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High Court of Judicature at Madras
P.R. SHIVAKUMAR
K.P.S. Selvaraaj
Versus
Selvaraaj Tex Private Limited & Others
Comp. Appeal No. 6 of 2012 & M.P. No. 1 of 2012
Decided On : 05-09-2012
Natural Justice Violation - Company Appeal - Companies Act, 1956 - Sections 111, 397, 318, 402, 403 - Scheme of Demerger - Interim Relief - Violation of Principles of Natural Justice
Fact of the Case:
The case involved a dispute among family members regarding the demerger of a company and the transfer of shareholdings. The Company Law Board passed an interim order without affording the appellant an opportunity to file a counter or make oral submissions regarding the grant of interim relief.
Finding of the Court:
The Court found that the Company Law Board's order was vitiated due to the violation of the principles of natural justice as the appellant was not given an opportunity to be heard before the interim order was passed. The Court set aside the order and directed the Company Law Board to reconsider the prayer for interim relief after affording an opportunity to the contesting respondents and following the principles of natural justice.
Issues: Violation of natural justice, grant of interim relief without opportunity to be heard
Ratio Decidendi: The Court held that the Company Law Board's order was vitiated due to the violation of the principles of natural justice as the appellant was not given an opportunity to be heard before the interim order was passed.
Final Decision: The Company Appeal was allowed, and the order of the Company Law Board was set aside. The matter was remitted back to the Company Law Board to decide the question of desirability of granting interim relief after affording an opportunity to the respondents and following the principles of natural justice.
1. The present Company Appeal has been filed against the order of the Company Law Board, Additional Principal Bench, Chennai made in C.P.No.18 of 2012 passed in the attendance cum order sheet of the hearing of the Chennai Bench of the Company Law Board held on 29.02.2012 at 2.30 p.m stated to be decided on 13.03.2012.
2. K.P.Selvaraaj, who figures as respondent No.2 in the company petition before the Company Law Board, is the appellant herein. Selvaraaj Tex Private Limited, which figures as respondent No.1 in the company petition before the Company Law Board is the first respondent herein. K.P.S.Manoharan, K.P.S.Sivakumar, K.P.S.Muniswaran, E.Muniswaran and Mrs.M.Muthumari, the petitioners in the company petition before the Company Law Board, are the respondents 2 to 6 in the present Company Appeal. Indira Vijayalakshmi and K.Sonai, who figure as respondent Nos.3 and 4 in the company petition are the respondents 7 and 8 in the company appeal.
3. The appellant K.P.S.Selvaraaj and the respondents 2 to 4, who are the petitioners 1 to 3 in the company petition before the Company Law Board, are the sons of late Mr.K.P.Subbiah. Subbaiah's another son K.P.S.Elangovan's son is the 5th respondent E.Muniswaran. The 6th respondent Mrs.Muthumari is the wife of the second respondent K.P.S.Manoharan. K.P.Subbaiah (father of the appellant and respondents 2 to 4), K.P.S.Manoharan (2nd respondent) and late K.P.S.Elangovan (the father of the 5th respondent E.Muniswaran), initially started a business under the name and style of "Selvaraaj Tex" as a proprietary concern in 1972. Subsequently, in 1983, the same was converted into a partnership firm with the name of M/s.Selvaraaj Tex, whereupon K.P.S.Selvaraaj (appellant), K.P.S.Manoharan, K.P.S.Sivakumar and K.P.S.Muneeswaran (respondents 2 to 4) and late K.P.S.Elangovan (father of the 5th respondent) were brought into the business as partners by reconstituting the partnership. In 1993, the father of the appellant and the respondents 2 to 4 herein viz. K.P.Subbaiah, died. Subsequent to his death, the said partnership firm was converted into a private limited company and incorporated in the name of Selvaraaj Tex Private Limited in 2006. As such the first respondent company, namely Selvaraaj Tex Private Limited came to be a closely held company having the members of the family of late K.P.Subbaiah alone as its shareholders. K.P.S.Selvaraaj, K.P.S.Manoharan, K.P.S.Elangovan, K.P.S.Sivakumar and K.P.S.Muniswaran were the directors of the company. K.P.S.Selvaraaj was made the Chairman and Managing Director of the company. Mrs.Indira Vijayalakshmi, the 7th respondent herein (3rd respondent in the company petition before the Company Law Board) and Mrs.Muthumari, the 6th respondent herein (5th petitioner in the company petition before the Company Law Board) were also inducted into the said company as share holders.
4. The company was carrying on the business of manufacturing and trading in textiles. It was incorporated as a private limited company under the provisions of the Companies Act, 1956 having its registered office at No.204/6, Dindigul Main Road, Vilankudi, Madurai – 625 018 with an authorised share capital of Rs.12,00,00,000/- divided into 1,20,00,000/- equity shares of Rs.10/- each and issued, subscribed and paid-up share capital of Rs.8,61,34,400/- divided into 86,13,440 equity shares of Rs.10/- each. The shareholdings of the company was as follows:
Selvaraaj Fabrics Private Ltd and Mutharasu Spinners (India) Private Limited were the two sister companies of Selvaraaj Tex Private Ltd. The said sister companies got merged with Selvaraaj Tex Private Ltd. by a scheme of amalgamation sanctioned by the High Court by order dated 17.07.2007 made in C.P.Nos.116 and 118 of 2007, which was filed with the Registrar of Companies on 16.08.2007.
5. While so, there was a division among the directors and stake holders pursuant to which a family arrangement was made and as per the family arrangeme
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