Section 634A
ENFORCEMENT
OF ORDERS OF CLB
[1996] 85 Comp Cas
665 (Cal)
High Court OF Calcutta
v.
Shasan Projects India Ltd.
U.C.
Banerjee and Ronojit Kumar Mitra JJ.
APPEAL NO. 443 OF
1995
November 29, 1995
Chowdhury for the Appellant.
Sarkar
and Gupta for the Respondents.
U.C.
Banerjee J.—This
application for stay is directed against the order of the .Company law Board
dated October 27, 1995, wherein the Company Law Board directed the applicant
before the Company Law Board to lodge the. share certificates being the
subject-matter of the proceedings along with the transfer instruments by
November 20, 1995, and also directed the company to register the shares by
November 30, 1995, The Company Law Board went on to direct that in the event of
failure on the part of the company to, effect registration in terms of the
order, the Bench Officer, Eastern Region, Calcutta, is directed to visit the
registered office of the company and to carry out suitable rectification in the
register of members in that regard.
It
is this order which is said to be not in accordance with law and the
intervention of the High Court has been sought for under section 10F of the
Companies Act, 1956. Two principal issues have been raised before this court:
the first being whether the Company Law Board has Jurisdiction to direct the
Bench Officer, Eastern Region, Calcutta, to visit the registered office of the
applicant and to carry out suitable rectification in the register of members of
the appellant-company. On the second count: it has been contended that the
Regional Bench of the Company Law Board cannot vary, alter or modify an earlier
order of the Principal Bench of the Board and thereby sit in appeal over the
order of the Principal Bench.
Turning
attention on to the first count, viz., the jurisdiction under section 10E of
the Act of 1956 in regard to the direction to the Bench Officer, Eastern
Region, to carry out suitable rectification of the register of members of the
appellant-company, Mr. Chowdhury submitted that the Company Law Board cannot
possibly direct its officer to execute an order in the manner as it had done.
There is ex facie an error and mistake which is liable to be corrected by the
High Court under section 10F of the Act.
While
the issue at first blush seems to be rather attractive but on a close scrutiny
of section 634A of the Companies Act, 1956, the situation seems to be
otherwise. Section 634A expressly provides that any order of the Company Law
Board may be enforced by that court in the same manner as if it were a decree
made by a court in a suit pending therein. Therefore, the powers as prescribed
are of the widest possible amplitude and as such the direction to an officer of
the Board to rectify the register of members cannot be said to be an abuse of
such a power. Mr. Chowdhury drew the attention of the court to the Companies
(Court) Rules as also the Regulations framed under the Act so far as the
Company Law Board is concerned. The Regulations unfortunately, however, are
silent on this score and the Rules also do not speak anything contrary to the
provisions of the statute. The powers have been conferred on the Company Law
Board under section 634A and in discharge of that power, the Board has directed
one of its officers to visit the registered office and to rectify the
shareholders' register. It might be a novel one as ascribed by Mr. Chowdhury
but there is no inherent lack of jurisdiction as such. In that view of the
matter the question of there being a substantial question of law involved for
determination by this court under section 10F of the Act does not and cannot
arise. In the premises, the submissions of Mr. Chowdhury on the first count
fails.
Turning
attention on to the second count, viz., modification of the earlier order of
the Principal Bench by a later order of Regional Bench, it is to be noted that
the Principal Bench on January 27, 1995, recorded :
"Having
considered the prayer carefully, we are inclined to grant this prayer of the petitioner
and accordingly we hereby order that respondents Nos. 1 to 17 shall not
transfer any of the shares covered in the petition nor the company would
register any transfers, if lodged."
It
is on this observation of the Principal Bench of the company that Mr. Chowdhury
placed reliance and contended that as a matter of fact there is existing an
order of injunction in regard to the transfer by the respondents herein
together with an order of injunction operating against the company from
effecting registration of any transfer, even if lodged in regard to the subject
proceeding and it is on this score that Mr. Chowdhury raised the plea of there
being involved a substantial question of law to be decided by this court under
section 10F of the Act of 1956. For convenience' sake, the observations of the
Regional Bench ought to be noted at this point. The Regional Bench observed (at
page 664 supra) :
"It
is clear from the order passed by us in the Eastern Bench that we were
conscious of the restraint order passed by the Principal Bench. In fact we
ourselves constituted the Principal Bench which passed the interim order, and
our intentions were very clear, viz., that the injunction order will cover
these 1,00,000 (one lakh) shares as well. We also made a specific mention of
the Principal Bench's order in our order under section 111 in order to ensure
that our order should not be otherwise misconstrued as contradictory. In fact
the petition before the Principal Bench was under section 250 of the Act and
the restraint order issued by the Principal Bench was so intended that if
later, the Company Law Board was to order investigation into the shares, such
investigation should not be hampered. By our order dated May 12, 1995, under
section 111 we have merely preserved this position as intended by the Principal
Bench, hence . . . categorically stated that the registration of the transfer
of the impugned shares would be subject to the order of the Principal Bench in
the petition under section 247/250. Therefore, according to us, there is no
contradiction between the order of the Principal Bench and the Eastern
Bench."
Mr.
Chowdhury relying upon the observations as above submitted that this
contradiction has in fact been recognised by the Regional Bench and merely by
ascribing an order that the same shall abide by the result of the Principal
Bench, that by itself would not cure the defect of sitting as an appellate
authority over the order passed by the Principal Bench. We, however, do not
consider this submission of Mr. Chowdhury to be of any substance. The order of
the Principal Bench is clear and categorical and there exists no inconsistency
whatsoever. In this context, the observation of the Company Law Board
(Principal Bench) ought to be noticed. The Board observed :
"Heard
Shri Harish Salve on his interim prayer at page 32 of the petition, especially
relating to restraining respondents Nos. 1 to 17 from transferring their shares
till the disposal of the petition. Dr. Singhvi also supported this prayer
pointing out that certain shares held by these respondents have been lodged for
transfer and unless otherwise these transfers are restrained, then if the
Company Law Board were to order investigation into these shares such
investigation would be hampered."
Be
it noted that it is on the basis of this submission that the Company Law Board
passed the order of injunction restraining respondents Nos. 1 to 17 from
transferring any of the shares, being the subject-matter of the proceeding
before the Board, neither the company would be authorised to register any
transfer, if lodged, as noted more fully hereinabove.
It
is on this count that Mr. Sarkar, appearing for the respondents in the matter,
contended that the order of the Principal Bench does not provide any restraint
so far as this particular rectification is concerned in regard to the names of
respondents Nos. 1 to 17. The prohibitory order, if any, is restrictive in
nature and provides only for further registration. Mr. Sarkar contended that
the language is very specific and to the effect that respondents Nos. 1 to 17
shall not transfer any of the shares and it is on this count that the Company
Law Board passed an order on to the company in regard to registration of any
transfers. The word "nor" is very significant and obviously refers to
the subsequent transfer and not the rectification in regard to respondents Nos.
1 to 17. The status of the shares ought to be maintained so as to avoid any
inconvenience in the matter of investigation. We record our concurrence with
the submissions of Mr. Sarkar. There is no incongruity neither any
inconsistency between the two orders. In any event, the Regional Bench of the
Company Law Board has specifically recorded that the order shall be subject to
the orders of the Principal Bench. The order of restraint in so far as transfer
of these shares from respondents Nos. 1 to 17 to a third party, still remains
and as such there is no possibility of there being any transfer of shares from
respondents Nos. 1 to 17 to any third party but rectification of the register
as directed by the Regional Bench cannot, in our view, be said to be bad nor be
termed to be sitting in judgment over an order of the Principal Bench.
In
that view of the matter the contention of Mr. Chowdhury on the second count
also fails. The application for stay, therefore, fails. In view of the order as
above, the question of entertaining the appeal does not arise. The company is
directed to effect the transfer in accordance with law as directed by the
Board.
At
this stage, however, Mr. Chowdhury submitted that the name of transferee in
relation to the instrument of transfer stands in the name of Sonawala Exports
Ltd. but respondents Nos. 1 to 17 are desirous of having the said transfer
affected in favour pf Shasan Projects India Ltd. We are not, however, at this
stage going into the issue excepting, however, directing the company to act
strictly in accordance with law and the order as passed by the Company Law
Board.
Mr.
Chowdhury, appearing for the company; prays for stay of operation of this
order. Considering the submissions made on behalf of the parties as noted above
we are not inclined to grant an order of stay excepting recording, however,
that the time to carry out the order of the Company Law Board be extended till
December 10, 1995.
Both
Mr. Sarkar and Mr. Gupta, appearing for the respondents, have not used any
affidavit in opposition to this stay application and as such the allegations in
the petition are not admitted by Mr. Sarkar's client.
The
matter is treated as on the day's list as adjourned motion and is disposed of
accordingly.
Let
a xeroxed certified copy of this order be made available to the parties with
utmost expedition.
Ronojit
Kumar Mitra J.—I agree.
[1996] 86 COMP. CAS 935 (RAJ)
v.
V.K. SINGHAL J.
S.B. CIVIL COMPANY APPEAL NO. 1 OF 1996
MAY 22, 1996
Paras
Kuhad for the Appellant.
N.M.
Ranka, J.K. Ranka, Anant Kasliwal and J.K. Singhi for the Respondents.
V.K.
Singhal J.—The appellant
has challenged the order of the Company Law Board dated December 19, 1995,
passed under section 634A of the Companies Act, 1956.
The
brief facts of the case are that the two petitions bearing Nos. 66 of 1992—P.K.
Baj v. P.C. Sanghi and 65 of 1992—Sudha Baj v. P.C. Sanghi were filed under
section 397 alleging various acts of oppression and mismanagement in the
affairs of Thycon India Pvt. Ltd. A compromise was entered into on May 26,
1994, in accordance with which the respondents were to make the payment of Rs.
12 lakhs for transfer of 3,015 shares in lieu of the factory, land and building
situated at F-45, Malviya Industrial Area, Jaipur, and three months' time was
fixed to complete the formalities. Since the formalities could not be completed
in the aforesaid period, it is stated that as per the memorandum of
understanding on August 25, 1994, time was extended till September 9, 1994. The
Company Law Board disposed of both the petitions in terms of the deed of
compromise on October 31, 1994. According to learned counsel for the
appellants, the respondents failed to comply with the terms of settlement by
not making the payment of Rs. 12 lakhs within the stipulated time and made an
application under section 634A on April 28, 1995, for enforcement the order
dated October 31, 1994. According to the appellants, the respondents neither
filed the draft sale deed nor got clearance from the income-tax authorities and
did not make the payment of Rs. 12 lakhs nor transferred the shares and
"no objection certificate" from the bank was also not obtained. The
Company Law Board on December 19, 1995, after considering the objections of
both the parties, directed that the amount of Rs. 12 lakhs shall be paid along
with interest at the rate of 18 per cent. till the date of actual remittance
which shall be deposited in escrow account with the State Bank of Bikaner and
Jaipur. The vacant possession of land and building as per compromise terms
shall be given within one month from the date of deposit of the amount.
The
above order has been challenged on the ground that the powers under section
634A is in the nature of execution proceedings and if a time specified in the
compromise and has not been adhered to by the parties, the compromise comes to
an end. It is not the jurisdiction of the Company Law Board to extend the time
or to give directions for making the payment of interest on delay in respect of
making the payment. Under section 634A, the executing court cannot go into the
merits of me decree and it is empowered to execute the same as it stands. In
the execution proceedings the Company Law Board has exceeded its jurisdiction
in giving the directions for making the payment of Rs. 12 lakhs with interest.
An objection was also raised that the liability of the bank has also increased
and they are not ready to give penal interest, but in view of the statement
made on behalf of the bank the penal interest is to be waived. This point is
not taken into consideration.
On
behalf of the respondents it was stated that the appellant failed to
incorporate the obligation and duty particularly to be performed by him and it
was mentioned in the compromise that he has ensured that the properties are
free from all the encumbrances and will take all the necessary steps to get the
property registered in the name of Shri P.K. Baj or his nominee including
obtaining the NOC from the Income-tax Department, if so required and clearance
from the bank SBBJ, SMS Highway, Jaipur, with respect to the bank guarantee
given by Shri P.K. Baj and his father Shri P.C. Baj, and other conditions were
also contemplated in the compromise. A number of letters written to comply with
the formalities were placed before the Company Law Board and the appellants
have not alleged non-compliance of the obligations with regard to payment to
SBBJ, Jaipur, and clearance of the respondents in respect of the bank guarantee
given by him and his father and other conditions which were contemplated. So
far as the respondents were concerned on the basis of compromise entered into, the
civil suit and the contempt proceedings filed by them or their relatives or
friends were withdrawn, that the appellant did not issue the discharge receipts
nor made any payment to the Government or other authorities nor NOC or
clearance as required was obtained and, therefore, the petitioner was compelled
to move under section 634A. The payment of Rs. 12 lakhs was also not made and
the Company Law Board has not exceeded its jurisdiction as it has inherent
powers under rule 44 of the Company Law Board Regulations, 1991. The interest
of Rs. 2,09,400 has been deposited on January 20, 1996.
In
this matter various allegations and counter allegations were made which I need
not consider at this stage. The only point is to be seen as to whether the
Company Law Board under the proceedings under section 654A could extend the
time for implementation of the order passed by it on October 31, 1994.
It
is a very clear proposition of law that in the execution proceedings the
executing court cannot modify a decree. In the case of Hukumchand v. Bansilal,
AIR 1968 SC 86, by consent of the parties the executing court dismissed the
application of the judgment-debtor under Order 21, rule 90 to set aside the
sale held under a mortgage decree and allowed him time to pay the decretal
amount and the auction-purchaser's commission. But the judgment-debtor failed
to deposit the amount within time and prayed for extension of time. As this
prayer was opposed by the decree-holder and the auction purchaser the court
dismissed the prayer and confirmed the sale. It was observed by the apex court
that though under Order 21, rule 92, the court was bound to confirm the sale at
once when it dismissed the application under Order 21, rule 90, it was
justified in postponing the question of confirmation of sale till the date
allowed to the judgment-debtor to pay the amount. But as that time had been
granted by consent of parties the court had no power to extend it without the
consent of the parties. Section 148 would not apply in these, circumstances and
the executing court was right in holding that it could not extend time. In the
case of Resham Singh v. Manmohan Singh Kent, AIR 1985 P & H 193, in a suit
for specific performance of agreement to sell, a conditional decree was passed
in favour of the plaintiffs that a sum of Rs. 50,500 was to be paid within one
month, failing which the plaintiff's suit was to stand dismissed. It was held
that the executing court could not execute the decree as the amount was not
deposited within the time allowed according to the terms of the decree, the
suit stood dismissed automatically. The extension of the time for depositing
the sale price would be varying the decree of the trial court which could not
be done as the court has become functus officio after passing the said decree.
The Calcutta High Court in the case of Jaynal Haldar v. Khorsed Sheikh, AIR
1982 Cal 118, came to the conclusion that where the suit for specific
performance of the contract was decreed on compromise and the solenama
mentioned time as the essence of the contract and on failure of payment by the
defendant within specified time the plaintiff could deposit and have kobala
executed through the court by way, of execution of the decree the court could
not extend the time ex parte without the consent of the plaintiff on an
application for extension of time by the defendant a copy of which was served
on the advocate of the plaintiff. It was observed that before extending the
time the court would have to secure the consent of the plaintiff and without doing
so the court would have no power or jurisdiction to change, vary or alter the
terms of the solenama decree. After the solenama decree, the court loses seisin
of the suit altogether and as such there is no scope for extension of time.
In
the present matter, the Company Law Board passed the decree in terms of the
compromise deed filed on September 12, 1994, according to which a sum of Rs. 12
lakhs was to be paid by P.K. Baj and received by P.C. Sanghi on behalf of the
company within a period of three months from the date of compromise as a result
of which the possession of factory, land and building was to be taken along
with Maruti car. Besides this, there were other conditions and P.C. Sanghi was
to ensure that the properties are free from all the encumbrances and he shall
take all the necessary steps to get the property registered in the name of Shri
P.K. Baj or his nominee including NOC from the Income-tax Department if so
required and clearance from the bank SBBJ, SMS Highway, Jaipur, with respect to
the bank guarantee given by Shri P.K. Baj and his father Shri P.C. Baj. The
civil suits pending in any court or authority filed by either party their
friends or relatives were to be withdrawn. P.K. Baj was to make the payment of
Rs. 12 lakhs in consideration of transfer of 3,015 shares belonging to Shri
P.K. Baj and Sudha Baj in favour of P.C. Sanghi or his nominee in consideration
of transfer of property, i.e., land measuring 2,000 square meters building,
F-45 Malviya Industrial Area, Jaipur, and the discharge receipt was to be
issued.
The
amount of. Rs. 12 lakhs was not paid within three months as stipulated in the
compromise and, thereafter, a petition was filed by P.K. Baj before the Company
Law Board under section 634 of the Companies Act in which it was stated that a
registered letter was sent on July 5, 1994, to P.C. Sanghi to complete the
necessary formalities before expiry of time-limit and a reminder was also sent
on August 16, 1994/August 20, 1994. A memorandum of understanding was entered
into between the parties on August 25, 1994, by which the time was extended by
15 days and according to averments of P.K. Baj a meeting was to be held after
the expiry of seven days but nothing was done. A number of other allegations
were also made.
The
Company Law Board after hearing both the parties came to the conclusion that
the problem with regard to the implementation of the consent terms has arisen
because the exact modalities were not spelt out. Neither party approached for
prescribing the modalities even after the expiry of the three months' period.
It came to the conclusion that time was not the essence of compromise. A
contention was also raised that negotiations with both the parties have also
failed. The petitioner agreed to pay the commercial rate of interest. The
Company Law Board held that the respondents (appellant) are only entitled to
the price and for any delayed payment of the price they may claim interest and
they cannot be permitted to take advantage of the market fluctuations if any
after having committed themselves to an agreement. The interest at the rate of
18 per cent. till the date of actual remittance in an escrow account with the
State Bank of Bikaner and Jaipur was directed to be paid and Shri P.K. Baj was
held entitled to land and building within one month from the date of deposit of
the above amount.
In
appeal this order has been challenged. The executing court no doubt cannot vary
the decree, but the question arises whether in a case where time was not the
essence of compromise as it is evident that both the parties after the decree
extended the time further, consequences on failure to make payment were also
not stated and certain formalities were required to be done of which modalities
were not chalked out, either in compromise or in the decree of the court, the
executing court became functus officio. The apex court in the case of Smt.
Periyakkal v. Smt. Dakshyani [1983] 2 SCC 127 where the executing court
dismissed the application but the first appellate court set aside the sale and
during the pendency of the respondent's second appeal before the High Court the
parties entered into a compromise with the leave of the court whereby the
appellants agreed to pay a certain amount to the respondents within a
stipulated time in full and final settlement of the decree. A contention was
raised that time was the essence of the agreement. If was observe, that where
the application under Order 21, rule 90 of the Civil Procedure Code, is
dismissed, there is a statutory compulsion to confirm the sale and, therefore,
in that event postponement and further postponment of the confirmation, of the
sale can only be by the consent of the parties themselves. A distinction was
drawn between a case where there was statutory compulsion and a case where
there was no statutory compulsion. If the contract between the parties has
merged in the order of the court, the court's freedom to act to further the
ends of justice would surely not stand curtailed.
In
the present matter, the Company Law Board while exercising the, powers of the
executing court found that the modalities were not prescribed and even that
time was not the essence of the compromise. The appellant was compensated with
the interest for the delay caused. The representative of the bank also admitted
that they have entered into compromise and the contention of the appellant that
the negotiation of the bank failed is also not factually correct.
In
the case of Ramankutty Guptan v. Avara, AIR 1994 SC 1699, it was observed by
the apex court that the court retains control over the decree even after the
decree has been passed. It is open to the court to exercise the power under
section 28(1) of the Specific Relief Act, 1963, either for extension of time or
for rescinding the contract as claimed. Therefore, where the execution
application has been filed in the same court in which the original suit was
filed, namely, the court of first instance, instead of treating the application
for rescission on the execution side, it should have as well been numbered as
an interlocutory application on the original side and disposed of it according
to law. The apex court further observed that it is settled law that an appeal
is a continuation of the suit and, therefore, when a decree for specific
performance has been dismissed by the trial court but decreed by the appellate
court it should be construed to be in the same suit. When the decree specifies
the time for performance of the conditions of the decree on its failure to
deposit money, section 28(1) itself gives power to the court to extend the time
on such terms as the court may allow to pay the purchase money or other sum
which the court has ordered him to pay.
The
decision in the case of K. Kalpana Saraswathi v. P.S.S. Somasundaram Chettiar,
AIR 1980 SC 512, was also considered wherein it was held by the apex court that
on an oral prayer made by counsel for the plaintiff for permission to deposit
the entire amount as directed by the trial court the apex court directed the
appellant to deposit the amount within six months from that date together with
interest and other conditions mentioned therein. It was observed that an
application for extension of time for payment of the balance consideration may
be filed even in the court of first instance or in the appellate court of first
instance or in the appellate court in the same suit as the decree of the trial
court stands merged with that of the appellate court which decree is under
execution. It is to be seen that procedure is handmaid to justice; and unless
the procedure touches upon jurisdictional issue, it should be moulded to
subserve substantial justice. Therefore, technicalities would not stand in the
way to subserve substantive justice. Take a case where the decree is
transferred, for execution to a transferee executing court, then certainly the
transferee court is not the original court and the execution court is not the
'same court' within the meaning of section 28 of the Act. But when an
application has been made in the court in which the original suit was filed,
and the execution is being proceeded with, then certainly an application under
section 28 is maintainable in the same court. According to the judgment of the
Supreme Court even the power to extend the time could be exercised by the
appellate court. In the present case, therefore, the trial court has the
jurisdiction to pass the decree as well as for execution and if this judgment
is taken into consideration then the application made by the defendant would be
considered an application for extension of time in the decree itself for which
the court has ample powers.
In
these circumstances, I feel that it would not be proper to interfere with the
discretion which has been exercised by the Company Law Board in extending the
time. The amount has already been deposited with the bank as directed by the
Company Law Board.
Consequently,
the appeal has no force. It is hereby dismissed.
[1996]
86 COMP. CAS. 453 (GUJ)
HIGH COURT OF GUJARAT
v.
Gita Fabrics (P.) Ltd.
S.M. SONI AND R.R. JAIN JJ.
MISCELLANEOUS CIVIL APPLICATION NO. 82 OF 1986.
SEPTEMBER 19, 1995
S.N.
Soparkar for the Petitioner.
S.M.
Soni J.—This petition is filed under the Contempt of Courts Act to take necessary
action against the respondents, as they have not honoured the promise and
undertaking given by them in Company Petition No. 152 of 1985. The promise is
as per the consent terms. The undertaking is given by one J.P. Patel and P.J.
Patel to the effect that in case the company fails to pay the amount agreed as
per the consent terms, they agree to make them personally liable to pay the
same. It is the case of the petitioner that in view of the promise and
undertaking, they were made to withdraw Company Petition No. 152 of 1985 with a
liberty to revive and that the respondents by not complying with the consent
terms and the undertaking, have committed wilful breach of the same. It is,
therefore, prayed for taking action under the Contempt of Courts Act.
If
one reads the consent terms, it is clear that the company has agreed to pay the
principal amount by way of 12 monthly instalments. By undertaking, one J.P.
Patel and P.J. Patel, respondents Nos. 2 and 3 herein, have personally
undertaken the liability to pay the same if the company does not pay the amount
agreed to therein on account of its being wound up or otherwise. This is an
order passed by the company court in terms of the consent terms and
undertaking.
Section
634 of the Companies Act, 1956, provides for enforcement of orders of the
courts, which reads as under:
"Any
order made by a court under this Act may be enforced in the same manner as a
decree made by the court in a suit pending therein."
So,
the consent terms and undertaking could have been enforced by the petitioner,
as if it is a decree and by way of execution under the provisions of the Civil
Procedure Code.
In
the case of Alhar Co-operative Credit Service Society v. Sham Lai (Civil Appeal
No. 2050 of 1990 arising out of S.L.P. (C) No. 1770 of 1990), the Supreme Court
has observed as under:
"Contempt
proceedings are again not intended to be a substitute of the execution process
and, therefore, care should have been taken before entertaining the contempt
petition to examine the maintainability of such action."
Therefore,
it is clear from the Supreme Court judgment that contempt proceedings are not a
substitute for the execution process. Section 634 of the Companies Act, 1956,
referred to above, provides for treating the order of the company court as a
decree and if it is a decree, the same can be executed under the provisions of
the Civil Procedure Code, vide Order 21. In view of this Act, when the
petitioner could have executed the order passed by the company court, contempt
proceedings, being not a substitute much less not intended to be a substitute,
this petition cannot be entertained.
Any
wilful breach of an undertaking given to a court is a civil contempt as per the
definition of "civil contempt" in section 2(b) of the Contempt of
Courts Act. It is alleged by the petitioner that respondents Nos. 2 and 3 have
not respected or honoured their undertaking given before the company court and
they have, therefore, committed contempt of the company court. If one reads the
undertaking, it is clear that what they have undertaken is the liability of the
company, if the same is not discharged by it on account of its being wound up
or otherwise. There is nothing on record to show why the company could not
discharge its liability. There is nothing on record even by way of an averment
to show that the company has not discharged its liability on account of its
being wound up or otherwise. In the absence of any such fact, situation arising
out of the undertaking does not become operative. Hence, there is no question
of breach of undertaking, much less wilful breach thereof. If one reads the
undertaking, it is suggestive that the consent terms, if can be executed, can
be executed against them. This apart, in case of failure to implement the
consent terms, the right of the petitioner is not lost. The petitioner is given
liberty to revive the petition. Thus, in the instant case, the consent terms
are simply an arrangement to resolve the dispute. If the said arrangement goes
through, the dispute stands resolved. If it does not, the dispute revives from
the stage where it was stopped because of the consent terms. Hence, there is no
case made out against respondents Nos. 2 and 3 under the Contempt of Courts
Act.
In
view of the above reasons, this petition is not maintainable as it could not be
entertained and is liable to be dismissed. Hence, the petition is dismissed.
Rule discharged. No costs.
[2002]
39 scl 647 (Delhi)
High Court of Delhi
Consulting
Engineers Services (I) Ltd.
v.
Mukul Mudgal,
J.
Company
Appeal No. 2 of 2002
April 22,
2002
Section 634A of the Companies Act, 1956 -
Company Law Board - Enforcement of orders of - In a proceeding under sections
397-398 before Company Law Board a settlement was arrived at between parties
whereby respondent agreed to sell shares held by him and appellant-company
agreed to purchase same at a fair value to be determined by ‘PW’ - Company also
agreed not to raise any technical objection contrary to intent of settlement -
CLB passed order incorporating terms of said settlement - In meantime valuer
was changed - Valuation report of new valuer was rejected by both parties and
appellant sought dismissal of petition as not maintainable - However, CLB held
that only issue which survived was determination of fair price of shares and
passed order under section 634A - Whether stipulation in section 634A that an
order can be enforced by CLB in a
manner similar to a decree is a clear pointer to fact that said order cannot be
a decree - Held, yes - Whether order incorporating terms of settlement was an
order contemplated by section 634A and could be enforced by CLB - Held, yes -
Whether to permit appellant to resile from obligations imposed upon parties,
i.e., not to raise any technical plea contrary to intent of settlement, would
have been unjust - Held, yes
The respondent had filed a petition under
sections 397 and 398 before the CLB. At the time of hearing before the CLB, a
settlement in writing was arrived at whereby the respondent agreed to sell
shares held in his name to the appellant-company and the company, in turn,
agreed to purchase the shares at a fair value to be determined by PW. The
appellant-company had also agreed not to raise any technical objection which
was contrary to the intent of the settlement. The CLB passed an order
incorporating terms of settlement on 28-5-1998. Later on, the valuer was
changed. However, the valuation report was found unacceptable by both the
parties. The respondent, consequently, sought the appointment of another valuer
whereas the appellant sought the dismissal of the petition as not maintainable.
However, the CLB held that even if the petition was to fail on merits, the
company having agreed to purchase the shares was estopped from raising the
issue at such a late stage. It further held that the only issue which survived
was the issue for working out the determination of the fair price of the shares
and, accordingly, passed an order under section 634A. In the instant appeal,
under section 10F, the appellant pleaded that the application under section
634A to enforce the order dated 28-5-1998 was not maintainable. It contended
that the order dated 28-5-1998 could not be equated with a decree and that any
order sought to be enforced under section 634A had to be a decree. It was
further contended that the terms of the settlement dated 28-5-1998 clearly
indicated that it was not a final order, and the agreement sought to be
enforced was merely a facilitatory and not a final agreement.
A bare perusal of section 634A clearly shows
that the plea of the appellant regarding the narrow interpretation sought to be
given towards ‘any order’ could not be contenanced as the phrase ‘any order’
must be given its full natural meanimg and effect and, consequently, clearly
included the order passed on 28-5-1998. Further, the stipulation in the section
that the order can be enforced by the
CLB in the manner similar to a decree is a clear pointer to the fact that said
order cannot be a decree as sought to be contended by the appellant. In fact,
if the order contemplated by section 634A is construed to be a decree the words
‘in the same manner’ as if it was a decree, would be totally redundant and
superfluous and the Court cannot construe the mandate of the statute to hold
that the Legislature intended to use superfluous words.
In that view of the matter, the order dated
28-5-1998 was an order contemplated by section 634A and could be enforced by
the CLB as sought to be done by the impugned order. Furthermore, there was no
merit in the plea of the appellant that the order dated 28-5-1998 was a
facilitatory one and not a final settlement. The only factor which was required
to be considered after the settlement, was about the valuation of the shares to
be done eventually by the CLB.
To permit the appellants to resile from the
obligations imposed upon the parties by the terms of settlement, i.e., not to
raise any technical plea contrary to the intent of the settlement, would be
unjust. Furthermore, the mandate of the settlement which debarred the parties
from raising any technical plea which ran counter to the intent of the
settlement dated 28-5-1998 made it unnecessary to consider the question whether
there was deadlock in the company to confer jurisdiction on the CLB to
entertain the petition under sections 397 and 398.
Accordingly, the appeal was to be dismissed.
Kulki Leather P. Ltd. v. T.N.K. Govindaraju
Chetiar & Co. LPA No. 123 of 2001, dated 28-2-2001.
U.K. Chaudhary and Ms. Himlata Khanna for the
Applicant. Rajeev Sawhney and Manish Lamba for the Respondent.
1. This
is an appeal under section 10F of the Companies Act, 1956 (‘the Act’) against
the order dated 23-1-2002 passed by the Principal Bench, New Delhi of the
Company Law Board (‘the Board’) in company petition No. 97 of 1997 under
section 634A of the Act.
2. The brief facts relevant
for the decision of the present appeal are as under :
The respondent before this Court who is the
petitioner in the Company Law Board had filed a petition under section 397-398
of the Companies Act, 1956 (‘the Act’) alleging that he held 14.5 per cent of
the capital of the company and challenged as oppressive the proposal of the
company to issue more than 70 per cent shares which were to be allotted to the
share holders who were in whole-time employment of the company and to another
company under the same management.
3. At
the time of hearing before the Board, a settlement in writing was arrived at by
which the original petitioner/respondent herein, had agreed to sell shares of
all the three companies to the appellant-company herein, which had agreed to
purchase the shares at a fair value to be determined by Price Waterhouse and
Co. The terms of the settlement between the parties read as follows :
“1. The
petitioner and the respondents would make a joint request to PW to arrive at
the fair value of the shares of the above mentioned companies. Both the parties
would have an opportunity to be heard by PW before the final report is given by
them.
2. The parties have agreed that the valuation shall be made on the
following alternative basis.
(a) That the petitioner holds
14% of share capital of CESIM and 25% of share capital of CESWRDMC and
(b) The petitioner holds to
10.63% share capital of CES, presently the share capital of CESIM and 25% of
the share capital of CESWRDMC.
3. The valuation of shares of CESIM shall be made on the following two
alternative basis.
(a) On the footing that the transfer of shares held by CESIM in CES
after 1994 did not take place.
(b) By giving effect to the said transfer to shares held by CESIM
in CES.
4. Parties
will be entitled to make submissions to CLB on the valuation and also which of
the alternative basis of valuation should be adopted and Company Law Board
shall decide the same.
5. Respondents
undertake not to raise any objection to the effect that no petition against
CESIM or CESWARDMC or any of other technical objections whatsoever which was counter
to the intent of this settlement.
6. Respondents
undertake to make available to PW all the information, particulars and records
which may be required for the purpose of valuation.
7. PW shall be
entitled to avail of the services of
other expert valuers for valuation of the properties of the company.
8. PW would
give their report within 6 weeks from the date of request for the same. The
cost of the valuation would be borne equally by both the parties.
In accordance with the above agreed terms and
in order to facilitate the parties to come to a final settlement, we adjourn
the case to 5-8-1998 at 4.00 P.M. when the parties can make their submissions as per caluse 4 above.
4. Thereafter
the valuer was changed from Price Water House & Co. to S.R. Batliboi &
Co. The report of valuation of S.R.Batliboi & Co. was found unacceptable by
both the parties who sought the rejection of the said report and the
respondent, consequently, sought the appointment of another valuer whereas the
appellant sought the dismissal of the petition as not maintainable.
5. The Board in its impugned
order dated 23-1-2002 recorded the following findings :
(a) That even though the pleadings had been completed as early as
in January 1998, the matter was not heard obviously in view of the order dated
28-5-1998. Even in the comments to the valuation report made by the newly
appointed valuer, S.R. Batliboi & Co., the appellant had not taken the
stand that they did not have any obligation to purchase the shares held by the
respondent.
(b) Even in the memo of objections filed on 31-5-2000, the
respondent had sought the rejection of valuation by S.R. Batliboi & Co. and
sought the remand for review/consideration in light of these objections raised;
(c) The last paragraph of the order dated 28-5-1998 relied upon
by the appellant to contend that the settlement recorded on 28-5-1998 was only
facilitatory and not a final settlement cannot be read in isolation in view of
the terms of clause 4 of the order which only left the question of valuation to
the Company Law Board and insofar as the question of sale and purchase of
shares is concerned it had become final.
(d) In view of the differences in the valuation contended by the
rival parties only the new valuer was required to be appointed to determine the
fair price.
(e) The parties had agreed that the respondent would sell its
shares and the appellant would purchase the same and the respondents had given
an undertaking not to raise any objection contrary to the intent of this
settlement. Having done so, the respondents cannot turn around and claim now at
this stage that the petition is not maintainable and it is no longer interested
in purchasing the shares of the petitioner.
(f) Even if the petition was to fail on merits as stated by Mr.
Chaudhary, the respondents having agreed to purchase the shares are estopped
from raising this issue now.
(g) The only issue which
survives is the issue for working out the consent order the determination of
the fair price of the shares of all the three companies and the question of
getting into the merits of the case does not arise.
(h) The observations of the Division Bench of the Madras High
Court in Kulki Leather P. Ltd. v.
T.N.K. Govindaraju Chetiar & Co.
LPA 123 of 2001, dated 28-8-2001 are fully applicable insofar as the
appellants have tried to avoid their obligations under the settlement.
6. This
order was challenged in appeal before this Court and the primary plea of the
learned counsel for the appellant herein, Mr. U.K. Chaudhary, is that in view
of the provisions of section 634A, the application under section 634A to
enforce the order dated 28-5-1998 cannot be equated with a decree and any order
sought to be enforced under section 634A had to be a decree and, consequently,
since the order dated 28-5-1998 was not a decree, the application under section
634A was not maintainable. He further contended that section 634A only
envisaged a final order which ought to be a decree and the terms of compromise
of 28-5-1998 clearly indicated that it was not a final order. He further
submitted that the words ‘in accordance with the above agreed terms and in
order to facilitate the parties to come to a final settlement we adjourn the
case to 5-8-1998 at 4.00 p.m. when the parties can make their submissions as
per clause 4 above in the agreement dated 28-5-1998’ clearly stipulate and
indicate that a settlement had not been arrived at and the agreement sought to
be enforced was merely a facilitatory and not a final agreement.
7. Mr.
Rajiv Sawhney, the learned counsel for the respondent, on the other hand,
contended that the phraseology of section 634A clearly indicates that an order
made by the Board may be enforced by the Board in the same manner as if it were
a decree made by a Court in the civil suit, could not be a decree in view of
the words “as if it is a decree”. Section 634A reads as under :
“634A.
Enforcement of orders of Company Law Board - Any order made by the Company Law
Board may be enforced by that Board in the same manner as if it were a decree
made by a court in a suit pending therein, and it shall be lawful for that
Board to send, in the case of its liability to execute such order, to the court
within the local limits of whose jurisdiction:
(a) in the case of an order against a company, the registered
office of the company is situated, or
(b) in the case of an order
against any other person, the person concerned voluntarily resides, or carries
on business or personally works for gain.”
8. Mr.
Sawhney further submitted that in view of the provisions of clause 5 of the
settlement between the parties, no technical objection whatsoever which runs
counter to the intent of the settlement could be raised and the import of the
said clause did not permit the appellant to rely upon the plea that the
petition is not maintainable.
9. A
bare perusal of section 634A clearly shows that the plea of Mr. Chaudhary
regarding the narrow interpretation sought to be given to words ‘any order’
cannot be countenanced, as the phrase ‘any order’ must be given its full
natural meaning and effect and, consequently, will clearly include the order
passed on 28-5-1998. Further, the stipulation in the section that the order can
be enforced by the Board in the manner similar to a decree is a clear pointer
to the fact that said order could not be a decree as sought to be contended by
the learned counsel for the appellant. In fact, if the order contemplated by
section 634A is construed to be a decree, the words ‘in the same manner if it
was a decree’ are totally redundant and superfluous and the Court cannot
construe the mandate of the statute to hold that the Legislature intended to
use superfluous words.
10. In
this view of the matter, I am satisfied that the order dated 28-5-1998 was an
order contemplated by section 634A and can be enforced by the Board as sought
to be done by the order dated 23-1-2002. Furthermore, there is no merit in the
plea of the learned counsel for the appellant that the order dated 28-5-1998
was a facilitatory one and not a final settlement. The only factor which was to
be considered after the settlement of 28-5-1998, was about the valuation of the
shares to be done eventually by the Board. On this plea I respectfully agree
with the view of the Madras High Court in Kulki Leather case, where the
Division Bench in Kulki Leather P. Ltd. v. T.N.K. Govindaraju Chetiar & Co.
LPA No. 123 of 2001 dated 28-8-2001 held as follows :
‘...... The
submission that the Board had no jurisdiction at all to make the kind of order
that was made on that date is also a submission which is required to be
rejected. Counsel does not rightly dispute that the Company Law Board can
direct the purchase of shares in proceedings under sections 397 and 398 of the
Companies Act. While the proceeding that was initiated was one under section
235, that fact by itself is not to be regarded as placing an embargo on orders other than that warranted under
section 235 being made, if parties to the proceedings agreed to such an order
and the agreement is not against the public policy, is not illegal and is not
violative of any of the provisions of the Companies Act or of any other law and
it is not an agreement which itself is beyond the competence of the Board to
record under the provisions of the Companies Act. It is not the case of the
appellate that the proceeding recorded on 22nd January, 1998 is against public
policy or is illegal or is an agreement under the provisions of the Companies
Act or under any other law. The submission that the order is vitiated by reason
of total lack of jurisdiction in the Company
Law Board, therefore, cannot be accepted.” In paragraph 19, the court
has observed : “We must strongly deprecate the attempt of the appellant to
avoid carrying out a solemn promise through their responsible counsel to the
Company Law Board by seeking to raise hyper technical pleas when faced with the
demand for compliance with the terms of their order. Although we have
considered the submissions made by the counsel and examined those submissions,
we make it clear that the appellant are not entitled in law to urge any of
those grounds, as allowing the appellant who do so successfully would mean
closing eyes by the court to a fraud played by a party and the counsel on the
Company Law Board. As stated by us earlier, no counsel or litigant has a right
to play fraud on a court or the tribunal and any attempt to do so must be
discouraged and should invite the heaviest penalties’.
11. The
above observations made by the Madras High Court apply with equal force to the
attempt of the appellant in the present case to avoid carrying out a solemn
promise made through their responsible counsel duly recorded by the CLB in its
order dated 28-5-1998 by seeking to raise hyper technical pleas when faced with
the prospect of compliance of the terms of the order. In fact, to permit the
appellants to resile from the obligations imposed upon the parties by clause 5
not to raise any technical plea contrary to the intent of the settlement would
be unjust. Furthermore, the mandate of clause 5 which debarred the parties from
raising any technical plea which ran counter to the intent of the settlement
dated 28-5-1998 makes it unnecessary to consider the question whether there was
deadlock in the company to confer jurisdiction on the CLB to entertain the
petition under sections 397 and 398.
12. Accordingly, the appeal
lacks merit and is, accordingly, dismissed.
Bombay
High Court
Companies
Act
[2005]
60 scl 334 (bom.)
High Court of
Bombay
v.
S.U.
Kamdar, J.
Company
Appeal (L) No. 14 of 2004
Company
Application Nos. 125, 141 and 214 of 2004
And
Company Petition NoS. 7 and 43 of 2002
January
28, 2005
Section 634A of
the Companies Act, 1956 - Company Law Board - Enforcement of orders of -
Appellants and respondents were shareholders of company ‘L’ which, prior to its
incorporation, was a partnership firm - Appellants filed company petitions
alleging oppression and mismanagement against respondents - Before CLB, parties
agreed to settle disputes and differences and a consensus was arrived at that
matter should be amicably settled - CLB, by its order, laid down methods by
which disputes should be settled and also laid down guidelines for distribution
of assets and liabilities - CLB also directed to draw consent terms to solve
disputes and differences between parties - Appellants sought enforcement of
that order of CLB - Whether since order of CLB was not a final order but was in
form of guidelines for preparing consent terms which were required to be drawn
up for purpose of disposing of said petitions settling disputes finally between
parties, it could not be said that said order was an executable or enforceable
order - Held, yes
The appellants and respondents were shareholders of the company ‘L’ which prior to its incorporation, was a partnership firm. Two company petitions were filed by respondent Nos. 1 to 3 before the Company Law Board (CLB), inter alia, alleging oppression and mismanagement. When the matter came up for hearing before the CLB, the parties agreed to settle the disputes and differences and a consensus was arrived at that the matter should be amicably settled. The CLB passed an order on 29-1-2004 setting out the method in which the disputes between the parties should be settled and broad guidelines were set for distribution of assets and liabilities. At the end of the said order, the CLB observed that detailed consent terms be prepared by the parties and the same be entered into after the same was signed by all the parties who were likely to be affected by the said settlement. That order had not been signed by any of the parties but had been signed by the Chairman of the CLB. On 12-3-2004, the CLB passed a further order, inter alia, pointing out that both the parties should reach to the draft consent terms and if there was any difficulty, then the same should be placed before the CLB for its resolution. Thereafter, the appellants filed a company application under section 634A for enforcement of the order passed by the CLB on 29-1-2004. But the CLB dismissed the said application holding that the order passed by the CLB on 29-1-2004 was not enforceable under section 634A because that order could only bind respondent Nos. 1 to 3. The review application filed by the appellants was also rejected by the CLB.
On appeal :
The order dated 29-1-2004 passed by the CLB
was not an executable and/or enforceable order under section 634A. The said
order was neither a complete order nor it had been signed by all the parties
who were likely to be affected by such a settlement. The order, in fact, laid
down broad terms on the basis of which, the settlement could be executed and
final settlement could be arrived at. It was an admitted position that the
order did not dispose of either of the company petitions filed by respondents.
Both the petitions were kept pending by the CLB being conscious of the fact
that the order dated 29-1-2004 was not final and/or finally decided the dispute
and it was a mere guideline for the purpose of arriving at a settlement. If
that order would have been final and binding on the parties, then the CLB would
have disposed of both the petitions in terms of the said order. On the
contrary, that order, inter alia, contemplated further drawing up of consent
terms by and between the parties providing for various issues and assets and
liabilities of various partnerships, firms, private trusts and other family
properties. It further provided for consent of the various parties who were
likely to be affected by the consent terms and that only after the said consent
terms were drawn up in consultation by and between the parties that the said
final settlement was required to be arrived at deciding the disputes between
the parties finally. Admittedly, no such settlement had been arrived at by and
between the parties. Once it was so, then, it could not be said that the said
order was final and binding on the parties which could be enforced by relying
upon section 634A. It is a settled law that a settlement of the disputes
between the parties must be a conscious, legal and valid settlement between
them. The parties must consent to any such settlement. Admittedly, apart from
the partnership firms and private trusts, there were other parties involved.
None of the said parties was either party to the proceedings nor was present
before the CLB nor was represented through any of the advocates before the CLB.
In the said background, it could not be held that the order dated 29-1-2004 was
final and binding upon the parties even though they were not before the CLB nor
were they represented by any advocate before the CLB. Once the third parties
have an interest in the said partnership firm, then reconstitution of the
partnership firm by reason of same being binding or adding them or ascertaining
the shares of the partners in the partnership firm cannot be done without
consent of all the partners of other partnership firms. Admittedly, there were
third parties in the said partnership firms. Thus, the contention of the
appellant that the reconstitution of the partnership firm would not affect them
but they might be benefited by acceleration of their shares on receipt of
higher percentage of share of profit and, therefore, they should not be
consulted at all nor they need to be a party to the CLB proceedings, was not a
legal and valid argument which could be accepted by the Court. A person who is
a beneficiary or a partner and the consent terms admittedly affects his right,
then he should be a party to the consent terms and it cannot be contended that
because he is merely a beneficiary, there is no need for the person to be a
party to the said consent terms. Apart therefrom, it was not acceptable that
the third party share in the partnership firms would be enchanced and,
therefore, they were not affected. Possibly, under the deed of partnership,
with the enhancement of the share, the liabilities also could be equally
enhanced. If that was so, they were necessary and proper parties who should
have been present before the CLB before any order affecting their right was
passed which could be made executable and final order. Further, the order of
29-1-2004 itself indicated that the same was only a broad guideline and was not
a final and binding order. Apart therefrom, the order dated 12-3-2004 made it
further clear that matter was not finally concluded and, therefore, the order
dated 29-1-2004 was not a final order but was in the form of guidelines for
preparing consent terms which were required to be drawn up for the purpose of
disposing of the said petitions, settling the disputes finally between the
parties. In the light of the order dated 12-3-2004, it was not possible to
accept that the order dated 29-1-2004 had conclusively decided the rights
between the parties and, thus, the said order was not an executable order under
section 634A. Therefore, the order dated 29-1-2004 was inchoate and an
incomplete order. It was merely a broad guideline and various steps were
required to be taken in pursuance thereof in order to arrive at a final and
binding settlement between the parties. [Para 16]
Apart from
the above, there was considerable merit in the contention of the respondent
that the jurisdiction of the CLB was invoked by virtue of the provisions of
section 10E. It is clear from this section that the power of the CLB pertains
only in respect of the companies which are covered by the Companies Act, and it
does not extend to the private firms, private trusts and other family
properties. To extend such power, it is imperative for the CLB to at least have
consent of the parties who are likely to be affected by virtue of such
settlement which has been proposed and/or to be arrived at, as contemplated
under order 29-1-2004. Admittedly, there was no such consent from third
parties, namely, the various partners of the partnership firms and other
trustees and beneficiaries of the private trusts and also the co-owners of the
family properties. In view thereof, the orders, passed by the CLB, were legal
and valid orders and did not require any interference from the Court in the
instant appeal preferred under section 10F and, therefore, both the appeals
were to be dismissed. [Para 18]
Kuki Leather (P.) Ltd. v. T.N.K. Govindaraju
Chettiar & Co. [2002] 110 Comp. Cas. 474/39 SCL 1 (Mad.)(para 12),
Consulting Engineers Services (India) Ltd. v. Kaikhosrou K. Framji [2002] 4
Comp. LJ 227/39 SCL 647 (Delhi) (para 13), Venkatrao A. Pai & Sons Ltd. v.
Narayanlal Bansilal AIR 1961 Bom. 94 (para 14) and Salkia Businessmen’s
Association v. Howrah Municipal Corpn. AIR 2001 SC 2790 (para 15).
M.S. Doctor, Ameet Hariani and Puja Bakshi for the Applicant. T.N. Subramaniam, P. Jaiswal, Ramesh Saraogi, S.H. Parikh and Anup Khaitan for the Respondent.
1. The present appeal is filed under section 10F of the
Companies Act, 1956 challenging two orders passed by the Company Law Board
dated 2-7-2004 and 13-9-2004.
2. Some
of the material facts of the case are as under :—
3. The company known as Laxmi Ventures (India) Limited was
incorporated sometime in or about 15-1-1980 and prior thereto it was a
partnership firm.
4. The main business of the company is manufacturing and packing
of cigarettes on a contract basis from two companies, namely, Vazir Sultar
Tobacco Ltd., and ITC Ltd.
5. Sometime in or about 2002, a company petition was filed by
the respondent Nos. 1 to 3 before the Company Law Board, New Delhi under
sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the
said Act) inter alia alleging oppression and mismanagement in the company being
company Petition No. 7 of 2002. Thereafter sometime in or about July 2002,
another company petition was filed being Company Petition No. 43 of 2002 before
the Company Law Board, New Delhi. It is an admitted position that the daughter
of respondent No.1 namely, Mrs. Neha Agarwal is not a party to the Company
Petition No. 2 of 2002 but is partly to the Company Petition No. 43 of 2002. On
28-11-2002, both the Company Petitions were listed for hearing before the
Company Law Board. In the course of hearing a proposal for settlement was mooted.
According to the appellants, at the said hearing, the Company Law Board
directed the parties to prepare a chart indicating the shareholding pattern of
the respondent Sunil Kumar Agarwal group. On 18-12-2002, a chart was produced
indicating the said shareholding. However, there were disputes pertaining to
the said shareholding pattern indicated by the appellant as the same was not
acceptable by the Sunil Kumar Group.
6. On 29-1-2004 when the matter came up for hearing before the
Company Law Board once again the parties agreed to settle the disputes and
differences and a consensus was arrived at that the matter should be amicably
settled. On 29-1-2004, the Company Law Board passed an order setting out the
method in which the said disputes between the parties should be settled. In the
said order dated 29-1-2004 the broad guidelines are set out on the basis of
which the parties will distribute the assets and liabilities in respect of the
companies, family partnership firm, family trusts and other family properties.
At the end of the said order dated 29-1-2004, the Company Law Board has
observed that detailed consent terms will be prepared by the parties
incorporating the details of the other companies names and firms, trusts,
family properties, etc. and that the said consent terms will be entered into
after the same is signed by all the parties who are likely to be affected by
the said settlement. This order dated 29-1-2004 has been admittedly not signed
by any of the parties to the present appeal but it has been signed by the
Chairman of the Company Law Board. The matter thereafter appeared before the
Company Law Board on 12-3-2004 when the Company Law Board passed a further
order inter alia pointing out that both the parties should react to the draft
consent terms and if there is any difficulty then the same should be placed
before the Company Law Board for its resolution.
7. This order dated 29-1-2004 is the centre of controversy by
and between the parties. According to the learned counsel for the applicant,
the said order dated 29-1-2004 conclusively decided and determined the disputes
between the parties which were raised in the Company Petition Nos. 7 of 2002
and 43 of 2002 before the Company Law Board. According to the learned counsel
for the appellants, the said order finally decides the disputes and rights of
the parties and the same is an executable order. However, it is an admitted
position that consent terms were neither finalized by and between the parties
nor they were signed and filed in the proceedings. It is also an admitted
position that in the course of negotiations for settlement of the draft consent
terms, the respondent No. 1 repudiated the terms of the said order dated
29-1-2004 by contending that the said settlement is not final and the same is
not possible to be finalized because of the objections raised by the various
persons who are not parties to the proceedings. On 13-2-2004, the Advocate for
the appellants drew up a formal draft agreement in terms of the agreed
settlement and sent the same to the advocates of respondent No.1 for
finalization. However, the same was rejected by the respondent herein.
Accordingly, on 5-4-2004, the matter again appeared before the Company Law
Board and the same was adjourned to 16-4-2004.
8. On 16-4-2004 the appellant herein filed two applications
being company application No. 125 of 2004 and company application No.141 of
2004. The said applications were filed pursuant to the provisions of section
634A of the said Act which inter alia contemplates an enforcement of the order
passed by the Company Law Board. The said provisions provide that the said
order of the Company Law Board has to be enforced as if it is a decree made by
the Court in a pending suit. This applications being No. 125 of 2004 and No.
141 of 2004 were thus contested by filing affidavit. By an order dated
20-7-2004, the Company Law Board heard the said application and has inter alia
held that the said order dated 29-1-2004 is not an enforceable order under
section 634A of the Companies Act, 1956. This is because according to the
Company Law Board the said order can only bind respondent Nos. 1, 2 and 3 i.e.
the father, mother and the son. It has been stated that the respondent No. 4
who is not a party to the Company Petition No. 7 of 2002 cannot be subjected to
the said order dated 29-1-2004 and, therefore, the said order is not binding.
However, the Company Law Board has further held that the order dated 29-1-2004
was not a binding executable order because the parties were aware that besides
the petitioner and the respondent there were third parties whose interest will
be affected by the consent order and thus, the order dated 29-1-2004 itself
made it clear that the detailed consent terms will be required to be
incorporated and filed on the basis of the broad agreement recorded in the
order dated 29-1-2004. Once it is clear that the third parties are not willing
to be parties to the said consent terms and/or settlement by and between the
parties then it is not possible to execute the order dated 29-1-2004 which is
inchoate and incomplete agreement by and between the parties.
9. This order dated 20-7-2004 was thereafter sought to be
reviewed by the appellant by filing an application for review being Company
Application No. 214 of 2004 which was heard and an order dated 13-9-2004 has
been passed. By the said application for review/recall of the order passed on
the Company Application No. 214 of 2004 it has been inter alia contended by the
appellant that Ms. Neha Agarwal who was respondent No. 4 though was not a party
to the Company Petition No. 7 of 2002, she was a party to the Company Petition
No. 43 of 2002 and in view of the fact that both the petitions being Company
Petition No. 7 of 2002 and Company Petition No. 43 of 2002 were heard
simultaneously on 29-1-2004 and that the Advocate was common representing both
the parties, the order of 29-1-2004 would equally bind Ms. Neha Agarwal and,
therefore, the finding of the Company Law Board that she is not bound by the
settlement is erroneous and the same is liable to be set aside and/or recalled.
By the said order dated 13-9-2004, the Company Law Board has found no substance
in the arguments advanced by the appellant. It has been further held that the
order dated 29-1-2004 cannot bind the parties because in the present case the
appellant not only covered the assets and interest of the shareholders of the
company which is the subject-matter of the proceedings but also covered the
interest of the petitioners in other family firms and trusts in which other parties
are also associated and those firms and trusts are not before the Court and,
therefore, the order dated 29-1-2004 cannot be enforced as if it is final,
binding and concluded settlement affecting the rights of not only of the
parties to the said proceedings but even those who are not the parties thereto.
It is these two orders dated 29-1-2004 and 13-9-2004 are subject-matter of
challenge by filing the present appeal under section 10F of the said Act.
10. The learned counsel appearing for the appellant has vehemently
contended that the order dated 29-1-2004 is legal, valid, binding and
enforceable order under section 634A of the said act and the Company Law Board
ought to have execute the same as if it is the decree of the Court in a suit.
It has been therefore, contended that the Company Law Board has failed to
exercise its jurisdiction under section 634 A of the said Act and, therefore,
the orders passed by the Company Law Board are required to be quashed and set
aside and the order dated 29-1-2004 should be permitted to be enforced and
executed. The learned counsel for the appellant in support of the aforesaid
contention has contended that the finding of the Company Law Board that
respondent No. 4 was not party to the order dated 29-1-2004 is erroneous and
baseless for the simple reason that respondent No. 4 Ms. Neha Agarwal was party
to the Company Petition No. 43 of 2002 and was very much before the Company Law
Board when the final order was passed on 29-1-2004. Additionally, it has been
also contended by the learned counsel for the appellant that Ms. Neha Agarwal
being the signatory to the affidavit in support of the Company Petition was
very much a party to the said company petitions which were decided by the
Company Law Board on 29-1-2004. It has also been contended that insofar as
other third parties are concerned, the same being belonging to Sunil Kumar
Agarwal Group - respondent No. 3 herein, though they were not present they were
also bound by the order dated 29-1-2004. In any event, it has been submitted by
the learned counsel for the appellant that those third parties are formal
parties and, their rights are not substantially affected even if the order
dated 29-1-2004 is executed and/or made executable under section 634 A of the
said Act. In view thereof, it has been contended that the order passed by the
Company Law Board is erroneous and without any merit. Further, it has been
contended by the learned counsel for the appellant that the order of the
Company Law Board holding that the order dated 29-1-2004 even does not bind the
respondent Nos. 2 and 3 who are mother and the son is also equally erroneous
because they were parties to the said proceedings and once they are parties to
the said proceedings, the order passed therein must necessarily bind the said
respondent Nos. 2 and 3 as well. It is contended that the finding of the
Company Law Board that the petitioner has no authority for and on behalf of
respondent Nos. 2, 3 and 4 to bind them is erroneous. The order dated 13-9-2004
is also challenged by the appellant by inter alia contending that the finding
is erroneous in law inasmuch as the petitioner has always represented all the
persons in his Group including respondent Nos. 2, 3 and 4 and furthermore that
the Advocate appearing was not merely appearing for respondent No.1 but was
also appearing for respondent Nos. 2, 3 and 4 and, therefore, the agreement
accepted by the said Advocate representing the parties binds each of the said
parties. It has been further contended by the learned counsel for the appellant
that the order passed by the Company Law Board dated 29-1-2004 is erroneous and
bad in law and, therefore, requires to be quashed and set aside. It has been
contended by the learned counsel for the appellants that the law is well settled
that the Court must support the settlement and seek to enforce the same as far
as possible rather than permit the parties to wriggle out from the agreement.
It has been further contended that the aim and object of the Court must be to
bring the resolution of the dispute as quickly as possible and not to linger
the same and, therefore, with the same aim and object the Company Law Board
ought to have enforced the order dated 29-1-2004 and ought not to have
permitted the respondents to back out therefrom.
11. On the other hand, the learned counsel for the respondent has
contended that the order dated 29-1-2004 is not a valid executable order and,
therefore, the application made for execution thereof under section 634A of the
said Act was erroneous and misconceived and not maintainable. It has been
contended by the learned counsel for the respondent that a plain reading of the
order dated 29-1-2004 itself makes it clear that the order is not complete by
itself and it does not conclude the disputes between the parties finally and it
was a mere broad guidelines which were drawn up at that stage. According to the
learned counsel for the respondent, the order itself makes it clear that it is
not concluded, final and binding order because the said order at the foot of it
incorporates as under:—
“On the basis of the above agreement, the
parties will prepare a detailed consent terms incorporating therein the names
of firms companies trust, family properties etc. to be signed by all the
parties who will be affected by this settlement. The petitioners will
relinquish all his rights and interests in all the Companies, firms,
partnership, trusts, assets and businesses.
The petitioner will enjoy absolute right in
the business of Bhillai and Tredsra Unit including the license in respect of
these units.”
The learned counsel has further contended that
the said fact is further supported by a further order passed by the Company Law
Board on 12-3-2004 which reads as under:
“The counsel for the petitioner will react to
the draft order given by the respondent incorporating therein the terms agreed
by them before me by 25-3-2004. If there is any difficulty he will put the same
in an affidavit with a copy to the respondents by the same date.
In the meanwhile neither of the parties will deal
with the asset of the company/all family companies/firm in any manner as the
Compromise is on a global basis. Adjourned to 5th April at 2.30 P.M.”
According to the learned counsel for the
respondent what was sought to be done on 29-1-2004 was an attempt to resolve
the dispute by and between the parties. In view of the fact that all the
parties were not before the Company Law Board on 29-1-2004, it was agreed that
though the broad frame work was arrived at the parties will enter into final
consent terms incorporating the rights of all the parties in the consent terms
which will be drawn up subsequently. However, in view of the fact that other
parties who were not present on 29-1-2004 were not agreeable to the said broad
frame work arrived at by the respondent No.1 the said settlement could not be
worked out as final and concluded settlement and, therefore, the said order is
not conclusive order which can be executed as if it is a decree in the suit. It
has been further contended by the learned counsel for the respondent that the
order dated 29-1-2004 is not an executable order. It is only in the form of a
broad proposal which was required to be further worked out in its details
between the parties particularly in respect of distribution of the assets and properties
of the companies, firms and family properties and the trusts. It has been
contended by the learned counsel for the respondent company that the Company
Law Board was right and justified in holding that the said settlement
incorporated in order dated 29-1-2004 is not a binding and valid settlement
which can be executed or enforced under section 634A of the Companies Act. It
has been further contended by the learned counsel for the respondents that the
finding of the Company Law Board that the parties who are likely to be affected
being not present before the Court, the same cannot be taken into consideration
as their rights cannot be affected without their consent or without they being
heard is valid and justified. The learned counsel for the respondent has
further contended that even if the provisions of order 23 rule 3 of the Civil
Procedure Code are invoked, though the same are not strictly applicable to the
company proceedings, still no order can be passed by the Company Law Board or
any Court inasmuch as there is no consent of all the parties to the said
proceedings and/or the parties which are likely to be affected by the said
settlement. According to the learned counsel for the respondent it is settled
law that the Court does not affect the rights detrimental to the interest of
such persons without such persons being heard or the consent of such persons is
obtained. On the aforesaid basic principle the learned counsel for the
respondent has contended that the said order the Company Law Board dated
20-7-2004 and 13-9-2004 are legal, valid and binding. Alternatively, the
learned counsel for the respondent has contended that the finding of facts
recorded by the Company Law Board that the said order is not valid, binding and
is not executable cannot be disturbed by this Court in its limited jurisdiction
under section 10F of the said Act. A further contention is raised by the
learned counsel for the respondent is that the jurisdiction of the Company Law
Board to determine the issues is limited as contemplated under section 10E of
the said Act and the partnership firms and the private trusts and personal
properties of individuals does not come within the scope and jurisdiction of
the Company Law Board under section 10E and, therefore, the Company Law Board
could not have passed the order dated 29-1-2004 affecting such issues and
properties which are not within its jurisdiction to be determined under section
10E of the said Act. The learned counsel for the respondent has contended that
if the order dated 29-1-2004 is taken as a legal, valid and binding order then
obviously by virtue of the provisions of section 10E of the Act, the said order
is without jurisdiction and thus unenforceable in law and, therefore, also an
application made under section 634A of the Companies Act was misconceived and
not maintainable and was liable to be rejected and has been rightly rejected by
the Company Law Board.
12. The learned counsel for the appellant has in support of his
defence has relied upon two judgments, namely, the judgment of the Madras High
Court in the case of Kuki Leather P. Ltd. v. T.N.K. Govindaraju Chettiar &
Co. [2002] 110 Comp. Cas. 474 particularly paragraph which reads as under:-
“The argument that the agreement would not
bind as it was not signed by the parties presumes that order 23, rule 3 of the
Code of Civil Procedure in all its rigour, applies to proceedings before the
Company Law Board. While it is no doubt true that the safeguards in-built into
this provision are meant to promote justice and to minimize possible challenges
to the compromise recorded by the court, that provision cannot be read as
laying down the only possible way in which the settlement agreed to between the
parties should be recorded by the Company Law Board. It is not in dispute that
order 23, rule 3 of the Code of Civil Procedure does not in terms apply to the
proceedings before the Company Law Board. It is not the case of the appellants
that the Board had wrongly recorded what it did record. The appellants had no
grievance at all against the record made on that date and do not have any
grievance even now with regard to its accuracy and authenticity. There is,
therefore, no difficulty in proceeding on the basis that the order did record
an agreement which the parties had voluntarily reached and that the parties had
undertaken to perform the obligations which they were required to perform as
recorded in that order. The fact that the agreement was not signed by the parties
in this background does not in any manner vitiate that order as embodying a
compromise properly arrived at between the parties and which was capable of
being made into a decree which was executable.” (p. 480)
13. The Next judgment relied upon by the learned counsel for the
appellant is in the case of Consulting Engineers Services (India) Ltd. v.
Kaikhosrou K. Framji [2002] 4 Comp. LJ 227 (Delhi), particularly paragraphs 9 and 10 which
read as under :
“9. A bare perusal of section 634A of the Act
clearly shows that the plea of Mr. Chaudhary regarding the narrow
interpretation sought to be given to words ‘any order’ cannot be countenanced
as the phrase ‘any order’ must be given its full natural meaning and effect and
consequently, will clearly include the order passed on 28-5-1998. Further, the
stipulation in the section that the order can be enforced by the Board in the
manner similar to a decree - is a clear pointer to the fact that said order
could not be a decree as sought to be contended by the learned counsel for the
appellant. In fact, if the order contemplated by section 634A is construed to
be a decree, the words ‘in the same manner as if it was a decree’ are totally
redundant and superfluous and the court cannot construe the mandate of the
statute to hold that the Legislature intended to use superfluous words.
10. In this view of the matter, I am satisfied
that the order dated 28-5-1998, was an order contemplated by section 634A and
can be enforced by the Board as sought to be done by the order dated 23-1-2002.
Furthermore, there is no merit in the plea of the learned counsel for the
appellant that the order dated 28-5-1998, was a facilitatory one and not a
final settlement. The only factor which was to be considered after the
settlement of 28-5-1998, was about the valuation of the shares to be done
eventually by the Company Law Board. On this plea I respectfully agree with the
view of the Madras High Court in Kuki Leather case where the Division Bench in
Kuki Leather (P.) Ltd. v. T.N.K. Govindaraju Chettair & Co. [Letters Patent
Appeal No. 123 of 2001, dated 28-8-2001) [since reported as (2002) 4 Comp. LJ
208 (Mad.)] held as follows :
“... The submission that the Board had no jurisdiction
at all to make the kind of order that was made on that date is also a
submission which is required to be rejected. Counsel rightly does not dispute
that the Company Law Board can direct the purchase of shares in proceedings
under sections 397 and 398 of the Companies Act. While the proceedings that
were initiated was one under section 235, that fact by itself is not to be
regarded as placing an embargo on orders other than that warranted under
section 235 being made, if parties to the proceedings agree to such an order,
and such agreement is not against public policy, is not illegal and is not
violative of any of the provisions of the Companies Act or any other law, and
it is not an agreement which itself is beyond the competence of the Board to record
under the provisions of the Companies Act. It is not the case of the appellants
that the proceedings recorded on 22-1-1999, are against public policy or
illegal or is an agreement which the Company Law Board is prohibited from
recording under any of the provisions of the Companies Act or under any other
law. The submission that the order is vitiated by reason of total lack of
jurisdiction in the Company Law Board, therefore, cannot be accepted.”
In paragraph 19, the court has
observed:
“We must strongly deprecate the attempt of the
appellants to avoid carrying out a solemn promise made through their
responsible counsel to the Company Law Board by seeking to raise
hyper-technical pleas when faced with the demand for compliance with the terms
of that order. Although we have considered the submission made by counsel and
examined those submissions, we make it clear that the appellants are not
entitled in law to urge any of those grounds, as allowing the appellants to do
so successfully would mean closing eyes by the court to a fraud played by a
party and counsel on the Company Law Board. As stated by us earlier, no counsel
or litigant has a right to play fraud on the court or the Tribunal and any
attempt to do so must be discouraged and should invite the heaviest penalties.”
(p. 232)
14. The learned counsel has thereafter relied upon a judgment of
this Court in the case of Venkatrao A. Pai & Sons Ltd. v. Naryanlal
Bansilal AIR 1961 Bom. 94 inter alia in support of the proposition that if
there are more than one petitioners then only one advocate can represent them
and each petitioner cannot be represented by separate advocates.
15. Thereafter the learned counsel appearing for the appellant has
relied upon the judgment of the Apex Court in the case of Salkia Businessmen’s
Association v. Howrah Municipal Corpn. AIR 2001 SC 2790 in which it is inter
alia held that the Court must support the settlement between the parties and
honour the same and implement their own orders and encourage parties to the
litigation to abide by the terms agreed upon by themselves and should not
permit the parties to wriggle out of the settlement arrived at between them.
16. After considering the arguments of both the parties, I am of
the opinion that the order dated 29-1-2004 passed by the Company Law Board is
not an executable and/or enforceable order under section 634A of the said Act.
The said order dated 29-1-2004 is neither a complete order nor it has been
signed by all the parties who are likely to be affected by such a settlement.
The order dated 29-1-2004 in fact lays down broad terms on the basis of which
the settlement can be executed and final settlement can be arrived at. It is an
admitted position that the order dated 29-1-2004 does not dispose of either of
the company petitions No. 7 of 2002 or 43 of 2002 both these petitions are kept
pending by the Company Law Board being conscious of the fact that the order
dated 29-1-2004 is not final and/or finally decided the dispute yet it is only
a mere guideline for the purpose of arriving at a settlement. If the order
dated 29-1-2004 would have been final and binding on the parties, then the
Company Law Board would have disposed of both the petitions in terms of the
said order dated 29-1-2004. On the contrary, the order dated 29-1-2004 inter
alia, contemplates a further drawing up of consent terms by and between the
parties providing for various issues and assets and liabilities of various
partnerships, firms, private trusts and other family properties. It further provides
for consent of the various parties who are likely to be affected by the consent
terms and that only after the said consent terms are drawn up in consultation
by and between the parties that the said final settlement was required to be
arrived at deciding the disputes between the parties finally. Admittedly, no
such settlement has been arrived at by and between the parties as yet. Once it
is so, then, it cannot be said that the order dated 29-1-2004 is final and
binding on the parties which can be enforced by relying upon the provisions of
section 634A of the said Act. It is a settled law that a settlement of the
dispute between the parties must be the conscious, legal and valid settlement
between the parties. The parties must consent to any such settlement.
Admittedly, apart from the partnership firms and private trusts, there are
other parties involved. None of the said parties are either parties to the
proceedings nor are present before the Company Law Board nor were represented
through any of the advocates before the Company Law Board. In the said
background, it is impossible for me to hold that the order dated 29-1-2004 is
final and binding upon the parties even though they are not before the Company
Law Board nor are they represented by any advocate before the Company Law
Board. The contention of the appellant that they are formal parties or their
rights are not affected and, therefore, though they are not present before the
Company Law Board still the said order dated 29-1-2004 binds them. I am not inclined
to accept the aforesaid contention. Once the third parties have an interest in
the said partnership firm, then reconstitution of the partnership firm by
reason of same being binding or adding them or by ascertaining the shares of
the partners in the partnership firms cannot be done without consent of all the
partners of other partnership firms. Admittedly, there are third parties in the
said partnership firms. Thus, the contention of the learned counsel for the
appellant that the reconstitution of the partnership firms would not affect
them but they may be benefited by acceleration of their shares on receipt of
higher percentage of share of profit and, therefore, they should not be
consulted at all nor they need to be a party to the Company Law Board
proceedings, in my view , it is not a legal, valid argument which can be
accepted by the Court. The person who is a beneficiary or a partner and the
consent terms admittedly affects his right then he should be a party to the
consent terms and it cannot be contended that because he is merely a
beneficiary, there is no need for the person to be a party in the said consent
terms. Apart therefrom, I am not even inclined to accept the argument of the
appellant that the third party share in the partnership firms would be enhanced
and, therefore, they are not affected. Possibly, under the Deed of Partnership,
with the enhancement of the share the liabilities also could be equally
enhanced. If that is so, they are necessary and proper parties who should have
been present before the Company Law Board before any order affecting their
right is passed which can be made executable and final order. In my opinion,
the order of 29-1-2004 itself on its own reading indicates that the same is
only a broad guideline and is not a final and binding order. Apart therefrom,
the order dated 12-3-2004 which has been reproduced hereinabove, makes it
further clear that the matter is not finally concluded and, therefore, the
order dated 29-1-2004 is not a final order but in the form of guidelines for
preparing consent terms which were required to be drawn up for the purpose of
disposing of the said petitions settling the disputes finally between the
parties. In the light of the order dated 12-3-2004, it is not possible for me
to accept that the order dated 29-1-2004 has conclusively decided the rights
between the parties and, thus, the said order is not an executable order under
section 634A of the said Act. I am of the opinion that the order dated
29-1-2004 is inchoate and incomplete order. It is merely a broad guidelines and
various steps were required to be taken in pursuance thereof in order to arrive
at a final and binding settlement between the parties. Insofar as the reliance
placed by the learned counsel for the appellant on the aforesaid two judgments
of the Madras High Court and Delhi High Court is concerned, I am of the opinion
that the same is misconceived and have no merit whatsoever, In both the
judgments the proceedings were conclusively and finally decided between the
parties by a binding settlement. The proceedings were disposed of in both the
cases and they were not pending proceedings once the issue was finally decided
by the Company Law Board. Subsequently an issue was raised that some of the
parties have not signed the consent terms and, therefore, the same was not
binding. While passing the order which was a final order, it was stipulated as
under :
“In view of this agreement between the parties
the petition is disposed of without any order. Liberty to apply.”
17. In the Delhi High Court proceedings also the matter was also
finally disposed of except the issue as to its method of valuation of share was
kept open. In the said judgment of Delhi High Court, the operative part of the
order which was passed while accepting the settlement is as under:—
“In accordance with the above agreed terms and
in order to facilitate the parties to come to a final settlement, we adjourn
the case to 5-8-1998 at 4.00 p.m. When the parties can make their submissions
as per clause 4 above.”
18. In view of the aforesaid position, in my view, the judgment of the Madras High Court and Delhi High Court do not apply to the facts of the present case. In the present case, the order dated 29-1-2004 on the contrary keeps the issue open by providing that the draft consent terms should be exchanged between the parties and the details to be worked out and only merely lays down the broad guidelines of settlement of disputes between the parties. In light of the aforesaid decision, I am of the opinion that the order dated 29-1-2004 is not an executable order. Apart therefrom, I also find considerable merit in the contention raised by the learned counsel for the respondent that the jurisdiction of the Company Law Board is invoked by virtue of the provisions of section 10E of the said Act. The provisions of section 10E (1A) specify the power of the Company Law Board which reads as under :-
“(1A) The Company Law Board shall exercise and
discharge such powers and functions as may be conferred on it before the
commencement of the Companies (Second Amendment) Act, 2002 by or under this Act
or any other law, and shall also exercise and discharge such other powers and
functions of the Central Government under this Act or any other law as may be
conferred on it before the commencement of the Companies (Second Amendment)
Act, 2002 by the Central Government, by notification in the Official Gazette
under the provisions of this Act or that other law.”
Thus, it is clear that the power of the Company Law Board pertains only in respect of the companies which are covered by the Companies Act, 1956 and it does not extend to the private firms, private trusts and other family properties. To extend such power it is imperative on the Company Law Board to at least have consent of the parties who are likely to be affected by virtue of such settlement which has been proposed and/or to be arrived at as contemplated under order 29-1-2004. Admittedly, there is no such consent from third parties namely, the various partners of the partnership firms and other trustees and beneficiaries of the private trusts and also the co-owners of the family properties. In view thereof, I am of the opinion that the orders which were passed by the Company Law Board on 20-7-2004 and 13-9-2004 are legal and valid orders and does not require any interference from this Court in the present appeal preferred under section 10F of the said Act. I, therefore, dismissed both the appeals. However, there shall be no order as to costs.
[2002]
39 scl 1 (Mad.)
HIGH
COURT OF MADRAS
v.
T.N.K. Govindaraju Chettiar & Co.
R.
JAYASIMHA BABU AND C. NAGAPPAN, JJ.
LETTERS
PATENT APPEAL NO. 123 OF 2001
AUGUST
28, 2001
Section 634A of the Companies Act, 1956 - Legal proceedings - Enforcement of orders of CLB - Respondent filed an application under section 235 for investigation into affairs of appellant-company - Parties arrived at an agreement which CLB, reduced to writing and made part of order resulting in disposal of application - However, agreement was not signed by parties - Appellant did not comply with order of CLB and respondent moved an application under section 634A before CLB - Whether even if agreement was not signed by parties it did not vitiate order of CLB embodying compromise which was capable of being drawn into decree and executable - Held, yes - Whether Order 23, rule 3 of Code of Civil Procedure, 1908 could be read as laying down the only possible way in which settlement agreed to between parties should be recorded by CLB - Held, no - Whether order of CLB was against public policy or illegal or beyond powers of CLB under provisions of Act or any other law and was vitiated by reason of total lack of jurisdiction in CLB - Held, no
The respondent filed an application under
section 235 before the CLB to investigate the affairs of the appellant-company.
The appellant made a statement before the CLB that the appellant was willing to
buy the shares at par value which it purported to allot to the respondent
against the advance received and that it would pay the consideration within a
period of six months in one or more instalments. The respondent accepted the
offer and in view of the settlement arrived at between the parties, the CLB
recorded the agreement and passed orders of disposal of the application. The
appellant, however, did not comply with the order of the CLB and the respondent
moved an application under section 634A before the CLB. The CLB directed the
appellant to comply with its earlier order within 60 days. On appeal, the Single
Judge dismissed the appeal. The appellant filed letters patent appeal and it
was contended that order made by the CLB pursuant to the appellant’s statement
was not executable order inasmuch as it was neither in writing nor signed by
parties and, therefore, was not binding on parties. It was also contended by
the appellant that the CLB had no jurisdiction to make the order as the scope
of the proceeding under section 235 was limited to the question of granting or
refusing the investigation into affairs of the appellant-company.
The appellant derived a great advantage by
making the statements before the CLB and persuaded the respondent to agree to
the proposal, and after the agreement was recorded, the CLB did not and was not
required to proceed further in the matter regarding investigation into the
affairs of the company. The investigation which the respondent had sought into
the affairs of the company was, thus, successfully avoided. It was now not open
to the appellant to turn around and claim that its actions should not be
regarded as binding and that the technicalities of the Code of Civil Procedure
should be imported into order to defeat the justice of the case. It would
clearly result in justice being defeated and fraud allowed to be perpetrated by
parties and the counsel on the adjudicatory forum. It would also cause grave
doubts about the credibility of the statements made by the lawyers before the
adjudicatory forum, which statements are normally relied upon by such forums as
statements which are meant to be acted upon, and when acted upon, to result in
orders which would bind counsel and the parties represented by such counsel.
The submission that the order of the CLB was
not an order at all was not a submission that could be accepted. The order made
by the CLB was in a proceeding properly brought before it. The cause title set
out that there was a proceeding under section 235 pending before it to which
the appellant and the respondent were parties. In the course of that
proceeding, counsel for the appellant, obviously on the instructions of
clients, had made a statement, that the appellant would be interested in
purchasing the shares allotted to the respondent at par, and consented to the
agreement being recorded by the CLB. The offer was accepted by the respondent
and the order was made subsequently. The names of the counsels who appeared for
the parties and the date were also set out. It was in the light of that
agreement that the CLB proceeded to state that the petition was disposed of
without any further order. The order made by the CLB on that day resulted in
the disposal of the petition before it. The direction given for the disposal
after recording the agreement was in itself the order, as the proceeding before
the CLB could not be brought to a conclusion without an order being made. The
reason for disposal of the matter without any orders on the prayer made for
appointment of persons to investigate the affairs of the company, was the
agreement which the parties had reached and had reported to the CLB, which the
CLB reduced to writing and made part of the order.
The argument that the agreement would not bind
as it was not signed by the parties presumed that order 23, rule 3 of the CPC
in all its rigour, applied to proceedings before the CLB. While it is no doubt
true that the safeguards in-built into provision are meant to promote justice
and to minimise possible challenges to the compromise recorded by the Court,
provisions could not be read as laying down the only possible way in which the
settlement agreed to between the parties should be recorded by the CLB. It was
not in dispute that order 23, rule 3 of the CPC does not in terms apply to the
proceedings before the CLB. It was not the case of the appellant that the CLB
had wrongly recorded what it did record. The appellant had no grievance at all
against the record made and did not have any grievance with regard to its
accuracy and authenticity. There was no difficulty in proceeding on the basis
that the order did record an agreement which the parties had voluntarily
reached and that the parties had undertaken to perform the obligations which
were required to be performed as recorded in order. The fact that the agreement
was not signed by the parties did not in any manner vitiate that order as
embodying a compromise properly arrived at between the parties and which was
capable of being made into a decree which was executable.
It was rightly not disputed that the CLB could
direct the purchase of shares in proceedings under sections 397 and 398. While
the proceeding that was initiated was one under section 235, that fact by
itself was not to be regarded as placing an embargo on orders other than that
warranted under section 235 being made, if parties to the proceedings agreed to
such an order and agreement was not against public policy, was not illegal and
was not violative of any of the provisions of the Act or any other law and it
was not an agreement which itself was beyond the competence of the CLB to
record under the provisions of the Act. It was not the case of the appellant
that the proceedings recorded were against public policy or illegal or an
agreement which the CLB was prohibited from recording under any of the
provisions of the Act or under any other law. The submission that the order was
vitiated by reason of total lack of jurisdiction of the CLB, therefore, could
not be accepted.
Accordingly, the appeal was to be dismissed.
T.N.K. Govindaraju Chettiar & Co. Ltd. v.
Kuki Leather (P.) Ltd. [2002] 109 Comp. Cas. 493/[2000] 28 SCL 267 (CLB),
Gurpreet Singh v. Chattur Bhuj Goel AIR 1988 SC 400 and Kiran Singh v. Chaman
Paswan AIR 1954 SC 340.
A.K. Mylsamy for the Applicant. K. Narayanamurthy and P.P.S.
Janardhanaraja for the Respondent.
R. Jayasimha Babu, J. - The counsel contends that
hypertechnicalities should be allowed to be urged in order to escape the
consequences of an action which can only be described as a fraud being played
on the statutory Tribunal, in this case, the CLB. The appellants when faced
with an application under section 235 of the Companies Act, 1956 (‘the Act’)
for investigating into its affairs, made a submission before the CLB through
its counsel that the persons in charge of the company would buy the shares,
which they had purported to allot to that applicant before the CLB long after
that applicant had informed the company that it did not desire to have the
allotment as no share certificates had been sent to it for a long number of
years after the payment of a sum of Rs. 25 lakhs to the company. The receipt of
the sum of Rs. 25 lakhs was never disputed. Admittedly, only a sum of Rs. 1
lakh had been repaid.
2. In
order to avoid the affairs of the company being investigated and to avoid the
likelihood of the allegation that monies had been diverted from the company to
other companies under the control of those who were running this company being
proved, and to prevent any fraudulent activities that might have been carried
on by those in charge being brought out as a result of such investigation, the
appellants through their counsel made an offer to purchase the shares which the
company had allotted to the applicants before the CLB, at par. For considering
that offer, the matter was thereafter adjourned by the CLB to enable the
applicants to consider that offer. On 22-1-1999, the applicant through its
counsel stated that his client was ready to sell the shares at par value to the
respondents in the application before the CLB, viz., the appellants herein or
their nominees.
3. On that day the CLB proceeded
to make an order as under :
In this petition, filed under section 235, the
chartered accountant for the company made a statement on 7-12-1998, that his
clients would be interested in purchasing the shares allotted to the
petitioners at par. On that day, the counsel for the petitioner desired some
time for consulting his clients on this proposal. Today, he made a statement
that his client is prepared to sell the shares at par value to the respondent
or their nominees.
“Accordingly, it has been agreed by counsel
for both the sides that 2.4 lakh shares purported to have been allotted to the
petitioners against the advance of Rs. 24 lakhs given by the petitioner to the
company, will be purchased by the respondents or their nominees at par value
and consideration for the same will be paid in one or more instalments within a
period of six months, i.e., by 31-7-1999. Accordingly the petitioner will hand
over blank transfer Forms in respect of these shares on receipt of the first
instalment. However, the company will register the transfer only when the final
instalment is paid.
In view of this agreement between the parties
the petition is disposed of without any order. Liberty to apply” - See T.N.K.
Govindaraju Chettiar & Co. Ltd. v. Kuki Leather (P.) Ltd. [2002] 109 Comp.
Cas. 493, 498.
4. The
correctness of the statement made in that order was never in dispute. It is not
the case of the appellants that they had not engaged counsel who made the
statement or that the statement made by him is not a statement which he had
been authorised to make. It was not their case that the statement was made
under any bona fide mistake regarding any fact or any position in law. It was
not their case that the respondents did not agree to sell the shares at par
value or that they had not agreed to hand over blank transfer forms on receipt
of the first instalment.
5. It
is also not the case of the appellants that the proceedings under section 235
would continue even after that order and that either the appellants or the
respondent may seek any directions regarding the investigation of the affairs
of the company.
6. It
is patent from the background in which the order came to be made, the contents
of the order and the conduct of the parties in relation thereto subsequent to
the order—the order not having been challenged by the appellants at any point
of time before any forum including the CLB itself by way of review or any other
proceedings, that the order was meant to be a substitute for any order that the
CLB would have otherwise made on the prayer for the investigation into the
affairs of the company. By persuading the CLB to make the order, the company
avoided the appointment of any inspectors to investigate into its affairs.
7. Having
secured that benefit and having made a solemn promise before the CLB which was
reduced to writing by the CLB and the correctness of that record not having
been disputed at any point of time by any of the parties, the appellant long
after that order came to be made chose to pretend as if no order had been made
and it was under no obligation to purchase the shares which it had undertaken
to purchase. It must be re-emphasized here that that order was at no point of
time questioned in any legal proceedings by the appellants.
8. The
respondent having waited for the appellants to pay a sum of Rs. 25 lakhs and
have the shares transferred to its name in vain it applied to the CLB under
regulation 47. The CLB directed the parties to file an application before it
under section 634A which was done. After hearing the parties on that
application the CLB made the order on 12-5-2000 T.N.K. Govindaraju Chettiar
& Co. Ltd. v. Kuki Leather (P.) Ltd. [2002] 109 Comp. Cas. 493 (CLB),
wherein it held that the appellants themselves had shown their willingness to comply
with the order by writing letters to the petitioners, that the order was not
vitiated by reason of lack of jurisdiction in the CLB to make the order, that
the order was not a nullity and and that the order was, in fact, an executable
order. The CLB directed the appellants to comply with the order within 60 days
and in the case of the appellants’ failure to do so, gave liberty to the
respondents in this appeal to move the CLB for passing an order in terms of
section 634A.
9. That
order of the CLB was challenged before a learned single Judge of this Court by
way of an appeal filed under section 10F of the Act. That appeal having proved
unsuccessful, the company and those who were in control of it, Syed Salim and
K. Anandkumar, the persons who had agreed to purchase the shares are now before
us in appeal under the letters patent.
10. Mr.
Mayilswamy, the learned counsel appearing for the appellants, submitted that
the order made by the CLB is not an executable order and that even if it be
regarded as an order made by applying the principles contained in order 23,
rule 3 of the Code of Civil Procedure, that the order was not one which was in
writing and signed by the parties and, therefore, would not bind the parties.
It was also his further submission that the CLB had no jurisdiction to make the
order as the scope of the proceedings under section 235 was limited to the
question of granting or refusing the prayer for investigating into the affairs
of the company.
11. The
facts already set out clearly show that the appellants derived a great
advantage by making the statements they did through their counsel before the
CLB and persuaded the respondents to agree to the proposal, and after the
agreement came to be recorded, the CLB did not and was not required to proceed
further in the matter regarding investigation into the affairs of the company.
The investigation which the respondents had sought into the affairs of the
company was, thus, successfully avoided. It is now not open to the appellants
to turn round and claim that their actions should not be regarded as binding on
them and that the technicalities of the Code of Civil Procedure should be
imported in order to defeat the justice of the case. Acceptance of the
arguments now advanced for the appellants would clearly result in justice being
defeated and fraud allowed to be perpetrated by parties and their counsel on
the adjudicatory forum. It would also cause grave doubts about the credibility
of the statements made by the lawyers before the adjudicatory forum, which
statements are normally relied upon by such forums as statements which are
meant to be acted upon, and when acted upon to result in orders which would
bind the counsel and the parties represented by such counsel.
12. The
arguments advanced by the counsel for the appellants, though they may
superficially appear to be attractive, the arguments, if accepted, would
undermine the cause of justice and put the stamp of approval of the court to
conduct which can only be described as fraudulent.
13. It is in that background
that the arguments advanced for the appellants are required to be examined.
14. The
submission that the order of 22-1-1999 is not an order at all is not a
submission that can be accepted. The order made by the CLB on that date was in
a proceeding properly brought before it. The cause title sets out that there
was a proceeding under section 235 pending before it to which the appellants
and the respondents were parties. In the course of that proceeding counsel for
the appellants, obviously on the instructions of his clients, had made a
statement on 7-12-1998, that his clients would be interested in purchasing the
shares allotted to the respondents in this appeal at par and on that date
consented to the agreement being recorded by the CLB, that agreement having
been communicated to the CLB by the counsel who appeared for the parties. That
offer was accepted by the respondents and the order was made subsequently. The
names of counsels who appeared for the parties on that date were also set out.
It was in the light of that agreement that the CLB proceeded to state that the
petition is disposed of without any further order. The order made by the CLB on
that day resulted in the disposal of the petition before it. The direction
given for the disposal after recording the agreement was in itself the order,
as the proceeding before the CLB could not be brought to a conclusion without
an order being made. The reason for disposal of the matter without any orders
on the prayer made for appointment of persons to investigate the affairs of the
company was the agreement which the parties had reached and had reported to the
CLB which the CLB reduced to writing and made part of the order.
15. The
argument that the agreement would not bind as it was not signed by the parties
presumes that order 23, rule 3 of the Code of Civil Procedure in all its
rigour, applies to proceedings before the CLB. While it is no doubt true that
the safeguards in-built into this provision are meant to promote justice and to
minimise possible challenges to the compromise recorded by the court, that the
provision cannot be read as laying down the only possible way in which the
settlement agreed to between the parties should be recorded by the CLB. It is
not in dispute that order 23, rule 3 of the Code of Civil Procedure does not in
terms apply to the proceedings before the CLB. It is not the case of the
appellants that the CLB had wrongly recorded what it did record. The appellants
had no grievance at all against the record made on that date and do not have
any grievance even now with regard to its accuracy and authenticity. There is,
therefore, no difficulty in proceeding on the basis that that order did record
an agreement which the parties had voluntarily reached and that the parties had
undertaken to perform the obligations which they were required to perform as
recorded in that order. The fact that the agreement was not signed by the
parties in this background does not in any manner vitiate that order as
embodying a compromise properly arrived at between the parties and which was
capable of being made into a decree which was executable.
16. The submission that the CLB
had no jurisdiction at all to make the kind of order that was made on that date
is also a submission which is required
to be rejected. The counsel rightly does not dispute that the CLB can direct
the purchase of shares in proceedings under sections 397 and 398. While the
proceeding that was initiated was one under section 235, that fact by itself is
not to be regarded as placing an embargo on orders other than that warranted
under section 235 being made, if parties to the proceedings agree to such an
order and such agreement is not against public policy, is not illegal and is
not violative of any of the provisions of the Act or any other law and it is
not an agreement which itself is beyond the competence of the CLB to record
under the provisions of the Act. It is not the case of the appellants that the
proceedings recorded on 22-1-1999, are against public policy or illegal or an
agreement which the CLB is prohibited from recording under any of the
provisions of the Companies Act or under any other law. The submission that the
order is vitiated by reason of total lack of jurisdiction in the CLB,
therefore, cannot be accepted.
17. The
counsel referred to us P. Ramanatha Iyer’s Law Lexicon and to what is stated
therein as to what is meant by ‘jurisdiction of the subject matter’. It is
stated in the Lexicon that the ‘jurisdiction of the subject matter’ always
comes from the law and that it cannot be waived nor conferred by the consent of
the parties or their counsel. There is, however, no right in any counsel or any
party to mislead the adjudicatory forum or to play fraud upon it. The solemn
agreement properly reported to and recorded by the adjudicatory forum which is
not against public policy and is not violative of the provisions of the law and
existence of which agreement is not in dispute, is an agreement which binds and
is not one which can be regarded as vitiated on the ground that the
jurisdiction cannot be conferred on the forum by parties or through counsel.
18. The
learned counsel invited our attention to the case of Gurpreet Singh v. Chatur
Bhuj Goel AIR 1988 SC 400, which was a case of compromise of a suit. The court
therein emphasized that the compromise must be reduced to writing and signed by
the parties. That was a case to which the provisions of the Code of Civil
Procedure were admittedly applicable unlike the present case where order 23,
rule 3 of the Code of Civil Procedure in terms does not apply, although the
principle that the conclusion of contested proceedings by way of compromise
agreed to between the parties is a permissible mode for putting an end to the
proceedings, would apply to the proceedings before the CLB as well.
The counsel also invited our attention to the
case of Kiran Singh v. Chaman Paswan AIR 1954 SC 340, wherein it was held that
a decree passed by the court without jurisdiction is a nullity and its
invalidity could be set up whenever and wherever it is sought to be enforced or
relied upon even at the stage of execution and even in collateral proceedings.
We have already held that the order made by the CLB, which order under section
634A is deemed to be a decree, is not an order made without jurisdiction and is
not a nullity.
19. We
must strongly deprecate the attempt of the appellants to avoid carrying out a
solemn promise made through their responsible counsel to the CLB by seeking to
raise hypertechnical pleas when faced with the demand for compliance with the
terms of that order. Although we have considered the submission made by the
counsel and examined those submissions, we make it clear that the appellants
are not entitled in law to urge any of those grounds, as allowing the appellants
to do so successfully would mean closing eyes by the court to a fraud played by
a party and counsel on the CLB. As stated by us earlier, no counsel or litigant
has a right to play fraud on the Court or the Tribunal and any attempt to do so
must be discouraged and should invite the heaviest penalties.
20. We do not find any merit in this appeal and the same is dismissed with costs quantified at Rs. 3,000.