TMI Blog2005 (8) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... r the physical control and possession of the company. Thereafter, the Jain group filed a company petition under sections 397 and 398 of the Companies Act, 1956, before the Company Law Board (hereinafter referred to as the "Board") in May, 2002. Since the parties were closely related efforts were made to arrive at an amicable settlement between the two groups. On September 18, 2002, some understanding was reached between the two parties and a memorandum of understanding was drawn up. According to this memorandum of understanding the Goyal group agreed to walk out from the company and transfer their share holding to the Jain group. Rupees 4.5 crores was payable to the Goyal group for transfer of the shares. Another sum of Rs. fifty lakhs was payable subject to the company succeeding in a sales tax case. Rupees 2.5 crores was to be paid immediately and the balance in eight quarterly instalments of Rs. 25 lakhs each. The parties were to withdraw all litigations and complaints made against each other. The book value of the equity shares as on March 31, 2002, was to be taken into account for transfer of the shares. There were other conditions also which are not relevant for decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioners on the stipulation that his guarantees to the banks should be released. At that time, he did not make any reference to the memorandum of understanding. Any statement before the court-in the present case this Bench-is binding on the party making such a statement. As a matter of fact, on the basis of the statement made by the second respondent, this Bench had passed a further ex parte order on October 28,2002, directing the petitioners to release the respondent from his personal guarantee within a period of three months. Therefore, the second respondent is bound by the statement made on October 23,2002 and he will have to go out of the company on receipt of the consideration for his shares at a value determined by an independent valuer. This Bench cannot enforce the memorandum of understanding as sought for by him, as other than noting the existence of the memorandum of understanding, this Bench had not passed any order in regard to the same nor recorded anything to the effect, that both the parties were willing to abide by the terms of the memorandum of understanding. The memorandum of understanding was privately entered into by the parries, the enforcement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect to operation of bank accounts, they would be at liberty to approach the Company Law Board for appropriate directions." The Goyal group thereafter challenged the order of this court before the Supreme Court of India by filing a petition for special leave to appeal. The Supreme Court dismissed the same by passing the following order: "Heard learned counsel for the parties We are not inclined to interfere with the impugned order as the Company Law Board has directed to dispose of the main matter finally. Counsel for the petitioner apprehends that in case respondents Nos. 1 to 4 are allowed to carry on the affairs of the company, the petitioner shall be relieved of the bank guarantee furnished. The petitioner would be at liberty to raise such contentions before the Company Law Board. The SLP is disposed of." After the Supreme Court passed the order the Goyal group filed an application before the Company Law Board with a prayer that the Jain group be directed to comply with the orders dated October 28, 2002 and to release the personal guarantees of the Goyal group. They also informed the Board that they had filed a civil suit for enforcement of the memorandum of understa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id order had not been complied with and the personal guarantees of the Goyal group had not been got released. In the meantime the Jain group also filed an application for review of the order dated July 26, 2004. Basically what they challenged was the directions to release the Goyal group from their personal guarantees within a month from the date of the order. The plea taken up was that the release of the guarantees would have to be approved by the banks and the Jain group itself could not get the Goyal group relieved of the personal guarantees. The Company Law Board passed a detailed order on October 5, 2004, the relevant portion of which is reproduced as under: "7. I have considered the matter carefully. My observation relating to memorandum of understanding proceedings does not call for any modification or deletion as the said observation was made only to ensure that the direction to the respondents to sell their shares did not prejudice their interests in the memorandum of understanding proceedings and not for any other purpose. In so far as the direction relating to releasing of the respondents from their personal guarantee is concerned, the same was made taking into conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for reviewing the order dated July 26, 2004. A stay application was also filed for staying further proceedings before the Board. This court directed that further proceedings before the Board shall remain stayed. However, it was directed that the valuation process would go on. The Jain group thereafter filed Company Appeal No. 2 of 2005 and prayed that the order dated October 5, 2004, be modified and the date of valuation be changed to March 31, 2004. We have heard Mr. P.K. Jain, counsel for the Goyal group, Mr. Ankush Sood, counsel for the Jain group and Mr. K.D. Sood and Mr. G.C. Gupta, appearing on behalf of some of the banks. The main contention of Mr. P.K. Jain, learned counsel is that the Board had no jurisdiction to review its earlier order. He submits that the Board in its order dated July 26, 2004, had directed the Jain group that they should release the Goyal group from the personal guarantees within a month from the date of the order. He submits that the Board could not have recalled this order especially when the Goyal group had filed a contempt petition for taking action against the Jain group for disobeying the orders. He submits that the Board acte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d both by this court as well as by the apex court. Thereafter, the Board passed an order on July 26, 2004. The Goyal group was asked to sell its shares to the Jain group. It was further directed that the Jain group would take steps to get the Goyal group discharged from their personal guarantees within three months. Vide order dated October 5, 2004, the Board reviewed its earlier order and directed that the guarantees could not be replaced without the consent of the bankers and, therefore, pending determination of the fair price of the shares the Jain group was directed to start the process for having the Goyal group released of their personal guarantees and should release them as soon as consideration of their shares is made. It was also further directed that {he valuation of the shares should be as per balance sheet as on March 31 2002, being the proximate date to the date of petition. The first point that arises for consideration is whether the Board had the jurisdiction to review its earlier order. It is well-settled law that no court or Tribunal has the power of reviewing its orders unless such power is conferred upon it by law. Mr. Ankush Sood, learned counsel relies upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do so, but in doing so commits a procedural illegality which goes to the root of the matter and invalidates the proceeding itself, and consequently the order passed therein. Case where a decision is rendered by the court or quasi -judicial authority without notice to the opposite party or under a mistaken impression that the notice had been served upon the opposite party, or where a matter is taken up for hearing and decision on a date other than the date fixed for its hearing, are some illustrative cases in which the power of procedural review may be invoked. In such a case the party seeking review or recall of the order does not have to substantiate the ground that the order passed suffers from an error apparent on the face of the record or any other ground which may justify a review. He has to establish that the procedure followed by the court or the quasi-judicial authority suffered from such illegality that it vitiated the proceeding and invalidated the order made therein inasmuch the opposite party concerned was not heard for no fault of his, or that the matter was heard and decided on a date other than the one fixed for hearing of the matter which he could not attend for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 5004, instead of March 31,-3-2002. This contention of the Jain group cannot be accepted. The Jain group despite holding majority of shares in the company filed a petition alleging mismanagement on the part of the Goyal group. This petition was filed on May 27, 2002. Thereafter, as per the terms of the memorandum of understanding the Jain group was to take over the company and to pay a sum of Rs. 4.5 crores to the Goyal group. Only Rs. 1.5 crores were paid but the Jain group under the orders of the Board took over the possession of the company. It has now been urged that the banks never recognised the control and management of the Jain group. There is no material placed on the record in this behalf. However, this was a situation which they should have visualised when they took over the control of the company. In fact the Jain group took advantage of the original orders of the Board dated October 20, 2002 and took over the possession of the company. This order also stated that none of the liabilities created with effect from October 20, 2002, would bind the defendants i.e. the Goyal group. The Jain-group in fact did not pay the amount for the shares of the Goyal group. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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