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TMI Blog2013 (11) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... ond respondent is the only other Director in the Board. In other words, both the appellant and the second respondent hold 50% shares each and both of them are also the Directors. Therefore, after disputes started between the appellant and the second respondent, neither a meeting of the Board of Directors nor a meeting of the General Body could be held to transact any useful business, other than perhaps, to litigate. 4. The second respondent filed a civil suit in O.S.No.10 of 2005 on the file of the Principal District Court, Virudhunagar at Srivilliputhur against the appellant herein. The second respondent not only impleaded the appellant as a defendant in the suit, but he also impleaded his mother and 3 sisters as defendants 2 to 5. Two companies which were closely held by the father and the son, were also made the defendants 6 and 7 in the suit. The first respondent in this appeal was arrayed as the seventh defendant in that suit. 5. The claim of the second respondent herein in his civil suit O.S.No.10 of 2005 was that his grandfather (the appellant's father) executed a Will in respect of the joint family properties, bequeathing half share in favour of the second respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the reliefs sought by the second respondent before the Civil Court, are one and the same and that therefore, there is a likelihood of conflict of decisions if the Company Law Board proceeded further with the hearing of the main petition. It is against the said order that the appellant has come up with the above appeal, raising the following questions of law:- (i) Whether the provisions of Section 10 of the Code of Civil Procedure 1908 apply per se to proceedings before the Company Law Board? (ii) Whether Regulation 44 of the Company Law Board Regulations 1991, which merely confers inherent powers upon the Board, could be used to produce a result that could have been achieved only under Section 10 of the CPC, when no analogous provision is incorporated in the Regulations? and (iii) Whether in the facts and circumstances of the case, the invocation of any such power, even if available, is warranted? 9. Except (i) a few decisions of the Company Law Board itself, (ii) one decision of the Calcutta High court confirming a decision of the CLB and (iii) one decision of the Andhra Pradesh High court, there appears to be no authoritative pronouncement of any other court on the applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cases 184 (AP)}, by upholding one decision of the CLB refusing to stay its own proceedings under section 10 of the Code. This was on the ground that the proceeding before the Company Law Board cannot be treated as a suit and that the Board can by no stretch of imagination be regarded as a Court. Apart from holding so, the Andhra Pradesh High Court also pointed out that inasmuch as the power of the Company Law Board to deal with proceedings under Sections 397 and 398, is exclusive and special in nature, the matter in issue therein cannot be said to be directly and substantially in issue in a previously instituted suit before the Civil Court warranting a stay of the proceedings. To come to the said conclusion, the Andhra High Court relied upon the distinction between Courts and Tribunals brought out in the earliest and oft quoted decision in Shell Company of Australia vs. Federal Commissioner of Taxation {1931 AC 275}, which had earlier been followed by the Allahabad High court in Prakash Timber P.Ltd Vs. Smt.Sushma Shingla (AIR 1996 All. 262) to come to the conclusion that the CLB is only a Tribunal and not a court. 14. In view of the decision of the Andhra Pradesh High Court in R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BEFORE CLB CAN BE EQUATED TO SUIT 20. Though section 10 uses the expression "suit", the principle behind section 10 would be applicable even to "proceedings". This is in view of section 141 of the Code. Section 141 makes it clear that the procedure prescribed by the Code in regard to suits, shall be followed, so far as it can be made applicable, in all proceedings in any court of civil jurisdiction. The only exception to section 141 is a proceeding under Article 226 of the Constitution, in view of the Explanation to section 141. Therefore, merely because the proceeding before CLB is not a suit, it cannot be said that section 10 would not apply, provided CLB is found to be a "court of civil jurisdiction" and the matter in issue therein is found to be directly and substantially in issue in a previously instituted suit. 21. Therefore, I shall now take up for consideration, the next question whether CLB is a "court" within the meaning of section 10 of the Code or at least a "court having civil jurisdiction" within the meaning of section 141 of the Code. WHETHER CLB IS A COURT 22. Section 2(10-A) of the Companies Act, 1956 defines a Company Law Board to mean the Board of Company Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al justice and shall act in its discretion. (6) Subject to the foregoing provisions of this Section, the Company Law Board shall have power to regulate its own procedure." 25. Interestingly, the Companies (Second Amendment) Act, 2002, which is caught for the past nearly 11 years in the eye of a judicial storm and which sought to create a National Company Law Tribunal and an Appellate Tribunal, for replacing the Company Law Board (apart from other things), incorporated a very important provision in Section 10-FZA. It may be useful to refer to it, to see how the law makers had understood the jurisdiction of the Board that was to be replaced by the Tribunals. It reads as follows:- "10-FZA. Procedure and powers of Tribunal and Appellate Tribunal.--(1) The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. (2) The Tribunal and the Appellate Tribunal shall have, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the application of the provisions of the Code to the proceedings before the National Company Law Tribunal and the Appellate Tribunal are concerned. Therefore, if the National Company Law Tribunal and the Appellate Tribunal had come into existence, the first question that has arisen for consideration, would not have arisen at all. 27. Thus it is clear that after the Constitution of the National Company Law Tribunal and the Appellate Tribunal, the application of the provisions of the Civil Procedure Code was to be specifically excluded in their application to the procedure adopted by these Tribunals. But such an express exclusion was not found in Section 10-E (4-C) of the Act, in so far as the Company Law Board is concerned. 28. One more important provision to be noted is Section 634-A of the Act, which was inserted by Act 46 of 1977. By this provision, the orders of the Company Law Board were made enforceable in the same manner as if they were decrees passed by Civil Courts in suits. If the Company Law Board is itself a Court, there was no necessity for introducing a deeming fiction, to equate the orders of the Company Law Board to civil court decrees, for the purpose of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 398 is construed as a "class action" initiated on behalf of a group, which claims to be in the minority. 32. Regulation 43 confers power upon the Board to enlarge the time fixed for the performance of any Act or the filing of any document or representation. Regulation 45 empowers the Board to correct its orders either suo motu or on an application by any party, if there are clerical or arithmetical mistakes or any error arising from any accidental slip or omission. Regulation 46 contains a provision recognising the general power of the Company Law Board to amend any defect or error in any proceeding before it. As a matter of fact, Regulation 46 empowers the Board to make all necessary amendments for the purpose of determining the real question or issue raised by or depending on such proceeding. 33. Regulation 47 contains a deeming fiction that says that a Bench of the Company Law Board shall be deemed to be a Court or lawful authority for the purpose of prosecution or punishment of a person, who willfully disobeys any direction or order of such Bench. In other words, a power to punish a person for contempt is conferred upon the Board by Regulation 47. 34. Interestingly, Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited or otherwise affected by anything contained in the Code. In other words, while construing the powers available to a Quasi Judicial Forum, under a Special Enactment, one must always keep in mind that the boundaries prescribed by the Code of Civil Procedure within which the Civil Courts are obliged to function, would not apply to the Forum created by the Special Enactment. 39. Subject to what is saved by Section 4 of the Code, Section 141 of the Code stipulates that the procedure provided in the Code in regard to suits shall be followed as far as it can be made applicable, in all proceedings in any Court of Civil jurisdiction. The Explanation inserted under Section 141 makes it clear that the expression "proceedings" appearing in the body of Section 141 would include proceedings under Order IX, but not proceedings under Article 226. Therefore, it is clear that the procedure prescribed in the Code are not made applicable by Section 141 to proceedings under Article 226 of the Constitution. 40. Having thus seen the various provisions of the CPC, The Companies Act and the Regulations let us now see if the courts have considered the CLB to be a court or not. In Canara Bank vs. Nucl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since an order of the Company Law Board is liable to be enforced by virtue of Section 634-A of the Companies Act, 1956, in the same manner as if it is a decree passed by a Court in a suit, the powers of the Company Law Board are subject to all limitations to which a Court executing a decree is subject. Consequently, the Supreme Court held that in exercising powers under Section 634-A, the Board cannot go beyond the orders passed in the petitions under Sections 397/398, just as a Civil Court executing a decree cannot go beyond the decree. 42. Again in Kamal Kumar Dutta vs. Ruby General Hospital Limited {2006 (7) SCC 613}, a question arose as to whether an intra court appeal would lie under Clause 15 of the Letters Patent, against an order passed by the Company Judge on an appeal under Section 10-F of the Companies Act or not. While answering the question in the negative, the Supreme Court pointed out that prior to the amendment to the Companies Act, by Act 31 of 1988 and the Constitution of the Company Law Board, the power to adjudicate upon applications under Sections 397 and 398 vested with the Company Judge in the High Court. But after the amendment and the Constitution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made applicable to proceedings before the Company Court. Similarly, the ratio behind Manish Mohan Sharma, can also be easily appreciated from the fact that Section 634-A itself provides for the deeming fiction. But the application of the ratio laid down in Canara Bank, poses some difficulty in view of the fact that the Supreme Court did not say that for all practical purposes, the Company Law Board would be a Civil Court. The Supreme Court restricted such a construction only to certain contingencies by using the expression "given the context". Moreover, the construction was with reference to Section 9-A of the Special Courts Act. Therefore, I find it difficult to come to the conclusion, merely on the basis of the decision in Canara Bank, that the Company Law Board is a Court, either within the meaning of the Civil Procedure Code or within the meaning of the Companies Act. 46. But the question as to whether a Special Adjudicatory Body constituted by an enactment is a Court or not, has become a nagging and vexed question and the Courts have attempted to deal with the said question from time to time. Let us now take a look at how the Courts have addressed the said question in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81} and (iii) the observations of the Constitution Bench of the Supreme Court in Union of India vs. Madras Bar Association {2010 (11) SCC 1}. 49. The observations of the Constitution Bench of the Supreme Court in Union of India vs. Madras Bar Association, extracted by the Supreme Court in its decision in Trans Mediterranean Airways, may also be apt for our case and hence, they are reproduced as follows:- "38. The term 'Courts' refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the State for administration of justice, that is, for exercise of the judicial power of the State to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law. Courts refer to Civil Courts, Criminal Courts and the High Courts. Tribunals can be either Private Tribunals (Arbitral Tribunals), or Tribunals constituted under the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary procedure, their main function is still to decide disputes, which is the main function and purpose of a Court. 51. Thus, the question as to whether a Consumer Forum is a Court or not, took a detour from Laxmi Engineering Works to Vishwabharathi House Building Cooperative Society to Malay Kumar Ganguly before it landed finally, at least for the present, in Trans Mediterranean Airways. But a similar issue came up for consideration in relation to the Family Courts, in S.D.Joshi vs. High Court of Judicature at Bombay {AIR 2011 SC 848}. In the said case, a few persons who were appointed as Judges of the Family Courts in the State of Maharashtra, under the Family Courts Act, 1984 read with the statutory rules framed by the Government in consultation with the High Court of Bombay called the Maharashtra Family Courts (Recruitment and Service Conditions) Rules, 1990, filed a writ petition directly on the file of the Supreme Court of India under Article 32 claiming that they should also be considered for elevation to the high Court, on par with the District Judges. The Supreme Court formulated 3 questions for consideration, 2 of which are as follows:- (i) What is the scope of the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to adjudicate certain disputes carved out for adjudication under such special law itself; (ii) Whether it is to be manned exclusively by Judges or by other persons either individually or sitting along with a judicial member; (iii) Whether it is empowered to regulate its own procedure, including the power to apply some provisions of the Code of Civil Procedure, but without being restricted by the strict rules of the Evidence Act. 55. While applying the above tests, which we could call as positive tests, the Court is also obliged to apply the negative tests formulated by Sankey L.C., in Shell Co. of Australia. They are: that a Tribunal is not necessarily a Court in the strict sense (i) merely because it gives a final decision; (ii) or because it hears witnesses on oath; (iii) or because two or more contending parties appear before it between whom it has to decide; (iv) or because it gives decision which affects the rights of subjects; (v) or because there is an appeal to a Court. 56. If the aforementioned 3 positive tests and 5 negative tests are applied to the Company Law Board, it would be clear- (i) that it was created by a special law viz., the Companies Act, 1956 to adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is a conscious omission on the part of the Government, while framing the Regulations, to include a provision similar to Section 10 of the Code. Therefore, invoking of the inherent power under Regulation 44 to produce the same result that could be produced by invoking Section 10 of the Code, would, according to the learned Senior Counsel, go against the intent of the law makers. 61. In support of his contention that it is not permissible to invoke through Regulation 44, whatever was omitted from the Code, the learned Senior Counsel for the appellant relied upon the decision of the Andhra Pradesh High Court in B.Subba Reddy vs. S.S.Organics Ltd {2009 (151) Comp. Cases 190 (AP)}. It was held by a learned Judge of the Andhra Pradesh High Court in that case that it is not possible to import the provisions of Order XIV, Rule 2, CPC, by taking umbrage under Regulation 44, to empower the Company Law Board to decide preliminary issues and that the Board cannot exercise any power other than those conferred under Section 10-E(4C) of the Act. 62. But disagreeing with the view expressed by the Andhra Pradesh High Court in Subba Reddy vs. S.S. Organics, it was held by this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1961 SC 1457} to the various decisions such as those in Amalgamated Coalfields Limited vs. Janapada Sabha {AIR 1964 SC 1013}, Devilal Modi vs. Sales Tax Officer {AIR 1965 SC 1150}, Bombay Gas Co. Ltd vs. Jagannath Pandurang {1975 (4) SCC 690}, Lal Chand vs. Radha Krishan {AIR 1977 SC 789}, G.K.Dudani vs. S.D.Sharma {AIR 1986 SC 1455}, Forward Construction Co. vs. Prabhat Mandal {1986 (1) SCC 100}, V.Purushotham Rao vs. Union of India {2001 (10) SCC 305}, State of Karnataka vs. All India Manufacturers Organisation {2006 (4) SCC 683}, would show - (i) that Section 11 CPC is not the foundation of the principle of res judicata, but a statutory recognition of a principle of common law, founded on the one hand upon public policy to ensure finality to litigation and on the other hand, upon private interest to ensure that an individual is not vexed twice over the same cause; (ii) that consequently, Section 11 CPC is not exhaustive of the general principles of the law; (iii) that the principle is a recognition of the "cause of action estoppel" as well as "issue estoppel"; (iv) that since the principle of res judicata is not confined to the four corners of the Code of Civil Procedure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l decision in the previous suit would operate as res judicata in the subsequent suit. Therefore, if principles analogous to res judicata could be applied to proceedings to which CPC would not apply, then on the same analogy, the principles upon which the power under Section 10 of the Code is based, could also be invoked by the Tribunals, to which CPC would not apply. The absence in the Company Law Board Regulations 1991, of a provision similar to Section 10 of the Code, is not an indication of the restrictive nature of the inherent power under Regulation 44. The inherent power under Regulation 44 encompasses within itself, a power to do something, which finds an expression in specific terms in Section 10 of the Code. QUESTION No.3: 72. The third question of law arising for consideration is as to whether in the case on hand, the Company Law Board was justified in staying its own proceedings, on account of the pendency of the civil suit between the appellant and the second respondent. 73. To find an answer to this question, it is necessary to take note of (i) the parties before the Civil Court and the Company Law Board (ii) the issues directly and substantially arising for conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, Chennai-600 014, belonging to first respondent in favour of Shree Bhaarathi Cotton Mills Pvt. Ltd., who is the owner of the remaining 70% interest in the undivided share of the said Land and Flat, in consideration of a sum of Rs. 27,07,318/- owed by the first respondent company to the said Shree Bhaarathi Cotton Mills Pvt. Ltd. e) To declare the redemption of preference shares as invalid. f) Pass such further orders as this Hon'ble Board may deem fit and proper to grant relief from the acts complained of. Schedule 1. Schedule 'A' comprising of Houses, House Sites and Agricultural lands in Rajapalayam Town, North Venganallur Village, Sammanthapuram village, Melapattam Karisalkulam village and the movable and immovable properties and equity shares of Shree Jayabharathi Textile Pvt. Ltd., at Mudangiyaar Road, Rajapalayam.(1,25,000 shares out of 2,50,000 in the company having Registered Office at 133, T.P. Mills Road, Cotton Market, Rajapalayam). 2. Schedule 'B' comprising of lands, buildings, house sites etc., in Rajapalayam, North Venganallur, Sammanthapuram etc. 3. Schedule 'C' comprising of 2,84,000 shares that stands in the name of the second ..... X X X X Extracts X X X X X X X X Extracts X X X X
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