TMI Blog2011 (2) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... could not entitle respondents to contend that there were no acts of oppression and mismanagement on date of filing of instant petition - company petition was maintainable - In favour of company - Co. Appeal No. 6 of 2009 - - - Dated:- 21-2-2011 - V. Ramasubramanian, J. T.K. Seshadri for the Appellant. P.H. Arvind Pandian, Satish Parasaran, A.K. Raghavelu, Neelakandan and C. Umashankar for the Respondent. JUDGMENT 1. This is an appeal filed under section 10F of the Companies Act, 1956, challenging an order passed by the Company Law Board in C. P. No. 64 of 2006, instituted under sections 397, 398, 402 and 403 read with sections 235, 237 and Schedule XI of the Companies Act, 1956. 2. I have heard Mr. T.K. Seshadri, learned senior counsel for the appellants, Mr. P.H. Arvind Pandian, learned counsel for the third respondent, Mr. Satish Parasaran, learned counsel for the sixth respondent, Mr. A.K. Raghavelu, learned counsel for respondents Nos. 9 and 10, Mr. C. Umashankar, learned counsel for the twenty-second respondent and Mr. Neelakandan, learned counsel for the twenty-third respondent. 3. Six brothers by name S. Narayanan Pillai, S. Subramaniam Pillai, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah v. Soverign Dairy Industries Ltd. [2001] 106 Comp Cas 191 (CLB) and with a view to bringing to an end the acts complained of by the aggrieved shareholders, thereby regulating the conduct of the company's affairs, it is ordered as under: ( i ) The present board of directors comprising of the petitioners will continue to carry on the management of affairs of the company, in strict compliance with the articles of association, subject to the stipulations (i) to (iii) imposed in the order dated August 9, 2007, made in C. A. No. 41 of 2007; ( ii ) Shri R. Aghoramurthy, chartered accountant, Chennai, (mobile No. 9444322347) is authorised to carry out an investigative audit of the accounts of the company for the period from April 1, 2000 to March 31, 2005, by scrutinising the books of account, vouchers and other connected records of the company and on hearing submissions of all the connected parties. The chartered accountant will submit a report on the financial transactions of the company for the relevant period, which shall include all the receipts, payments, expenses incurred on behalf of the company, together with the fund utilisation thereof and irregularities, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k clarification from the receiver." 9. In pursuance of the above interim order, the chartered accountant appointed by the Company Law Board filed his interim investigative report in a sealed cover in June, 2009. Though all learned counsel appearing for the respondents wanted to peruse the report and make submissions, the said request was stoutly opposed by learned senior counsel appearing for the appellants. As a matter of fact, I even suggested in the course of hearing that a perusal of the interim report by all the parties would clear the air of suspicion about the conduct of the affairs of the company and that the opening of the seal on the interim report would show whether it contains a can of worms or a can of juice. But the appellants were not prepared to take chances. In the days when the right to information has acquired new dimensions, the appellants contended that when the very appointment of the chartered accountant by the Company Law Board is assailed as wholly illegal, any exercise undertaken by such chartered accountant is also illegal and hence the interim report submitted by him should not even be looked into. The contention of learned senior counsel for the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Narayana Pillai (Late) N. Arunachalatammal (Wife) V. Muthulaukshmi-Daughter (Late) V. Manthiram C. Aruna N. Sanakaranarayanan-Son N. Gomathinayagam-Son S. Saraswathi-Daughter N. Lakshmanan-Son (Late) L. Chinnammal L. Aruna L. Vellammal L. Muthulakshmi K. Subha-Daugther S. Subramania Pillai (Late) S. Shanmugathammal-Wife (Late) S. Muthuvel-Son S. Sankaran-Son S. Venkatachalam-Son S. Anandha Saraswathi-Daughter M. Bhagavathi-Daughter S. Ramalingam-Son S. Narayanan-Son S. Muthulakshmi-Daughter S. Murugan-Son S. Paramasivan-Son S. Selvaraj-Son S. Karuppaswamy Pillai (Late) K .Parameswari Ammal-Wife (Late) K. Muthulakshmi-Daughter S. Indira-Daughter K. Vadivel Murugan-Son K. Muthukrishnan-Son K. Muthu Selvakumar-Son S. Paramasivan Pillai P. Bhagavathi Ammam (Late) P. Mani-Son P. Durai-Son B. Muthulakshmi-Daughter P. Kannan-Son S. Anandhi-Daughter P. Krishnamurthy-Son S. Meena-Daughter S. Sundaram Pillai (Late) S. Gomathi Ammal-Wife M. Shanmugasundari-Daughter P. Muthurajeswari-Daughter G. Vasuki-Daughter S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal appointed Justice K. Swamidurai (Retd.), as a receiver. ( h ) The receiver so appointed filed 3 reports, in the second half of the year 2006, before the Debts Recovery Tribunal, pointing out certain facts. Thereafter, contending that the facts disclosed in those reports established oppression and mismanagement, respondent Nos. 1 to 5 herein filed a petition in C. P. No. 64 of 2006 on the file of the Company Law Board, Additional Principal Bench, Chennai, under sections 397, 398, 402 and 403 read with sections 235 and 237 and Schedule XI, seeking various reliefs, indicated in paragraph 5 above. Originally, the company was impleaded as the first respondent and M/s. K. Muthuswamy, P. Durai and S. Venkatachalam (who are appellant Nos. 1 and 2 and the seventh respondent in this appeal) were impleaded as respondent Nos. 2 to 4 in the company petition C. P. No 64 of 2006. The receiver appointed by the Debts Recovery Tribunal was impleaded as the fifth respondent. However, in the course of hearing of the company petition before the Company Law Board, all the other shareholders also got impleaded as respondent Nos. 6 to 20. ( i ) The acts of oppression and mismanag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral shows in the theatres during the period from April 1, 2005 to June 18, 2006, thereby causing losses. ( l ) The company petition was hotly contested by the appellants herein, first on the ground of maintainability and also on merits. The Company Law Board rejected the objection relating to maintainability, after a survey of the case law on the point and on a consideration of the plain language of the statute. Thereafter the Company Law Board took up for consideration, each one of the acts of mismanagement complained of and came to a prima facie conclusion that the business of the company had been conducted in a manner oppressive of the members of the company at the hands of persons in management. The Company Law Board also came to the conclusion that the surplus income shown by the receiver prima facie supported the charge of mismanagement, requiring a detailed investigation by an independent agency. Even while holding so, the Company Law Board was careful enough to hold that the process of any investigation would certainly involve the grant of adequate opportunity of hearing to all the parties. It is only after reserving such a right of opportunity to the appellants t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made fresh set of allegations in their counter statements before the Company Law Board, which have also been taken into account by the Company Law Board in violation of the law relating to pleadings and evidence. The relief granted by the Board was based upon an entirely new case neither pleaded nor proved. ( iii ) The findings recorded by the Company Law Board on the alleged acts of mismanagement pleaded by the complainants, were erroneous and were not continuing as on the date of filing of the petition. ( iv ) The Company Law Board cannot order investigation under section 237(b), in a petition under sections 397, 399 and 402. In any case, the essential requirements of section 237(b) are also not satisfied. ( v ) The Company Law Board erred in reaching conclusions on the basis of the report of the receiver appointed by the Debts Recovery Tribunal. The receiver was appointed to carry on the administration and management, with prospective effect and hence the reports filed by him in respect of the events of the past, were of no value. ( vi ) The act of the Company Law Board in accepting photo copies of certain documents filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the impugned order is in tune with the order of this court in C. M. A. No. 1900 of 2007 ? and ( viii ) Whether the procedure adopted by the Company Law Board in relying upon a letter written by one Vadivel Murugan, who was neither a party nor a witness to the proceedings, is in tune with the procedure prescribed by law ? Let me now take up these questions of law one after another. Question No. 1 16. There is no dispute about the fact that in I. A. No. 414 of 2004 in O.A. No. 178 of 2004, the Debts Recovery Tribunal-II, Chennai, passed an order dated May 17, 2005, appointing Justice K. Swamidurai (Retd.) as the receiver. The said order was challenged on appeal by the company represented by the second appellant herein, in M. A. No. 69 of 2005, before the Debts Recovery Appellate Tribunal, Chennai. But the same was dismissed by an order dated December 9, 2005. Thereafter, the receiver took charge on June 19, 2006, of the management and administration of the theatre complex comprising of 4 theatres, viz., Udayam, Chandran, Suriyan and Mini Udayam and the kalyana mandapam. Ever since then, the receiver is in charge till date, though the previous receiver was repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. [1965] 35 Comp Cas 351. It was held in the said decision as follows (page 366) : "There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members." 20. Following the decision of the apex court in. Kalinga Tubes Ltd. ( supra ), a Division Bench of this court held in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20, that there must be continuous acts constituting oppression up to the date of the petition and that the events have to be considered not in isolation but as a part of a continuous story. 21. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC); the Supreme Court held that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. It was also pointed out that a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come in future, then the petition under section 397 of the Act can be filed even in respect of a single act. 24. Agreeing with the said view, a learned judge of the Bombay High Court held in Maharashtra Power Development Corpon. Ltd. v. Dabhol Power Co. [2003] 117 Comp Cas 506/48 SCL 180, that it is ordinarily correct to say that a single act of oppression would not give rise to a cause of action for filing a petition under section 397. However, the learned judge pointed out that it is not a rule of law, but a rule of prudence and that if the effects of a single act which is burdensome, wrongful and oppressive are of continuing nature, then a petition can be filed. 25. In Bhagirath Agarwala v. Tara Properties (P.) Ltd. [2002] 111 Comp Cas 597/39 SCL 943 (Cal.) ; also the removal of a director and allotment of shares were set aside as they were done at a meeting which was convened without complying with the requirements of section 286 and also reflected an oppressive policy. The allotment was made only to one member without simultaneous offer to others on pro rata basis. A single act of issue of additional shares which would have a continuous effect was held to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife had already received a sum of Rs. 31,68,000 towards interest on the sale consideration of Rs. 60 lakhs paid by them at the time of purchase of the petrol bunk property. 28. Therefore, the mere fact that the receiver kept on hold any further payments, would neither mean that they were isolated acts nor mean that their recurrence was voluntarily stopped. It must be remembered that the receiver appointed by the Debts Recovery Tribunal, was actually to take care of the interests of the secured creditor. Therefore, the fact that he stopped further payments and the fact that such stoppage enured to the benefit of the company and respondent Nos. 1 to 5 herein does not mean that normalcy had returned. The appointment and continuation of the receiver for the management of the properties, was actually like the imposition of a curfew and it was not a voluntary act on the part of the persons in management, with a view to stop all alleged acts of oppression and mismanagement. It was something that was imposed upon the persons at the helm of affairs, by an order of the Debts Recovery Tribunal. It was a supervening act, which took away the management of the business alone from the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by its order dated May 17, 2005, passed in I. A. No. 414 of 2004 in O. A. No. 178 of 2004. Paragraphs 17, 18 and 23 of the order dated May 17, 2005, read as follows: "(17) After due consideration, this Tribunal hereby appoints hon'ble Justice K. Swamidurai, Judge (Retd.) (High Court of Madras) as receiver/administrator. It is further ordered he shall be assisted by a panelist advocate Mrs. Swarnalatha. In order to assist the receiver/ administrator to take over the management of respondent No. 2 company and to discharge its duty smoothly with a view to safeguard the interest in general of the shareholders as well as of the applicant bank, other secured/unsecured creditors, workers, staff of respondent No. 2 company and for payment of necessary expenses of respondent No. 2 company including statutory dues, it would be appropriate to constitute an advisory committee consisting of : ( a ) One representative from the applicant-bank not below the rank of AGM of the nationalised bank. ( b ) Managing director of the D1 company or any nominee authorised by the board of directors of the D1 company duly certified by the company secretary. ( c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13(4)(c) of the 2002 Act, is called a manager. A receiver is appointed under section 19(18) of the 1993 Act, for the realisation, management, protection, preservation and improvement of the property and the collection of rents and profits thereof. A manager is appointed under section 13(4)(c) to manage the secured assets, the possession of which had been taken over. 35. Therefore, it is clear that the receiver appointed by the Debts Recovery Tribunal was for the management and administration of the business of the company in question. The receiver did not and could not actually replace the board of directors of the company. Moreover, a Debts Recovery Tribunal is not an institution which can really remove a director and appoint any person in his place. 36. At the most, the receiver appointed by the Tribunal, could be treated only like the Chief Executive Officer of a company, with a small difference. While a Chief Executive Officer is obliged to report to the Board and carry out the directions of the Board, the receiver appointed by the Tribunal is answerable only to the Tribunal. 37. If the appointment of the receiver is understood in the above context, it will be clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Tribunal for the benefit of the secured creditor, would not entitle the appellants to contend that the affairs of the company "were not being conducted" in the manner alleged, as on the date of filing of the company petition. Question No. 2 40. The second contention of the appellants is that the law of pleadings and the provisions of the Indian Evidence Act, 1872, apply to the proceedings before the Company Law Board. Therefore, the Company Law Board ought not to have taken note of the new pleadings made by the impleaded parties and ought not to have accepted the pleadings made without any evidence. 41. Section 10E(4C) of the Companies Act, 1956, vests with the Company Law Board, the same powers, as are vested in a civil court under the Code of Civil Procedure, 1908, for (i) discovery and inspection of documents (ii) enforcing the attendance of witnesses (iii) compelling the production of documents (iv) examining witnesses on oath (v) granting adjournments and (vi) reception of evidence on affidavits. Sub-section (4D) of section 10E declares that the Company Law Board shall be deemed to be a civil court for the purposes of section 195 of the Code of Criminal Procedure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure to be adopted by the company court under the Companies (Court) Rules, 1959 and the rules of procedure to be adopted by the Company Law Board under the Regulations of 1991. Not only does section 10E(5) and (6) confer a discretion upon the Board to regulate its own procedure and be guided by the principles of natural justice, but regulation 48 goes a step further by empowering the Bench to dispense with the requirements of any of the regulations. 45. In Needle Industries (India) Ltd. ( supra ), the Supreme Court observed as follows (page 786) : "... it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit to cross-examination. It is true that men may lie but documents will not and often, documents speak louder than words. But a total reliance on the written word, when probity and fairness of conduct are in issue, involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inferences said to arise from the documents." 46. But it must be remembered that at the time when Needle Industries (India) Ltd. ( su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property in the joint names of himself and his wife, for a sale consideration of Rs. 60 lakhs. The amount was utilised for payment to the bank and the first and third petitioners were signatories to the sale deed. Thereafter, the first appellant and his wife made a demand for the cancellation of the sale deed and the refund of the sale consideration or payment of compensation at the rate of Rs. 99,000 per month, when the person running the petrol bunk refused to vacate the property. The Board accepted the request by a resolution dated October 14, 2003 and acknowledged its liability by a letter dated October 15, 2003. ( iii ) With regard to the rental income from RPG Cellular Company, the appellants have taken a stand in paragraph 17 of their counter that the company borrowed funds from the lessee of the kalyana mandapam, to the tune of Rs. 11,95,914 and that towards repayment of the same, the company sent a letter dated March 15, 2004, authorising the lessee to collect the rent from RPG Cellular Company. ( iv ) The allegations of non convening of the meetings of the board of directors and the non-service of notices of the annual and extraordinary general meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible in the light of other facts, then the burden of proof shifts. Section 3 of the Indian Evidence Act, 1872, defines a "fact" to mean and includes "(i) any thing, state of things or relation of things, capable of being perceived by the senses and (ii) any mental condition of which any person is conscious". It also defines "facts in issue" to mean and include "any fact from which either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability or disability, asserted or denied in any suit or proceeding, necessarily follows". The Explanation under the definition of the expression "facts in issue" clarifies that whenever any court records an issue of fact, the fact to be asserted or denied in answer to such issue, is a fact in issue. Section 5 requires evidence to be given on the existence or non-existence of every fact in issue. But section 58 of the Indian Evidence Act, 1872, makes it clear that facts admitted need not be proved. Section 58 actually uses the expression "fact" and not "facts in issue". 52. In the light of the above provisions of the Indian Evidence Act, 1872, it is clear that respondent Nos. 1 to 5 herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even here, the allegation made by respondent Nos. 1 to 5 was on the basis of the reports filed by the receiver before the Debts Recovery Tribunal. As stated earlier, the appellants denied this allegation. Therefore, respondent Nos. 1 to 5 herein were obliged to prove this allegation, viz., that the appellants collected advances to the tune of Rs. 45,10,000 from the shop tenants. Let me see if this allegation was proved before the Company Law Board. 57. Since the receiver was impleaded as the fifth respondent before the Company Law Board, he filed a statement on November 28, 2006 and an additional statement on February 26, 2008. He termed them as "statements", in view of the fact that he is not a contesting party and hence he cannot file a counter. In view of the objections raised, the receiver also filed a verifying affidavit in terms of the Company Law Board Regulations, 1991. In paragraph 8 of the statement and in paragraph 1(m) of the additional statement, the receiver pointed out that a sum of Rs. 45,10,000 had been collected towards advances from shop tenants. 58. In response to the statement and additional statement filed by the receiver before the Company Law Board, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the receiver, they never even sought to prove the same. Their challenge to the appointment of the receiver, failed before the Debts Recovery Appellate Tribunal and before this court. Subsequently, the receiver first appointed by the Debts Recovery Tribunal resigned for other reasons and a new receiver is in place as on date. Therefore, the second question raised by the appellants that the Company Law Board committed an error of law in arriving at conclusions on the basis of new pleadings, insufficient pleadings and lack of sufficient proof is wholly untenable and baseless. Question No. 3 61. The third question raised by the appellants is about the correctness of the findings recorded by the Company Law Board on the allegations of oppression and mismanagement. Since the appellants have dwelt at length, the 6 acts of oppression and mismanagement complained against them and the manner in which the Company Law Board dealt with the same, let me now take up each one of them. Sale of petrol bunk 62. According to the appellants, no exception can be taken to the sale of the petrol bunk property in favour of the first appellant and his wife, for the following reasons : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006. But the first appellant and his wife have admittedly initiated two proceedings, one in C.S. No. 756 of 2004 for recovery of arrears of rent from N. Sankaranarayanan, who is in occupation of the property and another in R. C. O. P. No. 2202 of 2004 for eviction on the ground of willful default and willful denial of title. Though the Rent Controller dismissed the eviction petition, it was taken up on appeal. Despite the initiation of proceedings by the purchasers, for recovery of the arrears of rent, the board of directors passed a resolution on October 14, 2003, approving the payment of compensation at the rate of 22 per cent. on the sale consideration of Rs. 60 lakhs paid by the first appellant and his wife. It is this act on the part of the first appellant who was a member of the Board, that made the Company Law Board doubt the bona fides of the transaction, though it also took note of the pendency of the suit and consequently did not record any finding on the validity of the sale deed. 64. The fact that opportunities were given to all the shareholders as well as to the Indian Oil Corporation to purchase the property and the fact that respondent Nos. 1 to 5 did not see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approach adopted by the Company Law Board with regard to the sale of the petrol bunk property, can be said to be faulty. Lease of kalyana mandapam 67. With regard to the validity of the lease of the kalyana mandapam, the appellants have raised similar contentions as they have raised in respect of the sale of the petrol bunk property. It is their contention that the lease was validly granted in pursuance of a resolution of the board validly passed and that the third respondent is a signatory to the lease deed. It is their further contention that without making the lessee a party to the company petition, respondent Nos. 1 to 5 were not entitled to challenge the validity of the lease. 68. But unfortunately, the appellants have omitted to take note of the fact that respondent Nos. 1 to 5 were not actually seeking to set aside the lease deed. The lease of the kalyana mandapam was just raised only as an act of oppression and mismanagement on the part of the appellants therein. For the Company Law Board to hold an enquiry for the limited purpose of finding out if there was any oppression and mismanagement, there was no necessity either to challenge the lease deed or to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the receiver. According to the appellants, there was no iota of evidence to support the said allegation. 74. It is true that apart from the report filed by the receiver on November 28, 2006, there was no evidence on record before the Company Law Board to come to the conclusion that a sum of Rs. 45.10 lakhs was collected. But the statement was made by a retired judge of this court, appointed as receiver by the Debts Recovery Tribunal. He has stated in paragraph 8 of his report dated November 28, 2006, that he was informed by the shop tenants about this. Unless the shop tenants are examined or any receipts issued to them are produced, it may not be possible to find out the truth. But the statement of the receiver together with all other facts and circumstances, has merely persuaded the Company Law Board to order an investigative audit. Therefore, the limited reliance placed by the Company Law Board on this statement of the receiver, cannot be said to be wholly unjustified, in the light of the finding recorded by the Company Law Board (in internal page 44 of its order) that the process of investigation will certainly involve the providing of adequate opportunity of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of an order passed by the Company Law Board, appointing 4 persons as inspectors, for investigating the affairs of the company relating to the alleged irregularities and contraventions of the provisions of the Companies Act, 1956. A challenge was made to the said order by the company, by way of a writ petition under article 226. The High Court of Punjab dismissed the writ petition and the company took it on appeal to the Supreme Court. By a majority of 3 : 2, the apex court allowed the appeal, even while upholding the validity of section 237(b). In the minority view expressed by Mudholkar J., as he then was, for himself and on behalf of A.K. Sarkar C. J., it was held in paragraph 10 of the report that (page 648) : "The discretion conferred to order an investigation is administrative and not judicial since its exercise one way or the other does not affect the rights of a company nor does it lead to any serious consequences as, for instance, hampering the business of the company". Following an earlier decision, it was further held in paragraph 10 of the report that : "the investigation undertaken under this provision is for ascertaining facts and is thus exploratory" and that "the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative in nature. 83. In A. Ramaiya Guide to the Companies Act, 1956, 16th edition, Reprint 2006, page 2532, the learned author has pointed out that under clause (b), the Company Law Board may take the initiative suo motu or on the application of or information supplied by any shareholder or other person. 84. It is interesting to note that while interpreting section 165(b)(ii) of the English Companies Act of 1948, Lord Denning M. R., held in Norwest Holst Ltd. v. Department of Trade [1978] 3 All ER 280 (Ch. D), that though the appointment of inspectors puts a company under a cloud, neither the provisions of the Act nor the rules of natural justice require an opportunity of being heard to be given to the company before ordering an investigation. It was further held that the order directing an investigation is merely an administrative act in the nature of a fact finding enquiry and that the only requirement for the exercise of the discretionary power was that it should be exercised in good faith. It is this view that is perhaps reflected in the opinion of the minority in Barium Chemicals Ltd. , ( supra ) in paragraph 10 of the report as well as in the opinion of the majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein. The company petition filed by respondent Nos. 1 to 5 herein was not only under sections 397 and 398, but also under sections 402 and 403 read with sections 235 and 237 and Schedule XI. Therefore, all that was required of the Company Law Board was to see whether there were circumstances suggesting the existence of the contingencies stipulated in clauses (i) to (iii), warranting the Board to form an opinion under section 237(b). It is clear from the materials on record (i) that the Board actually formed an opinion ; and (ii) that the opinion was based upon the parameters prescribed in the three clauses under section 237(b). Since this court has the power, in view of the decision in Rohtas Industries Ltd. ( supra ), to satisfy itself about the existence of those circumstances, I have also independently analysed under question No. 3, the existence of those circumstances. Therefore, the contention based on the scope of section 237(b) is not well founded. 89. Moreover, the order of the Company Law Board impugned in this appeal, need not necessarily be read strictly in the context of section 237(b). In an application under section 397 or 398, the Board has certain powers un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a company". Section 539 as found in the body of the Act, applies to a company "which is being wound up", while the corresponding section in Schedule XI applies to a company in respect of which an application under section 397 or 398 has been made. Similarly, section 540 as contained in the body of the Act, applies to a company which is subsequently ordered to be wound up or which subsequently passes a resolution for voluntary winding up. But the corresponding provision in Schedule XI, applies to a company in respect of which an order under section 397 or 398 is made subsequently. 92. Therefore, it is clear that the powers conferred upon the winding up court, in relation to "antecedent offences" under sections 539 to 544, have been extended to proceedings under sections 397 and 398, by virtue of section 406, in a modified form as found in Schedule XI. Since the modifications are only cosmetic in nature, it is clear that the Company Law Board has similar powers in relation to proceedings under section 397/398. In such circumstances, the impugned order passed by the Company Law Board, cannot be said to be vitiated by any error of jurisdiction. 93. But the question does not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle to its being wound up if it is just and equitable to do so. Similarly, a legally valid resolution may turn out to be oppressive and a resolution in contravention of the law may be in the interests of the shareholders. Therefore, as pointed out in Needle Industries (India) Ltd. ( supra ), every illegality may not per se be oppressive nor every legally valid action, per se non-oppressive. 97. In Hanuman Prasad Bagri v. Bagress Cereals ( P. ) Ltd. [2001] 105 Comp Cas 493/33 SCL 78 (SC), the Supreme Court upheld the view of the Division Bench of the Calcutta High Court to the effect that if the facts fall short of a case upon which the company court feels that the company should be wound up on just and equitable grounds, in that event, no relief can be granted to the petitioners in regard to section 397 of the Act. 98. The next question as to what constitutes oppression, was answered in detail in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566/57 SCL 476 (SC). After extracting paragraph 1011 from the Halsbury's Laws of England (4th edition, volume 7), defining the conduct amounting to oppression, the Supreme Court opined that a proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e courts should lean in favour of such construction of statute whereby its jurisdiction is retained, enabling it to mould the relief, subject of course, to the applicability of law in the fact situation. Therefore, the power under sections 397 and 398 has to be read together with section 402. 101. It is interesting to note that in M.S.D.C. Radharamanan ( supra ), the apex court made out a distinction in paragraph 33, between the approach to be made in certain cases and the approach to be made in a certain other case. It reads as follows (page 111) : "In a case of this nature, it is necessary to take a holistic approach of the matter. What might not be permissible for the affairs of a public limited company or even a private company having large number of shareholders and directors, may be permissible in a case of this nature where a company for all intents and purposes a quasi partnership concern. Parliament, while enacting a statute, cannot think of all situations which may emerge in giving effect to the statutory provision. The situation obtaining in the present case in that sense is a pathetic one. Both the Company Law Board as also the High Court have no doubt that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the shareholders. Though the Debts Recovery Tribunal rightly rejected the request to go into the inter se disputes between the parties, the Tribunal ultimately appointed a retired judge of this court to be the receiver. While appointing the receiver, the Debts Recovery Tribunal also constituted an Advisory Committee especially to take care of the interest of the bank as well as all the interest of the shareholders/ directors. This can be seen from the last portion of paragraph 16 of the order of the Debts Recovery Tribunal dated May 17, 2005. In paragraph 23 of its order, the Debts Recovery Tribunal gave liberty to the receiver to take any decision as per law and in normal prudence to see the larger interest of the company. Therefore, the contention that the receiver was expected only to look forward and not to look back, is neither consistent with the order of the Debts Recovery Tribunal, nor consistent with the purpose for which a receiver is normally appointed. 105. Under Order 40, rule 1 of the Code of Civil Procedure, 1908, a receiver may be appointed in respect of any property and he can be conferred with all such powers for the management, protection, preserva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alyana mandapam, receipt of rental income from RPG etc., were not denied as matters of fact, but were denied only as amounting to oppression and mismanagement. Therefore, the fact that the Board accepted a few documents, even if procedurally incorrect, did not tilt the balance against the appellants. Question No. 7 109. The next question raised by the appellants is with regard to the first part of the impugned order of the Company Law Board, contained in paragraph 12(i). In the said paragraph, the Company Law Board directed the present board of directors comprising of the petitioners (before the Board) to continue to carry on the management of affairs of the company in strict compliance with the articles of association subject to the stipulations (i) to (iii) imposed by the order dated August 9, 2007, made in C. A. No. 41 of 2007. 110. According to the appellants, the aforesaid directions were in conflict with the directions contained in the order of this court passed in C.M.A. No. 1900 of 2007 dated September 19, 2007. The appellants also contended that when a receiver has been appointed, he alone is competent to manage the affairs of the company and hence, the direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings together with agenda thereon shall be forwarded to the eighteenth respondent, fifteen days prior to every board meeting of the company; ( iii ) The eighteenth respondent is entitled to attend the board meetings convened periodically by the company as an invitee and shall not exercise any of the rights of a director; ( iv ) This order is subject to the outcome of the main petition." ( e ) It is seen from the above order that the Company Law Board took care to see that its order dated August 9, 2007, synchronised with the order of the Debts Recovery Tribunal appointing a receiver. ( f ) The above order of the Company Law Board dated August 9, 2007, passed in C.A. No. 41 of 2007 was challenged by the appellants herein in C.M.A. No. 1900 of 2007 on the file of this court. By an order dated September 19, 2007, this court disposed of the said miscellaneous appeal. As seen from paragraph 10 of the order, this court confirmed the order of the Company Law Board dated August 9, 2007, holding that it was not vitiated by any error of law or illegality. However, taking into account the facts and circumstances of the case and in the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1900 of 2007. In C. M. A. No. 1900 of 2007, this court directed the board of directors not to take major policy decisions and not to alienate, transfer or encumber the assets of the company without the consent of the board. These directions are not modified by paragraph 12(i) of the impugned order. Therefore, the seventh question raised by the appellants on the premise that the impugned order was in conflict with the order passed in C. M. A. 1900 of 2007 is wholly misconceived. 116. The contention that so long as the receiver appointed by the Debts Recovery Tribunal continues, the board has no independent role to perform, is also unsustainable. The Debts Recovery Tribunal did not appoint a retired judge of this court as receiver, in supersession of the board of directors. The receiver was appointed only for the purpose of running the management of the affairs of the company. The powers conferred upon the Debts Recovery Tribunal under section 19(18) of the 1993 Act, are akin to the powers conferred upon the civil courts by Order 40 of the Code of Civil Procedure, 1908. As pointed out elsewhere, the receiver is not like the Special Officer appointed to a Co-operative Society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention on the basis of which the eighth question is raised, is also liable to be rejected. Finale 120. In view of what is stated above, the appeal is liable to be rejected. But before I do so, I have to address one more issue. The sealed cover in which Mr. R. Aghoramurthy, chartered accountant appointed by the Company Law Board, has submitted a report, has remained unopened so far. I kept up my word not to open the cover till I dictated the judgment up to this portion. Having dictated the judgment up to this portion, I now have 2 options before me. In view of the conclusions that I have reached on all questions of law, it may not even be necessary for me to open the cover and look into its contents. Therefore one option before me is to leave the cover unopened. But there is also a possibility, however remote it might be, that the investigative auditor has recorded some findings in favour of the appellants. This can be found out only if the cover is opened. Therefore, the second option before me is to open the cover and look into its contents and reject even the main company petition as devoid of merits, if the report contains any material in favour of the appellants. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the lessee of the kalyana mandapam, from RPG Cellular Company, for the period from April, 2004 to June, 2006, works out to Rs. 7,37,974. ( vi ) The claim made by M. Kalyanasundaram, the lessee of the kalyana mandapam, in his letter dated September 4, 2006, to the receiver, that he was receiving the rent from RPG Cellular towards settlement of the amount of Rs. 11,95,914 due to him from the company, is only a cover up operation. There is a calculated move to divert the rental income due to the company for the personal benefit of the lessee M. Kalyanasundaram (who is the son of the first appellant herein). ( vii ) M/s. Kanthimathi Films and Investments, which is a proprietary concern of the wife of the first appellant, took an advance of Rs. 15 lakhs from the company for screening a film. Out of the distributor's share of the collections, a sum of Rs. 12 lakhs was adjusted. A sum of Rs. 1,50,000 was paid under two cheques. The balance of Rs. 1,50,000 is yet to be recovered. The deficit of Rs. 21,400 recoverable from Kanthimathi Films, is also still remaining unrecovered. ( viii ) No special resolution authorising payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 30.85 lakhs is shown as rental advance and hence there is no short accounting of rental advance. However, the repayment of shop rental advance to the extent of Rs. 26.11 lakhs during the period February and March, 2005, defies any logic since at least 6 of those tenants continue to be tenants. There are also no acknowledgements from the parties, for having received refund of advance. Therefore, the sums purported to have been refunded, may only be book entries to reduce the non-existent cash as shown in the cash book. ( xiv ) The balance-sheets as on March 31, 2006 and March 31, 2007, disclose that a sum of Rs. 59,00,040 and Rs. 70,60,040 were respectively the loans and advances paid to the directors and their relatives. Four of them had issued letters denying the availing of any loan. One of them is dead. There are no board resolutions authorising the grant of loans. Therefore, section 292(1)(e) stands contravened. ( xv ) The statutory auditor has stated in his report that no interest was charged on the advances granted to the directors and their relatives. But the company paid interest on the loans taken from the directors, their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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