Full Text
Order reserved on: 17th June, 2013
Order pronounced on: 21st June 2013
UMESH KUMAR BAWEJA & ORS. .... Appellants.
Through: Mr. Chetan Sharma, Senior Advocate with Mr. Abhishek Malhotra and
Mr. Angad Singh Dugal, Advocates.
Through: Mr. Sandeep Sethi, Senior Advocate with Mr. Vidur Bhatia & Ms. Shivani Singhal, Advocates.
JUDGMENT
1. This is an appeal filed by the Appellants against the order dated 10.04.2013 and the reasons for the said order dated 10.05.2013 whereby the Company Law Board has directed the Appellants to provide audit of the Appellant No. 2 Company to the Respondent No.1 with an auditor of its choice.
2. The main issue that arises for consideration in the present appeal is whether a person who has contributed money for the purchase of equity of a company and the amount is admittedly shown by the company as share application money, can, prior to the allotment of shares and entering of the name of the person as a member in the 2013:DHC:2995 register of members, maintain a petition under section 397 and 398 of the Companies Act?
3. The brief facts leading to the present petition are that the Government of Karnataka entered into Project Development Agreements with Ms. Gulbarga Airport Developers Private Limited and Shimoga Airports Developers Private Limited (Respondent Nos.[2] & 3 herein) for setting up of Green Fields Airport at Gulbarga and Shimoga.
4. The Appellant No.1 – Mr. Umesh Kumar Baweja did not have sufficient resources to make the required investment for execution of the agreement and, as such, he requested the Respondent No.1 herein (the petitioner before the Company Law Board) to make the required investment. The Respondent No.1 and M/s. Rahi Aviation Holdings Private Limited (Appellant No.3 herein) incorporated M/s. Regional Airports Holdings International Limited (Appellant No.2 herein) as a special purpose vehicle for making investments in Respondent Nos. 2 & 3 company.
5. The Respondent No.1, in terms of the agreement with the Appellant, was required to put in Rs.20 crores for acquiring 40% equity in the Appellant No.2 company.
6. Pursuant to the said understanding, the Appellant No.2 and the Respondent No.1 entered into a subscription-cum-shareholders agreement dated 12.03.2012 and subsequently provisions of the said agreement were also incorporated in the Articles of Associations of the Appellant No.2 Company.
7. The amount paid by the Respondent No. 1 was shown as share application money but the shares were not allotted as the Respondent No. 1 sought for the postponement of the board meetings interalia on the ground that complete background papers and documents and details were not being shared by the Appellants.
8. The amounts paid by the Respondent No. 1 as share application money was admittedly utilised by the company for its projects.
9. Disputes arose between the parties leading to the filing of the present petition by the Respondent No. 1 under Sections 111A, 235, 397, 398, 399, 402 and 403 of the Companies Act, 1956 before the Company Law Board, seeking various reliefs.
10. The Appellants and Respondent Nos.[2] & 3 objected to the said petition and raised Preliminary Objections qua its maintainability.
11. The Company Law Board passed the impugned order dated 10.04.2013 and permitted the audit of the Appellant No.2 Company to be carried out by the Respondent No.2 at its own cost with an auditor of its choice.
12. Learned Senior Counsel for the Appellants had submitted that the Petition was not maintainable at the behest of the Respondent No.1 on the ground that the Respondent No.1 was not a member of the Appellant No. 2 Company as the sum of Rs. 20 crores invested by the Respondent No.1 was still lying as share application money and had not been converted into shares and the Respondent No.1 itself had requested for the postponement of the Board meeting.
13. Learned Senior Counsel for the appellant in support of his submission relied on the judgment in the case of Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel 1977 (47) Comp Cas 151 to contend that to maintain a petition under section 397 and 398 of the Companies Act the petitioner must indisputably be the member of the company and it is only a member who can maintain such a petition.
14. Learned Senior Counsel for the Appellant further relied upon the Judgment in the case of Balkrishan Gupta v. Swadeshi Polytex Ltd. 1985 (2) SCC 167 to contend that rights under the companies act available to members of the company could be exercised only after the shares were allotted and name of the person was entered in the register of members.
15. Learned Senior Counsel for the Appellant further submitted that the Respondent No. 1 could not by-pass the arbitration clause contained in the subscription-cum-shareholders agreement and could have invoked and pursued its remedy under the Arbitration & Conciliation Act, 1996.
16. On the contra, learned counsel for Respondent No.1 submitted that Respondent No.1 had invested Rs.20 crores towards subscription of 40% shares of the Appellant No.2 Company and the said money which in the account books was shown as share application money, had in fact been utilised by the Appellants. Further the Respondent No.1 had submitted guarantees of over Rs.20 crores to the Government of Karnataka for the projects. He further submitted that since over Rs.40 crores had been invested by the Respondent No.1 in the said project and for all practical purposes, the Respondent had been treated as a share holder, the Appellants were thus precluded from raising the technical objections as to the maintainability of the present petition.
17. Learned Senior Counsel for the Respondent No. 1 on the other hand relied on the judgment of the Single Judge of Karnataka High Court in the case of Srikanta Datta Narasimhara Wadiyar v. Venkateswara Real Estate Enterprises (Pvt) Ltd 1990 (68) Comp Cas 216 to contend that where a person held the shares by operation of law and the company at all times recognised for all practical purposes his rights as a shareholder. The said person could maintain the petition even though his name was not found in the register of members. Learned Senior Counsel submitted that the Respondent No. 1 was assumed to be a shareholder of the company and was entitled to allotment of shares against the application money and thus the petition at its behest was maintainable.
18. In view of the above, this issue requires a detailed consideration as there is no authoritative judicial pronouncement on this issue either of the Supreme Court of India or of this High Court.
19. Place the matter before the Roaster Bench on 05th July, 2013. In the meantime the operation of the orders dated 10.04.2013 and 10.05.2013 are stayed.
SANJEEV SACHDEVA, J (VACATION JUDGE) June 21, 2013