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2015 DIGILAW 23 (GAU)

Sharmila Shetty v. B & A Ltd.

2015-01-08

UJJAL BHUYAN

body2015
JUDGMENT Ujjal Bhuyan, J. 1. This is an appeal under Section 10F of the Companies Act, 1956 against the order dated 26.09.2014 passed by the Company Law Board, Kolkata Bench, Kolkata in C A No. 783/2014 arising out of CP No. 186/2013. A short recital of the facts is considered necessary. 2. Appellant had filed Company Petition No. 186/2013 before the Company Law Board, Kolkata Bench, Kolkata (Board) complaining of mismanagement and oppression by the Board of Directors of B & A Limited, a public limited company (company hereafter). Appellant also prayed for some interim relief. According to the appellant, she holds 38% shares of the company and is the single largest shareholder in the company at present 3. On 24.01.2014, the Board passed interim order directing that status quo with regard to the existing paid up share capital of the company should be maintained without any prejudice to the outcome of the two pending civil suits, Title Suit No. 41/2012 and Title Suit No. 47/2012, both pending in the Court of learned Civil Judge, Jorhat. Further interim order was passed to the effect that dividends pertaining to the disputed shareholdings claimed to be belonging to the appellant should be kept in a separate interest bearing account by the company which should be ultimately disbursed to the owner of such shares as may be decided by the Civil Court. 4. Thereafter, appellant again filed another application before the Board in the pending company petition which was registered and numbered as CA No. 783/2014. The following interim reliefs were claimed by the appellant in the said application:-- "(a) The company and the respondents be restrained by an order of injunction from appointing or inducting Sri Basant Kumar Goswami and Sri Latifur Rahman as Directors of the company. (b) The company and the respondents be restrained by an order of injunction from passing any resolution as indicated in paragraphs 5 to 9 of the agenda. (c) The company and the respondents be restrained by an order of injunction from proposing or adopting any resolution from increasing borrowing limits beyond the limit that stood at the time of filing of the company petition. (d) The company and the respondents be restrained by an order of injunction from proposing or adopting any resolution seeking to entitle the company or its Board of Directors to create mortgage of the company's assets in favour of lenders. (d) The company and the respondents be restrained by an order of injunction from proposing or adopting any resolution seeking to entitle the company or its Board of Directors to create mortgage of the company's assets in favour of lenders. (e) A fit, proper and independent person be appointed as Special Officer over and in respect of the affairs and management of the company and to take control over its books of accounts and to periodically report to this Hon'ble Board as to the matters of internal management and accounting transactions of the company. (f) An order of injunction be passed restraining the respondent No. 2 from exercising any voting right in respect of 861918 shares which have been lying in the DEMAT account of the petitioner; (g) Ad-interim orders in terms of prayers above; (h) Costs of this application be paid by the respondents. (i) Such further or other order or orders be passed and/or direction or directions be given as to this Hon'ble Board may deem fit and proper." 5. On behalf of the company, objection was filed to the said prayer. Ultimately, C A No. 783/2014 was heard and the Board passed the impugned order dated 26.09.2014 dismissing the application. 6. Aggrieved, the present appeal has been filed. 7. Learned counsel for the appellant submits that when the original company petition is pending adjudication before the Board, the Board of Directors are taking various policy decisions which may adversely affect both long term and short term interests of the company. Without any commercial requirement or business justification, loans to the extent of Rs. 100,00,00,000 i.e. Rs. 100 crores are sought to be taken by mortgaging the valuable assets of the company. The Board of Directors are trying to alienate the assets and properties of the company to the detriment of the company and which may also have the effect of rendering the company petition infructuous. Appellant, therefore, sought for an injunction against such prejudicial action of the Board of Directors. The Board not only failed to appreciate the grievance of the appellant in the proper perspective but also recorded several findings of conclusive nature which may have an adverse bearing on the outcome of the company petition itself. Mr. Jishnu Sana, learned Sr. Appellant, therefore, sought for an injunction against such prejudicial action of the Board of Directors. The Board not only failed to appreciate the grievance of the appellant in the proper perspective but also recorded several findings of conclusive nature which may have an adverse bearing on the outcome of the company petition itself. Mr. Jishnu Sana, learned Sr. Counsel has particularly assailed the finding of the Board as regards voting rights exercised by respondent No. 2 over the 8,61,918 shares which were jointly held by the appellant and her late father Hemendra Prasad Barooah, the promoter of the company. According to him, there is a status quo order passed by the Civil Court in respect of the said shares and taking note of the said order, the Board in its previous order dated 24.01.2014 had passed an interim order directing that the dividends pertaining to the said shares should be kept in a separate interest bearing account by the company. If the appellant is not allowed to vote on the strength of the above shares in view of the status quo order, no other person including the respondent No. 2 should be allowed to vote in respect of the said shares, he submits. 8. On the other hand, Mr. Ratnanko Banerjee, learned Sr. Counsel for the respondents initially raised a preliminary objection as to the maintainability of the appeal contending that the appeal has been filed against rejection of an interim prayer. Against an interlocutory order no appeal would lie, he submits. He further submits that the findings against which the appellant is presently aggrieved were also recorded in the earlier order dated 24.01.2014 but the appellant chose to maintain discreet silence over the same. The related company application is a repetition of the grievance earlier made and, therefore, the Board was justified in rejecting such application. There is no infirmity in the order of the Board. The Board being the final fact finding authority, this Court in appeal may not disturb such findings of fact recorded by the Board. Lastly, he submits that the observations and findings recorded by the Board in the order dated 26.09.2014 against which appellant is aggrieved were made only for the purpose of deciding the Company Application No. 783/2014 filed by the appellant herself. Such observations and findings are to be understood only for the purpose of deciding the said company application. Lastly, he submits that the observations and findings recorded by the Board in the order dated 26.09.2014 against which appellant is aggrieved were made only for the purpose of deciding the Company Application No. 783/2014 filed by the appellant herself. Such observations and findings are to be understood only for the purpose of deciding the said company application. No question of law arises for entertaining the appeal. He, therefore, prays for dismissal of the appeal. 9. Submissions made by learned Senior Counsel for the parties have received the due consideration of the Court. 10. Since a preliminary objection has been raised as to the maintainability of the appeal, the same is required to be attended to at the very outset. Appeal as noticed above has been filed under Section 10F of the Companies Act, 1956 ("the Act" hereafter). It may be useful to refer to the provisions of Section 10F which is quoted hereunder:-- "10-F. Appeal against the orders of the Company Law Board- Any person aggrieved by any decision or order of the Company Law Board [made before the commencement of the Companies (Second Amendment) Act, 2002] 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 the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 11. A reading of the aforesaid section indicates that an appeal under Section 10F can be filed by any person who is aggrieved by "any decision or order" of the Board on any question of law arising out of such order. In other words, firstly, there must be a decision or order of the Board; secondly, a person must be aggrieved by such decision or order, and thirdly, a question of law must arise out of such decision or order to enable the aggrieved person to maintain an appeal under Section 10F. The first and foremost question which arises for consideration is as to the meaning of the expression "any decision or order" as appearing in Section 10F. Would it mean only a final decision or order finally determining the rights of the parties? The first and foremost question which arises for consideration is as to the meaning of the expression "any decision or order" as appearing in Section 10F. Would it mean only a final decision or order finally determining the rights of the parties? A careful reading of the section does not indicate that such decision or order of the Board has to be a final order. It can be any decision or order which causes grievance to any person but such decision or order of the Board must be capable of giving rise to a question of law. Thus, an appeal under Section 10F against an interlocutory order would be maintainable provided a question of law arises therefrom. The Apex Court in V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. reported in (2008) 3 SCC 363 has held that Section 10F permits an appeal to the High Court from an order of the Board only on a question of law. 12. The ambit and scope of Section 10F was gone into by the Rajasthan High Court in Gharib Ram Sharma v. Daulat Ram Kashyap & Ors. 80 Company Cases 267. The Rajasthan High Court examined the expression "any person aggrieved by any decision or order of the Company Law Board" as appearing in Section 10F in the aforesaid case and took the view that any person aggrieved by any decision or order passed by the Board can file an appeal and that appeal would be maintainable. Rejecting the contention that an appeal against an interlocutory order would not be maintainable, it was observed that the use of the words "any decision or order" shows that an appeal can be filed against any order of the Board which would obviously include an order which may not finally decide the rights of the parties. Accordingly, in the facts of that case, Rajasthan High Court held the appeal filed under Section 10F of the Act against an interlocutory order to be maintainable. 13. This Court is in respectful agreement with the view of the Rajasthan High Court and accordingly, it is held that the present appeal filed against the order dated 26.09.2014 is maintainable. 14. Having answered the preliminary objection raised by the respondents as above, the merit of the challenge made now be adverted to. 15. 13. This Court is in respectful agreement with the view of the Rajasthan High Court and accordingly, it is held that the present appeal filed against the order dated 26.09.2014 is maintainable. 14. Having answered the preliminary objection raised by the respondents as above, the merit of the challenge made now be adverted to. 15. On a careful reading of the orders dated 24.01.2014 and 26.09.2014, it would be evident that in the interlocutory application filed by the appellant in CA No. 783/2014 additional and subsequent developments were brought on record and based thereon the interim reliefs were sought for. On due consideration, this Court is of the view that the question of law which arises out of the order dated 26.09.2014 for consideration in this appeal is regarding the voting rights in respect of 8,61,918 shares which were jointly held by the appellant with her late father. In so far the other issues are concerned, Court is of the view that no question of law arises therefrom to merit adjudication in an appeal under Section 10F. Certain observations and findings recorded by the Board in the order dated 26.09.2014, such as: "the respondent company has made substantial progress and development under the present management......" "Thus, only need based borrowings have been made and there has been no mismanagement of the company by bringing in unnecessary loan funds by mortgaging the assets of the company causing financial loss, if any, to the prejudice of the company" and "the situation has changed for better since that time because the company has been run efficiently............." should only be understood to mean as confined to the order dated 26.09.2014; those observations and findings were made only for the purpose of adjudicating the company application CA No. 783/2014 seeking interim reliefs. These observations and findings are not final or conclusive and will not be taken into, account while deciding the original company petition. 16. Reverting back to the question of law as indicated above, Court is of the view that the following question of law arises for consideration in this appeal:-- "Whether on the facts and in the circumstances of the case, can voting rights be exercised in respect of 8,61,918 shares which were jointly held by the appellant with her late father?" 17. Reverting back to the question of law as indicated above, Court is of the view that the following question of law arises for consideration in this appeal:-- "Whether on the facts and in the circumstances of the case, can voting rights be exercised in respect of 8,61,918 shares which were jointly held by the appellant with her late father?" 17. As can be seen from the above, 8,61,918 shares of the company were jointly held by the appellant together with her late father. For whatever reasons, the father wanted to divest the appellant of her right and ownership over the said shares and this led to filing of Title Suit No. 41/2012 by the father. Civil Court has passed an order of status quo in respect of the said shares (Order dated 13.08.2012). It appears that Article 45 of the Articles of Association of the company was amended thereafter to confer ownership of the said shares to respondent No. 2. This is under challenge in the main company petition. Having noticed the challenge to the same in the company petition and taking note of the status quo order passed by the Civil Court in respect of the said shares, the Board in its order dated 24.01.2014 had directed that status quo with regard to the existing share capital of the company should be maintained without any prejudice to the outcome of the decisions in the civil suits and that the dividends pertaining to the disputed shareholdings should be kept in a separate interest bearing account by the company which will be disbursed to the ultimate owner of the shares as per the decision of the Civil Court. Now, by virtue of the amendment in the Articles of Association, appellant has been divested of the voting rights in respect of the said shares though in respect of the said shares voting rights have been vested with the respondent No. 2. However, learned Sr. counsel for the respondents stated that respondent No. 2 did not exercise his voting rights in respect of the said shares. 18. However, learned Sr. counsel for the respondents stated that respondent No. 2 did not exercise his voting rights in respect of the said shares. 18. In the overall context of the case, this Court is of the view that the decision of the Board refusing to pass any restraint order in respect of the voting rights over the said 8,61,918 shares does not appear to be justified and correct, particularly in the light of the status-quo order of the Civil Court and the previous order of the Board. Therefore, till the company petition is finally disposed of, this Court is of the considered opinion that nobody should be allowed to exercise voting rights in respect of the said 8,61,918 shares. Only then, the status quo order of the Civil Court would be fully and truly effective. 19. Accordingly, the question of law as framed above is answered in the negative by holding that till disposal of Company Petition No. 186/2013 no voting rights shall be exercised in respect of the said 8,61,918 shares. In the event of any earlier decision of the Civil Court in this regard, the same may be brought to the notice of the Board to enable it to pass appropriate order(s). 20. Appeal is accordingly allowed to the above extent. No cost.