2014 (2) TMI 1058 - HC - Companies Law

Validity of lease date - whether the Company Law Board erred in ignoring the interest of the appellant company - Held that - Rights of the respondent will not be prejudiced in any manner if the offer made by the learned counsel for the appellant is accepted. Accordingly the interim order of status quo dated 19.09.2006 passed by the Company Law Board is varied to the limited extent as indicated below. The appellant company is entitled to apply to the DDA for restoration of the lease as well as apply for revalidation of the sanctioned building plans and carry out construction in accordance therewith. The funds required for these specific purposes will also be brought in by the rival group claiming to be the shareholders of the company at whose behest the present appeal has been filed. It is made clear that in the event the respondents were to prevail before the Company Law Board the appellant company will not be liable to repay any amount to the said rival group or any other person from who any funds may be sourced by the rival group for the specified purposes - It is also made clear that no charge or any lien will be created on the property of the company. It is clarified that the present order would not be read or construed as creating or accepting any rights or interest in favour of the Rival Group - Decided in favour of Applicant.

Summary

Issues Involved:
1. Appeal against Company Law Board order declining to vacate/modify interim order.
2. Dispute over shareholding and assets of the company.
3. Lease cancellation by DDA due to failure to construct a hotel.
4. Dispute regarding shareholders claiming control of the company.
5. Protection of company's interests under Sections 397/398 of the Companies Act, 1956.
6. Requirement for restoration of lease and construction of a hotel.
7. Offer by rival group to deposit funds for lease restoration.
8. Variation of interim order by High Court.
9. Direction for final hearing and disposal of company petition by Company Law Board.

Detailed Analysis:

1. The appellant company challenged the Company Law Board's order declining to vacate/modify an interim order maintaining status quo on shareholding and assets. The principal asset, a land plot, was allotted by DDA to the company, but lease cancellation loomed due to non-compliance with the construction purpose. Dispute arose over shareholders' control, with the rival group claiming majority support for the appeal.

2. The High Court emphasized protecting the company's interests, crucial in Section 397/398 proceedings. Immediate steps were necessary to restore the lease and begin hotel construction, involving DDA applications and fees. The rival group proposed funding these steps without future claims against the company, ensuring no prejudice to the respondents.

3. The High Court varied the interim order to permit the appellant to pursue lease restoration and construction, funded by the rival group. No repayment obligations were imposed on the company, and no rights were conferred to the rival group. The Company Law Board was directed to expedite the final hearing and disposal of the company petition within two months.

By addressing the issues comprehensively, the High Court's judgment balanced the interests of the parties involved, ensuring fair treatment and progress in resolving the dispute over the company's assets and control.