SHANKAR SUNDARAM Vs. AMALGAMATIONS LTD

JUDGEMENT

(1.) AN interesting question of law arises in this appeal on the scope of the expression "affairs of the company" occurring in Sections 397 and 398 of the Companies Act, 1956 and further questions whether the said expression would include the affairs of the subsidiaries of the holding company and whether a shareholder of the holding company can seek relief against the subsidiaries in terms of Section 402 of the Companies Act and on the jurisdiction of the Company Law Board to decide the said questions as preliminary issues arise in the appeal.

(2.) THE appeal is filed against the order of the Company Law Board upholding the preliminary objection raised by respondent No.1 wherein the Company Law Board held that the appellant cannot claim reliefs against subsidiaries in terms of Section 402 of the Companies Act and deleted the names of subsidiaries and their directors from the array of parties.

(3.) MR.Arvind P.Datar, learned senior counsel appearing for the appellant submitted that the Company Law Board should have decided all the issues after allowing the parties to lead evidence on the issues in dispute and it was not correct in deciding the issues in piecemeal. His further submission was that Amalgamations Limited is the holding company and it has 38 subsidiaries and the entire structure is like a pyramid. According to the learned senior counsel, the persons having control and interest in Amalgamations Limited will have automatic control over the affairs of the subsidiary companies and the Company Law Board was not correct in deleting all the subsidiaries on the ground that the expression, 'affairs of the company' found in Sections 397 and 398 of the Companies Act does not include the affairs of the subsidiaries. He referred to certain decisions of the Calcutta High Court as well as Allahabad High Court and submitted that in view of the judgments rendered by the Calcutta High Court as well as by the Allahabad High Court, the finding of the Company Law Board on the preliminary issue is wholly unsustainable in law. Learned senior counsel also submitted that the Company Law Board has chosen to follow its earlier decision in Herbertsons Limited v. Kishore Raja Ram Chabbaria (97 C.C.429), but however, the issue that arose before the Company Law Board in that case was entirely different. Learned senior counsel also referred to the merits of the matter and submitted that the allegations in the petition clearly show that the affairs of the holding company would include the affairs of the subsidiary companies. According to him, the petitioner has raised allegations of oppression and mismanagement in respect of various subsidiary companies and when grave allegations are made against individual companies, the subsidiary companies are necessary and proper parties in the company petition. Learned senior counsel also submitted that when there is a prayer for investigation against the affairs of the subsidiary companies, the subsidiary companies should be made parties. Learned senior counsel submitted that the appellant has impleaded 17 companies out of 38 companies and the learned senior counsel has also taken exception to the order of the Company Law Board in ordering deletion of the subsidiaries on the ground that there is no prayer against the subsidiaries. He stated that except respondents 5 and 8, none have chosen to file counter affidavits. According to him, there is no objection for the subsidiaries being impleaded as parties in the petition and when the question of misjoinder of parties was not raised, the order of the Company Law Board directing deletion of the subsidiary companies is illegal per se. His submission is that by the deletion of subsidiary companies from the array of parties in the company petition, the Company Law Board has rejected the reliefs sought for by the appellant even before adjudication. He referred to the shareholding pattern of the first respondent company and submitted that the entire group is in the nature of a quasi-partnership and it is functioning as a single economic unit. Learned senior counsel submitted that the first respondent company is a closely knitted company and there is a consistent policy of having transactions within the same group. His main submission is that there has been a deliberate and systematic attempt by respondents 2 and 3 to destroy the functioning of the fifth respondent. Learned senior counsel submitted that the allegations made by the appellant regarding the functioning of various companies and the role played by the respondents 2 and 3 have to be investigated and considered in detail at the final hearing of the company petition and by the deletion of the names of subsidiaries from the array of parties in the petition even at the threshold, the Company Law Board has completely destroyed the rights of the appellant to claim the relief under Sections 397 and 398 of the Companies Act. Learned senior counsel submitted that the decision in the case of Saroj Goenka and others v. Nariman Point Buildings Services and Trading (p) Ltd. 1995 (5) Comp LJ 282 has no application at all and the appellant has raised substantial pleas regarding composition of the first respondent group and its function as a single economic unit and application of partnership principles and unless the matters are thoroughly investigated, the reliefs sought for by the appellant may not be granted. Learned senior counsel submitted that the appellant is holding 10% of shares in the first respondent company and therefore he satisfies the requirement of Section 397 of the Companies Act and there is no jurisdictional bar and the Company Law Board has to consider the case on merits and pass orders in accordance with law. Learned senior counsel submitted that there are decisions of the Calcutta High Court and the Allahabad High Court holding that the issue regarding the subsidiary companies being made as parties cannot be decided at the preliminary stage and the Company Law Board being a Tribunal is bound by the decisions of the High Courts and the Company Law Board was not justified in taking a different view from the decisions of the Calcutta High Court and the Allahabad High Court. Learned senior counsel also submitted that the Company Law Board was not correct in holding that there is no prima facie case when in the company petition the appellant has made serious allegations not only against the holding company, but also against the subsidiary companies. He submitted that the order of the Company Law Board deleting the names of subsidiary companies is wholly improper. He referred to the expression, 'affairs of the company found in Sections 397 and 398 of the Companies Act and submitted that the expression, 'affairs of the company' would include the affairs of the subsidiaries. He therefore submitted that the appellant is having 10% of shares in the holding company and hence, it is open to him to seek relief against the subsidiary companies and the order of the Company Law Board upholding the preliminary objection of the first respondent and deleting the names of subsidiary companies from the array of parties and its directors in the company petition are not sustainable in law.