interim order can be passed only in application

S.Krishnakumari and others v. G.Vijaylakshmi alias Brinda and Others, [2010] 153 Comp Cas 28 (Mad)

The Company Law Board (‘CLB’) procedure prescribed under regulation 17 of the Company Law Regulations, 1991 is mandatory in nature.

One of the directors had filed an application to be transposed as one of the petitioners. The CLB rejected this application as there was no identity of interest between the petitioners and the director. On a memo filed by the petitioners, The CLB deleted the name of the director from the arrays of parties. Respondents objected and filed an appeal before the High Court. They pleaded that interim order cannot be passed by CLB based on memo. They contended that  there was a statutory violation as the petitioners had filed a memo instead of of an application as contemplated under regulation 17 of  the Company Law Regulations, 1991.

The High Court held that in the memo filed for deletion, no reason was stated and the CLB granted relief merely for asking. Filing memo before the CLB is not maintainable under the Company Law Regulations, 1991. The CLB committed an error in entertaining the memo without an application and as such the CLB has violated sections 397 and 398 of the Act. As per section 403 of the Act, interim order can be passed only in applications. The memo filed in which order is passed, is not an application. Since there is a procedural violation, the CLB has violated the rules and regulations, which is a question of law coming under the purview of section 10F of the Companies Act, 1956, and therefore the company appeals are maintainable.

A division  bench of Madras court considered whether an order could be passed in violation of the statutory requirements and what is the effect of the said order in the decision reported in [2009] 151 Comp Cas 44 (Mad) ; [2009] 6 MLJ 56 (Kothari Industrial Corporation Ltd. v. Kotak Mahindra Bank Ltd.). It was held that ordering winding up of a company contrary to the statutory requirements and violation of mandatory requirements is illegal.