TMI Blog2013 (9) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... ally raised. If, as held by the CLB, the Regional Director is to deal with the question of removal of the auditors, it would result in this situation, namely, that a part of the grievance in the petition under Section 397-398 would be dealt with by the RD, while the other parts of the same grievance would be dealt with by the CLB. This would result in a very anomalous situation. It is well-settled that oppression and mis-management, within the meaning of Sections 397-398, are not constituted by distinct and separate acts, but are constituted by a single continuous act and it is not permissible to dissect the conduct of the alleged oppressor into separate acts of oppression or mis-management. Order passed by the CLB is set-aside and the appeal is allowed. The CLB will now deal with the question of removal of the auditors while disposing of the appellant’s petition under Sections 397 and 398 of the Companies Act. - CO. A. (SB) No.35/2013 & CO. APPL. Nos.399-1401/2013 - - - Dated:- 26-8-2013 - R. V. Easwar,JJ. For the Petitioner : Mr. Sudhir Nandrajag, Sr. Adv. with Mr. Atul Sharma, Mr Nitesh Jain, Mr Sugam Seth and Ms. Sagriti Ahuja, Advocates. For the Respondent : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the next annual general meeting for audit of the books of accounts for the financial year ended 31.03.2009. 5. On 13.12.2012, an order was passed by the Regional Director on the application for removal of the statutory auditors. This order was passed after considering the objections of the Chartered Accountants submitted through their letters and after giving them an opportunity of personal hearing. After considering the averments in the application setting out the reasons for seeking removal and the submissions of the Chartered Accountants the Regional Director arrived at the following findings: - i) The applicant company has filed an application under section 224(7) of the Companies Act, 1956 online on 17.02.2011 and physically on 18.02.2011 for removal of M/s. Vinod Sanjeev Bindal Co., Chartered Accountants, Statutory Auditor of the Company for the audit of financial year 2008-09. ii) The application for removal of auditors was filed after filing of petition under section 397/398 before CLB against the company and others by Shri S.P. Gupta. iii) It is also confirmed that majority share holders have expressed their un-willingness for continuance of the present s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as Mrs. Rajni Gupta (respondent No.2). 8. On 18.04.2013 the company application was taken up for hearing for the first time by the CLB and on this date, the following order was passed: - Ld. Counsel for the Petitioner accepts notice on CA No.156/13 filed by the Respondents and prays for a short adjournment to seek instructions. The matter is already listed on 22nd May 2013 at 10.30 A.M. Shri U.K. Chaudhary, Ld. Sr. Counsel for the applicants states that this board may hold that it has no jurisdiction to adjudicate on the removal of the Statutory Auditor which lies solely in the domain of the delegatee of the Central Govt., i.e. the Regional Director and dispose off CA 156/13 with a direction to the Respondents to take appropriate steps before the Regional Director. List on 26th April 2013 at 10.30 A.M. as Item No.1. Sd/- [Justice D.R. Deshmukh] Chairman 9. It is noteworthy that in the application before the CLB praying for orders for removal of the statutory auditors M/s. Vinod Sanjeev Bindal Co. and for the appointment of M/s. K.N.A. Associates as statutory auditors for the financial year 2009-2010, a request was made on behalf of the applicant before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the application, whether the CLB was right in law in proceeding to entertain and dispose of the application. It is contended that these are important questions of law which arise for consideration and my attention in this behalf was drawn to para 2(a) of the present appeal. It is further contended on behalf of the appellant that the question of removal or continuance of the statutory auditors M/s. Vinod Sanjeev Bindal Co. was inextricably inter-twined with the proceedings pending before the CLB under Sections 397 and 398 of the Act, a position which was accepted even by the Regional Director and, therefore, it was only the CLB which had the power to deal with the application filed by respondent No.1 before the Regional Director, as rightly held by him. My attention was drawn to the findings of the Regional Director, particularly sub-paragraph (iv) of para 4 of his order in which he has observed that the issue of removal of the auditors is under consideration before the CLB in the pending petition under Sections 397 and 398 and, therefore, it was the CLB, with its vast powers under Section 402, which can regulate the affairs of the company including the question of removal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quested the CLB to decide the matter, which decision would be final and binding. The submission is that having exhorted the CLB into rendering a decision, respondent No.3 later changed her mind and requested the CLB not to exercise the jurisdiction but to restore the matter for fresh decision by the Regional Director, on steps being taken by the applicant. It was further pointed out that even though it is true that it is only the shareholders who exercise the right of removing the statutory auditors, that is only an act of the company since a company has to necessarily act through human agency; it is submitted that this principle, however, cannot obliterate the corporate personality conferred upon the company and the act of removal of the statutory auditors is an act of the company, and not that of the majority shareholders. 15. As regards the question as to how the appellant is aggrieved by the impugned order, it is submitted on behalf of the appellant that during the financial year 2008-09 the appellant was undisputedly a director of respondent No.1 and any attempt to remove the statutory auditors of the accounts for the said financial year would act to the prejudice of the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No.3 was not authorised by the company to file any application on its behalf before the CLB pursuant to the order passed by the Regional Director, there was no valid application by the company before the CLB. There was nothing for the CLB to deal with or dispose of. However, as observed by the Regional Director in paragraph 4(iv) of his order, the petition under Section 397 and 398 was pending before the CLB in which the issue of removal of the auditor was also under consideration. This is also borne out by the pleadings before the CLB in the said petition. If that is so, it would have been open to the CLB, while disposing of the petition under Section 397/ 398, to also deal with the question of the removal of the auditor by virtue of its powers under Section 402 of the Act. The same result, that is, that it was for the CLB which was seized of the petition under Section 397/398 of the Companies Act to decide the question of removal of the auditors would ensue even if it is assumed that there was a valid application before the CLB seeking permission for the removal of the auditors. Therefore, in both situations, that is to say, where it is assumed that there was a valid applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of the shareholder as shareholder and, therefore, respondent No.3 was entitled to file an application before the CLB, even though the company did not do so. This contention runs counter to the settled principle. If regard is had to the basic principle that the company is distinct from its shareholders, it should follow that the cause of the company cannot be canvassed by a shareholder acting individually and not on behalf of the company. It has been found as a fact, which is not disputed before me, that respondent No.3 was not authorised by the company to file the application before the CLB; if she had been specifically authorised to do so, then perhaps it would have been possible to argue that such filing was an act of the company. The principle that a company, even though a distinct corporate personality, can act only through human agency is applicable where the company professes to act itself and this principle cannot be pressed into service to support an argument that all acts done by an individual shareholder are those of the company. The principle of piercing the corporate veil cannot also be invoked since that principle is normally invoked only to reveal the true iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in Tata Engineering and Locomotive Co. Ltd. (supra), it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Yet, the common thread running through cases where lifting of the veil has been permitted is that such lifting has always been sought by persons outside the company and it has never proceeded from those within and who hide behind the veil. Essentially, lifting of the veil has been permitted to prevent persons from taking refuge behind the veil and thereby take advantage of the separate juristic identity of the company. The doctrine has therefore been employed by the courts to prevent persons from taking advantage of their wrongs using the corporate entity as a shield. It cannot, therefore, be employed for permitting the petitioner to take advantage of her wrong in not taking written consent of the Government before permitting the said company to use the said shop. If the corporate veil canot be lifted, the inevitable conclusion is that the petitioner and the said company are separate and distinct persons. Consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading them subject to the provisions contained under the other chapters of the Act dealing with normal corporate management. The Court contrasted the provisions of Part-A of Chapter VI with those of Part-B. Whereas Part-A dealt with the powers of the Court (now Company Law Board), Part-B dealt with the powers of the Central Government to prevent oppression or mis-management. The Court noticed that while dealing with the similar emergent situations or extraordinary circumstances, it has placed restrictions or limitations on the powers of the Government acting under Sections 408 and 409, but no restrictions or limitations of any kind have been prescribed on the powers of the Court. It was observed that if the legislature had desired to place any limitations on the powers of the Court (now CLB) acting under Section 402, it could have stated so, but did not. Moreover, the Court held that the topics or subjects dealt with by Sections 397 and 398 are such that it becomes impossible to read any restriction or limitation on the powers of the Court acting under Section 402. The power of the Court under Section 397 is to make such order as it thinks fit, with a view to bringing an end to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this power under Section 402 by directing the company to reduce its share capital by purchasing its own shares, albeit contrary to Section 77 of the Act, it cannot be expected that the power should be made subject to the company following the procedure laid down in Sections 100 to 104. According to the Supreme Court if such a limitation on the Court s power is to be imposed, it would amount to holding that the statutory power of the Supreme Court depends, for its exercise, upon the vote of the members of the company. That would lead to an unacceptable situation where the Court s direction could be defeated by the majority of the shareholders voting against the reduction of the share capital. This would make a mockery of the entire situation and would defeat the relief granted by the Court to the minority shareholders against acts of oppression and mis-management of the majority shareholders. Such a situation, in the opinion of the Supreme Court, cannot be countenanced. 22. The power of the Court under Section 402 can even extend to directing something which is not provided in the Act. For instance it has been held that the Court can direct the introduction of a clause in the arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en changed by the respondent No.2 3 and to reappoint the previous Auditors who have been reappointed in the AGM held on 29.9.2009. 25. The argument on behalf of the respondent that it is open to the appellant to appear before the Regional Director and raise all objections to the change of the auditors appears to me to be no solution; it is only an argument of convenience. The argument is without merit for two reasons. First, it is a question of exercise of the wide powers under Section 402 by the Company Law Board. If the CLB could examine the question of change of auditors whether it is an act of oppression or mis-management while dealing with the petition under Section 397 and 398, I do not think it would be proper to relegate the appellant to the Regional Director; if the CLB can validly exercise a power, it should be permitted, - nay, it is bound - to do so. Secondly, it would be wholly inappropriate to permit two different authorities to deal with what essentially is a single grievance. If, as held by the CLB, the Regional Director is to deal with the question of removal of the auditors, it would result in this situation, namely, that a part of the grievance in the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
