S. Krishnakumari v. G.Vijayalakshmi @ Brindha

rep.by its Director S.Vijay Krishna4.M/s.Sovereign Engineers Private Limited,having its Registered Office atPost Box.No.4415, Industrial Estate Post,Pollachi Main Road,Coimbatore – 641021rep.by its Director S.Vijay Krishna.. AppellantsVs.1.G. Vijayalakshmi @ Brinda2.S. Nanditha3.S. Krishnakumari4.Chandrakumar P.Asher5.R. Johendran6.K. Chelladurai7.Andhra Bank,Tiruppur Branch, Kamaraj Road,Tiruppur – 641 603....RespondentsThese Company Appeals are filed under Section 10F of theCompanies Act, 1956, against the order dated 13.9.2008 of the CompanyLaw Board/Additional Principal Bench at Chennai, in C.A.No.101 of2008 in C.P.No.3 of 2007.For Appellants in C.A.No.16/2009:Mr.V.RamakrishnanFor Appellants in C.A.No.20/2009:Mr.P.H.Arvindh PandianFor RR.1 & 2 in both:Mr.A.K.MylsamyC.A.Nos.16 & 20/2009For R-5 in C.A.No.16/2009 &:Mr.T.K.BhaskarR-4 in C.A.No.20/2009COMMON JUDGMENTBy consent of the parties these appeals are taken up for finaldisposal.2.Company Appeal No.16 of 2009 is filed by the appellants, whoare respondent Nos.3 and 5 in C.P.No.3 of 2007 against the order ofthe Company Law Board dated 13.9.2008 made in C.A.No.101 of 2008.Company Appeal No.20 of 2009 is filed by the respondents 1, 2, 8 and9 in C.P.No.3 of 2007 against the very same order made in C.A.No.101of 2008 dated 13.9.2008.3.Since the very same order is challenged in both thesecompany appeals by the appellants, who are respondents in C.P.No.3 of https://hcservices.ecourts.gov.in/hcservices/ 2007, these appeals are taken up together and disposed of by thiscommon judgment. For the sake of convenience and easy understanding,the parties will be referred to in this judgment according to theirrank in C.P.No.3 of 2007.4.The only issue arises for consideration in these appeals areas to whether the Company Law Board is right in deleting the name of4th respondent in the company petition, who is the 5th respondent inCompany Appeal No.16 of 2009 and 4th respondent in Company AppealNo.20 of 2009.5.The case of the appellants are that the respondents 1 and 2,who are sisters, have filed C.P.No.3 of 2007 with the followingprayers:(a)To appoint the petitioners as Directors or theirnominee on the Board of the Company(b)To amend the Articles of Association of the Company togive effect to the proportional representation on the Board.(c)To declare the transfer of shares by the firstrespondent Company in the capital of the 8th and 9threspondents are null and void.(d)To declare that the 8th and 9th respondents continue tobe the subsidiary of the first respondent Company.(e)To appoint an auditor to go into the books and recordsof the Company and surcharge the respondents whoeverresponsible for the defalcation of the funds with respect tointer-company transactions as reflected in the balancesheets for the year ending 31.3.2005 and 31.3.2006.(f)To pass an order of injunction, restraining therespondents from selling, alienating or encumbering any ofthe immovable assets of the company.(g)To pass an order of injunction, restraining the 7threspondent from granting any further facility for any newventure which the company intends to carry on.(h)To appoint an administrator by superceding the Board ofthe Company.The above said prayers were made by contending that the firstrespondent in the Company Petition was incorporated as privatelimited company on 19.1.1956 under the Companies Act, 1956 (Act VIIof 1913) with the object to carry on the spinning of yarn fromcotton. After the incorporation, the paid-up capital of the Companywas increased to 7,50,000 consisting of 7,500 equity shares ofRs.100/- each. G.T.Krishnaswamy Naidu and his wife Vijayammal wereholding 2,000 and 1,000 shares respectively and the saidG.T.Krishnaswamy Naidu's sons G.T.K.Rajasekaran,G.T.K.Sivasubramaniam, G.T.K.Parthasarathy and G.T.K.Shanmugasundaramwere allotted 1000 shares each. One third party by name Asher, who https://hcservices.ecourts.gov.in/hcservices/ is in no way related to the said G.T.Krishnaswamy and his family wasallotted 500 shares. Thus, the entire paid-up capital was held bythe family members of G.T.Krishnaswamy Naidu, except 500 shares,which were allotted to the said P.Asher, in whose name the licencewas initially granted by the Government of India for the TextileMill. G.T.K.Rajasekar, one of the sons of G.T.Krishnaswamy Naidu wasadopted by T.R.Narayanaswamy and thereafter he was no longerassociated with the Company. His 1000 shares were allotted to hisson Ranganathan.6.According to the petitioners, after the death ofT.G.Krishnaswamy Naidu and his wife Vijayammal, their shares wereequally transferred to their three sons. It is stated in thecompany petition that as on 31.3.2006 the paid-up capital of theCompany was Rs.90,00,000/- consisting of 90,000 equity shares ofRs.100/- each. The first and second petitioners held 13,800 shareseach out of 90,000 equity shares and as such they were holding morethan 10% of the paid-up capital. Consequently they claim that theyare entitled to file application under sections 397 and 298 of theCompanies Act, 1956, regarding oppression and mismanagement of theCompany by respondents 2 to 6 in the company petition.7.The company petitioners are daughters ofG.T.K.Shanmugasundaram, one of the sons of late G.T.KrishnaswamyNaidu, who was one of the Directors of the Company till his death.The petitioner's father died on 6.11.2000 leaving behind his wifeGeetha and the petitioners. The members of the Board of the Companywere only G.T.Krishnaswamy Naidu and his sons along with the 4threspondent. During the lifetime of G.T.K.Sivasubramaniam, he wasfunctioning as Managing Director of the Company and he adopted thesecond respondent, son of late G.T.K.Parthasarathy in the year 1974and after the demise of G.T.K.Sivasubramaniam in the year 1985, thesecond respondent is appointed as Managing Director of the Companyand he is in control and management of the affairs of the Company.The Company had three subsidiary companies as on 24.12.1975. Theywere,(1)Tirupur Gin & Press Private limited(2)Vijayeswari Ring Travellers Private Limited (8th Respondent), and(3)Sovereign Engineers Pvt. Ltd. (9th Respondent)According to the petitioners, as on today, the said subsidiarycompanies are no longer subsidiaries and after introduction ofSection 43A of the Companies Act, 1956, the company became a PublicLimited Company with effect from 1.4.1976.8.It is averred in the company petition that after the deathof the petitioner's father on 6.11.2000 they were makingrepresentations to the second respondent through their relatives and https://hcservices.ecourts.gov.in/hcservices/ friends that the petitioners be associated with the management of thecompany and they should be made as Directors of the company. The 4threspondent became Director of the Company with effect from19.12.1969. As on date, the Company has three Units viz., (1)Spinning Divisions, Unit No.1, Anupparpalayam, Tiruppur-641652(2)Unit No.2, 1486, Avanashi Road, Peelamedu, Coimbatore-641004(3)Unit No.3, Jubilee Unit, 15 Velampalayam Village, Tirupur-641652The first petitioner got married and settled at Hyderabad and thesecond petitioner got married and settled at Coimbatore. The effortstaken by the petitioners through their relatives and friends havingbeen not materialised, this petition is field stating that the secondrespondent has got majority of shares and he brought in his own 'yes-men' on the Board so that he will have absolute control over theaffairs and management of the Company. The petitioners are notreceiving notices for the Extraordinary General Body meetings and nosuch general body meeting was held for the past six years. Thesecond respondent and his associates have taken undue advantage ofthe petitioners' silence by presuming that the petitioners have giventheir consent/approval for various acts of mismanagement on thedivergence of the funds of the company to the companies in which thesecond respondent has interest, which is detrimental to the interestsof the company and its shareholders. By citing various instances ofmismanagement by all the members of the Board, the petitionerscontend that the second respondent and his associates should not beallowed to deal with any of the immovable assets of the company or toencumber the same. It is also stated in the petition that due to theconduct of the second respondent and his associates, petitioners havelost their confidence as they are excluded from the participation ofthe management and having regard to the sound financial position ofthe companies, it would not be in the interest of the company to windup and the petitioners being minority shareholder.9.One of the prayer made in the company petition is to appointan auditor to go into the books and records of the company andsurcharge the respondents whoever responsible for the defalcation ofthe funds with respect to inter-company transactions as reflected inthe balance sheets for the year ending 31.3.2005 and 31.3.2006 and topass an order of injunction restraining the respondents from selling,alienating or encumbering any of the assets of the Company and toappoint an administrator by superceding the Board of the Company.10.For the said company petition, 4th respondent, who is one ofthe Director, filed separate counter affidavit denying thecontentions raised in the company petition. It is stated in thecounter affidavit that the intention behind the petitioners are toenter into the management of the first respondent company and extracthuge money from the respondents and also to cause hardship to thebusiness and development of the company for their personal benefits.It is further stated in the counter affidavit that the allegations https://hcservices.ecourts.gov.in/hcservices/ made in the company petition are not true. Originally his father hadthe licence to commence the business, which was transferred to theCompany by his father and thereafter he was appointed as Director ofthe Company and after his demise, the 4th respondent was inducted inthe Board as Director. It is stated in the counter affidavit thatthe allegation of acting as 'yes-man' are denied and the Directorsare keeping arms-length distance in their relationship and runningthe company successfully and they are all independent Directors, whoare all having vast professional experience in their respective fieldin leading the Company in a profitable manner. It is also stated inthe counter affidavit that the other Directors are alsoprofessionally qualified and have their own independent income andthey are not receiving any remuneration from the first respondentCompany right from their induction in the Board. In paragraph 7 ofthe counter affidavit it is stated that the action of the secondrespondent and the independent Directors were only for the interestand welfare and growth of the company alone and not detrimental tothe growth of the company. The allegations made in the companypetition are more evasive and not specific and therefore theallegations made are to be treated as baseless.11.The said counter affidavit was filed with due authenticationand a separate affidavit was also filed authenticating the contentsin paragraphs 1 to 12 of the counter affidavit as correct on22.2.2007. After filing the said counter affidavit the 4th respondentfiled C.A.No.213 of 2007 in October, 2007, with a prayer to withdrawthe counter statement or in the alternative ignore the counterstatement and delete his name from the array of respondents andtranspose him as third petitioner and prosecute the company petitionalong with the petitioners. The said application was resisted by theappellants herein and the Company Law Board by order dated 23.5.2008dismissed the same. The said order passed in C.A.No.213 of 2007 hasnot been challenged and the same has become final. After thedisposal of the said application, the petitioners in the companypetition filed a memo on 9.6.2008 stating that the petitioners havedecided to give up 4th respondent from the array of parties and topermit the petitioners to carry out the amendment in the Companypetition in accordance with the application filed by them. Forcarrying out the amendment of the cause title only the petitionershave filed C.A.No.101 of 2008 before the Company Law Board.12.The said memo and application were opposed by the appellantsherein by contending that the earlier application filed in C.A.No.213of 2007 by the 4th respondent having been dismissed on 25.3.2008, thepresent memo filed is not maintainable. It is further contended inthe counter affidavit that the petitioners having made allegationsagainst all the individual Directors including 4th respondent bytreating him on par with respondents 2, 3, 5 and 6 and relief is alsosought against the 4th respondent, the prayer made to delete the https://hcservices.ecourts.gov.in/hcservices/ name of 4th respondent alone from the array of parties in the companypetition, without giving any reason, cannot be ordered, particularlywhen the allegations as well as the prayer remained as such.13.The Company Law Board by order dated 13.9.2008 allowed thememo filed by the petitioners and ordered to delete the name of the4th respondent from the array of parties. Consequently applicationfiled in C.A.No.101 of 2008 for amending the cause title in companypetition was also ordered, against which the present company appealsare filed.14.The contention of the appellants in these appeals are thatthe 4th respondent is necessary and proper party to the companypetition having regard to the pleading in the company petition andthe findings rendered by the Company Law Board in its order dated23.5.2008 made in C.A.No.213 of 2007. The presence of the 4threspondent is necessary to enable the Company Law Board toeffectively and completely adjudicate upon, settle all questions andgrant complete relief. In the memo filed for deletion, no reason wasstated and the Company Law Board granted relief merely for asking.Filing memo before the Company Law Board is not maintainable underthe Company Law Board Regulations 1991. The orders passed inC.A.No.213 of 2007 and 101 of 2008 are self-contradictory.15.The respondents in these appeals filed counter affidavitstating that there is no question of law involved in these appealsand the grounds raised are only questions of fact. The earlier memofiled for deletion was not considered due to the pendency ofC.A.No.213 of 2007 and after the disposal of the same on 25.3.2008,the deletion prayer was considered based on the memo filed andordered and for carrying out the amendment after deletion, C.A.No.101of 2008 was ordered on 13.9.2008.16.Mr.V.Ramakrishnan and Mr.P.H.Arvindh Pandian, learnedcounsels appearing for the appellants in their respective appealsargued that the allegations made against the 4th respondent in thecompany petition having not been withdrawn and the relief sought forto appoint the Administrator by superceding the Board of the Companyhaving not been amended, the petitioners have no right to pray fordeletion of the name of 4th respondent, against whom also allegationsare made and relief is sought for. The 4th respondent is a necessaryand proper party and without his presence in the company petition theissues raised in the company petition cannot at all be adjudicated.The allegations having been made against all the Directors includingthe 4th respondent as 'Yesmen' of the 2nd respondent, the petitionerscannot give up 4th respondent alone on the pleadings and the counteraffidavit filed in the company petition. Section 402(g) of theCompanies Act, 1956, empowers the Company Law Board to go into allthe aspects when oppression and mismanagement is alleged. The https://hcservices.ecourts.gov.in/hcservices/ Company Law Board committed an error in entertaining the memo withoutapplication and as such the Company Law Board has violated Section397 and 398 of the Act. As per section 403 of the Act, interim ordercan be passed only in applications. The memo filed in which orderis passed, is not an application. Hence Company Law Regulation No.17and Form No.2 have not been followed by the Company Law Board whileentertaining the memo. Since there is procedural violation whileordering the memo without any application, the Company Law Board hasviolated the rules and regulations, which is a question of law comingunder the purview of Section 10F of the Companies Act, 1956, andtherefore the company appeals are maintainable. The learned counselsalso submitted that in the memo filed for deletion, no reason isstated and the 4th respondent was the Director at the time of thealleged mismanagement and the Company Law Board's order reservingright, if necessary to call for the 4th respondent by issuing noticeat the time of final hearing, is unsustainable. The learned counselsalso cited several judgments in support of their submissions.17.Mr.A.K.Mylsamy, learned counsel appearing for therespondents/company petitioners on the other hand submitted that thepetitioners having filed the company petition, have got a right todelete a party in the proceedings and therefore they are entitled togive up 4th respondent and by ordering deletion of the name of the 4threspondent, no prejudice would be caused to otherrespondents/appellants herein. No question of law is raised orarises for consideration to invoke Section 10F of the Act forentertaining these appeals.18.Mr.T.K.Bhaskar, learned counsel for the 4th respondentsubmitted that the right to hear the 4th respondent is reserved by theCompany Law Board, if required and the appellants cannot be allowedto raise the grievance of the 4th respondent that his rights will beprejudiced and the same can be questioned only by the 4th respondentand prayed for dismissal of the appeals.19.I have considered the rival submissions, pleadings as wellas the orders passed in C.A.No.213 of 2007, memo filed, C.A.No.101 of2008 and the company application filed by the 4th respondent in C.P.3of 2007 on 26.7.2008 as well as the counter affidavit filed therein.The company petition is filed on the ground of oppression andmismanagement by the Directors, specifically stating that theDirectors including the 4th respondent in the company petitionfunctioned as 'yesman' of the second respondent and various decisionswere taken with regard to the affairs and management of the company,which are detrimental to the company and its shareholders. There isno one in the Board to protect the interest of the petitioners. Thecompany petitioners have prayed among other things,-to appoint an auditor to go into the books and records of theCompany and surcharge the respondents whoever responsible for https://hcservices.ecourts.gov.in/hcservices/ the defalcation of the funds with respect to inter-companytransactions as reflected in the balance sheets for the yearending31.3.2005 and 31.3.2006.-to appoint an administrator by superceding the Board of theCompany.From the perusal of the above prayers it is evident that specificrelief is also sought against the 4th respondent in the companypetition. The petitioners in the company petition having prayed forsuch reliefs in the company petition, have rightly impleaded all theDirectors including the 4th respondent in the company petition. Ifall the Directors are not impleaded, such a prayer could not havebeen made in the company petition and it will be hit by non-joinderof proper and necessary parties. 20.The 4th respondent in the company petition also filed acounter affidavit and denied the averments made in the companypetition and prayed for dismissal of the company petition with costs.It is also stated in the counter affidavit that the alleged closerelationship between the Directors are denied and the Directors arekeeping arms-length distance in their relationship and running thecompany efficiently and they are all independent Directors and theyare appointed only on the basis of their experience in the relevantfield and to their capacity they contribute to the Company and theCompany is running in a profitable manner. It is also stated in thecounter affidavit that the other Directors are professionallyqualified and have their independent income of their own.21.Respondent No.4 has filed C.A.No.213 of 2007 and prayed forpermission to withdraw the counter statement and permit him to joinas petitioner in the company petition. The said company applicationwas resisted by the appellants and on 23.5.2008 the Company Law Boardafter considering the application on merits, dismissed the saidcompany application by observing as follows:"The main grievance of the petitioners in companypetition is that they have not been taken on boardof the Company and seeking amendment of Articlesof Association to give effect to the proportionalrepresentation on the board. As seen from thepleadings and submissions of Counsel for theapplicant it is evident that the applicant thoughhe is not a family member of GTK, he wasassociated with the Company for more than threedecades and continued to be the director of theCompany till date. However, the petitioners inthe main petition belongs to the family member ofGTK have not been appointed as directors of theCompany. Hence it cannot be said that he ishaving identity of interest along with the https://hcservices.ecourts.gov.in/hcservices/ petitioners. The learned Counsel for applicantrelied upon the judgment in R.Dhanasundari Vs.A.N.Umakanth and others (F-Supra), where the courtheld at para 10 that the circumstances under whichsuch transposition could be ordered is clearlyspelt out in the second limb of the rule, whichdirects the court to have due regard to thequestion, whether the applicant has substantialquestion to be decided as against any of the otherrespondents. The court found that there isidentity of interest between plaintiff anddefendants who transposed themselves by order ofcourt below as plaintiff in that suit. Thelearned counsel for respondents No.1 & 2 whilerelying on para 12 of the very same judgmentsubmitted that the Hon'ble Court considered thejudgment passed in Nagoor Gani (1988 (2) MLJ 171)wherein the Court considered the scope of Order 23Rule 1A of CPC and held in para 12 of thatjudgment, "The principle that follows this rule isthat there must be an identity of interest betweenthe plaintiff and such a defendant who wants totranspose as a plaintiff". As per the principlesand law laid down in that case, there must be anidentity of interest along with the petitioneragainst the respondents. But in this case thereis no identity of interest as stated supra. Iagree with the submission of the learned Counselfor the respondents that the applicant prima faciehas not made out any substantial case to prove hisidentity of interest along with the petitioneragainst the respondents. It is on record that thepetitioners are not willing to sell their shareswhereas the applicant is willing to sell hisshares which shows that there is no identicalinterest. In my view it is also to be seenwhether the success of the petitioners in thecompany petition would result in automatic successof the applicant who seeks transposition. Theapplicant seeking an order for transposition onthe basis that the petitioners have not been takenon the Board and if they succeed in the petition,they will be entitled to be inducted on the Boardof Directors of the Company and thus his prayer inthis present application would be automaticallyfulfilled.In view of the foregoing facts and legalsubmissions, I find that there is no identity of https://hcservices.ecourts.gov.in/hcservices/ interest of the applicant along with petitionersagainst the respondents. Accordingly Issue No.(ii) is also answered in negative. Accordingly,the C.A.No.213 of 2007 in C.P.No.3 of 2007 isdismissed." Admittedly the said order has not been challenged and the saidfindings have become final and the parties are bound by the saidorder.22.The petitioners in company petition have chosen to file amemo on 9.6.2008 i.e, after the order passed in C.A.No.213 of 2007 on23.5.2008 and the contents of the memo reads as follows:"1.The petitioners have decided to give up the4th respondent in the Company petition from thearray of parties.2.The petitioners state that while the CompanyApplication 213 of 2007 was pending on the file ofthis Hon'ble Bench, the petitioners' counsel hasalready made an endorsement that the name of the4th respondent be deleted from the array of partieson 31.01.2008.3.Therefore, the petitioners pray that thisHon'ble Bench may be pleased to record the fact ofthe 4th respondent being deleted from the array ofparties and consequently permit the petitioners tocarry out the amendment to the Company Petition inaccordance with the application filed by them."The Company Law Board on the basis of the memo permitted deletion ofthe name of 4th respondent in the company petition and in theapplication filed in C.A.No.101 of 2008 permitted the petitioners tocarry out the amendment.23.From the narration of the above undisputed facts it isevident that without filing any application as required underRegulation 17 of the Company Law Board Regulations, 1991, deletion ofthe name of the 4th respondent was ordered on the basis of the thememo. Regulation 17 reads thus:"17.Contents of interlocutory application.- Anapplication filed subsequent to the filing of thepetition applying for any interim order ordirection shall, as far as possible, be in FormNo.2 in Annexure II and shall be accompanied by anaffidavit verifying the application in the mannerlaid down in regulation 14:Provided that it shall not be necessary topresent a separate application to seek an interimrelief or direction, except for condonation ofdelay in filing the petition, if, in the originalpetition, the same is prayed for." https://hcservices.ecourts.gov.in/hcservices/ Regulation 17 provides for filing of miscellaneous application asprescribed under Form No.2, for getting any order during pendency ofthe company petition.24.The learned counsels for the appellants contended that whenthe regulation contemplates filing of application, it is not open tothe petitioners to bye-pass the regulation, which are havingstatutory force, and filing memo for deletion of the name of the 4threspondent in the company petition is a statutory violation andtherefore the memo ought not to have been entertained and permissionought not to have been granted by the Company Law Board and the sameis a question of law arises for consideration in these appeals undersection 10F of the Companies Act, 1956.25.The learned counsels for the respondents on the other handsubmitted that Regulation 44 confers inherent powers to the CompanyLaw Board to pass orders that may be necessary for the ends ofjustice or to prevent abuse of the process of the Bench. The CompanyLaw Board, no doubt is vested with the inherent powers, howeverhaving regard to the dismissal of C.A.No.213 of 2007 on 25.3.2008 andanother application filed to treat the 4th respondent as petitionereven before the order is passed in the memo, without challenging thesaid order, refusing such a prayer by the very same Company LawBoard, the 4th respondent only abused the process of the Bench.Hence, the inherent power is not entitled to be exercised in favourof the 4th respondent at the instance of the petitioners in thecompany petition, who are also fully aware of the proceedings.26.If the power could not be exercised by the Company Law Boardon the premise of inherent powers, the only alternative is to followRegulation No.17 by filing an application for interim order ordirection and a statutory form is also prescribed for the same. Thesaid procedures is mandatory in nature, to be followed by the CompanyLaw Board. A Division Bench of this Court considered whether anorder could be passed in violation of the statutory requirements andwhat is the effect of the said order in the decision reported in(2009) 6 MLJ 56 (Kothari Industrial Corporation Limited v. KotakMahindra Bank Ltd.). In the said decision it is held that orderingwinding up of a company contrary to the statutory requirements andviolation of mandatory requirements is illegal. It is also held thatwhen there is an express provision, the inherent power cannot beavailed and only in the absence of express provision, inherent powercould be exercised in exceptional cases. It is further held thatCompany Law is a special law and it provides certain inbuiltmandatory safeguards to be followed by the Company Court whilepassing orders and winding up as envisaged in the Company Court Rules.27.Applying the principles contained in the above decision tothe facts of this case, I hold, the proceedings of the Company Law https://hcservices.ecourts.gov.in/hcservices/ Board being covered under the Company Law Board Regulation, 1991, theprocedures contemplated is bound to be followed by the Company LawBoard while disposing of any matter as an interim measure or finally.The said violation of the regulations committed by the Company LawBoard is a statutory violation and the same is a question of law,arises in this case for interference under section 10F of theCompanies Act, 1956.28.The 4th respondent is also a proper and necessary party inthe company petition as the allegations are made against all theDirectors including the 4th respondent. Without the presence of the4th respondent, effective adjudication of the company petition is notpossible, particularly when the petitioners have not chosen to amendthe prayer in the company petition till date. The conduct of the 4threspondent also cannot be appreciated due to the following reasons:The 4th respondent has chosen to file C.A.No.213 of 2007 totranspose him as petitioner and to withdraw the counteraffidavit filed in the company petition. By an elaborateorder dated 23.5.2008 the said application was dismissed.Thereafter the petitioners have filed the memo on 9.6.2008and the said memo was also hotly contested by the partiesincluding the 4th respondent and when orders are reserved bythe Company Law Board, 4th respondent filed anotherapplication before the Company Law Board with supportingaffidavit dated 26.7.2008 with a prayer to take on recordhim as applicant and grant similar relief which it may grantto the petitioners in the main company petition. The saidapplication filed is not maintainable as the 4th respondenthas not chosen to challenge the findings and the dismissalorder made in C.A.No.213 of 2007.The above conduct of the 4th respondent establishes the fact that heis trying to circumvent the order made in C.A.No.213 of 2007 dated23.5.2008, which is an abuse of the process of the Bench.29.It is well settled proposition of law that whether thepresence of the respondent is necessary for complete and effectiveadjudication of the proceeding though no relief is sought against theproper party. In the decision reported in AIR 1997 SC 64 : (1996) 5SCC 379 : JT 1996 (7) SC 53 (Aliji Momonji & Co. v. Lalji Mavji &Others) it is held that whether or not a party is necessary andproper party, depends upon the facts of the case. In paragraph 5 ofthe Judgment it is held as follows:"5. The controversy is no longer res integra.It is settled law by catena of decisions of thisCourt that where the presence of the respondent isnecessary for complete and effectual adjudication https://hcservices.ecourts.gov.in/hcservices/ of the dispute, though no relief is sought, he isa proper party. Necessary party is one withoutwhose presence no effective and completeadjudication of the dispute could be made and norelief granted. The question is whether thelandlord is a necessary or proper party to thesuit for perpetual injunction against theMunicipal Corporation for demolition of demisedbuilding? The landlord has a direct andsubstantial interest in the demised buildingbefore the demolition of which notice underSection 351 was issued. In the event of itsdemolition, his rights would materially beaffected. His right, title and interest in theproperty demised to the tenant or licensee wouldbe in jeopardy. It may be that the constructionwhich is sought to be demolished by the MunicipalCorporation was made with or without the consentof the landlord or the lessor. But the demolitionwould undoubtedly materially affect the right,title and interest in the property of thelandlord. Under those circumstances, the landlordnecessarily is a proper party, though the reliefis sought for against the Municipal Corporationfor perpetual injunction restraining the MunicipalCorporation from demolition of the building. Underthose circumstances, the question of thecommercial interest would not arise. In RameshHirachand Kundanmal case this Court had pointedout in para 18 of the judgment that the notice didnot relate to the structure but to two chattels.Original lessee from the landlord had no directinterest in that property. Under thesecircumstances, it was held that the secondrespondent has no direct interest in the subject-matter of the litigation and the addition thereofwould result in causing serious prejudice to theappellant and the substitution or the addition ofa new cause of action would only widen the issuewhich was required to be adjudicated and settled.It is true, as pointed out by Shri Nariman that inpara 14, this Court in that case had pointed outthat what makes a person a necessary party is notmerely that he has relevant evidence to give onsome of the questions involved; that would onlymake him a necessary witness. It is not merelythat he has an interest in the correct solution ofsome question involved and has thought of relevantarguments to advance. The only reason which makes https://hcservices.ecourts.gov.in/hcservices/ it necessary to make a person a party to an actionis that he should be bound by the result of theaction and the question to be settled, therefore,must be a question in the action which cannot beeffectually and completely settled unless he is aparty. The line has been drawn on a widerconstruction of the rule between the directinterest or the legal interest and commercialinterest. It is not necessary for the purpose ofthis case to go into the wider question whetherwitness can be a proper and necessary party whenthe witness has a commercial interest. This Courtin New Redbank Tea Co. (P) Ltd. v. Kumkum Mittalhas pointed out that Respondent 11 who filed asuit for specific performance in the High Courtwas sought to come on record in the suit in whichhe had no direct interest in the pending matter.Under those circumstances, this Court had heldthat Respondent 11 was neither necessary norproper party in the leasehold interest involved inthe suit. In Union of India v. Distt. Judge theUnion of India who ultimately had to bear theburden of payment of the compensation was held tobe a necessary party under Order 1 Rule 10 CPC fordetermination of the compensation in respect ofthe acquired land. In Bihar SEB v. State of Biharthe same question was also reiterated and it washeld that the Electricity Board was a personinterested and also a necessary party. In AnilKumar Singh v. Shivnath Mishra similar questionwas answered holding that the respondent was anecessary party."In (2006) 4 MLJ 593 (S.Krishnan v. Rathinavel Naicker),V.Ramasubramanian, J., laid down the tests to be applied fordetermining the right of a party to implead another, in a pendingsuit or other proceeding in paragraph 17, which reads thus:"17.In a nut-shell, the tests to be appliedfor determining the right of a party to impleadanother, in a pending suit or other proceeding,may be crystallized into the following categories:a)If without his presence, no effectiveand complete adjudication could be made;b)If his presence is necessary for acomplete and effectual adjudication of the disputethough no relief is claimed against him;c)If there is a cause of action againsthim; https://hcservices.ecourts.gov.in/hcservices/ d)If the relief sought in the suit orother proceedings is likely to be made binding onhim;e)If the ultimate outcome of theproceedings is likely to affect him adversely;f)If his role is really that of a"necessary witness" but is sought to becamouflaged as a "necessary party";If a party to a litigation satisfies theCourt that the person sought to be impleaded,passes any one or more of the above tests, then heis entitled to get the discretion of the Courtexercised in his favour. The above tests are notexhaustive and at times, even if a person fallsunder any one of the above categories, the Courtmay refuse to implead him. To quote an example, asubsequent purchaser of a property, which formsthe subject matter of the suit, may satisfy thetests (d) and (e) above mentioned and yet theCourt may decline to implead him on the basis ofthe doctrine of lis pendens. Therefore, the abovelist is only a broad statement of the principlesthat could be culled out from judicialprecedents."30.Applying the above said tests to the facts of this case,particularly with regard to the prayer made in the company petition,the I hold that the 4th respondent is bound to be retained as partyrespondent in the company petition. Deletion of his name permittedby the Company Law Board on the basis of the memo filed by theCompany petitioners is unsustainable and the said order is set aside.31.The Company Appeals are allowed. No costs. Connectedmiscellaneous petitions are closed. The learned counsels apearingfor the appellants as well as respondents submitted that the CompanyLaw Board may be directed to dispose of C.P.No.3 of 2007 within agiven time. Hence the Company Law Board is directed to dispose ofC.P.No.3 of 2007 before the end of January, 2010.Sd/Assistant Registrar/True Copy/Sub Assistant RegistrarvrTo https://hcservices.ecourts.gov.in/hcservices/ The Company Law BoardAdditional Principal BenchChennai1 cc To Mr.T.K.Bhaskar, Advocate, SR.566121 cc To Mr.A.K.Mylsamy & Associates, Advocate, SR.563111 cc To Mr.V.Ramakrishnan, Advocate, SR.563581 cc To Mr.P.H.Arvindh Pandian, Advocate, SR.56277 Common Judgment inCompany Appeal.Nos.16 & 20 of 2009PA(CO)SRA(2/11/2009)