1 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 17-09-2013 CORAM THE HON'BLE MR. JUSTICE V.RAMASUBRAMANIAN Company Appeal No.18 OF 2011 STATE BANK OF INDIA, Stressed Assets Management Branch, Represented by its Assistant General Manager, Red Cross Buildings, Old No.50, New No.32, Montieth Road, Egmore, Chennai-600 008. .. Appellant Vs. 1.P.Narayanasamy 2.Vijayalakshmi 3.P.Govindarajan 4.G.Krishnaveni 5.M/s.Neela Spinning Mills Pvt. Ltd., No.514, Kamaraj Road, Tirupur-641 604. 6.P.Swathanthirarajan 7.S.Indira 8.S.Nandakumar 9.M/s.Purushottaman & Co., Keethanur, Tirupur Taluk, Tirupur District. 10.M/s.Indira Petro Products Pvt. Ltd., No.1/84, Trichy Road, Pongalur-641 667, Coimbatore District. 11.M/s.Sullur Spinners Pvt. Ltd., No.2/12, Pongalur-641 667, Coimbatore District. .. Respondents 2 Appeal filed under Section 10-F of the Companies Act, 1956, aggrieved by the order dated 25.8.2009 in C.P.No.8 of 2003 on the file of the Company Law Board Additional Principal Bench, Chennai, allowing the petition filed by the respondents 1 to 4 herein under Section 397 read with Section 402 of the Companies Act, 1956 and thereby setting aside a Sale Deed 22.1.2002 (actual date of sale being 22.10.2002) executed by the fifth respondent herein in favour of the eleventh respondent herein and to set aside the said impugned order to the extent of the setting aside the above Sale Deed in favour of the eleventh respondent. For Appellant : Mr.Vijay Narayan, Senior Counsel for M/S. Ramalingam & Associates For Respondents-1 to 4 : Mr.T.K.Seshadri, Senior Counsel for Mr.T.S.Baskar For Respondents-5 to 8 : Mr.A.K.Mylsamy For Respondent-10 : Ms.T.Surekha For Respondent-11 : Mr.A.Saravanan JUDGMENT This is an appeal filed by the State Bank of India, challenging an order passed by the Additional Principal Bench of the Company Law Board in a proceeding under Section 397 read with Section 402 of the Companies Act, 1956, setting aside the sale of certain properties of the Company in question. 2. I have heard Mr.Vijay Narayan, learned Senior Counsel appearing for the appellant, Mr.T.K.Seshadri, learned Senior Counsel appearing for respondents 1 to 4, Mr.A.K.Mylsamy, learned counsel appearing for respondents 5 to 8, Ms.T.Surekha, learned counsel appearing for the 10th respondent and Mr.A.Saravanan, learned counsel appearing for the 11th respondent. 3. The brief facts leading to the above appeal, are as follows:- (a) M/s.Neela Spinning Mills Pvt. Ltd., which is the 5th respondent herein, is a Company which is closely held by the members of the same family. 3 (b) The respondents 1, 3 and 6 are the sons of one late Palanisamy Naidu. The second respondent is the wife of the first respondent. The fourth respondent is the wife of the third respondent. The 7th and 8th respondents are the wife and son of the sixth respondent. (c) In other words, 3 brothers viz., P.Narayanasamy (R-1), P.Govindarajan (R-3) and P.Swathanthirarajan (R-6), jointly have a controlling interest in the affairs of the said Company. (d) But it appears that family disputes between 2 brothers on the one hand (R-1 & R-3) and the third brother (R-6) on the other hand, led to the respondents 1 to 4 herein, filing a petition in C.P.No.8 of 2003 on the file of the Company Law Board, alleging oppression and mismanagement. (e) The said petition C.P.No.8 of 2003 was filed somewhere in the beginning of the year 2003. But before it was filed, the Board of Directors of M/s.Neela Spinning Mills Pvt. Ltd., which is the fifth respondent herein, passed a resolution on 6.10.2002 to sell a land measuring an extent of acres 9.45 comprised in S.F.No.311/2 of Veerapandi Village, Tirupur Taluk. Pursuant to the said resolution, a Sale Deed was executed on 22.10.2002, selling the land in favour of a Company by name M/s.Sullur Spinners Pvt. Ltd., which is the 11th respondent herein. (f) The 11th respondent, in turn, mortgaged the property in favour of the Indian Bank in November 2004, as security for the credit facility availed by a completely different Company by name M/s.Pioneer Feeds and Poultry Products. (g) Upon coming to know of the sale in favour of the 11th respondent, the respondents 1 to 4, who were the petitioners before the Company Law Board in C.P.No.8 of 2003, sought the permission of the Company Law Board to challenge the sale by way of a separate suit. The Company Law Board, by its order dated 4 23.11.2005, granted permission to the respondents 1 to 4 herein, to file a suit challenging the sale. Accordingly, the respondents 1 to 4 herein, filed a suit in O.S.No.416 of 2006, on the file of the District Court, Tirupur, seeking to declare the Sale Deed executed in favour of the 11th respondent as null and void. (h) During the pendency of the said suit, the loan due by M/s.Pioneer Feeds and Poultry Products, to the Indian Bank, in respect of which the 11th respondent had offered the property in question as security, was taken over by the State Bank of India from the Indian Bank. Therefore, the 11th respondent passed a resolution on 18.12.2007, creating a mortgage in favour of the State Bank of India, for the credit facility availed by M/s.Pioneer Feeds and Poultry Products. The 11th respondent also gave corporate guarantee and deposited all original title deeds in respect of the aforesaid property with the appellant herein on 25.3.2008. (i) Thereafter, the borrower viz., M/s.Pioneer Feeds and Poultry Products committed default and became a non-performing asset. Therefore, the appellant initiated measures under the SARFAESI Act, on 15.5.2009 and the 11th respondent sent their objections. Immediately thereafter, the Company Law Board passed an order in C.P.No.8 of 2003, filed by the respondents 1 to 4 herein, against the other respondents, holding that the respondents 6 to 8 are guilty of acts of oppression and that therefore, even the sale by the 5th respondent in favour of the 11th respondent was liable to be set aside. (j) The respondents 10 and 11, who were parties to the proceedings before the Company Law Board, filed an appeal on the file of this Court in Company Appeal No.30 of 2009. But the same came to be dismissed by the Company Court by the order dated 8.1.2010, on the ground that there was no question of law, requiring adjudication by this Court. 5 (k) Thereafter, the appellant herein filed an appeal in Company Appeal SR No.108540 of 2009. But by the time the appeal was filed, the limitation for filing the same was already over. Therefore, the appellant took out an application in M.P.No.2 of 2010 for condoning the delay of 56 days. But by an order dated 1.12.2010 this court dismissed the condone delay petition. (l) Challenging the order refusing to condone the delay in filing the appeal, the appellant filed a Special Leave Petition in SLP(Civil)No.8636 of 2011. The Supreme Court granted leave and allowed the appeal in Civil Appeal No.6361 of 2011, by an order dated 5.8.2011. The result is that the delay in filing the appeal was condoned. Thus, the appeal filed by the State Bank of India, which was not a party to the main petition before the Company Law Board, was taken on file. 4. Before proceeding further, it should be pointed out that the respondents 1 to 4 herein allowed the civil suit, seeking to set aside the Sale Deed, dismissed. This is perhaps due to the fact that the relief that they sought in the said suit, was granted by the Company Law Board, by the order which is now under appeal. 5. The grievance of the appellant as against the order of the Company Law Board lies in a very narrow campus. According to the appellant, they had advanced huge monies to the borrower, M/s.Pioneer Feeds and Poultry Products, on the strength of the mortgage created by the 11th respondent herein, which also granted a corporate guarantee. The appellant was not aware of the dispute between the families of two brothers on the one hand and the third brother on the other hand, pending before the Company Law Board. Therefore, it is the contention of the appellant that if they had been impleaded as a party to the proceedings before the Company Law Board, they could have been in a position to convince the Company Law Board that they were bona fide mortgagees, who had no notice of the claim that the respondents 6 1 to 4 had on the other respondents. 6. Apart from the above, it is the contention of the appellant that in the absence of a prayer for setting aside the sale and in the light of the leave obtained by the respondents 1 to 4 for filing a separate suit for setting aside the Sale Deed, it was not open to the Company Law Board to pass an order, setting aside the sale in favour of the 11th respondent. 7. In response to the above contentions, Mr.T.K.Seshadri, learned Senior Counsel appearing for respondents 1 to 4 submitted (i) that the order of the Company Law Board had already attained finality with the dismissal of an appeal in C.A.No.30 of 2009 filed by the respondents 10 and 11 and hence the present appeal is barred by law; (ii) that in a petition under Section 397 read with Section 402 of the Companies Act, 1956, the Company Law Board has ample powers to pass any order that would restore the balance between the majority and the minority; (iii) that once the resolution of the Board of Directors of the 11th respondent dated 22.10.2002 was under challenge before the Company Law Board, all actions taken in pursuance of the resolutions, would follow the very same fate as that of the resolution; and (iv) that in any case, the petitioner has very valuable properties offered as mortgage by the original borrower and hence the Bank will not be left in the lurch. 8. I have carefully considered the rival submissions. The scope of an appeal under Section 10-F of the Companies Act, 1956, is circumscribed only to questions of law. Therefore, I am obliged only to see if there are any questions of law to be decided in this appeal. 9. From the grounds of appeal raised by the appellant in the Memorandum of Appeal, I think the following substantial questions of law arise for the consideration of this Court:- 7 (i) Whether the Company Law Board, after having granted leave to the parties to the proceedings to institute a civil suit, could have usurped the powers of the Civil Court to find out whether the transfer of right in an immovable property was right or wrong? (ii) Whether the Company Law Board could have decided the question whether the purchaser was a bona fide purchaser for valuable consideration without notice, in a proceeding that was summary in nature? 10. There are no disputes on facts that I have narrated in paragraph-3 above. Therefore, I can straightaway take up for consideration the two questions of law which I have framed. But before doing so, it is necessary to consider one important issue relating to the maintainability of the appeal, raised by the respondents 1 to 4 herein. The issue of maintainability raised by the learned Senior Counsel for the respondents 1 to 4, revolves around the fact that the very same order of the Company Law Board was confirmed by this Court in an appeal filed by the respondents 10 and 11 in C.A.No.30 of 2009. Therefore, it is contended by the respondents 10 and 11 that the above appeal is barred by law or at least covered by the decision rendered in the said appeal. 11. It is true that the respondents 10 and 11 came up with an appeal in C.A.No.30 of 2009 as against the very same order of the Company Law Board. It is also true that the said appeal was dismissed in limine by this Court, by an order dated 8.1.2010. 12. A careful perusal of the order dated 8.1.2010 passed by this Court, dismissing the appeal would show that the respondents 10 and 11 raised only two questions of law viz., (i) whether the Company Law Board had power to set aside the sale after a lapse of 3 months as contemplated under Section 402; and (ii) whether 8 the Company Law Board was justified in setting aside the sale when an identical issue was pending consideration in a suit. 13. The fact that the above two questions of law were raised in Company Appeal No.30 of 2009 is recorded in the first paragraph of the judgment of this Court dated 8.1.2010. 14. After recording the questions of law, the learned Judge, who dismissed the Company Appeal, proceeded to narrate the facts leading to the above appeal, in paragraphs 2 to 7. After extracting the facts, the learned Judge chose to dismiss the appeal for the reasons contained in paragraphs 8 and 9. It will be useful to extract those two paragraphs, to see if the dismissal of the above appeal is a bar for entertaining the present one or not. Paragraphs 8 and 9 of the decision dated 8.1.2010, reads as follows:- "8. At the time of argument, learned counsel appearing for the appellants could not make any submission to substantiate any of the allegations raised before this Court. Going through the order passed by the Company Law Board, findings based on material and being pure questions of fact, I do not find any ground to interfere with the order of the Company Law Board. 9. In the absence of any material placed before this Court to sustain the claim made before this Court that the vendors had the necessary authority to effect the sale, I do not find there exists any ground for this Court to interfere with the order of the Company Law Board." 15. From the operative portion of the order of this Court, dismissing the previous appeal, it is seen that this Court did not reject the appeal as devoid of any questions of law worth consideration by this Court. As a matter of fact, this Court did not answer both the questions of law raised in the above appeal, one way or the 9 other. The dismissal of the appeal was substantially on the facts of the case and not on any finding with regard to the questions of law raised. 16. The appellant herein was not a party to the appeal C.A.No.30 of 2009. The questions of law raised by the respondents 10 and 11 in their appeal, were not answered one way or the other by this Court. Therefore, at the most, the order passed by this Court in the said appeal, would be taken to have put the lid of finality to litigation as against the respondents 10 and 11. It would not either operate as res judicata or operate as a decision that could be elevated to the level of stare decisis on the points of law raised in that appeal. Hence, the objection to the maintainability of the appeal is rejected. The rejection of the appeal on facts, is also not binding on me, in view of the fact that an appeal under Section 10-F is to be considered only on any questions of law. Since the rejection of the previous appeal was not on the questions of law raised, there is no bar for the appellant herein, who was not a party to the previous proceeding, to maintain the above appeal. 17. Now that the question of maintainability of the appeal is disposed of, let me take up the questions of law arising for consideration. But before doing so, I must deal with one preliminary contention raised by the learned Senior Counsel for the appellant. It is his contention that in the main Company petition, the respondents 1 to 4 did not pray for setting aside any Sale Deed. The reliefs sought by the respondents 1 to 4, who were the petitioners before the Company Law Board, were as follows:- "(a) To declare that the alleged appointment of the fourth respondent as a Director of the Company in the Board Meeting said to have been held on 29.9.2001 is non est and not binding on the Company and declare that any action taken pursuant to the said alleged meeting should be illegal and in contravention of the provisions of the Act. (b) To declare that the alleged appointment of the 10 third respondent as a Director of the Company in the Board Meeting said to have been held on 8.3.2002 is non est and not binding on the Company and declare that any action taken pursuant to the said alleged meeting should be illegal and in contravention of the provisions of the Act. (c) To declare that the alleged issue of shares of the Company to the third respondent on 8.3.2002 is void and not binding on the Company. (d) To direct the Company to rectify its register of members correcting the particulars of shares held by the third respondent as a member of the Company. (e) To declare that the removal of the petitioners 1 & 3 from Directorship of the Company is void, illegal and not binding on the Company. (f) To declare that the petitioners 3 & 4 (should be 1 & 3) continue to be Directors of the Company. (g) To declare that the alleged borrowing made by the respondents 2 to 4 from the fifth respondent is not binding on the Company. (h) To declare that the alleged charge created in favour of the fifth respondent is void ab initio and not binding on the Company; and (i) To remove the second respondent from the Board of Directors of the Company and consequently from the post of the Managing Director of the Company." 18. Therefore, it was contended by the learned Senior Counsel for the appellant that the Company Law Board ought not to have set aside the sale, when there was not even a prayer to the said effect. 19. But I do not think that the said contention can be upheld. The power of the Company Law Board in a proceeding under Section 398 read with Section 402, are wide enough to mould the relief. As held by a Division Bench of this Court in Syed Mahomed Ali vs. R.Sundaramoorthy {AIR 1958 Mad. 587}, the proceedings 11 under Sections 397 and 398 are not like suits between private parties. The interests of the Company are paramount in those proceedings and the Court has jurisdiction to pass an order to protect the interests of the Company. 20. In Bennet Coleman and Co. vs. Union of India {1977 (47) CC 92}, the Supreme Court also pointed out that the powers of this Court under Sections 398 and 402 are wide enough to enable the Court to appoint an Administrator or a Special Officer or a Committee of Advisers and thereby supplant the corporate management. 21. Again in Cosmosteels P. Ltd vs. Jairam Das Gupta {1978 (48) CC 312}, the Supreme Court held that Section 402 confers power upon the Court to grant relief against oppression, inter alia, by providing for the purchase of shares of any of the members by other members. While coming to the said conclusion, the Supreme Court pointed out that the scheme of Sections 397 and 402 constitute a complete Code by itself for granting appropriate relief and that the power conferred thereon is of widest amplitude. 22. Therefore, the fact that the respondents 1 to 4 did not make a prayer before the Company Law Board for setting aside the sale, did not prevent the Company Law Board from setting aside the sale. We may also look at the issue from another angle. Section 397(2) empowers the Company Law Board "to make such order as it thinks fit", in order to bring to an end the matters relating to oppression complained of in an application under sub-section (1). Similarly, Section 398(2) empowers the Company Law Board "to make such order as it thinks fit", to bring to an end the acts of mismanagement. 23. The powers of the Company Law Board while dealing with an application under Section 397 or 398, are enumerated in Section 402. While Clause (g) of Section 12 402 confers residual powers upon the Company Law Board, Clauses (d) empowers the Company Law Board to terminate, set aside or modify any agreement entered into between the Company on the one hand and the Managing Director or any other Director and the Manager on the other hand. 24. Clause (e) empowers the Company Law Board to terminate, set aside or modify any agreement between the Company on the one hand and any person other than the Managing Director, Director or Manager referred to in Clause (d) on the other hand. Clause (f) of Section 402 specifically empowers the Company Law Board to set aside any transfer, delivery of goods, payment, execution or other act relating to the property made or done by or against the Company, within three months before the date of application under Section 397 or 398, which would, if made or done by or against an individual be deemed in his insolvency to be a fraudulent preference. 25. But Clause (e) of Section 402 makes it clear that no agreement can be terminated, set aside or modified under the said Clause, except after due notice to the party concerned. Therefore, the principles of natural justice appears to be in-built in Section 402(e). That it is so, is confirmed by Section 405, which enables "any other person" who has not been impleaded as a respondent to any application under Section 397/398, to be impleaded to such a proceeding. 26. Therefore, it is clear that the Company Law Board is entitled to set aside a transfer or agreement, but only after hearing a party concerned. Hence, the fact that there was no prayer for setting aside the transaction, is no ground to conclude that the Company Law Board could not have set aside the transaction. As I have pointed out earlier, applications under Sections 397 and 398 are only in the nature of complaints about oppression and mismanagement. Consequently, the power conferred under Sections 397 and 398 are for "making such order as the Court thinks fit". 13 Therefore, it is not necessary for the Company Law Board to confine itself to the reliefs prayed for and to reject a complaint of oppression and mismanagement on the sole ground that there was no prayer of a specific nature. 27. Having disposed of the question of maintainability and the preliminary contention raised by the appellant, let me now take up the two questions of law raised. The first question of law is as to whether the Company Law Board could have usurped the powers of the Civil Court, to find out whether the transfer of right in the immovable property was correct, especially after having granted leave to the parties to institute a civil suit. The second question of law is as to whether the Company Law Board could have decided the question whether the purchaser was a bona fide purchaser for valuable consideration, without notice in a proceeding that was summary in nature. Since both these questions are inter related, they can be conveniently dealt with together. 28. As I have pointed out earlier, the powers of the Company Law Board under Section 402 are wide enough to set aside a transaction. Since the powers are wide enough to set aside even a transfer that was made within 3 months before the date of filing of an application and since such a power is compared by Section 402(f) to a power conferred upon a Court in insolvency proceedings to set aside a fraudulent preference, there can be no doubt that the Company Law Board would have the power to determine whether a transaction is a bona fide one, entered into in the course of ordinary business, without notice of any internal squabbles. Despite the fact that the procedure adopted by the Company Law Board is summary in nature, it has