Companies Act Case Law J.P. Srivastava Sons (Rampur) Pvt. Ltd. Vs H.K. Srivastava (Dead) through L.Rs.

Companies Act Case Law

J.P. Srivastava Sons (Rampur) Pvt. Ltd.

Vs

H.K. Srivastava (Dead) through L.Rs.

 

“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.___________OF 2008
(Arising out of SLP (C) No.19235-19236 of 2005)
J.P. Srivastava & Sons (Rampur)
Pvt. Ltd. & Ors. ….. Appellants

Versus

H.K. Srivastava (Dead) through
L.Rs. & Ors. ….. Respondents
JUDGMENT
V.S. SIRPURKAR, J

1. Leave granted.

 

2. A common Judgment of High Court of Madhya Pradesh at Gwalior in

Miscellaneous Company Appeals filed by the Respondents herein is in

challenge before us. These Appeals were filed by the Respondents

against the order of the Company Law Board (CLB) arising out of the

applications filed by the appellants herein under Section 397 and 398 of the
2
Companies Act (hereinafter referred to as `the Act’) alleging

mismanagement of the company by the Respondents. Both the parties

have already completed one round of litigation upto this Court and have

come up before us in the second round. The factual matrix leading to the

filing of the present appeals before us dates back to July, 1995 when the

appellants herein filed the petitions under Section 397, 398 of the Act. The

facts are as under.
3. This is a family dispute amongst two brothers, namely, J.K.

Srivastava and H.K. Srivastava, both of whom have expired. Their Legal

Representatives are before us. J.K. Srivastava Group (appellants herein)

filed Company Petition No.27 of 1995 dated 1.7.1995 before the Company

Law Board under Sections 397 and 398 of the Act alleging that

M/s. Gwalior Sugar Company Ltd., which is a family concern, was being

mismanaged by H.K. Srivastava Group.
4. The Company Law Board, on the basis of the aforementioned

petition and the replies thereto by the respondents, was initially of the

opinion that this being a family concern, the disputes should be resolved

amicably and passed an order dated 22.1.1996 calling upon the parties to

make efforts for compromise. The relevant extracts of the order are as

under:
“In view of the close relationship between the parties, we
suggested to the counsel for both the sides that they should try
3
to work out an amicable settlement between the parties. The
counsel have undertaken to do so. The result of their efforts
will be intimated to us on 20th February 1996 at 2.30 p.m”
Thereafter, three hearings took place and ultimately on 7.5.1996, the

CLB passed the following order:
“It was agreed by the parties that the petitioners will sell their
shares to the respondents for a value per share to be
determined by a valuer appointed by us and the value will be
binding on all the parties. The parties will approach jointly
reputed valuers and suggest an acceptable name for our
approval on 30.5.1996 at 4.15 p.m.”
5. On 10.6.1996, with the consent of the parties, the CLB appointed

M/s. Thakur Vaidyanathan Iyer & company Chartered Accountants, New

Delhi to value the shares of the Company. On 22.11.1996, the Chartered

Accountants valued the shares. As the respondents had reservations

about the value, the matter was re-heard by the valuer and ultimately the

value of equity shares was decided at Rs.6340/- per share. The valuation

for a preference share of Rs.100/- was fixed at par. The respondents

herein objected to this valuation also vide their C.A. No. 302 of 1997. They

also filed C.A. No. 264 of 1997 for recalling the order dated 10.6.1996.

Their contention was that the other disputes relating to the family properties

in possession of the petitioners should also be settled. The matter was

fixed for hearing on 6.11.1998.
4
6. However, before that, respondent no. 8 Mrs. Radhika Srivastava filed

an application C.A. No. 262 of 1998, challenging the order dated 10.6.1996

and praying for its recall. It was alleged in the application that respondent

no. 8 had no knowledge of the compromise and that she was kept in dark

about the settlement arrived at. She also further contended that the

petition under Section 397 & 398 of the Act was not maintainable since as

per Section 399 of the Act, the petitioner had to have 10% of the total

issued share capital which would include preference shares. According to

respondent no. 8, the petitioner did not have the shareholding of 10%.

Hence the petition under Sections 397 and 398 of the Act before the CLB

itself was not maintainable.
7. This application was replied to by the present appellants, more

particularly, the appellant no. 3 Mrs. Nini Srivastava, wherein, it was stated

that the petition filed before the CLB under the provisions of Sections 397

and 398 of the Act was on behalf of the appellant no. 3 herself and also as

the trustee of J.K. Srivastava Family Trust (referred to as the `Trust’

hereinafter) and since the Trust had 1029 preference shares and since she

had an authority to represent the Trust and file petition on its behalf, the

petition was perfectly legal. It was also contended that the respondent no.

8 Mrs. Radhika Srivastava was fully aware of this situation since she had

participated in the proceedings in which there had been 25 hearings over

three and a half years till then. By an order dated 6.11.1998, the CLB
5
directed the appellants to file the consent/authority, if any given by the

Trust to Mrs. Nini Srivastava for filing the petition under Section 397 and

398 of the Act. On 9.11.1998, the appellants brought on record an

affidavit dated 9.6.1995 and one affidavit of Mr. V.K. Srivastava dated

12.6.1995 was also brought on the record. A detailed reply was also filed

to the application filed by Mrs. Radhika Srivastava that Mrs. Nini

Srivastava, the 3rd appellant herein, was appointed as a trustee of the Trust

on 24.8.1994 and she enjoyed the authority/consent to file the petition vide

communication dated 9.2.1995 and she also had the consent of the co-

trustee Mr. V.K. Srivastava as per the affidavit dated 12.6.1995.
8. The Company also filed its reply and naturally supported the

respondents contending that since the petitioner was holding the shares

less than 1/10th of the issued share capital of the company, the petition was

not maintainable.
9. All the three applications (C.A.No. 262 of 1998, C.A. No. 264 of 1997

and C.A. No. 302 of 1997) and the objections thereto were heard by and

decided by the CLB on 18.1.1999. The CLB took the view that the

application C.A. No. 264 of 1997 was liable to be dismissed and C.A. No.

302 of 1997 was also liable to be dismissed, however, it arrived at a

conclusion that the proper valuation of the shares would be Rs.6000/- per

equity share. As far as the third application C.A. No. 262 of 1998 is

concerned, the CLB took the view that though the other objections were
6
without any merits, the objection pertaining to the maintainability of the

petition was valid, as the petitioner did not have the authority of the Trust

and the petitioner did not have shareholding exceeding 10% of the total

shareholding. On this ground alone, the CLB dismissed the petition filed

under Sections 397 and 398 of the Act.
10. Three appeals came to be filed against this order of the CLB. One of

the appeals was by the present appellants against the finding of

maintainability, while the other two appeals were by the respondents

(herein), whereby their prayer for recall of order dated 10.6.1996 and the

finding on the consent was rejected by the CLB. All the three appeals were

dismissed by the learned single Judge of the High Court by its order dated

30.6.2000. The learned single Judge upheld the findings of the CLB on the

maintainability of the petition and dismissed the appeal filed by the

appellants. The learned Judge, however, observed that since the original

petition itself was had to be not maintainable, nothing survived in the

appeal filed by the respondents herein, challenging the other findings of the

CLB.
11. The appellants filed Letters Patent Appeal against the order of the

learned single Judge. The Division Bench, however, dismissed the appeal

filed by the appellants vide its order dated 10.8.2001 and observed that

since the appellants had filed a fresh application before the CLB, the CLB

should decide the subsequent application on its merits ignoring the
7
observations made by the CLB as well as the learned single Judge about

the number of shares held by the Trust, and should further decide the case

on merits.
12. All these appellate judgments of the learned single Judge as well as

the Division Bench were challenged by the appellants before this Court and

this Court allowed these appeals vide its judgment dated 26.10.2004. The

Court specifically held that the third appellant Mrs. Nini Srivastava had the

necessary authority to file the appeal on behalf of the Trust and she as well

as the Trust had more than 10% of the share capital of the Company in

control, and as such, there was no bar under Section 399(3) of the Act and

also the Regulation 18 for the petition under Sections 397 and 398 of the

Act.
13. Accordingly, the matter was remanded back to the learned single

Judge. The learned single Judge, however, came to the conclusion that

the CLB had not decided any other matter on merits, since it had taken the

view that the original petition under Sections 397 and 398 of the Act for

mismanagement of the company were not maintainable. The learned

single Judge, therefore, without expressing anything, sent back the whole

matter to the CLB by his order dated 27.7.2005. It was observed by the

learned single Judge in his order:
“After hearing both the parties, I find that the Company Law
Board had dismissed the petition on the ground that it is not
8
maintainable and the said view was upheld upto the Division
Bench. However, now the Apex Court has taken a different
view and held that the petition is maintainable. From perusal
of impugned order, I find that the Court below has not given
any findings on the merits of the case, i.e., findings about the
mismanagement. In such circumstances, this Court has no
option but to remand the matter to the CLB for deciding the
matter afresh. At the time of deciding the matter afresh, the
Company Law Board shall consider the entire record available.
At the time of arguments, it was also pointed out by both the
parties that some subsequent events have taken place during
the last six years and a fresh petition against the company is
also filed which is pending. Under regulation 24, the Company
Law Board has to take into consideration all the events till the
date of passing the order.”
Thus, the matter stood remanded further to the CLB. It is against

this order of the learned single Judge that the appellants have filed the

present appeals.
14. Ms. Ahmadi, the learned counsel for the appellants strenuously took

us through all the orders and firstly contended that the learned single

Judge has completely ignored the findings given by the CLB on the

questions other than the maintainability of the petition. She pointed out

that the CLB had very categorically found that the respondents had given

consent for settling the matters amicably and accepting such consent, the

CLB had passed the final order. She also pointed out that the CLB had

also fixed the valuation of the shares at Rs.6000/- per equity share, though

the Chartered Accountants appointed by the CLB had initially fixed the

price at Rs.6340/- per equity share. She also pointed out further that the
9
petition filed by Mrs. Radhika Srivastava (C.A. No. 262 of 1998) was fully

dealt with and the objections raised by Mrs. Radhika regarding her not

even having consented to the agreement, was rejected. Her further

contention for recall of the order dated 10.6.1996 was also rejected by the

CLB. It was only her objection regarding the maintainability, which was

entertained by the CLB holding that the petition under Sections 397 and

398 of the Act was not maintainable. But, however, since this Court has

held the petition to be maintainable, it is obvious that the other findings

were also very much alive in that order. She further pointed out that

appeals were filed before the learned single Judge in the first round,

precisely against those findings. She, therefore, urges that the learned

single Judge was in error in ignoring all these findings and refusing to

decide the appeals which were against those findings. The learned

counsel carries the arguments further and suggests that this Court now

should put an end to the controversy by upholding the order of the CLB

regarding the consent agreement on the part of the respondents. She has

also relied on a number of decisions, which pertain to the effect of the party

even having consent for the compromise.
15. As against this, the respondents, however had supported the order

of the learned single Judge, saying that all the questions were open before

the CLB and the learned single Judge is right in remanding the matter

further for re-hearing and re-decision on all the other questions.
10
16. On this background, we would have to see as to whether the learned

single Judge was right in making a wholesale remand. It would be proper

for us to first consider the order passed by the CLB in details, as it will have

to be examined as to whether the CLB has actually not decided upon any

other point excepting the maintainability of the petition as held by the single

Judge in impugned judgment.
17. In the first two paragraphs, the CLB referred to the facts of the

petition and subsequent settlement arrived at regarding the sale of shares

by the petitioner at a value to be determined by a valuer appointed by the

CLB. It also referred to the appointment of M/s. Thakur Vaidyanathan Iyer

& Company, Chartered Accountants, New Delhi to value the shares of the

company. In third paragraph, the CLB referred to the presence of Mr.

Vikram Srivastava, Joint Managing Director, respondent no. 3 as also the

per share value arrived at by the Chartered Accountants as per their valuer

report, which was arrived at Rs.7031/- per equity share. The CLB then

makes a reference to the date 5.3.1997, when the counsel for the

petitioners accepted the value determined by the valuer, whereas, the

respondents’ counsel had sought some time as also to the order dated

18.3.1997, wherein, it was held that the valuers should give hearing to the

petitioners as also to the respondents within three weeks. In the fourth

paragraph, the CLB then refers to the written submissions before the valuer

as also the revised report of 8.10.1997 and the ultimate value computed by
11
the valuer per equity share of Rs.100 each being Rs.6340/-. It also made a

reference to C.A. No. 264 of 1997 seeking for recalling the order of the

Bench of valuation of the shares and for abandoning the valuation process

and to proceed with the petition in accordance with law. It then made a

reference to the hearing which took place on 15.12.1997, wherein, the

request was made by the respondents to file objections to the valuation

report as also to the further developments dated 20.12.1997 etc. and

ultimately to the instructions by the CLB, wherein, the CLB had advised the

parties to send notes to the Bench stating specifically the points on which

they had reservations on the reports of the valuer, so that the Bench itself

could take up the matter with the valuer. After referring to the fact of the

parties, sending the details of their petitions, the CLB ultimately referred in

this paragraph the possibility of settling the prices between the parties.
18. In paragraph 5, the CLB referred to the contentions of the

respondents about the valuation made by the valuer through Mr. Vijay

Gupta, counsel for the respondents, mainly to the effect that the valuation

was vitiated, as the person who had done the valuation on behalf of the

valuers was earlier a director of the Board of a company in which one

petitioner was a director. In paragraph 6, the arguments of the advocate

for the petitioner were dealt with to the effect that the consent terms

recorded was an independent one without having any connection with the

disputes between the parties and, therefore, they should be independently
12
implemented. The CLB also referred to the readiness on the part of the

petitioners to settle all the disputes, as also to settle the other disputes

through arbitration. The CLB also referred to the further arguments that,

however, the payment for the shares held by the petitioner should be

independent of the arbitration. In paragraph 7, the reply on the part of the

advocate for the respondents was referred to, while in paragraph 8, the

CLB referred to the application by respondent no. 8 being C.A. No. 262 of

1998 dated 3.11.1998. It also referred to the fact that replies were

permitted to be filed to the aforementioned C.A. No. 262 of 1998, and it is

ultimately in paragraphs 9 and 10 that the CLB initially dealt with the

applications C.A. No. 264 of 1997 and 302 of 1997. After considering the

arguments in detail, and after referring to the happenings at the earlier

stage of the proceedings as also after considering a decision of the CLB in

Mrs. Michelle Jawad-A1-A1-Fahoum Vs. Indo Saudi Travels P. Ltd. (1988-

30 CLA 42), the CLB observed in the present case also that:
“there is absolutely no reference to the private understandings
between the parties in the order dated 10.6.1996 and the
petitioners are not agreeable for any modification in the said
consent order. Once the parties consent to certain terms of
settlement and the same is recorded by a judicial forum, then
the parties are bound by the said settlement terms. Therefore,
there is no scope for recalling the order dated 10.6.1996 on
this ground.”
Thereafter, the CLB also rejected the contention raised on behalf of

the respondents that even if the consent terms were to be implemented by
13
which the respondents would purchase the shares of the petitioners, then it

could be only after the other disputes between the parties are settled and

till such time, no payment need be made for the shares. The CLB

observed that:
“this argument also deserves to be rejected as no such
reference is found in the order dated 10.6.1996. Further, after
this order, a few hearings took place and at no point of time
this issue was raised by the respondents”.
It further went on to hold:
“Thus it is clear that even if there has been an agreement to
settle the other disputes, it was to be after the shares of the
petitioners are bought out by the respondents”.
The CLB then referred to the proposal by the counsel of the

petitioners to refer all other disputes to the arbitrator to be appointed by the

CLB and observed:
“We think that it is a very fair proposal as the same would put
an end to all the disputes between the parties and a time
frame of 9 months for completion of the arbitration
proceedings should be sufficient and that on expiry of 9
months, the respondents should pay the consideration for the
shares irrespective of the fact whether the arbitration
proceedings are concluded or not.”
In paragraph 10, the CLB referred to the valuation arrived at by the

Chartered Accountants. The CLB ultimately recorded a finding:
“Thus on the basis of the valuation report, we consider that a
sum of Rs.6000/- per equity share would be an appropriate
14
value for these shares and Rs.100/- each for the preference
shares.
19. It is then that the CLB considered the objections and prayers raised

by respondent no. 8 in C.A. No. 262 of 1998 including the contention that

the petition under Section 397 and 398 of the Act was not maintainable as

the petitioner did not hold 10% of the share capital. The CLB firstly held

that the prayer of the 8th respondent for recall of the order dated 10.6.1996

on the ground that she was not a party to consent agreement, had to be

rejected.
20. The CLB took into consideration the various facts that the

respondent no. 8 had kept quiet on large number of hearings, though, her

counsel was present all through. It also made a reference that no

explanation was given as to why respondent no. 8 had waited for nearly an

year to present this application (C.A. No. 262 of 1998), challenging the

consent terms.
21. On the second and the main aspect, concerning the Section 399 of

the Act, it was referred that the petitioners holding less than 10% of the

share capital could not move application under Section 397 and 398 of the

Act. The CLB in paragraph 25 held as follows:
“Thus, this petition suffers from either one or more of the
following: Consent in writing was not filed along with the
petition; The Trust did not, on the day of filing the petition
control all the 1029 preference shares; all the trustees have
15
not been made parties to the petition and the trustees cannot,
in law give consent to a co-trustee to file the petition. If it is so,
then the shares held by the Trust cannot be taken into account
for the purposes of the provisions of Section 399 and as such
without passing any directions in pursuance to our conclusions
at paragraphs 9 and 10, we dismiss this petition. However,
since we ourselves feel that the correctness of our decision
needs to be tested on appeal, we also stipulate that all
subsisting interim orders will continue up to 31st March, 1999
so as to provide for some time to the parties to initiate appeal
proceedings. Petition is dismissed. No order on cost”.
22. We have carefully seen and noted that this Court upset only the later

part of the order, particularly pertaining to the maintainability of the petition

under Section 397 and 398 of the Act on account of the provision of

Section 399 (3) of the Act. It specifically held in its judgment dated

26.10.2004 that the CLB had incorrectly held the said petition to be not

maintainable. This Court found specifically that the objection regarding the

applicability of Section 399(3) of the Act could not hold water, and it was

categorically declared that the 3rd appellant (herein) had the necessary

authority to file the appeal on behalf of the Trust and she as well as the

Trust had more than 10% of the share capital alongwith the appellant Mrs.

Nini Srivastava. Thus, it is clear that the order of the CLB only on the

question of maintainability was held to be erroneous. It is to be noted that

no other aspect and the finding in that order were even touched by this

Court. Since this Court remanded the whole matter to the learned single

Judge before which the appeals against the order of the CLB were filed, on
16
this background, when we consider the judgment now passed after

remand, by the learned single Judge, it is seen that the learned single

Judge has miserably failed to decide any questions whatsoever. The

parties were at issues on all the aspects of the order passed by the CLB

besides the finding of the CLB on the maintainability of the petition. This

Court specifically held that the objection regarding the maintainability, more

particularly, raised by the respondent no. 8 was not tenable and the petition

under the Company Act was perfectly maintainable. This Court had

deliberately not expressed on any other aspect of the matter. A careful

scanning of the order passed by this Court shows that this Court had

decided the matter only on the question of applicability of Section 399 (3) of

the Act and had come to a clear conclusion that the petition under Section

397 and 398 of the Act was perfectly maintainable. In short, this Court had

left it to the learned single Judge to decide every other question dealt with

by the CLB in its order, since the appeals against those questions were

pending before the learned single Judge and since those appeals were not

decided at the first instance by either the single Judge or the Division

Bench.
23. On this background, we find that the single Judge has taken a very

strange view of the matter and has proceeded to hold that the CLB had not

decided the matter on merits, and, therefore, the whole matter was liable to

be re-decided by the CLB. In this behalf, we must point out that the CLB
17
had given the findings on C.A. No. 264 of 1997, C.A. No. 302 of 1997, C.A.

No. 262 of 1998 as also the objections raised thereto by the appellants. It

is for this reason that we have dealt with the order passed by the CLB in

great details in the earlier part of the judgment. According to us, it cannot

be said that the CLB had not decided all the other matters, since, it had

found the original petition to be untenable. We, however, desist from

dealing with any other findings of the CLB to which we have already made

reference. We refuse to express anything, since this Court had expected

the learned single Judge to decide all those matters covered by the

appeals filed by both the parties and to decide upon the correctness of the

order passed by the CLB on all the other issues excepting the issue of

maintainability, which issue was already finally dealt with by this Court in

the judgment dated 26.10.2004. We are, therefore, of the clear opinion

that the matter should be referred back to the learned single Judge for

deciding all the three appeals filed by the respective parties with the time

frame.
24. As regards the contentions raised by Ms. Ahmadi, learned counsel

for the appellants as also the contentions raised by the opponents, we

have already held that it would not be feasible for us to consider the merits

of the appeals filed by the parties against the order of the CLB. We have

pointed out that in its order, the CLB had considered number of questions

raised by the parties vide their objections and independent applications
18
filed from time to time. Barring the question of tenability – which is finally

decided upon – this Court had not considered any other questions covered

in those appeals and had left the same to be decided by the single Judge.

We, therefore, would not go beyond the directions of remand, earlier

issued by this Court. That would be neither a proper nor an appropriate

course to follow. However, we must clarify that it would be open for the

High Court to go into the question as to whether the parties hereto were

bound by the terms of compromise, which have been affirmed by the CLB.

In that, the High Court would also be bound to consider the tenability of the

appeals filed by H.K. Srivastava Group. We have clarified this position, as

so far there has been no debate on the tenability of the appeals against the

orders effected through compromise.
25. We, therefore, would reiterate the earlier order of remand to the

single Judge passed by this Court. In that view, we direct:
(1) That the single Judge will now take up all the three appeals
filed by the parties against the order of the CLB and dispose of
the same in the light of the observations made by us.

(2) This shall be done within six (6) months from the date of this
order reaches the High Court.

(3) All the other contentions would be allowed to be raised and
considered except the question of tenability of the petition
under Section 397 and 398, which has been finally decided by
this Court in the earlier round of litigation.

(4) The parties are also permitted to raise the questions regarding
the subsequent developments directly in accordance with law
and only if they are germane to the matter in question.
19
The appeals are disposed of in above terms. There shall be no

orders as to costs.
………………………J.
(Altamas Kabir)
………………………J.
( V.S. Sirpurkar )
New Delhi;
September 3, 2008.
20
Digital Performa
Case No. : SLP (C) No. 19235-19236 of 2005

Date of Decision : 03.09.2008

 

Cause Title : J.P. Srivastava & Sons (Rampur) Pvt. Ltd. & Ors.

Vs.

H.K. Srivastava (Dead) through L.Rs. & Ors.

 

Coram : Hon’ble Mr. Justice Altamas Kabir
Hon’ble Mr. Justice V.S. Sirpurkar

 

Judgment delivered by : Hon’ble Mr. Justice V.S. Sirpurkar
Nature of Judgment : Reportable

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