[2005] 63 SCL 86 (BOM.)
HIGH COURT OF BOMBAY,
Dr. Bais Surgical & Medical
Institute (P.) Ltd.
v.
Dhananjay Pande
V.K. TAHILRAMANI AND
A.H. JOSHI, JJ.
COMPANY APPEAL NO.
1 OF 2005
MARCH 1, 2005
Section 10F, read with sections 397 and 398, of
the Companies Act, 1956 - Company Law Board - Appeal against orders of -
Respondent No. 1 filed a company petition under section 397/398 alleging that
authorized share capital of company was increased in order to undermine holding
and voting power of respondent No. 1 - CLB passed an interlocutory order
directing status quo with regard to property and shares of company- Appellants
filed appeal against said order - Whether since impugned order was an order of
interim arrangement and no prejudice whatsoever was seen to have been caused to
appellants due to impugned order, order did not call for any interference and
it would be proper to leave parties to avail option of approaching CLB and on
completing their pleadings, to move CLB for disposal of application for interim
relief - Held, yes - Whether therefore, appeal was to be dismissed - Held, yes
FACTS
A dispute pertaining to share holding, the control and management of a company arose between respondent No. 1 and appellant-group. The CLB passed an order directing allotment of certain shares to respondent No.1. Thereafter, authorized share capital was increased and for enabling the company to be in a position to acquire land and building in which the hospital was housed, additional share capital was allotted to appellant-group. Respondent No.1 filed petition under section 397/398 contending that the increase in authorized capital and consequent issue of additional share capital had been done on illegal foundation in order to circumvent the judgment of the CLB and to undermine the holding and voting power of respondent No.1. The CLB passed an interlocutory order directing to maintain status quo in regard to the property and shares.
On appeal :
HELD
What the company was likely to get in turn of
allotment of additional share capital to the appellant-group was, in fact,
acquisition of assets, i.e., land and building in which the hospital was being
run, which was till date exclusively owned by Dr. ‘B’. The CLB had recorded
that status quo in regard to property and shares was
to be maintained. The parties were common on the ground that the execution of
the sale deed in favour of the company was still not completed. There was no
other property owned by the company which was either to be alienated or any
apprehension in regard thereto was capable of being expressed and noticed. The
impugned order revealed that the act of the company of increasing the share
capital and its allotment was also complete and what was to be done if impugned
order was to be obeyed to maintain status quo in that regard. According to the
parties, there was no act of further increasing share capital or allotment of
further shares in the offing. In that background, the order of status quo as to
the shares and property, viewed from any angle, was innocuous inasmuch as it
did not serve the purpose of respondent No.1 whatsoever, nor could it be said
to be causing any prejudice to the appellant. The observation of the CLB that
the management agreement sought to be entered into with respondent No.2 was not
so far entered was simply recording of the statement of fact and not in the
nature of recording of an undertaking. Even an injunction in that regard could
not be read to have been passed or inoperate against the company. [
It was seen from the points urged before the CLB as
well as from the contents of the applications under sections 397 and 398, that
the application for getting interim relief and other documents relating to
earlier litigation was an act of fishing expedition. However, in order to meet
the apprehensions expressed, the CLB seemed to have passed impugned transitory
arrangement. [
Ordinarily, in a challenge of instant nature where an
order serving the nature of a short lived and almost ex parte and ad hoc
arrangement, the challenge ought to be based on such grounds that the order could
be seen to be such that by no stretch of interpretation of pleadings, such
order could be wholly sustained. A challenge answering such an acid test did
not crystallise from pleading and submissions made on the part of the
appellants. The appellants had, therefore, failed in making out a case for
entertaining such appeal. [
Therefore, it would amount to pre-judging of the
issue if the instant appeal was entertained and the High Court entered into the
arena by examining the illegality and propriety of the order. [
Looking to the nature that no prejudice whatsoever
was seen to have been caused to the appellants due to the impugned order, it
would be proper to leave the parties to avail option of approaching the CLB and
on completing their pleadings to move the CLB for disposal of the application
for interim relief. [
Therefore, the impugned order did not call for any interference. [
In the result, the appeal was to be dismissed. [
CASES REFERRED TO
Maharashtra Power Development Ltd. v. Dabhol Power Co. AIR 2004 (Bom.) 38 (para 7), Stredewell Leathers (P.) Ltd. v. Bhankapur Simbhaoli Beverages (P.) Ltd. [1994] 1 SCC 34 (para 8), Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 CL 110 (para 11) and Nanalal Zaver v. Bombay Life Assurance Co. Ltd. AIR 1950 SC 172 (para 11).
V.R. Thakur and D.V. Chauhan for the Applicant. M.G. Bhangde for the Respondent.
JUDGMENT
A.H. Joshi, J. - Learned Counsels agree for final disposal of appeal at motion hearing. Hence, heard for final disposal.
This is an appeal arising out of interim arrangement ordered by the Company Law Board, Principal Bench (hereinafter referred to as ‘CLB’ for brevity).
Facts of the case
2. The background of the case, in brief, can be seen from page 91 of Paper Book, is that the dispute pertains to shareholding, the control and management of the Company who is appellant No.1 as was pleaded in the earlier litigation, respondent No.1 claimed to have been holding 49 per cent shares, while other group referred as Dr. Bais Group claimed 51 per cent shares. In the earlier round before it, the CLB found that respondent No.1 herein was shown to have applied for shares and paid a sum of Rs. 14,95,998 as share application money and was also appointed as Director of the Company and then as Managing Director, and the CLB in its order dated 2-12-2004 in said Company Petition inter alia passed an order directing allotment of shares to the respondent No.1 herein.
3. The appellant claimed that in a special general meeting of the Company, for which notice was issued on 15-11-2004, authorized share capital of the Company was increased and for enabling the Company to be in a position to acquire land and the building in which the Hospital has been housed, additional share capital of 6 lakh shares having face value of Rs. 6 crores was allotted to Dr. Bais Group, while shares as ordered by the CLB were allotted to the respondent No.1 without prejudice to his rights and subject to decision of Company Appeal No. 7 of 2004 filed by Dr. Bais Group and the Company against the CLB’s Judgment and order dated 2-12-2004.
According to the Company, the information in Form 5
and Form No. 23 was duly and punctually furnished to the Registrar of
Companies,
4. The subject Company Petition in which the impugned interlocutory order has been passed is filed by the present respondent No. 1 representing mainly that the increase in authorised capital and consequent issue of additional share capital has been done on illegal foundation, by disputing illegality of the meeting etc. in which said business was transacted. It is alleged that all these actions have been taken in order to circumvent the Judgment of the CLB delivered on 2-12-2004, which is also violative of the memorandum of understanding reached between the two groups, that this has been done in order to undermine the holding and voting power of the present respondent No.1. According to the respondent No.1, the agreement sought to be entered into by the appellant Company with the respondent No. 2 amounted to an act gravely prejudicial to the interest of the Company and prejudicial to the interest of the respondent No.1, herein and amounts to an act of mis-management and of oppression of the respondent No.1 and therefore, respondent No.1 was entitled to maintain the petition under sections 397 and 398 of Companies Act read with section 402 thereof.
5. It is seen that at the first hearing, the matter was moved with a short notice, and was taken up for passing urgent orders till the parties file their pleadings etc., and CLB passed an order to operate during the intervening period.
6. It is this order dated 10-1-2005 which is challenged in this appeal.
Heard Learned Advocate V.R. Thakur instructed by Shri D.V. Chauhan for
the appellant and Shri M.G. Bhangde for respondent No.1. Both the learned
Advocates have filed their written notes of submissions and cited the Judgments
which they have relied upon. The respondent No. 2 was neither noticed nor
served. The order impugned being extremely in brief can
better be referred for its reproduction.
ORDER
Petition mentioned and interim reliefs sought. The status quo in regard to the property and shares is to be maintained as of date. It is mentioned by Counsel for the parties that no final management agreement has been entered into. Replies to the petition to be filed by 10-2-2005 and rejoinder by 10-3-2005. The petition will be heard on 17-3-2005 at 10.30 a.m.
Interim arrangement is continuing. It is also stated that the land and buildings have not yet been registered in the name of the Company.
sd/-
Preliminary objections and
finding thereon
7. Learned Advocate Shri M.G. Bhangde raised preliminary objection for hearing of appeal by Division Bench on the ground that referring to powers of Single Judge as prescribed in Chapter 1 Rule 2(1)(a)(V) that the power to hear appeals from order of a Judicial or quasi-Judicial Forum under Local law or special enactment did lie before Single Judge. Mr. Bhangde has also pointed out from the Judgment in Maharashtra Power Development Ltd. v. Dabhol Power Co. AIR 2004 (Bom.) 38 That similar appeal was heard by Single Judge at the principal seat of this Court and its appeal was heard by Division Bench. Mr. Bhangde relies upon this Judgment though he fairly admits the position that the point of proper form was neither raised, addressed or adjudicated in said reported Judgment.
8. In reply Mr. V.R. Thakur relied upon a Judgment in Stredewell
Leathers (P) Ltd. v. Bhankapur Simbhaoli Beverages (P.) Ltd.
[1994] 1 SCC 34. In this case, main question that had arisen was not
about strength of bench but was about territorial jurisdiction, and
In this Judgment, however, the question as to bench strength was also addressed, discussed and Lordships of Apex Court have opined even on this point. These observations are contained in para 13 and dictum is that the jurisdiction to hear and decide the appeal under section 10F of the Companies Act shall lie before Division Bench.
9. Mr. Bhangde then objected maintainability of appeal on the ground that an nor did it arise. This point is dealt with while dealing with the merits of appeal.
10. Learned Advocate Mr. V.R. Thakur tendered questions of law and also tendered copy of notice under section 13 of Securitization Act and urged that the Company needed to be protected from calamity and such protection shall be possible only if interim order is set aside.
Submissions of Appellants
11. Mr. Thakur placed reliance on citation namely :-
(1) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 CL 110,
(2) Nanalal Zaver v. Bombay Life Assurance Co. Ltd. AIR 1950 SC 172.
Mr. Thakur has relied upon these Judgments in order to bring home his plea that the petition by respondent No.1 before CLB was not bona fide action. And rather was vexatious. According to Mr. Thakur, action taken by Directors was for protecting the interest of Company, with best judgment they had. Their actions according to Mr. Thakur did neither amount to mis-management or prejudicing Company’s interest nor did it have any semblance of oppression.
According to Mr. Thakur it has already come on record that half of the net worth of the Company was eroded way back prior to 2002 and sales had come to stand still and Company was adding to losses by incurring trading losses.
These facts also can be seen from CLB’s Judgment dated 2-12-2004.
According to Mr. Thakur, the Company was saved from difficulties due to additional investment done by Dr. Bais Group to repay Bank loans of one of the Bank and by bringing additional funds from the respondent No. 2 under the management agreement in the offing and that due to these actions future losses can be avoided and drastic action by Bank can also be prevented.
12. Learned Advocate Mr. Bhangde on the other hand asserted and supported his client’s plea as taken in the petition under section 397 and pleaded that it was a clear case of actions to undermine the holding and control of the respondent No.1.
Mr. Bhangde disputed that the notice under section 17 of Securitization Act by SBI did really pose any threat. He did not very seriously dispute the eroded net worth of the Company, or the fact that the activity has restarted due to the help of the respondent No. 2. Mr. Bhangde has also filed written notes of his submissions. All that he emphasis is that the order of CLB under appeal is of short lived transitional nature and passed awaiting hearing of said interlocutory application on merits. He, therefore, urged that C.L. Board was about to hear the question of interim relief and there were no grounds for entertaining the appeal.
13. Questions to be decided in this appeal are as follows:
(1) Does the order under appeal suffers from any legal or error of jurisdiction?
(2) Is the order impugned unsustainable and call for interference?
(3) What order?
14. As it is seen what the Company was likely to get, in turn, of allotment of additional share capital to Dr. Bais Group is, in fact, acquisition of assets i.e. land and building in which the hospital is being run which is uptill now exclusively owned by Dr. Bais. The CLB has recorded that status quo in regard to property and shares is to be maintained as can be seen from the underlined portion of the order quoted hereinabove. The parties are common on the ground that the execution of the sale deed in favour of the Company is still not completed. There is no other property owned by the Company which is either to be alienated or any apprehension in regard thereto is capable of being expressed and noticed. The order impugned reveals that the act of the Company of increasing the share capital and its allotment is also complete and what is to be done if order impugned is to be obeyed to maintain status quo in that regard. According to the parties, there is no act of further increasing share capital or allotment of further shares in the offing. In this background, order of status quo as to the shares and property viewed from any angle is innocuous inasmuch as it does not serve the purpose of the respondent No.1 whatsoever, nor could it be said to be causing any prejudice to the appellants herein. The observation of the CLB that the management agreement sought to be entered into with respondent No. 2 is not so far entered is simply recording of the statement of fact and not in the nature of recording of an undertaking. Even an injunction in that regard cannot be read to have been passed or inoperate against the appellant.
15. If the Court would like to examine as to what are the grounds and reasons which led the CLB to pass an order of interim arrangement. It is seen from whatever points urged before the CLB apart from what could be seen from the contents of the application under sections 397 and 398 of the Company Act, the application for interim relief and other documents relating to earlier litigation, it would turn out to be an act of fishing expedition. However, in order to meet the apprehensions expressed, CLB seems to have passed impugned transitory arrangement.
16. Ordinarily in a challenge of present nature where an order serving the nature of a short lived and almost ex parte and ad hoc arrangement, the challenge ought to be based on such grounds that the order could be seen to be such that by no stretch of interpretation of pleadings, such order could be wholly sustained. A challenge answering such an acid test does not crystallise from pleadings and submissions made on the part of the appellant. The appellants have, therefore, failed in making out a case for entertaining such appeal.
17. In this fact background, it would amount to pre-judging of the issue if the present appeal is entertained and this Court enters into the arena by examining the illegality and propriety of the order.
18. Looking to the nature that no prejudice whatsoever is seen to have been caused to the appellants due to the impugned order to the parties, it would be proper to leave the parties to avail option of approaching the CLB and on completing their pleadings to move the CLB for disposal of the application for interim relief.
19. In view of above discussion, the question Nos. 1 and 2 are answered against the appellant. It is held that impugned order does not call for any interference.
20. In the result, appeal is dismissed. Parties shall bear their respective costs.
21. Findings and observations are from what emerged prima facie. The CLB need not and shall not feel in any manner influenced thereby since it shall decide the interlocutory application on merits on completion of pleadings and documents.
nn
companies
act
[2005]
59 scl 207 (bom.)
HIGH COURT OF
v.
B.M. Jain & Sons Co. (P.) Ltd.
S.U. Kamdar, J.
Company
Appeal No. 4 of 2003
and Company Petition
No. 63 of 1998
January 13, 2005
Section 10F of the Companies Act, 1956 - Company
Law Board - Appeal against orders of - There being dispute between appellant
group, which held majority shareholding in company and respondent ‘J’ group,
appellants filed a suit against respondents - Pending suit ‘J’ group filed
company petition alleging oppression and mismanagement - CLB held that as and
when suit proceedings were concluded and if same were decided in ‘J’ group’s
favour, company would purchase 50 per cent shares held by them at a valuation
to be done by statutory auditor of company - Appellants filed appeal and
submitted that they did not desire to press said appeal and were willing to
accept order passed by CLB - Respondents, however, sought dismissal of appeal
on ground that it did not raise any substantial question of law and that order
of CLB could not be given effect to until disposal of suit - Whether since
appeal under section 10F was not pressed, question of going into its maintainability
on ground whether it raised substantial question of law or not did not and
could not arise - Held, yes - Whether since appellants had given up their
prayer in suit, it should be deemed that suit was dismissed in favour of
respondents and, therefore, respondents’ contention that order of CLB should
not be implemented until disposal of suit was not sustainable - Held, yes -
Whether once CLB had taken a recourse to final resolution of issue by providing
for valuation and transfer of shares and respondent had not challenged that
order, then same should be given effect to - Held, yes
Facts
A company, in which the appellants (R Group)
held majority shareholding, entered into a contract with Pune Municipal
Corporation (PMC) for providing a passenger rope-way system within the city
limits. The said project work commenced but soon thereafter, the PMC issued the
stop work notice to the company. Consequently, ‘R’ group and respondent 'J'
group entered into an agreement for bringing in the required funds. It was agreed
by ‘J’ group that it would invest certain amount against purchase of company’s
equity shares. In the board meeting, the nominee of the ‘J’ group was appointed
as an additional director. However, the said nominee of ‘J’ group failed to
bring in the necessary amount as per the agreement. There ensued differences
and disputes between the said nominee and the ‘J’ group in respect of the
contribution made by him as against his commitment under the said agreement.
Resultantly, said nominee was not re-elected as director and the company
claimed damages from PMC for breach of the contract. While the said dispute was
referred to arbitration, the company inducted two new nominees of the ‘J’ group
in the board of directors. However, since the said induction also failed to
bring in the necessary funds, it gave rise to disputes between the appellants
and ‘J’ group, which could not be resolved despite various meetings between the
warring parties. Since the disputes between ‘R’ and ‘J’ group intensified,
appellant No. 2 filed a suit and sought for ad-interim relief, which was
refused.
On appeal, the High Court passed an order
whereby it was provided that ‘J’ group should not represent themselves as
directors of the company and if they wanted to claim any right in the company
as directors or otherwise, then they should adopt appropriate proceedings in
that behalf. The ‘J’ group in the meantime filed a company petition alleging
oppression and mismanagement. The Company Law Board (CLB) held that as and when
the suit proceedings were concluded and if the same were decided in ‘J’ group’s
favour, the company would purchase the 50 per cent shares held by them at a
valuation to be done by the statutory auditor of the company; and once the
shares were purchased by the company, it would be authorized to reduce the
share capital to that extent in terms of section 402; and till that time, the
company would keep the amount in a bank account and should not draw any part of
it, except towards meeting its expenses in the normal course of its business.
The appellants filed the instant appeal and submitted that they did not desire
to press the said appeal and were willing to accept the order passed by the
CLB. The respondents while resisting the said attempt,
sought for dismissal of the appeal on the ground that it did not raise any
substantial question of law which was necessary for exercising jurisdiction
under section 10F. The respondents also contended that the order of CLB could
not be given effect to until disposal of suit.
Held
Once the instant appeal was
not pressed, the question of going into the maintainability of the appeal on
the ground whether it raised substantial question of law or not did not and
could not arise. [
In the instant case, the
appellants were seeking dismissal of appeal on the ground that they were not
interested in prosecuting the same. The only prayer of the appellants was that
the order impugned must be made operative and implementable. The respondents
did not challenge the said order. Thus, it was not permissible to refuse to
permit implementation of the order which was not anymore under challenge by
either of the parties. [
Insofar as the suit was
concerned, the prayer with respect to transfer of shares was being given up by the
appellants by an undertaking filed in the High Court. Once said prayer was
given up, then there was no hindrance or obstacle in implementing the order of
the CLB insofar as the transfer of the shares was concerned. [
The order of the CLB in effect
sought to resolve the dispute finally by and between the parties by effecting the transfer of the shares of the ‘J’ group in
favour of the ‘R’ group. Once the said shares were transferred, the respondents
would no more be the directors of the company bringing to an end the entire
dispute including that of the management of the company by and between the
parties. It was undoubtedly true that there was an interim order operating
against the ‘J’ group from acting as directors or representing themselves as directors
in the said company. The said order would undoubtedly operate even if said
prayer relating to transfer of shares was given up. However, the continuation
of the said order could not come in the way of implementing the order passed by
the CLB. The CLB resolved the disputes finally by effecting
the transfer of the shares from the respondents in favour of the appellant. The
appellants were accepting the said order as if the suit was decided in favour
of the respondents and against the appellant. By giving up said prayer in
effect the suit of the appellants was dismissed in favour of the respondents.
The order of the CLB provided
that if the said suit was decided in favour of the respondents, then the shares
of ‘J’ group should be transferred in favour of ‘R’ group. Once said prayer was
given up, for all practical purposes, the order of the CLB became operative in
favour of the respondents. Thus, there was nothing wrong in permitting the
appellants to withdraw the appeal and/or dismiss the same as not pressed at the
same time directing the order to be implemented against the appellants subject
to undertaking to give up said prayer. The further undertaking of the
appellants that as and when transfer of shares would take place as per the
impugned order, the appellants would also withdraw the said suit as the same
would become ultimately infructuous as the prayers pertained to the preventing
of interference with the management by the respondents in the said company
and/or injuncting the respondents from representing as directors of the said
company, could not survive. Therefore, the contention of the respondents that
the appeal should be dismissed and the order should not be implemented till and
until the disposal of the suit, was unsustainable and
could not be accepted. A litigation between the
parties must come to an end and once the CLB had taken a recourse to the final
resolution of the issue by providing for valuation and transfer of the shares,
then the same should be operated upon and given effect to. The
contention of the respondents that the said impugned order should not be given
effect to in spite of the fact that the same was not challenged by them and
thus, accepted, had to be rejected. Hence both the contentions of the
respondents that the appeal should be dismissed as not maintainable since it
did not raise substantial question of law under section 10F as well as the
contention that till the disposal of the suit, the impugned order passed by the
CLB should not be implemented, were to be rejected. [
Once the respondents had
accepted the order and not challenged the same, it was not open for the
respondents to contend that the order should be modified as the same was likely
to prejudicially affect their rights. It is settled law that if a person is
aggrieved by any order passed, then he must prefer an appeal against the same
and failure to do so would tantamount to acceptance of the order and he cannot
be permitted to challenge the same in a proceeding which is initiated by the
other side. Therefore, it was not possible to alter the impugned order passed
by the CLB at the instance of the respondent who had not challenged the same. [
The instant company appeal was
to be disposed of accordingly. [
CaseS referred to
S.H. Doctor and P. Kabadi for the Appellant. K.R. Bulchandani and
J.P. Shah for the Respondent.
Judgment
1. The
present appeal is filed under section 10F of the Companies Act, 1956 against
the order passed by the Company Law Board dated 8-12-2000.
2. In
view of the fact that the appellant in the present case is not pressing their
substantial challenge to the impugned order in the present appeal, I do not
propose to go into the details of various facts. However, few facts which are
germane to the present case are briefly enumerated as under:-
3. The
company known as Bombay Cable Car Co. Pvt. Ltd., was
incorporated with their object to carry on business of transportation of
tourists and local citizens on Mono-Bio Cable Car System (Rope-Way System). The
original share capital was held by the appellants 1 to 4 known as “the Rashid
Group” being 30,830 equity shares of Rs. 100 each i.e. 61.67 per cent of the
total issued and paid up capital of the company. In April, 1988 the Pune
Municipal Corporation ‘PMC’ issued a tender for providing a passenger rope-way
system within the city limits of Pune between Nehru Stadium and Parvati Hill.
The said tender was accepted by the company. On 5-7-1991, the agreement was
executed between the company and the said PMC in respect of the said project
amounting to Rs. 6.5 crores. It is the case of the appellants herein that in
view of the said project entered into, Rashid Group required a financial
partner and accordingly an agreement was executed on 19-6-1993 between the
appellant Nos. 1 to 4 representing Rashid Group and Lokhandwala Group. Under
the terms and conditions of the said agreement Lokhandwala Group agreed to
invest in the company to the extent of Rs. 125 lakhs to execute and implement
the said rope way project and in consideration of the said investment,
Lokhandwala Group were allotted 19,170 equity shares of Rs. 100 each sometime
in October, 1993. A further finance was brought in by Lokhandwala Group of a
sum of Rs. 2,28,200. On 10-12-1993, the Rope-Way
Project was commenced and the work was undertaken. On 30-1-1994, the PMC issued
the stop work notice to the company. On 28-11-1995, an agreement was executed
between Rashid Group, Lokhandwala Group and the respondent No. 1 company for
bringing in the required funds. It was agreed that the respondent No. 1 shall
invest Rs. 160 lakhs and in turn will buy over 19,170 equity shares and also
pay the loan of Rs. 2,28,200 of Lokhandwala Group. On 28-11-1995 the Board of
Directors meeting was held wherein the nominee of respondent No. 1 one Mr.
Mahendra Kumar Jain was inducted on the Board as an Additional Director and the
representatives of Lokhandwala Group who had three directors on the same Board
vacated the office. On 29-3-1996, in a meeting of the Board of Directors it was
recorded on the minutes that M.K. Jain, the nominee of Jain Group failed to
bring in the necessary amount as agreed and promised under the finance
agreement. On 17-4-1996, a letter was issued by the company to the said Mr.
M.K. Jain inter alia recording the failure on the part of N.K. Jain to bring in
agreed finance. There were differences and disputes between the said M.K. Jain
and respondent No. 1 in respect of the contribution made by the said M.K. Jain
as against his commitment under the finance agreement. On 6-8-1996, the company
issued a notice to the Pune Municipal Corporation seeking damages because of
the stop work notice issued by the Corporation, thus committing breach of the
contract entered into with the respondent company. On 4-9-1996, the Board of
Directors decided to convene the 12th Annual General Meeting of the Company. On
30-9-1996, an Annual General Meeting of the Company was held and in accordance
with the provisions of the Companies Act. The said Mr. M.K. Jain ceased to be
the Director of the company as he was not re-elected in the said AGM. In
October, 1996 the differences and disputes between the company and the Pune
Municipal Corporation were referred to arbitration of the retired Judge of this
Court and the former Chief Justice of Karnataka High Court, Mr. Justice M.L.
Pendse (retired). On 19-11-1996 in a meeting of the Board of Directors,
nominees of Jain group namely Rajendra Kumar Jain and Vinod Kumar Jain were
appointed as Additional Directors of the company. On 28-4-1997, in a Board of
Directors meeting once again it was recorded that the Jain Group have failed to make the necessary payment as per their commitment
to the company. The dispute between the Jain Group and the Appellant continued
in respect of the breach of the terms and conditions of the finance arrangement
by and between the parties. Time and again meetings were called of the Board of
Directors and even an Extraordinary General Meeting of the company was called
to resolve the dispute pertaining to the differences and disputes between the
parties. On the other hand, the arbitration proceedings continued and
ultimately on 25-2-1998, the arbitration proceedings were concluded.
Ultimately, a notice was issued by the respondent No. 1 on 14-2-1998 making
various allegations against the company and the Rashid Group. The said Rashid
Group and the said company duly replied to the said allegations. On 31-3-1998,
the arbitration award was passed in favour of the company and against the Pune
Municipal Corporation for a sum of Rs. 2.97 crores with interest at the rate of
18 per cent per annum from the date of the award till the date of payment. Now,
the disputes between Rashid Group and Jain Group intensified and allegations
were levelled against each other. The appellant No. 2 herein ultimately filed a
suit being Suit No. 2493 of 1998 in this Court on 18-6-1998. On 22-6-1998, an
application for ad-interim relief was made. On 6-7-1998, an application for
ad-interim relief was refused. Against the said order, an appeal was preferred
on 4-8-1998 which appeal has been admitted. By an order it was provided that
Jain Group should not represent themselves as directors of the company and if
they want to claim any right in the company as directors or otherwise then they
should adopt appropriate proceedings in that behalf. The respondent No. 1 in
the meantime filed a company petition being Company Petition No. 63 of 1998 alleging
oppression and mismanagement. The matter was heard by the Company Law Board
from time to time. Hearing was concluded on 17-8-2000. On 8-12-2000, the
impugned order has been passed by the Company Law Board. The operative part of
the impugned order reads as under:—
“We direct as follows: As and when the
16. With the above directions we dispose of this
petition. No order as to cost.”
4. The
order impugned in appeal is made operative subject to the final disposal of the
suit which is pending in this Court being Suit No. 2493 of 1998. Since the said
operative part of the appeal is subject to the final disposal of the suit by
this Court, it is necessary to set out the prayers of the said suit which are
as under :—
“(a) that the Defendant No. 1 be ordered and
decreed to specifically perform its obligation under clause 20 of the Finance
Agreement dated 20th November, 1995 and relinquish their share holding in the
capital of Defendant No. 1 in favour of the Plaintiff as a nominee of the
Rashid group unconditionally;
(b) that Defendant Nos. 1 and 5 to 9 be
restrained by an order and permanent injunction of this Hon’ble court from in
any manner interfering with the management of Defendant No. 2 Company and/or
representing themselves as shareholders of Defendant No. 2 Company;
(c) that Defendant Nos. 5 to 8 be restrained
by an order and permanent injunction of this Hon’ble Court from in any manner
representing themselves as Directors of Defendant No. 2 Company and from
interfering with the management of Defendant No. 2 Company;
(d) that it be declared that the meetings
purportedly held by Defendant Nos. 1 and 5 to 9 to transact any business
relating to Defendant No. 2 Company were illegal and therefore void and the
resolutions passed in such meetings are also void ab initio and did not have
any effect;
(e) that Defendant Nos. 5, 8 and 9 be ordered and
directed by this Hon’ble Court to forthwith hand over to Defendant No. 2
Company share certificate Nos. 5, 6 and 14 wrongfully held by them in the
capital of Defendant No. 2 Company;
(f) that pending the hearing and final disposal of the Suit, the
Court Receiver, High Court, Bombay, be appointed as Receiver of 19,170 shares
held by Defendant No. 1 in Defendant No. 2 Company listed in Exhibit - “V”
hereto, with all powers under Order XL Rule 1 of the Code of Civil Procedure,
1908 and appoint the Plaintiff as agent of the Court Receiver or direct the
Receiver to act in accordance with the instructions of the Plaintiff as the
representative of Rashid group;
(g) that pending the hearing and final disposal of the Suit,
Defendant Nos. 1 and 5 to 9 be restrained by an order and injunction of this
Hon’ble Court from in any manner representing themselves as shareholders of
Defendant No. 2 Company and/or interfering with the management of Defendant No.
2 Company;
(h) that pending the hearing and final disposal of the suit,
Defendant Nos. 5 to 9 be restrained by an Order and injunction of this Hon’ble
Court from in any manner representing themselves as Directors of Defendant No.
2 Company and/or holding any meetings to transact any business of Defendant No.
2 Company;
(i) that pending the hearing and final disposal of the Suit,
Defendant No. 2 be directed by an order and injunction by this Hon’ble Court to
open a separate Bank Account and deposit the dividends declared by Defendant
No. 2 against the said 19,170 shares held by Defendant No. 1 in the capital of
Defendant No. 2 Company;
(j) that pending the hearing and final
disposal of the Suit, Defendant No. 5 be restrained by an order and injunction
of this
(k) for ad-interim
reliefs in terms of prayers (f) to (j);
(m) for the costs of
and incidental to the suit;
(n) for such further and other reliefs as
the nature and circumstances of the case may require.”
5. The
learned counsel for the appellants has submitted that he does not desire to
press the said appeal. He further submitted that he is willing to accept the
order passed by the Company Law Board which is impugned in the present appeal.
He, however, submitted that the said order must be operative. He further
submitted that in view of the fact that the said order is made operative
subject to the decision in the suit he is not even inclined to press the said
suit. He, however, submitted that at the present juncture he is willing to
withdraw the said suit in so far as prayer clause (a) of the suit is concerned.
According to him, once prayer clause (a) of the suit is not pressed and given
up, the order of the Company Law Board must operate automatically. The learned
counsel for the appellant has submitted that the order impugned provides for
transfer of the shares from the Jain Group in favour of the Rashid Group. The
order further provides that the said shares have to be evaluated by the
statutory auditor of the company by taking into consideration the assets of the
company as on 31-3-1999. According to the learned counsel for the appellant,
under the order impugned the shares are ultimately required to be transferred
by the Jain Group to the appellant herein. The learned counsel for the
petitioner contended that this is one of the known methods for resolving the
disputes between warring shareholders in a company wherein the shareholding of
one group is directed to be purchased over by another group to resolve the
disputes once and for all in respect of that company. He has also contended
that the respondents having not challenged the order of the Company Law Board
dated 8-12-2000, they are not entitled to resist the implementation thereof.
6. The
learned counsel for the appellant has filed a written undertaking in this Court
today which reads as under:—
“The Appellant No. 2 undertakes to this Hon’ble
Court not to press prayer (a) of the High Court OOCJ Suit No. 2493 of 1988 in
view of the fact that neither party has challenged the Order of the Company Law
Board dated 8th December, 2000 to the extent that it provides that (a) as and
when the Bombay proceedings (i.e. HC OOCJ Suit No. 2493 of 1998 Dishad Sabbir
Rashid v. B.M. Jain & Sons Co. Pvt. Ltd., and Others) are concluded and the
same goes in favour of the Jain group, the company (i.e. The Bombay Cable Car
Co. Pvt. Ltd.) will purchase 50 per cent shares held by the Jain group at a
valuation to be done by the statutory auditor of the company and (b) the date of
valuation to be 31st March, 1999.”
7. The
learned counsel for the appellant has also submitted before me now that as and
when the shares are transferred in favour of the appellants herein from the
Jain Group in pursuance of the impugned order of the Company Law Board, the
Appellant shall not press the remaining prayers in the said suit as the same
will become infructuous since the transfer of the management of the company
will vest in Rashid Group once the shares are transferred by Jain group in
their favour. Thus, in effect the appellant submits that the order impugned be
implemented and does not press any challenged to the said order.
8. On
the other hand, the learned counsel for the respondent has resisted the said
attempt on the part of the respondent to implement the order of the Company Law
Board impugned in the present appeal. The learned counsel for the respondent
submits that the order is subject to the final disposal of the suit and,
therefore, the order should not be made implementable till and until the suit
is finally disposed of and the course which has sought to be suggested by the
appellant by giving up prayer (a) of the said suit should not be accepted by
this Court. It has been further contended by the learned counsel for the
respondent that the appeal should be dismissed by this Court even if the same
is not present by the appellant because it does not raise any substantial
question of law which is necessary as a condition precedent for exercising
jurisdiction under section 10F of the Companies Act, 1956. The learned counsel
for the respondent thereafter contended that in fact if the order impugned in
the appeal is allowed to be implemented by accepting the undertaking given by
the appellant herein then in that event, the said order is likely to
prejudicially affect the interest of the respondent for two reasons. Firstly,
because the order provides for a valuation of the assets by a statutory auditor
and that the statutory auditor of the company is a man of the appellant herein.
He would not do justice in appropriate valuation of the shares which is
required under the order passed by the Company Law Board and which is impugned
herein in the present appeal. Secondly, it has been contended that the order
impugned provides for 31-3-1999 as a cut-off date for evaluating the shares of
the respondent company which is sold by the respondent herein. It has been
contended that if the date of 31-3-1999 is taken into consideration, then in
that event, the only assets of the company which is the award passed by the
Arbitrator in an arbitration proceeding against the Pune Municipal Corporation
would not be taken into consideration and thus, the appellant and respondent
will not get its just dues of the shares which are held by them. It is because
according to the respondent the only assets of the company being an award
passed by the Arbitrator in favour of the company would be excluded while
valuating the shares of the company.
In that event, the company will be with no
assets. The learned counsel for the appellant contends that the cut off date
should be either altered or it should be clarified that the award of the
arbitrator would be taken into consideration while evaluating the shares by the
statutory auditors in accordance with the order passed by the Company Law
Board.
9. Firstly,
dealing with the contention of the learned counsel for the respondent that the
present appeal should be dismissed as it does not raise any substantial
questions of law as required under section 10F of the Companies Act, 1956, I am
of the opinion that in fact the said issue is not required to be gone into in
the present case. Firstly, it is because the appellants themselves are not
pressing the present appeal. Once the present appeal is not pressed the
question of going into the maintainability of the appeal on the ground whether
it raises substantial question of law or not does not and cannot arise.
However, the learned counsel for the respondent insisted upon arguing the
aforesaid point of law and has inter alia relied upon the following judgments :
- (1) Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co.
[Company Petition No. 45 of 2002]. (2) Minoo H. Modi v.
Hemant D. Vakil [1994] MLJ 78. (3) Malleswara Finance & Investment
Co. (P.) Ltd. v. Company Law Board [1995] 1 CLJ 1. He
has also contended that under section 10F of the Companies Act, a finding of
fact cannot be interfered with by this Court and in support of the aforesaid
proposition of law he also relied upon the judgment of the
10. As
I have already held that in view of the fact that the appellants are not
pressing their appeal, it is not permissible for me to go into the academic
question of law whether in the present case the substantial question of law is
raised or not. In that view of the matter, I refrain myself from going into the
aforesaid question of law as in my view the same does not arise in the present
case for consideration. In the present case, the appellants are seeking
dismissal of appeal on the ground that they are not interested in prosecuting
the same. The only prayer of the appellant is that the order impugned herein
must be made operative and implementable. The respondents have not challenged
the said order. Thus, I am of the opinion that it is not permissible for me to
refuse to permit implementation of the order which is not any more under
challenge by either of the parties.
11. The
learned counsel for the respondents has contended that the said impugned order
is subject to the final outcome of the suit and the suit is still pending and
not yet disposed of. It is therefore contended by the learned counsel for the
respondents that the order which is impugned in the present appeal is not
implementable till the hearing and final disposal of the suit. I am of the
opinion that the said contention has no merits. In so far as the suit is concerned,
the prayers are already set out hereinabove. The prayer (a) which is the most
relevant prayer for the purpose of transfer of the shares is being given up by
the appellant by an undertaking filed in this Count and recorded hereinabove.
Once the prayer (a) is given up then there is no hindrance or obstacle in
implementing the order of the Company Law Board in so far as the transfer of
the shares is concerned.
12. In
my opinion, the order of the Company Law Board in effect seeks to resolve the
dispute finally by and between the parties by effecting
the transfer of the shares of the Jain Group in favour of the Rashid Group.
Once the said shares are transferred the respondents will no more be the
directors of the company bringing to an end the entire dispute including that
of the management of the company by and between the parties. The learned
counsel for the respondent contends that it is not only prayer (a) which should
be given up pressed by the appellant herein but the whole of the suit should
not be pressed. I have perused the prayers. Prayer (b) onwards pertains to the
management and affairs of the company, particularly acting of the Jain Group as
the Directors in the said company. It is undoubtedly true that there is an
interim order operating against the Jain Group from acting as directors or
representing themselves as directors in the said company. The said order would
undoubtedly operate even if prayer (a) is given up. In my opinion, the
continuation of the said order could not come in the way of implementing the
order passed by the Company Law Board. The Company Law Board resolves the
disputes finally by effecting the transfer of the
shares from the respondent in favour of the appellant herein. The appellants
are accepting the said order as if the suit is decided in favour of the
respondent and against the appellant. By giving up prayer (a) of the said suit,
in effect the suit is dismissed of the appellant herein in favour of the
respondent. The order of the Company Law Board provides that if the said suit
is decided in favour of the respondent herein then the shares of the Jain Group
should be transferred in favour of Rashid Group. Once prayer (a) is given up,
for all practical purposes the order of the Company Law Board becomes operative
in favour of the respondents herein. Thus, in my view, there is nothing wrong
in permitting the appellant to withdraw the appeal and/or dismiss the same as
not pressed at the same time directing the order to be implemented against the
appellants subject to undertaking to give up prayer (a) as mentioned
hereinabove. I also further record the further undertaking of the appellant
that as and when transfer of shares takes place as per the impugned order the
appellant will also withdraw the said suit as the same becomes ultimately
infructuous as the prayers pertains to the preventing of interference with the
management by the respondent in the said company and/or injuncting the
respondent from representing as directors of the said company cannot survive.
In the aforesaid position, I am of the opinion that the contention of the
respondent that the appeal should be dismissed and the order should not be
implemented till and until the disposal of the suit is unsustainable and cannot
be accepted. A litigation between the parties must
come to an end and once the Company Law Board has taken a recourse to the final
resolution of the issue by providing for valuation and transfer of the shares
then the same should be operated upon and given effect to. The
contention of the learned counsel for the respondent that the said impugned
order should not be given effect, in spite of the fact that the same is not
challenged by them and then accepted, has to be rejected. In light of
the aforesaid fact both the contentions of the learned counsel for the
respondent that the appeal should be dismissed as not maintainable since it
does not raise substantial question of law under section 10F of the Companies
Act, 1956 as well as the contention that till the disposal of the suit the
impugned order passed by the Company Law Board should not be implemented cannot
be accepted and I reject the same.
13. This
leads me to the next two contentions raised by the learned counsel for the respondent
that is that the date of 31-12-1999 given by the Company Law Board is erroneous
and incorrect and if the said date is taken into consideration then obviously
the only assets of the company being the award passed by the learned Arbitrator
would not be taken into consideration for the valuation of the shares. The
second contention raised that the statutory auditor is not likely to give
justice because he is the man of the appellant since the appellants are in the
management of the company and, therefore, the said statutory auditor should be
removed and some other independent person should be appointed as the valuer of
the said shares. In so far as these two contentions are concerned, the same are
required to be rejected outright simply on the ground that the respondents have
not challenged the order passed by the Company Law Board which is impugned
herein. Once the respondents have accepted the order and not challenged the
same, it is not open for the respondent to contend that the order should be modified
as the same is likely to prejudicially affect the rights of the respondent
herein. It is settled law that if the person is aggrieved by any order passed,
then, he must prefer an appeal against the same and failure to do so would
tantamount to acceptance of the order and he cannot be permitted to challenge
the same in a proceeding which is initiated by the other side. However, inspite
of the aforesaid position of law with a view to bring an end to the entire
dispute I put it to the appellant herein that whether they will be agreeable to
change the valuer in place of statutory auditor any other independent chartered
accountant named by the Court. The appellant agreed to the same. The respondent
took time to consult the client and on the next date I was informed that the
respondents are not accepting the said suggestion offered by the client of
changing the valuer in place of the said statutory auditor of the company. In
so far as the next contention of the respondent pertaining to the assets of the
company is concerned and whether the award is included in the assets of the
company I offered to the respondent that they can raise the said issue before
the valuer while the valuation process is undertaken. If they do not agree with
the decision of the valuer then it will be open for them to challenge the same
in accordance with law. However, even the said suggestion is rejected by the
learned counsel for the respondent herein after taking instructions from their
client. In the aforesaid circumstances, it is not possible to alter the
impugned order passed by the Company Law Board at the instance of the
respondent who has not challenged the same.
14. In
the aforesaid circumstances, I do not see any merit in the contention of the
respondent herein and I reject the same. I, therefore, pass the following order :-
(i) Appeal No. 4 of 2003 is dismissed as not
pressed by the appellants herein.
(ii) The undertaking given by the appellants in
respect of prayer (a) of the suit being Suit No. 2493 of 1998 is accepted and the
said suit is dismissed as against the respondent herein insofar as prayer (a)
is concerned.
(iii) The impugned order of the Company Law Board
dated 8-12-2000 is confirmed and the statutory auditor will commence the task
of valuation of the shares in accordance with the directions given by the
Company Law Board in the impugned order.
(iv) On valuation being
completed and shares are ultimately transferred in favour of the appellants in
accordance with the order passed by the Company Law Board which is impugned
herein, the undertaking of the appellant to withdraw the said suit for balance
of the prayers will become operative. The said undertaking is also accepted.
15. The present company Appeal
No. 4 of 2003 is disposed of accordingly.
16. However, there shall be no
order as to costs.
COMPANIES ACT
[1999] 21 SCL 181 (
HIGH COURT OF
v.
Industrial
Finance Corpn. of India
Ltd.
USHA MEHRA, J.
CO A(B) 1 OF 1997
JANUARY 27, 1999
Section 111,
read with section 10F, of the Companies Act, 1956 - Transfer of shares - Appeal
against company's refusal to register - Whether word 'any person' appearing in
section 10F is direct reference to provisions of section 111(2) - Held, yes -
Whether a person, neither being transferor nor transferee nor person giving
intimation of transmission can file appeal under section 111(2) - Held, no -
Whether, therefore, appellant being merely an intermediator in transaction of
sale of shares between transferor and transferee could not file appeal against
refusal to register transfer in transferee's name even
if he had suffered some monetary loss - Held, yes
The appellant
sold certain shares on behalf of the transferor. The transferee lodged the
shares with the Registrar as well as with the transfer agents for the
registration of transfer of the said shares in his name. No reply was received
nor the shares were transferred. Subsequently,
however, the respondent did transfer those shares in the transferee's name after
satisfying about the authenticity of the transferor's signatures. Hence, the
respondent's subsequent action in refusing the said transfer, led the appellant
replace those shares by issuing another set of shares, because of which the
appellant suffered financially. His application under section 111(2) was
dismissed by the CLB on the ground that the appellant was neither transferor
nor transferee and, hence, he had no right to file the same.
On appeal, the
appellant contended that even if he was not a transferor or transferee, still
being an aggrieved person his appeal was maintainable, and also that 'any other
person' appearing under section 1 OF would also include besides transferor or
transferee, a person whose right has been affected.
The expression
'aggrieved person' would include the transferor of the shares who handed over
the documents for the transfer. It was the transferee who lodged the share
certificate with the company. It was those shares which were refused by the
company to be transferred in the name of the transferee on account of the
signatures of the transferor not tallying.
Admittedly the
appellant being neither the transferor nor transferee nor person giving
intimation of the transmission his appeal could not have been covered under the
provisions of sub-section (2) of section 111. Appellant's status was merely an
intermediator in the transaction. He never made any request to the company for
registration of the shares. Because of this transaction if the appellant had
suffered some monetary loss, the prayer could not have been covered under
section 111(2). Since the substantive prayer could not have been invoked by the
appellant, ancillary prayer of compensation for monetary loss could not have
been claimed. Substantive relief could have been registration of transfer of
shares, which relief, was not sought by the appellant. In fact no legal
infirmity had been pointed in the approach of the CLB in the impugned order.
Having failed to make out any legal infirmity in the impugned order of the CLB,
the appeal would not lie to the High Court. The appellant had not been able to
formulate any question of law which required consideration.
The word 'any
person' appearing under section 1 OF has direct reference to the provisions of
section 111(2). Against the decision of the CLB only that person can file an
appeal who has a right to file an appeal to the CLB and against whom decision
had been given by the CLB. But person other than the transferor or the
transferee cannot file appeal before the CLB. This shows that 'any person
aggrieved' appearing section 1 OF has a direct nexus with the transferor or the
transferee as the case may be. Stranger so can, by no stretch of imagination,
be called 'any person aggrieved' under section 111(2). The word 'aggrieved'
refers to a person having substantial grievance who has been denied some
personal or property rights. Merely because the transferor and transferee chose
not to prefer appeal before the CLB was no ground to permit the appellant to
prefer appeal on account of his alleged pecuniary loss. He could not be called
an aggrieved person. Refusal to transfer the share certificate was not to the
appellant nor he had demanded the same. Therefore, by
no stretch of imagination the appellant could be called an aggrieved person. He
never claimed substantial relief before the CLB nor this appeal showed any
cause of action arising under section 111(2).
Jatin Zaveri for the
Applicant. S. Khan for
the Respondent.
Mehra, J. — Shri Vinod K. Patel, the appellant has
assailed the impugned order of the Company Law Board (the Board), inter alia, on the ground that the Board could not have
dismissed his appeal on the ground of maintainability. It was the appellant who
felt aggrieved by illegal and unlawful action of the respondent company,
thereby not transferring the shares sold by the petitioner to the transferee.
Even though the appellant was neither the transferor nor the transferee, still
being an aggrieved person because of the action of the respondent, his appeal was
maintainable under the provision of sub-section (2) of section 111 of the
Companies Act, 1956 ('the Act').
2. In order to
appreciate the points raised, let us have quick glance to the facts of this
case. The appellant herein had sold 100 shares to one Shri Kanwarpal Singh.
Shares were delivered along with the transfer deed on which the appellant put
his signatures witnessing the execution. The said Kanwarpal Singh lodged the
shares with the registrar as well as with the transfer agents for the registration
of transfer of the said shares in his name. No reply was received from the
respondents in spite of repeated reminders nor the shares
were transferred. However, in March, 1995 an envelope was received from
the respondent containing share certificate, Transfer deed and other documents.
The share certificates indicate that the respondent transferred those shares in
the name of Shri Kanwarpal Singh by affixing the stamps. This the respondents
did after satisfying themselves about the authenticity of the signatures of the
transferor, namely, Smt. and Shri Suresh G. Thakkar. Hence, the subsequent
action of the respondent in refusing the transfer in the name of Shri Kanwarpal
Singh was not justified. On respondent refusing transfer, Shri Kanwarpal Singh
approached the appellant. This appellant replaced those 100 shares sold to Shri
Kanwarpal Singh by issuing another set of 100 shares. Because of the refusal to
transfer those 100 shares by the respondent, the appellant suffered
financially. He, therefore, approached the Board by filing an appeal under
sub-section (2) of section 111.
3. By the
impugned order, the Board found that since the appellant was neither transferor
nor transferee hence he had right to file the petition. He was also not the
person who had given intimation of the transmission by operation of law. In
this regard, reference can be made to the provisions of sub-section (2) of
section 111, which is reproduced as under:
(2) The transferor or
transferee, or the person who gave intimation of the transmission by operation
of law, as the case may be, may appeal to the Company Law Board against any
refusal of the company to register the transfer or transmission, or against any
failure on its part within the period referred to in sub-section (1), either to
register the transfer or transmission or to send notice of its refusal to
register the same.
4. Relying
on the above provision, the appellant contends that the appeal ought to have been
accepted by the Board because even if the appellant was not a transferor or a
transferee, still being an aggrieved person his appeal was maintainable. He was
the one who sold the shares to Shri Kanwarpal Singh on behalf of the
transferor, i.e., Smt. and Shri Suresh G. Thakkar. Therefore, in the absence of
transferor or transferee he was the aggrieved person who suffered heavily
financially.
5. The
expression 'aggrieved person' would include the transferor of the shares who
handed over the documents for the transfer. It was the transferee who lodged
the share certificate with the company. It was these 100 shares which were
refused by the company to be transferred in the name of the transferee on
account of the signatures of the transferor not tallying.
6. The
question for consideration is whether in the present appeal any question of law
has been raised. Contention of the counsel for the appellant that 'any other
person' appearing under section 10F of the Act would also include beside
transferor or transferee, a person whose right has been effected, to my mind,
this argument is without substance. Admittedly this appellant being neither the
transferor nor transferee nor person giving intimation of the transmission his
appeal could not have been covered under the provisions of sub-section (2) of
section 111. Appellant's status was merely an intermediator in the transaction.
He never made any request to the company for registration of the shares.
Because of this transaction if the appellant has suffered some monetary loss,
that prayer could not have been covered under section 111(2). Since the
substantive prayer could not have been invoked by the appellant, hence,
ancillary prayer of compensation for monetary loss could not have been claimed.
Substantive relief could have been the registration of transfer of shares,
which relief was not sought by the appellant. In fact no legal infirmity has
been pointed in the approach of the Board in the impugned order. Having failed
to make out any legal infirmity in the impugned order of the Board, the appeal
would not lie to the High Court. Section 10F which is reproduced as under
provides:
"Appeals
against the orders of the Company Law Board — Any person aggrieved by any
decision or order of the Company Law Board may file an appeal to the High Court
within sixty days from the date of communication of the decision or order of
the Company Law Board to him on any question of law arising out of such order:
Provided that
the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be
filed within a further period not exceeding sixty days." [Emphasis
supplied]
7. This
appellant has not been able to formulate any question of law which requires
consideration. As already observed above, the appellant being merely a intermediatory in the transaction, no legal right had
accrued in his favour to file appeal before the Board. The words 'any person'
appearing under section 10F has direct reference to the provisions of section
111(2). Against the decision of the Board only that person can file appeal who
had a right to file appeal to the Board and against whom decision had been
given by the Board. But person other than transferor or transferee cannot file
an appeal before the Board. This shows that any person aggrieved appearing
section 10F has a direct nexus with the transferor or the transferee as the
case may be. Stranger to sub-section (2) of section 111 by no stretch of
imagination can be called 'any person aggrieved'. The word 'aggrieved' refers
to a person having substantial grievance who has been denied some personal or
property rights. Merely because the transferor and transferee chooses not to
prefer an appeal before the Board was no ground to permit the appellant to
prefer an appeal on account of his alleged pecuniary loss. He cannot be called
an aggrieved person. Refusal to transfer the share certificate was not to the
appellant nor he had demanded the same. Therefore, by
no stretch of imagination appellant can be called an aggrieved person. He never
claimed substantial relief before the Board nor this appeal showed any cause of
action arising under section 111(2). This appeal does not raise any question of
law by a person aggrieved by the order of the Board. He being neither
transferor nor transferee can be called the person aggrieved.
8. Even
otherwise, this appeal is barred by time. The appellant ought to have filed the
appeal within sixty days from the date of communication of the decision or the
order of the Board. The impugned order is dated 6-3-1997 whereas the appeal was
filed on 17-5-1997, ie., beyond the period of sixty
days. No explanation has been given for this delay. In fact no application
seeking condonation of delay has been filed nor
sufficient cause shown in the appeal for condoning the delay.
9. For the
reasons stated above, it can be said that this appeal by the present appellant
is not maintainable and it is also barred by time. The same is accordingly
dismissed.
[1994] 79 COMP. CAS. 139 (SC)
SUPREME COURT OF
v.
Bhankerpur
Simbhaoli Beverages (P.) Ltd.
J. S. VERMA AND N. P. SINGH JJ
Civil Appeal No. 5267 of 1993
Dr. F.S.
Narinan, Soli.J Sorabjee, Arun Jaitley, Dushyant Dave, Ms. Bina Gupta, Ms.
Moniha Mohil and S.C. Sharma for the Appellants.
Shanti
Bhushan and A K. Sen, A K. Ayganvala, Anup Bose, Asod
Alvi and Balraj Dewan, for the respondents.
Verma J.—Leave granted.
The main
question for decision in this appeal is the meaning of the expression "the
High Court" in section 10F of the Companies Act, 1956, which has been
inserted in the principal Act by the Companies (Amendment) Act, 1988, with
effect from May 31, 1991. The controversy is whether the High Court to which
the appeal lies under section 10F from an order of the Company Law Board is the
High Court having jurisdiction in relation to the place at which the registered
office of the company is situate or it is the High Court having jurisdiction in
relation to the place at which the Company Law Board makes the order under
appeal.
The material
facts giving rise to the above question are only a few, as stated hereafter. A petition
under section 397/398 of the Companies Act, 1956, was filed on behalf of the
appellant, Stridewell Leathers Private Ltd., before the Company Law Board in
respect of the company known as Shoe Specialities Pvt. Ltd. having its
registered office at
The
contention of Shri F.S. Nariman, learned counsel for the appellants is that the
expression "the High Court" in section 10F must mean the High Court
having jurisdiction in relation to the place at which the registered office of
the company concerned is situate and, therefore, in the present case, the
appeal under section 10F of the Companies Act, lies in the Madras High Court
instead of the Delhi High Court, since the registered office of the concerned
company is situate in Madras. In short, the submission of Shri Nariman is that
the scheme of the Companies Act gives this clear indication which is not
nullified by anything contained in section 10F or the object for making this
amendment. In reply, Shri A.K. Sen and Shri Shanti Bhushan, on behalf of the
respondents, contended that section 10F must be construed as conferring
jurisdiction on the High Court having jurisdiction in relation to the place at
which the Company Law Board makes the order under appeal. Shri Sen contended
that section 10(1)(a) does not provide any aid to the construction of the
expression "the High Court" in section 10F since section 10 relates
to the original jurisdiction and not to the forum of appeal provided by section
10F. On behalf of the respondents, it was contended that the transfer of
original jurisdiction from the High Courts to the Company Law Board in certain
matters resulting in conferment of jurisdiction in such matters only on the Company
Law Board instead of several High Courts is indicative of the scheme that the
appeal under section 10F from an order of the Company Law Board must also lie
only to the centralised forum, namely, the High Court having jurisdiction over
the Company Law Board at the place of its location where the order under appeal
is made. Shri Shanti Bhushan also placed reliance on clause 11 of the Letters
Patent of the Lahore High Court which by the historical process continues to be
applicable to the Delhi High Court as a further argument to support this
submission and to contend that the appeal in the present case lies to the Delhi
High Court since the order was made by the Company Law Board at Delhi.
In view of
the significance of this question which is bound to arise in several cases
hereafter and the fact that no clear indication is found in section 10F of the
Companies Act to indicate which High Court is meant as the forum of appeal in
such situations, we heard elaborate arguments from both sides for deciding the point
in controversy. The point was debated with considerable ability by learned
counsel for the parties which has focussed attention
on the several nuances of the two points of view. It is with this assistance,
we proceed to consider and decide this controversy.
The Companies
(Amendment) Act, 1988, which has inserted section 10F with effect from May 31,
1991, and has also made some simultaneous changes in section 10E brings about
the establishment of an independent Company Law Board to exercise the judicial
functions exercised earlier by the courts or the Central Government while
providing an appeal to the High Court under section 10F against such orders of
the Company Law Board. The power under sections 397 and 398 of the Companies
Act, exercised earlier by the court is one such power now exercised by the
Company Law Board so constituted. In short, the original jurisdiction of the
High Courts in respect of matters under sections 397 and 398 of the Companies
Act is now transferred to the Company Law Board.
Earlier, when
the original jurisdiction was in the High Court determined by section 10(1)(a) of the Act as the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate, admittedly the appeal from any order passed by the company judge of
the High Court in exercise of the original jurisdiction was to a Division Bench
of the same High Court. The question, therefore, is whether with the transfer
of the original jurisdiction of High Courts to the Company Law Board in such
matters, there is a similar substitution of the appellate forum to a
centralised High Court having jurisdiction over the place of sitting of the
Company Law Board where the order under appeal is made or the forum of appeal
remains unaffected by the change of the forum of original jurisdiction. This is
the precise point for determination in the present case.
Section 10F
gives no indication of substitution of the earlier forum of appeal by a new
forum unless the expression "the High Court" means only one High
Court in all matters notwithstanding the fact that earlier the original
jurisdiction was in different High Courts instead of in one forum now.
Ordinarily, substitution of a new forum for the existing forum of appeal should
not be readily inferred in the absence of a clear provision to that effect or
at least any incongruity resulting from that view. There does not appear to be
any incongruity in the view that the forum of appeal remains unaltered even
though the forum of original jurisdiction is now centralised by transfer of the
same from the different High Courts to the Company Law Board alone. It is now
to be seen whether this impression on first principles is negatived by the
relevant statutory provisions. It is also significant that neither section 10E
nor section 10F indicates any territorial nexus by providing the location of
the Company Law Board, or otherwise.
In construing
the meaning of the expression "the High Court" in section 10F, it was
urged by learned counsel for the respondents, that section 10(1) of the Act
does not furnish any aid since that relates to the original jurisdiction of the
court and not to the appellate jurisdiction contemplated by section 10F. It
would be appropriate at this stage to quote the relevant provisions in the
Companies Act which are as under:
"2.
Definitions.—In this Act, unless the context otherwise requires,‑ . . .
(11) 'the court' means,‑
(a) with
respect to any matter relating to a company (other than any offence against
this Act), the court having jurisdiction under this Act with respect to that
matter relating to that company, as provided in section 10 ; . . ."
"10.
Jurisdiction of courts.-(1) The court having
jurisdiction under this Act shall be—
(a) the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate, except to the extent to which jurisdiction has been conferred on
any District Court or District Courts subordinate to that High Court in
pursuance of sub-section (2) ; and
(b) where jurisdiction
has been so conferred, the District Court in regard to matters falling within
the scope of the jurisdiction conferred, in respect of companies having their
registered offices in the district.
(2) The Central Government may,
by notification in the Official Gazette and subject to such restrictions,
limitations and conditions as it thinks fit, empower any District Court to
exercise all or any of the jurisdiction conferred by this Act upon the Court,
not being the jurisdiction conferred—
(a) in respect of
companies generally, by sections 237, 391, 394, 395 and 397 to 407, both
inclusive ;
(b) in
respect of companies with a paid-up share capital of not less than one lakh of
rupees, by Part VII (sections 425 to 560) and the other provisions of this Act
relating to the winding up of companies.
(3) For
the purposes of jurisdiction to wind up companies, the expression 'registered
office' means the place which has longest been the registered office of the
company during the six months immediately preceding the presentation of the
petition for winding up".
"10E.
Constitution of Board of Company Law Administration.‑
(1) As
soon as may be after the commencement of the Companies (Amendment) Act, 1988,
the Central Government shall, by notification in the Official Gazette,
constitute a Board to be called the Board of Company Law Administration.
(1A) The Company Law Board shall exercise and discharge such powers and
functions as may be conferred on it, 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 by
the Central Government, by notification in the Official Gazette under the
provisions of this Act or that other law.
(2) The Company Law Board shall
consist of such number of members, not exceeding [nine], as the Central
Government deems fit, to be appointed by that Government by notification in the
Official Gazette:
Provided that
the Central Government may, by notification in the Official Gazette, continue
the appointment of the chairman or any other member of the Company Law Board
functioning as such immediately before the commencement of the Companies
(Amendment) Act, 1988, as the chairman or any other member of the Company Law
Board, after such commencement for such period not exceeding three years as may
be specified in the notification.
(2A)The members of the Company Law Board shall possess such
qualifications and experience as may be prescribed.
(3) One of the members shall be
appointed by the Central Government to be the chairman of the Company Law
Board.
(4) No act done by the Company
Law Board shall be called in question on the ground only of any defect in the
constitution of, or the existence of any vacancy in, the Company Law Board.
(4A)[Omitted by the Companies (Amendment) Act, 1988,
with effect from May 31, 1991.]
(4B)The Board may, by order in writing, form one or more Benches from
among its members and authorise each such Bench to exercise and discharge such
of the Board's powers and functions as may be specified in the order ; and every order made or act done by a Bench in
exercise of such powers or discharge of such functions shall be deemed to be
the order or act, as the case may be, of the Board.
(4C)Every Bench referred to in sub-section (4B) shall have powers which
are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908),
while trying a suit, in respect of the following matters, namely
:—
(a) discovery and
inspection of documents or other material objects producible as evidence ;
(b) enforcing the attendance of
witnesses and requiring the deposit of their expenses ;
(c) compelling the
production of documents or other material objects producible as evidence and
impounding the same ;
(d) examining witnesses on oath ;
(e) granting adjournments ;
(f) reception of evidence on
affidavits.
(4D)Every Bench shall be deemed to be a civil court for the purposes of
section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of
1974), and every proceeding before the Bench shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code
(45 of 1860), and for the purpose of section 196 of. that
Code.
(5). Without prejudice to the
provisions of sub-sections (4C) and (4D), the Company Law Board shall in the
exercise of its powers and the discharge of its functions under this Act or any
other law be guided by the principles of natural justice and shall act in its
discretion.
(6). Subject to the foregoing
provisions of this section, the Company Law Board shall have power to regulate
its own procedure".
"10F.
Appeals against the orders of the Company Law Board-Any person aggrieved by any
decision or order of the Company Law Board may file an appeal to the High Court
within sixty days from the date of communication of the decision or order of
the Company Law Board to him on any question of law arising out of such order :
Provided that
the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be
filed within a further period not exceeding sixty days".
"483.
Appeals from orders.‑Appeals from any order made, or decision given, in
the matter of the winding up of a company by the court shall lie to the same
court to which, in the same manner in which, and subject to the same conditions
under which, appeals lie from any order or decision of the court in cases
within its ordinary jurisdiction".
There can be
no doubt that in case the forum of appeal was indicated in section 10F by use
of the expression "the court" instead of "the High Court"
then by virtue of the definition of the expression "the court" in
section 2(11), the concerned court would have to be determined as provided in
section 10 but there may have been some ambiguity whether that expression means
"the High Court" or "the District Court" mentioned in
clause (a) or clause (b) of sub-section (1) of section 10. This ambiguity is
removed by use of the expression "the High Court" in section 10F
which unmistakably points to clause (a) of sub-section (1) of section 10 and
this appears to be the reason for the use of the expression "the High
Court" instead of "the court" in section 10F. There is nothing
in any of these provisions to exclude the application of section 10(1)(a) for
construing the meaning of the expression "the High Court" in section
10F since the context does not require otherwise and such a construction prevents
a hiatus. Care was taken to define the expression "the court" in
section 2(11) of the Act providing clearly that the meaning is as provided in
section 10 unless the context otherwise requires ; and
section 10 providing for the jurisdiction of courts then says that the court
having jurisdiction under the Act would be the High Court or the District Court
indicated therein. It is unlikely that with such care taken in the principal
Act to define "the court" and also specify the court having jurisdiction
under the Act, any ambiguity would be left while amending the principal Act in
this manner for any doubt about the forum of appeal if it was intended to be
different from the existing appellate forum indicated by section 10(1)(a). We have no doubt that an express provision would have
been made in the amendment to indicate a different or a substituted appellate
forum than the existing appellate forum if that was the intention of the
amendment or the jurisdiction of the court for the purpose of appeal had been
altered in any manner. The absence of any indication in the amendment to
suggest any change or substitution in the appellate forum is a pointer in the
direction that the same continued unaltered and the expression "the High
Court" instead of "the court" was used for the reason indicated
by providing that the concerned High Court continued to be the forum of appeal
notwithstanding transfer of the original jurisdiction from the concerned High
Court to the Company Law Board. It does appear to us that substitution of a new
forum of appeal in place of the existing forum in the concerned High Court, as
contended by the respondents cannot be inferred merely from the transfer of the
original jurisdiction to the Company Law Board in the absence of clear provision
to that effect.
The use of
the word "the" before "High Court" is clearly intended to
specify a particular High Court identified by section 10F itself and,
therefore, it cannot be a High Court indicated by the subsequent act of the
Company Law Board choosing the place of its sitting for making the order under
appeal. It is also indicative of the clear intention of the Legislature that
the indication of the particular High Court has to be found in the existing
provisions of the enactment and not by inference from any outside provision or
any subsequent act of the Company Law Board or any other authority. It further
lends assurance to the view that it excludes the possibility of any ambiguity
in the expression and refers to a particular High Court envisaged by other
provisions of the Act.
The provision
in section 10E for the Company Law Board to have more than one Bench and the
Company Law Board Regulations, 1991, framed under section 10E(6) of the Act
providing for sitting of the Bench at different places in the country does not
give any clue to the construction of the expression "the High Court"
in section 10F. On behalf of the respondents it was urged that all appeals
under section 10F would lie to the Delhi High Court where the Principal Bench
of the Company Law Board ordinarily sits but if the order under appeal is made
at any other place in the country where the Bench sits, then the High Court
having jurisdiction over that place can entertain the appeal. In our opinion,
this is too nebulous a concept for deciding the question of jurisdiction and
determination of the forum of appeal and, if accepted, would tend to empower
the Company Law Board to determine the forum of appeal by the choice of place
of sitting under the Regulations for making the order. We have no doubt that
the forum of appeal indicated in section 10F is a definite forum determined by
the provisions of the Act and not by the Regulations framed by the Company Law
Board under section 10E(6) or the place of its sitting under the Regulations.
These Regulations framed by the Company Law Board to regulate its own procedure
are, therefore, of no assistance for decision of the controversy.
It may be
mentioned that the original jurisdiction to try a petition for winding up of a
company continues to remain in the concerned High Court even though the
original jurisdiction in respect of a petition under sections 397 and 398 is
transferred to the Company Law Board. It is obvious that the appeal against an
order made by the company judge of the High Court in a winding up petition
continues to lie before a Division Bench of the same High Court. If the
construction suggested on behalf of the respondents is correct then that High
Court would have no jurisdiction to entertain an appeal against the Company Law
Board's order while an appeal from the company judge's order in a winding up
petition in respect of the same company would lie there. This appears to be
incongruous. A possible anomaly of this kind would be prevented by taking the
view which we have indicated.
In Arjun
Prasad v. Shantilal Shankarlal Shah [1962] 32 Comp Cas 149 ; [1962] Supp 2 SCR
402, the question was whether the appeal provided by section 153(7) of the
Indian Companies Act, 1913, lay to the High Court or to the Supreme Court. It
was held that an appeal from the order of the company judge lay to the High
Court under clause 10 of the Letters Patent and not to the Supreme Court. In
Shankarlal Aggarwala v. Shanhar- lal Poddar [1964] 1 SCR 717
; [1965] 35 Comp Cas 1 (SC), it was held that an appeal under section
202 of the Indian Companies Act, 1913, lay from the decision of the company
judge to the High Court. In this background, the Parliament, while inserting
section 10F in the Companies Act, 1956, appears to have merely emphasised that
the appeal provided therein continues to lie to the High Court, as earlier,
notwithstanding transfer of the original jurisdiction from the company judge of
the High Court to the Company Law Board resulting in inapplicability of the
Letters Patent.
It is also
noteworthy that the jurisdiction of the High Court under article 226, if it be
exercisable in respect of an order made by the Company Law Board, would be
determined by the place where the cause of action, or any part of it arises and
the Delhi High Court alone would not be the High Court for that purpose. The
High Court, within whose jurisdiction the registered office of the company
concerned lies giving rise to at least a part of the
cause of action, would be entitled to exercise the writ jurisdiction under
article 226 of the Constitution. It is a different matter that the existence of
the efficacious remedy of statutory appeal under section 10F would justify
refusal of interference under article 226. Parliament could not have been
unaware of this situation. This being so, it is difficult to accept that even
though the High Court having jurisdiction in relation to the place at which the
registered office of the company concerned is situate may be entitled to
entertain a writ petition against an order made by the Company Law Board, it
would have no jurisdiction to entertain the statutory appeal under section 10F
of the Companies Act in respect of the same company, except in the case of the
Delhi High Court. No such distinction between the High Courts can be envisaged.
It was precisely to remove such an anomaly in respect of the orders made by the
Central Government or the other authorities situate in
Both sides
have placed reliance on section 54 of the Foreign Exchange Regulation Act, 1973
(for short "FERA") which provides an appeal to the High Court from
any decision or order of the Appellate Board constituted under the Act. An
explanation has been added therein to give the meaning of the expression
"High Court". The absence of a similar explanation in section 10F of
the Companies Act is relied on by both sides to support the rival contentions.
In our opinion, the absence of a similar explanation in section 10F does not
support the respondents' contention. In the absence of provisions like sections
2(11) and 10(1)(a) of the Companies Act in the FERA,
the addition of the Explanation in section 54 of the FERA appears to have been
considered necessary to remove any possible ambiguity. The other provisions in
the Companies Act, 1956, and the historical background did not require any such
Explanation in section 10F.
We are also
not impressed by the argument of Shri Shanti Bhushan based on clause 11 of the
Letters Patent of the Lahore High Court. In the first place, any general provision
for appeal must give way to the special provision made in the Companies Act.
The provision of appeal by insertion of section 10F is in substitution of the
provision in the Letters Patent or similar enactment providing for appeal
against orders of the company judge when the original jurisdiction was in the
High Courts. If the construction made by us of section 10F and the other
relevant provisions of the Companies Act is correct, the provision in the
Letters Patent of the Lahore High Court would not be material for deciding
which High Court has jurisdiction to entertain the appeal since the appeal
would lie by virtue of the specific provision in section 10F of the Companies
Act. In this context, any further discussion of the provision in the Letters
Patent of any High Court cannot have any significance.
For the
aforesaid reasons, we are of the opinion that the expression "the High
Court" in section 10F of the Companies Act means the High Court having
jurisdiction in relation to the place at which the registered office of the
company concerned is situate as indicated by section 2(11) read with section
10(1)(a) of the Act. Accordingly, in the present case, the appeal against the
order of the Company Law Board would lie in the Madras High Court which has
jurisdiction in relation to the place at which the registered office of the
company concerned is situate and not the Delhi High Court merely because the
order was made by the Company Law Board at Delhi. This appeal is allowed and
the impugned order made by the Delhi High Court is set aside resulting in
acceptance of the preliminary objection raised by the appellants in the Delhi
High Court. The Delhi High Court will now make the consequential order. No
costs.
[2004] 50 scl 693 (Punj.
& Har.)
High
Court of Punjab and Haryana
v.
Dr. Vikramjit Singh Vohra
Swatanter Kumar and Mrs. Bakhshish Kaur, JJ.
Company
Appeal No. 4 of 2000
September
8, 2000
Section 10F, read with sections 397 and 398, of
the Companies Act, 1956 - Company Law Board - Appeals against orders of -
Whether an appeal from order passed in a petition under sections 397 and 398 by
CLB will be laid before a Bench consisting of two or more Judges for a
preliminary hearing for purpose of admission of said appeal, and after
admission, matter can be listed before Company Judge for its disposal on merits
- Held, yes
On a petition
filed by the respondents under sections 397 to 399 alleging mismanagement by
the appellants in relation to affairs of a company, the CLB expressed its
inability to recognise the majority status of the petitioner. During the
pendency of the proceedings before the civil court, certain directions were
issued and parties were left at liberty to approach the civil court.
On appeal
under section 10F against CLB’s judgment, the question to be determined was
whether the appeal against the order of the CLB would lie before the Company
Judge exercising original jurisdiction of the High Court or before a Division
Bench.
Law prescribes
clear distinction between the original and appellate jurisdiction of a Court.
The fields covered under these two concepts have well-recognised limitations in
law. A commercial cause would have to be heard by the Company Judge as per the
nominations made by the Chief Justice. Nothing had been placed to suggest that
the existing appellate forum had been altered by any rule, regulation,
notification or even nomination. The jurisdiction in a Court necessarily must
be vested by an appropriate legislation or the rules framed under the powers of
delegated legislation. It is a settled principle that jurisdiction of a Court
cannot be inferred and it is an act of prescription. There is no trace of the
element of jurisdiction being vested in a Single Judge to hear the appeals
against the orders of the CLB backed by any legislative or other power. [
Thus, an
appeal from the order passed in a petition under sections 397 and 398 by the CLB
would be laid before a Bench consisting of two or more Judges for a preliminary
hearing for the purposes of admission of the said appeal.
That rule does
not postulate that the appeal itself should be disposed of on the merits of its
regular hearing by a Bench of two or more Judges. The necessary implication
thereof would be that the matter after admission can be listed before the
Company Judge for its disposal on the merits in accordance with the rules as
they stand till date. Such an interpretation would even further the cause of
justice as it would provide a right of appeal to the appellant in consonance
with the normal procedure of the court under the Letters Patent Act. It is the
settled rule of interpretation that a provision should be interpreted so as not
to take away a right which may otherwise be available to a litigant in the
normal course of law. [
Conscious of
the above reasoning, however, keeping the view the legal scenario emerging from
the amended provisions of the Act, their implication in law and effects on the
prescribed procedure, it would be appropriate to emphasize on the need for
amending the existing relevant High Court Rules and Orders to provide an
appropriate appellate forum against the orders of the CLB. Amendments are certainly
called for in view of the amendments to the Act. Such amendments would not only
save the time of the Division Benches of the Court as appeals could well be
heard by the Company Judge against the orders of the CLB, but it will also help
in expeditious disposal. Therefore, the Registry was directed to place the
matter before the Chief Justice for his consideration and possibility of
considering the suggestions of the Court. [
The Companies
(Court) Rules have not been amended by the Supreme Court under section 643
despite the introduction of sections 10E and 10F on the statute book. The above
discussion further justifies the need to amend the relevant High Court Rules
and Orders so that the appeal against the orders of the CLB can be dealt with and
disposed of by the Company Judge. [
As of present,
the appeal would lie before the Division Bench. Therefore, the instant appeal be listed for preliminary hearing before the appropriate
Bench subject to orders of the Chief Justice. [
Minoo H. Mody
v. Hemant D. Vakil [1997] 89 Comp. Cas. 456 (Bom.) (para 7), Stridewell
Leather (P.) Ltd. v. Bhankerpur Simbhaoli Beverages (P.)
Ltd. [1994] 79 Comp. Cas. 139 (SC) (para 8), Stephen
Chemicals Ltd. v. Innosearch Ltd. [1986] 60 Comp. Cas.
702 (para 8) and H.S. Tuli & Sons Builders (P.) Ltd. v. Union of India [2000] 1 All Instant Judgments 541 (para
10).
L.M. Suri and Deepak Suri for the Appellant.
Judgment
Swatanter
Kumar, J. - When this appeal came up for preliminary hearing for admission
before us on April 26, 2000, we passed the following order :
“During the hearing of this appeal a question
has arisen with regard to the maintainability of the present appeal before the
Division Bench of this court. Mr. Suri, learned counsel for the appellants, has
conceded that there will be a serious doubt to the very maintainability of the
appeal before the Division Bench. Learned counsel expressed his inability to
cite any judgment to support the view that an appeal against the order passed by
the Company Law Board shall lie before the Division Bench of this court and not
the learned company judge. Having heard learned counsel at some length and also
keeping in view the fact that in one of the connected appeals being company
Appeal No. 8 of 1998 titled as Kamal Oswal v. Vardhaman Spinning and General
Mills Ltd. doubt was also expressed by another Division Bench of this court,
wherein it passed the following order :
‘At the commencement of the hearing Shri
Narang pointed out that in the absence of any rules requiring laying of appeals
filed under section 10F of the Companies Act, 1956, before the court,
which came into force on May 13, 1991, this appeal should not have been placed
before the motion Bench and should have been treated as admitted automatically
by the registry.
Since the point raised by learned counsel will
affect other cases also, we deem it proper to direct the office to submit a
comprehensive report in the matter.
Put up on August 3, 1998.’
The question has not been answered by the
Division Bench in that appeal as of today. Thus, after hearing learned counsel
at some length, we reserve the order.”
2. Learned
counsel appearing for the respective parties had submitted various judgments,
the copies of which were given subsequent to the date of hearing. Resultantly,
the matter was listed for re-hearing and then was finally reserved for orders
on July 18, 2000, by us.
3. In
order to squarely answer the controversy arising in the present case, reference
to certain basic facts and relevant statutory provisions would be necessary.
Dr. V.J.S. Bora and others had filed a petition under sections 397, 398, 399 of
the Companies Act, 1956, before the Company Law Board, New Delhi, praying that
there was mismanagement exercised by Ms. Baljit Kaur Bora and others in
relation to the affairs of Navedak Prosathetic Centre, a company duly
registered under section 25 of the Companies Act, 1956. The Principal Bench of
the Company Law Board vide its order dated January 18, 2000, came to the
conclusion that the Board was not able to recognise the majority status of the
petitioner. During the pendency of the proceedings before the civil court,
certain directions were issued and parties were left at liberty to approach the
civil court in accordance with law. Aggrieved by the judgment of the Bench, Ms.
Baljit Kaur and others have preferred an appeal under section 10F of the
Companies Act. In the above circumstances, the registry of this court has
listed the appeal for preliminary hearing before the Division Bench.
Thus, the pertinent question that falls for determination is whether the
appeal against the order of the Company Law Board would lie before the learned
company judge exercising original jurisdiction of this Court or before a
Division Bench.
4. For
answering this question we would hardly need to discuss in any further
elaboration other facts which are in dispute between the parties with regard to
oppression and mismanagement of the affairs of the company. Suffice to the
abovenoted facts, reference to relevant provisions
would be necessary. Vide notification dated May 31, 1991, sections 10E and 10F
amongst other provisions, were introduced in the Companies Act, 1956. Multiple
amendments were introduced which specifically change the application of various
provisions of the Companies Act and even with regard to the forum which were
available to the aggrieved parties. Prior to these amendments a petition under
sections 397 and 398 could be filed only before the learned company Judge. The
order passed thereupon was appealable and appeal lay to the Division Bench of
this Court against the order passed by the learned company Judge. In other
words, prior to the amendment, the learned company Judge was exercising
original company jurisdiction and the orders were appealable to a Division
Bench of this court under Letters Patent Act (Clause X) read with Volume V,
Chapter 3, Part B of the Rules and Orders of Punjab and Haryana High Court. By
virtue of the provisions of the amending Act of 1991, the very forum for institution
of the petition under sections 397 and 398 was changed or altered. Such
petition could alone be filed before the Company Law Board under the amended
provisions of section 397 of the Companies Act, and it has to be disposed of by
the duly constituted Board in accordance with the self-prescribed procedure and
spirit of provisions of section 10E of the Act. The order passed under section
10E which involves a question of law is appealable to the High Court under
section 10F of the Act. Section 10F of the Act reads as under
:
“10F. Any person aggrieved by any decision or
order of the Company Law Board may file an appeal to the High Court within
sixty days from the date of communication of the decision or order of the
Company Law Board to him on any question of law arising out of such order :
Provided that the High Court may, if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within the said period, allow
it to be filed within a further period not exceeding sixty days.”
5. A bare reading of the
above provisions indicates that the appeal would lie to the High Court, within
the prescribed period of limitation on any question of law arising out of such order.
The mandate of the Legislature is limited in its natures and scope. The appeal
is maintainable before the High Court. Part B of Chapter 3 of Volume 5 of the
Rules and Orders of Punjab and Haryana High Court (Practice and Procedure)
subject to the provisions specified in the said clauses of the Chapter, the
classes of cases mentioned thereunder shall ordinarily be heard and disposed of
by a judge sitting alone. In other words, the matters ordinarily would be heard
by a learned judge sitting alone except for the exceptions stated in the said
Chapter.
6. Under Part B of Chapter
3 of Volume 5 of the said Rules, appeals from commercial causes would be heard
by a nominated Bench, which could be a judge sitting alone or in a Bench. Under
clause 3A all cases under the Companies Act, 1956, will be treated as
“commercial causes” and would normally be heard by a learned Single Judge as
under clause 2 the Chief Justice shall nominate one of the judges of the court
to hear commercial causes from time to time. The heading of Part D clearly
shows that appeals from decree and commercial causes, in relation to the Act in
question, would mean an order passed under sections 397 and 398 of the Act. On
the basis of the above provisions, learned counsel for the appellant had
contended that it is the learned company Judge, sitting singly, who can hear
the appeals against the Company Law Board and the appeal as such may not be
maintainable before the Division Bench of the High Court. We do notice the
substance in the submission more particularly keeping in view the amended
provisions of the Act, but we cannot lose sight of a specific rule which
provides an exception to the general rule that cases would normally be heard by
a single judge of this Court. Clause 1 reads as under :
“Jurisdiction of a single
judge and of Benches of the court.
Cases ordinarily to be heard by Single
Judge.—Subject to the provisions hereinafter set forth, the following classes
of cases shall ordinarily be heard and disposed of by a Judge sitting alone :
(i) a motion for the admission of first appeal against decree of
sub-ordinate court, regular first appeal under the Land Acquisition Act,
regular second appeal, first appeal against orders, first appeal against order
under Central or State Acts, unless otherwise provided in the Act, execution
first appeals, execution second appeals, second appeal against orders, second
appeal against order under Central or State Acts unless otherwise provided in
the Act, civil revision petitions and any other application or petition under
Code of Civil Procedure or under any Central or State Act, unless otherwise
provided in the Code or Act.
Explanation.—The preliminary hearing for the
admission of appeal against award rendered by the Motor Accidents Claims
Tribunal, appeal against the decree or order passed under the Hindu Marriage
Act, 1955, Letters Patent Appeals, Civil Appeals (Contempt), Company Appeals,
Sales Tax cases and Gift-tax cases shall be before a Bench of two judges.”
7. It appears that as
per the High Court Rules and Orders, as they stand today, such an appeal would
be heard by a bench of two or more judges for the purposes of preliminary
hearing for admission of the appeal though thereafter such matter may be
finally disposed of by company judge. Reference was made to a judgment of the
Bombay High Court in the case of Minoo H. Mody v. Hemant D. Vakil [1997] 89
Comp. Cas. 456, where a Division Bench of Bombay High Court took a view that
appeals from the orders passed by the Company Law Board under sections 397 and
398 would lie to a Single Judge exercising original jurisdiction and not to the
Division Bench.
8. We would refer to
the observations of the Supreme Court of India in the case of Stridewell
Leathers (P.) Ltd. v. Bhankerpur Simbhaoli Beverages (P.)
Ltd. [1994] 79 Comp. Cas. 139. Though the Apex Court
was primarily concerned with a question relating to the territorial
jurisdiction of the concerned High Court where the dispute mainly related to
the maintainability of an appeal before a different High Court as a result of
change in the forum, i.e., the Company Law Board as a result of its Bench
deciding the case under the jurisdiction of a different court. But their
Lordships specifically observed that there was no change as a result of the
amended provisions in the appellate forum. The following observations are
material to be noticed :
“The absence of any indication in the
amendment to suggest any change or substitution in the appellate forum is a
pointer in the direction that the same continued unaltered and the expression
‘the High Court’ instead of ‘the court’ was used for the reason indicated by
providing that the concerned High Court continued to be the forum of appeal
notwithstanding transfer of the original jurisdiction from the concerned High
Court to the Company Law Board. It does appear to us that substitution of a new
forum of appeal in place of the existing forum in the concerned High Court, as
contended by the respondents cannot be inferred merely from the transfer of the
original jurisdiction to the Company Law Board in the absence of clear
provision to that effect.” (p. 147)
A Division
Bench of this Court in the case of Stephen Chemical Ltd. v. Innosearch Ltd.
[1986] 60 Comp. Cas. 702, while pointing out the
distinction between the Rules of the Bombay High Court and this court clearly
held as under :
“The Bombay High Court Rules are not in pari
materia with the Rules of the
** ** **
Rule 1 abovestated clearly provides that a
motion for the admission of matters mentioned in clause (i) thereof shall
ordinarily be heard and disposed of by a judge sitting alone. The Explanation
is an exception to clause (i) and by virtue of the Explanation, in matters
including company appeals for the above purpose, that is, a motion for the
admission, be set down before a Bench of two judges
instead of a judge sitting alone. It would thus be evident that the relevant
rules of this court expressly envisage a company appeal to be listed for motion
hearing before a Division Bench. Once a matter comes up for admission purposes,
it would be for the Division Bench while hearing the matter either to admit it
for final hearing or to dismiss it, if it finds no merits therein.” (pp.
705-706)
Company
matters even if treated as a commercial cause are being heard by the judge
nominated by the Chief Justice as the “company judge”. We are unable to agree
with the contention raised on behalf of the petitioner that as a necessary
corollary thereto, a company appeal would also have to be heard by the learned
company Judge of the purposes of admission of the appeal. Particularly, in view
of the Explanation to clause (i) aforementioned the acceptance of such argument
would run contrary to the specific provision of the High Court Rules and
Orders. In view of the observations of the Supreme Court in
Stridewell Leathers (P.) Ltd.’s case (supra), an unambiguous verdict of
a Division Bench incorporating clause (1) of Part B of Chapter 3 of Volume 5 of
the Rules we have no hesitation in following the same view.
9. Law prescribes
clear distinction between original and appellate jurisdiction of a Court. The
fields covered under these two concepts have well- recognised limitations in
law. A commercial cause would have to be heard by the learned company Judge as
per the nominations made by the Chief Justice. Nothing has been placed before
us which would suggest that the existing appellate
forum has been altered by any rule, regulation, notification or even
nomination. The jurisdiction in a court necessarily must be vested by an
appropriate legislation or the rules framed under the powers of delegated
legislation. It is a settled principle that jurisdiction of a court cannot be
inferred and it is an act of prescription. We are unable to trace the element
of jurisdiction being vested in a learned Single Judge to hear the appeals
against the orders of the Company Law Board backed by any legislative or other
power particularly in the face of the afore-referred provisions.
10. Thus, we conclude
that an appeal from the order passed in a petition under sections 397 and 398
by the Company Law Board would be laid before a Bench consisting of two or more
judges for a preliminary hearing for the purposes of admission of the said
appeal. This rule does not postulate that the appeal itself should be disposed
of on the merits on its regular hearing by a Bench of two or more judges. The
necessary implication thereof would be that thereafter the matter after
admission can be listed before the company judge for its disposal on the merits
in accordance with the rules as they stand today. Such an interpretation would
even further the cause of justice as it would provide a right of appeal to the
appellant in consonance with the normal procedure of the court under the Letters
Patent Act. It is the settled rule of interpretation that a provision should be
interpreted so as not to take away a right which may otherwise be available to
a litigant in the normal course of law. In this regard reference can be made to
the judgment of this court in the case of H.S. Tuli & Sons Builders (P.) Ltd. v. Union of
11. Conscious of the
above reasoning, however, keeping in view the legal scenario emerging from the
amended provisions of the Companies Act, their implication in law and effects
on the prescribed procedure, we would consider it appropriate to emphasise the
need for amending the existing relevant High Court Rules and Orders to provide
an appropriate appellate forum against the orders of the Company Law Board.
Amendments are certainly called for in view of the amendments to the Act. We
are of the considered view that such amendments would not only save the time of
the Division Benches of the court as appeals could well be heard by the company
judge against the orders of the Company Law Board, but it will also help in
expeditious disposal of appeals. Therefore, we direct the Registry to place the
matter before the Chief Justice for His Lordship’s consideration and
possibility of considering the suggestions of the Court.
12. We have emphasized
the need for such exercise particularly keeping in view the fact that the
Companies (Court) Rules have not been amended by the Supreme Court under
section 643 of the Companies Act despite the introduction of sections 10E and
10F on the statute book. The above discussion further justifies the need to
amend the relevant High Court Rules and Orders so that the appeal against the
orders of the Company Law Board can be dealt with and disposed of by the company
judge.
13. As of present, the
appeal would lie before the Division Bench. Therefore, we direct the appeal to
be listed for preliminary hearing before the appropriate Bench subject to
orders of the Chief Justice.
[1998]
017 SCL 484 (
HIGH COURT OF
v.
Union of
SHYAMAL KUMAR SEN AND ALTAMAS
KABIR, JJ.
APPEAL NO. 71 OF 1998
MAY 15, 1998
Section 408 of the Companies
Act, 1956 - Opression or mismanagement -Powers of Government to prevent -
Whether section 408 empowers CLB to make any interim orders pending final
adjudication - Held, no - Whether section 408 vests Central Government and not
CLB with power to appoint additional directors to board of company - Held, yes
- Whether by invoking regulation 44 of CLB Regulations CLB can pass interim
order in an application under section 408 - Held, no - Government filed
application under section 408 - In
proceedings under section 397/398 initiated by employees federation CLB ordered
appointment of nominee of Financial Institutions to board of directors - One,
P, nominee of F-l was appointed as director liable to retire on rotation -
Ultimately after a few years P was not elected to Board - Government took out
application in its pending proceedings under section 408 alleging contempt of
CLB order and sought restoration of status quo ante by appointing P as director
- CLB ordered company to take on Board
nominee of F-l - Government contested appeal of company as not maintainable on
ground that no question of law arose out of CLB's order - Whether no reference
on any question of law was required to be made to High Court and High Court had
only to see whether there existsed a question of law arising out of order of
CLB impugned in appeal and as such appeal was maintainable - Held, yes -
Whether a composite application for different reliefs could not have been filed
by Central Government, since contempt of court relates to its special
jurisdiction and a separate application for contempt should have been filed in
respect of order which was allegedly violated - Held, yes - Whether even
otherwise interim order passed by CLB being outside purview of section 408
CLB's order was to be set aside - Held, yes
Section 10E of the
Companies Act, 1956, read with regulations 2(e), 44 and 47 of the Company Law
Board Regulations, 1991 - Company Law Board - Whether Company Law Board within meaning
of regulation 2(e) shall be deemed to be a court for limited purposes, namely,
for purpose of prosecution or punishment of a person who wilfully disobeys any
direction or order of Bench and not for all purposes - Held, yes - Whether,
therefore, taking recourse to regulation 44 CLB cannot pass interim order in an
application under section 408 - Held, yes
The
Central Government filed application under section 408 before the CLB, while so
the Employees Federation of the appellant-company filed an application before
the CLB under sections 397 and 398 seeking removal of all the directors of the
appellant-company. In that proceedings the company was
directed to take on the board the nominees of Financial Institutions.
Accordingly, one P recommended by LIC was appointed and re-elected as director
since 1989. Ultimately, on 30-12-1997 he could not be re-elected. The Central
Government filed an application before the CLB in pending proceeding under
section 408 seeking initiation of appropriate contempt proceedings against the
promoters/directors for guilty of deliberate violation and flouting of CLB
order and to restore status quo ante by ordering that P would continue to be
director. The CLB passed impugned order directing the company to appoint the nominee
of F-1 as director. The appellant-company on appeal,
contended that the application filed by the Central Government in the pending
proceeding under section 408 was misconceived and was not maintainable and
interim order passed was wholly without jurisdiction and in excess of power
vested in the CLB under section 408. The Central Government contested the
appeal inter alia raising a preliminary objection that the appeal itself was
not maintainable.
In
the facts of this case, the objection taken on behalf of the Central Government
that the appeal was not maintainable did not appear to have any substance. In this case no
reference on any question of law was required to be made to the Court and the
Court had to see whether there existed a question of law arising out of the
order of the CLB impugned in appeal It was not possible for the
appellant-company to foresee and/or to anticipate the order that was passed by
the CLB since no relief had been sought for by the Central Government in
confirmity with the said order. In its application, the Central Government had
alleged that by not re-electing P to the board of directors of the
appellant-company, the direction given by the CLB on 27-10-1996, in the
proceedings under sections 397 and 398 had been violated and hence, contempt
proceedings should be drawn up against the persons responsible for such
violation and status quo ante should be restored by allowing P to continue on
the board of directors of the appellant company. Therefore, it was to be held
that such a composite application for different reliefs could not have been
filed by the Central Government, since contempt of Court relates to its special
jurisdiction and a separate application for contempt should have been filed in
respect of the order which was allegedly violated
The
order ultimately passed by the CLB on 21-1-1998, had no bearing with the
reliefs prayed for by the Central Government in the application regarding
alleged contempt of the CLB order of 27-10-1996. There was, therefore, no scope
for any submission to be made before the CLB in relation to its jurisdiction to
pass such an order, which, was a question of law of some importance arising out
of the said order. Therefore, it was to be held that the instant appeal was
maintainable.
The
impugned order of the CLB had been made on the interlocutory application filed
by the Central Government in the pending proceeding under section 408 for
invoking the contempt jurisdiction of the CLB in respect of an order passed by
the CLB on 27-9-1996, in another proceeding under sections 397 and 398
commenced on an application filed by the Employees Federation.
That
in itself would have been sufficient to dispose of the
appeal, but the court was required to decide a more fundamental question of law
arising out of the impugned order of the CLB.
Although,
section 408does not provide for the making of interim orders, the CLB had not
only made an interim order, but such interim order, but such interim order was
beyond even the scope of the final order contemplated under section 408.
The
Central Government filed an application before the CLB seeking direction to
appoint additional directors on the Board of the appellant-company, as
contemplated under section 408. In making the order impugned in this appeal,
the CLB acted outside the provisions of section 408 and an attempt had been
made by the Central Government to establish that such order was passed by the CLB in
exercise of its inherent powers as an interim measure on the interlocutory
application filed by the Central Government in the said proceedings.
Since
section 408 vests the Central Government and not the CLB with power to appoint
additional directors to the board of the company on the order of the CLB to
that effect, the Central Government's submissions that the CLB was entitled to
pass the impugned order in exercise of inherent powers could not be accepted.
Even if, having regard to regulation 44 of the Company Law Board Regulations,
the CLB is vested with inherent powers to make such orders as may be required for
the ends of justice or to prevent abuse of the process of the CLB, such power
cannot be exercised in excess of the powers flowing from the statute itself.
Such power has to be exercised by the CLB in aid of and not de hors the
provisions of the statute and, in any event, such exercise of power conferred
by regulation 44 cannot override the provisions of the statute. Although, it has been urged by the Central Government that the CLB
has been held to be a 'Court' in Canara Bank v. Nuclear Power Corpn. of India Ltd. [1995] 84 Comp. Cas. 70/4 SCL 42 (SC), such
finding seems to be in the limited perspective of section 9A, of the Special
Court Act, for the purpose of transfer of proceedings pending before any Court
to the Special Court established under the said Act.
Regulation
47 of the above-mentioned Regulations clarifies the position somewhat since it
provides that the Bench constituted by the CLB within the meaning of regulation
2(e) shall be deemed to be a Court for limited purposes, namely, for the purpose
of prosecution or punishment of a person who wilfully disobeys any direction or
order of the Bench and not for all purposes.
Certain
specific provisions of the Companies Act, as amended by the various Amending
Acts, vests the CLB with power to make interim orders in specific circumstances
and not in general terms. Following the observations made by the Supreme Court
in the case of Morgan Stanley Mutual Fund v. Kartick Das [1994] 1 SCL 19, it
was to be held that the CLB has no jurisdiction to pass the impugned order and
the same is liable to be set aside.
Therefore,
the appeal was allowed and the order passed by the CLB on 21-1-1998, on the
application filed by the Central Government in the pending proceeding under
section 408 was set aside.
Morgan
Stanley Mutual Fund v. Kartick Das 1994 (4) SCC 225/1 SCL 19 (SC) Gappulal v.
Thakurji Shriji Dwarkadheeshji AIR 1969 SC 1291, Sree Meenakshi Mills Ltd. v.
CIT AIR 1957 SC 49, Siddik Mahomed Shah v. Mt. Satan AIR 1930 PC 57, CIT v.
Scindia Steam Navigation Co. Ltd AIR 1961 SC
1633, Canara Bank v. Nuclear Power Corpn. of India Ltd
[1995] 84 Comp. Cas. 70/4 SCL 42 (SC), Manohar Lal Chopra v. Rai Bahadur Rao
Raja Seth Hiralal AIR 1962 SC 527, Ram Sahai Pandey v. State Industrial Court
1973 LLJ 553, ITO v. M.K. Mohammed Kunhi AIR 1969 SC 430, Arjun Singh v.
Mohindra Kumar AIR 1964 (SC) 993, Sri Sri Radha Krishnaji Thakur v. Sankar Lal
Khettry 88 CWN 507 and Metal Press Works Ltd. v. Ram Pratap Kayan 72 CWN 594.
Anil
V. Dewan, S.B. Mukherjee and P.C. Sen for
the Appellant. Anindya
Mitra and B. Samaddar for the Respondent.
Kabir, J. — Shaw Wallace & Co. Ltd. (the 'appellant company'), has
preferred this appeal under section 10F of the Companies Act, 1956 ('the Act'),
against an order passed by the Company Law Board (CLB) on 21 -1 -1998, on an
application filed by the Central Government in a pending proceeding under
section 408 of the aforesaid Act, being C.P. No. 46 of 1996. The said
proceedings had earlier been filed by the Central Government seeking directions
from the CLB for appointment of Addl. Directors on the Board of the
appellant-company.
2. It appears
that in July 1996, an application was filed by the All India Shaw Wallace
Employees Federation before the CLB under sections 397 and 398 of the aforesaid
Act, seeking removal of all the Directors of the appellant-company. In its
order dated 27-9-1996, the said Board recorded the undertaking given by the
appellant-company that pending the disposal of the interim applications and
without prejudice to its rights and contentions, it would not make any
investment or disinvestment and/or borrow and/or give loans and advances,
otherwise than in the ordinary course of business of the appellant-company and
its subsidiaries of an amount or value exceeding Rs. 50 lakhs at a time, unless
approved by its Board of Directors in a meeting to be attended by a Director
representing the financial institutions.
3. While
recording such undertaking, the CLB directed the appellant- company to
ascertain from the financial institutions the name of their nominee and such
person would always be invited to meetings of the board of directors and he
would also, without fail, attend the Board meetings. The financial institutions
were directed to ensure his attendance at the Board meetings. The
appellant-company was also restrained from inducting any Directors into the
Board of directors without the specific approval of the CLB.
4. The All India
Shaw Wallace Employees Federation preferred an appeal to this Court against the
aforesaid order of the CLB and this Court by an order dated 7-10-1996,
restrained the appellant-company and its subsidiaries from making any
investment or disinvestment, borrowing or lending monies to any of its
subsidiaries or to any other concern, of an amount exceeding Rs. 50 lakhs
without the prior leave of the Court.
5. The
appellant-company filed a special leave petition in the Supreme Court against
the aforesaid order of this Court and by its order of 1-11- 1996, the Supreme
Court modified the order of this Court by directing that the appellant company
would not do any of the things indicated in the said order without the prior
leave of the CLB.
6.
After the special leave petition was disposed of by the Supreme Court,
the appellant company filed Company Application No. 238 of 1996 before the CLB
seeking permission to dispose of its Consumer Products Division. The said
application was disposed of on 26-11-1996, with a direction that any proposal
made by the company regarding any transaction involving Rs. 50 lakhs and above
should be subjected to independent assessment and for the said purpose
nominated two Directors on the board of directors of the company. It was also
stipulated that in future permission for any transaction amounting to Rs. 50
lakhs and above would require the approval of at least one of the said two
Directors.
7. At this
juncture, it may be mentioned that on 4-8-1989, at a meeting of the board of
directors of the appellant company, one Shri P.K. Pandit, whose name was recommended
by the Life Insurance Corporation of
8. Soon
thereafter on 12-1-1998, the Central Government filed an application before the
CLB in the pending proceeding under section 408 (C.P. No. 46 of 1996), inter
alia, for the following orders;
"(i) Initiate appropriate contempt proceedings
against the promoters/ Directors/Contemnors whoever are found to be involved
and guilty of deliberate violation and flouting of order dated 27th September,
1996, of this Company Law Board;
(ii) Restore status quo ante regarding the Directorship/Nomineeship of
the financial institutions represented by LIC and thereby order that Shri P.K.
Pandit shall continue to enjoy the same status on the Board of Directors of
Shaw Wallace & Co. as on 30th December, 1997."
Although, the said
application has been described as an application for interim orders and further
appropriate directions/orders, from the reliefs prayed for it will be evident
that he same was primarily an application for invoking the contempt
jurisdiction of the CLB and for orders consequent upon alleged violation by the
appellant company of the order passed by the said Board on 27-10-1996.
The said application was
disposed of by the CLB on 21-1-1998, and without entering into the controversy
as to whether its order of 27-9-1996, had been violated, the said Board observed
that since the financial institutions were holding over 25 per cent shares in
the appellant company and have always had a nominee on the Board of the company
for a long time, they should continue to have such nominee on the Board. The
financial institutions were, accordingly, directed to nominate their nominee
within ten days for being appointed on the Board of the company and to ensure
his attendance at all Board meetings without fail.
9. Pursuant to
the said directions, the Life Insurance Corporation of India by its letter
dated 27-1-1998, informed the appellant company of the decision of the
financial institutions to nominate Shri P.K. Pandit as their representative on
the Board of the company and requested the company to take necessary steps for
Shri Pandit's induction as Director on the Board of directors of the company in
compliance with the orders of the CLB dated 21-1-1998.
As indicated hereinbefore,
it is the said order of the CLB which is the subject matter of challenge in
this appeal and a preliminary objection has also been taken on behalf of the
Central Government that the appeal is not maintainable.
10. Appearing in
support of the appeal, Mr. Anil Dewan submitted that the application filed by
the Central Government in the pending proceeding under section 408, was
misconceived and was not maintainable and the impugned order passed thereon
was, therefore, wholly without jurisdiction and in excess of the powers vested
in the CLB under section 408.
11. Mr. Dewan urged
that section 408 does not provide for passing of interim orders by the CLB and
in passing such order, the said Board had exceeded its jurisdiction.
12. In this regard
reference was made to the decision of the Hon'ble Supreme Court in the case of
Morgan Stanley Mutual Fund v. Kartick Das 1994 (4) SCC 225/1 SCL 19, wherein
while considering the provisions of the Consumer Protection Act, 1986, the
Supreme Court held that under section 14 of the said Act, the District Consumer
Disputes Redressal Forum had no power and jurisdiction to grant interim relief
and could only grant final relief and the interim order of stay granted by the
Forum staying the public issue floated by the appellant company, was not
sustainable.
13. Mr. Dewan urged
that apart from the fact that section 408, does not empower the CLB to make any
interim orders pending final adjudication, the contempt application was also
without any factual basis, in as much as, the order passed by the CLB on
27-9-1996, had merged with the orders subsequently passed by this Court and the
Supreme Court and the said contention had been duly accepted by the CLB and is
reflected in its order dated 21-1-1998. Mr. Dewan urged that the CLB had,
therefore, chosen not to go into the allegation of violation of its order of
27-9-1996, but instead of dismissing the said application, the Board quite
erroneously gave directions of an interim nature to the financial institutions
to name their nominee who was to be appointed to the board of directors of the
appellant company, although, there was no basis for such directions.
14.
In
support of this contention, Mr. Dewan referred to the decision of the Supreme
Court in the case of Gappulal v. Thakurji Shriji Dwarkadheeshji AIR 1969
SC 1291, wherein while considering, inter alia, the provisions of order 6 rule
2 and Order 14 rule 2 of the Code of Civil Procedure, 1908 the Supreme Court
observed that in the absence of pleadings on a particular point, the Courts
below erred in coming to a finding on such point.
Other
decisions were also cited in this regard to which reference will be made, if
necessary.
15. Mr. Dewan urged
that the question as to whether the CLB was empowered to pass interim orders in
a proceeding under section 408 is a question of Law of considerable importance
arising out of the order impugned in the instant appeal which was, therefore,
maintainable under section 10F of the said Act.
In addition to the above,
it was also urged that this Court was also required to consider whether in a
proceeding under section 408 the CLB could give a direction to the concerned
company to appoint a Director to be nominated by the financial institutions
which held a little over 25 per cent of the company's shares.
16. In other words,
in this appeal the Court will have to consider the scope of section 408 in
relation to the impugned order of the CLB.
17. In support of
his contention that the appeal was maintainable, Mr. Dewan referred to the
decision of the Supreme Court in Sree Meenakshi Mills Ltd. v. CIT AIR 1957 SC
49, wherein while considering the provisions of section 66(1) of the Indian
Income-tax Act, 1922, relating to reference to the Court of questions of law,
the Supreme Court, inter alia, held that a pure question of law and in certain
cases mixed questions of law and fact were open to reference under section
66(1). The Supreme Court also considered the question of perversity and
observed that that a finding of fact unsupported by any evidence is also open
to attack under the aforesaid provisions.
18. In this
connection, reference was also made to the decision of the Privy Council in the
case of Siddik Mahomed Shah v. Mt. Saran AIR 1930 PC 57, where it was held that
when a claim had never been made, no amount of evidence can be looked into upon
a plea which was never put forward.
Reference
was also made to certain other decisions to which reference will be made, if
necessary.
19. Mr. S.B.
Mukherjee, who appeared with Mr. Dewan for the appellant-company, supplemented Mr.
Dewan's submissions by pointing out that the order of the CLB dated 27-9-1996,
in respect of which the Central Government had filed the interim application in
the pending proceeding under section 408 had been passed in the proceeding
under sections 397 and 398 which had been initiated on the application filed by
the All India Shaw Wallace Employees Federation and Others. Mr. Mukherjee urged
that the said application of the Central Government and the order passed
thereon were not maintainable on such score as well.
Mr. Mukherjee submitted
that, in any event, section 408 contemplates an inquiry to be made by the CLB
and on being satisfied that in order to prevent the affairs of the company
being conducted either in a manner which is oppressive to any members of the
company or in a manner which is prejudicial to the interests of the company or
to public interest it was necessary to make appointments, specify the number of
persons to be appointed by the Central Government to hold office as Directors
of the company for such period not exceeding three years on any one occasion.
Mr. Mukhrjee urged that without conducting such inquiry, the CLB could not give
any direction to the Central Government to appoint Directors to the Board of a
company much less itself direct the company to make such appointment. Mr.
Mukerjee submitted that in a proceeding under section 408, the CLB is only
entitled to decide whether, in order to safeguard the interest of the company,
its shareholders and the public, any Additional Directors are required to be
inducted to the Board. The actual appointment of Additional Directors is,
however, required to be made by the Central Government and the CLB cannot pass
orders directing a third party to nominate a Director on the Board. Mr.
Mukherjee submitted that the effect of the impugned order of the Board was to
amend the constitution of the company by giving a right of representation on
the Board to the financial institutions, even though they held only 25 per cent
of the share capital.
Mr Mukherjee also urged
that since Mr. Pandit had retired from the Board by rotation and had not been
re-elected, the Central Government could not pray for an order that
notwithstanding the above, Shri Pandit should be allowed to continue on the
Board. Moreover, since sections 6 and 6A of the Life Insurance Corporation Act
are not applicable to the facts of this case and since no loans had been
advanced by the financial institutions to the company, such financial
institutions have no right under the articles of association of the appellant
company to nominate a Director.
Mr. Mukherjee contended
that in view of the above, the CLB had no jurisdiction to give such a direction
to the financial institutions to nominate a Director even while disposing of
the Central Government's application under section 408 and no such direction
could, therefore, have been given on an interim application since the interim
relief could only be in aid of the final relief.
20. On behalf of
the Central Government, Mr. Anindya Mitra, Addl. Solicitor General, reiterated
his preliminary objection that the appeal was not maintainable.
21. Mr. Mitra
submitted that the appeal did not raise any question of law arising out of the
impugned order of the CLB Mr. Mitra urged that the objection now being sought
to be raised with regard to the jurisdiction of the Board to pass interim
orders in a proceeding under section 408 had not been raised before the Board
and since the Board did not have the opportunity to consider such objection,
the same could not be raised in the instant appeal.
22. In support of
his contention, Mr. Mitra referred to the decision of the Supreme Court in CIT
v. Scindia Steam Navigation Co. Ltd. AIR 1961 SC 1633, involving interpretation
of the provisions of section 66(1) and the expression 'Any question of law
arising out of such order' used therein. While interpreting the said expression
in a situation where the Tribunal decides an appeal on a question of law not
raised before it, the Supreme Court observed as follows ;
"(1) When a question is
raised before the Tribunal and is dealt with by it, it is clearly one arising
out of its order.
(2) When a question of law is raised before the Tribunal but the
Tribunal fails to deal with it, it must be deemed to have been dealt with by
it, and is therefore one arising out of its order.
(3) When a question is not raised before the Tribunal but the
Tribunal deals with it, that will also be a question
arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor
considered by it, it will not be a question arising out of its order
notwithstanding that it may arise on the findings given by it.
Stating the position compendiously, it is only
a question that has been raised before or decided by the Tribunal that could be
held to arise out of its order." (p. 1645)
23. Mr.
Mitra urged that since the objection relating to the jurisdiction of the CLB to
pass interim orders in a proceeding under section 408, had not been raised
before the Board and since the Board had not considered such a question, the
case fell within the fourth category of circumstances indicated by the Supreme
Court in the above case and such objection could not, therefore, be said to be
a question arising out of the order of the CLB.
Mr. Mitra then submitted
that the interim direction given by the CLB to the financial institutions to
nominate a person to be appointed to the board of directors of the appellant company, was in exercise of its inherent powers. Mr. Mitra
urged that rule 44 of the Company Law Board Regulations, 1991, vests the CLB
with inherent powers and the interim directions were given by the said Board in
exercise of such powers for the ends of justice.
Mr. Mitra also urged that the CLB was a 'Court' and was, therefore, vested with inherent powers to pass interim orders.
24. In support of
his said contention, Mr. Mitra firstly relied on the decision of the Supreme
Court in Canara Bank v. Nuclear Power Corpn. of lndia
Ltd. [1995] 84 Comp. Cas. 70/4 SCL 42. In the said
case the Supreme Court was considering the question of transfer of proceedings
pending in any Court to the
Mr. Mitra urged that acting
as a 'Court', the CLB was vested with inherent powers to make interim orders in
order to preserve the status quo and to protect the interest of the parties pending
final adjudication of the Central Government's application under section 408.
25. Referring to
the decision of the Supreme Court in Manohar Lal Chopra v. Rai Bahadur Rao Raja
Seth Hiralal AIR 1962 SC 527, wherein it had been held that if the circumstances
were not covered by order 39 of the Code of Civil Procedure, 1908, the Court
can issue injunction in its inherent jurisdiction, Mr. Mitra submitted that
even if section 408 did not provide for the making of interim orders, in the
exercise of its inherent powers the Board had the jurisdiction and was
justified in giving directions to the financial institutions to name their
nominee for appointment to the Board of the appellant company pending a final
decision in the said application.
26. Mr. Mitra also
referred to and relied upon a Bench decision of the Madhya Pradesh High Court
in the case of Ram Sahai Pandey v. State Industrial Court 1973 LLJ 553, where
the jurisdiction of the Industrial Court to pass interim orders fell for
consideration and it was held following the decision of the Supreme Court in
ITO v. M.K. Mohammed Kunhi AIR 1969 SC 430, that an express grant of statutory
power carries with it by necessary implication the authority to use all
reasonable means to make such grant effective.
Mr. Mitra also referred to
the decision of the Supreme Court in the case of Arjun Singh v. Mohindra Kumar
AIR 1964 SC 993, and a Bench decision of this Court in Sri Sri Radha Krishnaji
Thakur v. Sankar Lal Khettry 88 C.W.N. 507, in support of his submission that
even where no express provision has been made in a statute for passing interim
orders and no prayer for interim orders has been made, the Court in appropriate
cases has jurisdiction to pass interlocutory orders to preserve the rights of
the parties and to prevent irreparable injury being done to the parties pending
the final disposal of the suit.
Mr. Mitra urged that in
view of the established principles relating to grant of interim orders pending
final disposal of the main proceeding, the CLB could not be faulted in giving
interim directions in the pending application of the Central Government under
section 408.
27. Replying to Mr.
Mitra's submission, Mr. Mukherjee denied Mr. Mitra's contention that the appeal
was not maintainable as no objection relating to the jurisdiction of the CLB to
make interim orders had been raised before the said Board and such question had
not also been considered by it. Mr. Mukherjee submitted that the decision of
the Supreme Court in Scindia Steam Navigation Co. Ltd 's case (supra) relied
upon by Mr. Mitra, had subsequently been considered by a Division Bench of this
Court in the case of Metal Press Works Ltd v. Ram Pratap Kayan 72 CWN 594, in
the context of section 10D read with section 111. Mr. Mukherjee submitted that
the provisions of section 10D prior to its omission by the Companies Tribunal
(Abolition) Act, 1967, were similar to section 10F which was inserted by the
Companies (Amendment) Act, 1988. The only difference was that in section 10D it
had, inter alia, been stipulated that an appeal would be lie to this Court out
of any decision, finding or order of the Tribunal, whereas in section 10F it
has been stipulated that any person aggrieved by any decision or order of the
CLB may file an appeal to this Court on any question of law arising out of such
order.
28. Mr. Mukherjee
submitted that as was pointed out in the case of Metal Press Works Ltd.
(supra), the Hon'ble Supreme Court in Scindia Steam Navigation Co. Ltd. 's case (supra), was considering the provisions of section
66(1) of the Indian Income-tax Act, involving the advisory jurisdiction of this
Court, while the appeal referred to in section 10D(1)(b) of the Companies Act,
related to its appellate jurisdiction. In the said background, the Division
Bench of this Court observed that the tests laid down in Scindia Steam
Navigation Co. Ltd.'s case (supra) were applicable to a reference under section
66(1) of the Indian Income-tax Act, but were not exhaustive in their
application to an appeal under section 10D(1)(b) of
the Companies Act, since a proceeding under the said provisions was an appeal
and not a reference. The jurisdiction was appellate and not advisory.
29. Upon the said
finding, the Division Bench, held that a question of law arising out of the
findings in the judgment of the Companies Tribunal may be raised for the first
time in an appeal under section 10D(1)(b), although,
the question of law may neither have been raised before or dealt with by the
Tribunal in its judgment or order.
30. Mr. Mukhrjee
submitted that in view of the aforesaid decision, this appeal must be held to
be maintainable.
Mr. Mukherjee also
submitted that since the order dated 27-9-1996, had been passed in the
proceedings under sections 397 and 398 and not in the proceedings under section
408 thereof, the application for contempt filed on behalf of the Central
Government in the proceedings under section 408 was not maintainable and should
have been summarily dismissed by the CLB.
Mr. Mukherjee urged that
since on behalf of the appellant company the very jurisdiction of the CLB to
give directions to the financial institutions to nominate a person to be
appointed to the Board of directors of the company in a proceeding under
section 408 was under challenge, the same was a question of law arising out of
the order of the CLB and an appeal therefrom was maintainable under section
10F.
31. Regarding
Regulation 44 of the Company Law Board Regulations, Mr. Mukherjee submitted
that the same had to be read with the relevant provisions of the Companies Act.
Mr. Mukherjee urged that in some of the sections of the said Act, such as
section 403 and section 409, the Board had been specifically vested with the
authority to pass interim orders and regulation 44 would have to be read in
such light.
32. Mr. Mukherjee
submitted that Mr. Mitra's contention that the CLB was a 'Court' and was,
therefore, entitled to make interim orders, was not tenable in view of the
decision of the Supreme Court in Morgan Stanley Mutual Fund's case (supra)
wherein it had been held that a statutory Tribunal had no jurisdiction to grant
interim relief Mr. Mukherjee submitted that the decision of the Supreme Court
in Canara Bank's case (supra) was with reference to section 9A, wherein the
usage of the expression 'Court' was explained by the Supreme Court to encompass all curial
and judicial bodies.
Mr.
Mukherjee urged that there could be no quarrel with the propositions of law
explained in the various decisions cited by Mr. Mitra, but that the same had no
application to the issues involved in the instant appeal.
Since
the very maintainability of the appeal has been questioned on behalf of the
Central Government, it is necessary that such objection be decided first, as such decision may have a bearing on the fate of
the appeal.
33. It has been argued by
Mr. Mitra that since the jurisdiction of the CLB to pass the order under appeal
had not been questioned before the said Board and the Board did not have
occasion to consider such an objection, such question now being sought to be
raised in appeal in that regard cannot be said to be a question of law arising
out of the order of the Board as contemplated under section 10F. In support of
his contention, Mr. Mitra has relied upon the decision of the Supreme Court in
Scindia Steam Navigation Co. Ltd's case (supra).
34. In the facts of this
case, the objection taken on behalf of the Central Government does not appear
to have any substance. The decision of the Supreme Court in Scindia Steam
Navigation Co. Ltd's case (supra) was distinguished on facts by this Court in
the case of Metal Press Works Ltd (supra) and we are in agreement with the
views expressed therein. While the Supreme Court was considering a matter
involving the advisory jurisdiction of the High Court under section 66(1), in
the instant case we are concerned with the appellate jurisdiction of this
Court. In this case, no reference on any question of law was required to be
made to this Court and we have only to see whether there exists a question of
law arising out of the order of the CLB impugned in the appeal. It was not
possible for the appellant company to foresee and/or to anticipate the order
that was passed by the said Board since no relief had been sought for by the
Central Government in conformity with the said order. In its application, the
Central Government had alleged that by not re-electing Mr. Pandit to the Board
of directors of the appellant company, the direction given by the CLB on
27-10-1996, in the proceedings under sections 397 and 398 had been violated and
hence contempt proceedings should be drawn up against the persons responsible
for such violation and status quo ante should be restored by allowing Mr.
Pandit to continue on the Board of directors of the appellant company. We are
of the view that such a composite application for different reliefs could not
have been filed by the Central Government, since contempt of Court relates to
its special jurisdiction and a separate application for contempt should have
been filed in respect of the order which was allegedly violated.
The order ultimately passed
by the CLB on 21-1-1998, has no bearing with the reliefs prayed for by the
Central Government in the application regarding alleged contempt of the Board's
order of 27-10-1996. There was, therefore, no scope for any submission to be
made before the said Board in relation to its jurisdiction to pass such an
order, which, in our view, is a question of law of some importance arising out
of the said order.
35. We are,
therefore, of the view that the instant appeal is maintainable and we,
accordingly, proceed to dispose of the same on merits.
36. The impugned
order of the CLB has been made on the interlocutory application filed by the
Central Government in the pending proceeding under section 408 (C.P. No. 46 of
1996) for invoking the contempt jurisdiction of the Board in respect of an
order passed by the Board on 27-9-1996, in another proceeding under sections
397 and 398 commenced on an application filed by the All India Shaw Wallace
Employees Federation.
That in itself
would have been sufficient to dispose of the appeal, but we are required to
decide a more fundamental question of law arising out of the impugned order of
the CLB.
37. Although,
section 408 does not provide for the making of interim orders, the CLB has not
only made an interim order, but such interim order is beyond even the scope of
the final order contemplated under section 408.
38. Sub-section (1)
of section 408, with which we are mainly concerned, provides as follows :
"Powers of Government
to prevent oppression or mismanagement. — (1) Notwithstanding anything
contained in this Act, the Central Government may appoint such number of
persons as the Company Law Board may, by order in writing, specify as being
necessary to effectively safeguard the interests of the company, or its
shareholders or the public interests to hold office as directors thereof for
such period, not exceeding three years on any one occasion, as it may think
fit, if the Company Law Board, on a reference made to it by the Central
Government or on an application of not less than one hundred members of the
company or of the members of the company holding not less than one-tenth of the
total voting power therein, is satisfied, after such inquiry as it deems fit to
make, that it is necessary to make the appointment or appointments in order to
prevent the affairs of the company being conducted either in a manner which is
oppressive to any members of the company or in a manner which is prejudicial to
the interests of the company or to public interest:
Provided that in lieu of passing an order as aforesaid, the Company
Law Board may, if the company has not availed itself of the option given to it
under section 265, direct the company to amend its articles in the manner
provided in that section and make fresh appointments of directors in pursuance
of the articles as so amended, within such time as may be specified in that
behalf by the Company Law Board."
As indicated hereinbefore,
the Central Government filed an application before the CLB seeking direction to
appoint Additional Directors on the Board of the appellant company, as
contemplated under section 408. In making the order impugned in this appeal,
the said Board acted outside the provisions of section 408 and an attempt has
been made by Mr. Mitra to establish that such order was passed by the Board in
exercise of its inherent powers as an interim measure on the interlocutory
application filed by the Central Government in the said proceedings.
39. Since section
408 vests the Central Government and not the CLB with power to appoint
Additional Directors to the Board of the company on the order of the CLB to
that effect, we are unable to accept Mr. Mitra's submissions that the CLB was
entitled to pass the impugned order in exercise of inherent powers. Even if,
having regard to Regulation 44, the CLB is vested with inherent powers to make
such orders as may be required for the ends of justice or to prevent abuse of
the process of the Board, such power cannot be exercised in excess of the
powers flowing from the statute itself. Such power has to be exercised by the
Board in aid of and not de hors the provisions of the statute and, in any
event, such exercise of power conferred by regulation 44 cannot override the
provisions of the statute. Although, it has been urged by Mr. Mitra that the
CLB has been held to be a 'Court' in Canara Bank's case (supra), such finding
seems to be in the limited perspective of section 9A of the Special Court
(Trial of Offences Relating to Transactions in Securities) Act, for the purpose
of transfer of proceedings pending before any Court to the Special Court
established under the said Act.
40.
Regulation 47 of the abovementioned Regulations clarifies the position some
what since it provides that the Bench constituted by the CLB within the meaning
of regulation 2(e) shall be deemed to be a Court for limited purposes, namely,
for the purpose of prosecution or punishment of a person who wilfully disobeys
any direction or order of the Bench and not for all purposes.
Certain specific provisions
of the Companies Act, as amended by the various Amending Acts, vests the CLB
with power to make interim orders in specific circumstances and not in general
terms. Following the observations made by the Supreme Court in Morgan Stanley
Mutual Fund's case (supra), we are of the view that the CLB had no jurisdiction
to pass the impugned order and the same is liable to be set aside.
41.
We,
therefore, allow the appeal and set aside the order passed by the CLB on
21-1-1998, on the application filed by the Central Government in the pending
proceeding under section 408, being C.P. No. 46 of 1996.
It may be recorded that a
submission has been made before us to the effect that the hearing in respect of
the proceedings, both under sections 397 and 398 and under section 408, has
been completed and judgment has been reserved.
42. Considering the
nature of the issues involved, the parties will bear their own costs in the
appeal.
Shyamal
Kumar Sen J. — I agree.
[2001] 34 scl 169 (
High
Court of
v.
Union of
S.B. SiNHA AND M.H.S. ANSARI, JJ.
A.C.O.
NOS. 86-89 AND A.P.T.O. NO. 770 OF 1998
Section 397, read with section 398 and section
408, of the Companies Act, 1956 - Oppression and mismanagement - In proceedings
instituted by Employees’ Federation, supported by Central Government through a
company petition under section 408, CLB found that petition was essentially one
under section 398 and that there were no allegations which could be classified
to fall in nature of acts of oppression against members of company -
Allegations related to alleged acts of mismanagement and financial
irregularities and illegalities, and CLB restricted its scrutiny only with
respect to provisions of sections 398 and 408 - CLB directed board of company
to be frozen to 9 members, with four directors nominated by CLB, two on
petition filed under section 397/398 and two on petition filed under section 408
- It gave certain other directions regarding investigation to be made by board
of company itself into charges of mismanagement - Whether CLB, having found
that against only two directors presently on board, allegations could be
established warranting action, it rightly declined to pass orders with regard
to supersession of board - Held, yes - Whether since company was found also
indulging in manipulating accounts to show artificial profits, CLB’s conclusion
that there was every justification to restructure board of directors of company
with a view to safeguarding company’s interest was justified - Held, yes -
Whether since very existence of company was under threat due to large number of
winding up petitions, it was a fit case where CLB’s intervention was warranted
to safeguard company’s interest as well as interest of members of company and
also public interest and, therefore, employees-respondents’ arguments that CLB
was unjustified in entrusting to board certain functions to investigate which
it should have itself investigated or superseded board in its entirety had to
be rejected - Held, yes - Whether merely because a group of shareholders
initiated proceedings under section 397/398, CLB would be denuded of its power
to entertain proceedings, if initiated under section 408 by Central Government
or vice versa - Held, no
Section 10F of the Companies Act, 1956, read
with Order 41, Rule 1, of the Code of Civil Procedure 1908 - Company Law Board
- Appeal against orders of - Whether
since rule 6 of Companies (Court) Rules, 1959 makes procedural provision of
Code of Civil Procedure applicable to appeal filed under section 10F, Order 41,
Rule 1, of Code being a procedural provision would apply to all appeals under
section 10F - Held, yes - Whether Order 41, Rule 1, mandates that a memorandum
of appeal should be accompanied by a judgment and decree and since there is no
provision for drawing up of a decree by CLB, in such a situation, operative
portion of judgment itself could be construed to be a decree - Held, yes
A petition filed by the Employees’ Federation
under sections 235, 237, 397 and 398, supported by the Central Government by
filing an affidavit indicating therein a reference to its petition filed under
section 408, alleging irregularities in the affairs of ‘SWC’ was heard and the
CLB directed the board of ‘SWC’ to be frozen to 9 members, four directors to be
nominated by the CLB : two each on the petitions filed
under section 397/398 and under section 408. It also gave certain other
directions regarding investigation to be made by the board of ‘SWC’ itself.
While appeals were filed on behalf of the ‘SWC’ and ‘MRC’, the Employee
Federation also filed an appeal against the CLB’s order under section 10F SWC
opposed the appeal of the Employees Federation by submitting that in absence of
a true copy/certified copy of the order appealed against which meant
non-compliance with the provisions of Order 41, Rule 1 of the Code, a mandatory
provision, the appeal was not maintainable.
The Companies (Court) Rules, 1959, apply to
all proceedings in the High Court including the appeal under section 10F, and
rule 6 thereof makes the procedural provision of the Code applicable to the
appeal filed under section 10F. Thus, only procedural and not the substantive
provisions of the Code would apply. Order 41, Rule 1, of the Code is a
procedural provision and would, therefore, apply to all appeals under section
10F. Under the said rule, every appeal has to be preferred in the form of
memorandum signed by the appellant or his pleader and has to be accompanied by
a copy of the decree appealed against and of the judgment on which it is
founded. Rule 1 empowers the Appellate Court to dispense with the filing of the
judgment but not with the filing of the decree. Order 41, Rule 1 of the Code
mandates that a memorandum of appeal should be accompanied by a judgment and
decree. There is no provision for drawing up of a decree by the CLB. In such a
situation, under the provisions of the Code the operative portion of the
judgment itself could be construed to be a decree. It
was, therefore, obligatory on the part of the appellant to file at least the
certified copy of the operative portion of the judgment. In any event, no
prayer had been made by the appellant for condonation of delay and/or for
dispensation of the filing of the certified copy of the judgment. Unless such a
prayer was made, the Court could not exercise its jurisdiction to entertain the
appeal filed under section 10F. No reasons or explanation had been furnished as
to why impugned order of the CLB was not filed along with the memorandum of
appeal. However, even if no appeal had been preferred by the appellants,
recourse could be had to the provision of Order 41, Rule 33 of the Code.
The other appeals preferred by the ‘SWC’ and
‘MRC’ would have to be considered in the above light. As the CLB is the
fact-finding authority, the conclusions arrived at has to be given due weight
and unless the same are perverse, no interference with the same is warranted.
The underlying purpose of section 408 is to safeguard the interest of the
company or its shareholders or the public interest by appointment of the
Government directors with a view to prevent the affairs of the company being
conducted either in a manner which is oppressive to any members of the company
or in a manner which is prejudicial to the interest of the company or public
interest. The CLB was dealing with the two matters analogously,
one filed under section 397/398 and the other by the Central Government under
section 408. The CLB had also considered and examined whether the affairs of
the company were being carried on in a manner prejudicial to the interest of
the company or public interest or oppressive to the members of the company and
if so, how the same could be prevented and how their interest should be
safeguarded. The CLB considered the questions of supersession of the board and
found that there were only two directors presently on the board against whom
allegations could be established warranting action. It did not, and rightly so,
pass orders with regard to supersession of the Board.
Apart from the above, the CLB noted certain
disturbing factors with respect to financial management of the company as also
with respect to qualifications made by the auditors in the last two annual
reports, and, therefore, found every justification to restructure the board of
directors of the company so that the interest of the company could be
safeguarded.
The CLB upheld the contention of the company
that the petition filed by the employees shareholders
was essentially one under section 398. There were no allegations in the
petition as observed by the CLB which could be classified to fall in the nature
of acts of oppression against members of the company. The allegations made
related to the alleged acts of mismanagement and with particular reference to
the irregularities and illegalities with respect to financial management of the
company. The CLB rightly restricted its scrutiny in the matter only with
respect to the provision of section 398.
It was not a case of failure of exercise of
jurisdiction by the CLB. The inferences that could have been drawn from the
material on record had been so drawn. It was based thereon, inter alia, that
certain directions had been issued to the board of directors apart from
appointment of directors. The CLB was dealing with the matters under section
398 and section 408. The jurisdiction of the CLB was, therefore, restricted to
ascertaining and examining whether the affairs of the company were being carried
on in a manner prejudicial to the interest of the company or public interest
and if so, how the same could be prevented and how their interest could be
safeguarded.
With regard to the financial management of the
company, it was found that the company had also indulged in manipulating the
accounts to show artificial profits, and, thus, arrived at a finding that there
was every justification to restructure the board of directors of the company so
that the interest of the company was safeguarded. The conclusions arrived at by
the CLB could not be characterised as perverse or based on no evidence or
material on record. Therefore, in the instant case, it could not also be said
that the CLB had appointed the directors without satisfying the condition
precedent laid down in the Act or that the power exercised by it was in excess
of its jurisdiction.
The allegation on which the application was
founded was in respect of alleged acts of mismanagement. The CLB rightly
considered the same as one under section 398, and, therefore, restricted its
enquiry to the extent of the provisions contained in section 398. If the CLB
arrived at such conclusion, then it could take recourse to the provisions of
section 402 to mould the relief. The jurisdiction and powers under section 402
are twofold. Firstly, the CLB has the power to set right the wrongs and
secondly, it has power to issue directions to prevent occurrence of such wrong
in the figure. The CLB, thus, is competent to pass orders or issue directions,
both corrective and preventive in nature.
The CLB had considered in detail the questions
of supersession of the Board. It was noticed that there were only two directors
against whom allegations could be established warranting action. In that view
of the matter, the question of supersession of the board, it was held by the
CLB, did not arise. There was no illegality or irregularity in the said
conclusions. The CLB opined that there was not sufficient material to establish
that MRC utilised his commanding share controlling position to either act
against the interest of the company or to enrich himself at the cost of the
company. A Tribunal cannot base its finding on mere suspicion, surmises and
conjectures.
CLB in the instant case had given the
directions based upon the material on record. It found irregularities in
financial management. It was found that the company had accumulated huge debt
without the knowledge and approval of the board. Continuity of directors was
lacking and the turn-over of director was held to be highly undesirable. The
CLB had based its orders and issued directions to prevent occurrence of such
events in future. Thus, the directions issued by the CLB were preventive in
nature.
The findings arrived at by the CLB could not
be characterised as perverse or based on no material. The conditions precedent
for taking action must show that the affairs are being conducted in a manner
which is either oppressive or prejudicial to the company or public interest.
The condition precedent for exercising the power was satisfied in the instant
case.
The power under section 408 is both remedial
and preventive in nature. The instant case was one where the CLB had exercised
the power to prevent mismanagement. The same could be exercised only if the CLB
was satisfied that it was necessary to appoint directors in order to prevent
the affairs of the company from being conducted contrary to the interest of the
company or to public interest. In other words, the appointment of directors
must be necessary to prevent continuance of mismanagement.
In the instant case, the CLB had proceeded on
the above settled principles. It had come to certain conclusions with regard to
financial mismanagement. It also found that whatever happened earlier continued
as of date and was likely to continue for some more time which would be against
the interest of the company. The materials on record before the CLB and the
inferences that needed to be drawn, having been drawn by it, the CLB found
every justification to restructure the board so that the interest of the
company was safeguarded. The very existence of the company, it was noticed, was
under threat due to a large number of winding up petitions. It was a fit case
where intervention of the CLB was warranted to safeguard the interest of a
company as well as the interest of the members of the company and also the
public interest. It was in those circumstances that certain directions had been
issued also to the restructured Board to investigate into matters and to set
right the same.
Therefore, respondents’ argument that CLB was
not justified in entrusting to the Board certain functions to investigate which
it should have itself either investigated or superseded the board in its
entirety, had to be rejected.
Merely because certain persons has filed a
civil suit though in a representative capacity, the statutory rights available
to the shareholders of the company or the Central Government under section
397/398 and/ or section 408 cannot be taken away. It was not a case of parallel
proceedings having been initiated by the petitioners before the CLB.
Hence, all the appeals were to be dismissed.
Jagat Dhish Bhargava v. Jawahar Lal Bhargava
AIR 1961 SC 832, Anil Kumar Gupta v. Municipal Corpn. of Delhi AIR 2000 SC 659,
Superintending Engineers v. B. Subba Reddy AIR 1999 SC 1747, Ravinder Kumar
Sharma v. State of Assam AIR 1999 SC 3571, Nishambhu Jena v. Sova Guha 86 Cal.
WN 685, Tej Kumar Jain v. Purshottam AIR 1981 MP 55, South India Viscose Ltd.
v. Union of India [1982] 52 Comp. Cas. 247, Peerless General
Finance & Investment Co. Ltd.
v. Union of
Ansari, J. - These five appeals are all directed against the judgment and order of
the Company Law Board dated 27-7-1998 and have, therefore, being heard
analogously and are being disposed of by this common judgment and order.
2. Brief
facts leading to the filing of the instant appeals are that; proceedings were
instituted by the Employees’ Federation i.e. employees-shareholders under
sections 235, 237, 397 and 398 of the Companies Act, 1956 (‘the Act’) before
the CLB, the Central Government also supported the said petition by filing an
affidavit; in the said affidavit filed on behalf of the Central Government,
reference was also made to the Company Petition No. 46 of 1996 filed by the
Central Government before the CLB under section 408 of the Act. The Central
Government had earlier conducted an inspection under section 209A of the Act
and this report allegedly brought out certain financial mismanagement in the
affairs of the Shaw Wallace Co. Ltd.
3. The
petition under section 397/398 and the Central Government’s petition under
section 408 of the Act were heard together by the CLB and disposed of by an
order dated 27-7-1998 which has been impugned in the present appeals.
4. By
its impugned order the CLB directed the Board of Shaw Wallace Co. Ltd. (SWC) to
be frozen to 9 (nine) members with 4 (four) Directors nominated by the CLB; two
on the petition filed under section 397/398 and the other two on the petition
filed under section 408 . Certain other directions regarding investigation to
be made by the Board of SWC itself into the charges of mismanagement were also
given.
5. Four
(4) sets of appeals were filed on behalf of the SWC and Manohar Rajaram
Chhabaria (MRC) assailing the impugned order. SWC filed two appeals, one
against the order of CLB under section 408 petition
and the other appeal against the petition under section 397/398. Likewise MRC
filed two appeals.
6. Also,
the Employees’ Federation filed an appeal against the said order of CLB (APOT
No. 770 of 1998) in relation to the petition filed by them under section
397/398. The memorandum of appeal filed by the Employees’ Federation was not
accompanied by a certified/true copy of the order appealed against. Only a
xerox copy thereof was annexed to the memorandum of appeal. The original true
copy of the impugned order of the CLB as made by the CLB was, however, tendered
in Court at the time of the hearing of the appeal on 9-2-2000.
7. By
an order dated 23-12-1998, directions were given for filing affidavits in the
stay petition filed by SWC and MRC in respect of section 397/398 matter. An ad
interim order dated 23-12-1998 was also passed by the Division Bench of this
Court staying the operation of the impugned order passed by CLB. A special
leave petition was preferred by the Employees’ Federation from the ad interim
order to the extent that the ad interim order stayed the nomination of the
Directors appointed in section 397/398 matter. Such special leave petition, we
are informed, was dismissed.
8. By
another order dated 23-12-1998, directions were given for filing of affidavits
in the stay petition preferred by the Employees’ Federation. However, unlike
the two appeals preferred by MRC and SWC which were admitted, the appeal filed
by the Employees’ Federation was not admitted but the question of admission was
left for a subsequent date. Thus, insofar as the appeal preferred by the
Employees’ Federation being APOT No. 770 of 1998 is concerned, the question as
to the maintainability of the appeal filed under section 10F of the Act is for
consideration.
9. At
this stage, it would be appropriate to refer to the allegations on which the
petition of the Employees’ Federation under section 397/398 was founded. The
CLB has summarised the allegations in para ‘4’ of its order under appeal which
are as under :
“The entire control of the management of the
company is in the hands of MRC. The assets and funds of the company are being
used for his personal benefit many of the companies under his control have
become sick. The company is not in a position to repay fixed deposits on
maturity. MRC allowed his brother Shri K.R. Chhabaria who was earlier the
Managing Director of SWC to take companies which were under the control of SWC,
which included BDA Breweries Ltd., one of the most profitable companies for a
meagre consideration. The company had dealings with certain other companies of
MRC, like Orson TV, Genelec Limited etc. by which company had incurred huge
losses. Further, the distribution charges for the products of the company was
increased manifold and this way funds were diverted through the medium of
distributors for the personal benefit of the promoters. A sum of Rs. 10 crores
was paid to Golden Tobacco Limited (GTC) for purported advertisement of
company’s products while no such advertisement was actually done. The company
also manipulated the accounts in relation to a transaction of purchase and sale
of certain software, from Dunlop India Limited at a price of Rs. 30 crores and
reported as if the same software had been sold to Jumbo Global Limited, a company
belonging to MRC for Rs. 47 crores. Actually, neither the purchase price was
paid nor the sale price was realised. The company has purchased jewellery worth
Rs. 50 lacs and booked the same in the name of other Chhabaria Companies.
In the year 1993, the company announced a
strategic plan known as ‘Vision 2000’ and a lot of expenditure was incurred to
give a wide publicity for the same. To implement this plan, even though
proposals were initiated for issue of GDR and public/right issues, nothing came
out and instead, other profitable businesses of the company were sold. Tezpore
Tea Company Limited was reportedly sold for a sum of Rs. 23 crores while the
actual price was much higher; and the difference had been siphoned of. In the
process a huge sum was paid to respondent No. 45 as his service charges, even
though the sale of shares was effected through a stock
broker. In addition, at the behest of MRC, many other business entities were
sold out. Likewise the occupancy right of very valuable premises at
In spite of such a bad financial state, it is
seen from the accounts that the company has invested about Rs. 100 crores in
six Gauhati Companies, which are, even though claiming to be public limited
companies are nothing but paper companies. This
investment has been made by way of lending money to subsidiaries which, in
turn, are reported to have invested in these companies. The acquisition of
these companies is reported to be through one Mr. N.C. Jain (Res. No. 45), a
stock broker registered with Gauhati Stock Exchange. There have been press
reports that this money has been siphoned by MRC through “hawala route”. This
investment was done without the knowledge/permission of the Board. It is also
seen that some of these companies were shown to have ceased to be subsidiaries.
Another bad investment made by the company is a Charminar Breweries in Andhra
Pradesh wherein prohibition was going to be introduced. The investment in this
company is of the order of Rs. 14 crores. Over 400 executives have been sent
out of service in the year 1995 since they were not towing the line of MRC in
his nefarious activities of siphoning of funds. A large amount of money is
being spent on MRC out of the company funds. The company had advanced money to
another company namely, Jumbo (Res. 50) for purchase of the shares of the
company, thus violating the provisions of section 77 of the Act. To avoid
detection, MRC has arranged to transfer the shares from the name of Res. No. 50
to Res. No. 51.
It is also averred in the petition that ever
since MRC came into the picture by acquiring a large percentage of shares in
the company, the company is being systematically freezed, bringing the company
to a position where it is unable to pay its debts. Such acts are harsh,
oppressive and prejudicial to the interest of the company as well as public. It
is also submitted in the petition that the petitioners are not in a position to
provide the details of the illegal transactions and siphoning of funds and as
such an order of investigation be passed to bring to (sic) line the various
acts committed by MRC.”
10. The
petitioners in the section 397/398 matter before the CLB are employees of SWC who
were allotted shares from the employees quota and
their percentage of holding in the company is about 0.07 per cent.
11. The
CLB in para ‘5’ of its order under appeal has summarised the grounds on which
the Central Government sought for appointment of the Government Directors in
its petition filed under section 408 as under :
“The summary of the grounds on which the
Central Government has sought for appointment of Government Directors in the second
petition is as follows : The Central Government has
carried out an inspection of the books and accounts of the company under
section 209A of the Companies Act and this report has brought out a series of
financial mismanagement in the affairs of the company running into crores of
rupees. This financial mismanagement relates to various aspects of financial
transactions inter alia including the
borrowing of the inter-corporate deposits at high rates ; lending of money
to subsidiaries without interest or waiving of interest, writing of huge amount
as bad debts, payment of unnecessary and exorbitant non-competition fee,
exorbitant sales promotion expenses, unwarranted payments of consultancy and
brokerage fee, etc. It is further alleged in the petition that due to its
inability to pay its dues, a large number of winding up petitions have been
filed in Calcutta High Court; the company has not been able to refund public
deposits; while borrowing the funds at high rates ranging between 26 to 30 per
cent, the said amounts have been lent to the subsidiaries at a lower rate of
interest ranging to 22 - 28 per cent; further, in many of the cases accrued
interest has been waived; huge amount is found to have been paid as financial
charges and brokerage for the borrowings made by the company; the company also
incurred heavy losses on trading in T.Vs. manufactured by Orson Electronics, a
company belonging to MRC group; there have been violations of the provisions of
sections 211(2), 209(2), 143 and 303 of the Companies Act; the loans raised by
the company stood at Rs. 353.62 crores as on 30-6-1995 and the company has
given loans and advances to the tune of Rs. 280.51 crores The amounts shown
above are exponentially higher than what was in the previous many years. Therefore,
it is alleged in the petition that the practice of borrowings of short-term
funds and lending the same for long-term is against the principles of prudent
financial management; the interest burden has gone up by 859 per cent in the
last three years and it has had the effect of crippling the company; even the
stand of the company that funds were given to subsidiaries for acquiring shares
in other companies does not stand to scrutiny, inasmuch as, against Rs. 124.63
crores lent to the subsidiaries during 1994-95, the subsidiaries purchased
shares in other companies only to the extent of Rs. 20 crores; the turnovers of
the new subsidiaries for the years 1993-94 and 1994-95 are not commensurate
with the investments made to acquire the new subsidiaries, the company is in
the practice of having profitable subsidiary companies like Tezpore Tea Company
Ltd. and Maharashtra Distillery Limited and acquiring new companies like
Gauhati Companies which are only paper companies; the company has not been
paying statutory dues like PF, ESI etc. due to financial crunch; there has been
enormous increase in the expenses relating to publicity incurred in connection
with procurement of short-term funds and huge sums of money have been paid in
terms of restrictive covenants while acquiring new breweries/distilleries;
while the operating profits of the company have been coming down over a period
of time, the company is showing profits only on account of other non-trading
extraordinary income or by showing the expenditure as deferred revenue
expenditure; for debentures worth of 5 crores issued in the year 1991-92, the
company has paid 1.58 crores as finance charges, consultancy charges and
brokerage and commitment charges when the entire debentures were issued to
Peerless General Finance and Investment Company Limited; an inspection
conducted in respect of Niagra Investment Limited to which the company paid Rs.
30 lacs as loan processing fees for these debentures and it was found that this
company had neither any employee nor whole-time Director and SWC is not in a
position to explain as to whom an amount of Rs. 30 lacs was paid and it is
nothing but a scheme designed to divert the funds of the company; further, in
the year 1993-94, the company had borrowed Rs. 11.9 crores from Peerless at 21
per cent interest for which the company incurred an expenditure of Rs. 1.6
crores as one-time service charges paid to Peerless and Rs. 51.75 lacs to Raj
Laminates Private Ltd. at 4.5 per cent brokerage. The company was not able to
justify this payment of brokerage ; likewise the company also paid Rs. 83.48
lacs to one P.L. Mittal as service charges in connection with disposal of the
shares of Tezpore Tea Company Ltd. even though the shares were sold through a
registered broker, Shri Shyam Sunder, on payment of usual brokerage; the
payment of the service charges is not only unjustified but it is a way of
squandering the company funds; the company has been, year after year, writing
off huge amounts as bad debts indicating that it has not been prudent in
lending money after verifying the bona fides of the borrowers; the Income-tax
authorities have conducted various raids on premises of the company as also in
the residential premises of Directors. Summing up these allegations, the
Central Government has averred that there has been continuous gross financial
mismanagement against sound business principles resulting in the affairs of the
company being conducted in a manner oppressive to the shareholders and
prejudicial to the interest of the company and public interest. Accordingly, it
has sought for appointment of 8 Government Directors for a period of three
years to safeguard the interest of the respondent-company, shareholders and the
public interest.”
12. We
should first dispose of the question as to the maintainability of the appeal
being APOT No. 770 of 1998 preferred by the Employees’ Federation.
13. It
has been contended by Mr. Mukherjee, the learned senior counsel on behalf of
the SWC, that the appeal filed under section 10F without a true copy/ certified
copy of the order appealed against, is not maintainable. In other words, it is
contended, that in case of non-compliance with the provisions of Order 41, Rule
1 of the Code of Civil Procedure, 1908, a mandatory provision, the appeal is
not maintainable. The Court, it was further contended, has no power to waive
this requirement.
14. The
above contentions are sought to be countered by Mr. Banerjee, the learned
counsel appearing for the appellant (Employees’ Federation) by submitting that
the appeal preferred being one by virtue of a right conferred under section
10F, there is no requirement under the said section 10F to file a certified
copy/true copy of the order appealed against with the memorandum of appeal. The
appeal, itself, it was urged, has been filed within the period of limitation as
envisaged under section 10F, i.e., within 60 days with a xerox copy of the
order under appeal as made available to the Employees’ Federation and annexed
with the memorandum of appeal. Leave was sought to tender the true copy of the
order as made over to the appellants by the CLB. Mr. Banerjee, the learned
counsel for the appellant, further submitted that filing of a certified copy in
connection with an appeal is not mandatory and in any event under Order 41 of the
Code of Civil Procedure, the Appellate Court has the power to dispense with the
filing of the certified copy of the judgment appealed against.
15. Mr.
Banarjee further submitted that there are no rules framed by this Court in
respect of appeals under section 10F and that appeals are entertained without
certified copies of the order appealed against, particularly in cases of urgent
matters. Some of such appeals are also disposed of at the ad interim stage and
at the time of disposal of the appeal, any undertaking given to file certified
copy of the impugned order is also discharged.
16. Section
10F confers statutory right of appeal to any person aggrieved by any decision
or order of the CLB. Such appeal in terms of section 10F has to be filed within
60 days from the date of communication of the decision or order of the CLB to
the concerned party. The section also gives power to the High Court only, if it
is satisfied that the appellant was prevented by sufficient cause from filing
the appeal within the said period of 60 days to allow it to be filed within a
further period of not exceeding 60 days. In terms of section 10F, an appeal
would lie only on a question of law arising out of the decision or order
appealed against.
17. The
Companies (Court) Rules, 1959, apply to all proceedings in the High Court as
defined in the said Rules. Therefore, the Companies (Court) Rules, would apply
to all appeals under section 10F of the Act. Rule 6 of the Companies (Court)
Rules, makes the procedural provision of the Code of Civil Procedure applicable
to the appeal filed under section 10F of the Act. It is thus clear that only
procedural and not the substantive provisions of the Code of Civil Procedure
alone would apply. For the said reasons, the High Court Rules of the original
side of this High Court will have no application to an appeal under section
10F.
18. Order
41, Rule 1 of the Code of Civil Procedure is a procedural provision and would,
therefore, apply to all appeals under section 10F of the Act. Under the said rule,
every appeal has to be preferred in the form of memorandum signed by the
appellant or his pleader and has to be accompanied by a copy of the decree
appealed form and of the judgment on which it is founded. Rule 1 empowers the
Appellate Court to dispense with the filing of the judgment but there is no
jurisdiction in the Appellate Court to dispense with the filing of the decree.
In Jagat Dhish Bhargava v. Jawahar Lal Bhargava AIR 1961 SC 832, it was held
“in law the appeal is not so much against the judgment as against the decree;
that is why article 156 of the Limitation Act prescribes a period to 90 days
for such appeals and provides that the period commences to run from the date of
the decree under appeal. Therefore, there is no doubt that the requirement that
the decree should be filed along with the memorandum of Appeal is mandatory,
and in the absence of the decree, the filing of the appeal would be incomplete,
defective and incompetent.”
19. In
that case, the Supreme Court has noticed that the certified copy of the
judgment as well as the decree in trial court had been applied for but a copy
of the decree was not given for the simple reason that no decree was drawn up.
What they were given was a copy of the judgment. These documents, the appellant
(respondent before the Supreme Court) filed with their memo of appeal. The
appeal was rejected by the High Court Registry on the ground that no copy of
the decree had been filed, the presentation of the
appeal was defective. The same was represented with the explanation that no
decree had been drawn up. This explanation was treated as satisfactory by the
Registry of the High Court and the appeal was registered. At the hearing of the
appeal preliminary objection was raised as to the competency of the appeal. The
High Court directed that one month’s time be allowed for the purpose of getting
a decree drawn up in proper form by the lower Court and obtain a copy thereof.
The Supreme Court observed that appropriate orders have to be passed having
regard to the circumstances of each case but the most important step to take in
cases of defective presentation of appeals is that they should be carefully
scrutinised at the initial stage soon after they are filed and the appellant be
required to remedy the defects. It was further observed that the question about
the competency of appeal has to be judged in each case on its own facts and
appropriate orders must be passed at the initial stage soon after the appeal is
presented in the Appellate Court.
20. From
the above observations, it appears that while provisions of Order 41, Rule 1 of
Code of Civil Procedure are mandatory, what is required to be filed along with
the Memorandum of appeal is the decree. In the absence of decree, the filing of
the appeal would be incomplete, defective and incompetent. However, the
appellant should be afforded an opportunity to comply with the defect and if
any question of limitation arises, the same would also require to be
adjudicated upon. In the instant case, no decree has accompanied the filing of
the memorandum. Though the memorandum of appeal has been preferred within the
statutory period of limitation prescribed for filing an appeal, there does not
appear to be any practice in the CLB with regard to drawing up of a decree. It
was accompanied by a xerox copy of the order appealed against. It is not in
dispute that the xerox copy of the order has been made from the true copy of
the order of CLB which was made available to it by the CLB. When the objection
was taken as to the competency of the appeal, the original true copy of the
order was tendered in Court at the time of hearing of the appeal on 9-2-2000.
21. Apart
from rule 6 of the Companies (Court) Rules also in terms of clause 37 of the
Letters Patent of this Court the procedures laid down
under the Code of Civil Procedure would apply. Order 41, Rule 1 of the Code of
Civil Procedure mandates that a memorandum of appeal should be accompanied by a
judgment and decree. There is no provision for drawing up of a decree by the
CLB. In such a situation, under the provisions of the Code of Civil Procedure
the operative portion of the judgment itself can be
construed to be a decree. It was, therefore, obligatory on the part of the
appellant to file at least the certified copy of the operative portion of the
judgment. In any event, no prayer has been made by the appellant for
condonation of delay and/or for dispensation of the filing of the certified
copy of the judgment. Unless such a prayer is made, this Court cannot exercise
its jurisdiction to entertain the appeal filed under section 10F.
22. Under
the Code of Civil Procedure, the civil court is enjoined with a duty to draw up
a decree as provided for under section 33 of the Code of Civil Procedure. Order
20 rule 6 of the Code of Civil Procedure specifies as to what should be
contained in a decree, an order of the CLB would not
be an appeal from a decree and would only be on appeal from order. No reasons
nor any explanation has been furnished as to why impugned order of the CLB was
not filed along with the memorandum of appeal.
23. However,
there cannot be any doubt whatsoever, that even if no appeal has been preferred
by the applicants, recourse can be had to the provision of order 41, rule 33 of
the Code of Civil Procedure which reads thus :
“Power of Court of Appeal - The Appellate
Court shall have power to pass any decree and make any order which ought to
have been passed or made and to pass or make such further or other decree or
order as the case may require, and this power may be exercised by the Court
notwithstanding that the appeal is as to part only of the decree and may be
exercised in favour of all or any of the respondents or parties, although such
respondents or parties may not have filed any appeal or objection (and may,
where there have been decrees in cross-suits or where two or more decrees are
passed in one suit, be exercised in respect of all or any of the decrees,
although an appeal may not have been filed against such decrees :
Provided that the Appellate Court shall not make any order under section 35A, in
pursuance of any objection on which the Court from whose decree the appeal is
preferred has omitted or refused to make such order.”
24. In Anil Kumar Gupta v. Municipal Corpn. of
Delhi AIR 2000 SC 659 at page 662, the
25. In Superintending Engineer v. B.Subba Reddy AIR 1999 SC 1747, it has been held :
“24 From the examination of these judgments
and the provisions of section 41 of the Act, and order 41, rule 22 of the Code,
in our view, the following principles emerge :
(1) Appeal is a substantive right. It is a creation of the
statute. Right to appeal does not exist unless it is specifically conferred.
(2) Cross-objection is like an appeal. It has all the trappings of
an appeal. It is filed in the form of memorandum and the provisions of Rule 1
of order 41 of the Code, so far as these relate to the form and contents of the
memorandum of appeal apply to cross-objection as well.
(3) Court-fee is payable on cross-objection like that on the
memorandum of appeal. Provisions relating to appeals by an indigent person also
apply to cross-objection.
(4) Even where the appeal is withdrawn or is dismissed for
default, cross-objection may nevertheless be heard and determined.
(5) The respondent even though he has not appealed may support the
decree on any other ground but if he wants to modify it, he has to file
cross-objection to the decree which objections he could have taken earlier by
filing an appeal. Time for filing objection which is in the nature of appeal is
extended by one month after service of notice on him of the day fixed for
hearing the appeal. This time could also be extended by the Court like in
appeal.
(6) Cross-objection is nothing but an appeal, a cross-appeal at
that. It may be that the respondent wanted to give a quietus to the whole
litigation by his accepting the judgment and decree or other even if it was partly
against his interest. When, however, the other party challenged the same by
filing an appeal the statute gave the respondent a second chance to file an
appeal by way of cross-objection if he still felt aggrieved by the judgment and
decree or order.” (p. 1753)
26. The
appeals being A.C.O. NO. 88 of 1998—Manohar Rajaram Chhabaria
v. All
27. In
Ravinder Kumar Sharma v. State of
“22 In our view, the opinion expressed by
Mookherjee, J. of the Calcutta High Court on behalf of the Division Bench in
Nishambhu Jena’s case [1985] 89 Cal. WN 685 and the view expressed by U.N.
Bachawat, J. in Tej Kumar’s case AIR 1981 MP 55 in the Madhya Pradesh High
Court reflect the correct legal position after the 1976 Amendment. We hold that
the respondent-defendant in an appeal can, without filing cross-objections
attack an adverse finding upon which a decree in part has been passed against
the respondent, for the purpose of sustaining the decree to the extent the
lower Court has dismissed the suit against the defendant-respondent. The filing of cross-objection, after the 1976 Amendment is purely
optional and not mandatory. In other words, the law as stated in Venkata
Rao’s case, AIR 1943 Mad. 698 by the Madras Full Bench and Chandra Prabhuji’s
case AIR 1973 SC 2565, by this Court is merely clarified by the 1976 Amendment
and there is no change in the law after the amendment.
23. The respondents before us are, therefore,
entitled to contend that the finding of the High Court in regard to the absence
of reasonable and probable cause or malice-(upon which the decree for pecuniary
damages in B and C Schedules was based) can be attacked by the respondents for
the purpose of sustaining the decree of the High Court refusing to pass a
decree for non-pecuniary damages as per A Schedule. The filing of
cross-objections against the adverse finding was not obligatory. There is no
res judicata. Point 1 is decided accordingly in favour of the
respondent-defendants.” (p. 3575)
28. In
the appeals being A.C.O. No. 87 of 1998—Shaw Wallace & Co. Ltd. v. Union of
India and A.C.O. No. 86 of 1998 Manohar Rajaram Chhabaria v. Union of India,
the following questions arise for consideration :
“(i) Whether past and concluded transactions can form the basis of
proceedings under section 408 of the Act ;
(ii) Can proceedings under section 408 of the Act proceed along with
a petition under sections 397 and 398 of the Act, particularly when the
proceedings under section 408 of the Act was instituted subsequent to the
proceedings under sections 397 and 398 of the Act and was instigated by the
petitioners therein; and
(iii) When there is a prior civil suit in respect of similar
allegations pending in a competent Court which is a representative suit, would
proceedings under section 408 of the Act lie on the self-same allegations
before the CLB” ?
29. The
questions which have been raised before us in the appeals being A.C.O. No. 89
of 1998 Shaw Wallace and Co. Ltd. v. All
“(i) In case of prior pending suit on similar
allegations, whether the CLB ought not to have proceeded with matters under
sections 397 and 398 proceedings.
Relying upon [1965] 35 Comp. Cas. 187 and AIR 1979 SC 1038, it was contended that as
there is no appeal from a finding of facts by the CLB and such finding would
adversely effect SWC and MRC and they would be deprived of the right of appeal
therefrom and challenge the same in the suit.
(ii) Whether parallel proceedings under section 397/398 of the Act
and section 408 of the Act should not be proceeded with simultaneously.
[Reliance has been placed upon 69 Comp. Cas. 769.]
(iii) Whether past and concluded transaction could not form the basis
for grant of reliefs under section 402 of the Act.
[Reliance
has been placed upon 33 Comp. Cas. (sic)
and (1970) 40 Comp. Cas. 119.]
(iv) Findings of
CLB are based on surmises and conjectures and cannot be sustained.
[Reference made to [1955] 26 ITR 736 at 739,
740 : (AIR 1955 SC 271, 273, 274) ; [1959] 37 ITR 288 at 290, 299 : (AIR 1959
SC 1295 at 1296, 1301, 1302); [1955] 26 ITR 775 at 782: (AIR 1955 SC 65 at 69)
; [1959] 37 ITR 151 at 162, 169 and 170 : (AIR 1959 SC 1238, 1246, 1251 and
1252 ; [1959] 37 ITR 271 at 277).
(v) The CLB has travelled beyond the pleadings in relying upon the
Annual Report which it is not permitted to do in proceedings under sections 397
and 398 of the Act.
[Reference made to (1970) 40 Comp. Cas. 119 ; (1959) 1
(vi) Proceedings under sections 397 and 398 of the Act have
been filed with improper motive and have been financed by competitors.
[Reliance
has been placed upon (1965) 1 All ER 667].”
30. A.C.O.
No 86 of 1998 and A.C.O. No. 87 of 1998 are appeals against the orders passed
by the CLB under section 408. As noticed (supra), by the orders under appeal,
the CLB gave directions for appointment of two Directors by the Central
Government in the company in question.
31. In
Paragraph ‘5’ of the order under appeal, the CLB has set out the summary of
grounds on which the Central Government had sought for appointment of
Government Directors (extracted supra).
32. As
the CLB is the final fact-finding authority, the conclusions arrived at have to
be given due weight and unless the same are held to be perverse, no
interference with the same is warranted. It would, therefore, be convenient to
first record the conclusions arrived at by the CLB with respect to the various
charges levelled against the company in its petition filed by the Central Government :
(i) Sales promotion expenses :—The
allegation of the Central Government was that sales promotion expenses
increased from 4.7 crores in 1989-90 to Rs. 21.08 crores in 1993-94;
remuneration paid to sales promoters went up from Rs. 23 lakhs to Rs. 11 lakhs
(sic) during the corresponding period. It was observed that from the report of
Inspector appointed under section 209A, he had come to the conclusion that
there was no abnormality in such higher sales promotion expenses and also with
regard to the payment made to sales promoters. The CLB accepted the same.
However, on the issue whether there have been any kickbacks, the CLB observed
as follows :
“. . . We find that certain other authorities
have already been looking into this matter and as such we do not propose to
make any comment on the same on the basis of certain interim reports filed by
these authorities.”
(ii) Payments made by the company to subsidiaries
:—It is not in dispute that huge amount of money has been paid to
subsidiaries both as incorporate deposit as well as advances. The ICDs stood at
Rs. 153.8 crores in 1994-95 and the advances at Rs. 16.4 crores. Up to 1994-95,
the company had raised ICDs worked (sic) Rs. 410.9 crores. The ICDs were raised
at the interest rates ranging from 26 per cent to 32 per cent maturing between
90 days to 180 days. Two issues were raised in this connection, viz., one was
with regard to the need for lending money to the subsidiaries out of monies
borrowed by the company; the second related to charging a lesser rate of
interest to the subsidiaries than the rate at which the money was borrowed and
in certain cases waiving of interest payable by the subsidiaries altogether.
The CLB held that it did not find any reasonable grounds to object to the
method adopted by the company. The purpose of lending the money to the
subsidiaries was either to acquire new breweries/distilleries or to increase
the capacity of the manufacturing facilities of the subsidiaries. In regard to
bearing of interest, it was observed that no interest has been waived. In
regard to charging of interest on funds given to subsidiaries, it was observed
that no single practice prevailed in holding companies. In some cases, the
holding companies charged normal rates of interest on the money advanced to
subsidiaries and in some cases no interest was charged. It was also held that
when a subsidiary is not a wholly owned subsidiary, then the question of either
not charging the interest or waiving the interest does not arise. It was
further held as follows :
“... From the details furnished we are not in
position to know as to how many subsidiaries which are not wholly owned by SWC
have been lent money. In case the company has not charged adequate rate of
interest on loans given to subsidiaries which are not wholly owned or if the
company has waived interest in respect of these companies, SWC should take
immediate remedial action to ensure that adequate rate of interest is charged
and interest waived is recovered.”
33. We
have only referred to those charges and the findings supra of the CLB which
have gone, in our view, against the company and its management. We did not
consider it necessary to refer to the various other charges levelled by the
Central Government in its petition as no appeal has been preferred by the
Central Government itself. Some of the charges being common, the other charges
shall be considered while dealing with the other appeals.
34. In
giving the directions, the CLB has observed and in our view rightly so that the
underlying purpose of section 408 is to safeguard the interest of the company
or its shareholders or the public interest by appointment of the Government
Directors with a view to prevent the affairs of the company being conducted
either in a manner which is oppressive to any members of the company or in a
manner which is prejudicial to the interest of the company or public interest.
35. The
CLB was dealing with the two matters analogously. One filed under section
397/398 and the other by the Central Government under section 408. The CLB, has also considered and examined whether the affairs of
the company are being carried on in a manner prejudicial to the interest of the
company or public interest or oppressive to the members of the company and if
so, how the same could be prevented and how their interest should be
safeguarded.
36. The
CLB considered the questions of supersession of the Board and after observing
the present composition of the Board, it was found that there are only two
Directors presently on the Board, viz., Shri Narshiman and Manohar Raja Ram
Chhabaria (MRC) against whom allegations can be established warranting action.
It did not and in our opinion rightly so pass (sic)
orders with regard to supersession of the Board.
37. Apart
from the findings and conclusions arrived at (noted supra), the CLB in its
order under appeal noted certain disturbing factors with respect to financial
management of the company in the following terms :
“. . . . .There does
not seem to have been any transparency in mobilising such huge ICDs loans or in
giving loans and advances to the subsidiaries. This is evident from the manner
of the Board Meeting held on 24-1-1996 where the Board has decided not to rectify
the ICDs accepted or given. In other words, the company has accumulated a huge
debt without the knowledge and approval of the Board. While acceptance of high
cost short-term funds is normally resorted to for working capital needs, it is
rather surprising that the company should have mobilised such a huge fund of
hundred of crores for long-term investment purposes. No doubt, there are some
valid reasons for doing so as explained by Shri Diwan, yet, the amount involved
is so high, that we feel such mobilisation of large amount for long-term
investment is definitely against all norms of financial propriety. The present
state of the company is obviously due to the ambitious plan of the company to
reach the height of success at the shortest possible span of time, but
unmindful of the cost it has to pay. Further, there has been heavy turnover of
Directors on the Board during the last few years. In such a large company like
SWC which is a multi unit, multi-product company, continuity of Directors is a
must and this type of turnover of Directors is highly undesirable.”
38. Further
disturbing fact noticed by the CLB was with respect to the disqualification
made by the auditors in the last two annual reports. The CLB held as under :
“. . .According to
the auditors, many of the assets were not ascertainable nor the liabilities and
the perusal of the qualifications show that such unascertainable amounts run
into crores of rupees. May be as suggested by Shri Ganesh, due to the largeness
and the complexities of the business of the company, collation and collection
has become difficult, but in times of communication revolution, we cannot
accept this excuse. The company has also indulged in manipulating the accounts
to show artificial profits through fictitious transactions. Further, from the
periodical reports on statutory compliance, copies of which were filed during
the hearing, we find that in this area also a lot is to be done.”
39. The CLB has further held as follows :
“. . .The company has
also proposed certain measures of raising finance. All these attempts to be
successful, which would put the company back on rails without any impediment,
it is essential that the creditors, lenders and the public at large repose
faith and confidence in the management of the company, which unfortunately is
at the lowest ebb today. The effect of whatever happened earlier continues as
on date and is likely to continue for some more time, which will be against the
interest of the company. The main object of sections 397/398 and 408 is to
safeguard a company by suitable remedial measures. Thus, we find that there is
every justification to restructure the Board of Directors of the company so
that the interest of the company is safeguarded.”
40. We
shall now take up for consideration the conclusions and findings arrived at by
the CLB in the matter relating to application under section 397/398.
41. The
CLB upheld the contention of the company that the petition filed by the employees shareholders is essentially one under section 398.
There are no allegations in the petition as observed by the CLB which can be
classified to fall in the nature of acts of oppression against members of the
company. The allegations made relate to the alleged acts of mismanagement and
with particular reference to the irregularities and illegalities with respect
to financial management of the company. The CLB rightly, in our view,
restricted its scrutiny in the matter only with respect to the provisions of
section 398.
42. What
according to the respondents (employees shareholders) are the principal charges
on defalcation, mismanagement, acts of illegalities conducted, which are
prejudicial to the interest of the company (SWC), its shareholders and
prejudicial to public interest and are said to be the following :
“(i) Diversion of nearly
Rs. 100 crores through Guwahati companies.
(ii) SWC funds used for financing Jumbo (controlled by MRC) for
acquiring shares in SWC to bolster MRC ultimate control over SWC.
(iii) Rs. 14 crores given ostensibly to GTC by
SWC without any consideration.
(iv) Inter-corporate deposits in excess of Rs. 400 crores obtained
by SWC without reference to its board. Only Rs. 170 crores was attempted to be
shown to have been utilised. There is no explanation for the balance of Rs. 230
crores.
(v) Manipulation of SWC accounts and
window-dressing the same through fictitious transactions.
(vi) Large scale sale of properties and assets of the SWC over a short period of
time without the company being in apparent need of such funds immediately.
(vii) Large scale payments on account of alleged sales promotion
expenses, the same being a decoy for diversion of funds to MRC.
(viii) Purchase of useless software from Dunlop at an inflated price and
subsequent booking of profits by showing sale thereof without consideration
being actually received.
(ix) Illegal payments and/or commissions to
ostensible third parties.
(x) Investment in Guwahati companies made and large scale loans
obtained by company without reference to the Board of Directors.
(xi) Admitted failure to comply with mandatory
statutory requirements.
(xii) Defrauding the Revenue by failing to pay
statutory dues.
(xiii) Fraudulent conduct by company in failure to repay its creditors
and even small individual depositors.
(xiv) Useless expenditure incurred including buying
of ladies jewellery.”
43. With
regard to the Guwahati companies, the CLB examined the questions and rejected
the contention that these companies are paper companies or they are not in
existence. However, on the issues whether any investment was actually made and
whether the same was a smokescreen designed to siphon off money, it was
observed that the fact of purchase of shares is not disputed by any one and was
in fact the foundation of the allegations. The CLB observed that the
petitioners have not furnished the full particulars and the company also did
not produce full details. The statutory auditors of the subsidiaries companies
which had invested in these shares, it was observed, have stated that the
certificates were not available for physical verification as they were reported
to have been sent for consultation. As regards the prospectus issue by the said
companies which was produced during the hearing, no documents have been
produced before the CLB to show that these companies have gone in for
additional issues of shares to enable investment in such large number of
shares. The CLB also observed that the transactions of purchase of shares had
not gone through the floor of the stock exchange and the explanation that the
same was to avoid brokerage was not found convincing. The CLB refrained from
taking cognizance of report of the E.D. and revenue Department which are based
on certain statements made by Shri Narshiman which he had later retracted that
substantial money had been siphoned off. The CLB observed that substantial
money has been invested in a short span of about 18 months. None of them was in
the core area of business of the company. There is commonality of Shri Jain
being on the Board of all these companies at the time of acquisition of the
shares. It was also held that there was no Board approval for such substantial
investment even though the Board had noted that these companies became
subsidiaries of SWC in their meeting held on 26-5-1994 and 28-5-1994. In the
board of directors’ meeting held on 16-12-1996, it was noted vide an item No.
32 that the investments made in these companies had not been placed before the
Board for their approval and that the Board was of the opinion that the
investment was commercially bad decision apart from irregularities
:
(iii) Purchase of software from Dunlop.—The CLB observed that it was
ununderstandable as to how the company (SWC) could have agreed to purchase
software from Dunlop for Rs. 30 crores when the cost of acquisition by Dunlop
is Rs. 3 crores and within a short period it sold it to a holding company for
Rs. 47 crores. It was also observed that the very fact that Jumbo had resold
the software after some time, i.e., after the financial year was over, the
conclusion arrived at by the CLB, was that the entire transaction was purely
for the purpose of showing a glossy picture about the performance of Dunlop and
SWC; the CLB held it to be the grave act of manipulating the accounts of the
company to show artificial profits.
(iv) MDPL Sales.—The company (SWC) agreed
for G.T.C. advertising the brands of SWC at the rate of Re. 1 per pack on which
stickers highlighting the brands of SWC would be fixed. G.T.C. obtained the
money from the company (SWC) without having advertised the products of the
company. The CLB concluded that the internal control system and supervisory
system in the company are not at a desirable level.
44. Mr.
Banerjee, the learned counsel for the respondents, however, contended that the
CLB was required to give its conclusions on the material available on record.
It was the submissions of Mr. Banerjee that in holding that the CLB cannot go
into the allegation of mismanagement when other authorities have started
investigations into the matter should that the CLB failed to exercise the
jurisdiction vested in it by law.
45. In
view of observations of the CLB, quoted supra, the contention of Mr. Banerjee
is without substance. It is not a case of failure of exercise of jurisdiction
by the CLB. The inferences that could have been drawn from the material on
record have been so drawn. It is based thereon, inter alia, that certain
directions have been issued to the board of directors, apart from appointment
of Directors.
46. We
have taken into consideration only those allegations as relevant to the matter
under sections 397 and 398 on which a conclusion has been arrived at by the CLB
against the company SWC. We have not gone into those contentions and
allegations in respect whereof no final conclusion or finding against the
company has been arrived at. This was for the reason that the CLB was dealing
with the matters under section 398 and section 408. The jurisdiction of the CLB, was, therefore, restricted to ascertaining and
examining whether the affairs of the company are being carried on in a manner
prejudicial to the interest of the company or public interest and if so how the
same could be prevented and how their interest could be safeguarded.
47. Let us now examine in detail
the various contentions urged by the learned counsels.
48. The
foremost contention raised by Mr. Mukherjee was that the allegations made in
the application under section 408 had not been proved and, therefore,
directions by the CLB are unwarranted.
49. Next,
it was sought to be contended that the past and concluded transactions could
not have formed the basis of proceedings under section 408.
50. The
CLB as noticed (supra) was dealing with the two matters analogously, one, under
sections 397-398 and the other, under section 408. The CLB has considered and
examined whether the affairs of the company are being carried on in a manner
prejudicial to the interest of the company or public interest and if so, how
the same could be prevented and how the interest should be safeguarded. With
regard to the financial management of the company, the company, it was found,
has also indulged in manipulating the accounts to show artificial profits, and,
thus, arrived at a finding that there was every justification to restructure
the board of directors of the company so that the interest of the company is
safeguarded. The conclusions arrived at by the CLB cannot be characterised as
perverse or based on no evidence or material on record.
51. Therefore,
in the instant case, it cannot also be said that the CLB had appointed the
Directors without satisfying the condition precedent laid down in the Act or
that the power exercised by it was in excess of its jurisdiction.
52. In
the matter under sections 397-398, the substantive relief claimed was for
supersession of Board, removal of M.R. Chhabaria from the Board and for
ordering an investigation into the affairs of the company. The allegations on which the application is founded was in
respect of alleged acts of mismanagement. The CLB, rightly in our view,
considered the same as one under section 398, and, therefore, restricted its
enquiry to the extent of the provisions contained in section 398. Under that
section, the grievance to be made out is that the affairs of the company,
subject-matter of enquiry, are being conducted in a manner prejudicial to the
public interest or in a manner prejudicial to the interest of the company. If
the CLB arrived at such conclusion, then it can take recourse to the provisions
of section 402 to mould the relief. The jurisdiction and powers under section
402 are twofold. Firstly, the CLB has the power to set right the wrongs and
secondly, it has power to issue directions to prevent occurrence of such wrong
in the future. The CLB, thus, is competent to pass orders or issue directions,
both corrective and preventive in nature.
53. The
CLB has considered in detail the questions of supersession of the Board. It was
noticed that when the petition was filed, there were 10 Directors, all of whom
have been impleaded; two whole-time Directors and two part-time Directors had
resigned. Thereafter, the composition of the Board was five (5) Directors and
one nominee of CLB. One Ravi Jain was inducted into the Board some time in
April, 1995. There was no direct allegation against him in either of the petitions.
As the allegations contained therein related to the period before Shri Ravi
Jain had joined the Board, the CLB considered the credentials of the Directors
on Board and the allegations made against them respectively and it was noticed
that there are only two Directors, viz., Shri Narsimhan and M.R.C. against whom
allegations can be established warranting action. In that view of the matter,
the question of supersession of the Board, it was held by the CLB, did not
arise. We find no illegality or irregularity with the said conclusion of CLB.
54. With
regard to MRC, it was noticed that he is controlling 39 per cent of share of
the company in question. A finding of fact was arrived at by the CLB that the
active involvement of MRC cannot be held against him. The routine day-to-day
administration of the company was under supervision of control of board of
directors. The CLB opined that there was not sufficient material to establish
that MRC utilised his commanding share controlling position to either act against
the interest of the company or to enrich himself at the cost of the company. Needless to reiterate that a Tribunal cannot base its findings on
mere suspicion, surmises and conjectures.
55. The
CLB in the instant case has given the directions based upon the material on
record. It found irregularities in financial management. It was found that the
company had accumulated huge debt without the knowledge and approval of the
Board. Continuity of Direcors was lacking and the turnover of Director as noticed
was held to be highly undesirable. The CLB has based its orders and issued
directions to prevent occurrence of such events in future. Thus to our mind,
the directions issued by the CLB are preventive in nature. The CLB observed
that the effect of whatever happened earlier continued and was likely to
continue, the same would be against the interest of the company. As noticed
supra, the object of sections 398 and 408 is to safeguard the company, the directions issued were remedial measures. The
CLB did not base its conclusions in issuing such directions on the data based
on events of mismanagement or failure of business decision or imprudent acts.
The CLB merely took note of the fact that the company’s affairs are being
conducted in a manner prejudicial to the interest of the company. The findings
arrived at by the CLB cannot be characterised as perverse or based on no
material. The conditions precedent for taking action must show that the affairs
are being conducted in a manner which is either oppressive or prejudicial to
the company or public interest. The condition precedent for exercising the
power is satisfied in the instant case.
56. In South India Viscose Ltd. v. Union of
“. . . But section 408 permits the appointment
of a Director on the Board only if first it is found that it is necessary to
make the appointment in order to prevent the affairs of the company being
conducted either in a manner which is oppressive to any members of the company
or in a manner which is prejudicial to the interests of the company or to
public interest, meaning that such a conduct must be burdensome, harsh and
wrongful. We are clear that this power must be exercised sparingly and only in
a clear case where the affairs of the company are being conducted so as to
leave no manner of doubt that not taking action will be prejudicial to public
interest. . . .” (p. 267)
57. In Peerless General Finance & Investment Co. Ltd. v.
Union of
58. In Thakur Hotel (Simla)
59. A
Division Bench of this Court in Mohta Bros. (P.) Ltd. v. Calcutta Landing &
Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 held that
when an uncertain allegations of oppression or mismanagement do not entitle a
petitioner to ask the Court to embark upon an investigation into the affairs of
the company in the hope that in consequences of such investigation something
will turn up which will enable the Court to grant relief to the petitioner. The
inability on the part of the shareholders who have no access to the books of
company to furnish full particulars is not a ground for directing an
investigation into the affairs of the company or for giving any other relief.
Such is not found in the instant case. The CLB rejected the prayer for
investigation but granted relief under sections 402 and 408 based upon the
conclusions arrived at by it and referred to supra.
60. The
case in point is Shakti Trading Co. (P.) Ltd. v. Union of
“. . . The powers of the Central Government
under sections 408 and 409 are preventive in nature. The powers are exercised
in order to see that in future the affairs of the company are conducted in a manner which are not prejudicial to the interest of the
company, members and to the public interest. An order under section 408 may not
be able to cure the illegal or prejudicial acts which may have already been
performed by the company and its Directors, but it can try and prevent
repetition of such acts in future by appointing the Directors of the company. .
. .” (p. 804)
61. The
power under section 408 is extraordinary and admits of no doubt and the same
can be exercised only upon satisfaction that the affairs of the company are
grossly mismanaged or where it is felt that quick action is needed. The power
under section 408 is both remedial and preventive in nature. The instant case
is one where the CLB has exercised the power to prevent mismanagement. The same
can be exercised only if the CLB is satisfied that it is necessary to appoint
Directors in order to prevent the affairs of the company from being conducted
contrary to the interest of the company or to public interest. In other words,
the appointment of Directors must be necessary to prevent continuance of
mismanagement. We find that in the instant case, the CLB has proceeded on the
above settled principles. It has come to certain conclusions with regard to
financial mismanagement. It also found that whatever happened earlier continues
as of date and is likely to continue for some more time which will be against
the interest of the company. The materials on record before the CLB and the inferences
that needed to be drawn, having been drawn by it, the CLB found every
justification to restructure the Board so that the interest of the company is
safeguarded. While refraining from taking cognizance of the reports of the
Enforcement Directors and Revenue Department, the CLB felt that there are
certain circumstances which cloud the transactions. A substantial sum of money
had been invested by the company in a short span of about 18 months; none of
the investments made by the company was in the core area of the business of the
company. The transactions with respect to purchase of shares had not gone
through the floor of the Stock Exchange. Then again the CLB has analysed
various charges levelled against the company with regard to its financial mismanagement.
It found that there was no transparency in mobilising such huge ICDs/Loans or
in giving loans and advances by the company to its subsidiaries. The board of directors were not even aware of the huge debt
accumulated by the company. The acts of commission and omission, it was
noticed, have been going on in the matter of financial management of the
company, and the effect of the same was all pervasive. The very existence of
the company, it was noticed, is under threat due to a large number of winding up
petitions. We concur with the view of CLB that it was a fit case where
intervention of the CLB was warranted to safeguard the interest of a company as
well as the interest of the members of the company and also the public
interest. It is in those circumstances that certain directions had been issued
also to the restructured Board to investigate into matters and to set right the
same. We, therefore, also for this reason reject the arguments advanced by Mr.
Banerjee, the learned counsel for the employees-respondents, that the CLB was
not justified in entrusting to the Board certain functions to investigate which
it should have itself either investigated or superseded the Board in its
entirety.
62. It
was next contended that the proceedings under section 408 and the proceedings
under section 397/398 could not have been investigated simultaneously. The
statutory power which vested in the Central Government to appoint Directors had
been delegated under the Act to the CLB under section 408. Likewise under provisions
of section 398 a forum has been provided to the shareholders. By hearing both
matters analogously the statutory rights of the respective parties have been
recognised and to avoid multiplicity of proceedings or conflict in the
decisions in the two matters, the same have been heard analogously and disposed
of. It cannot be contended based upon any principle of law that merely because
a group of shareholders initiate proceedings under section 397/398, the CLB
would be denuded of its power to entertain proceedings if initiated under
section 408 by the Central Government or vice versa.
63. Mr.
Mukherjee, the learned senior counsel, then contended that there was a prior
suit in respect of similar allegations pending in a civil court filed in a
representative capacity and, therefore, the proceedings under section 408 and
sections 397-398 could not have been initiated on the ground that the parties
cannot be allowed to carry on parallel proceedings.
64. The
reference in this behalf has been made to a suit being No. 360 of 1995 filed by
D.A. Ltd. in a representative capacity and said to be pending in the High
Court. Admittedly, the petitioners before the CLB are not the plaintiffs in
that suit. If it was a case of election, the argument advanced by Mr. Mukherjee
would have merited consideration for the reason that the petitioners before the
CLB having elected to avail the remedy of a civil suit should not be allowed to
proceed under section 397/398 and/or 408. Such is not the case in the matter on
hand. Merely, because certain persons have filed a civil suit, though in a
representative capacity, the statutory rights available to the shareholders of
the company or the Central Government cannot be taken away. It is not a case of
parallel proceedings having been initiated by the petitioners before the CLB.
65. We
also reject the contention of Mr. Mukherjee that the findings of the CLB are
based on surmises and conjectures. The conclusions arrived at by the CLB, in our
considered view, are based on the material on record and the inferences that
could have been drawn have been rightly drawn by the CLB.
66. We
also find no force in the submission that the proceedings under sections 397
and 398 had been filed with improper motive or that the same had been financed
by competitors. There is no material on record to substantiate the said
contentions. The only record relied upon by the learned counsel and reference
to which has been made is to certain bills of lawyers during stay at
67. Lastly,
it was sought to be urged by Mr. Sen, the learned senior counsel for the
appellants, that the contesting respondents are an insignificant minority in
the shareholding of SWC. In proceedings under section 397/398, it was contended, these are best settled by directing the minority
group to sell its shareholding. It was urged that the direction issued by the
CLB in the matter under section 397/398 was erroneous besides being untenable. If at all, the only direction that could have been issued by the
CLB was to direct the minority shareholders to sell their shares and for the
majority shareholders to purchase the same. Reliance for the said
proposition has been placed upon the judgments of this Court in Bajrang Prasad
Jalan v. Mahabir Prasad Jalan AIR 1999 Cal. 156 and Mahabir Prasad Jalan v.
Bajrang Prasad Jalan [1999] 2 Comp. LJ. 71 (
“95. There cannot be any doubt whatsoever that
the power conferred upon the Court in terms of section 402 of the Companies Act
is very wide. The Court can, pass different orders in different cases keeping
in view the nature of the allegations and the facts and circumstances of the
each case.” (p. 178)
The said two decisions are, therefore, of no
assistance to the appellants in the facts and circumstances of the matter on
hand. The CLB in the instant case has issued directions preventive in nature.
68. For
the reasons aforestated, all the appeals must be dismissed and are,
accordingly, dismissed with costs. One set of cost in each case which we
estimate at 500 G.Ms. shall be paid by the appellants to the
respondents-employees. The APOT No. 770 of 1998 is, however, dismissed but in
the circumstances without costs.
69. Interim
orders shall stand vacated forthwith. All applications and the appeals,
accordingly, stand disposed of, as above.
70. I agree.
71. A prayer for stay has been
made by Mr. Mukherjee which has been opposed by Mr. Banerjee.
72. Having
regard to the fact that vacation has started in the
73. Xerox certified copy of this
judgment and order be made available to the parties on
a priority basis.
Order
accordingly.
[2002] 37 scl 14 (
HIGH COURT OF
Tin Plates Dealers Association (P.) Ltd.
v.
Satish Chandra Sanwalka
ASOK KUMAR GANGULY, J.
A.G.O. 58 OF 2001
AND A.P.O.T.
NO. 247 OF 2001
Section 10F,
read with section 483, of the Companies Act, 1956 - Company Law Board - Appeal
against orders of - Whether forum for hearing appeals under section 10F and
under section 483 should be same, i.e., Division Bench of High Court - Held, no
- Whether appeal under section 10F can be entertained by Company Judge sitting
singly in absence of any rule to contrary - Held, yes
Interpretation
of statutes - Rule of harmonious construction
The controversy before the court was that whether appeal under section 10F from the order of the CLB is to be heard by the Company Judge sitting singly or the appeal has to be heard by the Division Bench of the court which hears, under section 483, appeals from the orders/judgments of the Company Judge.
There are substantial distinguishing features between the appellate forum under section 10F and the forum under section 483 and one cannot be equated with the other. The two forums cannot be equated without doing violence to the statute. There is no dispute that the forum of appeal under section 483 is the Division Bench. But insofar as the forum of appeal under section 10F is concerned there is no such clear indication. But on a harmonious construction of section 10F and section 483 such appeals should be taken up by the Company Judge of the High Court and not by the forum under section 483 which is the appellate forum, from the orders of the company judge. Any other construction, would be inconsistent with the scheme of two different appellate forums provided under the Act. As a right to appeal is never an inherent right but is always a creature of statute, in deciding the forum of an appeal the statutory dispensation must be the best guide.
Therefore, considering the question from all angles, it was to be held that appeal under section 10F can be entertained by the Company Judge in the absence of any rule to the contrary.
Minoo H. Mody v. Hemant D. Vakil AIR 1994 Bom. 39, Calcutta
Chemical Co. Ltd. v.
Sudipta Sarkar and Sanjib Banerjee for the Petitioner. S.N. Mukherjee for the Respondent.
Ganguly, J. - The controversy over which the court was addressed on several days in this matter is whether this appeal under section 10F of the Companies Act, 1956 (‘the Act’) from the order of the CLB is to be heard by the company judge sitting singly or this appeal has to be heard by the Division Bench of this court which hears, under section 483 of the Act, appeals from the orders/judgments of the company judge.
2. In the fitness of things it is proper to set out section 10F. Section 10F runs thus :
“S. 10F. Appeals against the orders of the Company Law Board. - Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”
The section itself does not exactly answer this controversy and so it lingers on and it appears that courts have not spoken uniformly on this issue either.
Under the said Act, the word ‘court’ has been used in various sections and some of those sections, which are relevant in the context of the controversy, are set out below :
Section 2(11) of this Act is in the following terms :
“(11) ‘the court’ means,—
(a) with respect at any matter relating to a company (other than any offence against this Act), the court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10;
(b) with respect to any offence against this Act, the Court of a Magistrate of the First Class or, as the case may be, a Presidency Magistrate, having jurisdiction to try such offence;”
Section 10 is in the following terms :
“10. Jurisdiction of Courts. - (1) The court having jurisdiction under this Act shall be—
(a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2); and
(b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction conferred by this Act upon the court, not being the jurisdiction conferred —
(a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407, both inclusive;
(b) in respect of companies with a paid-up share capital of not less than one lakh of rupees by Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies.
(3) For the purposes of jurisdiction to wind up companies, the expression ‘registered office’ means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petition for winding up.”
3. Section 433 of the Act also refers to the expression ‘court’ when it provides that ‘a company may be wound up by the court’. But the rest of the section is not important here.
4. Section 483 which provides for appeals from orders/decisions of the court in the matters of winding up is in the following terms :
“483. Appeals from orders. - Appeals from any order made, or decision given, in the matter of the winding up of a company by the court shall lie to the same court to which, in the same manner in which, and subject to the same conditions under which, appeals lie from any order or decision of the court in cases within its ordinary jurisdiction.”
Here the dispute is not over jurisdiction of courts but over the appropriate forum namely whether appeals provided under section 10F will heard by the company judge of the High Court or by the Division Bench which hears appeals under section 483 from the orders of the company judge. In other words the question is whether the forum for hearing appeals under section 10F and under section 483 would be the same namely the Division Bench of the High Court or it would be different namely the court of the company judge in the case of appeals under section 10F from the order of the CLB.
5. The Original Side Rules of the Calcutta High Court do not throw any light on this controversy. Nor has any rule been framed by the High Court for hearing appeals under section 10F.
The counsel for the parties have cited a few judgments which the court proposes to consider.
The first decision on which reliance was placed by the learned counsel for the appellant was rendered in the case of Minoo H. Mody v. Hemant D. Vakil, AIR 1994 Bom. 39.
In that case, the learned judges of the Division Bench of the Bombay High Court held : (a) appeals under section 10F shall be filed before the High Court on the original side and not on the appellate side, (b) such appeals shall have to be presented in the form of memorandum of appeal formulating questions of law arising out of the order which is appealed against, and (c) such appeals are to be heard by the company court on the original side as company matters till appropriate rules are made. This court is concerned with the points decided at (c).
6. The learned counsel for the respondent has however, assailed the said Division Bench judgment of the Bombay High Court by urging that the judgment has not indicated any reason in support of its conclusion at (c) that appeals under section 10F have to be heard as company matters before the company judge. This court thinks that the said criticism is well founded. In para. 14 of the judgment, the learned judges of the Division Bench referred to the prevailing practice of hearing of appeals under section 10F in some High Courts, but did not decide the controversy whether appeals under section 10F and section 483 can be equated.
7. The counsel for
the petitioner relied on a Division Bench judgment of this court in the case of
Calcutta Chemcial Co. Ltd. v. Krishna Das Pal [1985] 57 Comp. Cas. 503. In that
judgment the Division Bench held that even though matters under sections 397
and 398 of the Act do not relate to a proceeding for winding up of a company
they are an alternative to the same. So from an order in
matters under sections 397 and 398 an appeal would lie to the Division Bench of
the same High Court. This was held by the Division Bench relying on the
judgment of the
8. The counsel further urged that now in respect of matters under sections 397 and 398, jurisdiction is no longer with the company judge of the High Court but it has been vested in the CLB, a quasi-judicial Tribunal with trappings of a court. But an appeal under section 10F from the order of the said Tribunal would lie to the High Court only on a question of law. Such limited appellate jurisdiction of the High Court, according to the learned counsel, must be with the company judge.
9. The counsel for
the petitioners also relied on the decision in the case of Prakash Timbers (P.)
Ltd. v. Smt. Sushma Shingla AIR 1996 All. 262. In that
decision the learned judges of the Division Bench considered whether the CLB is
a Tribunal or a court in the context of rule 5 of the
10. The controversy
with which this court is concerned here was not in issue in Prakash Timbers
(P.) Ltd.’s case (supra). But of the points, which were decided in the case of
Prakash Timbers (P.) Ltd. (supra) one of them is of relevance here also namely
that, the CLB is a Tribunal and not an ordinary court of civil jurisdiction.
The said decision was given in Prakash Timbers (P.) Ltd.’s case (supra) after
analysis of the Supreme Court decisions and also a decision of the appeal court
in the case of Shell Co. of
But divorced from the context of the Special Court Act, the CLB cannot be called a court. The court and the CLB are separately treated under the said Act. The definition of ‘court’ under section 2(11) has been extracted above. But the CLB has been defined separately under section 2(10A) as follows :
“(10A). ‘Company Law Board’ means the Board of Company Law Administration constituted under section 10E;”
Section 10E(1) and sub-section (1A) which provide for the constitution of the CLB are set out:
“10E. Constitution of Board of Company Law Administration (1).—As soon as may be after the commencement of the Companies (Amendment) Act, 1988, the Central Government shall, by notification in the Official Gazette, constitute a Board to be called the Board of Company Law Administration.
(1A). The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it, 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 by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law.”
That the CLB is not a full-fledged court but a Tribunal with the trappings of a court is made further clear from sub-sections (4C) and (4D) of section 10E. Those sub-sections are also extracted below :
“(4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters namely:—
(a) discovery and inspection of documents or other material objects producible as evidence;
(b) enforcing the attendance of witnesses and requiring the deposit of their expenses;
(c) compelling the production of documents or other material objects producible as evidence and impounding the same;
(d) examining witnesses on oath;
(e) granting adjournments;
(f) reception of evidence on affidavits.
(4D) Every Bench shall be deemed to be a civil court for the purposes of section 195 and (Chapter XXVI of the Code of Criminal Procedure, 1973) and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code and for the purpose of section 196 of that Code.”
It cannot be disputed that substantial restructuring of the composition of the CLB has been brought about by the Companies (Amendment) Act, 1988 (Act 31 of 1988). Such amendments have been made on the recommendation of the Sachar Committee. The relevant portions of those recommendations on which the 1988 Amendment Act was modelled throw some light to show that the CLB is a Tribunal. Those recommendations are to the following effect:
“We, therefore, feel that appropriate solution would lie in statutorily constituting an independent quasi-judicial Company Law Board broadly on the lines of the Income-tax Appellate Tribunal, as provided in section 252 of the Income-tax Act, 1961, with Benches permanently located at different regions, including Delhi, so that matters are heard at places not far removed from the offices of the companies. In order to see that the Company Law Board functions independently as a statutorily constituted Tribunal and is independent of the Department of Company Affairs, it would be necessary to frame rules for recruitment and conditions of service of the persons appointed as members of the Company Law Board by a Presidential notification under article 309 of the Constitution of India, read with the relevant section of the Companies Act dealing with the constitution of the Company Law Board, as in the case of the Income-tax Appellate Tribunal. We are also anxious to see that suitable qualifications are prescribed for recruitment as members of the Company Law Board.”
Therefore, the court has to proceed on the basis that the CLB is a Tribunal.
11. Now, the court must
ascertain the ratio of the judgment of the
Stridewell,
the appellant, filed a petition under sections 397 and 398 before the Principal
Bench of the CLB at
Before the
Supreme Court, the appellant contended that the expression ‘High Court’ in
section 10F must mean the High Court of the place at which the registered
office of the company concerned is situated. So the appeal is to be filed in
the Madras High Court. The
So the point with which this court is concerned in this case was not in controversy in Stridewell Leathers (P.) Ltd.’s case (supra). Even, then in the judgment some observations of the Supreme Court would help the resolution of the controversy and those aspects are discussed below.
12. The learned judges of the Supreme Court held that the point for consideration in Stridewell Leathers (P.) Ltd.’s case (supra) was whether with the change of original jurisdiction of the High Court in respect of the matters under sections 397 and 398 and vesting of the same with the CLB under section 10E, the forum of appeal remains unaffected by the change of forum of original jurisdiction.
13. After discussing the statutory definition, the learned judges in para 10 of the judgment held that the concerned High Court continued to be the forum of appeal notwithstanding the transfer of original jurisdiction from the concerned High Court to the CLB.
14. In para 15 of the judgment the learned judges have expressed the position that the order of the CLB in a given case may be amenable to writ jurisdiction of the High Court under article 226. Of course, the learned judges have made it clear that in exercise of jurisdiction under article 226 the writ court may in a given case refuse to entertain the petition in view of the efficacious statutory remedy of appeal under section 10F. But the fact that the order of the CLB is amenable to writ jurisdiction has been accepted in Stridewell Leathers (P.) Ltd.’s case (supra). So from the aforesaid discussion in Stridewell Leathers (P.) Ltd.’s case (supra) it is clear that despite the conferment on the CLB of the original jurisdiction of sections 397 and 398 the CLB cannot be treated as a court. It has to be treated as a quasi-judicial Tribunal and is amenable to a writ court. The learned counsel for the respondent has relied on another Supreme Court judgment in the case of Shankarlal Aggarwala v. Shankarlal Poddar [1965] 35 Comp. Cas. 1. The said judgment was relied upon in order to point out the scope and ambit of section 202 of the Companies Act, 1913. The said section 202 of the 1913 Act is almost identical with section 483 of the Act. In Shankarlal Aggarwala’s case (supra) while dealing with the scope of section 202, the court held that the orders passed by the District Court or by a single judge of the Calcutta High Court in the matter of a winding up petition are appealable under section 202 of the 1913 Act independently of the provisions of sections 96 and 104 of the Code of Civil Procedure, 1908 or clause 15 of the Letters Patent. There can be no doubt in respect of the aforesaid proposition but this court is not concerned with those questions in this case.
15. The learned counsel for the respondent has also relied on an unreported Division Bench judgment of this court in support of the contention that the appeal under section 10F will have to be heard by the Division Bench. The said judgment was rendered in the case of Esemen Metalo Chemicals (P.) Ltd. v. Mrs. Farhat Sheikh (S/A). Before proceeding to consider the said judgment, it may be noted that the said matter was assigned before the Division Bench by the Hon’ble Chief Justice and as such the question with which this court is concerned in this case was not in issue in the said unreported judgment. However, the learned judges of the Division Bench in the unreported judgment considered the Companies (Amendment) Act, 1988, and also the judgment of the Supreme Court in Stridewell Leathers (P.) Ltd.’s case (supra). The learned judges have noted clearly that no rule has been framed by the High Court laying down the practice and procedure for hearing of an appeal under section 10F.
16. The learned judges of the Division Bench, however, observed that the assigning of the appeal to the Division Bench is consistent with the amendment made and in the background of the changes in law. The learned judges further observed that since the power, which is exercised by the CLB under sections 397 and 398, were previously exercised by the learned company judge of the High Court and there is an appeal to the Division Bench from the order of the learned company judge so it appeared to the Division Bench that not only the original forum has been changed but the appellate jurisdiction is also to be exercised by the Division Bench. So the learned judges held that the matter has been rightly assigned by the Hon’ble Chief Justice to avoid all controversy. The learned judges held that it is for the full court of this court to frame rules to decide whether a matter should be heard by a Division Bench or by a single judge. The learned judges further held that such matters are to be decided by the administrative side of this court and a litigant has no say in the matter. The learned judges however, refused to follow the principles laid down by the Bombay High Court and as such the preliminary objection to the hearing of the appeal by the Division Bench was overruled and it was also made clear that so long it is not decided by the High Court administratively by framing rules, the matter will be dealt with by the Division Bench in view of the administrative decision of the Hon’ble Chief Justice.
17. This court, however, has been given to understand by the learned counsel for both the parties that there is no such general administrative direction of the Hon’ble Chief Justice for hearing appeals under section 10F by the Division Bench. There is no rule to that effect either. It may be noted that the matter in respect of which the unreported judgment was delivered was assigned before the Division Bench.
18. In a matter which
has been specially assigned before the Division Bench by the Hon’ble Chief
Justice there is hardly any scope for a decision whether the matter is to be
heard by a single judge or a Division Bench. At least those questions did not
fall for consideration before the court. So observations made on those
questions do not constitute the ratio. When a question is not required to be
decided by a court, observations on those questions cannot be treated to be
part of the decision of the court. See the judgment of the Full Bench of the
Calcutta High Court in the case of Jay Engg. Works Ltd. v.
M.G. Wagh, AIR 1973
19. From the aforesaid discussions, the following points clearly emerge:
(1) Even though the CLB has the trappings of a court, it is not a court like the company court.
(2) The forum of appeal under section 10F is different from the forum of appeal under section 483. This difference is apparent from the wording of the statute itself.
(3) Section 10F provides for an appeal from any order or decision of the CLB on any question of law arising out of such order. There is a period within which such appeal has to be filed. There is also a provision for condonation of delay where appeal is filed beyond the said period but the extended period is also statutorily fixed.
(4) The decision of the CLB which is appealable under section 10F is also, in a given case, amenable to the writ jurisdiction of this hon’ble court.
(5) But an appeal under section 483 would only lie from any order made or a decision given in the matter of winding up of the company by a court.
(6) Therefore, the appellate forum under section 483 cannot be invoked from any order of the CLB. It can only be invoked from an order of the court within the meaning of section 2(11). Those orders of the company court are not amenable to a writ court.
(7) An appeal under section 483 is an intra court appeal and would lie to the same court where the original order has been passed.
(8) Such appeal is not confined to a question of law only.
(9) Such appeal would lie in the same manner and is subject to the same conditions in which appeals lie from any order of the decision of the court in cases within its ordinary jurisdiction.
Therefore, there are substantial distinguishing features between the appellate forum under section 10F and the forum under section 483 and one cannot be equated with the other. Though the Bombay High Court has not decided this question, this court is definitely of the opinion that these two forums cannot be equated without doing violence to the statute. There is no dispute that the forum of appeal under section 483 is the Division Bench. But insofar as the forum of appeal under section 10F is concerned there is no such clear indication. But this court feels, on a harmonious construction of section 10F and section 483, that such appeals should be taken up by the company judge of the High Court and not by the forum under section 483 which is the appellate forum from the orders of the company judge. Any other construction, in my view, would be inconsistent with the scheme of two different appellate forums provided under the Act. As a right to appeal is never an inherent right but is always a creature of statute, in deciding the forum of an appeal the statutory dispensation must be the best guide.
20. In fact, it may be noted in this connection that the appeal which was filed before the Delhi High Court in the case of Stridewell Leathers (P.) Ltd. (supra) was filed before the learned single judge and not before the Division Bench and the acceptance ‘per se’ of the said appeal by the learned single judge was not found fault with by the Supreme Court. The Supreme Court found that the appeal could not be taken up by the Delhi High Court because of the lack of its territorial jurisdiction. That is a totally different matter. Before this court, the learned counsel for the petitioner has filed several judgments to show that appeals under section 10F are taken up for hearing by the single Bench of the company judges in different High Courts. Those judgments which have been cited before this court are mentioned below:
(1) Chand Mall Pincha v. Hathimal Pincha [1999] 95 Comp. Cas. 368 (Gau.).
(2) Scientific Instruments Co. Ltd. v. Rajendra Prasad Gupta [1999] 95 Comp. Cas. 615 (All.).
(3)
National Thermal Power Corpn. v. Canara Bank [1999] 97 Comp. Cas. 930 (
(4) Gharib Ram Sharma v. Daulat Ram Kashyap [1994] 80 Comp. Cas. 267 (Raj.).
(5) Bhankerpur
Simbhaoli Beverages (P.) Ltd. v. CLB [1994] 79 Comp. Cas.
131 (
Therefore, considering the question from all angles, this court is of the opinion that this appeal under section 10F can be entertained by the company judge in the absence of any rule to the contrary. That being the position the appeal is maintainable before this company court. The appeal, therefore, may be placed for hearing two weeks hence. The preliminary objection is, thus, overruled.
Sections 10fB
to 10GF
National Company Law Tribunal
[2004] 52 SCL 79 (Mad.)
HIGH COURT OF
v.
Union of
R.
Jayasimha Babu and M. Karpagayinayagan, JJ.
Writ petition No. 2198 of 2003
March 30, 2004
Constitution of National Company Law Tribunal and Appellate Tribunals in manner now provided vide Companies (Second Amendment) Act, 2002 seems to indicate run of an aggressive executive seeking to take over gradually judicial power traditionally exercised by Courts under safeguards; creation of National Company Law Tribunal and Appellate Tribunals and vesting in those Tribunals powers exercised by the High Court with regard to company matters cannot be said to be unconstitutional; however, unless provisions in Parts IB and IC introduced by Companies (Second Amendment)Act, 2002 are duly amended it would be unconstitutional to constitute a Tribunal to exercise jurisdiction now exercised by High Court or CLB
Part
IB, read with Part IC, of the Companies Act, 1956 - National Company Law
Tribunal - Constitution of - Whether power of Parliament and Legislature to
create Tribunals does not extend to rendering such new Forums, an extension of
legislative or executive branches of Government or as Forums controlled or
potentially dominated by Legislature or executive wing of State - Held, yes -
Whether creation of National Company Law Tribunal and Appellate Tribunals and
vesting in those Tribunals powers exercised by High Court with regard to
company matters cannot be said to be unconstitutional - Held, yes - Whether
constitution of National Company Law Tribunal and Appellate Tribunal in manner
now provided vide Companies (Second Amendment) Act, 2002, when considered along
with provisions concerning Competition Commission under Competition Act, 2002,
seems to indicate run of an aggressive executive seeking to takeover gradually
judicial power traditionally exercised by Courts under safeguards which ensure
competence, independence and impartiality of Judges, and replacing them by
persons who have neither a judicial background nor specialised knowledge of
subject for which Tribunal is created, and by persons now serving executive who
will continue to retain their lien and loyalty to executive branch, and be
amenable to influence of executive superiors and their political masters -
Held, yes - Whether limiting tenure of Members of Tribunal to three years would
be detrimental to competence, independence, and impartiality of new Tribunals -
Held, yes - Whether until provisions in Parts IB and IC of Companies Act introduced
by Companies (Second Amendment) Act, 2002 which have been found to be defective
inasmuch as they are in breach of basic constitutional scheme of separation of
powers and independence of judicial function, are duly amended, by removing
defects that have been pointed out, it would be unconstitutional to constitute
a Tribunal and Appellate Tribunal to exercise jurisdiction now exercised by
High Courts or CLB - Held, yes
Apprehensive
that growing Tribunalisation of justice in the country accompanied by executive
aggrandisement of the powers, inter alia, relating to composition, tenure of
the Tribunal’s members and their selection, the power of the President, etc.,
would result in the gradual erosion of judicial independence in the special
areas for which the Tribunals are created, and would ultimately lead to
trivialisation of justice, the petitioner-Bar Association, in the instant
petition, questioned the constitutional validity of the amendments effected to
the Companies Act by the Companies (Second Amendment) Act, 2002 whereby
provision is made for setting up a National Company Law Tribunal and to which
Tribunal the jurisdiction exercised by the High Court in relation to, inter
alia, amalgamation and reconstruction of companies, winding up, reduction of
share capital, and other matters is transferred.
HELD
Constitutional
validity in general
One has
necessarily to look at the Seventh Schedule to the Constitution to ascertain the
matters with reference to which the Tribunals may be set up. The Parliament
would be competent to set up Tribunals with regard to subjects enumerated in
List I, while the State Legislatures would be competent to set up the Tribunals
with regard to matters enumerated in List II. With regard to matters enumerated
in List III, the Parliament would have the power, and in case it has chosen not
to exercise that power, the appropriate Legislature would have the power to
establish Tribunals. [
The inexorable
logic of this is that the Courts can be denuded of the jurisdiction now vested
in them, by creating separate or joint Tribunals with respect to each of the
matters in the three Lists. An example of this is the Debts Recovery Tribunal
constituted under the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993. A parallel Tribunal to deal with matters which are within the
jurisdiction of the Courts may also be set up as has been done in the case of
Consumer Disputes Redressal Forums constituted under the Consumer Protection
Act, 1986 and the Lok Adalats under the amended Legal Services Authority Act. [
With regard to
Courts, the Constitution specifically provides for high status to the superior
Courts - the Supreme Court, and the High Courts, and makes adequate provisions
to ensure their independence. The Constitution has also specifically provided
for Subordinate Courts in Chapter VI of Part VI in articles 223 to 237.
Appointment to the ‘judicial service’ whose Members man the Subordinate Courts,
is to be made only after consultation with the High Courts or in accordance
with Rules made after consultation with the High Court. The control over
Subordinate Courts vests exclusively in the High Court as provided in Article
235. [
In contrast,
there is no provision in the Constitution specifically dealing with the
Tribunals (except articles 136 and 227 which only provide for appeal to the
Supreme Court with leave, and judicial review of the Tribunal’s orders by the
High Courts) and there are no provisions dealing with the qualifications,
tenure, control and measures to ensure the competence, suitability,
independence and impartiality of the Chairperson/President and Members of the
Tribunals, even though such Tribunals are entrusted with jurisdiction as
substitutes to the Courts, or as supplemental to that of the Courts. [
The
constitutional guarantee of an independent judiciary and separation of the
judiciary from legislative and executive functions can amount to very little
(subject only to articles 32, 226 and 227), if the Parliament, the
Legislatures, and the Executive whose powers - subject to the Constitution and
enacted legislation, is coterminus with the legislative power - were to be
regarded as having absolute discretion to decide upon the constitution,
qualifications, selection, appointment, tenure, compensation, control and other
matters pertaining to the Tribunals. [
The power of
the Parliament and the Legislature to create Tribunals does not extend to rendering
such new Forums an extension of the legislative or executive branches of the
Government, or as Forums controlled, or designed to be dominated, or
potentially dominated by the legislative or executive wing of the State. [
The
Parliament’s power to create National Company Law Tribunal and National Company
Law Appellate Tribunal is clearly traceable to Entries 43 and 44 of List-I. [
Thus, the
Parliament is competent to enact law with regard to the incorporation,
regulation and winding up of companies. The power of regulation would include
the power to set up an adjudicatory machinery for
resolving the matters litigated upon, and which concern the working of the
companies in all their facets. The Law Commission had also recommended the creation
of specialist Tribunals in places of generalist Courts. Creation of National
Company Law Tribunal and Appellate Tribunals and vesting in those Tribunals the
powers exercised by the High Court with regard to company matters cannot be
said to be unconstitutional. [
However
several of the provisions in Parts IB and IC which deal with these Tribunals
are inconsistent with the basic feature of the Constitution regarding
separation of the judicial power from that of legislative and executive powers,
as also with the independent and impartial exercise of the judicial power. [
Tenure of office of
Members of Tribunal
Sections 10FE
and 10FT prescribe the tenure of the office of the President and Members of the
Tribunal and the appellate authority, as three years with eligibility for
reappointment. [
The short
tenure of the Members undermines their independent functioning,
as such persons will have to depend upon the executive Government and the
selection committee in which four out of five members are serving officers of
the Government, for their continuance in office. It is not only necessary that
they function as truly independent and impartial adjudicators, but also should
be perceived as such. [
A Tribunal
composed of such persons cannot be regarded as one which is independent and
impartial, and which can discharge State’s inherent judicial powers in the
manner in which it should be discharged. [
In the two
Tribunals, namely, Income-tax Appellate Tribunal and the Customs and Excise
Appellate Tribunal, the appointment once made is upto the age of retirement. [
In the
Tribunal constituted under the Recovery of Debts Due to Banks and Financial
Institutions Act the term of office is five years. The appointees are or were
District Judges. Similar terms of five years is
provided for persons appointed as Members of the Consumer Forums under the
Consumer Protection Act. [
It is only in
the Companies (Second Amendment) Act and in the Competition Act, both
enactments being of the year 2002, that the term of the office is specified as
three years, even after the seven Judges Bench of the Supreme Court had
indicated in 1997 in the case of S. P. Sampath Kumar v. Union of India [1987] 1
SCC 124 that even a five-year term is not sufficient, as some time would be
taken by most of the Members to get used to the jurisprudence of the branch for
which the Tribunal is constituted and many would have to come out by the time
they are fully acquainted with that branch of law. [
Thus, limiting
the tenure of the members of the Tribunal to three years would be detrimental
to competence, independence, and impartiality of the new Tribunals. [
The provision
for retaining the lien is a provision which undermines the independence of the
Tribunals. It would be reasonable to provide some time for the officer who
chooses to come to the Tribunal within which he would make up his mind, as to
whether he would like to remain in the Tribunal or go back to his service.
Equally, it is desirable for the appointing authority to watch the performance
of the newly appointed Member for a reasonable period of time. Allowing the
Member to retain the lien for an indefinite period is clearly a provision which
cannot be regarded as constitutional, having regard to the functions which the
Tribunal is required to perform. [
Unless the
term of office is fixed as at least five years with a provision for renewal,
except in cases of incapacity, misconduct and the like, and the period for
which lien may be retained is fixed at not more than one year, the constitution
of the Tribunal cannot be regarded as satisfying the essential requirements of
an independent and impartial body exercising judicial functions of the State. [
Qualification of Members
of Tribunal
Section 10FD
deals with the qualifications, appointment of President and Members of the
National Company Law Tribunal, while section 10FR deals with qualification for
appointment as Chairpersons and Members of the National Company Law Appellate
Tribunal. [
Under article
217(2) the qualification for appointment as a Judge of a High Court is that the
person be a citizen of
In contrast to
section 10FD(1), section 10FR(2) which deals with Chairperson of the Appellate
Tribunal, requires that the Chairperson be a person who has been a Judge of the
Supreme Court or a Chief Justice of a High Court. [
The Supreme
Court, in the case of S. P. Sampath Kumar(supra) has
held that for appointment to the post of Vice-Chairman of the Administrative
Tribunals a person qualified to be appointed as a Judge of a High Court could
also be considered. What was said there has inappropriately been extended here
to the post of a President who heads the entire Tribunal which consists of the
President and, 62 other members. It is in the fitness
of things that the person who heads this important Tribunal be a person who has
considerable experience in discharging high judicial functions as a Judge of a
High Court. A wider vision, the ability to see things in context and in the
proper perspective, the ability to the innovate
wherever necessary, and other similar qualities are almost as important as
expertise in the subject. [
Even as, for
the position of Chairperson of the Appellate Tribunal it is only persons who
have actually held the office either as a Judge of the Supreme Court, or as
Chief Justice of a High Court who can be considered, so also for the post of a
President of the Tribunal it would be appropriate to confine the choice to
persons who have held the position of a Judge of a High Court for a minimum
period of five years. [
In the second
proviso to section 10FE it is provided that a person appointed as a President
as also a Member, “…may retain lien with his parent cadre or Ministry or
department while holding office as such”. This is surprising and raises doubts as
to whether reference to a persons qualified to be a Judge of a High Court is
for the purpose of enabling persons in the Indian Legal Service or the Indian
Company Law Service (Legal Branch) who had been advocates for ten years before
joining such service, to be considered as being eligible to be appointed as
President of the Tribunal. This is a disturbing provision. Even the high office
of the President of the Tribunal is being allowed to be held by a person from
the executive branch by regarding him as being qualified for appointment for
the post of a Judge of a High Court on account of his having been an advocate
for ten years or more prior to his joining the service. The reference to
President must be deleted from the proviso in section 10FE. For Members, as
already held, the lien should be limited to one year. [
The
qualifications prescribed for a Judicial Member in section 10FD(2)
in sub-clauses (a) to (d) are qualifications to which no serious objection can
be taken. [
In the case of
L. Chandra Kumar v. Union of India [1997] 3 SSC 261 presence
of persons without judicial background on the Tribunal was found to be
permissible, if such persons possess specialised knowledge which was relevant
to the specialised nature of the Tribunal. The grass- root experience in the
field was regarded as a positive qualification for a non-judicial member. [
Section
10FD(3), which sets out the qualifications requires for Technical Members,
refers in sub-clauses (a), (b),(c),(d), and (e) respectively to persons who are
in the Indian Company Law Service (Accounts Branch) in the Senior
Administrative grade; persons who have held the rank of a Joint Secretary to
the Government of India and have adequate knowledge and experience in dealing
with problems relating to company law; those with 15 years of practice as
chartered accountant; with 15 years of practice as cost accountants; and to
persons with 15 years working experience as company secretary in whole time
practice. No serious exception can be taken to the qualifications so prescribed
for a Technical Member in sub clauses (a) to (e) of section 10FD(3).
[
Section 10FD(3)(f) is a matter of serious concern. [
It is
difficult to see how knowledge of science, technology or industry can make for
expertise in the specialised branch of company law. It is equally difficult to
see the link, between qualifications and expertise in Economics, Banking,
Industrial finance, Industrial Management, Industrial Reconstruction,
administration, and investment, and marketing with expertise in company law. [
The object of
creating specialist Tribunals is not to provide a sinecure to persons who may
be specialised in unrelated branches of knowledge, and vest precious judicial
power in them in an area in which they are not competent. [
So far as Law
and Accountancy are concerned, they are relevant in this specialist Tribunal
but for which provision has already been made in section 10FD(2)
and section 10FD(3)(c) and (d). [
The
justification offered by the State is that a similar provision existed in the
Sick Industrial Companies (Special Provisions) Act, 1985 and since the work
relating to revival and rehabilitation of sick industries is entrusted to this
new Tribunal under the new Part VIA of the Companies Act comprising sections
424A to 424L, and titled “Revival and Rehabilitation of Sick Industrial
Companies” a Member possessing the qualification provided for in that Act, is
required to be appointed to this new Tribunal. [
Section 10FD
(3)(f) is practically a reproduction of section 4(3) of the Sick Industrial
Companies (Special Provisions) Act, 1985, except that the period of experience
in the specified field is twenty years instead of fifteen years. [
It is evident
that the Legislative draftsperson has not paid attention to the scheme of
section 10FD when he/she decided to bodily lift section 4(3) from the Sick
Industrial Companies (Special Provisions) Act, 1985, make a minor modification
therein and incorporate the same as sub-clause (f) of section 10FD(3). [
Knowledge
of/and experience in science, technology, industry, etc., does not equip one to
deal with questions of company law with regard to matters like oppression and mismanagement,
matters relating to allotment of shares, amalgamation and restructuring of
companies, or the priorities in the distribution of assets in the course of
winding up, and such matters. [Para 95]
Any appointee
under section 10FD(3)(f), therefore, can have a role
only in matters concerning revival and rehabilitation of sick industrial
companies and not in relation to any other matters. [Para 96]
Section 10FD(3)(g) is incongruous. The qualification prescribed
therein for appointment as a Technical Member is the holding or having held,
the office of the Presiding officer of a
Section 10FD(3)(h) reads as under: ‘…..is a person having special
knowledge of and, experience of not less than fifteen years in, the matters
relating to labour.’ This provision not only suffers from vagueness insofar as
it merely mentions ‘matters relating to labour’, without specifying what those
matters are, and the capacity in which the persons must have dealt with those
matters. This provision would enable a person who has some knowledge of labour
as an academic, or as an official in the Ministry of Labour or as a Trade Union
Leader or as Labour Welfare Officer or as manager in the Human Resources
Department of a company, to become a Technical Member of the Company Law
Tribunal. As a Technical Member such a person would be eligible to sit on all
Benches of the Tribunal and adjudicate matters arising for decision relating to
management, amalgamation, winding up of companies, about which he is likely to
know nothing. [Para 98]
The proviso to
section 10FL(2) is quite startling. It reads, thus :
‘Provided
that in case a Special Bench passes an order in respect of a company to be
wound up, the winding up proceedings of such company may be conducted by a
Bench consisting of a Single Member’. [para 99]
The Special
Bench referred to therein comprises of a Judicial member, a Technical Member
appointed under section 10FD(3)(a) to (f), and a
Technical Member appointed under clause (g) or (h). Such Special Bench/es
is/are to be constituted by the President of the Tribunal for disposal of any
case relating to rehabilitation, restructuring, or winding up of the companies.
[
That Single
Member, though not referred to as one who had sat on the Special Bench that
passed the winding up order, can very well be a labour member appointed as a
Technical Member under section 10FD(3)(h). This is
making a mockery of a specialist Tribunal by entrusting to a person who was
wholly ignorant of company law the power to decide complicated questions of
law, as also the questions of fact after assessing the evidence without knowing
legal principles to be applied for assessing the evidence. [
The State’s
justification is that clause (h) only sets out as an independent provision a qualification
which was required of a member of BIFR and that such Member’s presence in the
Tribunal is required as the Tribunal now has to deal with revival and
rehabilitation of sick industrial companies. [
The company is
the most important form of business organisation not only in India but all over
the world and questions relating to the formation, management, control, changes
in management, allotment of shares, acquisition of controlling interests,
question of mismanagement and oppression, amalgamation and restructuring of
companies, etc., are matters which have large economic consequences for those
directly concerned and many a time on the working of the markets and the
economy as a whole. Such decisions cannot be left to a person who has little or
no knowledge of company law and entrusting these vital functions to such
persons could not be permitted. [
Section 10FD3(h) as also section 10FL(2), proviso, must, therefore,
be suitably amended so as to spell out with certainty the qualification which
the person to be appointed under clause(h) should possess and confine his/her
participation only to the Bench dealing with revival and rehabilitation of sick
companies and exclude his functioning as a Single Member Bench for any matter.
[
Member Administration
Section 10FF
empowers the Central Government, acting on its own, to designate any Judicial
or Technical Member to be member administration in whom are to be vested
financial and administrative powers and which power he may in turn confer to
any other officer of the Tribunal. Section 10FK(2)
provides that, ‘the officers and other employees of the Tribunal shall
discharge their functions under the general superintendence of Member
Administration’. This is an innovation aimed at and in fact undermining the
authority and control of the head of a Judicial Tribunal and asserting the
executive’s control over the staff and other officials of the Tribunal,
bypassing the President. These are pernicious provisions designed to make the
President subservient to the executive. The President would have to depend upon
the sweet will of the Member Administration, the chosen one of the executive,
in all matters concerning finance and administration, which are
vital for the effective and orderly functioning of the Tribunal. Even for minor
matters like secretarial assistance, transport and the like, the President is
required to submit to the dictates of Member Administration through whom the
executive control over finance and administration is being asserted through
these provisions. [
The choice of
the Member Administration is not even to be made with the prior consent of the
President or Chairperson. It is left to the sweet will of the Central
Government to pick and choose among the 62 members that it is empowered to
appoint under section 10FC. The working of the Tribunal will run into rough
weather in case of conflict in the view point of the President and the Member
Administration. This power which has been given to the Central Government is wholly
pernicious and will undermine the authority of the head of the Tribunal to
ensure the effective and smooth functioning of the affairs of a Judicial
Tribunal. [
Sections 10FF
and 10FK(2) should, therefore, be suitably amended to provide that a member may
be designated as member administration only in consultation with the President,
and further provide that the member administration will discharge his functions
in relation to finance and administration of the Tribunal under the overall
control and supervision of the President. [
Other provisions
There are also
other inconsistencies in the manner in which several provisions concerning the
Tribunal have been provided. Section 10FD(2)(a) as
also 10FD(2)(b) specify a period of fifteen years as the period for which one
must have held judicial office while section 10FD(2)(b) refers to requirement
of only ten years as an advocate of a High Court. It seems to place the ten
years as an advocate of a High Court on a higher footing than a person who has
held judicial office for a term of 15 years. It is difficult to appreciate the
reasons that prompted the draftsman to make a distinction of this nature. This
clearly is a matter which requires attention. [
Section 10FR
provides for the constitution of an Appellate Tribunal. Sub-section (1)
provides that the Tribunal shall consist of a Chairperson and not more than two
Members. While section 10FR(2) which provides that the
Chairperson shall be a person who has been a Judge of the Supreme Court or
Chief Justice of a High Court is unobjectionable, sub-section (3) which deals
with the appointment of a Member, uses the same language as in section
10FD(3)(f) except that the length of experience required is twenty-five years.
What can be observed in relation to section 10FD(3)(f)
is equally applicable to section 10FR(3). Subjects other than law and
accountancy mentioned in that provision cannot be regarded as enabling persons
with knowledge and experience in those fields, to be regarded as specialists in
company law competent to deal with, in appeal, decisions rendered by the
Tribunal in relation to company law matters; such persons may only sit in on
cases concerning revival or rehabilitation of sick companies. [
Even under the
SICA, the Appellate Authority for Industrial and Financial Reconstruction did
not have as its member persons, from the subject areas mentioned in section
10FR(3). Only one, who is or has been a Judge of the High Court, or who has
been a secretary to the Government of India, or been a member of the BIFR is
eligible for appointment as member. The legislative draft person has, without
any rationale, incorporated in section 10FR(3) a
provision which had been made for the BIFR. [
Section 10FR(3) must, therefore, be suitably amended to delete the
reference to all subjects other than law and accountancy. Incorporating a
provision similar to that in section 5(3) of the SICA would also be in order. [
It appears
that the provisions concerning the National Company Law Tribunal and the
Appellate Tribunal have been drafted in haste and have not received the kind of
attention that they should have. If they are the result of careful deliberation
it only makes matters worse. The creation of a new substitute judicial Forum
which is to carry out the work which is now being carried out by 21 different
High Courts in the country which work has been done in the High Court for over
nine decades, is to be done with great care so that the new Tribunal will be
efficient and effective alternative institutional Forum to the High Courts and
the CLB. [
Added to this
is the haste with which the appointments to the posts had have been attempted.
It is reported that the salaries payable to the President, the Chairperson and
other members have not been fixed by the Rules till date. Even the selection
process has been set in motion with the candidates being in dark as to what
kind of compensation they will receive if they were to be appointed to these
posts. This is designed to deter the most suitable candidates from offering
themselves for appointment and was a step which ought not to have been taken. [
According to
the petitioner, the salaries proposed to be paid to the Members are not to be
uniform, but dependent upon the substantive rank if any held by the appointee
in the post over which he has a lien in Government service. This allegation was
not denied. On the other hand justification was sought to be offered by
asserting that membership of the Tribunal for purpose of salary has to be
equated to the substantive post over which the appointee holds a lien. This
‘executive’ approach is impossible to justify in a Judicial Tribunal. No Member
of the Tribunal, when all Members possess equal powers and have to shoulder
equal responsibilities, may look down upon his colleague as belonging to a
lower cadre and drawing lower salary. This attitude of the executive is further
evidence of the attempt to executise the Judicial Tribunal. [
The selection
process, has been initiated without advertising the posts in the newspaper and
giving wide publicity even though the field of selection as set out in the
several provisions of sections 10FD and 10FR(3) is very wide. Additional
Solicitor General has informed that letters had been sent to Bar Council by the
Ministry with a request to put up the details on their notice boards. Counsel
for the Bar Council, after ascertaining the facts, has informed that that is
exactly what the Bar Council did - putting up on the notice board in the Bar
Council’s Officer and that they have not in turn sent any communication to the
advocates/Bar Associations in the State. The petitioner stated at the Bar, that
in other States also the advocates’ associations had not been informed, and
that most of the advocates are unaware that the Government was filling up the
posts in the Tribunal for which they were eligible to apply. [
The importance
of advertising the posts of Members is obvious. A new specialist Tribunal is
being created for the first time. The Tribunal is now being entrusted with the
judicial work which is now being carried out by the High Court. It is
imperative that those who are eligible be made aware of the creation of these
posts so that if they so choose, they can offer themselves as candidates. It
would be extremely short-sighted for the recruiting agency to withhold
information regarding the availability of vacancies from the knowledge from
those who are able, interested, qualified and are eligible, and make available
the information only to a handful of persons. [
The post of
Chairperson of the Appellate Tribunal which is to be filled by a former Judge
of the Supreme Court or a former Chief Justice of a High Court, as also the
post of President which has been held to be a post to be filled only by a
former Judge of a High Court with at least five years of experience as such
Judge, however, need not be advertised. Selection to those posts shall be made
by the Chief Justice of India in consultation with the two senior-most Judges
of the Supreme Court, as selection so made will be consistent with the dignity
and importance of these offices and their judicial character. [
The
constitution of the National Company Law Tribunal and the Appellate Tribunal in
the manner now provided, when considered along with the provisions concerning
the Competition Commission under the Competition Act, seems to indicate run of
an aggressive executive seeking to takeover gradually the judicial power
traditionally exercised by the Courts under safeguards which ensure the
competence, independence and impartiality of the Judges, and replacing them by
persons who have neither a judicial background nor specialised knowledge of the
subject for which the Tribunal is created, and by persons now serving the
executive who will continue to retain their lien and loyalty to the executive
branch, and be amenable to the influence of executive superiors and their
political masters. [
If these
attempts being made by the executive were to go unchecked, the situation which
the Privy Council visualised in the Jamaican Gun Court case, of even a Supreme
Court being divested of jurisdiction to such an extent as to leave the Court
‘Supreme’ only in name, can come about. It is imperative that the Courts in
India, even as the U.S. Supreme Court and the Privy Council did, draw a clear
line demarcating the judicial functions from executive and legislative
functions, and immunise the performance of judicial function and the exercise
of the State’s Judicial power by the Courts, as also by the Tribunals - whether
such Tribunals are substitutes, or are supplemental to the Courts - from all
executive influence at all stages. [
It is,
therefore, necessary that the Court draw the line which the executive may not
cross in their misguided desire to takeover bit by bit the judicial functions
and powers of the State exercised by the duly constituted Courts. [
In the light
of foregoing discussions it is clear that until the provisions in Parts IB and
IC of the Companies Act introduced by the Companies (Second Amendment) Act,
2002 which have been found to be defective inasmuch as they are in breach of
the basic constitutional scheme of separation of powers and independence of the
judicial function, are duly amended, by removing the defects that have been
pointed out, it would be unconstitutional to constitute a Tribunal and
Appellate Tribunal to exercise the jurisdiction now exercised by the High
Courts or the CLB. [
Cases
Referred to
Associated Cement Co. Ltd. v. P. N. Sharma AIR 1965 SC 1595 (para
13), Northern Pipeline Construction Co. v. Marathon Pipeline Com. Ft. Al. 458
US 50 (para15),
Arvind P. Datar for the Petitioner. V. T. Gopalan for the Respondent.
R.
Jayasimha Babu, J. - Apprehensive that the growing Tribunalisation of
justice in the country accompanied as it is, by the executive aggrandisement of
the powers, inter alia, relating to composition, tenure of the Tribunal’s
member and their selection, the powers of the President, etc., will result in
the gradual erosion of judicial independence in the special areas for which the
Tribunals are created, and will ultimately lead to Trivialisation of justice,
the Madras Bar Association, which is perhaps, the oldest Bar Association in the
country, has, in this petition, questioned the constitutional validity of the
amendment effected to the Companies Act by Companies (Second Amendment) Act,
2002 whereby provision is made for setting up of a National Company Law
Tribunal (‘Tribunal’) as also a National Company Law Appellate Tribunal, and to
which Tribunal, the jurisdiction exercised by the High Court for nine decades
in relation to, inter alia, amalgamation and reconstruction of companies,
winding up, reduction of share capital, and other matters, are transferred.
2. The jurisdiction
of the High Court transferred to the Tribunal are those under sections 100 to
104, 107, 203, 243, 318(3)(d), 391, 392, 394, 394A, 395, 424, 425, 426, 427,
433, 434 (1)(b), 434(1)(c), 439, 440, 441, 443, 444, 446, 448, 450, 453, 454,
455(2) & (3), 456, 457, 458, 458A, 459, 460, 461, 462, 463, 464, 465, 466,
467, 468, 469, 470, 471, 472, 473, 474, 475, 476, 477, 478, 479, 480, 481, 490,
492, 494, 497, 502, 503, 504, 506,507, 509, 511A, 512, 515, 517, 518, 519, 531,
531A, 533, 534, 535, 536, 537, 538, 540, 542, 543, 544, 545, 546, 547, 549,
550, 551, 553, 555, 556, 557, 558, 559, 560, 581, 582, 583, 587, 588, 589, 610,
614, 626, 632, 635 and 635B of the Companies Act.
3. The jurisdiction
and powers so transferred, inter alia, relate to reduction of share capital;
rights of dissentient shareholders to have variation cancelled; power to
restrain persons from managing companies; compensation for loss of office to
the managing/whole-time director/manager; orders relating to compromise or
making arrangements with creditors and members; power to enforce compromise and
arrangements; provisions for facilitating reconstruction and amalgamation of
companies; power and duty to acquire shares of shareholders dissenting from
scheme or contract approved by majority; making orders regarding the
application of sections 421 to 423 to receivers and managers; ordering winding
up of companies; determining the liability as contributories of present and
past members; enforcement of obligation of directors and managers whose
liability is unlimited; the appointment of an Official Liquidator; furnishing
of statement of affairs by the concerned authorities to the Court; custody of
company’s property; supervision of the work of the Official Liquidator;
Constitution, composition and appointment of Committee of inspection; stay of
winding up proceedings; settlement of list of contributories and giving
directions regarding application of assets; the power to make calls; power to
exclude creditors not proving in time; adjusting the right of contributories;
summoning of persons suspected of having property of company, etc.; power to
order public examination of promoters, directors, etc.; directing dissolution
of the company; appointment and fixation of remuneration of liquidator; filling
up the vacancy in the office of the liquidator; appointment of liquidator and
Committee of inspection; fixing the liquidator’s remuneration; appointment and
removal of liquidator in voluntary winding up; power to deal with the
application of liquidator for public examination of promoters, directors, etc.;
determining cases of fraudulent preference and avoidance of voluntary transfer;
determining the effect of floating charge; avoidance of transfer after
commencement of winding up; dealing with claims for avoidance of certain
attachments, executions, etc., in winding up; dealing with the offences by
officers of companies in liquidation; dealing with cases of misfeasance and
malfeasance and assessing the amount payable by persons guilty of such acts;
disposal of books and papers of the company in liquidation; enforcement of the
duty of liquidator to make returns; declaring the dissolution of a company
void; winding up of unregistered companies, giving direction with regard to the
properties of such companies; enforcement of orders, and protection of
employees during investigation by inspectors or during pendency of proceeding
in certain cases.
4. The powers that
will be left with the High Court, as and when the Amending Act is given effect
to are the powers under sections 81(7), 237(a)(ii), 581 ZN (16), 581ZS(1) and
633(3). The jurisdiction so left with the High Court relate to hearing appeals
with regard to the terms and conditions of conversion of debentures or loans
into shares when the lender exercises right given to it under section 81;
ordering investigation of the company’s affairs, hearing appeals by any member or
creditor or employee aggrieved by the transfer of assets, division,
amalgamation or merger of producer companies; reconversion of producer
companies to inter-State co-operative societies; and the power to relieve
officers of companies, acting honestly and reasonably, of liability, in whole
or in part, and on such terms as the Court may think fit.
5. It must be noticed
here that the power of the High Court in relation to matters concerning, inter
alia, rectification of share Registers and oppression and mismanagement had
been transferred to the Company Law Board constituted by the Central
Government, after the amendment to the Companies Act by the Companies
(Amendment) Act, 1988. That Company Law Board will stand abolished and its
jurisdiction will vest in the new Tribunal after the Amending Act of 2002 comes
into force.
6. Parts 1B and 1C of
the Act dealing with the National Company Law Tribunal and the National Company
Law Appellate Tribunal, comprising of sections 10FB to 10FP and 10FQ to 10GF
read as under :
“PART 1B
NATIONAL COMPANY LAW TRIBUNAL
10FB. Constitution of National Company Law
Tribunal.—The Central Government shall, by notification in the Official
Gazette, constitute a Tribunal to be known as the National Company Law Tribunal
to exercise and discharge such powers and functions as are, or may be,
conferred on it by or under this Act or any other law for the time being in
force.
10FC. Composition of Tribunal.—The Tribunal
shall consist of a President and such number of Judicial and Technical Members
not exceeding sixty-two, as the Central Government deems fit, to be appointed
by that Government, by Notification in the Official Gazette.
10FD. Qualifications for appointment of President
and Members.—(1) The Central Government shall appoint a person who has been, or
is qualified to be, a Judge of a High Court as the President of the Tribunal.
(2) A person shall not be qualified for
appointment as Judicial Member unless he—
(a) has, for at least
fifteen years, held a Judicial Officer in the
(b) has, for at least ten years been an advocate of a High Court,
or has partly held judicial office and has been partly in practice as an advocate
for a total period of fifteen years; or
(c) has held for at least fifteen years a Group ‘A’ post or an
equivalent post under the Central Government or a State Government [including
at least three years of service as a Member of the Indian Company Law Service
(Legal Branch) in Senior Administrative Grade in that service]; or
(d) has held for at least fifteen years a
Group ‘A’ post or an equivalent post under the Central Government (including at
least three years of service as a Member of the Indian Legal Service in Grade I
of that service).
(3) A person shall not be qualified for
appointment as Technical Member unless he—
(a) has held for at least fifteen years a Group ‘A’ post or an
equivalent post under the Central Government or a State Government [including
at least three years of service as a Member of the Indian Company Law Service
(Accounts Branch) in Senior Administrative Grade in that service]; or
(b) is, or has been, a Joint Secretary to the Government of India
under the Central Staffing Scheme, or held any other post under the Central
Government or a State Government carrying a scale of pay which is not less than
that of a Joint Secretary to the Government of India, for at least five years
and has adequate knowledge of, and experience in, dealing with problems
relating to company law; or
(c) is, or has been, for at least fifteen years in practice as a
chartered accountant under the Chartered Accountants Act, 1949 (38 of 1949); or
(d) is, or has been, for at least fifteen years in practice as a
cost accountant under the Costs and Works Accountants Act, 1959 (23 of 1959);
or
(e) has or has had, for at least fifteen years working experience as
a secretary in whole-time practice as defined in clause (45A) of section 2 of
this Act and is a member of the Institute of the Companies Secretaries of India
constituted under the Company Secretaries Act, 1980 (56 of 1980); or
(f) is a person of ability, integrity and standing having special
knowledge of, and professional experience of not less than twenty years in
science, technology, economics, banking, industry, law, matters relating to
industrial finance, industrial management, industrial reconstruction,
administration, investment, accountancy, marketing or any other matter, the
special knowledge of, or professional experience in, which would be in the
opinion of the Central Government useful to the Tribunal; or
(g) is, or has been, a Presiding Officer of a Labour Court, Tribunal
or National Tribunal constituted under the Industrial Disputes Act, 1947 (14 of
1947); or
(h) is a person having special knowledge
of, and experience of not less than fifteen years in, the matters relating to
labour.
Explanation : For the purposes of this part,—
(i) ‘Judicial Member’ means a Member of the Tribunal appointed as
such under sub-section (2) of section 10FD and includes the President of the
Tribunal;
(ii) ‘Technical Member’ means a Member of the Tribunal appointed as
such under sub-section (3) of section 10FD.
10FE. Term of office of President
and Members.—The President and every other Member of the Tribunal shall hold
office as such for a term of three years from the date on which he enters upon
his office, but shall be eligible for reappointment:
Provided that no President or
other Member shall hold office as such after he has attained,—
(a) in the case of
the President, the age of sixty-seven years;
(b) in the case of
any other Member, the age of sixty-five years:
Provided further that the
President or other Member may retain his lien with his parent cadre or Ministry
or Department, as the case may be, while holding office as such.
10FF. Financial and administrative powers of Member
Administration.—The Central Government shall designate any Judicial Member or
Technical Member as Member Administration who shall exercise such financial and
administrative powers as may be vested in him under the rules which may be made
by the Central Government:
Provided that the Member Administration shall
have authority to delegate such of his financial and administrative powers as he
may think fit to any other officer of the Tribunal subject to the condition
that such officer shall, while exercising such delegated powers continue to act
under the direction, superintendence and control of the Member Administration.
10FG. Salary, allowances and other terms and conditions of service
of President and other Members.—The salary and allowances and other terms and
conditions of service of the President and other Members of the Tribunal shall
be such as may be prescribed :
Provided that neither the
salary and allowances nor the other terms and conditions of service of the
President and other Members shall be varied to their disadvantage after their
appointment.
10FH. Vacancy in Tribunal. - (1) In the event of the occurrence of any
vacancy in the office of the President of the Tribunal by reason of his death,
resignation or otherwise, the seniormost Member shall act as the President of
the Tribunal until the date on which a new President, appointed in accordance
with the provisions of this Act to fill such vacancy, enters upon his office.
(2) When the President is unable to discharge his functions owing to
absence, illness or any other cause, the seniormost Member or, as the case may
be, such one of the Members of the Tribunal, as the Central Government, may, by
notification, authorise in this behalf, shall discharge the functions of the
President until the date on which the President resumes his duties.
(3) If, for reason other than temporary absence, any vacancy occurs in
the office of the President or a Member, the Central Government shall appoint
another person in accordance with the provisions of this Act to fill the
vacancy and the proceedings may be continued before the Tribunal from the stage
at which the vacancy is filled.
10FI. Resignation of President and Member.—The President or a
Member of the Tribunal may, by notice in writing under his hand addressed to
the Central Government, resign his office:
Provided that the President or a Member shall,
unless he is permitted by the Central Government to relinquish his office
sooner, continue to hold office until the expiry of three months from the date
of receipt of such notice or until a person duly appointed as his successor
enters upon his office or until the expiry of the term of office, whichever is
the earliest.
10FJ. Removal and suspension of President or Member.—(1) The
Central Government may, in consultation with the Chief Justice of India, remove
from office the President or any Member of the Tribunal, who—
(a) has been adjudged an insolvent; or
(b) has been convicted of an offence
which, in the opinion of the Central Government, involves moral turpitude ; or
(c) has become physically or mentally
incapable of acting as such President or Member of the Tribunal; or
(d) has acquired such financial or other interest as is likely to
affect prejudicially his functions as such President or Member of the Tribunal;
or
(e) has so abused his position as to
render his continuance in office prejudicial to public interest :
Provided that no such President
or a Member shall be removed on any of the grounds specified in clauses (b) to
(e) without giving him reasonable opportunity of being heard in respect of
those charges.
(2) The President or a Member of the Tribunal shall not be removed from
his office except by an order made by the Central Government on the ground of
proved misbehaviour or incapacity after an inquiry made by a Judge of the
Supreme Court in which such President or a Member had been informed of the
charges against him and given a reasonable opportunity of being heard in
respect of those charges.
(3) The Central Government may suspend from office the President or
Member of the Tribunal in respect of whom a reference has been made to the Judge
of the Supreme Court under sub-section (2) until the Central Government has
passed orders on receipt of the report of the Judge of the Supreme Court on
such reference.
(4) The Central Government may, by rules, regulate the procedure for the
investigation of misbehaviour or incapacity of the President or a Member
referred to in sub-section (2).
10FK. Officers and employees of Tribunal.—(1) The Central Government
shall provide the Tribunal with such officers and other employees as it may
deem fit.
(2) The officers and other employees of the Tribunal shall discharge
their functions under the general superintendence of the Member Administration.
(3) The salaries and allowances and other terms and conditions of
service of the officers and other employees of the Tribunal shall be such as
may be prescribed.
10FL. Benches of Tribunal.—(1) Subject to the provisions of this
section, the powers of the Tribunal may be exercised by Benches, constituted by
the President of the Tribunal, out of which one shall be a Judicial Member and
another shall be a Technical Member referred to in clauses (a) to (f) of
sub-section (3) of section 10FD:
Provided that it shall be competent for the
Members authorised in this behalf to function as a Bench consisting of a Single
Member and exercise the jurisdiction, powers and authority of the Tribunal in
respect of such class of cases or such matters pertaining to such class of
cases, as the President of the Tribunal may, by general or special order,
specify:
Provided further that if at any stage of the
hearing of any such case or matter, it appears to the Member of the Tribunal
that the case or matter is of such nature that it ought to be heard by a Bench
consisting of two Members, the case or matter may be transferred by the President
of the Tribunal or, as the case may be, referred to him for transfer to such
Bench as the President may deem fit.
(2) The President of the Tribunal shall, for the disposal of any
case relating to rehabilitation, restructuring or winding up of the companies,
constitute one or more Special Benches consisting of three or more Members,
each of whom shall necessarily be a Judicial Member, a Technical Member
appointed under any of the clauses (a) to (f) of sub-section (3) of section
10FD, and a Member appointed under clause (g) or clause (h) of sub-section (3)
of section 10FD:
Provided that in case a Special Bench passes
an order in respect of a company to be wound up, the winding up proceedings of such
company may be conducted by a Bench consisting of a Single Member.
(3) If the Members of a Bench differ in opinion on any point or
points, it shall be decided according to the majority, if there is a majority,
but if the Members are equally divided, they shall state the point or points on
which they differ, and the case shall be referred by the President of the
Tribunal for hearing on such point or points by one or more of the other
Members of the Tribunal and such point or points shall be decided according to
the opinion of the majority of Members of the Tribunal who have heard the case,
including those who first heard it.
(4) There shall be constituted such number of Benches as may be
notified by the Central Government.
(5) In addition to the other Benches, there shall be a Principal
Bench at New Delhi presided over by the President of the Tribunal.
(6) The Principal Bench of the Tribunal shall have powers of
transfer of proceedings from any Bench to another Bench of the Tribunal in the
event of inability of any Bench from hearing any such proceedings for any
reason:
Provided that no transfer of
any proceedings shall be made under this sub-section except after recording the
reasons for so doing in writing.
10FM. Order of Tribunal.—(1) The Tribunal may, after giving the
parties to any proceeding before it, an opportunity of being heard, pass such
orders thereon as it thinks fit.
(2) The Tribunal may, at any time within two years from the date of the
order, with a view to rectifying any mistake apparent from the record, amend
any order passed by it under sub-section (1), and shall make such amendment if
the mistake is brought to its notice by the parties.
(3) The Tribunal shall send a copy of every order passed under this
section to all the parties concerned.
10FN. Power
to review.—The Tribunal shall have power to review its own orders.
10FO. Delegation of powers.—The Tribunal may, by general or special
order, delegate, subject to such conditions and limitations, if any, as may be
specified in the order, to any Member or Officer or other employee of the
Tribunal or other person authorised by the Tribunal to manage any industrial
company or industrial undertaking or any operating agency, such powers and
duties under this Act as it may deem necessary :
(a) take possession
of such property, books of account or other documents; and
(b) cause the same
to be entrusted to the Tribunal or the operating agency.
(2) For the purpose of securing compliance with the provisions of sub-section
(1), the Chief Metropolitan Magistrate or the District Magistrate may take or
cause to be taken such steps and use or cause to be used such force as may, in
his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District
Magistrate done in pursuance of this section shall be called in question in any
court or before any authority on any ground whatsoever.
10FP. Power to seek assistance of Chief Metropolitan Magistrate and
District Magistrate.—(1) The Tribunal or any operating agency, on being
directed by the Tribunal may, in order to take into custody or under its
control all property, effects and actionable claims to which a sick industrial
company is or appears to be entitled, request, in writing, the Chief Metropolitan
Magistrate or the District Magistrate within whose jurisdiction any property,
books of account or any other document of such sick industrial company, be
situate or be found, to take possession thereof, and the Chief Metropolitan
Magistrate or the District Magistrate, as the case may be, shall, on such
request being made to him,—
(a) take possession
of such property, books of account or other documents; and
(b)
cause the
same to be entrusted to the Tribunal or the operating agency.
(2) For the purpose of securing compliance with the provisions of
sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate
may take or cause to be taken such steps and use or cause to be used such force
as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District
Magistrate done in pursuance of this section shall be called in question in any
Court or before any authority on any ground whatsoever.
PART IC
APPELLATE TRIBUNAL
10FQ. Appeal from order of Tribunal.—(1) Any
person aggrieved by an order or decision of the Tribunal may prefer an appeal
to the Appellate Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an order or
decision made by the Tribunal with the consent of parties.
(3) Every appeal under sub-section (1) shall be filed within a
period of forty-five days from the date on which a copy of the order or
decision made by the Tribunal is received by the appellant and it shall be in
such form and accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may
entertain an appeal after the expiry of the said period of forty-five days from
the date aforesaid if it is satisfied that the appellant was prevented by
sufficient cause from not filing the appeal in time.
(4) On receipt of an appeal preferred under sub-section (1), the
Appellate Tribunal shall, after giving parties to the appeal, an opportunity of
being heard, pass such orders thereon as it thinks fit, confirming, modifying
or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made
by it to the Tribunal and parties to the appeal.
(6) The appeal filed before the Appellate Tribunal under
sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour
shall be made by it to dispose of the appeal finally within six months from the
date of the receipt of the appeal.
10FR. Constitution of Appellate Tribunal.—(1) The Central Government
shall, by notification in the Official Gazette, constitute with effect from
such date as may be specified therein, an Appellate Tribunal to be called the
“National Company Law Appellate Tribunal” consisting of a Chairperson and not
more than two members, to be appointed by that Government, for hearing appeals
against the orders of the Tribunal under this Act.
(2) The Chairperson of the Appellate Tribunal shall be a person
who has been a Judge of the Supreme Court or the Chief Justice of a High Court.
(3) A member of the Appellate Tribunal shall be a person of ability,
integrity and standing having special knowledge of, and professional experience
of not less than twenty-five years in, science, technology, economics, banking,
industry, law, matters relating to labour, industrial finance, industrial
management, industrial reconstruction, administration, investment, accountancy,
marketing or any other matter, the special knowledge of, or professional
experience in which, would be in the opinion of the Central Government useful
to the Appellate Tribunal.
10FS. Vacancy in Appellate Tribunal, etc.—(1) In the event of the
occurrence of any vacancy in the office of the Chairperson of the Appellate
Tribunal by reason of his death, resignation or otherwise, the seniormost
Member of the Appellate Tribunal shall act as the Chairperson of the Appellate
Tribunal until the date on which a new Chairperson appointed in accordance with
the provisions of this Act to fill such vacancy enters upon his office.
(2) When the Chairperson of the Appellate Tribunal is unable to
discharge his functions owing to absence, illness or any other cause, the
seniormost Member or, as the case may be, such one of the Member of the
Appellate Tribunal, as the Central Government may, by notification, authorise
in this behalf, shall discharge the functions of the Chairperson until the date
on which the Chairperson resumes his duties.
(3) If, for reason other than temporary absence, any vacancy occurs in
the office of the Chairperson or a Member, the Central Government shall appoint
another person in accordance with the provisions of this Act to fill the
vacancy and the proceedings may be continued before the Appellate Tribunal from
the stage at which the vacancy is filled.
10FT. Term of office of Chairperson and Members.—The Chairperson or
a Member of the Appellate Tribunal shall hold office as such for a term of
three years from the date on which he enters upon his office, but shall be
eligible for reappointment for another term of three years:
Provided that no Chairperson or other Member
shall hold office as such after he has attained,—
(a) in the case of
the Chairperson, the age of seventy years;
(b) in the case of
any other Member, the age of sixty-seven years.
10FU. Resignation of Chairperson and Members.—The Chairperson or a
Member of the Appellate Tribunal may, by notice in writing under his hand
addressed to the Central Government, resign his office:
Provided that the Chairperson or a Member of
the Appellate Tribunal shall, unless he is permitted by the Central Government
to relinquish his office sooner, continue to hold office until the expiry of
three months from the date of receipt of such notice or until a person duly
appointed as his successor enters upon his office or until the expiry of his
term of office, whichever is the earliest.
10FV. Removal and suspension of Chairperson and Members of Appellate
Tribunal.—(1) The Central Government may, in consultation with the Chief
Justice of India, remove from office the Chairperson or any Member of the
Appellate Tribunal, who —
(a) has been adjudged
an insolvent; or
(b) has been convicted of an offence
which, in the opinion of the Central Government, involves moral turpitude; or
(c) has become physically or mentally
incapable of acting as such Chairperson or Member of the Appellate Tribunal ;
or
(d) has acquired such financial or other interest as is likely to
affect prejudicially his functions as such Chairperson or Member of the
Appellate Tribunal; or
(e) has so abused his position as to
render his continuance in office prejudicial to public interest.
(2) The Chairperson or a Member of the Appellate Tribunal shall not be
removed from his office except by an order made by the Central Government on
the ground of proved misbehaviour or incapacity after an inquiry made by a
Judge of the Supreme Court in which such Chairperson or Member had been
informed of the charges against him and given a reasonable opportunity of being
heard in respect of those charges.
(3) The Central Government may suspend from office the Chairperson or a
Member of the Appellate Tribunal in respect of whom a reference has been made
to the judge of the Supreme Court under sub-section (2) until the Central
Government has passed orders on receipt of the report of the judge of the
Supreme Court on such reference.
(4) The Central Government may, by rules, regulate the procedure for the
investigation of misbehaviour or incapacity of the Chairperson or a Member
referred to in sub-section (2).
10FW. Salary, allowances and other terms and conditions of
service of Chairperson and Members.—(1) The salary and
allowances and other terms and conditions of service of the Chairperson and
other Members of the Appellate Tribunal shall be such as may be prescribed.
(2) The salary, allowances and other terms and conditions of service of
the Chairperson and other Members of the Appellate Tribunal shall not be varied
to their disadvantage after appointment.
10FX. Selection Committee.—(1) The Chairperson and Members of the Appellate
Tribunal and President and Members of the Tribunal shall be appointed by the
Central Government on the recommendations of a Selection Committee consisting
of —
(a) Chief Justice of
(b) Secretary in the Ministry of Finance and
Company Affairs - Member;
(c) Secretary in the Ministry of Labour -
Member;
(d) Secretary in the Ministry of Law and Justice (Department of
Legal Affairs or Legislative Department) - Member;
(e) Secretary in the Ministry of Finance and Company Affairs
(Department of Company Affairs) - Member.
(2) The Joint Secretary in the Ministry or Department of the Central
Government dealing with this Act shall be the convenor of the Selection
Committee.
(3) The Central Government shall, within one month from the date of
occurrence of any vacancy by reason of death, resignation or removal of the
Chairperson and Members of the Appellate Tribunal and President and Members of
the Tribunal and six months before the superannuation or end of tenure of the
Chairperson and Members of the Appellate Tribunal and President and Members of
the Tribunal, make a reference to the Selection Committee for filling up of the
vacancy.
(4) The Selection Committee shall recommend within one month a panel of
three names for every vacancy referred to it.
(5) Before recommending any person for appointment as the Chairperson
and Members of the Appellate Tribunal and President and Members of the
Tribunal, the Selection Committee shall satisfy itself that such person does
not have financial or other interest which is likely to affect prejudicially
his functions as such Chairperson or Member of the Appellate Tribunal or
President or Member of the Tribunal, as the case may be.
(6) No appointment of the Chairperson and Members of the Appellate
Tribunal and President and Members of the Tribunal shall be invalidated merely
by reason of any vacancy or any defect in the Constitution of the Selection
Committee.
10FY. Chairperson, etc., to be public servants.—The Chairperson,
Members, Officers and other employees of the Appellate Tribunal and the
President, Members, officers and other employees of the Tribunal shall be
deemed to be public servants within the meaning of section 21 of the Indian
Penal Code (45 of 1860).
10FZ. Protection of action taken in good faith.—No suit,
prosecution or other legal proceedings shall lie against the Appellate Tribunal
or its Chairperson, Member, officer or other employee or against the Tribunal,
its President, Member, officer or other employee or operating agency or
liquidator or any other person authorised by the Appellate Tribunal or the
Tribunal in the discharge of any function under this Act for any loss or damage
caused or likely to be caused by any act which is in good faith done or
intended to be done in pursuance of this Act.
10FZA. Procedure and powers of Tribunal and Appellate Tribunal.— (1) The Tribunal and the Appellate Tribunal shall not be
bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of
1908), but shall be guided by the principles of natural justice and, subject to
the other provisions of this Act and of any rules made by the Central
Government, the Tribunal and the Appellate Tribunal shall have power to
regulate their own procedure.
(2) The Tribunal and the Appellate Tribunal shall have, for the purposes
of discharging its functions under this Act, the same powers as are vested in a
Civil Court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a
suit in respect of the following matters, namely :—
(a) summoning and enforcing the
attendance of any person and examining him on oath;
(b) requiring the
discovery and production of documents;
(c) receiving
evidence on affidavits;
(d) subject to the provisions of
sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872),
requisitioning any public record or document or copy of such record or document
from any office;
(e) issuing
commissions for the examination of witnesses or documents;
(f) reviewing its
decisions;
(g) dismissing a
representation for default or deciding it ex parte;
(h) setting aside any order of dismissal
of any representation for default or any order passed by it ex parte; and
(i) any other
matter which may be prescribed by the Central Government.
(3) Any order made by the Tribunal or the Appellate Tribunal may be
enforced by that Tribunal 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 the Tribunal or the
Appellate Tribunal to send in the case of its inability 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 situate; 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.
(4) All proceedings before the Tribunal or the Appellate Tribunal shall
be deemed to be judicial proceedings within the meaning of sections 193 and
228, and for the purposes of section 196, of the Indian Penal Code, 1860 (45 of
1860), and the Tribunal and the Appellate Tribunal shall be deemed to be a
civil court for the purposes of section 195 and Chapter XXVI of the Code of
Criminal Procedure, 1973 (2 of 1974).
10G. Power to punish for contempt.—The Appellate Tribunal shall
have the same jurisdiction, powers and authority in respect of contempt of
itself as the High Court has and may exercise, for this purpose under the
provisions of the Contempt of Courts Act, 1971 (70 of 1971), which shall have
the effect subject to modifications that —
(a) the reference therein to a High Court
shall be construed as including a reference to the Appellate Tribunal ;
(b) the reference to the Advocate-General in
section 15 of the said Act shall be construed as a reference to such law
officers as the Central Government may specify in this behalf.
10GA. Staff of Appellate Tribunal.—(1) The Central Government shall
provide the Appellate Tribunal with such officers and other employees as it may
think fit.
(2) The officers and other employees of the Appellate Tribunal shall
discharge their functions under the general superintendence of the Chairperson
of the Appellate Tribunal.
(3) The salaries and allowances and other conditions of service of the
officers and other employees of the Appellate Tribunal shall be such as may be
prescribed.
10GB. Civil court not to have jurisdiction.—No civil court shall
have jurisdiction to entertain any suit or proceeding in respect of any matter
which the Tribunal or the Appellate Tribunal is empowered to determine by or
under this Act or any other law for the time being in force and no injunction
shall be granted by any court or other authority in respect of any action taken
or to be taken in pursuance of any power conferred by or under this Act or any
other law for the time being in force.
10GC. Vacancy in Tribunal or Appellate Tribunal
not to invalidate acts or proceedings. — No act or proceeding of the Tribunal or the Appellate Tribunal shall
be questioned or shall be invalid merely on the ground of existence of any
vacancy or defect in the establishment of the Tribunal or the Appellate
Tribunal, as the case may be.
10GD. Right to legal representation.—The
applicant or the appellant may either appear in person or authorise one or more
chartered accountants or company secretaries or cost accountants or legal
practitioners or any officer to present his or its case before the Tribunal or
the Appellate Tribunal, as the case may be.
Explanation.—For
the purposes of this section,—
(a) ‘chartered accountant’ means a chartered accountant as defined in
clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act,
1949 (38 of 1949) and who has obtained a certificate of practice under
sub-section (1) of section 6 of that Act;
(b) ‘company secretary’ means a company
secretary as defined in clause (c) of sub-section (1) of section 2 of the
Companies Secretaries Act, 1980 (56 of 1980) and who has obtained a certificate
of practice under sub-section (1) of section 6 of that Act;
(c) ‘cost accountant’ means a cost accountant as defined in clause
(b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959
(23 of 1959) and who has obtained a certificate of practice under sub-section
(1) of section 6 of that Act;
(d) ‘legal practitioner’ means an advocate,
a vakil or any attorney of any High Court, and includes a pleader in practice.
10GE. Limitation.—The provisions of the
Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to an appeal
made to the Appellate Tribunal.
10GF. Appeal to Supreme Court.—Any person aggrieved by any decision
or order of the Appellate Tribunal may file an appeal to the Supreme Court
within sixty days from the date of communication of the decision or order of
the Appellate Tribunal to him on any question of law arising out of such
decision or order :
Provided that the Supreme Court may, if it is
satisfied that the appellant was prevented by sufficient cause from filing the
appeal within the said period, allow it to be filed within a further period not
exceeding sixty days.”
6A. Tribunals which are
largely a twentieth century phenomenon, existed in
this country even before the Constitution was framed. The oldest and best known
Tribunal is the Income Tax Appellate Tribunal which had been functioning from
the year 1941. Industrial Tribunals had also been established prior to 1950. Articles 136 and 227 of the Constitution refer to Tribunals, and
makes their orders subject to judicial review by the High Court, and
with leave, to the appellate jurisdiction of the Supreme Court. Numerous
Tribunals have been created subsequent to 1950 by Parliamentary as well as
State Legislation. Their exact number, however, is not easily ascertainable.
The Law Commission of India in its 162nd Report submitted in 1998 reviewed the
working of the major Tribunals in the country - the Income Tax Appellate
Tribunal, Customs, Central Excise and Gold (Control) Appellate Tribunal and the
Administrative Tribunals, and suggested certain changes to improve their
functioning.
7. The object of
constituting Tribunals is to provide a simpler, speedier and more accessible
justice than ordinary Courts are able to provide, as stated in Wade on
‘Administrative Law’. Yet another object of constituting Tribunals is to create
specialist Tribunals which would include specialists in the field, to
adjudicate more efficiently and speedily the matters requiring adjudication in
that field, and, thus, command the confidence of all concerned in the quality
and reliability of the result of such adjudication.
8. The first breach
of the accepted principle that adjudication should be made by the Courts
created by the State was made, as noted by Wade, in the field of collection of
revenue, the oldest such Tribunal in
9. ‘The delivery of
Justice through Tribunals other than ordinary courts of law…’ in
10. The Leggatt report
regards ‘independence’ of the Tribunal as its most important requirement. The
Report also emphasizes the need to satisfy users needs :
“It should never be forgotten that the Tribunals
exist for users and not the other way around’. Tribunals would be wholly
ineffective, if users did not feel that the Tribunals are ‘genuinely and
demonstrably independent’. The Leggatt Report observes, ‘Tribunals are an
alternative to court, not administrative processes. They will keep the
confidence of users only in so far as they are seen to demonstrate similar
qualities of independence and impartiality to the courts.’ ‘Demonstrating those
qualities to the individual user in a Tribunal case will require establishing
that those who are to decide the case adopt a properly impartial approach to
it, and have no improper links to any of the parties; that they have not been
selected to decide the case because they will be more likely to come to any particular
conclusion; and that they will not feel beholden to the person who appointed or
selected them, or fear adverse consequences, from the result of the case.”
11. Dependence of
Tribunals on their sponsoring Department was found to be ‘indefensible’. The
Leggatt Report recommended the creation of a Tribunal’s Board as an adjunct to
the Lord Chancellor’s Department to advise on ‘…qualifications for chairmen and
members, monitoring the appointment and re-appointment of members, coordinating
their training, investigating complaints against members, and recommending
changes to the rules of procedure governing all divisions’.
12. The observations
extracted from the Leggatt Report are relevant and valid in the Indian context
as well, though there is no statute in
13. Tribunals, like
courts, discharge the State’s inherent judicial function. A Constitution Bench
of the Supreme Court in the case of Associated Cement Co. Ltd. v. P.N. Sharma
AIR 1965 SC 1595, speaking through Gajendragadkar, CJ., while holding that the
appellate authority under the Punjab Welfare Officers Recruitment and
Conditions of Service Rules, 1952, is a Tribunal, observed :
“. . . special
matters and questions are entrusted to them for their decision and in that
sense, they share with the Courts one common characteristic; both the Courts
and the Tribunals are ‘constituted by the State and are invested with judicial
as distinguished from purely administrative or executive functions. . . .”
They are both adjudicating bodies and they
deal with and finally determine disputes between parties which are entrusted to
the jurisdiction. . . . As in the case of Courts, so in the case of Tribunals,
it is the State’s inherent judicial power which has been transferred and by
virtue of the said power, it is the State’s inherent judicial function which
they discharge. Judicial functions and judicial powers are one of the essential
attributes of a sovereign State, and on considerations of policy, the State
transfers its judicial functions and powers mainly to the Courts established by
the Constitution; but that does not affect the competence of the State, by appropriate
measures, to transfer a part of its judicial powers and functions to Tribunals
by entrusting to them the task of adjudicating upon special matters and
disputes between parties. It is really not possible or even expedient to
attempt to describe exhaustively the features which are common to the Tribunals
and the Courts, and features which are distinct and separate. The basis and the
fundamental feature which is common to both the Courts and the Tribunals is
that they discharge judicial functions and exercise judicial powers which
inherently vest in a sovereign State.”
14. In the book on
Administrative Law by M.P. Jain, an attempt has been made to enumerate the
features which distinguish Courts from Tribunals, the relevant passage at page
215 reads thus :
“In what respects do the Tribunals contrast
with Courts? Some of the basic characteristics of the Courts are
: they are bound by the prescribed rules of procedure and evidence ;
their proceedings are conducted in public; lawyers are entitled to appear
before them; they are bodies of general jurisdiction; the Judge sitting in a
Court himself hears and decides a case and gives reasons for his decision; and
above all, they are independent of the executive as judges have a tenure
independent of the executive will. As against this, the Tribunals are not
generally governed by the provisions of the procedural and the evidence laws;
their proceedings are not generally required to be conducted in public; they
have a specialised jurisdiction; there may be statutory prohibition on the
lawyers to appear before them (though very often it is not so).’ ‘The material
difference between a Court and a Tribunal, however, lies in the manner of
appointment of their members, and control over them. . . .”
15. That freedom from
control and potential domination of the executive, are necessary preconditions
for the independence and impartiality of Judges was pointed out by the US
Supreme Court in the case of Northern Pipeline Construction Co. v. Marathon
Pipeline Com. Et. Al, 458 US 50, wherein the Court quoted with approval what
had been said by the Court in
‘A judiciary free from control by the
Executive and Legislature is essential if there is a right to have claims
decided by Judges who are free from potential domination by other branches of
Government’. The Federalist No. 79 page 491 was also quoted in that judgment,
‘Next to permanency in office, nothing can contribute more to the independence
of the Judges than a fixed provision for their support. . . . In the general
course of human nature, a power over a man’s subsistence amounts to a power
over his will.’
16. In that case
Justice Brennan speaking for himself and three of his colleagues, also made the
following observations with regard to the creation of specialised Tribunals :—
“The potential for encroachment upon powers
reserved to the Judicial Branch through the device of ‘specialised’ legislative
Court is dramatically evidenced in the jurisdiction granted to the Courts
created by the Act before us. The broad range of questions that can be brought
into a Bankruptcy Court because they are ‘related to cases under title 11’, 28
U.S. C. 1471 (b) at 54, is the clearest proof that even when Congress acts
through a ‘specialised’ Court, and pursuant to only one of its many Article I
powers, appellants’ analysis fails to provide any real protection against the
erosion of Article III jurisdiction by the unilateral action of the political
Branches. In short, to accept appellants’ reasoning, would require that we
replace the principles delineated in our precedents, rooted in history and the
Constitution, with a rule of broad legislative discretion that could
effectively eviscerate the constitutional guarantee of an independent Judicial
Branch of the Federal Government.”
17. Article I of the US Constitution vests
all legislative powers in the Congress. Article III provides that
:
“The Judicial
power of the
18. In the same
decision, it was observed by the Court that, “Private rights
disputes, on the other hand, lie at the core of the historical
recognised judicial power.”
19. Creation of new
Bankruptcy Courts with Judges appointed for 14 year terms and with no
protection against salary dimunition, to deal with bankruptcy matters that were
earlier part of the jurisdiction of the US Federal District Courts, was thus
held by the US Supreme Court to infringe the constitutional guarantee of an
‘independent’ judicial branch.
20. Article 323A of our
Constitution provides for creation by Parliament, by law, of Administrative
Tribunals. Article 323B unables the appropriate Legislature by law to provide
for the adjudication or trial by Tribunals of any disputes, complaints, or
offences with respect to all or any of the matters specified in clause (2)
thereof with respect to which, the Legislature has power to make laws. The
matters specified in clause (2) of Article 323B are :
(a) levy, assessment
collection and enforcement of any tax;
(b) foreign
exchange, import and export across customs frontiers;
(c) industrial and
labour disputes;
(d) land reforms by way of
acquisition by the State of any estate as defined in Article 31A or of any rights
therein or the extinguishment or modification of any such rights or by way of
ceiling on agricultural land or in any other way;
(e) ceiling on
urban property;
(f) elections
to either House of Parliament or the House or either House of the Legislature
of a State, but excluding the matters referred to in Article 329 and Article
329A;
(g) production, procurement,
supply and distribution of foodstuffs (including edible oilseeds and oils) and
such other goods as the President may, by public notification, declare to be
essential goods for the purpose of this Article and control of prices of such
goods;
(h) rent,
its regulation and control and tenancy issues including the rights, title and
interest of landlords and tenants;
(i) offences against laws
with respect to any of the matters specified in sub-clauses (a) to (h) and fees
in respect of any of those matters;
(j) any matter
incidental to any of the matters specified in sub-clauses (a) to (i).
Clause (h)
regarding rent, its regulation and control, etc. was introduced into that
Article by the Constitution (Seventy-fifth Amendment) Act, 1993 with effect
from 15-5-1994.
21. Both Articles 323A
and 323B provide for the law to be made by Parliament or other appropriate
Legislature, excluding the jurisdiction of all Courts, except the jurisdiction
of the Supreme Court under Article 136, with respect to the subject-matter of
the law enacted under those Articles. A seven-Judge Bench of the Supreme Court
in the case of L. Chandra Kumar v. Union of India (1997) 3 SCC 261, has held
that the High Court’s powers under Articles 226 and 227 cannot be so excluded.
22. In the case of L. Chandra Kumar (supra) it
was also held that,
“It is to be remembered that, apart from the
authorisation that flows from Articles 323A and 323B, both Parliament and the
State Legislatures possess legislative competence to effect changes in the
original jurisdiction of the Supreme Court and the High Courts.”
23. In the case of Union
of India v. Delhi High Court Bar Association [2002] 4 SCC 275, a two-Judge
Bench of the Court held that the Debt Recovery Tribunals though it may not
strictly fall within the concept of judiciary as envisaged by Article 50, it is
nevertheless an effective part of the justice delivery system. It was also held
therein that the creation of such Tribunals in the place of a
24. The Court observed that judgment :
“The manner in which a dispute is to be adjudicated
upon is decided by the procedural laws which are enacted from time to time. It
is because of the enactment of the Code of Civil Procedure that normally all
disputes between the parties of a civil nature would be adjudicated upon by the
civil courts. There is no absolute right in anyone to demand that his dispute
is to be adjudicated upon only by a civil court. The decision of the Delhi High
Court proceeds on the assumption that there is such a right. As we have already
observed, it is by reason of the provisions of the Code of Civil Procedure that
the civil courts had the right, prior to the enactment of the Debts Recovery
Act, to decide the suits for recovery filed by the banks and financial
institutions. This forum, namely, that of a civil court, now stands replaced by
a Banking Tribunal in respect of the debts due to the bank. When in the
Constitution Articles 323A and 323B contemplate establishment of a Tribunal and
that does not erode the independence of the judiciary, there is no reason to presume
that the Banking Tribunals and the Appellate Tribunals so constituted would not
be independent, or that justice would be denied to the defendants or that the
independence of the judiciary would stand eroded.
Such Tribunals, whether they pertain to income-tax
or sales tax or excise or customs or administration, have now become an
essential part of the judiciary system in this country. Such specialised
institutions may not strictly come within the concept of the judiciary, as
envisaged by Article 50, but it cannot be presumed that such Tribunals are not
an effective part of the justice delivery system, like courts of law. It will
be seen that for a person to be appointed as a Presiding Officer of a Tribunal,
he should be one who is qualified to be a District Judge and, in case of
appointment of the Presiding Officer of the Appellate Tribunal he is, or has
been, qualified to be a judge of a High Court or has been a member of the
Indian Legal service who has held a post in Grade I for at least three years or
has held office as the Presiding Officer of a Tribunal for at least three
years. Persons who are so appointed as Presiding Officers of the Tribunal or of
the Appellate Tribunal would be well versed in law to be able to decide cases
independently and judiciously. It has to be borne in mind that the decision of
the Appellate Tribunal is not final, in the sense that the same can be
subjected to judicial review by the High Court under Articles 226 and 227 of
the Constitution.” (p. 293)
25. The Supreme Court
in the case of State of Karnataka v. Vishwabharathi House Building Co-operative
Society Ltd. [2003] 2 SCC 412 has observed, inter alia, that :
“[T]. The legislative competence of Parliament
and the State Legislatures respectively to provide for creation of Courts and
Tribunals as envisaged in different Lists contained in the Seventh Schedule of
the Constitution of India are as under : Item 77 of
List I of the Seventh Schedule ‘Constitution, organization, jurisdiction and
powers of the Supreme Court (including contempt of such Court), and the fees
taken therein; persons entitled to practice before the Supreme Court.’ Item 78
of List I of the Seventh Schedule :
‘Constitution and organization (including
vacations) of the High Courts except provisions as to officers and servants of
High Courts; persons entitled to practise before the High Courts’. Item 79 of
List I of the Seventh Schedule : ‘Extension of
the jurisdiction of a High Court to, and exclusion of the jurisdiction of a
High Court from, any
“A bare perusal of the aforementioned
provisions does not leave any manner of doubt as regard the legislative
competence of Parliament to provide for creation of Special Courts and
Tribunals. Administration of Justice; constitution and organisation of all
Courts, except the Supreme Court and the High Courts is squarely covered by
Entry 11-A of List III of the Constitution of India. The said entry was
originally a part of Entry 3 of List II. By reason of the Constitution
(Forty-second Amendment) Act, 1976 and by section 57(a)(vi)
thereof, it was inserted into List III as Item 11-A.”
26. The three-Judge
Bench while upholding the constitutionality of the Consumer Forums constituted
under the Consumer Protection Act, held that as such Forums were only
supplemental to the Courts and their decisions were subject to judicial review
by the High Court, the presence of laymen on the Forums did not have the effect
of eroding the independence of judiciary.
27. One has therefore
necessarily to look at Schedule VII to the Constitution to ascertain the
matters with reference to which the Tribunals may be set up. Parliament would
be competent to set up Tribunals with regard to subjects enumerated in List I,
while State Legislatures would be competent to set up Tribunals with regard to
matters enumerated in List II. With regard to matters enumerated in List III, Parliament
would have the power, and in case it has chosen not to exercise that power, the
appropriate Legislature would have the power to establish Tribunals.
28. The inexorable
logic of this is that the Courts can be denuded of the jurisdiction now vested in
them, by creating separate or joint Tribunals with respect to each of the
matters in the three lists. An example of this is the Debt Recovery Tribunal
constituted under the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993. A parallel Tribunal to deal with matters which are within the
jurisdiction of the courts may also be set up as has been done in the case of
Consumer Disputes Redressal Forums constituted under the Consumer Protection
Act, 1986 and the Lok Adalats under the Amended Legal Services Authority Act.
29. With regard to
Courts, the Constitution specifically provides for high status to the superior
Courts - the Supreme Court, and the High Courts, and makes adequate provisions to
ensure their independence. The Constitution has also specifically provided for
‘Subordinate Courts’ in Chapter VI of Part VI in Articles 233 to 237.
Appointment to the ‘Judicial Service’ whose members man the subordinate Courts,
is to be made only after consultation with the High Courts or in accordance
with Rules made after consultation with the High Court. The control over
subordinate courts vests exclusively in the High Court as provided in Article
235:
“235. Control over subordinate courts. — The
control over district courts and courts subordinate thereto including the
posting and promotion of, and the grant of leave to persons belonging to the
judicial service of a State and holding any post inferior to the post of
district judge shall be vested in the High Court, but nothing in this article
shall be construed as taking away from any such person any right of appeal
which he may have under the law regulating the conditions of his service or as
authorising the High Court to deal with him otherwise than in accordance with
the conditions of his service prescribed under such law.”
30. In contrast, there
is no provision in the Constitution specifically dealing with the Tribunals
(except Articles 136 and 227 which only provide for appeal to the Supreme Court
with leave, and judicial review of the Tribunal’s orders by the High Courts)
and there are no provisions dealing with the qualifications, tenure, control,
and measures to ensure the competence, suitability, independence, and
impartiality of the Chairperson/President and Members of the Tribunals, even
though such Tribunals are entrusted with jurisdiction as substitutes to the
Courts, or as supplemental to that of the Courts.
31. The constitutional
guarantee of an independent judiciary and separation of the judiciary from
legislative and executive functions can amount to very little (subject only to
Articles 32, 226 and 227), if Parliament, the Legislatures, and the Executive
whose powers - subject to the Constitution and enacted legislation, is
co-terminus with the legislative power - were to be regarded as having absolute
discretion to decide upon the constitution, qualifications, selection,
appointment, tenure, compensation, control and other matters pertaining to the
Tribunals.
32. The power of the
Parliament and the Legislature to create Tribunals does not in our view, extend to rendering such new forums an extension of the
legislative or executive branches of the Government, or as forums controlled,
or designed to be dominated, or potentially dominated by the legislative or
executive wing of the State.
33. It is worth
noticing in this context, the decision of the Privy Council in the case of
Hinds v. Queen/Director of Public Prosecutions v. Jackson [1976] 1 All ER 353,
wherein the Privy Council considered the constitutional validity of the Gun. Court Act, 1974, which had been enacted by the Jamaican Parliament.
Lord Diplock, who spoke for the majority, after referring to the Constitutions
of Jamaica, Ceylon, Canada and Australia, inferred that there was a common
drafting practice, which led by a necessary implication, to the establishment
of a Government structure, which made provision for a legislative, executive
and a judicial branch, and that it was taken for granted that the basic
principle of separation of powers would apply to the exercise of the respective
functions of those three organs of Government. All those Constitutions were
compendiously referred to as following a Westminster model of draftsmanship,
and in that model the chapter dealing with the judiciary invariably contained
provisions dealing with the method of appointment, and security of tenure of
the members of the judiciary, which were designed to assure to them a degree of
independence from the other branches of the Government.
34. It was observed by the learned Judge :
“What, however, is implicit in the very
structure of the Constitution of the Westminster model is that the judicial
power, however be it distributed from time to time between various courts, has
to continue, to be vested in the persons appointed to hold judicial office in
the manner and on the terms laid down in the chapter dealing with the
judiciary, even though this is not expressly stated in the Constitution.”
35. It was further
observed that where a Constitution or Westminster model speaks of a particular
‘court’ already in existence when the Constitution came into force, it uses
this expression as collective description of those individual Judges who,
whether sitting alone or with other Judges or with Jury, are entitled to
exercise the jurisdiction exercised by that court before that Constitution came
into force and, further, in that case, the provision in the Constitution for
the appointment or security of tenure of Judges of that court, will apply to
all individual Judges subsequently appointed to exercise the analogous
jurisdiction, whatever other name may be given to the court in which they sit.
The Privy Council in that context referred to the case of Attorney General for
36. After holding that
there was nothing in the Constitution of Jamaica to prohibit Parliament by
enactment of an ordinary law to create a Court under a new name, such as the
Revenue Court, to exercise part of the jurisdiction that was being exercised by
members of higher judiciary or by members of the lower judiciary at the time
the Constitution came into force, it was held that by so doing, only the label
was being changed, but that the duty to ensure that any person appointed to be
a member of the new Court ‘should be appointed in the same manner and entitled
to the same security of tenure as the holder of the judicial office named in
Chapter 7 of the Constitution which entitled him to exercise the jurisdiction
at the time when the Constitution came into force, was a duty which the
Parliament had to scrupulously observe’.
37. The Privy Council
quoted with approval the words used by Viscount Simonds in Attorney General of
Australia v. R & Boilermakers’ Society of Australia [1957] 2 ALL ER 52 that :
“It would make a mockery of the Constitution
if Parliament could transfer the jurisdiction previously exercisable by holders
of the judicial office named in Chapter VII of the Constitution, to holders of
new judicial offices to which some different name was attached, and to provide
that persons holding the new judicial offices should not be appointed in the
manner and on the terms prescribed under Chapter VII for the appointment of the
members of the Judicature.”
And observed:
‘If this were the case, there would be nothing
to prevent the Parliament from transferring the whole of the Judicial power of
Jamaica (with two minor exceptions referred to below) to bodies composed of
persons who not being members of “the judicature”, could not be entitled to the
protection of Chapter VII at all.’
38. That even the label
‘Supreme Court’, could be rendered a false description, if such broad
legislative power was to be recognised, was pointed out:
“If as contended by the Attorney General, the
words italicized in section 97(1) entitle Parliament by an ordinary law to
strip the Supreme Court of all jurisdiction in civil and criminal cases other
than that expressly conferred on it by section 25 and section 366 and section
44, what would be left would be a Court of such limited jurisdiction that the
label “Supreme Court” would be a false description; so too if all its
jurisdiction (with those two exceptions) were exercisable concurrently by other
courts composed of members of the lower judiciary.
39. The most significant
reason for imposing a check on the legislative power to create new adjudicatory
forums, and man them with persons who do not enjoy the independence assured to
the Judges, was stated by Lord Diplock, in these
words:
“But more important, for this is the substance
of the matter, the individual citizen could be deprived of the safeguard, which
the makers of the Constitution regarded as necessary, of having important
questions affecting his civil or criminal responsibilities determined by a
Court, however named, composed of Judges whose independence from all local
pressure by Parliament or by the executive was guaranteed by a security of
tenure more absolute than that provided by the Constitution for Judges of
inferior courts.”
40. In the United
States of America which has the oldest live written constitution, in which are
entrenched provisions separating the legislative, executive and judicial
powers, the constitution was viewed by the US Supreme Court, as the result of
the framers regarding the ‘checks and balances that they had built into the
tripartite Federal Government as a self-executing safeguard against the
encroachment or aggrandizement of one branch at the expense of the other Buckly
v. Valeo, 424 US Page 1’. The object of ensuring these checks and balances was
stated by the Court in the Marathon case, (458
41. Despite the
differences in the written Constitutions of India and
42. The decisions of
the larger Bench of the Supreme Court in the cases of Keshavananda Bharati v.
State of Kerala AIR 1973 SC 1461 and the Constitution Bench in the case of
Minerva Mills Ltd. v. Union of India AIR 1986 SC 2030, have held, inter alia,
that an independent judiciary and it’s power of judicial review are among the
basic features of the Constitution.
43. The Constitution
Bench in the case of S.P. Sampath Kumar v. Union of India [1987] 1 SCC 124,
speaking through Bhagwathi, CJ., has held that :
“It can no longer be disputed that total
insulation of the judiciary from all forms of interference from the co-ordinate
branches of the Government is a basic essential feature of the constitution,
the same independence from possibility of Executive pressure on influence must
also be ensured to the Chairman, vice Chairman and Members of the
Administrative Tribunals…….the Constitution makers have made anxious provision
to secure total independence of the judiciary from executive pressure or
influence.”
44. A Seven Judge Bench
in the case L. Chandra Kumar (supra), has laid down that the ‘power of Judicial
review over legislative action vested in the High Courts under Article 226, and
in this Court under Article 32 of the Constitution is an integral and essential
feature of the Constitution constituting a part of the basic structure……..’and
that ‘……the power vested in the High Courts to exercise judicial
superintendence over the decisions of all courts and Tribunals within their
respective jurisdictions is also part of the basic structure of the
Constitution. This is because a situation where the High Courts are divested of
all other judicial functions apart from constitutional interpretation is
equally to be avoided’.
45. The constitutional
guarantee of a free and independent judiciary, and the constitutional scheme of
separation of powers can be easily and seriously undermined, if the
Legislatures were to divest the regular Courts of their jurisdiction in all
matters, entrust the same to newly created Tribunals which can appropriately be
labelled, borrowing the language of the US Supreme Court, as ‘Legislative
Courts’, and assert that such forums not being regular Courts and their Members
not being Members of the ‘Judicial Service’ of the State, they are not entitled
to protection similar to the constitutional protection afforded to the Courts.
46. If the constitutional
scheme and intent are to be preserved, it must be held that the ‘total
insulation of the judiciary’ referred to in the case of Sampath Kumar is not
just for the ‘Judiciary’ comprising of judges appointed to the regular Courts.
The ‘Judiciary’ in this context must be understood as taking within it’s fold,
all courts and Tribunals and other adjudicating bodies, whatever be the label
assigned to them. The independence and impartiality which are essential for the
proper exercise of the judicial power, are to be
secured, not only for the Courts, but also for Tribunals and their members,
who, though they do not belong to the ‘Judicial Service’ are entrusted with
Judicial powers.
47. Any other view, in
the evocative language of Justice Brenner would effectively eviscerate the
constitutional guarantee of an independent ‘Judicial Branch.’
48. Safeguards which
ensure independence and impartiality are not for promoting personal prestige of
the functionary but for preserving and protecting the rights of the citizens
and others who are subject to the jurisdiction of the Tribunal, and for
ensuring that such Tribunals will be able to command the confidence of the
public. As said by Lord Denning. ‘Justice is rooted in confidence’.
49. Before proceeding
further we must notice the submission made on behalf of the respondent that
legislation even if found to be arbitrary cannot be struck down on that ground.
Our attention was invited to the decision of the Supreme Court in the case of
State of Bihar v. Bihar Distillery Ltd. (1997) 2 SCC 453, wherein it was inter
alia observed that, ‘the general averment that the Act is arbitrary is too
vague to merit any acceptance, apart from the fact that an act of Legislature
cannot be struck down merely saying it is arbitrary.’
50. The Court in that
case reiterated the law that had been laid down in the case of State of U.P. v.
McDowell & Co. [1996] 3 SCC 709 by a three Judge Bench. In that it was
observed:
“The power of Parliament or for that matter,
the State Legislatures is restricted in two ways. A law made by Parliament or
the legislature can be struck down by courts on two grounds and two grounds
alone, viz., (1) lack of legislative competence, and (2) violation of any of
the fundamental rights guaranteed in Part III of the Constitution or of any
other constitutional provision. There is no third ground. … It is enough for us
to say that by whatever name it is characterised, the ground of invalidation
must fall within the four corners of the two grounds mentioned above. In other
words, say, if an enactment is challenged as violative of article 14, it can be
struck down only if it is found that it is violative of the equality
clause/equal protection clause enshrined therein. Similarly, if an enactment is
challenged as violative of any of the fundamental rights guaranteed by clauses
(a) to (g) of Article 19(1), it can be struck down only if it is found not
saved by any of the clauses (2) to (6) of Article 19 and so on. No enactment
can be struck down by just saying that it is arbitrary or unreasonable. Some or
other constitutional infirmity has to be found before invalidating an Act………”
(p. 737)
51. In the footnote in that judgment referring
to the expression ‘arbitrary’, it is stated thus—
“‘An expression used widely and rather
indiscriminately an expression of inherently imprecise import’. The extensive
use of this expression in India reminds one of what Frankfurther, J., said in
Hattie Mae Tiller v. Atlantic Coast Line Railroad Co. 87 L Ed 610: 318 US 54
(1943). “The phrase begins life as a literary expression; its felicity leads to
its lazy repetition and repetition soon establishes it as a legal formula,
undiscriminatingly used to express different and sometimes contradictory ideas,
said the learned Judge”.
52. In the case of
Public Services Tribunal Association v. State of
53. The following
passage from the case of R. K. Garg v. Union of India [1981] 4 SCC 675 was
quoted with approval in the case of Attorney General for India v. Amratlal
Prajivandas [1994] 5 SCC 54, as setting out ‘principles relevant in judging the
validity and relevant in the matter of interpreting the provisions of such
economic measures.’ The economic measures that was
being considered in the case of Attorney General of India was validity of
SAFEMA. In the case of Garg, Bhagwati, J, observed, ‘There may be crudities and
inequities in complicated experimental economic legislation but on that account
alone it cannot be struck down as invalid.’……. ‘There may even be possibilities
of abuse but that too cannot of itself be a ground for invalidating the
legislation because it is not possible for any Legislature to anticipate as if
by some divine prescience, distortions and abuses of its legislation which may
be made by those subject to its provisions and provide against such distortions
and abuses.’……. ‘The court must, therefore, adjudge the constitutionality of
such legislation by the generality of its provisions and not by its crudities
or inequities or by the possibilities or abuse of any of its provisions. If any
crudities, inequities or by the possibilities of abuse come to light, the Legislature
can always step in and enact suitable amendatory legislation. That is the
essence of pragmatic approach which must guide and inspire the Legislature in
dealing with complex economic issues.’
54. We are here
concerned with statutory provisions which are allegedly violative of the basic
constitutional guarantee of free and independent judiciary and, therefore,
beyond the legislative competence of Parliament.
55. We shall now
examine the petitioner’s challenge to the constitutional validity of the
impugned provisions of the Companies Act.
56. The Parliament’s
power to create National Company Law Tribunal and National Company Law
Appellate Tribunal is clearly traceable to Entries 43 and 44 of List-I, which
read as under :
“43. Incorporation, regulation
and winding up of trading Corporations including banking, insurance and
financial corporations but not including co-operative societies.
44. Incorporation, regulation and winding up
of corporations, whether trading or not, with objects not confined to one
State, but not including universities.”
57. Parliament is thus
competent to enact law with regard to the incorporation, regulation and winding
up of Companies. The power of regulation would include the power to set up an adjudicatory machinery for resolving the matters
litigated upon, and which concern the working of the companies in all their
facets. The Law Commission, as noted by the Supreme Court in the case of L.
Chandra Kumar (supra), had also recommended the creation of specialist
Tribunals in places of generalist Courts. Creation of National Company Law
Tribunals and Appellate Tribunals and vesting in those Tribunals the powers
exercised by the High Court with regard to company matters cannot be said to be
unconstitutional.
58. However several of
the provisions in Parts IB and IC of the Companies Act which deal with these
Tribunals are inconsistent with the basic feature of the Constitution regarding
separation of the judicial power from that of legislative and executive powers,
as also with the independent and impartial exercise of the judicial power.
59. Sections 10FE and
10FT prescribe the tenure of the office of the President and Members of the
Tribunal and the Appellate Authority, as three years with eligibility for
reappointment. At the end of that term of three years there is no provision for
automatic reappointment subject to their not having incurred any
disqualification or being found guilty of any misconduct. All that is provided
for is that they would be eligible for reappointment which would only mean that
they are not disqualified from being considered again without any assurance
that they would be once again selected for appointment.
60. The short tenure of
the Members undermines their independent functioning,
as such persons will have to depend upon the executive Government and the
selection committee in which four out of five members are serving officers of
the Government, for their continuance in office. The scope for influencing
their functioning is large. Sensitive matters involving ownership, control and
functioning of Corporations involving heavy stakes will come up for
adjudication before the Tribunal. Considering the manner in which business in
61. This short tenure
will also prove disincentive for well qualified and able persons possessing the
necessary qualifications, from offering themselves for consideration for
appointment to the Tribunal, as professionals who have built up a good practice
after several years of hard work cannot, in the normal course be expected to
give up their profession/practice for an appointment of extremely limited
duration with no assurance of a career. Constituting a Tribunal in a manner
which would keep able persons out is hardly the proper way of setting up an
adjudicatory forum entrusted with the responsibilities of determining the very
valuable rights of persons who come before it.
62. This also makes
room for persons within the Executive branch to secure appointment as Members specially in the light of the proviso to section 10FE which
provides that they will continue to retain their lien on their substantive
post.
63. Such officers
though given the nomenclature of the Member of the Tribunal but who have no
commitment to a career as a Member of the Tribunal and regard it merely as an
opportunity to do a different kind of work, which the knowledge that they would
come back to their substantive post and look for career advancement in their
respective substantive cadres, would be even more susceptible to executive and
ministerial influence which they would find difficult to resist. A Tribunal
composed of such persons cannot be regarded as one which is independent and
impartial, and which can discharge State’s inherent judicial powers in the manner
in which it should be discharged.
64. Even a term of five
years was regarded by the Supreme Court in the case of S. P. Sampath Kumar
(Supra), as a ‘disincentive for well qualified people to accept the offer to
join the Tribunal’. The Court in that case further observed,
‘There may be
competent people belonging to younger age groups who would have more than five
years to reach the prevailing age of retirement. The fact that such people
would be required to go out on completing the five year period but long before
the superannuation age is reached is bound to operate as a deterrent …….A five
year period is not a long one. Ordinarily some time would be taken for most of
the members to get used to the service jurisprudence and when the period is
only five years, many would have to go out by the time they are fully
acquainted with the law and have good grip over the job. To require retirement
at the end of five years is thus neither convenient to the person selected for
the job nor expedient to the scheme…membership in other high-powered Tribunals
like the Income-tax Appellate Tribunal or the Tribunal under the Customs Act
can be referred to’.
65. In those two
Tribunals namely Income-tax Appellate Tribunal and the Customs and Excise
Appellate Tribunal, the appointment once made is upto the age of retirement.
66. In the Tribunal
constituted under the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 the term of office is five years. The appointees are or were District
Judges. Similar terms of five years is provided for
persons appointed as Members of the Consumer Forums under the Consumer
Protection Act, 1986.
67. It is only in the
Companies (Amendment) Act, 2002 and in the Competition Act, both enactments
being of the year 2002, the term of office is specified as three years, even
after the seven Judge Bench of the Supreme Court had indicated in 1997 in the
case of S. P. Sampath Kumar (supra)that even a five year term was not sufficient,
as some time would be taken by most of the members to get used to the
jurisprudence of the branch for which the Tribunal is constituted, and many
would have to come out by the time they are fully acquainted with that branch
of law.
68. The Law Commission
in it’s 162nd Report has recommended that in the cases of Members of
Administrative Tribunals their initial term should be ten years and renewable
for a further period of five years. In
69. Limiting the term
of office to a period of three years lends support to the apprehension of the
petitioner that the executive is gradually trying to make deeper and deeper
inroads into the independence of the judiciary. The Executive appears to have
entertained an opinion, that the Supreme Court not having interfered with and
not having invalidated the provisions of the Administrative Tribunals Act, and
other Acts by which other Tribunals have been constituted, in which a five year
tenure is provided, it would be open to the Executive and the Parliament to
reduce that period of five years to any other number of years of its choice.
70. At this rate
Parliament could enact a law setting up a new Tribunal and/or modify existing
law concerning presently functioning Tribunals limiting the term of office of
the members to two years, or one year or even less, thereby placing appointees
perennially at the mercy of the Executive, and making them implicitly carry out
the wishes of Executive, and allow a great deal of room for executive
domination over the manner in which they perform their functions.
71. This is a danger
which the court must recognise and guard against. If the limits are not
properly set at this stage, the executive would find the temptation much too
great to resist, to take more and more out of the area reserved for the
judiciary, which area has been carved out for the judiciary by the makers of
the Constitution solely with a view to ensure the independent and impartial
functioning of the persons with appropriate qualifications and charged with the
exercise of judicial functions.
72. Limiting the tenure
of the members of this Tribunal to three years would be detrimental to
competence, independence, and impartiality of the new Tribunals.
73. The provision for
retaining the lien is a provision which undermines the independence of the
Tribunal. It would be reasonable to provide some time for the officer who
chooses to come to the Tribunal within which he would make up his mind, as to
whether he would like to remain in the Tribunal or go back to his service.
Equally it is desirable for the appointing authority to watch the performance
of the newly appointed member for a reasonable period of time. Allowing the
Member to retain the lien for an indefinite period is clearly a provision which
cannot be regarded as constitutional, having regard to the Functions which the
Tribunal is required to perform.
74. Unless the term of
office is fixed as at least five years with a provision for renewal, except in
cases of incapacity, misconduct and the like, and the period for which lien may
be retained is fixed at not more than one year, the constitution of the
Tribunal cannot be regarded as satisfying the essential requirements of an
independent and impartial body exercising judicial functions of the State.
75. Section 10FD deals
with the qualifications, appointment of President and Members of the National
Company Law Tribunal, while section 10FR deals with qualification for
appointment as Chairpersons and Members of the National Company Law Appellate
Tribunal.
76. Section 10FD(1) provides that the President shall be a person who
has been or is qualified to be a Judge of a High Court. This excludes sitting
Judges of the High Court.
77. Under Article 217(2)
the qualification for appointment as a Judge of a High Court is that the person
be a citizen of
78. In contrast to
section 10FD(1) and section 10FR(2) which deals with Chairperson of the
Appellate Tribunal requires that the Chairperson be a person who has been a
Judge of the Supreme Court or a Chief Justice of a High Court.
79. The Supreme Court,
in the case of S. P. Sampath Kumar(supra) had held
that for appointment to the post of vice-Chairman of the Administrative
Tribunals a person qualified to be appointed as a Judge of a High Court could
also be considered. What was said there has inappropriately been extended here
to the post of a President who heads the entire Tribunal which consists of the
President and 62 other members. It is in the fitness
of things that the person who heads this important Tribunal be a person who has
considerable experience in discharging high judicial functions as a Judge of a
High Court. A wider vision, the ability to see things in context and in the
proper perspective, the ability to be innovate wherever necessary, and other
similar qualities are almost as important as expertise in the subject.
80. Even as, for the
position of a chairperson of the Appellate Tribunal it is only persons who have
actually held the office either as a Judge of the Supreme Court, or as Chief
Justice of a High Court who can be considered, so also for the post of a
President of the Tribunal it would be appropriate to confine the choice to
persons who had held the position of a Judge of a High Court for a minimum
period of five years.
81. In the second
proviso to section 10FE it is provided that a person appointed as a President
as also a Member, ‘…may retain lien with his parent cadre or Ministry or
Department while holding office as such’. This is surprising and raises doubts
as to whether reference to a person qualified to be a Judge of a High Court is,
for the purpose of enabling persons in the Indian Legal Service or the Indian
Company Law Service (Legal Branch) who had been advocates for ten years before
joining such service, to be considered as being eligible to be appointed as President
of the Tribunal. This is a disturbing provision. Even the high office of the
President of the Tribunal is being allowed to be held by a person from the
executive branch by regarding him as being qualified for appointment for the
post of a Judge of a High Court on account of his having been an advocate for
ten years or more prior to his joining the service. The reference to President
must be deleted from the proviso in section 10FE. For Members, as already held,
the lien should be limited to one year.
82. The qualifications
prescribed for a Judicial Member in section 10FD(2) in
sub-clauses (a) to (d) are qualifications to which no serious objection can be
taken. The qualifications required are: holding judicial office for 15 years;
or practice as an advocate of a High Court for ten years; or at least three
years of service in the Senior Administrative Grade of the Indian Company Law
Service (Legal Branch), or three years of Service in Grade- I of the Indian
Legal Service.
83. In the case of L. Chandra Kumar (supra),
it was observed by the Constitution Bench :
“It must be remembered that the setting up of
these Tribunals is founded on the premise that specialist bodies comprising
both trained administrators and those with judicial experience would by virtue
of their specialised knowledge, be better equipped to dispense speedy and
efficient justice. It was expected that a judicious mix of judicial member and
those with grass root experience would best serve this purpose. To hold that
the Tribunal should consist only of judicial members would attack the primary
basis of the theory pursuant to which they have been constituted.”
84. Presence of persons
without judicial background on the Tribunal was thus found to be permissible,
if such persons possess specialised knowledge which was relevant to the
specialised nature of the Tribunal. The grass root experience in the field was
regarded as a positive qualification for a non-judicial member.
85. Section 10FD(3)
which sets out the qualifications required for Technical Members, refers in
sub-clauses (a),(b),(c),(d) and (e) respectively, to persons who are in the
Indian Company Law Service (Accounts Branch) in the Senior Adminstrative grade;
persons who had held the rank of a Joint Secretary to the Government of India
and have adequate knowledge and experience in dealing with problems relating to
company law; those with 15 years of practice as Chartered Accountant; with 15
years of practice as Cost Accountants; and to persons with 15 years working
experience as Company Secretary in whole time practice. No serious exception
can be taken to the qualifications so prescribed for a Technical Member in
sub-clauses (a) to (3) of section 10FD(3).
86. Section 10FD(3)(f)
is a matter of serious concern. It reads as under:
“10FD(3)
A person shall not be qualified for appointment as Technical Member unless he—
(f) is a person of ability, integrity and
standing having special knowledge of, and professional experience of not less than
twenty years in science, technology, economics, banking, industry, law, matters
relating to industrial finance, industrial management, industrial
reconstruction, administration, investment, accountancy, marketing or any other
matter, the special knowledge of, or professional experience in, which would be
in the opinion of the Central Government useful to the Tribunal.”
87. It is difficult to
see how knowledge of science, technology or industry can make for expertise in
the specialised branch of company law. It is equally difficult to see the link,
between qualifications and expertise in Economics, Banking, Industrial finance,
Industrial Management, Industrial Reconstruction, administration, and
investment, and marketing with expertise in company law.
88. The object of
creating specialist Tribunals is not to provide a sinecure to persons who may
be specialised in unrelated branches of knowledge, and vest precious judicial
power in them in an area in which they are not competent.
89. So far as Law and Accountancy
are concerned, they are relevant in this specialist Tribunal but for which
provision has already been made in section 10FD(2) and section 10FD(3)(c) and
(d).
90. The
justification offered by the State is that a similar provision existed in the Sick
Industrial Companies (Special Provisions) Act, 1985 and since the work relating
to revival and rehabilitation of sick industries is entrusted to this new
Tribunal under the new Part VIA of the Companies Act comprising sections 424A
to 424L, and titled “Revival and Rehabilitation of Sick Industrial Companies” a
Member possessing the qualification provided for in that Act, is required to be
appointed to this new Tribunal.
91. Section 4(3) of the
Sick Industries Special Provision Act reads thus :
“The Chairman and other members of
the Board shall be persons who are or have been or are qualified to be High
Court Judges, or persons of ability, integrity and standing, who have special
knowledge of, and professional experience of not less than 15 years in Science,
Technology, economics, Banking industry, Law, Labour matters, Industrial
Finance, Industrial Management, Industrial Reconstruction, Administration,
Investment, Accountancy, Marketing or any other matter, the special knowledge
of or professional experience in which, would in the opinion of the Central
Government be useful to the Board.”
92. Sections
5(2) and (3) of that Act which deal with the Chairman and Members of the
Tribunal read thus:
5 (2) The Chairman shall be a
person who is or has been a Judge of the Supreme Court or who is or has been a
Judge of a High Court for not less than five years;
5 (3) A member of the appellate
authority shall be a person who is or has been a Judge of a High Court or has
been an officer not below the rank of a Secretary to the Government of India,
or who is or has been a Member of the Board for not less three years.
93. Section
10FD (3)(f) is practically a reproduction of section 4(3) of the Sick
Industrial Companies (Special Provisions) Act, 1985, except that the period of
experience in the specified field is twenty years instead of fifteen years.
94. It
is evident that the Legislative draftsperson has not paid attention to the
scheme of section 10FD when he/she decided to bodily lift section 4(3) from the
Sick Industries Act, make a minor modification therein and incorporate the same
as sub-clause (f) of section 10FD(3).
95. Knowledge
of/and experience in Science, Technology, Industry, etc., does not equip one to
deal with questions of company law with regard to matters like oppression and
mismanagement, matters relating to allotment of shares, amalgamation and
restructuring of companies, or the priorities in the distribution of assets in
the course of winding up, and such matters.
96. Any
appointee under section 10FD(3)(f), therefore, can
have a role only in matters concerning revival and rehabilitation of sick
industrial companies and not in relation to any other matters.
97. Section
10FD(3)(g) is incongruous. The qualifications
prescribed therein for appointment as a Technical Member is the holding or
having held the office of Presiding Officer of a
98. Section
10FD(3)(h) reads as under : ... ‘is a person having special knowledge of and, experience of
not less than fifteen years in the matters relating to labour’. This provision
not only suffers from vagueness insofar as it merely mentions ‘matters relating
to labour’, without specifying that those matters are, and the capacity in
which the persons must have dealt with those matters, this provision would
enable a person who has some knowledge of labour as an academic, or as an
official in the Ministry of Labour or as a Trade Union Leader or as Labour
Welfare Officer or as Manager in the Human Resources Department of a company,
to become a Technical Member of the Company Law Tribunal. As a Technical Member
such a person would be eligible to sit on all Benches of the Tribunal and
adjudicate matters arising for decision relating to management, amalgamation,
winding up of companies, about which he is likely to know nothing.
99. The
proviso to section 10FL(2) is quite startling. it reads, thus: ‘Provided that in case a Special Bench
passes an order in respect of a company to be wound up, the winding up
proceedings of such company may be conducted by a Bench consisting of a Single
Member’.
100. The
Special Bench referred to therein comprises of a Judicial member, a Technical
member appointed under section 10FD(3)(a) to (f), and
a Technical member appointed under clause (g) or (h). Such Special Bench/es
is/are to be constituted by the President of the Tribunal for the disposal of
any case relating to rehabilitation, restructuring, or winding up of the
companies.
101. That
Single Member though not referred to as one who had sat on the Special Bench that
passed the winding up order, can very well be a Labour Member appointed as a
Technical Member under section 10FD(3)(h). This is
making a mockery of a specialist Tribunal by entrusting to a person who is
wholly ignorant of company law the power to decide complicated questions of
law, as also questions of fact after assessing the evidence without knowing
legal principles to be applied for assessing the evidence.
102. A
Constitution Bench of the Supreme Court in the case of National Textile Workers
Union v. P. R. Ramakrishnan [1983] 53 Comp. Cas. 184/AIR 1983 SC 75, by a
Majority, held that workers of the Company winding up of which is sought, are
entitled to appear at the hearing of the winding up petition, whether to
support or oppose it, so long as no winding up order was made by the Court. The
Court did not hold that right of the workmen to be heard extended beyond and
after the winding up order had been made. By reason of sections 10FD(3)(h) and
10FL proviso a trade unionist is now a potential Judge for deciding as to
whether company should be wound up, and in case a winding up order is made, be
the sole Judge of all further proceedings in winding up.
103. The
State’s justification is that clause (h) only sets out as an independent
provision a qualification which was required of a member of BIFR and that such
Member’s presence in the Tribunal is required as the Tribunal now has to deal
with revival and rehabilitation of sick industrial companies.
104. It
is only stating the obvious that the company is the most important form of
business organisation not only in India but all over the world and that
questions relating to the formation, management, control, changes in
management, allotment of shares, acquisition of controlling interests, question
of mismanagement and oppression, amalgamation and restructuring of companies,
etc., are matters which have large economic consequences for those directly
concerned and many a time on the working of the markets and the economy as a
whole. Such decisions cannot be left to a person who has little or no knowledge
of company law and entrusting these vital functions to such persons cannot be
permitted.
105. Section
10FD3(h) as also section 10FL(2) proviso must,
therefore, be suitably amended so as to spell out with certainty the
qualification which the person to be appointed under clause (h) should possess
and confine his/her participation only to the Bench dealing with revival and
rehabilitation of sick companies and exclude his functioning as a Single Member
Bench for any matter.
106. Section
10FF empowers the Central Government, acting on it’s own to designate any
Judicial or Technical Member to be Member Administration in whom are to be
vested financial and administrative powers, and which powers he may in turn
confer to any other officer of the Tribunal. Section 10FK(2)
provides that, “the officers and other employees of the Tribunal shall
discharge their functions under the general superintendence of Member
Administration”. This is an innovation aimed at and in fact undermining the
authority and control of the head of a judicial Tribunal and asserting the
executive’s control over the staff and other officials of the Tribunal,
bypassing the President. These are pernicious provisions designed to make the
President subservient to the executive. The President would have to depend upon
the sweet will of the Member Administration that chosen one of the Executive,
in all matters concerning finance and administration, which are
vital for the effective and orderly functioning of the Tribunal. Even for minor
matters like secretarial assistance, transport and the like, the President is
required to submit to the dictates of Member Administration through whom the
executive control over finance and administration is being asserted through
these provisions.
107. The
choice of the Member Administration is not even to be made with the prior
consent of the President or Chair Person. It is left to the sweet will of the
Central Government to pick and choose among the 62 Members that it is empowered
to appoint under section 10FC. The working of the Tribunal will run to rough
weather in case of conflict in the view point of the President and the Member
Administration. This power which has been given to the Central Government is
wholly pernicious and will undermine the authority of the head of the Tribunal
to ensure the effective and smooth functioning of the affairs of a Judicial
Tribunal.
108. Sections
10FF and 10FK(2) should, therefore, be suitably amended to provide that a
Member may be designated as member administration only in consultation with the
President, and further provide that the member administration will discharge
his functions in relation to finance and administration of the Tribunal under
the overall control and supervision of the President.
109. There
are also other inconsistencies in the manner in which several provisions
concerning the Tribunal have been provided. Section 10FD(2)(a)
as also 10FD(2)(b) specifies a period of fifteen years as the period for which
one must have held judicial office while section 10FD(2)(b) refers to
requirement of only ten years as an advocate of a High Court. It seems to place
the ten years as an advocate of a High Court on a higher footing than a person
who has held judicial office for a term of 15 years. It is difficult to
appreciate the reasons that prompted the draftsman to make a distinction of
this nature. This clearly is a matter which requires attention.
110. Section
10FR provides for the Constitution of an Appellate Tribunal. Sub-section (1)
provides that the Tribunal shall consist of a chairperson and not more than two
members. While section 10FR(2) which provides that the
chairperson shall be a person who has been a Judge of the Supreme Court or
Chief Justice of a High Court is unobjectionable, sub-section (3) which deals
the appointment of a Member, uses the same language as in section 10FD(3)(f)
except that the length of experience required is twenty five years. What has
been observed by us in relation to section 10FD(3)(f)
is equally applicable to section 10FR(3). Subjects other than law and
accountancy mentioned in that provision cannot be regarded as enabling persons
with knowledge and experience in those fields, to be regarded as specialists in
company law competent to deal with, in appeal, decisions rendered by the
Tribunal in relation to company law matters; such persons may only sit in on
cases concerning revival or rehabilitation of sick companies.
111. Even
under the Sick Industral Companies (Special Provisions) Act, 1985, the
appellate authority for Industrial and Financial Reconstruction did not have as
it’s member persons, from the subject areas mentioned in section 10FR(3). Only
one, who is or has been a Judge of the High Court; or who has been a Secretary
to the Government of India, or been a Member of the BIFR was eligible for
appointment as Member. The legislative drafts person has without any rationale,
incorporated in section 10FR(3) a provision which had
been made for the BIFR.
112. Section 10FR(3) must therefore be suitably amended to delete the
reference to all subjects other than law and accountancy. Incorporating a
provision similar to that in section 5(3) of the SICA would also be in order.
113. The impression that
one is left with after examining the provisions concerning the National Company
Law Tribunal and the Appellate Tribunal is that these provisions have been
drafted in haste and have not received the kind of attention that they should
have. If they are the result of careful deliberation it only makes matters
worse. The creation of a new substitute judicial forum which is to carry out
the work which is now being carried out by 21 different High Courts in the
country which work has been done in the High Court for over nine decades, is to
be done with great care so that the new Tribunal will be efficient and
effective alternate institutional forum to the High Courts and the Company Law
Board.
114. Added to this is the
haste with which the appointments to the posts has
have been attempted. We have been told that the salaries payable to the
President, the Chairperson and other Members has not been fixed by the Rules
till date. Even the selection process has been set in motion with the
candidates being in dark as to what kind of compensation they will receive if
they were to be appointed to these posts. This is designed to deter the most
suitable candidates from offering themselves for appointment and is a step
which ought not to have been taken.
115. According to the
petitioner, the salaries proposed to be paid to the Members is not to be
uniform, but dependent upon the substantive rank if any held by the appointee
in the post over which he has a lien in Government service. This allegation is
not denied. On the other hand justification is sought to be offered by
asserting that Membership of Tribunal for purpose of salary has to be equated
to the substantive post over which the appointee holds a lien. This executive
approach is impossible to justify in a Judicial Tribunal. No Member of the
Tribunal, when all Members possess equal powers and have to shoulder equal
responsibilities, may look down upon his colleague as belonging to a lower
cadre and drawing a lower salary. This attitude of the executive is further
evidence of the attempt to ‘executise’ the judicial Tribunal, and lends further
support to the petitioner’s apprehensions.
116. The selection process, we are told, has
been initiated without advertising the posts in the newspaper and giving wide
publicity even though the field of selection as set out in the several
provisions of sections 10FD and 10FR(3) is very wide. We have been informed by
the learned Additional Solicitor General that letters had been sent to Bar
Council by the Ministry with a request to put up the details on their Notice
Boards. Counsel for the Bar Council at our instance, after ascertaining the
facts, has informed us that that is exactly what the Bar Council did - putting
it up on the Notice Board in the Bar Council’s Office, and that they have not
in turn sent any communication to the Advocate/Bar Associations in the State.
Petitioner’s learned senior counsel stated at the Bar, that in other State also
the Advocates’ Associations had not been informed, and that most of the
Advocates are unaware that the Government was filling up the posts in the
Tribunal for which they were eligible to apply.
117. Government sought to
justify it’s action by claiming that the steps they
have taken are the steps which they had been advised to take. No reliable
record has been produced before us to show the nature of alleged advice. The
record said to have been made by an officer of the Government regarding the
advice given must be based on a misunderstanding, as we do not find it possible
to accept that there could have been any directive not to advertise these
posts, when vacancies in the Income Tax Appellate Tribunal whose status and
powers are no less than that of this Tribunal are regularly advertised.
118. The importance of
advertising the posts of Members is obvious. A new specialist Tribunal is being
created for the first time. That Tribunal is now being entrusted with the Judicial work which is now being carried out by the High
Court. It is imperative that those who are eligible be made aware of the
creation of these posts so that if they so choose, they can offer themselves as
candidates. It would be extremely short sighted for the recruiting agency to
withhold information regarding the availability of vacancies from the knowledge
from those who are able, interested, qualified and are eligible, and make
available the information only to a handful of persons.
119. The posts of
chairperson of the Appellate Tribunal which is to be filled by a former judge
of the Supreme Court or a former Chief Justice of a High Court, as also the
post of President which we have held to be a post to be filled only by a former
Judge of a High Court with at least five years of experience as such Judge,
however, need not be advertised. Selection to those posts shall be made by the
Chief Justice of India in consultation with the two senior most Judges of the
Supreme Court, as selection so made will be consistent with the dignity and
importance of these offices and their judicial character.
120. The constitution of
the National Company Law Tribunal and the Appellate Tribunal in the manner now
provided, when considered along with the provisions concerning the Competition
Commission under the Competition Act, 2002, seems to indicate run of an
aggressive executive seeking to take over gradually the judicial power
traditionally exercised by the Courts under safeguards which ensure the
competence, independence and impartiality of the Judges, and replacing them by
persons who have neither a judicial background nor specialised knowledge of the
subject for which the Tribunal is created, and by persons now serving the
executive who will continue to retain their lien and loyalty to the executive
branch, and be amenable to the influence of executive superiors and their
political masters.
121. If
these attempts being made by the executive were to go unchecked, the situation
which the Privy Council visualised in the Jamaican Gun Court case, of even a
Supreme Court being divested of jurisdiction to such an extent as to leave the
Court ‘Supreme’ only in name, can come about. It was indeed submitted before us
by the learned Additional Solicitor General that the only power of the Courts
which the Parliament cannot touch is the power of the High Court under Articles
226 and 227 of the Constitution and that of the Supreme Court under Article 32
of the Constitution. It is imperative that the Courts in India, even as the
U.S. Supreme Court and the Privy Council did, draw a clear line demarcating the
judicial functions from executive and legislative functions, and immunise the
performance of judicial function and the exercise of the State’s Judicial power
by the Courts, as also by the Tribunals - whether such Tribunals are
substitutes, or are supplemental to the Courts - from all executive influence
at all stages.
122. It
is, therefore, necessary that the Court draw the line which the executive may
not cross in their misguided desire to take over bit by bit the judicial
functions and powers of the State exercised by the duly constituted Courts.
123. In
the light of foregoing discussions it is declared that until the provisions in
parts 1B and 1C of the Companies Act introduced by the Companies (Amendment)
Act, 2002, which have been found to be defective inasmuch as they are in breach
of the basic constitutional scheme of separation of powers and independence of
the judicial function, are duly amended, by removing the defects that have been
pointed out, it would be unconstitutional to constitute a Tribunal and
Appellate Tribunal to exercise the jurisdiction now exercised by the High
Courts or the Company Law Board.
124. Petitioners
have also challenged the validity of certain provisions of the Companies
(Amendment) Act, 2002, whereby certain powers currently exercised by the
Company Law Board, some of which were earlier exercised by the Court, were
transferred to the Central Government. Most of those powers are only
tangentially judicial and are primarily administrative. There is no illegality
in such transfer.
125. We
place on record our appreciation to Mr. Arvind Datar, learned Senior Counsel
for the Petitioner, whose research and cogent presentation has helped to
clarify and bring out the significance of the issues involved, and to Mr. V.T.
Gopalan, learned Additional Solicitor General who, with his usual fairness
presented the case for the respondent with great vigour, and also placed before
the Court all the relevant materials.