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TMI Blog2021 (12) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Board in respect of about 25 acres of land ( 17.15 acres + 7.80 acres ) held by Vasantha Mills Limited, one of the subsidiary company of Cheran Enterprises Private Limited. 3.Main parties to the litigation and their interest/claim: Cheran Enterprises Private Limited ( "CEPL" in short): This company was incorporated on 12/11/2003 with authorised capital of Rs. 10 crores. The authorised capital was increased to Rs. 28 crores after the share purchase agreement dated 13/01/2004, entered between C.G.Holdings and CEPL. 45% of the shares issued, subscribed and paid up capital of CEPL held by CG Holdings Pvt. Limited. 45% of the share issued, subscribed and paid up capital of CEPL held by ORE Holdings Limited. 10% of the share issued, subscribed and paid up capital of CEPL held by Athappan. In respect of this company, the exit scheme was ordered and executed by CLB. The order passed in the execution petitions is the subject matter of these appeals. C.G.Holdings Private Limited ('CG Holdings' in short): Incorporated on 09/01/2004. K.C.Palanisamy (in short "KCP") is the Director and Authorised Signatory of this company. It holds 45% paid up capital in CEPL. To frame an exit s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 2nd respondent ( ORE Holdings ) alleging oppression. The 3rd respondent in C.P.No.76/2005 filed by ORE Holdings for an order of investigative audit to determine the amount misappropriated, misapplied or diverted by C.G.Holdings and KCP alleging mismanagement and misappropriation. 4. Journey of the litigation: KCP, who took control of the sick company VML offering rehabilitation proposal to BIFR and the promoter of CPL was in need of fund to promote the lands held by VML and CPL. During the year 2003, ORE and N.Athappan got introduced to KCP and offered to arrange funds provided, KCP offers shares in VML, CPL and certain other companies controlled by KCP. After negotiation, a joint Venture Agreement was entered between the parties on 30/01/2004. Before that, CEPL was incorporated on 12/11/2003. Share purchase agreement was entered on 13/01/2004. Accordingly, CG Holdings sold its 80% share in CPL and 17.4% share in VML to CEPL. In consideration, 45% shares in CEPL was allotted to CG Holdings. Athappan, who infused Rs. 4 crores, sold his holdings in CPL and VML in exchange of 10% share in CEPL. ORE infused Rs. 75 crores and was allotted 45% of share in CEPL. Thus, in CEPL the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss occasioned to CEPL. 6.At the same time, ORE alleging that KCP by misrepresentation induced ORE to enter into Joint Venture Agreement and made ORE to invest Rs. 75 crores. Instead of investing the company (CEPL) fund for development of and sale of hotels and IT parks as agreed, divested the fund to discharge the liabilities of his subsidiary companies. Minutes of the Board meeting were fabricated by KCP to enable siphoning of CEPL fund. Listing out the diversion of fund, misapplication of company (CEPL) fund and material breach of Joint Venture Agreement C.P.No.76/2005 was filed by ORE Holding Company. 7.The relief sought in CP 76/2005 are:- (i) to remove KCP from the office of Director, Chief Executive Officer and Managing Director of CEPL; (ii) to restrain KCP and C.G. Holdings, and/or any nominees of CG Holdings from in any manner acting on behalf of CEPL; (iii) to constitute a Board of Management for CEPL, consisting of independent Directors and the nominee of ORE; (iv) to direct the CEPL to give effect to all resolutions passed by CEPL in its meeting held on 12.11.2005; (v) to set aside all contracts entered by or on behalf of the subsidiaries in violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG Holdings and KCP. CEPL is consequently authorized to reduce its share capital and in the meantime, operation of the impugned agreements is suspended, to expedite and ensure due completion of the modalities of exit by ORE and Athappan, thereby, bringing to an end the acts complained of in the present proceedings. CEPL shall ensure necessary statutory compliances till the whole process, in accordance with the aforesaid directions, is properly completed. The parties are at liberty to apply in the event of any difficulty in implementation of the smooth exist of ORE and Athappan from CEPL." 9.On considering the allegations and grievances made against each other, the CLB passed the above order framing a scheme for smooth exit and gaveliberty to the parties to approach CLB in case of any difficulty in implementing the order. 10.C.G.Holdings Pvt. Limited and K.C.Palanisamy, the petitioners in C.P.No.65/2005 filed C.A.No.154/2005 under Regulation 44 of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Further clarified that, in the event of remote need, the properties of Vasantha Mills Limited i.e. 17.5 acres are to be conveyed to ORE and 7.80 acres to Athappan. O.R.E being a non-resident Company, is not permitted to hold immovable properties in India, however, subject to approval/permission to be obtained by ORE from the competent authority such transfer to be made. 15.As a result, the Company Appeal Nos.21 and 29 of 2009 preferred by ORE and Company Appeal Nos.25 and 27/2009 preferred by N.Athappan and R.Athappan allowed. Company Appeal No.27/2009 disposed of modifying the order of the CLB, dated 03/08/2009 in C.A. No.155/2008 to the effect that the conveyance of immovable properties to nominee of O.R.E is subject to all applicable laws and regulations. 16.To enforce the order of the CLB as modified and clarified by the High Court, O.R.E. Holdings filed E.P.No.36/2011 and N.Athappan filed E.P.No.35/2011 before CLB. Contesting the execution petitions, C.G.Holdings and K.C.Palanisamy filed counter. After the matter was heard and reserved for orders, Vasantha Mills Limited (VML) filed applications in both the execution petitions to stay the execution proceedings till the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /o Ramasamy Athappan (NRI), a resident of Singapore. The execution petitions filed by them were allowed and the land of VML to an extent of 17.15 acres and 7.80 acres respectively vested on ORE and Athappan. Maintainability: 22.Before going into the merit of the appeals, a preliminary oral objection regarding maintainability of the company appeals before the High Court under Section 10 F of the Companies Act 1956, raised by the learned counsel appearing for Athappan the petitioner in E.P.No.35/2011 and one of the respondents in these appeals, in view of the notification of 'such date' for giving effect to Section 434 (1)(c) of the Companies Act, 2013. 23.According to Thiru.J.Sivanandaraj, the learned counsel for the respondent Athappan, Section 434(1)(c) of the Companies Act 2013 mandates all proceedings under the Companies Act 1956, pending before the District Court and High Court, are to be transferred to Tribunal on notification of the such date. This provision came into effect on 15/12/2016. Therefore, the appeals cannot be heard by High Court, but to be transferred to Tribunal. 24.Per contra, Thiru.V.Ramakrishnan, learned Senior Counsel appearing for the appellants in Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred under Section 419(1) of the Companies Act, 2013 the Central Government constituted NCLT and NCLAT on 01/06/2016. On the same day, notification issued for transfer of pending matters or proceedings or cases before Company Law Board to National Company Law Tribunal (NCLT). Section 434 (1) (a) and (b) came into effect from that day. As far as, the appeals against the order of CLB passed before the 01/06/2016, the governing provision is Section 434(1)(b) which reads as under:- "Section 434 (1) ( b): any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding filed within a further period sixty days; and not exceeding sixty days;" 28.Under the 1956 Act, after insertion of Section 10 E and constitution of Board of Company Law Administration, disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T and not for CLB. Therefore, legally and logically, the High Court alone be the appellate Court to decide these appeals. 30.The plea of the respondents Counsel that Section 434(1)(c) has to be applied and the appeals have to be transferred to Tribunal has no force. As submitted by the learned Senior Counsel for the appellants, the appropriate appellate forum against the decisions of the CLB prior to 01/06/2016 is the High Court under Section 434(1)(b). Hence, this Court holds that these appeals are maintainable. 31.Comp. Appeal Nos. 5 and 6 of 2016: These two appeals are against the order of the CLB dated 30/12/2015 passed in the applications filed by Vasantha Mills Limited (VML). Aggrieved by the dismissal of the Application No.2/2015 in E.P.No.35/ 2011 and Application No.2/2015 in E.P.No.36 of 2011, these two appeals are filed by VML raising the following questions of law:- "(i) Whether the Hon'ble Company Law Board, Chennai, was right in rejecting the appellant's plea of stay of proceedings under Section 22(1) of the SICA, 1985 on the ground that orders have been reserved in C.A.No.2 of 2015 in E.P.No.36 of 2011? (ii) Whether the provisions of Section 634A, 397, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he latches but the timing of filing, these applications also found to be ill-motivated. In the Execution petition, VML engaged counsel and filed counter. After arguments orders were reserved. Till then, neither in the company petitions No:65/2005 and 76/2005 nor in E.P.Nos.35 and 36/2011, VML never raised the plea of pendency of matter before BIFR or AAIFR. Just before delivery of the order, a plea unfound, raised in these applications for stay of the execution. 34.Further more, VML was declared a sick company as early as 1985. KCP got control of the assets and liability of VML in the year 1992. Much water had flowed since then, more particularly after 2003, when ORE and Athappan came forward to promote the land held by VML. The Joint Venture Agreement between KCP, ORE and Athappan and the incorporation of 'CEPL' had totally changed the legal and financial character of VML. It is clear as crystal that KCP, after more than a decade of litigation and his futile attempts through all means including criminal prosecutions, to frustrate the implementation of the exit scheme, in the name of VML, just before pronouncing order in the execution proceedings had filed the applications as if V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was subject to all applicable? (IV)Whether the CLB ought to have considered that the return of monies to N.Athappan was a consideration for buy-back of his shares and thus, the entire transaction was subject to all applicable laws? (V)Whether the impugned order permits execution of debt like features in an equity transaction, which has been specifically barred by the RBI vide its circular dated 09.01.2014? (VI)Should the wording of the Madras HC Order (05.08.2011) be given an interpretation which is in consonance with Statute and which prevents unjust enrichment of the decree holder? If so, does the interpretation provided by the Hon'ble CLB render the wording of the Madras High Court Order (5.8.2011) contrary to Order XXI, Rule 64 of the Code of Civil Procedure? (VII) Is an Order passed by a Court which is against Statute and which results in unjust enrichment one which the Court inherently lacks jurisdiction to pass? (VIII) Do Sections 397 - 402 of the Companies Act, 1956 provide the Hon'ble CLB with the power to pass an Order which would result in unjust enrichment of the decree holder and which would be contrary to Order XXI Rule 64 of the CPC? If not, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ML property is a right conferred to the investors namely ORE and Athappan in case of failure to pay back the invested money with interest within the period of 12 months. The claim of the appellants that, the return of monies invested by ORE and Athappan was for a consideration for buy-back of shares is false and mischievous. The order of the CLB is pursuant to the prayer sought by C.G.Holdings to frame a scheme of exit and passed in exercise of its power under Section 402 of the Companies Act, 1956 to bring an end to the joint venture agreement. iv) As per the High Court order dated 05/08/2011 in Company Appeal Nos.21 and 25 to 27/2009 and 29/2009, ORE has obtained permission of RBI and had nominated ORE Trust. The relevant documents were produced before CLB in the execution petition and the same has been duly considered by CLB and recorded the same in the order impugned in these appeals. As far as Athappan is concern, RBI vide its letter dated 04/04/2012 had clarified that no approval is required for acquiring land by Athappan. Therefore, the grounds of challenge are without any merits, baseless and frivolous. Contrary to Court records. 40.During the course of argument, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Per contra, the learned counsels appearing for the respondents contented that, the plea of "functus officio" is ill conceived. The order which was executed by the CLB in exercise of its power under Section 634 A of the Companies Act, is the order passed by the Division Bench of the High Court, which interfered the order modified by the CLB. The original order of the CLB dated 13/08/2008 was not challenged by anyone. The CLB order is of three parts:- First: CEPL shall return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively, together with simple interest at the rate of 8% per annum from the date of investment till the date of repayment within a period of 12 months, in one or more instalments, commencing from 01.11.2008. Second: In the event of any failure to make the repayment within the specified time, CEPL, CG Holdings, KCP and VML will duly convey the immovable properties of VML, namely, 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable laws. Third: The parties are at liberty to apply in the event of any difficu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also had an additional advantage of guidance by way of the judgments of the Division Bench of this Court passed in Company Appeals No. 21 and 25 to 27 and 29/2009 and the order of the Hon'ble Supreme Court in the collateral proceedings, which has dealt this case earlier and rendered a detailed judgment. 47.To buttress their arguments, the learned counsels relied upon the following judgments as binding precedent: (i)Dwarakadas -vs- State of Madhya Pradesh:- 1999(3) SCC 500; (ii)K.Rajamouli -vs- A.V.K.N.Swamy :- 2001(5) SCC 37; (iii)Rafique Bibi (Dead) by Lrs. -vs- Sayed Waliuddin (Dead) by Lrs. & Others:2004(1) SCC 287.; (iv)Balvant N.Vishwamitra & Ors -vs- Yadav Sadashiv Mule (dead) & Ors: AIR 2004 SC 4377; (v)Manish Mohan Sharma & Ors.-vs- Rambahadur Thakur Ltd & Ors: 2006(4) SCC 416; (vi)Narpat Singh -vs- Rajasthan Financial Corporation: - 2008 (1) CTC 73. (vii)Bholi -vs- Lachman Singh:CDJ 2008 775; (viii)V.S.Krishnan & Ors. -vs- M/s Westfort Hi-Tech Hospital Ltd & Ors:- 2008(3) SCC 363; (ix)M S.D.C.Radharaman-vs- M.S.D.Chandrasekara Raja & Ors:- 2008(6) SCC 750; and (x)Purnima Manathena & Ors. -vs- Renuka Datla & Ors:- 2016 (1) SCC 237 Functus Officio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Courts below have been liberally construing and applying the province of Sections 151 and 152 of the CPC even after passing off effective orders in the lis pending before them. No Court can under the cover of the aforesaid Sections modify, alter or add to the terms of its original judgment, decree or order. In the instant case, the trial Court specifically held the respondents-State liable to pay future interest only, despite the prayer of the appellant for grant of interest with effect from the date of alleged breach, which impliedly meant that the court had rejected the claim of the appellant in so far as pendente lite interest was concerned. The omission in not granting the pendente lite interest could not be held to be accidental omission or mistake." 49.Following the above dictum laid in Dwarakadas case, the Hon'ble Supreme Court in its subsequent judgment K. Rajamouli-vs-.V.K.N. Swamy cited supra, held, "In the present case, neither the arbitrators nor the trial Court awarded pendente lite interest to the decree holder. The executing Court also refused to grant pendente lite interest to the decree holder and the same was upheld by the High Court in the revision petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the decree or to modify the decree. Since the court, after passing the decrees became functus officio, it also had no power under Section 148 CPC to extend the time for depositing the money by modifying the terms of the decree which was passed on settlement between the parties. If the Court modifies the decree, it varies the terms of the settlement which is not permissible. In that view of the matter, the High Court fell in error in extending the time for depositing the second installment by the defendants. Consequently, the appeal deserves to be allowed." 52.Having suffered the above order in the civil appeal filed against the order of the High Court passed under its revisional jurisdiction under Section 115 of CPC, the Defendants filed second Appeal before the High Court after delay of 17 years and same was entertained by the High Court. That order when challenged before the Supreme Court, the Court extracting its earlier order dated 30/10/2002 held: "after the decision of this Court dated 30.10.2002 the controversy between the parties finally came to an end and it was not permissible for the High Court to entertain the second appeal thereafter In the aforesaid view, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. (c)The action is against probity and good conduct. (d)The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Section 397 and 398. (e)Once conduct is found tobe oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppressive is very wide. (f)As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact. 56.The discretionary power under Section 402 of the Companies Act are residuary in nature and in addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice and shall act in its discretion. 58.It is trite principle of law that the decree, which is the formal expression of the adjudication, should go in tune with the judgment/order. The final order in the instant adjudication is the order dated 05/08/2011 passed by the High Court in exercise of the appellate power. On comparing the High Court order with the operative portion of the CLB order passed in the execution petition, this Court find no deviation or modification which is beyond the order/decree. Declaring the title and vesting the possession is consequential to the main relief and nothing in deviation of the main relief. CLB has inherent power to give full and meaningful effect to its decision. 59.The difference between the CLB order dated 13/08/2008 passed in the company petitions and the impugned order dated 31/12/2015 passed in the execution petitions is the explicit permission to transfer of land to the nominee of the decree holders, after obtaining all the required approval from the competent authorities. This modification is an essential necessity for enforcing the order in letter and spirit. CLB has not done this modification on its own, but based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the decree. A decree passed by a Court of competent jurisdiction cannot be denuded of its efficacy by any collateral attack or in incidental proceedings." 64.In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman & others, reported in (1970) 1 SCC 670, it has been held:- "When the decree is made by a Court which has no inherent jurisidction to make it, objection as to its validity may be raised in an execution proceeding if the objection appears on the face of the record. But where the objection as to jurisdiction of the Court to pass the decree does not appear on the face of the record and requires examination of the questions raised and decided at the trial or which could have been but have not been raised, the executing Court will have no jurisdiction to entertain an objection as to the validity of the decree even on the ground of absence of jurisdiction." 65.In the light of the above observations by the Hon'ble Supreme Court, when the order executed by CLB is tested, the procedural infraction alleged is not a ground to call a decree nullity. It is not the case of the appellants that CLB lack jurisdiction to enforce its order. Their case is that, after modification by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be guided by principles of natural justice and shall act in its discretion. It also has power to regular its own procedure [See Section 10 E (5) and (6)]. The CLB while dealing applications filed under Section 634 A of the Act sit as executing Court. Section 634A empowers CLB to execute its own order. It enables CLB to send execution petition to a Court in case of its inability to execute such order. It is left to the discretion of CLB whether it has the ability to execute or not. So, application of CPC in general or order XXI of CPC in particular nowhere contemplated under Companies Act when CLB executes it order. The guiding principle to be followed is the principle of natural justice. The appellants case is not that CLB which executing the order has violated of principle of natural justice. Even if they want to say so, there is none. 69.On examining the Company Law Board Regulations 1991, we find under Regulation 44, the inherent power of the Bench is saved. This Regulation reads as follows: "Saving of inherent power of the Bench: "Nothing in these Rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties of VML are kept as security and only in the event of remote need, the properties of VML i.e 17.15 acres are to be conveyed to ORE and 7.80 acres to Athappan. ORE, being a non-resident Company, is not permitted to hold immvoable properties in India, however, subject to approval/permission to be obtained by ORE from the competent authority." 75.The directions in the order of CLB dated 13/08/2008, is divided into three limbs. The first limb which is referred above is the direction of CEPL to return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively, together with simple interest of 8% p.a from the date of investment till the day of repayment, within a period of 12 months in one or more installments, commencing from 01/11/2008. 76.Till the expiry of one year period granted to repay ORE and Athappan their money invested, the appellants representing CEPL never made any genuine attempts to pay. Even thereafter, never sought for extension of time or offered to repay the investment when the dispute between them was pending before High Court and the Supreme Court. At least before the CLB when the execution petitions were pending, they should have depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooth exit. Weighing the money invested in the year 2003-2004 at one hand and the present value of the property at another hand is not fair or equitable test for proportionality. The CLB order dated 13/08/2008 was accepted by the parties without demur, except the applications filed subsequently for effective implementation of the order. The 'remote need' to convey the property had arisen long ago and the appellants had at no point of time had shown sign of complying the first limb of the CLB order. In the given circumstances and facts, after several rounds litigation, the issue of proportionality raised in the execution proceedings is untenable. More particularly, when the proportion between the right of relinquishment viz a viz the extent of land was accepted by parties and never challenged before the appellate forum, this point had lost the character of a question of law for the High Court to entertain under Section 10F of the Companies Act at this stage. The Question of Law:- 80.To conclude, the scope of Section 10F of the Companies Act which give right to appeal against the decision/order of the Company Law Board before High Court is subject to existence of any questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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