1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. COMPANY APPEAL NO.30 OF 2009 IN CLB/CP/104 OF 2007 Mohan Babulal Jain and Ors. ...Appellants. Vs. Mr.Asjok K. Jain & Ors. ...Respondents. .... Mr.Janak Dwarkadas, Sr. Advocate with Mr. Dinyar D. Madon, Sr. Advocate, Mr.Gaurav Joshi, Mr. Naushad Engineer, Mr. Chirag Mody, Mr. Vivek Shetty and Mr. Maymesh Borkar i/b. DSK Legal for the Appellants. Dr.Virendra Tulzapurkar, Sr.Advocate with Mr. Phiroze Palkhivala and Mr.Vinayak Vengurlekar i/b. M/s. Crawford Bayley & Co. for Respondent No.1. Mr.Arif Bookwala, Sr.Advocate i/b. Mr.Sunil Nair for Respondent Nos. 6 and 13. Mr.Kapil Moye i/b. M/s.Chitnis & Com for Respondent Nos.2 to 5, 7 to 12 and 14 to 16. ..... CORAM : DR.D.Y.CHANDRACHUD, J. December 3, 2009. P.C. The Challenge in this Appeal under Section 10F of the Companies’ Act, 1956 is to an order passed by the Company Law Board on 20th April 2009. The Appellants moved two interim applications before the Company Law Board seeking the grant of an 2 injunction restraining the Respondent from holding meetings of the Board of Directors which were proposed to be held on 17th December 2008 and 24th February 2009 pursuant to notices dated 6th December 2008 and 13th February 2009. The Company Law Board declined to stay the holding of the meetings. 2. The facts in so far as they are relevant for the disposal of this appeal, lie in a narrow compass. Proceedings have been instituted before the Company Law Board, by the Respondents under Sections 397 and 398 of the Companies Act, 1956. During the pendency of the proceedings, an order was passed by the Company Law Board on 18th January 2008. By the interim order, the Registrar of Companies was directed not to act upon Form 32 filed by the Company on 11th December 2007 until further orders. By a further order dated 4th March 2008, the Company Law Board clarified that in terms of the earlier order, the Registrar of Companies shall restore the names of the Second and Third Respondents to that proceeding as Directors of the Company. The Second and Third Respondents are Appellants 1 and 2 respectively to these proceedings. On 22nd August 3 2008, the Company Law Board issued the following directions: “In the meanwhile, neither of the sides should take advantage of the steps taken by them to change the status quo that prevailed for a long time both in respect of shareholding as well as the board of the company. Since the paid up capital of the company has been increased to comply with the requirement of ICICI, I do not propose to cancel the allotment except to stipulate that no rights in respect of the shares, more particularly, dividend, and voting right shall be exercised on the impugned shares. Similarly, there shall be no transfer of the impugned shares. In other words, the rights of members as they stood before the allotment of new shares are to be maintained. In regard to the appointment of 8 directors by the petitioners, which has drastically affected the composition of the board, I direct that while they will continue as directors, no decision adverse to the interests of the respondents or the company shall be taken by the board and no steps shall be taken by the petitioners to sideline or remove the respondent directors from the board. For Board meetings, who ever convenes, 7 days notice with agenda should be circulated to all the directors. It is further directed that both the sides shall ensure that the proceeding relating to MFS is vigourously pursued.” 3. The consequence of this interim direction is that (i)The increase in the paid up capital of the Company which was carried out by the Appellants was not being interfered with at the interim stage; (ii) No rights in respect of the shares, including dividend and voting rights shall be exercised and there would be no transfer of shares; (iii) As a result, the rights of the members as they stood before the 4 allotment of the new shares would be maintained; (iv) The eight new Directors who are appointed by the Respondents would continue as Directors, but no decision adverse to the interests of the Appellants or of the Company shall be taken by the Board and no steps shall be taken by the Respondents to remove the Directors representing the group of the Appellants from the Board. It is an admitted position that the Appellants have two nominees on the Board of Directors. Two suits have been instituted by the Appellants and/or members of their group. The first suit which is pending before the City Civil Court is for challenging the appointment of eight Directors at the behest of the Respondents. The second suit which has been instituted before this Court is for specific performance of an alleged family settlement dated 27th August 2005. 4. The order of the Company Law Board was carried in appeal. On 10th October 2008, a Learned Single Judge of this Court passed the following order on the agreement of both the sides: “(i) No party will insist for convening a board meeting unless there is consensus about the agenda of the meeting between them. In case, there is any difference of opinion with regard to the board agenda, the party likely to 5 be prejudiced will be free to apply for appropriate clarification and/or relief. The objecting party shall file application to seek appropriate direction at least two clear days before the proposed meeting to be convened. If no such applciation is filed, meeting will proceed as scheduled. -(ii) It is also agreed that till appropriate order is passed on the proposed application, meeting will not be convened or proceeded until ordered to the contrary by the Company Law Board. Minimum seven clear working days notice will be issued in respect of the proposed meeting. In respect of contested matter, meeting cannot be convened till the disposal of the Notice of Motion pending before the City Civil Court being Notice of Motion No.1094 of 2007and/or Notice of Motion No.2925 of 2007 in Suit No.2189 of 2007. -5. Certain consequential directions were also issued inter alia to the effect that the Registrar of Companies shall not act upon the orders dated 18th January 2008 and 4th March 2008 passed by the Company Law Board. 6. On 6th December 2008 a notice was issued for the holding of a meeting of the Board of Directors on 17th December 2008 for considering the orders passed by the Company Law Board on 25th July 2008 and 22nd August 2008 and the order of this Court dated 10th October 2008 and to take necessary steps, including filing electronically, forms with the Registrar of Companies, as may be 6 necessary. By the second of the notices dated 2nd February 2009, the agenda for the Board meeting was to the following effect : “-1. To confirm the Minutes of the Previous Board Meeting. -2. Review of Current Operations of the Company for the Quarter and the Nine Months period ended December 2008 for the Financial Year 2008-09 -3. To Review and take a view about renewal of the Various Credit Facilities enjoyed by the Company with the State Bank of India. -4. To Review the Foreign Currency Loan Facility and other facilities enjoyed by the Company with the ICICI Bank. -5. To Review the supply of materials to some of the institutions where condition to replace the unconsumed goods not likely to be consumed within the shelf life is stipulated.” 7. Counsel appearing on behalf of the Appellant submitted that the holding of a meeting of the Board of Directors was unnecessary since the agenda which was sought to be transacted at the first of the two meetings could well be transacted by passing a resolution. Moreover, it was urged that in so far as the agenda for the second meeting was concerned, the Company ought not to be required to disclose details of its current operations since the 7 Respondents are engaged in a competing line of business. Finally, it was submitted that the object of convening a Board meeting is only to establish some sort of entitlement of the Respondents to enter the premises of the registered office and to establish authority before the employees of the Company. 8. The Company Law Board has held, by its order impugned, that none of the subjects of the agenda proposed to be transacted in the two meetings, would cause prejudice to the Appellants. However, in order to obviate the contention that the Respondents may obtain a disclosure of information that would be contrary to the interests of the Company, the Company Law Board observed that it is an admitted position that the Appellants are in the management of the Company and that they would not be required to disclose such information which is adverse to the interests of the Company. The contention that the eight Directors appointed by the Respondents would claim legitimacy to their appointment as Directors has been dealt with by the observation that the Appellants have already filed a suit challenging the appointment of these eight Directors and the 8 Company Law Board has also kept the issue of examining the appointment of eight Directors open. Consequently, the holding of the Board meeting per se would not legitimate their appointments either in law or as a matter of fact. 9. In dealing with the submissions which have been urged on behalf of the Appellants, this Court must, above all, be guided by the parameters of the jurisdiction which is conferred upon the Court in appeal under Section 10F. An appeal under Section 10F is available on a question of law arising out of the order of the Company Law Board. As the facts which are narrated earlier would show, the Company Law Board by its order dated 22nd August 2008, has, as and by way of interim protection, directed that while the eight persons appointed by the Respondents as Directors will continue as Directors, no decision adverse to the interests of the Appellants or of the Company shall be taken by the Board and no steps shall be taken by the Respondents to remove the Directors appointed by the Appellants to the Board. The consent order that was passed by this Court on 10th October 2008, records an arrangement between the parties, 9 under which a meeting of the Board of Directors can be held, provided there is a consensus about the agenda. In the event of there being a difference of opinion in regard to the agenda fixed by the Board of Directors, a party likely to be prejudiced is at liberty to apply for appropriate clarification and/or relief. No meeting was to be convened except with the permission of the Company Law Board. In other words, in the event that the parties are unable to agree upon the agenda for a meeting of the Board, it would be open to the party opposing the convening of a Board meeting to apply for clarification or relief before the Company Law Board, establishing the prejudice that would be caused. Neither the agenda for the first meeting, nor the agenda for second Board meeting establishes prejudice to the Appellants. In so far as the first meeting is concerned, Counsel appearing on behalf of the Respondents stated that as a matter of fact, the Respondents proposed to lodge in the electronic form necessary documentation in the office of the Registrar of Companies for the restoration of the two members of the Board representing the group of the Appellants. In so far as the agenda for the second meeting is concerned, the Company Law Board has clarified that the Appellants 10 who were in management of the Company would not be bound to disclose information which would have an adverse bearing on the position of the Company. In fact, this is implicit from the earlier order dated 22nd August 2008 which provides that the Board of Directors shall not take any decision adverse to the interests of the Appellants which include the Company. Hence, no prejudice has been shown to result by the proposed convening of either of the two Board meetings. 10. No case has been made out for the Court to interfere with the order passed by the Company Law Board, in exercise of the jurisdiction of this Court under Section 10F. The appeal shall stand dismissed. .....