before the company law board - Company Law Board Mumbai Bench

BEFORE THE COMPANY LAW BOARD,MUMABI BENCH, AT MUMBAIPRESENT: SHRI KANTHI NARAHARI, MEMBER (JUDICIAL)COMPANY APPLICATION NO. 177 of 2010INCOMPANY PETITION NO.47 OF 2010IN THE MATTER OF THE COMPANIES ACT, 1956ANDIN THE MATTER OF M/S.MULTI SCREEN MEDIAPRIVATE LIMITED.BETWEEN:1. Atlas Equifin Private Limited )2. Grandway Global Holdings Ltd.)AND1. Multi Screen Media Pvt. Ltd., )2. SPE Mauritius Holdings Ltd. )3. SPE Mauritius Investments Ltd.)4. Andrew J. Kaplan, )5. Mr.Man Jit Singh, )6. Mr.Kunal Das Gupta, )…Applicants/Petitioners..Respondents/RespondentsCA 177 of 2010Multi Screen

2AND7. MSM Satellite(Singapore) Pte.Ltd.a wholly owned subsidiaryof Respondent No.1 having itsregistered office at No.5, TampinesCentral 6, 02-19 Telepark Building,Singapore-529482…Proposed RespondentPRESENT FOR PARTIES:Mr. Shiraz Rustomjee, Advocate …For applicants/petitionersMr.Iqbal Chagla , Sr.Advocate …For Respondents 2 to 4Mr. D. Madon, Sr.Advocate …For proposed RespondentO R D E R1. The petitioners by way of this application are seeking toamend the original petition in order to implead the MSMSingapore as Respondent No.7 to the petition.2. Mr.Shiraz Rustomjee, Learned Counsel for theapplicants/petitioners submitted that the above petition was filedalleging certain acts of oppression and mismanagement in theaffairs of the R1 Company. The R1 was formed as a joint venturebetween the petitioners and Sony Pictures Entertainment. The 1 stRespondent has a wholly owned subsidiary named MSMSingapore (the proposed Respondent). The MSM Singapore isCA 177 of 2010Multi Screen

3under complete control of the R1 Company and it is necessaryparty to the proceedings for the following reasons. The R1 andMSM Singapore are effectively dealt with as one entity by theBoard of the R1 Company and their affairs are so inextricablybound up with each other that they are liable to be treated as oneentity in the present proceedings. Some of the issues of oppressionand mismanagement raised in the petition relate to the affairs ofMSM Singapore. Hence these matters are relevant and required tobe examined to the present proceedings as issues of oppression andmismanagement relating to R1 Company. Some of the respondentshave contended in their affidavits in reply stating that someallegations in the petition relate to the affairs of MSM Singaporeand have objected to the same inter alia on the basis that MSMSingapore is not a party to the present proceedings. In view of theobjections raised by the respondents without prejudice to thepetition and purely out of abundant caution the petitioners cravethis Bench to permit them to implead the MSM Singapore as aRespondent. The Learned Counsel contended that the MSMSingapore and R1 Company functionally and financially one unit.He submitted that the petitioners and the respondents have madevarious averments with respect to the MSM Singapore in thepetition. In support of his stand the Learned Counsel relied uponthe following decisions:CA 177 of 2010Multi Screen

41. (2002) Vol. III Comp.Cases page 252 ( Madras HighCourt). In the matter of Shankar Sundaram vs. AmalgamationsLtd. & ors.2. (2006) Vol. I Comp.Cases page 437( Court ofAppeal). In the matter of Rackind & Ors. vs. Gross & Ors.3. The Respondent No. 2 & 3 filed their counter to theapplication opposing the prayer. Shri Chagla, Learned SeniorCounsel while initiating the arguments submitted the grounds foropposing the application. He submitted that the respondents haveraised a preliminary objection in the reply to the petition statingthat the petition itself is not maintainable on the ground thatarbitration agreement is in existence between the parties andshould be decided prior to considering this application. It issubmitted that the respondents are not shareholders of MSMSingapore, hence they cannot be answerable for its affairs.However, the respondents advised to place on record theirobjection to the application. The petitioners do not state that theMSM Singapore is either a necessary or proper party to be joinedto the present proceedings. A party cannot be joined as respondentto the present proceedings only out of ‘abundant caution’ withoutany legal basis for such joinder. The application is to be dismissedon the ground of gross delay. The application has been filed inCA 177 of 2010Multi Screen

5view of the objections raised by the respondents in their replywherein it is contended certain allegations of oppression andmismanagement made by the petitioners relate to MSM Singapore,which is not a party to the present proceedings. The said reply wasserved on the petitioners on 20 th July, 2010. The petitioners filedan application dated 22 nd July, 2010 but did not seek to add MSMSingapore as a respondent in that application. The petitioners alsofiled rejoinder on 27.7.2010 and 9.8.2010 and replies to the subrejoinderson 13.8.2010 and no attempt was made to join MSMSingapore as party. The present application is only an afterthought and filed after completion of pleadings as far as back as13 th August, 2010. Further the application is liable to be rejectedfor the want of jurisdiction. The MSM Singapore is a Companyincorporated in Singapore under the Singapore CompaniesAct and governed by the laws of the republic of Singapore. ThisBench would not have extra territorial jurisdiction under theCompanies Act to examine the affairs of a company incorporatedoutside India. The Learned Senior Counsel further submitted thatthe petitioners have not claimed any relief against the proposedrespondent and it is only contended that R7 proposed to be addedas a party to the proceedings out of an abundant caution, hence theproposed party is neither necessary nor a proper party.CA 177 of 2010Multi ScreenTheprovisions of the Companies Act under which the proceedings are

6being conducted in relation to the affairs of the Company and toregulate the affairs of the Company but the proposed party, affairscannot be adjudicated since it is not governed by the CompaniesAct, 1956. In support of his contention he relied upon thefollowing decisions:CA 177 of 2010Multi Screen1) (2003) 5 SCC Page 531 In the matter of SukanyaHoldings Pvt.Ltd. vs Jayesh H. Pandya & Another. It is heldthat “there is no provision in the Act for bifurcating the suit intotwo parts, one to be referred to arbitration for adjudication andthe other to be decided by Civil Court.”2) (1992) 2 SCC Page 525 In the matter of RameshHirachand Kundanmal vs. Municipal Corporation of GreaterBombay. Para 143) AIR 1968 (Madras High Court) Page 287 In thematter of Firm of Mahadeo Rice & Oil Mills & Ors. vs.Chennimalai Gounder.It is of the view that - Addition of parties – proper party - Courthas no jurisdiction to add party unless it is necessary or properparty. Tests to be followed in adding parties.4) AIR 1955 (Madras High Court) Page 595 In thematter of Kurivalli Lingayya Setty vs. Sitharam Agarwala &Anr. It is of the view - thus, if the Court has no jurisdiction byreason of sections 19 & 20 over one of the defendants joined under

7the provisions of Order 1 Rule 3 and Order 2 rule 3, the suitcannot be entertained against such defendant and his name mustbe struck out from the array of parties.5) (2003) 4 Company Law Journal Page 429 (CLB) Inthe matter of Maharashtra Power Development Corpn.Ltd. vs.Dabhol Power Company & Ors. It is of the view - One is that,any enquiry by this Bench regarding the functioning of the Boardof EMC would amount to this Board looking into the affairs of aCompany incorporated outside India. This Board has powers tolook into the affairs of the companies incorporated under theIndian Companies Act only.6) (2004) 53 SCL Page 1 (CLB) In the matter ofAirtouch International (Mauritius) Ltd. vs. RPG CellularInvestments & Holdings Pvt. Ltd. It is of the view - I do notfind any reason for impleadment of respondent Nos.9 & 10 beingshareholders of the Company as parties to the company petitionagainst whom no reliefs have been claimed. The reliefs for thealleged acts of oppression and mismanagement when established,can be granted even in the absence of the 6 th respondent andtherefore the 6 th respondent in my view is not a formal party to theCompany Petition.4. An affidavit is filed on behalf of proposed respondentCA 177 of 2010Multi Screen

8opposing the amendment/implead application. Shri Madon,Learned Senior Counsel representing the proposed party submittedthat the MSM Singapore was incorporated under the laws ofSingapore and does not have a branch or other office in India and itis not therefore subject to the laws of India. In matters relating toincorporation, administration, governance, oppression, dissolutionetc ., the provisions of the Companies Act, enacted in Singaporealone apply to MSM Singapore. The Companies Act,1956 doesnot have extra territorial jurisdiction and consequently theprovisions of Sec.397-398 of the Companies Act, do not apply toMSM Singapore. Therefore, this Bench has no jurisdiction overthe MSM Singapore. Even otherwise MSM Singapore is neithernecessary nor a proper party to the petition. The reliefs claimed inthe petition are against the original respondents and none of thesereliefs can be sought or granted against MSM Singapore. Thepetitioners are not shareholders or members of MSM Singaporeand no prejudice will be caused to the petitioners if MSMSingapore is not impleaded. None of the allegations of oppressionor mismanagement have been or can be attributed to MSMSingapore. It is also denied that MSM Singapore and R1 are liableto be treated as one entity. The affairs of the subsidiary cannot beexamined in relation to the allegations of mismanagement andoppression against the majority shareholders of the holdingCA 177 of 2010Multi Screen

9company, if those shareholders are not shareholders of thesubsidiary company as is the case with MSM Singapore. Theobjections raised by some of the respondents cannot be the basisfor impleading the MSM Singapore. If the MSM is impleaded theBench will be clearly acting in excesses of the scope of Sections397-398 of the Companies Act, 1956. The impleadment if any willonly cause undue hardship and harassment to MSM Singapore,inter alia, by way of imposing additional cost. Therefore, theapplication does not have any merits and liable to be dismissed.The Learned Senior Counsel further submitted that the MSMSingapore is a foreign company, though it is a subsidiary of R1Company but the subsidiary company should be Indian company.The petitioners have not claimed any relief against the MSMSingapore and it is not amenable to jurisdiction of CLB, further, itis not necessary nor proper party. He prayed this Bench to dismissthe application.5. Shri Shiraz Rustomjee, Learned Counsel, rejoined to thesubmissions of the respondents and he referred to variousaffidavits filed in the petition wherein the relevance of MSMSingapore is mentioned.6.1 Heard the Learned Senior Counsel appeared for theparties, perused the pleadings, documents and citations relied uponby them. The only point for consideration is to whether the MSMCA 177 of 2010Multi Screen

10Singapore being a wholly owned subsidiary of Indian Companybut registered outside India is necessary and proper party to theproceedings before this Bench. Before addressing the issue, thepleadings in the Company Petition, in respect of the MSMSingapore are necessary to emphasize. The petitioners hold32.39% of the equity capital of the R1 Company and have allegedvarious acts of oppression and mismanagement in the affairs of theR1 Company as enumerated in the petition. In para 8.1.7 of thepetition (raider ‘A’) the petitioner after filing of the petitionincorporated the paras on 29.7.2010. The petitioner had madesome averments and also allegations against the MSM Singapore.It is an admitted fact that the MSM Singapore is wholly ownedsubsidiary of R1 Company. Although the MSM Singapore and theR1 Company are separate legal entities, they are managed by thesame senior management team including representatives of themajority shareholders. When the Board of Directors of R1Company meet and convene a Board Meeting matters relating toR1 are discussed and decided upon first followed by a discussionof matters pertaining to MSM Singapore. However, the minutesare separately recorded.6.2 Further, petitioners have made categorical allegationsthat the Respondents 2 to 5 who are in control of the managementof the R1 company and deliberately kept the petitioners and theirCA 177 of 2010Multi Screen

11representatives on the Board of Directors of the R1 Company andMSM Singapore in the dark with regard to decisions on extremelysignificant and, in fact, critical issues concerning the business ofthe Company. The Raider ‘A’ completely discusses the affairs ofthe MSM Singapore. The petitioners also sought relief in para‘12(h)’ which is as follows:“The respondents be ordered and directed to render true, fulland proper explanations and accounts of R1 Company including itssubsidiary MSM Singapore for the period until the present date”.6.3 The petitioner in their rejoinder at para 22 also averredthat the Respondent No.1 and MSM Singapore are so inextricablyconnected and bound up with each other that they are liable to betreated as one corporate entity. It is also stated that MSMSingapore is completely under control of R1 Company. Variousaverments have been made in respect of MSM Singapore in theaforesaid para. The 1 st Respondent in its reply at para 9 discussedabout the financial affairs of the MSM Singapore in detail. The 2 ndand 3 rdCA 177 of 2010Multi ScreenRespondents in their reply have discussed about thebusiness affairs of the MSM Singapore and particularly at para 19contended that the MSM Singapore is not a party to the presentproceedings hence its revenue and costs are irrelevant. Therespondents in their sur-rejoinders substantiated their stand that theMSM Singapore is not a party to the present proceedings. From

12the pleadings it is crystal clear that the petitioners have madevarious averments with regard to the MSM Singapore and soughtrelief to render true, full and proper explanations and accounts ofR1 Company including its subsidiary MSM Singapore. To add aparty to the proceedings one must keep in mind whether the partyis necessary or proper party. A necessary party is one withoutwhom no order can be made effectively. A proper party is onein whose absence an effective order can be made but whosepresence is necessary for a complete and final decision on thequestion involved in the proceeding.CA 177 of 2010Multi ScreenRegulation 46 of CLBRegulations empowers this Bench to amend the petition. Thepresent application is filed seeking amendment of the petition byadding MSM Singapore as Respondent No.7 to the proceedings.The application is in order and this Bench has power to amend theproceedings for the purpose of determining the real question orissue raised by or depending on such proceedings. Further dueprocedure contemplated under Order 1 Rule 10 of CPC whichenables the Court to add any person as a party at any stage of theproceedings if the person, whose presence before the Court isnecessary in order to enable the Court to effectively andcompletely adjudicate upon and settle all the questions involved inthe proceedings. Avoidance of multiplicity of proceedings is alsoone of the objects of the said provision. The guidelines of various

13High Courts and the Hon’nle Supreme Court to invoke Order 1Rule 10 of CPC in respect of proper and necessary parties havebeen summarized in the matter of Antony Devaraj vs.Aralvaimozhi (Kurusadi) Devasahayam Mont Oor ThuyaViagula decided on 31 st December, 2003 by the Madras HighCourt in CRP (PD)Nos.652 & 1737 of 2003. Further, the test to beapplied for determining the rights of a party to implead another inpending proceedings namely: whether effective and completeadjudication can be made in the absence of such party even if norelief is claimed against him, whether there is a cause of actionagainst a party proposed to be impleaded, whether a relief is soughtin a proceeding is likely to be made binding on the proposed party,whether the proposed party is likely to be affected adversely byultimate outcome of such proceedings. The person satisfying anyone or more of the tests laid down above can be impleaded. TheLearned Senior Counsel for the respondents relied upon thecitation of the Hon’ble Apex Court supra in the matter of RameshHirachand Kundanmal wherein the Apex Court held that theaddition of the respondent would result in causing seriousprejudice to the appellant and the substitution or the addition of anew cause of action would only widen the issue which is requiredto be adjudicated and settled. The joining of the party wouldembarrass the plaintiff and issues not germane to the suit would beCA 177 of 2010Multi Screen

14required to be raised. The mere fact that a fresh litigation can beavoided is no ground to invoke the power under the Rule in suchcases. Further the Apex Court held that the question ofimpleadment of a party has to be decided on the touchstone ofOrder 1 Rule 10 which provides that only a necessary or a properparty may be added. In the light of the clear language of the Rule,it is not open to the appellant to contend that a person cannot beadded as a defendant even in a case where his presence isnecessary to enable the Court to decide the matter effectively. TheApex Court further held that the addition of parties is generally nota question of initial jurisdiction of the Court but of a judicialdiscretion which has to be exercised in view of all the facts andcircumstances of a particular case. Thus the Apex Court left openthe decision of addition of parties to the judicial discretion, in viewof the facts and circumstances therein. In the present case thepetitioners satisfied the tests to be applied for impleading the MSMSingapore as respondent. This Bench is of the view that the MSMSingapore is proper party to the proceedings before this Bench.6.4 The complex issue is that whether the CLB can deal theaffairs of foreign registered wholly owned subsidiary companywhile dealing the affairs of the Holding Company, registered underIndian Companies Act. The Companies Act, 1956 defines the‘Company’ in sub-section (10) of Section 2. Section 3 of theCA 177 of 2010Multi Screen

15Companies Act defines the Company, existing company, privatecompany and public company. Section 4 defines holding companyand subsidiary company and its relationship. Sub-section (1) ofSection 4 reads thus: “For the purpose of this Act, a company shallsubject to the provisions of sub-section(3) be deemed to be asubsidiary of another.” Sub-section (7) of Section 2 defines ‘bodycorporate’ which includes even a company incorporated outsideIndia. The MSM Singapore admittedly is a wholly ownedsubsidiary of Indian Holding Company. For all purposes the MSMSingapore fulfills the requirement of subsidiary. Now the questionis whether MSM Singapore being foreign registered company willfall under the category of subsidiary company. In this regard subsection(7) of Section 2 defines the body corporate which includesa company incorporated outside India. Sub-section (3) of Section4 determines the characteristic of subsidiary company. Subsection(5) of Section 4 states as “In this section the expression‘Company’ includes any body corporate and the expression equityshare capital has the same meaning as in sub-section (2) of Section85.” The expression ‘company’ defined in Section 3 includes abody corporate and the body corporate includes a companyincorporated outside India. Thus, MSM Singapore even thoughregistered outside India falls under the category of subsidiarycompany. Further the holding company by its resolution canCA 177 of 2010Multi Screen

16authorize its representatives to inspect the books of accounts keptby any of its subsidiaries and books of accounts of any suchsubsidiary shall be opened to inspection by those representatives atany time during business hours, as contemplated under section214(1) of the Companies Act, 1956. Even though there is nospecific definition in the provisions of the Companies Act inrespect of the foreign registered subsidiary company, however, theabove noted provisions of the Act are very clear that therepresentatives of the holding company may inspect the books ofaccounts of the subsidiary company, whether it is Indian registeredor foreign registered. Further the holding company has to attachthe Annual Report of the subsidiary company along with astatement of the holding company’s interest as specified in subsection(3) of section 212. Besides, the holding company has toprepare a consolidated financial statement taking into account thesubsidiary company’s financial data as required under IndianAccounting Standards 21 read with Sec.211(3A). Further, as perSection 211 read with Schedule VI of the Companies Act, theforeign subsidiary company’s balance sheet has to be prepared asper the Indian Companies Act for attaching to the holdingcompany’s balance sheet. The foreign subsidiary company as usualshall file its balance sheet and other requirements as per the lawsgoverned therein. Thus the provisions of Indian Companies ActCA 177 of 2010Multi Screen

17shall have all the powers to deal with the affairs of its ownsubsidiary company though it is registered outside India. Theforeign registered subsidiary companies may not be amenable tothe Indian Companies Act in case of statutory violations, but so faras its affairs, more particularly business, financial affairs which aredirectly or indirectly connected to the Indian Holding Companyare concerned, the Indian Companies Act has power to deal with,in view of the above provisions of the Act. I am fully supported bythe judgement of Madras High Court and Court of Appeal (supra)in respect of affairs of the Company includes the affairs ofsubsidiary company under sec.397-398. Now I deal the relevantparas of the judgements.6.5 The Madras High Court in the matter of ShankarSundaram (supra) in a similar case, while setting aside the orderof the CLB held that “it would be wrong to say that ‘affairs of thecompany’ in Section 397 and 398 of the Companies Act wouldnever include the affairs of subsidiary company nor is it the rulethat in all cases the affairs of holding company would include theaffairs of subsidiary company. It would depend upon the facts ofeach case whether the affairs of the holding company include theaffairs of the subsidiary company under section 397-398 of theCompanies Act. In each case it has to be investigated and decidedwhether the expression ‘affairs of the company’ would include theCA 177 of 2010Multi Screen

18affairs of subsidiary company as well.” In that case the subsidiarycompany was an Indian Company. In the present case thesubsidiary company is registered outside India. But the principleslaid down by the High Court are binding on this Bench.The Court of appeal also held that the ‘affairs of the Company’ isone of the widest import which can include the affairs of thesubsidiary. Equally, I would hold that the affairs of the subsidiarycan also be the affairs of its holding company, especially where, ashere, the directors of the holding company which necessarilycontrols the affairs of the subsidiary, also represent a majority ofthe directors of the subsidiary. I do follow the judgement of theCourt of appeal. In the present case the MSM Singapore iscontrolled by the R1 Company, hence this Bench can look into theaffairs of the MSM Singapore in these proceedings in relation to itsbusiness and financial affairs as stated supra. The Learned SeniorCounsel for the respondents contended that this Bench does nothave the jurisdiction to deal with the affairs of the MSM Singaporesince it is registered in Singapore and placed reliance in the matterof K.Lingayya Setty supra. Since I hold that the affairs of MSMSingapore can be dealt with by this Bench, it being a whollyowned subsidiary of Indian Holding Company. The LearnedSenior Counsel for the respondents relied upon the citation of thisBoard in the matter of Dabhol Power Company & Ors. (supra)CA 177 of 2010Multi Screen

19wherein the Bench is of the view that the CLB has power to lookinto the affairs of companies incorporated under the IndianCompanies Act only. In that case the petitioners raised variousissues in respect of EMC (Enron Mauritius Company) which is aforeign registered subsidiary, high jacking the Company, GE &Bechtel have procured nominations that too of their ownemployees and it was done when the matter was sub-judice beforethe Bombay High Court and CLB. The petitioners thereincontended that the respondents have not replied to variousquestions raised by them in regard to their nomination and alsocontended that the Board of EMC (Foreign registered subsidiarycompany) had no power to function, once provisional liquidatorhas been appointed by the Court. The respondents thereinquestioned the right of the petitioners in challenging thenominations of the EMC on the ground that there are no pleadingsin that regard in the petition and no relief could be granted againstEMC when it is not a party to the proceedings. However, the CLBis of the view that even though the petitioners have not sought forany direct relief against EMC, yet seeking of restraining theserespondents from functioning as directors would amount todenying the right of EMC to nominate its candidates in terms of itsArticles, hence the CLB held that the petitioners should have beenimpleaded EMC as a party and the EMC only could answer theCA 177 of 2010Multi Screen

20issues raised by the petitioners therein. Thus, the CLB is of theview that EMC was a necessary party to those proceedings.Further, the CLB is of the view that this Board had no authority toexamine the functioning of the Board of EMC and in that context itis held that this Bench would not have powers to look into theaffairs of the Company incorporated outside India. Thus, the CLBin that matter categorically held that the functioning of the Boardof Directors of foreign registered subsidiary company cannot belooked into by the CLB, but did not give any finding in respect ofbusiness and financial affairs of foreign registered subsidiarycompany. Hence the facts of the Dabhol Power Company aredistinct and different. However, the Madras High Court held thatthe affairs of the subsidiary company can be looked into thematters pertaining to Sec.397-398 and it being an Appellate Courtthis Bench bound by the judgement. Hence I follow the judgementof the Madras High Court in the matter of Amalgamations Limited.In view of overall provisions of law and the authorities I am of theview that the MSM Singapore is wholly owned subsidiary of R1Company and this Bench can look into its business and financialaffairs exclusively the matters complained in these proceedings.Accordingly the issues are answered in favour of theapplicants/petitioners. Hence CA 177 of 2010 in CP 47 of 2010 isallowed and the petitioners are hereby permitted to amend theCA 177 of 2010Multi Screen

21petition by adding MSM Singapore as Respondent to the petition.The petitioners are directed to file amended petition within aperiod of 10 days and serve copies on the other side. Therespondent i.e. MSM Singapore may file its reply thereafter withina period of three weeks and serve copies on the other side. Thedate of hearing will be intimated to the parties.(KANTHI NARAHARI)MEMBERDated this the 28 th day of February, 2011CA 177 of 2010Multi Screen