IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12-03-2010 CORAM THE HON'BLE MR.JUSTICE M.JAICHANDREN C.R.P.No.557 of 2010 and M.P.Nos.1 to 3 of 2010 1.Econo Valves Private Limited 197, SIDCO Industrial Estate, Ambattur, Chennai-98. 2.M/s.NSSL Limited F-8 MIDC, Hingna Road, Nagpur-440 016. 3. M/s.Jayaswal Holding Limited F-8 MIDC, Hingna Road, Nagpur-440 016. 4. B.L.shaw, F-8 MIDC, Hingna Road, Nagpur-440 016. 5.Anand Jayaswal F-8 MIDC, Hingna Road, Nagpur-440 016. .. Petitioners. Versus 1.V.L.Sridharan 2.Nalini Sridharan .. Respondents PRAYER: Petition filed under Article 227 of the Constitution of India, praying to call for the records connected with C.P.No.81 of 2009 and strike off the same on the file of the Company Law Board in exercise of its power under Section 10F of the Companies Act, 1956, or alternatively direct the Hon'ble Company Law Board to consider the maintainability of the C.P.No.81 of 2009 in time-bound period of two weeks before considering any other application or proceedings in C.P.No.81 of 2009. For Petitioners : Mr.H.Karthik Seshadri For Respondents : Mr.R.Murari (R1 & R2) O R D E R This civil revision petition has been filed praying that this Court may be pleased to call for the records connected with C.P.No.81 of 2009, on the file of the Company Law Board, Chennai Bench, and strike off the same in exercise of the power, under Section 10F of the Companies Act, 1956, or to alternatively, direct the company Law Board to consider the maintainability of C.P.No.81 of 2009, within a specified period, before considering any other application or proceedings, in C.P.No.81 of 2009. 2. It has been stated that M/s.Econo Valves Private Limited (hereinafter referred to as the `Company) was incorporated in the year, 1981, as a private limited company. The company had been engaged in the business of valve engineering. As such, it has a good reputation and goodwill in the market. The company was, previously, a family concern, with the respondents, along with some of their friends and relatives, as the shareholder of the company. As the respondents could not manage the company, financially, it was incurring heavy losses. Therefore, they had decided to give up the ownership and management of the company. Hence, the respondents had approached the appellants. 3. It has been further stated that the second and the third appellants expressed their interest in acquiring 100% stake in the company. Accordingly, they had entered into a shareholders agreement, for the purchase of the 100% shares of the company. The second and the third appellants had entered into a shareholders agreement, dated 14.12.2006. Accordingly, 76.64 % of the equity stake, held by the respondents, had been transferred to the second and the third appellants. As a result of the transfer of the shares by the respondents to the second and the third appellants, the share holding of the first respondent in the company had been reduced to 328 shares, which is 0.164% of the number of shares in the company. Thereafter, the second respondent is neither the director, nor a shareholder of the company. 4. It has been further stated that, after having sold their interest in the company, in the month of December, 2006, the respondents have raised a dispute, after a lapse of nearly three years before the Company Law Board, Southern Region Bench, Chennai, under the provisions of Sections 111, 397, 398 and 402 of the Companies Act, 1956, by filing C.P.No.81 of 2009, on 24.9.2009. It has also been stated that the respondents had made certain baseless and false averments in their petition before the Company Law Board. 5. Based on the averments made by the respondents, the Company Law Board, vide its order, dated 24.9.2009, had granted interim reliefs, as claimed by the respondents, restraining the first petitioner herein from convening the meeting of the Board of Directors, until further orders. By the said order, the petitioners had also been prevented from making alterations to the Articles of Association of the Company. The petitioners, having taken notice of the order passed by the Company Law Board, had filed company applications, in C.A.Nos.112 and 113 of 2009, on 10.11.2009. 6. The petitioners had challenged the maintainability of the petition filed by the respondents, in C.P.No.81 of 2009, on the ground that the respondents have not fulfilled the mandatory requirements of Sections 399 of the Companies Act, 1956. The second respondent is neither a share holder, nor a director of the company. However, she has been able to successfully stall the business of the company by making false allegations, by abusing the process of law. 7. It has also been stated that the petitioners had filed a memo, dated 2.2.2009, requesting the Company Law Board to dismiss C.P.No.81 of 2009. However, the Company Law Board, without ascertaining the maintainability of the petition, has permitted the respondents to, unnecessarily, prolong the proceedings from 10.11.2009. The interim reliefs granted, on 24.9.2009, had also been continued, as the matter had been adjourned on several occasions. Due to the interim order, dated 24.9.2009, the business of the company had been brought to a halt. No administrative, financial or business oriented decisions could be taken by the petitioners due to the interim order passed by the Company Law Board. Even the Board meetings, share holders meetings and the annual general body meetings could not be held. 8. While so, the respondents had moved an application in C.A.No.26 of 2010, for amending the company petition. Even though the Company Law Board had been adjourning the matter, on various occasions, for hearing the application, in C.A.No.112 of 2009, after the filing of C.A.No.26 of 2010, by the respondents herein, the Company Law Board had once again adjourned the matter for hearing both the applications, in C.A.No.112 of 2009 and C.A.No.26 of 2010. In such circumstances, the petitioners have preferred the present civil revision petition before this Court. 9. The main contention of the learned counsel for the petitioners is that the company petition, in C.P.No.81 of 2009, filed by the respondents, invoking Sections 397 and 398, read with Section 402 of the Companies Act, 1956, is not maintainable before the Company Law Board, as the respondents are not qualified to file the said petition, as per Section 399 of the said Act. Section 399 of the Companies Act, 1956, had been introduced, specifically, to prevent harassment of the company by unscrupulous share holders, like the respondents. The Company Law Board, by allowing the respondents to continue the proceedings, in C.P.No.81 of 2009, had enabled them to circumvent the requirement of Section 399(2) of obtaining the approval of the Central Government, in cases where the petitioners do not fulfill the qualifications, either in terms of the number of shares (1/10th of the paid-up capital of the company) or in relation to the number of members ( 1/10th of the total number of members of the company). 11. The learned counsel had further submitted that the respondents had also obtained certain interim orders, by deceit and fraud. In such circumstances, the Company Law Board should take up the company application, in C.A.No.112 of 2009, filed by the petitioners, with regard to the maintainability of C.P.No.81 of 2009. As it is clear that, on 14.12.2006, the respondents had transferred a substantial number of shares, in accordance with the shareholder agreement and it had been approved by the board meeting, dated 14.12.2006. Thereafter, the respondents were ineligible to file C.P.No.81 of 2009. As such, C.P.No.81 of 2009, filed by the respondents, is liable to be dismissed, as it is not maintainable. 12. Per contra, the learned counsel appearing on behalf of the respondents had submitted that the respondents had filed C.P.No.81 of 2009, praying for various reliefs, including the relief of declaration, to declare that all the share allotment of the petitioner company, on or after 14.12.2006, as null and void and to restore the original share holding pattern, as on 13.12.2006. He had also submitted that it is the settled position provision of law that, when the transfer of shares is questioned, the company petition is maintainable, in accordance with Section 399 of the Companies Act, 1956. He had also submitted that the amendment sought for by the respondents in the application, in C.A.No.26 of 2010, to amend the company petition, in C.P.No.81 of 2009, is not an entirely new relief, as it is covered under Section 402(g) of the Companies Act, 1956. As per Clause (g) of Section 402 of the Act, the Tribunal can grant the relief, with regard to any other matter, if, in its opinion, it is just and equitable to do so. He had also submitted that the petitioners, in the present civil revision petition, had not made any attempt to vacate the interim order granted by the Company Law Board, on 24.9.2009. Further, based on the request made by the petitioners, the interim relief granted by the Company Law Board had been, subsequently, modified. 13. The learned counsel appearing for the respondents had also pointed out that the Company Law Board does not have the jurisdiction to take up the issue of maintainability, as a preliminary issue, as per the powers vested in it, under Section 10E(4C) of the Companies Act, 1956, as held by the decision of the High Court of Andhra Pradesh, by its order, dated 3.7.2009, made in B.Subba Reddy Vs. S.S.Organics Limited, rep. by its Managing Director and another (MANU/AP/0229/2009). He had also submitted that, unless there is gross injustice committed by the Company Law Board, a Civil Revision Petition, under Article 227 of the Constitution of India, cannot be maintained, as held in the decisions, reported in Rana Mukherjee Vs. Bishwajit Bhattacharyya (MANU/SC/0558 /2001), Ranjit Kumar V. B.V.Deepak (MANU/SC/0718/20010) and Mrs.F.Sheikh V. Esemen Metalo Chemicals (C.L.B.) (1996 Vol. 87 Company Cases 290). He had also submitted that the issue relating to maintainability of the company petition, arising for consideration, in the company application filed by the petitioners, in C.A.No.112 of 2009, could be heard by the Company Law Board, along with the company petition, in C.P.No.81 of 2009. No irreparable harm would be caused to the petitioners, if the issue relating to the maintainability of the company petition is heard and disposed of by the Company Law Board, along with C.P.No.81 of 2009. 14. In reply, the learned counsel appearing on behalf of the petitioners had submitted that the Company Law Board could decide all preliminary issues, as per Section 10E(5) of the Companies Act, 1956. If the company law Board is empowered to decide the issue of jurisdiction, it can also decide it as a preliminary issue, as held in Canara Bank V. Nuclear Power Corporation of India Ltd. And others (1995 Supp (3) SCC 81). The Company Law Board has similar powers, as that of a Civil Court. He had also submitted that Section 403 of the Companies Act, 1956, also gives the power to the Company Law Board to decide such issues. When the respondents had voluntarily shared the shares, by way of an agreement, it cannot be said that it had been done due to deceit or fraud. When the respondents had questioned only the allotment of shares, the issue relating to transfer of shares would not arise. As such, the respondents cannot claim that they are entitled to maintain a company petition, as per the provisions of Section 399 of the Companies Act, 1956. 15. The learned counsel had also stated that, unless C.A.No.112 of 2009, is taken up as a preliminary issue, the petitioners would be put to serious hardship and irreparable loss. The learned counsel for the petitioners had relied on the decision reported, in Rajiv Mehta and others Vs. Group 4 Securitas Hindustan Pvt. Ltd and others (2000 Vol.99 Company Cases 57). 16. The learned counsel had also pointed out that the Company Law Board, having been formed with specific powers to deal with matters relating to companies, which were being adjudicated by this Court, earlier, would possess, by necessary implication, similar powers as that of this Court, including certain residuary powers. Though the Company Law Board is not bound by the procedures contemplated under the provisions of the Civil Procedure Code, 1908, it has certain inherent powers, including the power to decide on preliminary issues. 17. In view of the averments made on behalf of the petitioners, as well as the respondents and on a perusal of the records available and in view of the decisions cited above, this Court finds it appropriate to direct the Company Law Board, Chennai Bench, to hear and dispose of C.A.No.112 of 2009 and C.A.No.113 of 2009, as well as C.A.No.26 of 2010, as preliminary issues, on merits and in accordance with law, as expeditiously as possible, unless there are impediments, either legal or factual, which may arise, during the course of the proceedings. Accordingly, the Civil Revision Petition is disposed of, with the above directions. No costs. Consequently, connected miscellaneous petition is closed. It is made clear that it would be open to the respondents to move any other application, if they find it necessary, before the Company Law Board, during the pendency of C.P.No.81 of 2009. Index:Yes/No 12-03-2010 Internet:Yes/No csh M.JAICHANDREN J. csh C.R.P.No.557 of 2010 12-03-2010