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2016 (8) TMI 826 - KARNATAKA HIGH COURT

2016 (8) TMI 826 - KARNATAKA HIGH COURT - TMI - Breach of principles of natural justice - non-observance of Principles of Natural Justice - whether CLB did not give any opportunity to make submissions to the appellant on the main company petition? - Held that:- Not only the contention raised by the learned counsel for the appellant is without there being any factual foundation but the same is not genuine because if the appellant consciously did not make any submission in the main company petitio .....

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hat considering the facts and circumstances, the exercise of the discretion by the CLB cannot be said to be unreasonable or perverse or by committing ex facie error on the face of the record, no useful purpose would be served in entertaining the complaint for breach of principles of natural justice though otherwise such a complaint is not genuine and not supported by any statement of fact in the memorandum of appeal nor any ground raised for such purpose save and except the oral submissions made .....

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e Chancellor but what has been directed was that, any hindrance or interference in the administration of the University should not be created. Therefore, lawful exercise of the power as per the University Act by the Chancellor was not prohibited but, any hindrance or interference in the administration of the University which otherwise not permissible in law was prohibited in order to see that the educational activity of the University may not suffer. - The question may remain as to whether C .....

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rder save and except on the point for which it has found that the appropriate adjudication should be made before Civil Court. As such, until the party approaches before the Civil Court, appropriate interim order could have been considered by CLB but, in our view, when no motion was made before CLB, all such aspects shall be a mere academic exercise but, suffice it to observe that as and when such contingency arises in law, the parties may move before CLB or may be before Civil Court as the case .....

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NAIK,ADVOCATE FOR R2; SRI.K.G.RAGHAVAN, SR.COUNSEL FOR SRI.NITYANAND.V.NAIK, ADVOCATE FOR R3; SRI.NAGENDRA NAIK.R, ADVOCATE FOR C/R1-R3) JUDGMENT JAYANT PATEL J., 1. The present appeal is directed against the order dated 13-01-2016 passed by the Company Law Board (herein after referred to as 'CLB' for short) whereby, CLB has observed that the petition is maintainable and thereafter has directed the petitioner to approach the competent Civil Court as regards the controversial issue, then .....

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and 3 for purchase of 2,25,000 shares, on 29-01-2015. As per the appellant, total consideration was ₹ 67,50,000/-, out of which ₹ 47,50,000/- was paid by cash and the balance of ₹ 20,00,000/- was to be paid through post dated cheques dated 25-03-2015, for which receipts are issued by respondents No. 2 and 3. As per the appellant, the application was made to the respondent No. 1 - Company for transfer of the aforesaid shares in favour of the appellant. 4. The Respondent-Company .....

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him inter alia from registering any shares in relation to the Company. As per the appellant since the shares were not transferred in favour of the appellant as per the agreement entered into by Respondent Nos. 2 and 3, the appellant approached the CLB by preferring Company Petition No. 3/2015 seeking direction to the Respondent Company to register the transfer of 2,25,000 shares in favour of the petitioner and also prayed to direct Respondent Nos. 2 and 3 to pay compensation of ₹ 10 Lakhs .....

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documents of the loan application, form, etc., containing signature and summons be also issued to direct Respondent Nos. 2 and 3 to produce the documents containing signatures and the various letters in the custody of Registrar of Companies who also be directed to produce concern letters signed by the third respondent and other documents. The second prayer was made in the said application to direct forensic examination of signatures of Respondent Nos. 2 and 3 in the original documents submitted .....

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ce and as per the report of the handwriting expert before the Police Authority, the signatures are found to be forged signatures and the documents are fabricated and the charge-sheet is filed, the CLB after finding that the Co.P. No. 10/2015 is maintainable, relegated the appellant to approach before the Civil Court for establishing the genuineness of the said documents and after the genuineness of such document is determined, the appellant may further approach this Court for pursuing the matter .....

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party-respondents by contending that they are the persons in whose favour, prior to the subject transfer, the shares were already transferred in their favour and they would be effected by any order passed, which may be passed in the present proceedings and it is contended that in any case they would be effected if any order is passed for transferring of shares or otherwise in favour of the appellant. 8. I.A. No. 3/2016 has also been filed by M/s. Alliance University for being impleaded as party .....

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sel for the appellant, Sri. Dhyan Chinnappa, learned Senior Counsel along with Sri. D.R. Ravi Shankar, learned Counsel for Sri. R. Nagendra Naik, learned Counsel for caveators/respondent Nos. 1, 2 and 3 and we have also heard Sri. D.N. Nanjunda Reddy, learned Senior Counsel for Sri. M.S. Shyamsundar, learned Counsel for impleading applicants in I.A. No. 2/2016 and Sri. Jayakumar S. Patil, learned Senior Counsel for Sri. S. Prasanna Kumar, learned Counsel for impleading applicants in I.A. No. 3/2 .....

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of ₹ 47,50,000/- has been paid which fact is disputed by respondent Nos. 2 and 3. Be that as it may, if the transfer of the share is not to be effected upon at this stage, the interim order should balance the rights on both sides. Under the circumstance, the amount of ₹ 47,50,000/- should be deposited by respondent Nos. 1 to 3. 4. The additional aspect in the present case is that, respondent No. 1 is the sponsoring body of the University namely Alliance University, which has been con .....

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e lowest level would not in any manner be adversely affected by the inter se dispute either between the appellant and respondent Nos. 2 and 3, and even if the dispute exists between respondent Nos. 2 and 3 and the applicant of I.A. No. 2/2016. It has been further stated that the inter se dispute between respondent Nos. 2 and 3 and applicant of I.A. No. 2/2016, civil suit being O.S. No. 2911/2016 has been filed in the Court of City Civil and Sessions Judge, Bengaluru, and the ad-interim injunctio .....

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d also be reserved to the parties in the civil suits in O.S. No. 2911/2016 and others to pursue their rights if any, in the said proceedings, as the limited grievance in the present proceeding is pertaining only to the transfer of the shares in favour of the appellant by respondent Nos. 2 and 3. 6. We would have considered the matter, further however, learned Counsel appearing for respondent No. 1/Company stated that Company is ready to deposit the amount of ₹ 47,50,000/- within time as ma .....

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ing interim order deserves to be made: By interim order, the operation and implementation of the order passed by the Company Law Board shall remain stayed. Further, the amount of ₹ 47,50,000/- is directed to be deposited with this Court by respondent Nos. 1, 2 and 3 jointly and severally within two weeks from today. The stay will however not remain in operation in case the appellant decides to approach the civil Court, without prejudice to the rights and contentions in the present appeal. .....

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dent Nos. 1 to 3 nor applicants in I.A. No. 2/2016 shall create any hindrance or interference in the administration of Alliance University and the regular affairs of the University on account of inter se dispute, save and except that the parties namely respondent Nos. 2 and 3 as well as applicants of I.A. No. 2/2016 shall be at the liberty to pursue their rights which may be available in law in the proceedings in O.S. No. 2911/2016 or any other civil suits. 11. It is made clear that in all afore .....

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ned order has abdicated from its duty in two fold manner; one is that when the petition was made before CLB under Section 58 read with Section 59 of the Companies Act, 2013 (hereinafter referred to as the Act of 2013), it has power to decide the principal question of transfer of the shares in their favour and while deciding the said question, all incidental aspects including as to whether the signatures are genuine or not or whether there was any valid transfer in favour of the appellant or not, .....

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pert for comparison of signature in the transfer document with the other documents as mentioned in the application, the CLB ought to have addressed itself only on the said aspects. But the CLB as having found that some police case is filed and in the same police case, the signatures are found as forged as per the investigation and the charge-sheet is filed, it has wrongly found that it will not be in a position to adjudicate certain aspects and therefore, the appellant has been relegated to appr .....

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h CLB to examine the title is done away or has ceased to exist. In his submission, the regulation provides for all powers in the interest of justice and such regulations are being framed by CLB itself for its procedure. When the principal power exists to direct the Company to transfer the shares, the power to examine all incidental questions would follow by necessary corollary. Hence, it cannot be said that the CLB has no power to decide the said disputes. The learned counsel submitted, under th .....

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er the Alliance University Act, 2010 (hereinafter referred to as the 'University Act') and further he is a lifetime Chancellor of the University. He submitted that taking into consideration the aforesaid statutory provision, giving express power as per Section 50(2) of the University Act to continue as Chairperson of the sponsoring body as the first Chancellor and further entitled to hold the office for life, no prohibitory order may be passed even if this Court is inclined to intervene .....

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xercised by CLB or not. In his submission, taking into consideration that a police complaint was filed and the investigation is made by the police and the charge-sheet is filed wherein it has come on record through the opinion of handwriting expert that the signatures were forged and the documents were fabricated, and under these circumstances, the CLB has found that it may not be possible to finally adjudicate on the aspects of the genuineness of the documents and therefore, when it has relegat .....

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appropriate that it leaves the party to approach before the Civil court for getting appropriate declaration or for getting the genuineness of the documents proved. In his submission, the interpretation made by the learned counsel for the appellant to the provisions of Sections 58 and 59 of the Act of 2013 is not correct. As per him, in the proceedings under Sections 58 and 59 of the Act, the CLB has no power to examine the title or the genuineness of the documents, more particularly, when a poli .....

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the only course available with the CLB is to refer the matter to the Civil Court or to relegate the party to approach before the Civil Court, which has been so done in the impugned order. As per the learned counsel, it cannot be said that the question of jurisdiction for examination of the title can be said as incidental power of the CLB at the time when a dispute was brought before it, more particularly, for transfer of shares by the Company on the basis of the agreement of sale of said shares .....

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ction 10F of the Act of 1956 is limited to substantial questions of law. After considering the facts and circumstances, the discretion has been exercised by the CLB, hence it cannot be said that any substantial question of law would arise for consideration, as be canvassed on behalf of the appellants. He therefore prayed that this Court may dismiss the appeal. 14. Learned counsel appearing for the applicants who are desirous to be impleaded as parties in the present appeal made two fold submissi .....

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r otherwise, which may adversely affect their rights, the present applications for impleading as party respondents has been filed. Learned counsel for the applicants submitted that if this Court is inclined to set aside the order of CLB and the matter is remanded to Civil Court for re-consideration or in alternative, the appeal is dismissed, the applicant-his clients would not be adversely affected in any manner unless and until, this Court passes the order for transfer of the shares, which as p .....

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refore, it was submitted that so long as any order does not affect the functioning of the University as per the statute, the applicant or his client may not be adversely affected. It was submitted that so far as the inter se dispute between the appellant and the respondents, the Court may decide as to whether the matter should be remanded to the CLB or the appeal should be dismissed. It is fairly submitted that the University did not move any application before the CLB to be impleaded as party b .....

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of the Act of 2013 reads as under: "58. Refusal of registration and appeal against refusal. (1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmissio .....

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ontract. (3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company. (4) If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the dat .....

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dismiss the appeal, or by order- (a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or (b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved. (6) If a person contravenes the order of the Tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than .....

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n having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register. (2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or dir .....

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less the voting rights have been suspended by an order of the Tribunal. (4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992(15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board .....

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than one lakh rupees but which may extend to three lakh rupees, or with both." 17. The aforesaid provisions of Section 58 of the Act show that if the Company refuses to register the transfer of any securities or interest of the member in a Company, it shall intimate the reasons to the transferee for such refusal. But as per the scheme of sub-section(1), the appropriate action is required on the part of the Company within thirty days from the date on which the instrument of transfer is deliv .....

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t the refusal by the Company. As we are concerned with private limited company, sub-section (4) may not be required to be examined in the present case. But as per sub-section (5), which is applicable to transfer of the securities in a public limited company or a private limited company, the procedure is that the Tribunal/CLB after hearing parties may either dismiss the appeal or may direct the transfer to be registered by the Company and the Company is bound to comply with such direction within .....

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18. In the present case, the matter was not pertaining to error in rectification or omission in the rectification. The discussion of Section 59 may not be required at this stage. Section 111 of the Act of 1956 reads as under: 111. POWER TO REFUSE REGISTRATION AND APPEAL AGAINST REFUSAL (1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or inte .....

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aw, as the case may be, may appeal to the 2[Tribunal] against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1), either to register the transfer or transmission or to send notice of its refusal to register the same. (3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or, where no notice has been sent by the company, within four months .....

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ember [including a refusal under sub-section (1)],the person aggrieved, or any member of the company, or the company, may apply to the [Tribunal] for rectification of the register. (5) The [Tribunal], while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order - (a) direct that the transfer or transmission shall be registered by the company and the compan .....

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nt of dividend or the allotment of bonus or rights shares. (7) On any application under this section, the [Tribunal] - (a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register; (b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification. (8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectific .....

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r application to the [Tribunal] under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed. (11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a Court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a p .....

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circumstances of the case. (12) If default is made in complying with any of the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [five hundred rupees] for every day during which the default continues. (13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the s .....

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. Sub-section (2) of Section 111 provides for appeal to the Tribunal/CLB against refusal of the Company to register the transfer or against failure on the part of the Company to take any action for registration within the period of two months. Sub-section (3) of Section 111 provides for filing of the appeal within a period of two months from the date of refusal or within period of four months from the date on which the instrument of transfer was delivered to the Company. Sub-section (4) of secti .....

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while acting under sub-section (5) may at its discretion pass such interim order as it deems fit or make such order as to costs as it thinks fit or may make incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares. Sub-section (7) of Section 111 provides that on any application under this Section, the Tribunal may decide any question relating to the title of any person who is a party to the application made by him for his name entered or omitted .....

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Section 111, which was earlier in the statute book by express provision for deciding the question relating to any person for title is not found on the statute book in Section 58 of the Act of 2013. Two views are possible, one, if considered on the basis of applying the principle of conscious omission on the part of the Parliament, one may say that the power to decide the question relating to the title is not provided or rather expressly omitted as were available to the Tribunal/CLB under the Ac .....

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absence of statute, the jurisdiction with the Forum for exercise of substantive power would be lacking and unavailable. 21. The learned counsel for the appellant did make an attempt to contend that it is not that every word of the statute or every provision is to be given a specific meaning and in his submission, sub-section (7) of Section 111 on the statute book may be interpreted as not altering the character of main power, if the Tribunal/CLB has to direct for transfer of shares. 22. In his .....

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footing and different consideration. When sub-section (7) expressly provided for such conferment of jurisdiction of the Tribunal/CLB to decide the question relating to title, it is not possible for us to read sub-section (7) and Section 111 as ineffective power. Even if we give liberal meaning that each word of the statute is not required in the interpretative process, then also, such liberty cannot be stretched to ignore or to nullify express substantive power so conferred by the statute, i.e. .....

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shows additional intention on the part of the Parliament though is relatable to a public Company. The proviso to Section 58(2) puts the condition that the securities are freely transferable but on the condition that the contract for transfer of the security is enforceable as the contract. To put in other words, such contract of security should be enforceable in law, then only, such securities are to be treated as freely transferable. Had the Parliament intended to leave the power upon the Tribu .....

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ention of the learned counsel for the appellant that sub-section (7) of Section 111 in the interpretative process should not be given any meaning or should not be given any weightage while addressing the jurisdiction or the scope of jurisdiction of the Tribunal/CLB. 25. In the decision of the Apex Court in the case of Tirupathi Balaji Developers (P.) Ltd. and others, v. State of Bihar and others reported at 2004 (5) SCC 1, the matter was pertaining to the appellate and ancillary power of the Con .....

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LB. As observed by us hereinabove, the examination of title of share or security of any person would not even fall in the arena of ancillary or incidental power to the principal power for direction to transfer the shares or the security. Hence, Regulation 44 would be of no help to the appellant for canvassing the contention that CLB has power for examination of the title. 27. In the decision of the Apex Court in case of Jai Mahal Hotels Private Limited v. Devraj Singh And Others reported at 2016 .....

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Supplies Corporation (P.) Ltd., v. Modern Plastic Containers Pvt Ltd. and Others, reported at 1998 (7) SCC 105 the matter was pertaining to the scope and ambit of the power under Section 155 of Companies Act, 1956 which is no more on the statute book after 31.l5.1991 whereas, in the present case it is a matter pertaining to scope and ambit of power under Section 58 of the Act of 2013, therefore, we do not find that the said decision can be applied to the facts of the present case. 29. In the dec .....

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rted at 1990 (4) SCC 453, the Apex Court held that the implied ground of impugned incidental and ancillary powers are very much by express grant and therefore, it can be said that such powers are incidental and ancillary to make the ground effective but as observed by us hereinabove, such incidental and ancillary powers cannot be stretched to confer the jurisdiction for examination of title it can be said as a substantive power required to be conferred by the express provision of the statute. 31 .....

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rselves on the said aspects, we may add that the principal power under Section 58 with the Tribunal/CLB is to direct transfer of shares by the Company in favour of the transferee in the event if the appeal is preferred before the Tribunal/CLB. The scope and ambit of the incidental power, if interpreted would mean that if the document of transfer is genuinely signed or is genuine but is lacking on other aspects like improper stamp duty, the signature at every page or minor discrepancy, etc., such .....

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above, since there is express omission of power with the CLB to examine the question of title, we find that under these circumstances, if the CLB has declined to examine the aspects of title, it cannot be said that there will be abdication of statutory duty on the part of CLB as sought to be canvassed on behalf of the learned counsel for the appellant. 34. We may record for titling any discretion as perversely exercised or there is unreasonableness in exercise of power, there are various case la .....

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one conclusion whereas the decision is otherwise. 35. If the facts of the present case are further examined, the CLB was confronted with the situation that as per the appellant, the documents for transfer of the shares were genuine and therefore the company ought to have transferred the shares of respondent nos. 2 and 3 in favour of the appellant. Whereas, as per the respondent nos. 2 and 3, documents were not genuine but, the forged. Had it been a case of mere averment and denial of fact betwee .....

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orged and charge sheet is filed, would stand on the peculiar facts and circumstances leading the CLB not to order directly transfer of the shares in favour of the appellant. 36. In our considered view, if in a criminal proceedings, the Police has investigated and charge sheet is filed on the premise that the documents were forged, then, the exercise of the discretion by the CLB for relegating the appellant to approach before the Civil Court for proving genuineness of the documents could not be s .....

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37. We may also record that, if it is a matter purely in the arena of exercise of discretion coupled with the aspects that the exercise of discretion cannot be said to be perverse or the exercise of discretion which cannot be said as shocking to the conscious of the Court or ex facie error in exercise of power, then, as such no substantial questions of law would arise for consideration. Under these circumstances, we find that the contention of the learned counsel for respondent nos. 2 and 3 tha .....

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en in the criminal case, the charge sheet is filed on the premise that the documents are not genuine and are forged documents it cannot be said that the jurisdiction of the Civil Court is barred since the Civil Court would possess the jurisdiction for deciding the inter se dispute between the parties unless the jurisdiction is impliedly or expressly barred by any statute. Further, it is only in the Civil Court proceedings there will be sufficient opportunity to the appellant to prove that the do .....

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n this regard irrespective of the investigation made by the Police or the Criminal case. After the genuineness of the document is so proved and the appropriate declaration is made by the Civil Court, unless otherwise prohibited by any competent forum known to law, CLB will have power to direct the Company to transfer the share in favour of the appellant but until such declaration is granted by the Civil Court, CLB may not be in a position to issue direction to the Company to transfer the share f .....

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In the decision of the Apex Court in case of CCI Chambers Cooperative House Society Ltd. v. Develpoment Credit Bank Ltd., reported at 2003 (7) SCC 233, it was observed that if the Consumer Commission after considering the pleadings of both the sides forms an opinion as to the nature and scope of enquiry that a detailed and complicated investigation into facts were incapable of being undertaken in summary and speedy manner then, the Commission could relegate the complainant to Civil Court. 40. Th .....

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he learned counsel for the appellant relied upon the observations made by CLB at para.11 of the order which records that reply in oral and written submission are made by the petitioner-appellant on CA only whereas advocate for respondent nos. 1 and 2 have made oral and written submissions on main Company Petition as well as on Company Application and therefore, it was submitted that the recital in the order is sufficient to conclude that there is non-observance of principles of natural justice o .....

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y surprise for the order passed in the main company petition. On the contrary, the statement made at para.22 in the memorandum of appeal reads as under: "The Company Law Board after remand hearing the arguments on both sides as per the direction of the Hon'ble Court passed the impugned order dated 09.03.2016 in CA 1/15 in CP 10/2015 passed by Company Law Board, Chennai as found at Annexure-A." 42. Further, no ground is brought to our notice on the basis of which it can be said that .....

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mil Nadu through superintending engineering water resources organization/public works department and another reported in 2015 (5) SCC 747, it was found that the recital in the Judgment cannot be a ground to challenge but as observed by us hereinabove, when not a single statement is made for deprivation of the opportunity to the appellant for hearing of main Company Petition by CLB, we do not find that the said decision would be of any help to the appellant. 44. Under these circumstances, we find .....

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ples of natural justice, it is by now well settled that unless the breach is satisfactorily demonstrated before the Court, the Court may decline to entertain such complaint. As per the observations made by us hereinabove, when we have found that considering the facts and circumstances, the exercise of the discretion by the CLB cannot be said to be unreasonable or perverse or by committing ex facie error on the face of the record, no useful purpose would be served in entertaining the complaint fo .....

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appellant that respondent no. 2 by virtue of Section 15(2) of the University Act, is entitled to the office as Chancellor for his lifetime but, even by interim order dated 26.4.2016, this Court has not prohibited him from functioning as the Chancellor but what has been directed was that, any hindrance or interference in the administration of the University should not be created. Therefore, lawful exercise of the power as per the University Act by the Chancellor was not prohibited but, any hindr .....

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