A.P Jain v. Faridabad Metal Udyog Pvt. ltd. Case

Facts of the Case

Sh. A.P. Jain[1], the defendant, owns 15 percent of M/s. Faridabad Metal Udyog Pvt. Ltd. His family members still own certain shares, giving his family a combined shareholding of 46.56 percent, including his own.

The appellant had filed a petition under section 397/398 of the Companies Act in 1990, claiming injustice and mismanagement on the respondents’ side. The petition was lodged in this Court because the High Courts had authority over such petitions at the time. The Act was revised on the 31st of May 1991, granting the CLB authority to hear those petitions. The High Courts, on the other hand, were to proceed and dispose of pleas that had already been lodged and were pending before them. As a result, this Court exercised authority over the petitioner’s 1999 appeal, which was still pending as of May 31, 1990. The appellant filed an appeal to dismiss the petition when it was still pending. The petition was rejected as withdrawn after this liberty was granted. The appellant then filed CP 5/97 with the CLB on October 16, 1996. The respondents raised a number of tentative objections to the petition’s maintainability.

Issues

The appellant lacked standing to file the objection because he had decided to sell the stock and was hence no longer a part of the corporation.

In light of section 68 of the Amendment Act, 1988, the CLB lacked authority to hear the petition when pending matters had to be handled by the High Court. The petition’s withdrawal from the High Court and filing in the CLB on the same allegations amounted to a transfer of the petition from the High Court to the CLB, which was not permitted.

Forum shopping occurred after the appeal was withdrawn from the High Court and a new petition was filed in the CLB on the same grounds.

The appeal was time-barred, and the matter was brought before the CLB after an unusual six-year wait.

The CLB, in its impugned order dated July 27, 1998, refused the first two applications but approved the remaining two preliminary objections and thereby dismissed the petition.

Arguments of the Case

Shri Dhawan presented them with a comparative statement of the allegations in both petitions, from which it can be observed that almost all of the allegations in the current petition are identical to those in the previous petitions, with the exception of a few minor differences in language and figures. We are convinced that the petitioner has engaged in forum shopping/jurisdiction shopping after considering the contents of this petition and comparing them to the contents of the petition before the High Court, where the case had been pending for over six years, and that by withdrawing the former and filing the latter, the petitioner has engaged in forum shopping/jurisdiction shopping. They also point out that the High Court had named an Arbitrator to resolve the differences, but that the Arbitrator had withdrawn from the task for unknown reasons. We agree with Shri Dhawan that the plaintiff is platform shopping and that this petition is a violation of the legal system.

In terms of restriction, while the rules of the limitation act are not limited to cases before the CLB, we do deem the limitation where there is an unusual pause in taking a matter before the CLB, in this case for 6 years. Perhaps the petitioner’s position is that he was not kept quiet and had agitated the matter before the High Court in a timely manner. However, the complainant cannot claim that he was diligent in defending his interest as a shareholder after withdrawing a long-pending matter from the High Court, where the matter may have been resolved in the immediate future. We have reached this conclusion solely by comparing the different charges in the earlier petition and this petition, and discovering that, with the exception of a few minor differences in vocabulary or numbers, the allegations in the petition are almost identical to those in the earlier petition, and that the present petition is nothing more than a repeat of the earlier petition. Furthermore, while Shri Chowdhary claims that the effects of the alleged acts of oppression and mismanagement committed earlier are still being felt, we believe that, having waited for over 7 years, even though the effects are still being felt, we cannot consider this as a reason to proceed with the petition by ignoring the respondents’ claim of gross delinquency.

Mr. Chaudhary, an experienced senior lawyer representing the appellant, argued that both the grounds for rejecting the petition as unmaintainable and the CLB’s conclusions were erroneous. According to him, the appellant did not engage in any platform shopping. He clarified that when the appellant’s petition (CP No. 174/90) was pending in the High Court, the parties filed a joint appeal (CA No. 807/92) in which a consent order dated October 20, 1992 was issued naming Mr. Justice Rajinder Sachhar (Retd.) as the Referee. The parties have decided that Justice Sachhar’s decision would be definitive and binding on them, and that neither party would appeal it in any way. The learned Referee heard the case. The respondent, on the other hand, had used dilatory techniques in the past, seeking adjournments on one or more grounds.

The learned Referee issued adjournments on many occasions. The appellant, however, filed an application alleging that they had lost faith in him and that the matter be referred back to the High Court just as he was about to issue the final order. In these conditions, Mr. Justice Sachhar referred the case back to this Court and did not issue any orders in an order dated July 22, 1995. The respondent squandered more than three years in the process. By that time, the Companies (Amendment) Act, 1988, which took effect on May 31, 1991, had passed authority under Section 397/398 to the CLB. The petitioner, in these circumstances, moved the application for withdrawal of the proceedings with liberty to file fresh proceedings before the CLB for expeditious disposal as procedure adopted by the CLB is of summary nature. This permission was granted by this Court vide order dated September 10, 1996, while allowing the appellant to withdraw the petition. At that time, no objection was raised by the respondents and no appeal was also filed by the appellant against order dated September 10, 1996. CP No. 5/97 was filed with the CLB shortly after that. As a result, learned counsel argued that it did not amount to platform shopping because the petitioner pushed the CLB with the High Court’s approval. He also said that acts of oppression and mismanagement are still true and cannot be changed only because the forum has changed. However, any new claims that came to light during the interim were included in the new petition, such as failing to provide notice of a meeting of the Board of Directors and shareholders. As a result, the rejection of the petition on the basis of forum shopping was absolutely incorrect.

He also said that the CLB did not consider the case in its entirety while debating the petition on the grounds of delay and latches. Although acknowledging that there was no time limit, the CLB refused to recognize that the acts of injustice and mismanagement were ongoing in nature and continued until the CLB’s petition was filed. Whether there has been some more pause, that is due to the respondent’s mala fide and unethical behavior in suspending the trial before the Hon’ble Referee named by the Court and withdrawing on the false basis that the respondent had lost faith in the said Referee. As a result, the appellants contend that the CLB should not dismiss the appeal on the grounds of pause and latches. It was also argued that the appellants’ petition in this court was not moved to the CLB, despite the fact that the CLB expressly stated in the impugned order that such a petition before the CLB was lawful and maintainable under Section 68 of the Companies Amendment Act, 1988. The CLB should not have rejected the petition on the grounds of delay in light of this particular result, and the two findings appeared to be at odds.

The respondent’s learned lawyer attempted to justify all the CLB’s conclusions. In addition, he argued that such a petition before the CLB could not be maintained after the petition had been removed from the High Court because the applicant could not file a new petition on the same cause of action after it had been withdrawn. He stressed that, while allowing the appellants to withdraw the petition, this Court granted him the freedom to file the petition with the CLB, this Court also reserved the right of the respondent to appeal the petition before the CLB on any basis open to it in the said order. The respondent further claimed that the appellant is not a shareholder, and that as a result, the appellant was not entitled to file any appeal before the CLB on this basis, and that the CLB’s decision in favor of the appellant on this ground was contested by the respondent.

Summary of court decision and judgment

Since he holds more than 10% of the company’s stock and has locus standi to file the winding up petition, the complainant has fulfilled the prerequisite of becoming a director. The Company Law Board was not concerned with the matter pending in the High Court when the appeal was withdrawn from the High Court and refilled in the Company Law Board, so there was no breach of Section 68 of the Companies Amendment Act, 1998.[2]

Analysis of case

The aforesaid order makes it clear that the appellants decided to transfer the CLB in light of the Companies Act’s subsequent modification. This appeal was granted because the respondent’s lawyer did not object to the appellants’ request to withdraw the petition. The respondents, on the other hand, reserved their right to appeal the petition when it was filed before the CLB, by raising any legal defense open to them. Although this Court permitted the appellant to file the petition before the CLB, and therefore, appellants were entitled to do so, it was also open to the respondents to appeal the same on any legal grounds applicable to them. The CLB’s findings in the impugned order, to the degree that it was not a petition moved from the High Court to the CLB, but rather a new petition before the CLB that was maintainable under Section 68 of the Amendment Act, are accurate. Similarly, the CLB’s conclusion that the petition suffered from delays and latches is misleading. At the risk of redundancy, it should be noted that the CLB has previously ruled that the statute of limitations would not apply to cases brought under Section 397/398 of the Companies Act. As a result, there is no time limit for filing such petitions. That does not, however, imply that the petitioner can approach after a long period of time.

Conclusion

In my opinion, the Company Law Board made a huge mistake by referring to the refilling of Section 397 and 398 petitions with this Court’s approval as platform shopping. The Company Law Board, in my opinion, has completely overlooked the idea of platform shopping/jurisdiction shopping. The winding up motion in this case was lodged in this Court in 1990, and it remained pending in this Court until it was allowed to be dismissed in 1996, after this Court granted permission to refill the proceedings before the Company Law Board. Action taken in response to a court order cannot be defined as platform shopping, and such a plea actually attempts to call into question the merits of the High Court order dated September 10, 1996, which was assented to and not questioned further by the respondent’s counsel. As a result, the Company Law Board’s opinion that the petitioner/laches appellant’s during the pendency of the matter before this Court amounted to laches is completely unfounded and uncalled for, and it cannot be upheld.

References:

[1] A.P.Jain v. Faridabad Metal Udyog Pvt. ltd. (1998) 18 SCL 27.

[2] Companies Amendment Act, 1998, s. 68.