1 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06-11-2013 CORAM THE HON'BLE MR. JUSTICE V.RAMASUBRAMANIAN Company Appeal No.6 of 2011 M.S.D.Chandrasekar Raja .. Appellant Vs. 1.M/s.Jayabharath Textiles Pvt. Ltd., No.113, T.P.Mills Road, Cotton Market Post, Box No.117, Rajapalayam 626 117. 2.M.S.D.C.Radha Ramanan .. Respondents Appeal filed under Section 10-F of the Companies Act, 1956, preferred against the impugned order of the Company Law Board dated 22.7.2013 in Company Application No.262 of 2011 in Company Petition No.37 of 2011, wherein the proceedings in relation to Company Petition No.37 of 2011 have been stayed pending the disposal of O.S.No.10 of 2005. For Appellant : Mr.R.Murari, Senior Counsel for Mr.Thriyambak J.Kannan For Respondents : Mr.R.Sankaranarayanan Assisted by Mr.Kumarpaul Chopra. JUDGMENT This appeal is filed under Section 10-F of the Companies Act, 1956, challenging an order passed by the Company Law Board, allowing an application filed by the second respondent herein under Section 10 of the Code of Civil Procedure read with Regulation 44 of the Company Law Board Regulations 1991. 2. I have heard Mr.R.Murari, learned Senior Counsel for the appellant and 2 Mr.R.Sankaranarayanan, learned counsel appearing for respondents. 3. The appellant is the father of the second respondent. The first respondent-Company is a Private Limited Company, in which, there are only 2 equity shareholders and 5 preference shareholders. Both the appellant and the second respondent each hold 1,25,000 equity shares of Rs.10/- each in the first respondent- Company. The appellant was the Managing Director and the second respondent is the only other Director in the Board. In other words, both the appellant and the second respondent hold 50% shares each and both of them are also the Directors. Therefore, after disputes started between the appellant and the second respondent, neither a meeting of the Board of Directors nor a meeting of the General Body could be held to transact any useful business, other than perhaps, to litigate. 4. The second respondent filed a civil suit in O.S.No.10 of 2005 on the file of the Principal District Court, Virudhunagar at Srivilliputhur against the appellant herein. The second respondent not only impleaded the appellant as a defendant in the suit, but he also impleaded his mother and 3 sisters as defendants 2 to 5. Two companies which were closely held by the father and the son, were also made the defendants 6 and 7 in the suit. The first respondent in this appeal was arrayed as the seventh defendant in that suit. 5. The claim of the second respondent herein in his civil suit O.S.No.10 of 2005 was that his grandfather (the appellant's father) executed a Will in respect of the joint family properties, bequeathing half share in favour of the second respondent and that in order to defeat the bequest, the appellant executed deeds of gift dated 24.10.2002, 12.12.2002 and 26.2.2004 in favour of defendants 2 to 5 (appellant's wife and daughters). On the said premise, the second respondent prayed for a decree (i) of declaration that the gift deeds executed by his father (the appellant herein) in 3 favour of the wife and daughters are null and void; and (ii) of partition in respect of plaintiff's half share in the plaint 'A' Schedule properties and for separate possession. 6. It appears that the second respondent's son also filed a suit in O.S.No.136 of 2008 on the file of the Principal District Court, Virudhunagar, praying for a partition of his 3/8 share in the plaint second Schedule properties and 1/4 share in the plaint first Schedule properties and also for a declaration that the gift deeds executed by the appellant were null and void. Both the suits, instituted by the second respondent and his son are now pending. 7. After 6 years of the institution of the suit by the second respondent, the appellant filed a company petition in C.P.No.37 of 2011 on the file of the Company Law Board, under Sections 397 and 398 of the Companies Act, 1956, complaining of oppression and mismanagement against the second respondent. Though the grievance of the appellant was labelled as one of oppression and mismanagement, the real grievance of the appellant was that due to 50% shareholding in the Company and due to the second respondent being one of the 2 Directors in the Board, he had paralysed the functioning of the Company and had created a deadlock. In the company petition, the appellant prayed for various reliefs, including a direction to the Company to issue Share Certificates and to direct a division of his 50% share in the land and building, where the factory was located. 8. After receipt of notice in the main company petition, the second respondent filed an application in C.A.No.262 of 2011, under Regulation 44 of the Company Law Board Regulations 1991 read with Section 10 of the Code of Civil Procedure, praying for a stay of further proceedings before the Company Law Board, till the civil suit O.S.No.10 of 2005 is disposed of by the Court. This application was allowed by the Company Law Board by an order dated 22.6.2013, on the ground that 4 the reliefs sought by the appellant before the Company Law Board and the reliefs sought by the second respondent before the Civil Court, are one and the same and that therefore, there is a likelihood of conflict of decisions if the Company Law Board proceeded further with the hearing of the main petition. It is against the said order that the appellant has come up with the above appeal, raising the following questions of law:- (i) Whether the provisions of Section 10 of the Code of Civil Procedure 1908 apply per se to proceedings before the Company Law Board? (ii) Whether Regulation 44 of the Company Law Board Regulations 1991, which merely confers inherent powers upon the Board, could be used to produce a result that could have been achieved only under Section 10 of the CPC, when no analogous provision is incorporated in the Regulations? and (iii) Whether in the facts and circumstances of the case, the invocation of any such power, even if available, is warranted? 9. Except (i) a few decisions of the Company Law Board itself, (ii) one decision of the Calcutta High court confirming a decision of the CLB and (iii) one decision of the Andhra Pradesh High court, there appears to be no authoritative pronouncement of any other court on the applicability of section 10 CPC and the scope of the power under Regulation 44. Therefore, let me first take a look at these decisions, before venturing to go deep. 10. In Sardar Iqbal Singh vs. Sardar Gurbaksh Singh {2000 (100) Comp. Cases 504 (CLB)}, the Principal Bench of the Company Law Board indicated that whenever proceedings were pending before the Civil Court, the Company Law Board has been taking a consistent stand to stay the proceedings before it, to avoid conflict of decisions on common issues. 5 11. Similarly, in Guljarilal Kanoria vs. Loptchu Tea Company Ltd {2000 (102) Comp. Cases 292 (CLB)}, the Principal Bench of the Company Law Board again granted stay of its own proceedings, when it was brought to its notice that a civil suit was already pending on the file of the High Court of Calcutta. The Company Law Board pointed out that when the reliefs sought before both Forums are substantially the same, when the parties are also the same and the disputed issues requiring adjudication are also the same, it would be better to stay its proceedings, to avoid conflict of opinion. The said decision of the Company Law Board was upheld by a Division Bench of the Calcutta High Court by a decision rendered on 21.1.2000 in A.C.O. No.180 of 1999. While upholding the decision of the Company Law Board, the Division Bench of the Calcutta High Court pointed out that the proceedings before the Company Law Board cannot go on, without the Civil Court deciding the lis on merits. 12. In Sundeep Gupta vs. Indian Hardware Industries {2008 (142) Comp. Cas.552 (CLB)}, the CLB even went to the extent of dismissing a main petition under sections 397 and 398 on the ground that a competent civil court was already seized of larger questions revolving around the validity of nomination and that therefore, it would not be proper for the Board to deal with them. A similar view had been taken way back in 1993 by the Principal Bench of the CLB in Binod Kumar Agarwal vs. Ringtong Tea Company {(1996) 85 Comp.Cas 289 (CLB)}. 13. Thus there are several decisions of the CLB, one of which was also approved by the Division Bench of the Calcutta High court, to the effect that when proceedings are pending in civil court, the CLB would switch over to the "hands off" mode. But a different tune was played by the Andhra Pradesh High court in RDF Power Projects Ltd vs. M.Muralikrishna {2005 (124) Comp. Cases 184 (AP)}, 6 by upholding one decision of the CLB refusing to stay its own proceedings under section 10 of the Code. This was on the ground that the proceeding before the Company Law Board cannot be treated as a suit and that the Board can by no stretch of imagination be regarded as a Court. Apart from holding so, the Andhra Pradesh High Court also pointed out that inasmuch as the power of the Company Law Board to deal with proceedings under Sections 397 and 398, is exclusive and special in nature, the matter in issue therein cannot be said to be directly and substantially in issue in a previously instituted suit before the Civil Court warranting a stay of the proceedings. To come to the said conclusion, the Andhra High Court relied upon the distinction between Courts and Tribunals brought out in the earliest and oft quoted decision in Shell Company of Australia vs. Federal Commissioner of Taxation {1931 AC 275}, which had earlier been followed by the Allahabad High court in Prakash Timber P.Ltd Vs. Smt.Sushma Shingla (AIR 1996 All. 262) to come to the conclusion that the CLB is only a Tribunal and not a court. 14. In view of the decision of the Andhra Pradesh High Court in RDF Power Projects Ltd., the Additional Principal Bench of the Company Law Board, dismissed an application for stay under Regulation 44 in Saravana Stores Private Ltd vs. S.Yogarathinam {2007 (75) SCL 315 (CLB)}. 15. Thus on the question of applicability of Section 10 of the Code to the proceedings before the CLB, there appears to be no uniformity of approach by various courts and fora. Hence it is necessary to go to the roots. QUESTION No.1: 16. As stated earlier, the first question raised for my consideration in this appeal is as to whether the provisions of Section 10 of the Code of Civil Procedure would apply, per se to the proceedings before the Company Law Board or not. In 7 order to find an answer to this question, it is necessary to have a look at some of the provisions of the Code of Civil Procedure, the Companies Act, 1956, the Company Law Board Regulations 1991 and a few decisions as to how the Courts have treated the Company Law Board. 17. Section 10 of the Code prohibits a court from proceeding with (i) the trial of any suit, (ii) if the matter in issue is also substantially and directly in issue in a previously instituted suit (iii) between the same parties and (iv) pending in the same court or any other court having jurisdiction to grant the relief claimed. 18. Out of the above ingredients necessary to invoke section 10, two do not pose any problem in so far the case on hand is concerned. The lis in this case is between the same parties, one before the civil court and another before the company Law Board. The jurisdiction of both the Company Law Board and the civil court to grant the reliefs prayed respectively before them, is also not in dispute. There are only 3 areas where there is a dispute. They are (i) whether the CLB is a court, within the meaning of the expression "court" appearing in section 10 of the Code (ii) whether the proceedings before the CLB can be taken to be equal to a suit and (iii) whether, assuming that the answers to the first two questions are in the affirmative, the matters in issue before both Forums can be said to be substantially and directly the same so as to stay the latter proceedings. 19. Out of the above 3 questions, one can be disposed of easily. Therefore, I shall take it up first. This question is as to whether the proceedings before the CLB can be taken to be equal to a suit or not. WHETHER PROCEEDINGS BEFORE CLB CAN BE EQUATED TO SUIT 20. Though section 10 uses the expression "suit", the principle behind section 10 would be applicable even to "proceedings". This is in view of section 141 of 8 the Code. Section 141 makes it clear that the procedure prescribed by the Code in regard to suits, shall be followed, so far as it can be made applicable, in all proceedings in any court of civil jurisdiction. The only exception to section 141 is a proceeding under Article 226 of the Constitution, in view of the Explanation to section 141. Therefore, merely because the proceeding before CLB is not a suit, it cannot be said that section 10 would not apply, provided CLB is found to be a "court of civil jurisdiction" and the matter in issue therein is found to be directly and substantially in issue in a previously instituted suit. 21. Therefore, I shall now take up for consideration, the next question whether CLB is a "court" within the meaning of section 10 of the Code or at least a "court having civil jurisdiction" within the meaning of section 141 of the Code. WHETHER CLB IS A COURT 22. Section 2(10-A) of the Companies Act, 1956 defines a Company Law Board to mean the Board of Company Law Administration constituted under Section 10-E. The expression "Court" is defined in Section 2(11) to mean (i) a Court having jurisdiction as provided in Section 10, with respect to any matter as provided therein; and (ii) the Court of a Magistrate of First Class or a Presidency Magistrate, as the case may be, having jurisdiction to try any offence under this Act. 23. Section 10(1) of the Act, deals with the jurisdiction of the High Court as well as the District Court, upon which jurisdiction is conferred by the Central Government. Therefore, it is clear that the definition part of the Act, keeps the Company Law Board away from the definition of the expression "Court". 24. The Company Law Board is constituted in terms of Section 10-E, for the exercise and discharge of the powers and functions as may be conferred upon it by the Central Government. Sub-section (4-C) of Section 10-E, specifically confers some 9 powers upon the Company Law Board as are vested in a Court under the Code of Civil Procedure. Sub-sections (4-C), (4-D), (5) and (6) of Section 10-E may be relevant for determining the question on hand and hence they are extracted as follows:- "(4-C) Every Bench referred to in sub-section (4-B) shall have powers which are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:- (a) discovery and inspection of documents or other material objects producible as evidence; (b) enforcing the attendance of witnesses and requiring the deposit of their expenses; (c) compelling the production of documents or other material objects producible as evidence and impounding the same; (d) examining witnesses on oath; (e) granting adjournments; (f) reception of evidence on affidavits. (4-D) Every Bench shall be deemed to be a Civil Court for the purposes of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974), and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code, 1860 (45 of 1860), and for the purpose of Section 196 of that Code. (5) Without prejudice to the provisions of sub- sections (4-C) and (4-D), the Company Law Board shall in the exercise of its powers and the discharge of its functions under this Act, or any other law be guided by the principles of natural justice and shall act in its discretion. (6) Subject to the foregoing provisions of this Section, the Company Law Board shall have power to regulate its own procedure." 25. Interestingly, the Companies (Second Amendment) Act, 2002, which is 10 caught for the past nearly 11 years in the eye of a judicial storm and which sought to create a National Company Law Tribunal and an Appellate Tribunal, for replacing the Company Law Board (apart from other things), incorporated a very important provision in Section 10-FZA. It may be useful to refer to it, to see how the law makers had understood the jurisdiction of the Board that was to be replaced by the Tribunals. It reads as follows:- "10-FZA. Procedure and powers of Tribunal and Appellate Tribunal.--(1) The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of Sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any Office; (e) issuing commissions for the examination of witnesses or documents; (f) reviewing its decisions; (g) dismissing a representation for default or 11 deciding it ex parte; (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and (i) any other matter which may be prescribed by the Central Government. (3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a Court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send in case of its inability to execute such order, to the Court within the local limits of whose jurisdiction,-- (a) in the case of an order against a Company, the Registered Office of the Company is situate; or (b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain. (4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228, and for the purposes of Section 196 of the Indian Penal Code (45 of 1860) and the Tribunal and the Appellate Tribunal shall be deemed to be a Civil Court for the purposes of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)." 26. The express provision contained in Section 10-FZA(1) specifically making the National Company Law Tribunal and the Appellate Tribunal not bound by the procedure laid down in the Code of Civil Procedure, is not to be found in Section 10-E. Though Section 10-FZA(2) contains provisions somewhat similar to those contained in Section 10-E(4-C), sub-section (1) of Section 10-FZA make things very clear in so far as the application of the provisions of the Code to the proceedings 12 before the National Company Law Tribunal and the Appellate Tribunal are concerned. Therefore, if the National Company Law Tribunal and the Appellate Tribunal had come into existence, the first question that has arisen for consideration, would not have arisen at all. 27. Thus it is clear that after the Constitution of the National Company Law Tribunal and the Appellate Tribunal, the application of the provisions of the Civil Procedure Code was to be specifically excluded in their application to the procedure adopted by these Tribunals. But such an express exclusion was not found in Section 10-E (4-C) of the Act, in so far as the Company Law Board is concerned. 28. One more important provision to be noted is Section 634-A of the Act, which was inserted by Act 46 of 1977. By this provision, the orders of the Company Law Board were made enforceable in the same manner as if they were decrees passed by Civil Courts in suits. If the Company Law Board is itself a Court, there was no necessity for introducing a deeming fiction, to equate the orders of the Company Law Board to civil court decrees, for the purpose of execution. Keeping this in mind, let me now move over to the Regulations. 29. The Company Law Board Regulations 1991, as it appears, seem to be a complete Code in so far as the procedure to be followed by the Board is concerned. The Regulations cover many matters in an exhaustive manner, including (i) the jurisdiction of the Bench; (ii) language of the Bench; (iii) sitting hours of the Bench; (iv) the method of presentation of petitions (v) the scrutiny of such petitions (vi) the documents that are required to accompany the petition (vii) the rights of parties to appear before the Bench; (viii) the rights of parties to seek plural remedies; (ix) the method of service of notice and process issued by the Bench; (x) the manner of filing of reply and documents by the respondent and the filing of counter reply by the 13 petitioner; (xi) the power of the Bench to call for further evidence or information, the procedure to be adopted by the Board, when a party to a proceeding does not appear; (xii) the power of the Board to set aside ex parte orders; (xiii) the abatement of proceedings upon the death of a party and the power of the Board to set aside the abatement; (xiv) the method of passing of orders; (xv) the supply of certified copies; (xvi) enrichment of time; (xvii) inherent powers of the Board; (xviii) general power to amend etc. 30. Some of the important provisions of the Regulations require to be noted. The Regulations which came into force with effect from 31.5.1991 originally contained a provision under Regulation 27 conferring powers of the Company Law Board to review its own order. But Regulation 27 was omitted by the Amendment Regulations of 1992. But, Regulation 28 recognises the principle of abatement and the power of the Board to set aside abatement, if an application is made within 30 days. Regulation 29(6) empowers the Company Law Board to make such order or give such direction as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice. Regulation 29(7) empowers the Board to award costs of the litigation. 31. Regulation 38 contains a special provision relating to proceedings under Sections 397 and 398. It says that a petition under Section 397 or 398 shall not be withdrawn without the leave of the Board. This is perhaps due to the reason that any petition