TMI Blog2011 (3) TMI 1745X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals and two cross appeals were heard by me. They were against the order dated May 17, 2010 (Blancatex AG v. AI Champdany Industries Ltd. [2011] 164 Comp Cas 98) passed by the Company Law Board, Kolkata Bench. The order was passed in each of the two applications for disclosure of information and documents made by the applicants Aldgate International S.A. and Blancatex AG and others before the Board in aid of the proceedings filed by them under sections 397 and 398 of the Companies Act, 1956. In fact there was one main proceedings before the Company Law Board, filed by each of the above companies, being C.P. No. 1 (Kol) 2010 and C.P. No. 2 (Kol) 2010, respectively. Two appeals were filed by these applicants and two by the first respondent-company in these proceedings, AI Champdany Industries Ltd., which were heard together and are being disposed of by this judgment. At this stage I may note that this disclosure of documents was stated by the applicants to be necessary, inter alia, for filing their reply to the main company proceedings. 2. There is some contention between the parties regarding the order dated May 17, 2010. It appears that an order without reason and containing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. Original board minutes of every board meeting of respondent No. 1 wherein the board of directors of respondent No. 1 company discussed: i. Closure of operations at the Rampur Texpro Unit; ii. Reviving the operations of the Rampur Texpro Unit; iii. Closure of operations at the Shalimar Unit; iv. Reviving the operations of the Shalimar Unit; v. Respondent No. 1 diversifying into the construction and real estate business; vi. Respondent No. 1 company incorporate subsidiary companies for the purposes of diversifying into the construction and real estate business; vii. Expenditure and possible avenues of income that may be generated from the Shalimar and Rampur Texpro Units. c. The letters/correspondence as well as contemplated business plan that was addressed/sent to and exchanged with the bank's (who have mortgages over the properly) seeking their permission to transfer the Rampur Texpro Unit and the Shalimar Unit to respondents Nos. 5 and 4 respectively. d. Business transfer agreements dated March 31, 2009, entered into by respondent No. 1 company with respondent No. 5 for the transfer of the Rampur Texpro Unit. e. Any business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the said Rampur Texpro Unit into a commercial viable real estate project. l. Any further orders as this hon'ble Board may deem fit; 5. By the said order dated May 17, 2010, the Company Law Board directed Champdany to furnish copies of only the following documents and no others (page 106 of 164 Comp Cas): (a) Original file/register maintained by respondent No. 1 company in relation to the board minutes in respect of respondent No. 1 company incorporating subsidiary companies for the purpose of diversifying into the construction of real estate business and expenditure and income that may be generated from Rampur Texpro Unit and Shalimar Unit. (b) Business transfer agreement dated March 31, 2009, entered into by respondent No. 1 company with respondent No. 5 company for the transfer of Rampur Texpro Unit. (c) Business transfer agreement, if any, respondent No. 1 company entered into with respondent No. 4 company for the transfer of Shalimar Unit. 6. Both the parties preferred appeals before this court, as stated above. Champdany feels it is not obliged to offer any document for inspection. Aldgate and Blancatex want inspection of more documents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed property in Rampur Texpro Unit, in circumstances which are detrimental to the interest of Blancatex and Aldgate and also of the holding company AI Champdany Industries Ltd., and its 100 per cent. subsidiary, Champdany Construction Ltd. 12. A lease is sought to be granted, it is alleged, by respondent No. 5 in favour of Vinnik Associates, a concern belonging to one Nikhil Thaker. It is said that Nikhil Thaker is a close relative of the chairman of AI Champdany Industries Ltd. Furthermore, it is stated that Rampur Texpro Unit is closed since July 2003, according to some explanatory statements of the company. Hence, there is no urgency to let out this unit, at this point of time, it is submitted. 13. It is also said that respondent No. 3 in those proceedings, that is, Mr. Nirmal Pujara in collaboration with the other respondents is selling and exporting large amounts of the products of AI Champdany Industries Ltd., to one ALBICO (UK) Ltd. a British company. The third respondent's brother Mr. Jayanta Pujara, is a substantial shareholder in this United Kingdom company and also a director of Champdany Construction Ltd. These transactions are not done on equal terms or on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific powers of the Board, without in any way affecting the general powers given to it under sections 397 and 398, are enumerated in section 402 of the Companies Act, 1956. It is now an accepted legal position that the scope of this chapter is such that if an application is entertained by the Company Law Board, it may virtually become a proceeding in rem affecting the shareholders, board of directors, officers, creditors, contributories, the Government, the statutory authorities and so on, depending on the scope of the enquiry and the nature of the orders that are contemplated and passed by the Board. Now, such an application, under the Companies (Court) Rules, 1959, has to be heard on affidavits (see also regulations 11 to 23 of the Company Law Board Regulations, 1991) rule 6 of the said Rules specifically provides for application of the Code of Civil Procedure, 1908, when the provisions of the code are not inconsistent with the provisions of the rules. Supplemental to the above rules are the said Regulations of 1991. Regulation 24 of these regulations provide as follows: 24. Power of the Bench to call for further information/evidence.--The Bench may, before passing order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a detailed procedure for disclosure of documents. Each party has to disclose the documents he wishes to rely on. Each party is entitled to ask the other party to disclose all the documents in his possession or power (see Order 11, rules 12 to 21 of the Code of Civil Procedure, 1908). But our legal system is still adversarial. Each party is to adduce his evidence only and cannot compel the adversary to produce evidence to help the other party. 21. It is clearly stated in Order 11, rule 13 that in the affidavit of documents filed pursuant to an order for discovery under Order 11, rule 12 a party has the right to object to production of one or some documents. However, if a document has been referred to in the pleadings a party has to give inspection of such document (see Order 11, rule 15). 22. Here our Indian Evidence Act, 1872, gives a guidance. If a document in favour of one party is in the possession of the other party, he may give notice to him produce the document. If he produces, well and good. If he does not, he cannot be compelled. The party seeking reliance on the document may then proceed to give secondary evidence of the document (sections 65 and 66 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely:-- (i) the managing director, (ii) any other director,... (v) the manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in all the circumstances of the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the 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; (g) any other matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to adjudge whether a company can be compelled to disclose the documents asked for in this case. A case before the Division Bench of the Delhi High Court in Rajdhani Roller Flour Mills P. Ltd. v. Mangilal Bagri [1991] 70 Comp Cas 788, was cited by Mr. Sudipto Sarkar, the learned senior advocate. From the facts narrated in the decision, inspection of documents at the time of witness examination was in issue. In that context and rightly so the court said (page 790): The Calcutta case, in our opinion, would not apply in the given situation and we express our disagreement with the view that the right of inspection is limited to the board of directors under section 209(iv) and that right is not available to shareholders for inspection of the books of account of the company in the course of proceedings under sections 397 and 398 of the Act. 31. Rightly so, because when a sections 397 and 398 proceeding is admitted and heard by examination of witnesses, it becomes a proceeding in rem, as I have said before. Once the proceedings partake of that character, the court or the Company Law Board, after satisfying itself that there is a prima facie case can direct the company or persons in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the respondents, it cannot be decided at this juncture whether the dealing done is at arm's length distance or not unless and until the documents relevant to the dealings are looked into. Thereby the citations relied upon by the respondents are not applicable to the present case. As per section 300 of the Companies Act, if any director is directly or indirectly interested in the contract or arrangement or dealings of the company, his presence shall not be counted for the purpose of forming of quorum at the time of any such discussion, and if he does vote, his vote shall be void. Indeed the director who knowingly contravenes the provisions of this section shall be punishable as well, it being the position, respondent No. 3 having not disputed that he is not the brother of Jayanta Pujara who is one of the directors of respondent No. 5 company, for the time being, it cannot be assumed that the dealing with respondent No. 5 company is at arm's length distance. It is also requisite to see the documents concerned as to whether he participated in the resolution passed or contracts entered with respondent No. 5 company. Likewise, it being said that the brother of respo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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