BEFORE NATIONAL COMPANY LAW TRIBUNAL

CHENNAI BENCH AT CHENNAI

IA.No 1177 of 2020

IN
CP. No. 248 of 2020
And
IN THE MATTER OF SECTION 241 AND 242 OF THE COMPANIES ACT, 2013
And
IN THE MATTER OF EASTCOASTEEL LIMITED
And
IN THE MATTER OF
Eastcoast Steel Limited
Having its registered office at
Cuddalore Road, Pillaiyarkuppam,
Bahoure Commune,
Pondichery – 607402 ------------- Applicant/ 1st Respondent

Versus

M B Gupta HUF through its Karta

Mahesh Chand Gupta, who is residing at
FE – 2012 Sector III,Salt Lake City,
Kolkata -700106 and others ------------Respondents/Petitioners

Written Arguments of the Applicant

The Applicant states as under:

1. The Applicant used to carry on the business of the Manufacturing steel at its factory in

Pondicherry. The Applicant is a listed company and its shares are freely traded on

Bombay Stock Exchange. In or about 1995 there was a downturn in the steel industry

and business environment was not friendly to the steel industry resulting in stopping of

operations in the plant and shutdown of the factory. The Applicant thereafter could not

revive its operations. The Applicant was faced with liability on account of demand

raised by the Pondicherry Electricity Board, which was in excess of Rs. 75crores. As a

result, applicant could not take steps to either diversify into new business or revive its

existing operations. Applicant challenged the demand of Pondicherry State Electricity

Board and the same was pending until 2017 before the Hon’ble Supreme Court of India.

The Hon’ble Supreme Court of India referred the parties to mediation for a settlement.

After prolonged negotiations, the dispute with the Pondicherry State Electricity Board

was resolved in the year 2017. Since the company was not into any operations from 1995

and had disposed of plant machinery and other equipments, it was left with the land ad-
 measuring 56 acres in Pondicherry. This was the only asset of the company with no

liquid funds available to the company.

2. The present petition has been filed by the Petitioners alleging oppression and

mismanagement under Section 241 and 242 of the Companies Act, 2013 against the

Company and its directors. The Petitioners are 105 in number out of above 6800

shareholders of the Company and represent 0.6% of total paid up capital of the

Company. The sole aim of the Petitioners is to arm twist the Company and prevent the

Company from dealing with the only immoveable property of the Company. When

similar prayer was made by another set of shareholders in the earlier round of litigation

filed under Section 241 and 242 viz. in C.P. No. 56 of 2013, this petition was dismissed

and such dismissal was confirmed in Company Appeal No. 20 of 2015 by Hon’ble High

Court, Madras. It is in these circumstances that the present petition needs to be viewed

as all reliefs sought by the present of Petitioners revolves around the only immoveable

property of the Company which has now been sold by the Company.

3. Applicant has filed the present application challenging the maintainability of the

Company Petition filed by the Respondents/Petitioners. Applicant submits in summary

the grounds as to why the present petition is not maintainable–

a. Petitioners are engaging in re-litigation and abuse of process of law as the issues

raised in the present company petition have already been dealt with in the

previous round of litigation in C.P. No. 56 of 2013 which was dismissed on

11.05.2015. The Company Appeal against the order dated 11.05.2015 was also

dismissed on 26.08.2019. These issues which have been conclusively decided in

the earlier round of litigation cannot be re-agitated by new set of shareholders

who are Petitioners in company petition.

b. Issues relating to violation of SEBI takeover code are within the exclusive

jurisdiction of SEBI by virtue of Section 24 of the Companies Act, 2013 and these

grievances donot have any bearing on the affairs of the Company;

c. Since there is no surviving cause of action, the present petition is liable to be

dismissed in limine;
4. The Applicants will now make detailed submissions on the above issues-

a. Re-litigation and abuse of process of law

i. An action under Section 241 and 242 of the Companies Act, 2013 (pari

materia with Section 397, 398, 402, 403 of the Companies Act, 1956) is a

representative action and the remedy granted in such actions is remedy in

rem. An individual member may bring an action to remedy a wrong done

to his company to compel his company to conduct its affairs in

accordance with its constitution and the rules of law governing it, even

though no wrong has been done to him personally. The form of this

action in these exceptional cases is peculiar, because the plaintiff

(petitioners) donot sue in his own right alone, but on behalf of himself

and all his fellow members other than those, if any, against whom relief is

sought. The individual member seeks to enforce a corporate claim. The

individual members action in these exceptional cases may be described as

representative action because it is brought on behalf of himself and

persons other than himself who would go along with him to protect their

legitimate corporate rights. The remedy is binding on all the members

and stakeholders of the Company.

Refer:

a. Jhajharia Bros. Ltd. vs Sholapoor Spinning And Weaving AIR 1941Cal

174

b. Haryana Telecom vs Sterlite Limited (1999 (5) SCC 688)

c. N.V.R Nagappa Chettiar and Anr vs The Madras Race Club 1949 (1)

MLJ 662

ii. In the present case, one Mr. Suresh Kumar Jalan and 3 others who are

shareholders of the Company filed Company Petition No. 56 of 2013

before the then Company Law Board under Section 397 and 398 of the

Companies Act, 1956 read with Section 402 of the Companies Act, 1956.
 This petition was numbered as C.P. No. 56 of 2013. The Petitioners inter-

alia sought for the following reliefs.

a. Pass an order declaring that the resolution passed at the board

meeting on 20th May 2013 and 08 August 2013 for issue of Preferential

Shares are illegal , Arbitrary and Ultra-Vires.

b. Issue of an Order of Permanent Injunction, restraining the respondent

1 to 9 from alienating on encumbering and disposing of the asset and

properties both movable and immovable belonging to the first

respondents without giving the petitioners 1st right of refusal to

purchase the assets and properties of the 1st respondent .

c. For a declaration that the Preferential allotment of 5 Lakhs shares of

Rs 10/- each made to respondents 9 and 10 are illegal , Null and Void

and the same are to be set aside . Copy of the Company petition C.P

56 of 2013 is filed along with this application.

iii. This Company Petition was dismissed on 11.05.2015. The Company had

disclosed the existence of petition C.P. No. 56 of 2013 in their Annual

Report of the company. Respondents/Petitioners who are shareholders

were aware about C.P No 56 of 2013 and the Company appeal No. 20 of

2015 by virtue of such disclosure made by the company. From the very

reading of the present Company Petition, it is seen that the petitioners

were keeping close watch about the various developments in the

company from time to time. Despite being aware about the developments

in the company including the Company Petition 56 of 2013,

Respondents/Petitioner did not choose to join the company petition and

remained on the sideline.

iv. C.P. No. 56 of 2013 was dismissed by the then Company Law Board by

order dated 11th May 2015. As a result the prayer inter alia sought to

restrain the Company from alienating its immovable property and the

prayer seeking to cancel the Preferential Allotment of 5 lakhs equity share

 of Rs 10 each in favour of 15th Respondent was also dismissed. This

decision of the Company Law Board is remedy/justice in rem and binding

on all groups of shareholders and the Company.

v. Thereafter Mr. Suresh Kumar Jalan and three others filed Company

Appeal No 20 of 2015 challenging the order dated 11th May 2015 passed

by the Company Law Board in C.P No 56 of 2013. An application was

filed which was numbered as M.P No. 13385 of 2019 challenging the

notice for Annual General Meeting dated 30th May 2019 and sought for

restraining the convening of meeting and E – Voting thereof. The

company appeal was dismissed by the Hon’ble High Court Of Madras by

the order dated on 26.08.2019. By the very same order connected

Miscellaneous Petition was also dismissed. Therefore the Hon’ble High

Court Of Madras did not interfere with the Preferential Allotment of 5

Lakhs of Equity Shares to 15th Respondent and also did not intervene

with the notice of meeting dated 30th May 2019, where the resolution was

passed through Postal Ballot on 13th July 2019 on the issue relating to sale

of immoveable property of the Company. In the present petition,

petitioners apart from challenging preferential allotment of 5 lakh equity

shares and sale of immoveable property have also challenged the

resolution passed by postal ballot on 13.07.2019 whose validity has been

upheld by the Hon’ble High Court, Madras. The Petitioners cannot re-

agitate the matter relating to the immovable property of the company,

private placement of 5 lakh equity shares and the resolution dated 13th

July 2019 which has been already considered and decided by the Hon’ble

High Court of Madras in Company Appeal No. 20 of 2015.

vi. The cause of action for the present company petition relates to the

allotment of 5 lakhs equity share to the 15th Respondent and the fact that

company should not deal with immovable property. When these issues

have been considered by Hon’ble High Court, Madras and the reliefs
 sought therein have been denied by the Hon’ble High Court of Madras in

the Company Appeal No. 20 of 2015, the present petitioners do not have

any locus to once again challenge and seek for adjudication of issues

which have been decided in the earlier round of litigation. Therefore the

present Company Petition in essence amounts to re-litigation, abuse of

process of law and same needs to be nipped in the bud by this Hon’ble

Tribunal.

vii. The Petitioners in this petition claim to own 0.6% of the total paid up

capital of the Company. Out of 105 petitioners, 24 were members of the

Company when Mr. Suresh Jalan and 3 others instituted the earlier

proceedings for the same relief claiming that he was seeking redrresal on

behalf of shareholders. These 24 members ought to have known the

earlier proceedings and ought to be fixed with constructive notice of the

same. They are estopped from making the said pleadings and the present

petition is barred on the principles of constructive res judicata.

viii. The remaining 81 members have purchased shares after the termination

of the earlier proceedings. The Company being a listed company, the

purchase would be transaction in the market. Any person who invests

money in a share of a Company and that too of the kind of the petitioners

who appear to be have an insatiable knowledge on corporate functioning

would have studied the position of the Company. The Petitioners who

bought the shares with the full knowledge that the Company was not

functional and with the knowledge that a huge liability to the Puducherry

Electricity Board was due and that the lands have been proposed to be

sold have invested this money with oblique motive. In any event, in so far

81 members are concerned this is a past and concluded transaction and

cannot be reopened. Look through from any angle, the Company petition

is liable to be rejected on a pure question of law of constructive res

judicata, suppression of material facts and a proxy litigation.

 ix. The immoveable property of the Company has been sold by the

Company by Deed of Sale dated 27.11.2020 registered as Document 23697

of 2020 and the prayer seeking to prevent sale of immovable property

does not survive. Respondents/Petitioners are aware about sale of the

immoveable property.

x. Such sale of immoveable property was approved by members at the

Annual General Meeting held on 13.07.2019 by postal ballot. When the

Company has around 6800 members, Petitioners who represent 0.60% of

total paid up capital are using litigation as means to harass the Company

repetitively.

xi. The Petition filed is abuse of process of law and is liable to be dismissed

as no equitable remedy can be granted where Petitioners have not come

with clean hands.

Refer: In re Bellador Silk Ltd In re 1965 (1) A H ER 667 (Ch D)

b. Issue relating to violation of SEBI Take over code cannot be determined by

this Hon’ble Tribunal

There are allegations that the Promoters of the Company have violated the SEBI

Takeover Code and that directions be issued by this Hon’ble Tribunal to

investigate the violations of the Code. In this regard it is humbly submitted that

Section 24 of the Companies Act, 2013 (pari materia with Section 55A of the

Companies Act, 1956) grants exclusive jurisdiction to SEBI in matters relating to

violation of SEBI Take over Code. Statutory jurisdiction that has been vested in

SEBI by virtue of Section 24 read with Section 11 of the SEBI Act, 1992 cannot be

adjudicated by this Hon’ble Tribunal. Further the issues relating to SEBI Take

Over code donot relate to affairs of the Company and are matters that involves

shareholders whose conduct can be assailed only before the jurisdictional forum

viz. SEBI. As the issue squarely falls within the domain of SEBI by virtue Section

24 of the Companies Act, 2013 which grants exclusive jurisdiction to SEBI in

these matters.
 Refer: SEBI vs KunnamKulam Paper Mills Ltd (2013) 178 Comp Case 371

c. No further cause of action

The whole cause of action for the petition stems out of the resolution passed at

the AGM which postal ballot was conducted on 13.07.2019. The resolution was

proposed for the members to consider sale of only land of the Company. This

resolution was challenged before High Court, Madras in Company Appeal No.

20 of 2015 and prayer was sought to prevent the Company from dealing with the

immoveable property of the Company. The Hon’ble High Court dismissed the

request of the Petitioners in company petition and dismissed the Company

Appeal. When such permission has been granted for sale of the property of the

Company by Hon’ble High Court and by majority of shareholders of the

Company, Shareholders who are members of the Company and privy to the

financial woes of the Company cannot seek to re-agitate the issue relating to sale

of land of the Company in this Company Petition. At any date, the land has been

sold and the very cause of action for filing the present petition does not exist.

Similarly the relief sought by the Petitioners to set aide 500,000 equity shares

preferentially allotted to Mr. Ashok Dalmia to be set aside has also been

dismissed by the Company Law Board and by Hon’ble Court in Company

Appeal No. 20 of 2015. All reliefs otherwise claimed by the Petitioners in the

present petition are incidental or allied to the reliefs prayed in previous C.P. No.

56 of 2013. The Petitioners are trying to infuse life into a dead cause of action by

filing the present petition.

d. Rule of majority

Rule of majority is normal rule in corporate democracy. When minority alleges

oppression, it needs to be seen if the majority are trampling on the rights of the

minority shareholders. In the present case, decisions were taken in postal ballot

held on 13.07.2019 by the shareholders of the Company and resolutions have

been passed with requisite majority. Sale of land was decided by shareholders

and majority shareholders voted in favor of the said resolution. Merely because it
is the only land of the Company, the Petitioners donot have any right to stall the

sale of the land, unless it is shown that the Company is acting in a fraudulent

manner or with an intent to defeat the right of the shareholders of the Company.

Sale of land is a decision taken by the Board and by shareholders and unless

specific case of fraud is pointed out, Petitioners who hold 0.6% of paid up capital

and constitute only 105 shareholders of total 6800 shareholders cannot file

company petitions under the guise of oppression and/or mis-management. Such

conduct of the Petitioners in filing petition to arm twist the Company ought to be

dismissed as the Petitioners have not come with clean hands to the Hon’ble

Tribunal. Miniscule minority cannot force their views on the vast majority of

shareholders. These shareholders can always exit the Company by selling their

shares. Present attempt by Petitioners to file company petition is for collateral

purpose with ulterior motive aimed at harassing the Company.

In view of the above it is humbly prayed that this Company Petition be

dismissed and thereby render justice.

Dated at Chennai this 04th day of February 2021

Counsel for Applicant/1st Respondent