based on a plea for India
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The principles of Res Judicata are not applicable in cases where the reliefs sought are different in nature based on statutory rights and could not have been granted by an earlier court.
Removal and appointment of Directors and fraudulent increase in the authorized share capital of the company by forging documents amount to oppression.
Introduction
The Company Law Board, New Delhi Bench ("CLB") recently in the case of Shri Narottam Singh ("Petitioner") v. M/s Notam India Private Limited & Ors.1 held that parties to a dispute need not withdraw a civil suit before they approach CLB (under Section 397 & 398 of the Companies Act, 1956), as CLB can grant remedies that a civil court cannot. This judgment clarifies the scope and application of res judicata principle in the cases of Oppression and Mis-management.
Background Facts
M/s Notam India Private Limited ("Respondent No. 1") is a company incorporated by the Petitioner and Respondent No. 2 to carry real estate business. Both the brothers were Directors in Respondent No. 1. According to the Petitioner, the Respondent No. 2 without notice to the Petitioner increased the share capital based on forged documents as well manipulated the company records. The Respondent No. 2 also got his wife, Respondent No. 3 fraudulently appointed as the Director on the Board of Respondent No. 1. The Petitioner realizing the fraud committed by Respondents filed a company petition under Sections 397 & 398 read with Section 402 against them alleging oppression and mis-management and conducting the affairs of the company in a prejudicial manner. Prior to the filing of the company petition, the Petitioner had filed a civil suit on the same cause of action in Ghaziabad. The chronology of events leading to the present company petition is provided below:-
Sr. No.
Date
Particulars
1
09.04.2009
O.S. 818 of 2009 Civil Suit was filed in Ghaziabad civil court
2
21.07.2009
Interlocutory application seeking temporary injunction to restrain Respondent Nos. 2-3 in relation to business of Respondent No. 1 was dismissed.
3
21.08.2009
Application filed for withdrawal of Civil Suit
4
11.08.2009
Company Petition was filed
5
18.08.2009
Company Petition was mentioned stating that civil suit has already been withdrawn and CLB passed an order directing Respondent No. 1 to provide fortnightly bank statements.
6
24.08.2009
Civil Suit was dismissed without giving any liberty to initiate new proceedings.
The civil suit was dismissed at a later point after company petition was filed and it was submitted that dismissal of civil suit did not come in the way of filing the company petition as jurisdiction of CLB under Sections 397 and 398 is unique and enabling in nature and orders are passed on equity.
Issues
a) Whether the present company petition is maintainable before CLB?
b) Whether following acts of Respondents are oppressive in nature:-
Appointment of Respondent No. 3 as a Director of Respondent No. 1;
Petitioner was seized of Directorship on an alleged letter of resignation;
Fraudulent increase in authorized share capital.
Contentions of Parties
Arguments of the Petitioner
The Petitioner had filed its withdrawal application before the civil court prior to initiating proceedings before CLB. The Petitioner relying on the case of M/s SVT Spinning Mills Pvt. & Ors v. M. Palanisami2 argued that company petition cannot be dismissed on the sole ground that earlier proceeding was disposed of without liberty to initiate proceedings on the same cause of action as the reliefs sought in a company petition under Sections 397 & 398 proceedings are unique and cannot be granted by any court other than CLB. The decision in the civil court was not a final order and no decision was taken on the issues which formed the subject matter of the present company petition.
In addition to the issue on maintainability of the company petition, the Petitioner further submitted that Respondent No. 2 had forged his signatures on the alleged resignation letter and the board resolution allowing appointment of Respondent No. 3 as the new director of the company. The Petitioner submitted that Respondent No. 3 was never appointed as a director of the company in any of the Board meetings that he attended. The Petitioner alleged that Respondent No.2 committed fraud and forged Petitioner's signatures to change signatories of bank accounts and manipulated with the company records along with Respondent No. 3 against the interest of Petitioner.
Removal and appointment of Directors and fraudulent increase in the authorized share capital of the company by forging documents amount to oppression.
Introduction
The Company Law Board, New Delhi Bench ("CLB") recently in the case of Shri Narottam Singh ("Petitioner") v. M/s Notam India Private Limited & Ors.1 held that parties to a dispute need not withdraw a civil suit before they approach CLB (under Section 397 & 398 of the Companies Act, 1956), as CLB can grant remedies that a civil court cannot. This judgment clarifies the scope and application of res judicata principle in the cases of Oppression and Mis-management.
Background Facts
M/s Notam India Private Limited ("Respondent No. 1") is a company incorporated by the Petitioner and Respondent No. 2 to carry real estate business. Both the brothers were Directors in Respondent No. 1. According to the Petitioner, the Respondent No. 2 without notice to the Petitioner increased the share capital based on forged documents as well manipulated the company records. The Respondent No. 2 also got his wife, Respondent No. 3 fraudulently appointed as the Director on the Board of Respondent No. 1. The Petitioner realizing the fraud committed by Respondents filed a company petition under Sections 397 & 398 read with Section 402 against them alleging oppression and mis-management and conducting the affairs of the company in a prejudicial manner. Prior to the filing of the company petition, the Petitioner had filed a civil suit on the same cause of action in Ghaziabad. The chronology of events leading to the present company petition is provided below:-
Sr. No.
Date
Particulars
1
09.04.2009
O.S. 818 of 2009 Civil Suit was filed in Ghaziabad civil court
2
21.07.2009
Interlocutory application seeking temporary injunction to restrain Respondent Nos. 2-3 in relation to business of Respondent No. 1 was dismissed.
3
21.08.2009
Application filed for withdrawal of Civil Suit
4
11.08.2009
Company Petition was filed
5
18.08.2009
Company Petition was mentioned stating that civil suit has already been withdrawn and CLB passed an order directing Respondent No. 1 to provide fortnightly bank statements.
6
24.08.2009
Civil Suit was dismissed without giving any liberty to initiate new proceedings.
The civil suit was dismissed at a later point after company petition was filed and it was submitted that dismissal of civil suit did not come in the way of filing the company petition as jurisdiction of CLB under Sections 397 and 398 is unique and enabling in nature and orders are passed on equity.
Issues
a) Whether the present company petition is maintainable before CLB?
b) Whether following acts of Respondents are oppressive in nature:-
Appointment of Respondent No. 3 as a Director of Respondent No. 1;
Petitioner was seized of Directorship on an alleged letter of resignation;
Fraudulent increase in authorized share capital.
Contentions of Parties
Arguments of the Petitioner
The Petitioner had filed its withdrawal application before the civil court prior to initiating proceedings before CLB. The Petitioner relying on the case of M/s SVT Spinning Mills Pvt. & Ors v. M. Palanisami2 argued that company petition cannot be dismissed on the sole ground that earlier proceeding was disposed of without liberty to initiate proceedings on the same cause of action as the reliefs sought in a company petition under Sections 397 & 398 proceedings are unique and cannot be granted by any court other than CLB. The decision in the civil court was not a final order and no decision was taken on the issues which formed the subject matter of the present company petition.
In addition to the issue on maintainability of the company petition, the Petitioner further submitted that Respondent No. 2 had forged his signatures on the alleged resignation letter and the board resolution allowing appointment of Respondent No. 3 as the new director of the company. The Petitioner submitted that Respondent No. 3 was never appointed as a director of the company in any of the Board meetings that he attended. The Petitioner alleged that Respondent No.2 committed fraud and forged Petitioner's signatures to change signatories of bank accounts and manipulated with the company records along with Respondent No. 3 against the interest of Petitioner.
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