Asoka Betelnut Company Pvt. Ltd. vs M.C. Sathyavathy and Others

B. Akbar Basra Khadiri, J.—Both the C. M. As. have arisen in this way :

The matter relates to Asoka Betelnut Company Pvt. Ltd. The betelnut business was initially started by one Krishna Chetty, who had three sons by

name Kuppuraj, Chandrakanth and Ananthakumar. The family members were the three sons and therefore the family members were the directors.

Disputes arose between the parties and Chandrakanth filed a petition in C. P. No. 65 of 1987 under Sections 397 and 398 of the Companies Act,

1956, before a single judge of this court alleging that money is mishandled and the affairs of the company are mismanaged by the other directors,

and for winding up of the company. In that petition, a direction was given to the appellant herein. As against that direction, O. S. A. No. 221 of

1996 was preferred before a Division Bench of this court and the Division Bench reversed the orders passed by the learned single judge and

dismissed the company petition.

Now, the wife and son of Chandrakanth and certain other directors have come forward with a petition under Sections 397 and 398 of the

Companies Act, 1956. In view of the amendment made in the Companies Act, the main petition has been preferred before the Company Law

Board, Principal Bench, at New Delhi. Subsequently, the main petition was dismissed for non-prosecution and therefore the first respondent herein

and others filed a petition in C. A. No. 179 of 1998 in C. P. No. 77 of 1997 for restoration of the main petition. The Principal Bench of the

Company Law Board allowed the application for restoration and restored the main petition, as against which order, the respondent therein has

come forward with C. M. A. No. 1508 of 1998.

The appellant herein instituted Company Application No. 77 of 1998 in C. P. No. 76 of 1997 to have the sitting of the Bench at Madras on the

ground that the registered office of the company is situate at Coimbatore and the majority of the directors are living at Coimbatore and therefore

the Principal Bench of the Company Law Board may hold the sittings at Madras. The Principal Bench of the Company Law Board disposed of

that application, as against which, the applicant therein has come forward with C. M. A. No. 1507 of 1998.

Heard both the sides. According to learned counsel for the appellant, the applicants in C. P. No. 77 of 1998 the respondents in the main

petition are all permanent residents of Coimbatore, and that the company has its registered office at Coimbatore. It is also pointed out by learned

counsel for the appellant that petitioners Nos. 1 and 2 in the main petition are residents of Madras, the third petitioner is residing in Japan and the

fourth petitioner is reading at Tirunelveli. According to learned counsel for the appellant, not only the respondents in the main petition, but also the

majority of the petitioners are also residing within the jurisdiction of the Southern Region Bench of the Company Law Board and therefore, the

Principal Bench of the Company Law Board may hold sittings at the Southern Region Headquarters, i.e., at Madras, which would avoid

inconvenience to all the parties by incurring expenditure to go to New Delhi. In short, to avoid travel and unnecessary expenditure to all the parties

concerned and that it would be expedient that the sittings should be held at Madras.

Mr. Vedantham Srinivasan, learned counsel for respondents Nos. 1, 2 and 4 drew my attention to regulation 4 of the Company Law Board

Regulations 1991, which recites as under :

Power of the Chairman to specify matters which may be dealt with by a Bench.--(1) It shall be lawful for the Chairman to provide that matters

falling under Sections 235, 237, 247, 248, 250, 388B, 408 and 409 and matters falling under Chapter VI of Part VI of the Act and u/s 2A of the

Monopolies Act shall be dealt with by a Bench consisting of not less than two members including the Chairman or the Vice-Chairman (which shall

be known as the Principal Bench).

(2) The Principal Bench shall be at New Delhi but the Principal Bench may sit at such places in India and at such time as may be most convenient

in exercise of its powers and functions in India.

(3) It shall be lawful for the Chairman to provide for matters falling under Sections 111, 111A and 269 of the Act and u/s 22A of the Securities

Act shall be dealt with by a Bench consisting of not less than two members.

(4) All other matters including interlocutory and miscellaneous applications connected with the matters falling under Sub-regulations (1) and (3) of

this Regulation may be heard and decided by a Bench consisting of a single member :

Provided that notwithstanding anything contained in regulation 7, it shall be lawful for the Chairman to transfer any matters pending before any

Regional Bench to the Principal Bench, for reasons to be recorded in writing."" Part VI of the Companies Act deals with Management and

Administration and Chapter VI of Part VI deals with oppression and mismanagement regarding which reliefs are provided under Sections 397 and

398 of the Companies Act. Mr. Vedantham Srinivasan, learned counsel for the respondent submits that by virtue of regulation 4 of the Company

Law Board Regulations, such applications are to be instituted only before the Principal Bench of the Company Law Board and the matter has to

be dealt with only by the Principal Bench. Therefore, the appellant herein, the respondent in the main company petition cannot seek to have the

sittings to suit his convenience. Learned counsel also referred to regulation 4(2) of the Company Law Board Regulations, which would recite as

under :

(2) The Principal Bench shall be at New Delhi but the Principal Bench may sit at such places in India and at such time as may be most convenient

in exercise of its powers and functions in India."" (cited supra)

The discretion therefore rests with the Bench to decide as to the place and time of the sittings.

According to learned counsel for the appellant, his grievance is not about fixation of place of sitting, but the manner in which the application has

been dealt with. The Principal Bench of the Company Law Board has passed a short order in this regard which recites as under :

Since we are convinced that the non-appearance of counsel for the petitioners on June 15, 1998, is on account of his having noted the date of

hearing as June 16, 1998, which is established by contemporaneous records, i.e., letter dated June 8, 1998, of counsel to counsel for the

respondents. In view of this, we restore the petition.

The petition will be finally heard on January 5, 1999, at 2.30 p.m. Since counsel for the petitioners objects to the petition of the respondents for

hearing the matter at Chennai, the application 77 of 98 is disposed of without any order.

According to learned counsel, the petition has been disposed of without allowing or dismissing the same and such order cannot be allowed to

stand. Learned counsel for the appellant drew my attention to the decision in Satish Chandra and Another Vs. Registrar of Cooperative Societies,

Delhi and Others, . That was a case relating to a petition under Article 32 of the Constitution, challenging the provisions of the Companies

(Amendment) Act, constituting the Company Law Board. It was argued before their Lordships of the apex court that the provisions of the

Companies (Amendment) Act, 1988, do not protect the interest of the minority shareholders, who would normally like to invoke the power u/s

397 of the Companies Act inasmuch as these minority shareholders would be required to approach the Benches of the Board, which do not

function in all the States as do the High Court, because the minority shareholders would not be able to obtain relief against the oppression by the

majority. It should be pointed out that in pursuance of the Company Law Board Regulations, apart from the Principal Bench, four Regional

Benches were constituted, but they were quite fewer when compared to the number of High Courts. Therefore, much difficulty will be expressed

by the minority shareholders to approach the concerned Regional Benches than approaching the respective High Court. Their Lordships of the

Supreme Court have pointed out that the Company Law Board Regulations show that the Benches of the Board are ordinarily required to have

sittings at places mentioned in Sub-regulation (2) of regulation 7, these being the Northern, Southern, Eastern and Western Regions. Sub-

regulation (1) of regulation 7 has further stated that the proceedings other than those required to be before the Principal Bench under regulation 4

shall be instituted before the Bench within whose jurisdiction the registered office of the company is situated. Their Lordships have also referred to

the proviso to regulation 7, which states that the Bench may, at its discretion hold its sittings in any other city or town falling within the region. It has

been observed by their Lordships that this type of litigation is therefore to be well taken care of by providing sitting of the Benches in four

metropolitan cities of the country, in which, much percentage of import companies have their registered offices and therefore, the minorities need

not be neglected to speak of being stifled or suppressed.

By virtue of regulation 4(2) of the Company Law Board Regulations, 1991, which recites that the Principal Bench shall be at New Delhi, but the

Principal Bench may sit at any such place and that such time as may be most convenient in exercise of its powers and function in India. Therefore,

when a discretion vests with the Board, the Board may decide as to where to hold the sittings. C. P. No. 77 of 1997 has been disposed of. The

Bench has not expressed any view regarding the relief prayed for by the appellant herein. That by itself would not provide a handle to the appellant

to show that the Board has failed to consider the matter and give its opinion. Probably, the Bench thought it fit not to express any opinion for the

present and left the point open to decide the place of sittings and time of sittings according to the exigency that arises. Because the petition has

been disposed of, it cannot be said that the discretion has been exercised wrongly or perversely. I do not find any merits in C. M. A. No. 1507 of

1998.

So far as C. M. A. No. 1508 of 1998 is concerned, learned counsel for the appellant drew my attention to regulation 26 of the Company Law

Board Regulations, which recites as under :

Procedure to be followed where any party does not appear.--(1) Where, on the date fixed for hearing of the petition or any application or on

any other date to which such hearing may be adjourned, the petitioner or the applicant as the case may be, does not appear when the petition or

the application is called for hearing, the Bench may, in its discretion, either dismiss the petition or the application for default or hear and decide the

same ex parte.

(2) Where a petition or application has been dismissed for default and the petitioner or the applicant files an application within thirty days from the

date of dismissal and satisfies the Bench that there was sufficient cause for his non-appearance when the petition or the application was called for

hearing, the Bench may pass an order setting aside the order dismissing the petition or the application and restore the same :

Provided, however, where the case was disposed of on merit, the decision shall not be recalled.

(3) Where, on the date fixed for hearing or any other date to which such hearing may be adjourned, the petitioner appears but the respondent does

not appear when the petition is called for hearing, the Bench, may, in its discretion, adjourn the hearing or hear and decide the petition ex parte.

(4) Where the petition has been heard ex parte against the respondent or respondents, such respondent or respondents may apply to the Bench

within thirty days for an order to set aside and if the respondent or respondents satisfy the Bench that the notice was not duly served on him or

them or that he or they were prevented by any sufficient cause from appearing when the petition was called for hearing, the Bench may make an

order setting aside the ex parte order against him or them on such terms as it thinks fit and shall appoint a date for proceeding with the petition :

Provided that where the ex parte order is of such nature that it cannot be set aside as against one respondent only, it may be set aside as against all

or any of the other respondents also :

Provided further that in cases covered by Sub-regulation (7) of regulation 21, the Bench shall not set aside the ex parte order merely on the ground

that a shareholder or a creditor did not have the notice of the petition.

The Bench has passed the following order on June 15, 1998.

None present on behalf of both the parties today despite the date having been noted by both counsel. It is found that similar petition was filed with

regard to the same company before the Madras High Court which has already been disposed of. This has been elaborately dealt herein in the

reply. It appears that the petitioners are not pursuing the petition in view of the questions raised by the respondent. Hence we dismiss the petition

for non-prosecution by the petitioner.

On August 19, 1998, the Bench passed the following order :

Since we are convinced that the non-appearance of counsel for the petitioners on June 15, 1998, is on account of his having noted the date of

hearing as June 16, 1998, which is established by contemporaneous records, i.e., letter dated June 8, 1998, of counsel to counsel for the

respondents. In view of this we restore the petition.

According to learned counsel for the appellant, once the case was disposed of on the merits, the decision shall not be recalled as per the

proviso, whereas the Company Law Board Bench has recalled the decision contrary to the proviso. Learned counsel drew my attention to the

earlier proceedings and the decision reported in Asoka Eetelnut Co, Pvt. Ltd. v. M. K. Chandrakanth [1997] 88 Comp Cas 274, wherein C. P.

No. 65 of 1997 instituted by Chandrakanth, the husband of the first petitioner in the main petition and the father of the second petitioner. A

Division Bench of this court has passed a considered judgment which was referred to by the Principal Bench of the Company Law Board while

disposing of C. P. No. 77 of 1988. While passing orders in C. P. No. 77 of 1998, the Principal Bench has applied its mind to the earlier orders

passed by the High Court and found that there is no merit in the instant main petition instituted by the appellant herein-respondent in the main

petition, and therefore dismissed the same. Counsel further submits that having done so, by virtue of the proviso the Bench ought not to have

recalled the earlier order dated June 15, 1998.

On the other hand, learned counsel for the respondents, Mr. Vedantham Srinivasan, submits that the very beginning of the order indicates that

neither of the parties appeared before the Bench and therefore, the order passed by the Bench was only an ex parte order. Inherent power is given

to the Company Law Board under regulation 44 to pass any order in the interest of justice. Regulation 44 of the Company Law Board Regulations

recites as under :

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 for the ends of justice or to prevent abuse of the process of the Bench.

According to learned counsel for the respondents, regulation 44 of the Company Law Board Regulations overrides regulation 26. The non

obstante clause used in regulation 44 preserves the inherent right of the Company Law Board to set aside its own order in the interest of justice.

Learned counsel for the respondents, Mr. Vedantham Srinvasan, cited the following authorities to stress his point: (i) Smt. Lachi Tewari and

Others Vs. Director of Land Records and Others, , in which their Lordships of the Supreme Court reversed the Gauhati High Court order holding

that rule should be restored as nothing more could be expected of the petitioner who had engaged three lawyers; (ii) Goswami Krishna Murarilal

Sharma v. Dhan Prakash, (1981) 4 SCC 574 , wherein their Lordships of the Supreme Court held that dismissal of the appeal and the dismissal of

restoration application by the High Court are not justified ; and (iii) Rafiq and Another Vs. Munshilal and Another, , wherein their Lordships of the

Supreme Court held that rejection of the application for recalling the order of dismissal for non-appearance by the High Court and for permission

to participate in the hearing of the appeal is not justified as the party should not suffer for the inaction, deliberate omission, or misdemeanour of his

agent, the lawyer. But, learned counsel for the respondents submitted that these decisions have no bearing to the instant case. According to learned

counsel, all the decisions were rendered in cases to which the CPC applies and the application had to be considered u/s 151 of the Civil

Procedure Code, 1908, or Order 9, Rule 9 of the Civil Procedure Code. Learned counsel submits that though regulation 44 is analogous to

Section 151 of the Civil Procedure Code, according to learned counsel, when there is specific provision as to how the court should exercise its

powers, resort should not be made to the inherent powers. According to learned counsel, when there is specific provision under regulation 26 of

the Company Law Board Regulations as to how the power should be exercised, the omnibus clause of regulation 44 has to be excluded, I agree

with learned counsel that inherent power would be excluded when there is specific provision. Again, the point looms large whether or not the order

passed in C. A. No. 179 of 1988 in C P. No. 76 of 1998 is an order on the merits or an ex parte order. It should be pointed out that the order

was not passed after hearing of both the parties or in the presence of both the parties. Such order though may have a bearing regarding the facts

and merits of the case, yet it has to be construed only as an ex parte order and therefore, provision of regulation 26 would not apply to the facts of

the case.

Lastly, learned counsel for the respondents submitted that as per the provisions of regulation 44 of the Company Law Board Regulations, an

appeal would lie only if a question of law arises, but in the instant case, no question of law has arisen. The question of law is whether the Company

Law Board has passed an ex parte order or a speaking order and also whether the provision of regulation 26 would apply to the facts of the

instant case. I am satisfied that there is a question of law to be decided in the matter.

In the result, both the C. M. As. are dismissed. No costs.