prescribed in section 284 of the Act. It is stated that no special notices of resolution to remove the petitioners as Directors were given and, therefore, the resolution passed in the meeting was invalid. I have heard learned counsel for the parties and perused the record. 9. The grievance of the petitioners is regarding their removal without following the procedure prescribed in section 284 of the Act. It is stated that no special notices of resolution to remove the petitioners as Directors were given and, therefore, the resolution passed in the meeting was invalid. By taking recourse to Clause 43 of AOA, it is argued that Office of the Director can be vacated in any of the events mentioned in section 283 of the Act or he can be removed from his office in a manner laid down in section 284 of the Act or by an unanimous resolutions of the other Directors of the company. Respondent No. 2 was not a Director on the date of alleged Board Meeting and, therefore, he could not have called the meeting itself nor could have presided over the said meeting. In the manner three Directors are removed, it is argued that it runs contrary to the mandate of section 284. Section 283 provides when the office of a Director shall become vacant. For the purpose of this matter, section 283(1)(k) of the Act is relevant, which reads as under: - “S. 283. Vacation of office by directors.- (1) The office of a director shall became vacant if - (k) he is removed in pursuance of section 284”. 10. The pivotal question before this Court is whether this petition can be entertained ? 11. Before dealing with this facet, it is relevant to quote certain provisions of the Act and Rules. Section 2(11) of the Act defines 'Court' to mean: “(a) with respect to any matter relating to a company (other than any offence against this Act), the Court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10; (b) with respect to any offence against this Act, the Court of a Magistrate of the First Class or, as the case may be, a Presidency Magistrate, having jurisdiction to try such offence.” Section 10 of the Act reads as under: - “Jurisdiction of Courts. - (1) The Court having jurisdiction under this Act shall be - (a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2); and (b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district. (2) The Central Government may, by notification in; the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit, empower any District Court to exercise all pry any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred- (a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407, both inclusive; (b) in respect of companies with a paid-up share capital of not less than one lakh of rupees, by Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies. (3) For the purpose of jurisdiction to wind up companies, the expression 'registered office' means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petitioner for winding up.” Rule 9 of Companies (Court) Rules reads as under: - “Inherent powers of Court. - Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court.” 12. The first objection of respondent No. 1 about tenability of this matter is based on Rule 14 of the High Court Rules, 2008. The relevant portion reads as under:- “14. Company Petition - Ordinarily following petitions or references shall be registered as a Company Petition- (1) a reference under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985; or (2) petitions under section 101, 391, 394, 439, 583 or 584 of the Companies Act, 1956” 13. Dealing with this objection first, in my opinion, the objection is devoid of merits. Dealing with this objection first, in my opinion, the objection is devoid of merits. The word “ordinarily” is employed in Rule 14. Apart from this, this rule deals with the registration of a company petition. In my opinion, if the petitioners are able to show that company petition is tenable under the other provisions of the Act, it will not preclude them to file a petition and rule 14 will not be an impediment for them. 14. The word “ordinarily” indicates that the provision is a general one and must be read subject to the special provisions contained in the parent enactment. I find support in my view from (2001) 4 SCC 350 , Mohan Baitha and others v. State of Bihar and another. Thus, this objection is overruled. 15. The next objection of respondent No. 1 is based on the language of section 10 of the Act and section 398 of the Act. It is stated that section 10 only deals with territorial jurisdiction of the Court and under section 398 the petitioners have a remedy to file a case before the Company Law Board (CLB). 16. It is relevant to refer the judgments of various High Courts on this aspect. In M. G. Doshit (supra) the Gujarat High Court considered the impact and scope of sections 2(11) and 10 of the Act and opined that the High Court does not have any general, plenary or residuary jurisdiction to deal with all matters and all questions arising under the Companies Act. By discussing about the scope of Rule 11, it is held that all the twenty-three items illustrate the jurisdiction of the High Court conferred by various provisions of the Act in respect of specific matters relating to the companies. The company petition, in the said case was not entertained. In K. Radhakrishhah (supra) the Madras High Court opined that Company Court cannot entertain a petition to declare that petitioner continues to be a Director and that he has not vacated the office. It is further held that section 283 does not contemplate any application being made to the Company Court either to declare that office has been vacated or to declare that office has not been vacated. Same view is taken in Prakash Roadlines Ltd. (supra). This Court in J. P. Srivastava (supra) opined that the civil suit would be maintainable. It is further held that section 283 does not contemplate any application being made to the Company Court either to declare that office has been vacated or to declare that office has not been vacated. Same view is taken in Prakash Roadlines Ltd. (supra). This Court in J. P. Srivastava (supra) opined that the civil suit would be maintainable. In K. K. Maheshwari (supra) also the same view was taken that conjoint reading of section 2(11) and section 10 do not exclude the jurisdiction of civil court and company petition is not tenable. Heavy reliance is placed on the judgment of Orissa High Court in Sachikanta Routray (supra). Justice A. K. Patnaik (as His Lordship then was) opined that the remedy for the respondent is to move any forum, Civil Court or Company Law Board, which has original jurisdiction to declare a resolution as null and void. The bone of contention of Shri Surange is based on these judgments of the High Courts. 17. Before dealing with these judgments, it is relevant to quote following passage from - (2005) 11 SCC 314 , Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (dead) through LRs. and others: “After the amendment in the Companies Act, the Company Law Board alone had the jurisdiction to entertain an application under sections 397 and 398 of the Companies Act, as the jurisdiction of the High Court was ousted thereby and, thus, the allegations made in the company petition filed by Respondent 12 being Company Petition No. 7 of 1992 could not have been the subject-matter of adjudication by the High Court.” (2006) 7 SCC 613 , Kamal Kumar Dutta and another v. Ruby General Hospital Ltd and others: “Prior to the amendment of the 1956 Act w.e.f. 31-5-1991, the power under sections 397 and 398 used to be exercised by the Company Judge of the High Court. The appeal against that order of the Single Judge used to lie under section 483 of the Act before the Division Bench of the High Court. But after the said amendment the power under sections 397 and 398 is being exercised by CLB under section 10-E of the Act. Appeal against the order passed by CLB lies to the High Court under section 10-F of the Act. But after the said amendment the power under sections 397 and 398 is being exercised by CLB under section 10-E of the Act. Appeal against the order passed by CLB lies to the High Court under section 10-F of the Act. Therefore, on reading of sections 10-E, 10-F, 397 and 398 of the Act it becomes clear that it is a complete code that application under sections 397 and 398 of the Act shall be dealt with by C.L.B. and the order of C.L.B. is appealable under section 10-F of the Act before the High Court. No further appeal has been provided against the order of the Single Judge.” 18. Rule 11 (13) of 1959 Rules provides that an application can be made by way of petition under section 398 for relief in case of mismanagement. 19. The Company Law Board in various judgments has held that removal of a Director can be called in question if it is established that same was done either with a mala fide intention or with some ulterior motive. See, Vinod Kumar Mittal v. Kaberi Lime Industries Ltd., (2000) Comp Case (100) 66. 20. No doubt, the judgments of other High Courts have a persuasive value before this Court. The bone of contention of Ms. Nandita Dubey is based on the Full Bench judgment of Andhra Pradesh High Court in K. Venkat Rao (supra). However, a minute reading of the said judgment shows that in the said judgment the High Court has not considered section 398 of the Act. In the said case, the disqualification of the petitioner was under section 283(1)(f). The High Court mainly gave finding by conjointly reading section 2(11), section 10 of the Act and Rule 9 of 1959 Rules. The High Court had no occasion to deal with section 398 of the Act. Same was the situation in Vitthalrao Narayanrao Patil (supra) where the Bombay High Court dealt with the aspect and opined that Civil Court does not have jurisdiction to entertain suit in respect of dispute under section 283. Rajasthan High Court in Maharaj Kumar Mahendra Singh (supra) dealt with section 10 of the Act and GSR 636. It did not deal with the remedy under section 398 of the Act. 21. Rajasthan High Court in Maharaj Kumar Mahendra Singh (supra) dealt with section 10 of the Act and GSR 636. It did not deal with the remedy under section 398 of the Act. 21. For the reasons stated above and in the light of Supreme Court judgments after the amendment in the Companies Act, in my opinion, the judgment in K. Venkat Rao (supra) is distinguishable. In Sachikanta Routray (supra) the Orissa High Court opined that High Court cannot directly entertain any prayer for declaring a resolution for removal of respondent No. 1 as void. It is opined that for such declaration, the Civil Court will have to determine various questions of fact or the petitioner has a remedy before the Company Law Board, which has original jurisdiction to declare such resolution as null and void and to pass any interim order in relation to that situation. Interestingly, the Orissa High Court has considered various judgments of Supreme Court in this regard and examined the scope of section 398 of the Act. I am in respectful agreement with the judgment of Orissa High Court. Apart from this, in my considered opinion, the amendment in the Companies Act w.e.f. 31-5-1991 was not taken care of by the Andhra Pradesh High Court in K. Venkat Rao (supra). The Apex Court after considering the impact of said amendment in Sangramsinh P. Gaekwad (supra) opined that after the amendment in the Companies Act, the CLB alone has jurisdiction to entertain the application under section 398 of the Act and jurisdiction of the High Court is ousted. The same was the view taken in Kamal Kumar Dutta (supra). In view of these binding Supreme Court judgments, in my opinion, this petition is not tenable before this Court. 22. On the basis of aforesaid analysis, this petition cannot be entertained. Resultantly, this petition is dismissed. Liberty is reserved to the petitioners to avail the remedy in accordance with law. Petition dismissed.