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WHETHER COMPANY LAW BOARD HAS JURISDICTION TO ADVISE AUTHORITIES?

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WHETHER COMPANY LAW BOARD HAS JURISDICTION TO ADVISE AUTHORITIES?
Mr. M. GOVINDARAJAN By: Mr. M. GOVINDARAJAN
November 18, 2009
All Articles by: Mr. M. GOVINDARAJAN       View Profile
  • Contents

INTRODUCTION:

            Section 10E of the Companies Act, 1956 ('Act' for short) provides for the constitution of the Company Law Board. The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it or under this Act or any other law, and shall also exercise and discharge such 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. 

ISSUE:

            The Company Law Board is exercising various powers under the Act. The issue taken for this article is whether the Company Law Board has jurisdiction to advise authorities to initiate prosecution proceedings against a company for contravention of the provisions of the Act.

RELEVANT CASE LAW:

  For this purpose the case law 'Shree Shridharkrupa Builders & Realtors (P) Ltd., V Mahen J Dholam'-(2009) 92 CLA 48 (Bom.).

            In this case the appeal was filed under Sec. 10F of the Act against an order of the Company Law Board ('CLB' for short) in a petition for reliefs under Sec. 163 of the Act.

Inspection of Documents:

 Sec. 163 of the Act provides for place of keeping and inspection of registers and returns.  According to the section the following documents shall be kept at the registered office of the company:

            >>  Register of members commencing from the date of the registration of the company;

            >>  Index of members;

            >>  Register and index of debenture holders;

            >>  Copies of annual returns prepared under Sec. 159 and 160

together with the copies of certificates and documents required to be annexed thereto under sections 160 and 161.

            Such registers, indexes, returns and copies of certificates and documents or any or more of them may, instead of being kept at the registered office of the company, be kept at any other place within the city, town or village in which the registered office is situate, if-

            >>  Such other place has been approved for this purpose by a special resolution passed by the company in general meeting, and

            >>  The Registrar has been given in advance a copy of the proposed special resolution.

The Central Government may make rules for the preservation and for the disposal whether by destruction or otherwise, of the registers, indexes returns and copies of certificates and other documents.

            The registers, indexes, returns and copies of certificates and other documents shall, except when the register of members or debenture-holders is closed under the provisions of this Act, be open during business hours, (subject to such reasonable restrictions, as the company may impose, so that not less than two hours in each days are allowed for inspection) to the inspection:

            >>  of any member, or debenture-holder, without fee; and

            >>  of any other person, on payment of such sum as may be prescribed for each inspection;

Any such member, debenture-holder or other person may-

            >> make extracts from any register, index, or copy without fee or additional fee, as the case may be; or

            >> require a copy of any such register, index or copy or of any part thereof on payment of such sum as may be prescribed for every one hundred words or fractional part thereof required to be copied.

The company shall cause any copy required by any person to be sent to that person within a period of ten days, exclusive of non working days, commencing on the day next after the day on which the requirement is received by the company.

            If any inspection, or the making of any extract required is refused or if any copy required is not sent within the period specified, the company, and every officer of the company, who is in default, shall be punishable in respect of each offence, with fine which may extend to five hundred rupees for every day during which the refusal or default continues.

            The Central Government may also, by order, compel an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by person requiring it, or that the copy required shall forthwith be sent to the person requiring it, as the case may be.

Facts of the case:

            The respondent, in this case, holds 27.78% of the equity shares of the company. The remaining shares are held by two other members. The respondent was also a director of the company at the material time.  The petitioner by a letter dated 20th February, 2007, called upon the company to furnish him certified copies of various documents maintained by the company. The respondent was ready to reimburse the company for any costs that may incur in furnishing him the said documents.  He raised certain other contentions regarding the management of the company.  He alleged that though a director of the company, he had been deprived of his duties as a director of the company and that the company had transferred all the accounts and cheque books at an unknown place without his consent.

            The company replied that the respondent had taken away the records and the registers of the company and called upon him to return all the books of the company.  The respondent therefore filed a petition before the Company Law Board for an order directing the company to furnish him the certified copies of all the documents requested for by him under Section 163(6) of the Act.  He demanded the prosecution of the respondent under Sec. 629 of the Act for telling blatant lies. 

            The Company Law Board considered the request of the respondent (petitioner in the petition).  It found as per section 621 the offences against the Act to be cognizable only on the complaint made by Registrar of Companies/shareholder of the company or a special officer so permitted by the Central Government. The board held that the bench had no such power. However, the respondent, if he feels so, may make a specific complaint to the RoC specifying the false worthiness of petitioner in the affidavits before the Bench in the present proceedings and request the Registrar to take up the necessary prosecution proceeding or he being a shareholder he himself can initiate such action as provided by the law. The Board advised the respondent to decide himself which way he liked the action under section 629 to be initiated. However if the respondent approached the RoC, Mumbai for necessary action under Sec. 629 against the petitioner (respondent in the petition) and took necessary action under section 629 against the respondent, he was advised to examine the evidence produced by him and take necessary action as per law. The respondent has not got the inspection and the company for the best of its knowledge has not given the inspection. Therefore the RoC, Maharastra was advised to initiate prosecution proceedings against the petitioner for contravention under section 163 of the Act.

            The present appeal is against the above said order of CLB.

Questions of law:

            The High Court, Bombay raised the following questions of law in this case:

            >>  Whether a shareholder of a company has locus standii to maintain a petition for reliefs under section 163 of the Act even if he is also a director of the company?

            >>  Whether the CLB has the power and jurisdiction in a petition for reliefs under sections 163, 621 or 629 of the Act to advise the Registrar of Companies to take necessary action as per law in the event of the petitioner in a petition for reliefs under section 163 making an application under section 629 of the said Act?

            >>  Whether the CLB on finding that a company has not been given inspection as required by section 163 has the power or jurisdiction to advise the RoC to initiate prosecution proceedings against the company for contravention under section 163 of the Act?

Decision of Court:

            The High Court, Bombay after hearing both parties held as follows:

            >>  Both the parties were unable to indicate any provision of law under which the CLB has jurisdiction to merely advise parties and other authorities;

            >>  The judgment of the CLB does not decide whether the company ought to give inspection of the records of whether the respondent is not entitled to inspection of the records.  The order merely advises the parties and the RoC to initiate prosecution proceedings against the company for contravention of section 163 of the Act.

            >>  Section 163 does not confer jurisdiction up on the CLB to advise the RoC to initiate prosecution for a contravention of section 163. Nor do section 621 and 629 confer such power on the CLB;

            >>  The judgment of the CLB is liable to set aside as it has exercised jurisdiction by advising RoC, Maharastra to initiate prosecution proceedings against the company for contravention of section 163. The CLB does not have the power or jurisdiction to issue such advice;

            >>  The petitioner contended that the petition under section 163 is, in any event, not maintainable and the respondent has no locus standii to maintain the petition. This submission was based on the fact that the respondent is a director of the company.  The petitioner submitted that section 163 must be construed to exclude shareholders who are also directors of the company especially when such a director is in-charge of the affairs of the company. The Court held that the submission is not well founded. The mere fact that he is also a director of the company would not affect his right as a shareholder.  Under section 163, it is the company and not any individual director that is bound to give inspection of the records. Thus even if a director desires inspection of the records it is always open to him to apply to the company for the same by invoking the provisions of section 163. The petition is maintainable and the petitioner has locus standii to maintain the same.

The Court set aside the order the CLB and allowed the appeal.

 

By: Mr. M. GOVINDARAJAN - November 18, 2009

 

 

 

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