P.L.G. Manu and Another vs Shashi Distilleries P. Ltd. and Others

D.V. Shylendra Kumar J.

This is an appeal u/s 10F of the Companies Act, 1956 (for short "the Act") directed against the order dated August 10, 2009--(since reported in (2010) 160 CompCas 236 passed in Company Petition No. 75 of 2006 before the Company Law Board, Additional Principal Bench at Chennai, in a petition that had been filed under sections 397 and 398 of the Act. The petitioners have presented the petition with the averments that both of them are the promoter shareholders of the first respondent-company, respondents Nos. 2 and 4, claiming to be persons who acquired their entire shareholding on April 5, 1999 and the shares being transferred by the petitioners to them have virtually hijacked the company and the petitioners were ousted and therefore, they were before the Company Law Board, seeking following reliefs (page 241 of 160 Comp Cas):

(a) For a declaration that the first and second petitioners are the only directors of the first respondent-company in terms of clause 14 of the articles of association;

(b) Set aside the alleged allotment of shares in favour of the second and third respondents and their associates, if any;

(c) For permanent injunction, restraining the second and third respondents from functioning as directors of the first respondent-company;

(d) For a declaration that the second and third respondents are neither shareholders nor directors of the first respondent-company;

(e) For a declaration that the second respondent is not a director of the first respondent-company; and

(f) For such or other orders as this hon''ble Bench may deem fit, just and proper in the circumstances of the case.

The company petition was opposed by respondents Nos. 2 and 3. It appears, respondent No. 2, claims to have transferred his shareholding to the third respondent, who is his brother.

It further transpires that the fourth respondent has also transferred his shareholdings to the second respondent, subsequent to the passing of the impugned order.

The Company Law Board, which examined the case of the petitioners and the respondents, having ascertained that the respondents have acquired the shares through genuine transaction and not in a fraudulent manner as alleged by the petitioners, while framed as many as six issues and ventured to record findings on all the issues, in terms of the impugned order, nevertheless concluded that it has no jurisdiction to pass orders on the company petition for the reason that questions of fraud, forgery and fabrication of documents alleged by the petitioners cannot be determined in a summary proceeding before the Company Law Board, dismissed the company petition.

It is in such circumstances, the present appeal.

Appearing for the appellants, Sri Udaya Holla, learned senior counsel would vehemently urge that the Company Law Board has clearly erred in thinking that it has no jurisdiction only because it cannot entertain a petition under sections 397 and 398 of the Act to go into the questions of forgery, fabrication or acts of fraud in exercise of jurisdiction under sections 397 and 398 of the Act and the matter to be taken before a civil court and dismissed the petition; that the Company Law Board committed an error in recording such a finding, in fact, it had entertained a petition for rectification of registers u/s 111 of the Act and the present petition is also akin to the said petition and it is not proper to dismiss the petition as one in which the Company Law Board cannot examine questions of fraud, forgery, etc., in a summary proceeding.

It is also alternatively submitted that the Company Law Board has committed another illegality in recording all findings against the appellants on several issues it had framed, even when it was dismissing the petition for want of jurisdiction, assuming that the appellants are going to approach a civil court, seeking appropriate relief; that the appellants apprehend such findings recorded by the Company Law Board in a matter, which had become concluded before'' the Company Law Board may be adverse to their interest before a civil court and therefore, the order passed by the company Law Board requires to be set right, corrected or modified to this extent.

The first respondent-company, the second respondent and third respondent, who entered caveat through their counsel Sri A. Murali, have also filed elaborate objections to the various applications filed in the present appeal.

Submission of Sri A. Murali, learned counsel appearing for respondents Nos. 1 to 3 is that while the Company Law Board is very correct in dismissing the petition as it cannot exercise the jurisdiction, for the reason that the allegations of fraud, forgery, fabrication of documents and misrepresentation cannot be gone into a petition presented under sections 397 and 398 of the Act and to this extent, the impugned order is correct; that the Company Law Board having indicated that it has no jurisdiction should not have recorded findings on several issues, however, such findings may not have much significance but nevertheless if the appellants are under the apprehension that the impugned order forecloses the appellants'' option before the civil court, learned counsel assures that the appellants can seek relief before the appropriate forum and to this extent, the contesting respondents have no objection.

We appreciate the fair submission made by Sri A. Murali, learned counsel appearing for respondents Nos. 1 to 3.

Whether one concedes or not ultimately an order is sustained only if it is a proper order in law and with jurisdiction and that is a matter which can be canvassed and pursued before any forum, particularly as to the legally binding nature of any order, if it is contended to be one without jurisdiction. Accordingly, the appeal is dismissed.