9911796707
TMI Blog2008 (3) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... alleging certain acts of oppression and mismanagement in the affairs of the company at the instance of the second respondent, relating mainly to (a) non-commencement of any activity of the company; (b) debiting personal and fictitious expenditure to the profit and loss account of the company; (c) misappropriating funds of the company by not accounting for the rentals, and other income, in the books of account; (d) illegal sale of the company's landed property at a low price and utilizing the difference, of the unaccounted amount, for acquiring shares of other members in order to increase their voting power; (e) illegal removal of the directors and usurpation of the power of management by appointing their kith and kin on the board of directors of the company ; (f) misuse of the office equipments for his personal business ; (g) illegal writing off of the assets of the company by debiting the profit and loss account; (h) illegal forfeiture and re-issue of shares for personal gain; (i) non-maintenance of the minutes book of the meeting of the board of directors; and (j) non-delivery of the share certificates of the majority shareholders of the company. The petitioners sought the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y; (b) take necessary steps, for due and proper sale of the landed property belonging to the company, under the supervision of the chairman and distribute the proceedings to all the shareholders according to their holding in the company; (c) deliver share certificates to the members in respect of their holding in the company. The Company Law Board confirmed the sale of 570 sq. yards of the landed property already effected and registered by the company in favour of third party purchasers and held that the remuneration of the chairman and the practising company secretary should be fixed in consultation with the company and should be borne by the latter. While disposing of the company petition, the Company Law Board observed that the connected applications also stood disposed of accordingly, that all the interim orders were vacated and that liberty was being given to apply to the Company Law Board in case of any difficulty in implementing the order. 3. While admitting the appeal this court, by order in C.A. No. 198 of 2007 dated 2-2-2007, suspended the order of the Company Law Board. Thereafter, C.A. No. 277 of 2007 was filed by the appellants herein, under rule 9 of the Companies (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file a report before the court in terms of the order passed by the court earlier. On receipt of the report of the Advocates Commissioner this court, in its order dated 11-6-2007, accorded them permission to deposit the entire amount received by them, both by way of demand drafts and cash, along with a detailed statement of the amounts received, in the registry of the High Court. On 26-6-2007, this court took note of the memo of the Advocates Commiss-ioner wherein they had stated that cash of Rs. 30,000 and demand drafts for Rs. 2,30,50,000 were deposited in the accounts section, of the High Court registry on 18-6-2007. On applications being filed by the unsuccessful bidders seeking refund of the earnest money deposit, paid by them along with the tender form, this court permitted refund of the earnest money deposit to some of them. 5. Sri V.S. Raju, learned counsel for the appellants, would submit that no directions were passed by this court requiring the Advocates Commiss-ioner to take charge of the company's assets and that the first respondent-company is protecting its assets from third party encroachment, while questioning the correctness of the findings of the Company Law Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts jurisdiction, or that it had erroneously recorded a finding of fact, no interference was called for as the remedy of an appeal, under section 10F of the Companies Act, was available only on a question of law. Section 10F of the Companies Act : Its scope : 8. Under section 10F of the Companies Act, 1956, any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court on any question of law arising out of such order. It is only on a question of law, and not of fact, that an appeal would lie against the order of the Company Law Board to the High Court. There is no jurisdiction to entertain an appeal on grounds of erroneous findings of fact, however gross the error may seem to be, for if the question to be decided is one of fact it does not involve an issue of law. (Deity Pattabhiramaswamy v. S. Hanymayya AIR 1959 SC 57). It is only an error of law which can be corrected by the High Court in exercise of its jurisdiction under section 10F of the Companies Act. If the finding recorded by the Company Law Board is one of law or of mixed law and fact, the High Court can certainly examine its correctness, but if it is purely one of fact, the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 29-9-1999, the board of directors, which included petitioner No. 21, had authorised the second respondent and the Director (Finance) to enter into an agreement with M/s. Vijayawada Share Brokers Ltd. (VSBL) for sale of 4/15th undivided share of the landed property for a consideration of Rs. 51 lakhs which, however, came to be terminated on account of non-fulfilment of the terms of the agreement by M/s. VSBL as borne out by the minutes of the meeting dated 23-12-2000. The Company Law Board noted that petitioner No. 21 was a party to the resolution cancelling the transaction with M/s. VSBL, that inability of M/s. VSBL to arrange for further payment in terms of the agreement had forced the first respondent-company to return the advance of Rs. 18 lakhs paid by VSBL and that, at the board meeting held on 24-12-1999, the directors including petitioner No. 21, while deliberating the issue relating to the sale of landed property, had recorded the hurdles faced by the company. The Company Law Board noted that the first respondent-company faced hurdles such as lukewarm and poor enquiries for purchase of a portion of the site in spite of sounding and engaging several real estate brokers in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the market rate could not be Rs. 7,000 per sq. yard as reported in the valuation certificate and that, in such circumstances, it was not inclined to interfere with the management decision of the board of directors of the company for having sold 570 sq. yards at the rate of Rs. 2,200 per sq. yard. The Company Law Board directed that the purchasers should derive valid title to the property acquired from the company. 10. On the plea that the second respondent had failed to account for the shortage of the landed property, owned by the company, the Company Law Board noted that there was no documentary evidence to show the extent of landed property acquired for the purpose of the company, that the agreement dated 25-10-1997, showed that the company had offered an extent of 6,000 sq. yards of landed property by way of security in favour of M/s. Merfin (India) Ltd. on behalf of its members and there was no reason for the company to give security of only 6,000 sq. yards of landed property if it had acquired 6,222.75 sq. yards. The Company Law Board found no force in the plea, raised on the behalf of the petitioners, with regards shortage of the property of the company. 11. As note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belonging to the company could not be divided among the 216 existing members and was being exposed to various inevitable risks, that the petitioner group consisting of 130 members was willing to sell its entire stake in the company to the respondents but the respondents were not willing to purchase the shares of the petitioners group in its entirety, but only the shares of the petitioners and that the respondents were not willing to sell their shares to the petitioners. The Company Law Board held that these facts justified the making of a winding up order on just and equitable grounds which would, however, unfairly prejudice the members and that the most equitable relief, in removing the existing impasse, was to sever the relationship by disposing of the landed property and apportioning the sale proceeds among the shareholders especially when the purpose for which the land was acquired could not be accomplished. Having so observed the Company Law Board, in exercise of its jurisdiction under section 402 of the Companies Act, 1956, and with a view to bring to an end all the matters complained of, issued certain directions a part of which the appellants herein are aggrieved by. 14. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h restriction or limitation on the powers of the court acting under section 402. Without prejudice to the generality of the powers conferred on the court, section 402 proceeds to indicate what types of orders the court could pass. Under clause (a) of section 402, the Court's order may provide for the regulation of the conduct of the company's affairs in future and under clause (g) the court's order may provide for any other matter for which, in the opinion of the court, it is just and equitable that provision should be made. An examina-tion of the aforesaid sections brings out two aspects : first, the very wide nature of the power conferred on the court, and, second, the object that is sought to be achieved by the exercise of such power, with the result that the only limitation that could be impliedly read on the exercise of the power should be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by those sections and, beyond this limitation which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of the court's power. Further, sections 397 and 398 are intended to avoid w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its discretionary jurisdiction, under section 402 of the Companies Act, 1956, the Company Law Board has appointed a retired judge of the High Court of A.P. as the chairman of the first respondent-company and has held that a new board of directors, (five in number), should be elected by the members in a general meeting of the company to assist the chairman. A perusal of the order under appeal would indicate the reasons which weighed with the Company Law Board in issuing directions for a fresh board of directors to be elected instead of permitting the board of directors, elected in the meeting held on 30-9-2003, to continue to assist the chairman. In the order under appeal, the Company Law Board noted that the minutes, of the eighth annual general meeting of the company reportedly held on 30-9-2003, revealed that the meeting could not be completed in a peaceful manner, that the company could not give effect to any of the resolutions passed at the eighth annual general meeting on account of the restraint order obtained by one of the shareholders in M.P. No. 22569 of 2003 filed before the High Court of Andhra Pradesh and that the matter was pending before the Additional Senior Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sale of the assets, and to ensure that the sale proceeds are properly distributed among all the shareholders of the company, does not also necessitate examination since the Company Law Board, while giving directions under section 402 of the Companies Act on the manner in which the landed properties of the first respondent-company should be brought to sale, and the proceeds should be distributed among the shareholders according to their holding in the company, has left it open for an application to be made to it in case any difficulty arises in implementing the order in C.P. No. 56 of 2002 dated 10-11-2006. 19. While both Sri V.S. Raju and Sri Y. Ratnakar would request this court to direct the Advocates Commissioner to complete the sale transaction, and distribute the sale proceeds to the members of the company, I am not persuaded to do so since the jurisdiction of this court, in an appeal under section 10F of the Companies Act, is limited only to questions of law. It is wholly inappropriate for this court to take upon itself the task of selling the landed properties of the first respondent-company, and in distributing the sale proceeds, as this court, in proceedings under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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