TMI Blog2013 (10) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... e an opportunity to satisfy the Company Law Board that they have bona fide entered into a transaction. - Decided in favour of appellant. - Company Appeal No.18 of 2011 - - - Dated:- 17-9-2013 - V. Ramasubramanian,JJ. For the Appellant : Mr. Vijay Narayan, M/S. Ramalingam Associates For the Respondents : Mr. T. K. Seshadri, Mr. T. S. Baskar JUDGMENT This is an appeal filed by the State Bank of India, challenging an order passed by the Additional Principal Bench of the Company Law Board in a proceeding under Section 397 read with Section 402 of the Companies Act, 1956, setting aside the sale of certain properties of the Company in question. 2. I have heard Mr.Vijay Narayan, learned Senior Counsel appearing for the appellant, Mr.T.K.Seshadri, learned Senior Counsel appearing for respondents 1 to 4, Mr.A.K.Mylsamy, learned counsel appearing for respondents 5 to 8, Ms.T.Surekha, learned counsel appearing for the 10th respondent and Mr.A.Saravanan, learned counsel appearing for the 11th respondent. 3. The brief facts leading to the above appeal, are as follows:- (a) M/s.Neela Spinning Mills Pvt. Ltd., which is the 5th respondent herein, is a Company which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as security, was taken over by the State Bank of India from the Indian Bank. Therefore, the 11th respondent passed a resolution on 18.12.2007, creating a mortgage in favour of the State Bank of India, for the credit facility availed by M/s.Pioneer Feeds and Poultry Products. The 11th respondent also gave corporate guarantee and deposited all original title deeds in respect of the aforesaid property with the appellant herein on 25.3.2008. (i) Thereafter, the borrower viz., M/s. Pioneer Feeds and Poultry Products committed default and became a non-performing asset. Therefore, the appellant initiated measures under the SARFAESI Act, on 15.5.2009 and the 11th respondent sent their objections. Immediately thereafter, the Company Law Board passed an order in C.P.No.8 of 2003, filed by the respondents 1 to 4 herein, against the other respondents, holding that the respondents 6 to 8 are guilty of acts of oppression and that therefore, even the sale by the 5th respondent in favour of the 11th respondent was liable to be set aside. (j) The respondents 10 and 11, who were parties to the proceedings before the Company Law Board, filed an appeal on the file of this Court in Company Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 4 for filing a separate suit for setting aside the Sale Deed, it was not open to the Company Law Board to pass an order, setting aside the sale in favour of the 11th respondent. 7. In response to the above contentions, Mr.T.K.Seshadri, learned Senior Counsel appearing for respondents 1 to 4 submitted (i) that the order of the Company Law Board had already attained finality with the dismissal of an appeal in C.A.No.30 of 2009 filed by the respondents 10 and 11 and hence the present appeal is barred by law; (ii) that in a petition under Section 397 read with Section 402 of the Companies Act, 1956, the Company Law Board has ample powers to pass any order that would restore the balance between the majority and the minority; (iii) that once the resolution of the Board of Directors of the 11th respondent dated 22.10.2002 was under challenge before the Company Law Board, all actions taken in pursuance of the resolutions, would follow the very same fate as that of the resolution; and (iv) that in any case, the petitioner has very valuable properties offered as mortgage by the original borrower and hence the Bank will not be left in the lurch. 8. I have carefully considered the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Appeal No.30 of 2009 is recorded in the first paragraph of the judgment of this Court dated 8.1.2010. 14. After recording the questions of law, the learned Judge, who dismissed the Company Appeal, proceeded to narrate the facts leading to the above appeal, in paragraphs 2 to 7. After extracting the facts, the learned Judge chose to dismiss the appeal for the reasons contained in paragraphs 8 and 9. It will be useful to extract those two paragraphs, to see if the dismissal of the above appeal is a bar for entertaining the present one or not. Paragraphs 8 and 9 of the decision dated 8.1.2010, reads as follows:- "8. At the time of argument, learned counsel appearing for the appellants could not make any submission to substantiate any of the allegations raised before this Court. Going through the order passed by the Company Law Board, findings based on material and being pure questions of fact, I do not find any ground to interfere with the order of the Company Law Board. 9. In the absence of any material placed before this Court to sustain the claim made before this Court that the vendors had the necessary authority to effect the sale, I do not find there exists any grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the alleged appointment of the third respondent as a Director of the Company in the Board Meeting said to have been held on 8.3.2002 is non est and not binding on the Company and declare that any action taken pursuant to the said alleged meeting should be illegal and in contravention of the provisions of the Act. (c) To declare that the alleged issue of shares of the Company to the third respondent on 8.3.2002 is void and not binding on the Company. (d) To direct the Company to rectify its register of members correcting the particulars of shares held by the third respondent as a member of the Company. (e) To declare that the removal of the petitioners 1 3 from Directorship of the Company is void, illegal and not binding on the Company. (f) To declare that the petitioners 3 4 (should be 1 3) continue to be Directors of the Company. (g) To declare that the alleged borrowing made by the respondents 2 to 4 from the fifth respondent is not binding on the Company. (h) To declare that the alleged charge created in favour of the fifth respondent is void ab initio and not binding on the Company; and (i) To remove the second respondent from the Board of Directors of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 402 confers residual powers upon the Company Law Board, Clauses (d) empowers the Company Law Board to terminate, set aside or modify any agreement entered into between the Company on the one hand and the Managing Director or any other Director and the Manager on the other hand. 24. Clause (e) empowers the Company Law Board to terminate, set aside or modify any agreement between the Company on the one hand and any person other than the Managing Director, Director or Manager referred to in Clause (d) on the other hand. Clause (f) of Section 402 specifically empowers the Company Law Board to set aside any transfer, delivery of goods, payment, execution or other act relating to the property made or done by or against the Company, within three months before the date of application under Section 397 or 398, which would, if made or done by or against an individual be deemed in his insolvency to be a fraudulent preference. 25. But Clause (e) of Section 402 makes it clear that no agreement can be terminated, set aside or modified under the said Clause, except after due notice to the party concerned. Therefore, the principles of natural justice appears to be in-built in Section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... squabbles. Despite the fact that the procedure adopted by the Company Law Board is summary in nature, it has the power to decide the validity of a transaction in terms of Section 402. Once a Tribunal or a Quasi Judicial Body is conferred with the powers to determine whether a transaction is valid or not, it follows as a necessary corollary that such a Tribunal would also have the jurisdiction to adjudicate upon every defence raised in such proceedings, including the one that the transferee was a bona fide transferee for valuable consideration without notice. 29. It is to be noted that the Company Law Board is constituted in terms of Section 10-E of the Act, to exercise and discharge such powers and actions conferred upon the Central Government by or under the Act. Sub-section (4-C) of Section 10-E confers upon the Company Law Board, the same powers as are vested in a Court under the Code of Civil Procedure, while trying a suit, in respect of the following matters viz.,(i) discovery and inspection of documents or other material objects produceable as evidence; (ii) enforcing the attendance of witnesses and requiring the deposit of their expenses; (iii) compelling the production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion whether the transferee was a bona fide transferee for valuable consideration, without notice or not. 33. In so far as the first question is concerned, the main grievance of the appellant is that after having granted leave to respondents 1 to 4 to go to the Civil Court to agitate this issue, the Company Law Board ought not to have taken up the same for consideration. 34. But it appears that the Company Law Board granted leave to respondents 1 to 4 to go to the Civil Court, in the early stages of the hearing of the petition. But once it was found by the Company Law Board that the Board Resolution which authorised the sale of the property to respondents 11 and 12, was invalid, the Board could not have left the consequential issue alone to be decided by the Civil Court. The Resolution passed by the Board of Directors of the Company in question (R-5), was the cause and the transfer was its effect. Therefore, I cannot expect the Company Law Board to have decided the validity of the cause and to leave the question relating to the validity of its effect, to be decided in a civil suit. 35. To the above extent, the Company Law Board is right. But neither the fifth respondent nor re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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