FILING OF APPEAL AGAINST REJECTION OF PRELIMINARY OBJECTION BY COMPANY LAW BOARD.

[Mr. M. GOVINDARAJAN]

                        In any litigation the respondent tries to raise as many objections as he could against the suit/petition.    The objections may be on lack of jurisdiction or any other ground.   Some even file petitions raising preliminary objections questioning the jurisdiction of the court/quasi judicial tribunals.   Civil Court will certainly entertain the preliminary objection and pass an order on the petition.   Appeal can be filed against the order of the court on preliminary objection by the aggrieved party.   The proceedings under the tribunals are of summary nature.   The question arises here is whether the tribunal, such as a Company Law Board can either accept or reject the preliminary objection and if so whether appeal may be filed against such a decision.   The answer for this question is given in the case law ‘Valentino International (P.) Limited v. Dugar Securities Limited’ – (2011) 103CLA 352 (Raj).

                        The respondent, in the appeal, filed a company petition before the Company Law Board against the appeal.   Notices were served on the appellant.   Instead of filing reply to the company petition the appeal filed a company application raising preliminary objection that-

• the company petition is not maintainable and what has been alleged by the petitioner in his company petition are disputed questions of fact, which cannot be examined by Company Law Board while holding summary proceedings under Section 111 of the Companies Act;
• the appropriate forum available for the petitioner is to approach the civil court;
• being not a member as per register of members of the company and title of shareholding being disputed, company petitioner has no locaus standi to maintain company petition;
• the petitioner has to first establish that he is holding 10% or more share of subscribed capital to maintain company petition.

The company petitioner contended that he is in possession of more than 10% of original share certificates of subscribed capital which itself a prima facie evidence of title of such shares.   In the absence of filing reply to the company petition, the company petitioner contended that no presumption can be drawn of disputed question of fact and law and cannot be adjudicated in summary proceedings under Section 111 of the Companies Act.   He further contended that the remedy regarding rectification of register is exclusively available with the Company law Board under Section 111 and the company petition is maintainable for examining the grievance being raised under Sec. 397 and 398 of the Act.

                        The Company Law Board after taking note of objections raised by the appellant in its impugned order observed that-

• the application filed before the CLB declares facts seeking recognition of the register and indisputably the company petitioner holds 10% of the original share certificates of subscriber capital of the company;
• the preliminary objection raised by the appellant can be examined only after the reply to the company petition;

The Company Law Board therefore rejected the preliminary objections raised by the appellant and liberty was given to the appellant to file reply to the company petition.  The CLB held that any question relating to tile in respect of the impugned shares involving substantial factual issues cannot be adjudicated as preliminary issue but only while disposing the company petition on merits. Against the order the appellant filed the present appeal before the High Court.

                        The appellant before the High Court reiterated the facts raised before the Company Law Board and contended that the composite petition under Section 111 and 397 and 398 of the Companies Act is not maintainable since serious disputed questions of fact have been raised which could not be examined by the Company Law Board in summary proceedings.  It was further submitted by the appellant that the claim based on disputed civil rights is beyond the scope of rectification of the register of members, as prayed for and what is to be examined in company petitioner filed under Section 111 of the Act, in the facts of instant case could be adjudicated only by civil court where along inter se dispute of civil rights could be resolved.

                        The respondent contended that in the absence of the reply to the competition it could not have presupposed that there were serious disputed questions of fact or could be only be examined by civil court.   The respondent further contended that objections regarding disputed questions of fact could not be recorded under Section 111 of the Act.  Composite petition under  Section 111 read with Sections 397 and 398 of the Act is maintainable before the Company Law Board.  Appeal under Section 10F of the Act is maintainable only if one is aggrieved by any decision or order CLB arising any question of law out of such decision or order.   In this case there is neither any decision nor order has been passed by which the appellant could be said to be a person aggrieved.

                        The High Court observed that the CLB has not expressed any opinion on the preliminary objections raised by the appellant.  The CLB has refrained from expressing any opinion obviously for the reason that it has not reached that stage as yet.  The High Court found substance in the submissions made by the respondent that the present order is neither a decision nor any order by which any person could be said to be aggrieved and obviously for the reason that no finding either way has been recorded and what has been observed by CLB in its order impugned is that the matter could be examined only after the reply to the company petition being raised by appellant, that in no manner will not non suit the company petitioner from the mechanism to examine the dispute raised as provided under the law.  Therefore the High Court dismissed the appeal of the appellant.