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Union of India Versus M/s. Financial Technologies (India) Ltd. and Ors.

2016 (5) TMI 645 - COMPANY LAW BOARD NEW DELHI

Doctrine u/s 10 of CPC - request for stay of proceedings - allegations of violation of the principles of corporate governance which has led to payment crisis - Held that:- The remedy under section 388B, 397, 398 is altogether different from the remedy, the investors sought in Civil Cases. Moreover, Section 10 says that the parties must be the same in the prior suit and the matter in issue shall be directly and substantially in issue in a previously instituted suit between the parties. Though, th .....

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gnoring the fact when fraud is manifest actions are many to control the damage that has been caused to individuals and to the public as a whole. Here it is managerial personnel against whom an allegation of defrauding investors for an amount of ₹ 5600 crores is made; therefore, an enquiry has to be conducted as expeditiously as possible to decide whether their removal of directors is necessary or not. The doctrine u/s 10 of CPC is not applicable to the present case. - Application dismissed .....

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is CA under Regulation 44 of Company Law Board Regulations 1991 (which is analogous to section 151 of CPC) to stay or adjourn sine die, this CP 1/2015 till the hearing and final disposal of WP 2743/2014 and Suit No. 221/2014; Suit No. 991/2013; Suit No. 121/2014; Suit No. 173/2014 pending before the Honourable High Court of Bombay or in the alternative, to restrain Union of India (in short "UoI" - the petitioner) from proceeding with the CP in terms of prayer clauses 17.1(a), (d) and/o .....

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principles of corporate governance which has led to payment crisis of approx, ₹ 5,600 crores in NSEL. UoI says that R2 to R28 have deliberately and wilfully caused the said payment crisis due to defaults of the trading clients of NSEL affecting 13,000 investors of NSEL, 3. That the promoters of FTIL hold 45.63% of its shares, the main promoter shareholders are La-Fin Financial Services Pvt. Ltd. with 26.76%, Jignesh Shah (R2) with 18.08%, Devang Neralla (R3) with 0.13%. That FTIL has a st .....

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ry, NSEL in a manner prejudicial to the public interest and oppressive to its members creating payment crisis of ₹ 5,600crores due to gross mismanagement, non-compliance of Rules and Regulations, utter lack in transparency, integrity competence, compliance with law, negligence and misfeasance on the part of the promoters and the board of directors. The acts of these directors are lacking probity in dealing with the affairs of FTIL and NSEL. R2 was managing director and R3 and R4 were whole .....

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rejudicial to public interest, UoI has filed this CP under the sections as aforesaid. 6. The pleadings are complete in this matter; the matter was in fact posted for main hearing to 06.04.2016. In this case, the Honourable High Court of Madras passed orders to expedite hearing of main case. While this matter is ready for main hearing, FTIL filed this CA on 29.03.2016 for stay of final hearing or to adjourn this matter sine die until other matters are heard and disposed of. 7. On perusal of this .....

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he past, and since FTIL is of late permitted to say that this proceeding is hit by section 10 of CPC in an application for amendment of sur-rejoinder, this matter has to be adjourned sine die or staved until the aforesaid proceeding is heard and disposed of. 8. Basing on the above points as cause of action, the Respondents counsel has vehemently argued that UoI has specifically stated that this CP is actuated to frustrate the deliberate attempts of the parts of FTIL, its board and NSEL to take v .....

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its dealing with the same subject matter being prior in point of time to this proceeding, to avoid conflict of decision, it is imperative to stay this proceeding because this subject matter is sub-judice before Hon'ble High Court of Bombay in the proceedings above mentioned. 9. The counsel appearing on UoI behalf has refuted these allegations stating that this point was already decided by Honourable High Court of Bombay in Notice Motion No.147/2015 in WP 2743/2014 on 17.03.2015 as follows. 1 .....

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of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to the member or members. The provision for which an action is fought by the Union of India is also pertaining to removal of directors, on the basis of allegation that the directors are found to be involved in the mismanagement of the affairs of the company . 10. Therefore, the counsel for UoI submits that merely by UoI filing final order in the merger proceeding on 12.02.2016 will not cre .....

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nourable High Court of Bombay, for which, UoI has no objection, if this Bench passes orders subject to the outcome of the proceedings pending before Honourable High Court of Bombay. Moreover, that order was passed in an application for extension of time for hearing main CP. In that order, it was nowhere said that CLB proceedings shall be stayed. 12. The petitioner counsel further submits an amendment of sur-rejoinder depicting maintainability point will not invalidate the pleadings already filed .....

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personnel on the basis of CLB decision. It is a right conferred upon the state to monitor as to whether managerial personnel of a company have been discharging their fiduciary duties in managing the affairs of the company. If at all UoI notices circumstances suggesting that the persons concerned in the conduct and management of the affairs of a company indulged in fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or indulged in not .....

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, CLB holds an enquiry and pass orders stating as to whether such and such persons are not fit and proper person to hold the office of the director or not. If any finding has come out that those personnel are not fit to continue in the management, Central Government may remove those managerial personnel in pursuance of the order. 15. It is needless to say that Companies are regulated by the Companies Act, and this regulatory mechanism is regulated by Central Government in many ways, perhaps for .....

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erest, is conferred with powers to take action under various provisions of the Act. Section 388B is one such provision that empowers the Central Government to initiate action against the delinquent managerial personnel. In any proceeding, the only point to be seen is whether fair hearing is provided to the party before passing an order or not. The managerial personnel cannot say that such an action could not be taken by UoI when some other proceeding is pending. I must say that no provision of l .....

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ior proceedings, the issue in this CP cannot be decided separately since the subject mailer in both the proceedings are overlapping. 17. I must say that simply because public interest is common in both the applications, the proceedings pending before this Bench can't be stayed. The reason behind this conclusion is that the term public interest is a generic term. It is an inclusive definition. There will be several actions to protect public interest. There in merger proceedings, as stated by .....

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are meant for taking action against the Acts committed by the managerial personnel. The petitioner might have mentioned that Rl Company in concert with other respondents trying to frustrate the proceedings of merger, it is only one of the pleadings of CP. Simply because the petitioner mentioned this pleading along with other pleadings of the CP; other pleadings cannot be invalidated assuming that the proceedings in this CP are collateral in nature. Both are independent proceedings holding separ .....

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ts counsel raised another argument to say that the subject matter in the Civil Suits is same as the subject matter of these proceedings, For the Civil Suits being prior in point of time to this proceeding, the same having remained before fact finding Court, this being a summary jurisdiction, the counsel says, these proceedings are liable to be stayed as envisaged u/s 10 of CPC 20. I don't see any merit in the arguments above for more than one reason. The Civil Suits pending before High Court .....

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society or public. Sometimes individual rights will become public rights; it all depends on the situation. Sometimes an act may be harmful to the individual and the society as a whole, Though 'act' is one, the remedies to an individual will be different from the remedies available to the public, whose cause is generally taken up by the State, If any contractual promise is violated by another, as long as it is mere breach of promise, the cause of action may be limited to civil remedy, whe .....

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t. Here, removal of directors is not a criminal action, therefore, when court is in a position to ascertain preponderance of probabilities it is always free to decide the same. Whether evidence is to be let in or not, it is up to the court to decide when it comes for hearing, not now. Till date, that stage has not come to decide as to whether evidence is to be let in or not. Moreover, in corporate governance umpteen documents will come into existence from time to time, therefore, it can't be .....

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