Oppression and mismanagement

Can Company Law Board stay its own proceedings?

Issue: Can Company Law Board stay its own proceedings?

Held: yes.

Agarwalla & Ors. V. Castron Mining Limited & Ors. (2012) 173 Comp Cas 117 (Cal)

Appeal Dismissed.

 

Sections 397 and 398 proceedings were filed by the appellant before the Company Law Board (CLB) on grounds of oppression.

An interim order was passed by CLB on 8.5.2007 restraining the respondents from using the name of the Company or acting on its behalf.

Respondent made an application to CLB for vacating the interim order. CLB by order dated 17th April, 2009 stayed the proceedings before it till disposal of the Title Suit filed in Alipore Court.

Appellants aggrieved by the stay and preferred an appeal to High Court under section 10 F of the Companies Act, 1956 contending, inter alia, that CLB cannot stay it’s own proceedings.

Appellants contended that:

(1) As mere filing of the suit cannot be a ground for stay of the proceedings under Sections 397 and 398 of the Companies Act, therefore the CLB ought not to have stayed its proceedings, especially as there is no prospect of the suit filed being decided as till date no writ of summons has been served.

(2) The stay granted is under Section 10 of the CPC which does not empower the Tribunal to stay its proceedings as Section 10 is not to apply to Tribunals.

(3) By virtue of Section 10 of the CPC trial of a suit can be stayed but as the requisites of Section 10 has not been satisfied therefore the proceedings before the CLB could not have been stayed and the reason for staying the proceedings is based on an incorrect conclusion. The identity must be complete as also the subject matter and the parties. In the Title Suit, there are 150 defendants, therefore for lack of identity of subject matter or parties as held in Adhish Chandra Sinha vs Hindusthan Gas & Industries Ltd. ((AIR 1985 Cal. 154; 1984 SCC OnLine Cal 145)) there has been illegal exercise of powers as the CLB has indefinitely stayed the proceedings filed before it.

(4) When the conditions of Section 10 is not fulfilled, there can be no stay as Section 151 is not to apply as held in Manohar Lal Chppra v. Rai Bahadur Rao Raja Seth Hira Lal ((AIR 1962 SC 527: 1962 Supp (1) SCR 450)) and CLB could not have stayed its proceedings.

Reliance has also been placed on Mental Health and Neuro Sciences v. C. Parameshwara ((AIR 2005 SC 242; (2005) 2 SCC 256)) and Guljarilal Kanoria and another vs. Loptchu Tea Company Ltd and others ((1999 SCC OnLine CLB 33 : (2000) 102 Comp Cas 292)).

(5) Regulation 44 is applicable to proceedings before CLB and therefore CLB could not have stayed its own proceedings by exercising power and in doing so the CLB has acted perversely. In fact in the Title Suit filed there is no order restraining the CLB proceedings, therefore the order dated 17th April, 2009, staying the CLB proceedings till disposal of the Title Suit, be set aside.

(6) Section 10 has no application, therefore the principles analogous thereto ought to be applied to prevent abuse of process. It is not known on what ground the CLB has stayed its proceedings no reason has been given for exercise of discretion. Identity of parties is not relevant, as admittedly there are two groups.

(7) There is no finding by the CLB that the proceedings is in abuse of process and the power has been exercised in the interest of justice.

(8) The Alipore suit is preemptive in nature and the interim order has been continued as PKA is running the mines, CLB should have proceeded with the 397 proceedings on equitable grounds, on considering that the Alipore suit is dormant.

(9) It is by applying the principles of res-judicata that stay of the proceedings has been granted. This is not a valid ground. In Lopchu Tea’s case the suit was active therefore the said decision is distinguishable so also Shorab Merwanji Modi vs Mansata Film Distributors ((AIR 1957 Cal 727)).

(10) By the order dated 19th March, 2010, in fact the Alipore suit in a revisional application has been stayed. Therefore stay of proceedings before the CLB be set aside.

(11) The discretion has been exercised on the basis of the Division Bench Order of 2005 and the decision of Lopchu Tea and such exercise not being proper renders the order dated 17th April, 2009 perverse.

Opposing the appeal, it was contended that:

(1) In the suit which has been filed the parties are the same as in the proceedings before the CLB.

(2) An application has also been filed under Order 1 Rule 8 of the Code of Civil Procedure, in the suit therefore the parties in the suit (defendants) and the parties in the CLB proceedings are similar. In fact the group can be identified in 397 proceedings which is not possible to do in the suit filed before the Alipore Court.

(3) The CLB is exercising powers under Section 397, which was previously vested in the High Court. Adhish Chandra Sinha vs Hindusthan Gas & Industries Ltd. so also Mental Health and Neuro Sciences v. C. Parameshwara are distinguishable on facts, as the issues were different. In fact the issues in the Title Suit and the CLB is the same. Manohar Lal Chppra’s case is distinguishable and it is incorrect to say that no steps has been taken in the suit. Reliance has been placed on Shorab Merwanji Modi vs Mansata Film Distributors. In fact by order dated 19th March, 2010 stay of Title Suit was directed.

(4) Section 397 read with Section 402 of the Companies Act expands the jurisdiction of the CLB and therefore reliefs though not prayed can also be granted to the Company by CLB.

High Court examined competence of the CLB to stay its proceedings.

Hon’ble High Court, considered that in the Alipore suit all the share-holders have been made parties. Leave under Order 1 Rule 8 CPC has also been taken whereby any share-holder omitted as a party will be entitled to apply for addition of party whereas all the parties in the suit are not parties before the CLB. The issue raised before the CLB is with regard to oppression of the majority by the minority whereas in the Alipore suit the share-holding of PKA group (the appellant) is under challenge. Once the said issue is decided the question of the share-holding and its oppression will arise.

It noted that Section 10 is not to apply to a Tribunal, but under Regulation 44 of the 1991 Regulation the CLB is empowered to stay proceedings before it when it finds that parallel proceedings are pending in another Court involving the same subject-matter and identical issues, even though the CLB proceedings is not an abuse of process. In proceedings before the CLB it has been admitted that one Mr. Modi and Mr. Upadhyay were appointed as Directors with the consent of the MKA group and at the meeting on 29.12.2004 the resignation of the MKA group was accepted. In the Title Suit the MKA group has sought for cancellation of the said meetings, so also the relevant forms filed with the Registrar of Companies.

In fact before the CLB, the appellants seek an investigation by the Tribunal into the correctness of the claim made by the MKA group. This issue is substantially and directly in issue in the Alipore Suit.

Similarly the appellants have sought cancellation of all statutory records filed by the MKA group. Similar prayer is sought by the MKA group in respect of the appellants. Therefore the issues are identical as rightly held by the Tribunal and the decision reported in Adhish Chandra Sinha vs Hindusthan Gas & Industries Ltd. is distinguishable in view of the above facts. Manohar Lal Chppra’s case and Mental Health and Neuro Sciences v. C. Parameshwara will also not apply in the said facts. Therefore the “judicial prudence” exercised by the Tribunal in view of Loptchu Tea Company’s case in staying its proceedings on the ground of substantial identity of subject-matter and of the parties so also the Title Suit being filed in 2005 and the CLB proceedings in 2007 i.e subsequent to the Title Suit and to prevent conflict of decision is based on sound principles and no interference is called for with the order dated 17.4.2009 in so far as it seeks to stay its proceedings till a decision is taken in the Title Suit of 2005.

It is true that the Title Suit has been stayed in Revision but steps can be taken to activate the hearing of the said application. Steps can also be taken in the Title Suit in accordance with law.

For all the aforesaid reasons, section 10F appeal was dismissed.

 

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