Topics Covered in this article
Introduction
The case in hand is a petition filed against the acts of oppression and mismanagement done to the petitioner under Section 397, 398, 399, 402, and 403 of the Companies Act 1956 and thus the case was filed before the Company Law Board. Cases of oppression and mismanagement with the directors and creditors have grown to be common among the companies. But the decision made by the Board in the present case was a bit different than usual, as it favored the respondents due to legitimate and logical reasons mentioned ahead. It was noticed that the petition was filed by the petitioner on April 30th 1993 but finally heard on April 20th 1998 and the main reason for such delay in the hearing, is stated to be that parties had a desire of settling the dispute amicably outside the court, but even after many meetings among the disputing the parties, the thing didn’t work out accordingly and hence the petition was filed and finally heard by the Company Law Board after almost five years.
Apart from that, the other reason for this delay was that the respondents were unable to file a detailed reply to the petition as most of their records were in the custody of the Criminal Court in Durgapur and they could receive the copies of the exhibits only in 1997 after which the respondents filed a detailed reply to petition. The main point of contention of the case is whether the same cause of action can be tried twice against the same alleged party.
Statement of Facts
The facts of the case can be noted as, Shri Pradip Kumar Sengupta (petitioner) held one-third of the shares in Titan Engineering Co. Pvt Ltd (Company) and filed the present petition against the Company under Section 397, 398, 399, 402, and 403 alleging that respondent no. 2 and 3 were oppressing and mismanaging the affairs of the Company. Apart from the petition, certain additional criminal and civil proceedings were filed by the petitioner against the company. The summary of the petition includes that the Company was incorporated in 1971 and Respondent no. 2 and 3 were signatories to the Memorandum along with Shri Hirendra Bhadra and in 1972, the petitioner became a shareholder in the Company. Later on, post the exit of Hirendra Bhadra, the shareholdings of the Company were divided between the petitioner, respondent no. 2 and respondent no. 3 and they were equally represented on the board and managed the company well.
The factory and registered office of the Company were located in Durgapur and handled by respondent no. 2 and 3 and most of the affairs of the company were conducted in the Calcutta office which was dealt with by petitioner no. 1. The company did well till 1988 but then, it was alleged by the petitioner that the two respondents started managing affairs of the Company in an oppressive manner against the petitioner and prejudicial to the interest of the Company. Thus, the present petition was filed by the petitioner against respondent no. 2 and 3 along with certain other criminal and civil proceedings with respect to some of the allegations mentioned within this petition as well. In some cases, the proceedings have been initiated in the other settings before the filing of this petition and while other Cases began after filing of this petition.
Issues of the Case
The petition is filed against the acts of oppression and mismanagement by the other shareholders of the Company, but the issue of the case discussed by the Board is different. The main issue of the case is-
- Whether the court should allow the petitioner to file a suit in two different judicial settings for the same cause of action against the same alleged person?
Contentions/ Arguments from both the sides
As per the petition filed by the petitioner, there are ample allegations and contentions forwarded by the petitioner in his petition to showcase that oppression and mismanagement were being done by Respondent no. 2 and 3 in various ways. Some of them are as follows-
- In 1988, the gas cylinders belonging to a company worth Rs 3 lakh were wrongfully transferred to Shri RN Roy, a friend of the respondent without any consideration and it was brought back after the insistence of the petitioner.
- In 1991, Radha Krishna Oxygen presented an invalid sale tax declaration form to avoid the payment of sales tax worth Rs 1.33 lakhs and Respondent no. 3 had abetted him in doing so, and even after continuous demands for curative action, nothing was done by respondents towards this issue.
- There was no board meeting conducted after the 103rd meeting on 23rd October 1990, in spite of writing several letters to respondents and then 105th meeting was convened on April 16th 1991 and the petitioner protested that the 104th meeting was not held and the complaint was filed by the petitioner to the Registrar of Company and the minutes of the Company was seized where it falsely showed that petitioner had attended the 104th meeting. Thus, criminal proceedings were initiated against the prosecution of the company.
- The petitioner visited Durgapur on March 5th 1992 and looked into the accounts of the company where it was stated that Rs 93,500 was short in the cash balance and the petitioner suggested the respondents correct the irregularity and illegality in the accounts but the respondents asserted there was no irregularity in the accounts. Later, when the petitioner visited Durgapur again on April 9, 1992, the shortage of cash had risen up to Rs 1,60,500 and the accountant stated that Respondent no. 2 and 3 were colluding together and withdrew Rs 75,000 and deposited Rs 8,000, and misappropriated the rest Rs 65,000. The matter was later raised by the petitioner in the Board Meeting but nothing has been done about it.
- In the Board meeting convened on 15th January 1993, the petitioner wanted to discuss the criminal proceedings against the respondents which were later refused by the respondents to discuss. Thus, the petitioner left the meeting in between and the petitioner even objects to the payment of interim dividend without the rectification of the Board. But as the petitioner left the meeting in between, all the resolutions were passed in the meeting behind the petitioner’s back or completely eliminated the petitioner’s participation in the affairs of the company.
Apart from the present petition, certain other applications were also filed by the petitioner mentioning the acts of oppression against the petitioner, such as in the Board Meeting on May 7, 1993, the petitioner was allegedly dismissed as a director in violation of Article 42 of the Article of Association and as per the petitioner, the Board didn’t have the authority to dismiss the director appointed by General body. The petitioner even averred that the Company has failed to be consistent with its stand as Respondent no. 3 affirmed that the petitioner vacated the office on one date and on another date on another page of the affidavit. There was no consistency, which showed their malafide intentions against the petitioner. The respondents have tried to keep the petitioner out from participating in the affairs of the Company.
From the above allegations and arguments presented by the petitioner, the petitioner prays that it is just and equitable to wind up the company but doing so, will unfairly prejudice the petitioners and as such, they have sought the following reliefs. A scheme should be framed by the Company Law Board to administer the affairs of the Company and an administrator should be appointed to assist a Committee consisting of the petitioner and respondents. Then a declaration should be made that Respondent no. 2 and 3 are guilty of acts of oppression and mismanagement as well as malversation of funds and assets of the Company and declare all the board meetings held on January 23rd, 1993 and April 2nd 1993 as illegal and void and cancel the resolutions passed in these meetings. Thus, these were the major contentions and prayers posed by the petitioner.
After hearing out to the averments of the petitioner. The counsel of respondents stated the following arguments before the Board. The counsel of the Respondents stated that most of the allegations made by the petitioner have already been covered in the previous petitions of the petitioner. The counsel further argued that the allegations made in the further applications after the petition cannot be looked into, as the events subsequent to the filing of the petition cannot be considered by the Company Law Board. He further averred that even those accusations have been agitated in other proceedings. Hence, the counsel pleads that the petitioner should not be allowed to prosecute the parallel proceedings for certain matters such as the sales tax issue, gas cylinder, shortage of cash or appointment of additional director, etc, because parallel proceedings may lead to conflicting decisions from two different forums.
The counsel of Respondents has relied on the doctrine of Election, stating that where there are two or more remedies available which can be inconsistent with one another, then the party may choose one of the remedies and shall be bound to adhere to that remedy. It should be noted that one cannot agitate the same matter against the same person in 2 different forums. The respondent has counted upon two judgments to support his argument. They are-
- In the case of Amir Din Shahab Din v. Shiv Dev Singh Jhanda Singh AIR 1917, the suit was dismissed on the basis for default and regarding the second suit was also liable to be dismissed on the well-known maxim that no person shall be twice vexed with the same cause of action and on the grounds of its institution and trial as it shall amount to an abuse of process of Court.
- In the case of Maharaj Dhiraj Himmat Singhji v. State of Rajasthan, AIR 1987, a writ was filed under Article 226 of the Constitution of India, and the same was withdrawn without the permission for instituting a fresh petition and the Court decided that the petitioner was not allowed to file another writ petition for the same cause of action.
Thus, these were the contentions and judgments presented by the counsel of Respondent no. 1 and 3.
Summary of Court decision and Judgement
The Company Law Board went through the other plaint filed by the petitioner before other forums and the present petition and opined that this is a comprehensive suit and most of the allegations have been made in other petitions and certain interim orders have been passed with respect to that suit. As rightly pointed by the counsel of the Respondents, the allegations covered in the present suit also relate to issues of a gas cylinder, Radha Krishna Sale tax evasion, 104th board meeting, shortage of cash in accounts, payment of interim dividend, etc. This suit was filed on February 8th 1993 and the petitioner made an application to the Court for withdrawal of suit on April 30th 1993 and on the same day an instant petition was filed with the same issues of the petitioner.
The reason mentioned by the petitioner to withdraw the suit from the Court was, “It is for ends of justice, necessary that your petitioner should be granted leave to withdraw the instant suit and file the proceedings before the Hon’ble Company Law Board involving marginally the subject matter of the suit.” The Court gave the judgment on March 29th 1994, that the petitioner was at its liberty to withdraw the suit subject to the payment of Rs 100 but no liberty shall be granted to the plaintiff for filing the suit afresh on the same cause of action. So, when the instant suit was filed the judgment of the Civil Court was pending and the Court explicitly refused the petitioner to file a fresh suit before the Company Law Board. Hence, in acquiescence with the cases cited by counsel of Respondent and especially when the Court has refused liberty to re-agitate the same matter, the Company Law Board opines that petitioner should not be permitted to re-agitate the same matter and when the matter is not being looked at, the question of looking into the other allegations in the subsequent applications doesn’t arise. The Board also states that other allegations are more or less covered in Title Suit no. 70 of 1994. Thus, the Company Law Board dismisses the petition as it is not maintainable.
Analysis of the Case
The present case delves into the issue of whether a parallel proceeding of the same matter should be heard by the Court where already a decision is rendered by the other Court. Well, it is appropriate to dismiss a particular case when it has been dealt by some other court or forum previously on the same subject matter against the same alleged person, and some interim measures are granted to the plaintiff party, as dealing with the same subject matter in some other forum may lead to contradicting views of 2 forums and it also wastes the precious time of the Court to indulge in the same case again and again. As rightly quoted by the counsel of the respondent, it may lead to abuse of the process of the court process. Thus, the Court was right in dismissing the petition.
The decision of the court would have been the same even if it is taken into accordance with the existing laws as the doctrine of Election is still available with the aggrieved party with respect to its remedies. It is definite that the present case must have suggestively influenced the forthcoming judgments concerning the issue where 2 parallel remedies are available and which one should be executed. The court has effectively justified its judgment and adhered to the previous judgment of the Civil Court where it expressly denied the petitioner the liberty to file the same suit in some other forum. The case didn’t require any alternative approaches as the prayer and contentions were very well made.
The Board heard the entire issues, contentions and judgments furnished by both the parties and there is no question of omitting any arguments of the parties but as per my view, the ratio decidendi of this case was more of compliance to the orders of Civil Court passed on March 29th 1994. The Company Law Board could have delved more into the additional applications of the petitioner and suggested some relief to the petitioner. The Board could have been a bit more considerate towards the petitioner.
Conclusion
Thus, it is evident from the above analysis that as per the existing legal propriety, the case was rightly dismissed by the Company Law Board as parallel proceedings of the same subject matter would waste Court’s time and also interfere with the prior judgment of the other forum. So, in order to save the abuse of the court process, the doctrine of Election was accurately applied to the current case. As per my opinion, the main issue of the case was that the petitioner was not getting proper relief from its previous suits and thus, prayed for one ultimate relief from the Company Law Board. But as his other proceedings had already been initiated in other forums, it was legally not possible to hear the same case in two different settings of Court and thus, Company Law Board had to dismiss the plea of the petitioner as the liberty to initiate the same suit in other Court or Board was rejected by the Civil Court.
