IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 03.02.2010 CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Company Appeal No.4 of 2010 & M.P.No.1 of 2010 1. Mr.Ramani Ramaswamy 2. Mr.R.Rangarajan .. Appellants/Respondents Vs. 1. Srei Venture Capital Limited, Investment Manager of Infrastructure Project Development Fund, Kolkata – 700 046. 2. Creative Port Development Private Ltd., "Mahalakshmi" 1st Floor, New No.290, Peters Road, Gopalapuram, Chennai – 600 086. 3. Naveen Bansal 4. Probir Kumar Misra 5. Swapan Chakrabarti 6. SREI Infrastructure Finance Ltd "Vishwakarma" No.86-C, Topsia Road (South) Kolkata – 700 046. .... Respondents/Respondent APPEAL under Section 10F of the Companies Act, 1956 to set aside the order dated 12.01.2010 in C.A.No.60 of 2010 in C.P.No.13 of 2009 passed by the Company Law Board, Additional Principal Bench, Chennai. For Appellants : Mrs.Nalini Chidambaram, S.C. for Mr.K.Moorthy For Respondents : Mr.S.N.Mookherjee, S.C. For M/s.P.H.Aravind Pandian J U D G M E N T This Company Appeal is preferred against the order of the Company Law Board dated 12.1.2010 in C.A.No.60 of 2010 in C.P.No.13 of 2009. The present appeal is at the instance of the petitioners in https://hcservices.ecourts.gov.in/hcservices/ the Company Petition preferred before the Company Law Board. The appellants herein were the respondents in the order passed by this Court in Company Appeal Nos.11 to 15 of 2009 dated 28.8.2009. Since the parties herein before this Court are represented by the respective counsel at the admission stage itself,and arguments are presented in a full-fledged manner, after hearing both sides and having gone into the merits of the appeal presented before this Court, final order is passed at the admission stage itself. 2. Before considering the contentions of the parties herein, brief reference to the facts are as follows. 3. The appellants herein presented a petition before the Company Law Board under Sections 397, 398 and 402 of the Companies Act, 1956 read with Regulations 13 and 14 of the Company Law Board Regulations, 1991, against the respondents herein. The first respondent is the asset management company of SREI Venture Capital Trust. The second respondent is a private company principally engaged in developing infrastructure in the seaport sector in India and overseas. Respondents-3 to 5 are the nominee directors of the second respondent company. Respondent No.6 - SREI Infrastructure Finance Ltd. is in infrastructure financing business and in infrastructure project development. 4. The appellants herein, along with the first respondent company, are the shareholders of the second respondent company, having shareholding pattern at the ratio of 30:70. 5. In respect of certain disputes that arose between the parties, namely, the appellants and the first respondent, a memorandum of understanding was reached on 14.11.2007, pursuant to which, the first respondent, through the third respondent, agreed to part with their stakes in the second respondent company for a consideration of Rs.52.50 crores to any prospective investor to be brought in by the appellants; that the payment was to be made by 28.2.2008 at a consideration as stated above; the Memorandum of Understanding was to be in force till 28.2.2008 and in the event of the transaction not getting completed within the time stipulated, the Memorandum of Understanding would become null and void. The Memorandum of Understanding also covered the concession agreement signed with the Government of Andhra Pradesh for the Machilipatnam Port project as well as with the Government of Orissa for the Subarnarekha Port Project. It is seen from the narration of the facts that differences arose between the parties to the Memorandum of Understanding as to the implementation of the terms of the Memorandum of Understanding; that the appellants complained of mismanagement and oppression by the first respondent as regards the affairs of the second respondent company. The appellants herein moved a petition before the Company Law Board under Sections 397, 398 and 402 of the Companies Act read with Regulations 13 and 14 of the Company Law https://hcservices.ecourts.gov.in/hcservices/ Board Regulations, 1991. Among the various reliefs sought for before the Company Law Board on the plea of oppression and mismanagement, the appellants herein sought for a direction to the first respondent to transfer its investments and shares in the second respondent company to the nominee of the appellants either at the price offered in the email dated 15th November 2007 or at such other price not exceeding the price agreed to earlier as the Company Law Board might determine. The appellants also sought for an injunction to restrain the first respondent and respondents-3 to 6 from obstructing or interfering with the transfer instruments held by the first respondent in the company to the appellants or their nominees for the purpose of implementation of the transfer. The appellants sought for a direction against the respondents other than respondent No.2, to compensate its company for the loss caused to the company, i.e., the first respondent, due to the act of oppression and mismanagement. 6. The Company Law Board passed an order in C.P.No.13 of 2008 on 27.5.2009 and came to the conclusion that the first respondent should transfer its shares and all other interests in the second respondent company at a consolidated price of Rs.52.50 crores, or at a fair value as at 31.03.2008, whichever is higher. The fair value was to be determined by an independent Expert Valuer to be appointed by the Bench. The second respondent was to exercise either of the options, by filing an appropriate affidavit before the Bench Officer within 30 days of the receipt of the copy of the order, so that there was due completion of the exit formalities of the first respondent from the second respondent company. The Company Law Board, however, passed orders that respondents-1 and 3 to 6 shall ensure reimbursement in favour of the company, 30% of all benefits enjoyed by the first respondent from and out of the Machilipatnam Port Project as at 31.03.2008, which shall be ascertained by the Expert Valuer. The Bench however, directed that the appellants shall reconstitute the Board of Directors of the company in exclusion of the nominees of the second respondent, upon which the Company is at liberty to carry on its business, in terms of the articles of association. The Company Law Board directed that the appellants shall keep informed the first respondent of any major developments in the Subarnarekha Port Project every month, within seven days of the following month commencing from June, 2009, till the completion of the whole of exit formalities of the first respondent from the second respondent company. 7. Aggrieved by the said order of the Company Law Board, the respondents before the Company Law Board, other than the company, namely, the second respondent herein, preferred appeals before this Court. By common order dated 28.8.2009 in Company Appeal Nos. 11 to 15 of 2009, this Court modified the order of the Company Law Board and held that there was no oppression or mismanagement as complained of by the appellants herein as against the first respondent either in relation to the Machilipatnam Port Project or towards the affairs of the second respondent company herein. This Court further pointed https://hcservices.ecourts.gov.in/hcservices/ out that the Subarnarekha Port Project was a project of the second respondent. Further, the Memorandum of Understanding dated 14.11.2007 as regards the exit of the first respondent company from the second respondent company agreeing to receive a sum of Rs.52.50 crores is binding on the both parties. To sum up, this Court allowed the appeals partly, (i) confirming the order of the Company Law Board in respect of relief granted under paragraph 9(i) with a direction to the first respondent herein to transfer its shares and all other interest held in the second respondent-Company (Creative Port Development Private Limited) to the appellants either at an agreed consolidated price of Rs. 52.50 Crores or any fair value to be arrived at by an independent Expert Valuer as at 31.3.2009, whichever is higher. On an application by the first respondent within a period of thirty days from the date of receipt of a copy of the order, the Company Law Board shall appoint an independent Expert Valuer and decide about all other formalities in that regard; (ii) that the relief granted by the Company Law Board under paragraph 9(ii) was set aside, holding that the first respondent had no obligation to reimburse any benefit accrued by it under Machilipatnam Port Project either to the appellants or the second respondent-Company; (iii) pursuant to the order of the Company Law Board dated 27.5.2009, except those vital acts which require the appellants to act for the purpose of retaining the Subarnarekha Port Project with the Government of Orissa, all further acts of the appellants were directed to be kept in abeyance, till the formalities in respect of fixing the consideration for exit of the first respondent is fixed by the Company Law Board, as stated above, and the entire amount is paid to the first respondent; and (iv) the appellants shall continue to disclose any further developments and communications as to the affairs of the Subarnarekha Port Project as from 25.6.2009 by sending copies to the first respondent periodically once in a month commencing from the end of August, 2009 till the formalities for exit of the first respondent are completed in full and till such formalities are completed, respondents-1 and 3 to 5 shall be deemed to continue as the Directors of the second respondent-Company. Thus this Court directed the first respondent to move an application before the Company Law Board within a period of 30 days from the date of receipt of a copy of the order of this Court for appointment of an independent expert valuer and decide about all the formalities in that regard. The appellants would perform such vital acts which were required for the retention of the Subarnarekha Port Project with the Government of Orissa, till the formalities as regards fixing the consideration and the entire amount paid thereon to the first respondent herein are completed for exit of the first respondent from the second respondent. As far as the order passed by this Court is concerned, learned senior counsel appearing for the petitioner submitted that the appellants have gone on appeal before the Supreme Court and the appeal is yet to be to be admitted. 8. In terms of the order thus passed, this Court confirmed the https://hcservices.ecourts.gov.in/hcservices/ order of the Company Law Board with a direction to the first respondent to transfer its shares and all other interest held in the second respondent-company to the appellants herein either at an agreed consolidated price of Rs.52.50 crores or any fair value to be arrived at by an independent Expert Valuer as at 31.3.2009, whichever is higher. This Court directed the first respondent to file an application within a period of thirty days from the date of receipt of a copy of this court's order. Thereupon, the Company Law Board shall appoint an independent Expert Valuer for valuation and on such valuation, the Tribunal shall decide about all other formalities in that regard. This Court, however, set aside the order of the Company Law Board as regards issue of sharing of profits in the Machilipatnam Port Project and that there was no oppression as was complained of by the appellants. This Court further pointed out that till the exit formalities are completed and the entire amount paid by the first respondent herein, all other acts of the present appellants pursuant to the order of the Company Law Board be kept in abeyance, except for carrying on certain vital acts in keeping the Subarnarekha Port Project alive. This Court further pointed out that till the formalities for exit of the first respondent are completed in full, respondents-3 to 5 shall be deemed to continue as the Directors of the first respondent company. 9. In terms of the order passed by this Court, the first respondent moved an application before the Company Law Board under Section 634 A of the Companies Act, 1956 read with Regulation 44 of the Company Law Board Regulations, 1991 and sought for a direction to the appellants herein to make payment of Rs.52.50 crores to the first respondent herein within a period of seven days; to direct the appellants herein to disclose the particulars of all the assets and properties; for an order of injunction restraining the appellants to deal with, dispose of or encumber in any manner the assets and properties as mentioned in paragraph 11 of the affidavit and the assets and properties to be disclosed by them; an order of injunction restraining the appellants from dealing with, disposing of, encumbering in any manner of any of the assets and properties of the appellants; upon default of making payment, a Receiver and/or Special Officer be appointed to take possession of the assets and properties of the appellants as mentioned in paragraph 11 in the petition and the assets and properties to be disclosed by the appellants, sell the same by public auction or private treaty and to hand over the sale proceeds thereof to the first respondent herein in protanto satisfaction of its consideration to be paid by the appellants herein to the first respondent herein and to make over the sale proceeds thereof to the first respondent in protanto satisfaction of consideration liable to be paid by the appellants for acquisition of the shares and all other interests of the first respondent. 10. The appellants herein questioned the maintainability of the above-said application on the ground that after the High Court passed https://hcservices.ecourts.gov.in/hcservices/ the order, except to the extent directed by this Court, there was no matter pending before the Company Law Board for the respondents to move any application. Hence, the application filed under Section 634A of the Companies Act was totally misconceived. The jurisdiction of the Company Law Board is not available for executing the order of the High Court as if it was a money decree. The prayer in the petition, hence, amounted to seeking a review of the order passed by this Court. The respondents further objected to the prayer for injunction against the appellants as regards their assets, which was not granted by the High Court. Hence, the appellants sought for rejection of the prayer of the respondents. The appellants, however, pointed out that without prejudice to their rights, they have started the process of arranging the sums for completing the exit formalities of the first respondent from the second respondent company. Consequently, they requested the Board to record the appellants' formal confirmation waiving their right for valuation and the first respondent's exit from the company on payment of Rs.52.50 crores towards the first respondent's value of shares in the second respondent company. The respondents/appellants sought for recording of the fact that the respondents had foregone their rights towards valuation of the shares and all other interests held in the second respondent company. 11. After hearing both parties, the Company Law Board passed an order on 12.1.2010 in Company Application No.60 of 2009, taking the view that the petition filed under Section 634A of the Companies Act is maintainable and the Company Law Board has every jurisdiction to entertain such an application for executing the order. In so holding, the Company Law Board rejected the plea of the appellants herein on the question of jurisdiction of the Board under Section 634A of the Companies Act to receive the application as an Executing Court. The Company Law Board rejected the plea of the appellants that the first respondent has no locus standi to approach the Company Law Board, the respondents being in the status of a judgment debtor. The Company Law Board pointed out that it has jurisdiction to pass an order for payment of money. The Company Law Board pointed out that having regard to the doctrine of merger, which postulates that there cannot be more than one operative decree governing the same subject matter at a given point of time, there was no merit in the plea of the appellants that it has become functus officio. Referring to the decision of the Apex Court in Shanthi Prasad and Others reported in CDJ 2004 Supreme Court 1108, the Company Law Board pointed out that as per Section 37 of the Civil Procedure Code, it is the Court of first instance which has the jurisdiction to execute the decree. Consequently, it has every jurisdiction to execute the orders passed by the High Court, as an appeal is a continuation of the original cause. Referring to Section 634 and 634A of the Companies Act, the Company Law Board held that the jurisdiction of the Company Law Board under Section 634A of the Companies Act is the same as that of an Executing Court. Pointing out to the inconsistent plea of the https://hcservices.ecourts.gov.in/hcservices/ appellants on the consideration and the undertaking to make the payment, the Company Law Board pointed out that the appellants had no intention of implementing their undertaking and they were trying to frustrate all efforts to put an end to the litigation; hence, taking note of the conduct of the parties, in terms of Regulation 44 of the Company law Board Regulations, the Company Law Board granted the prayer of the respondents seeking sequestration of assets. Thus the Company Law Board ordered the payment of consideration of Rs.52.50 crores by the appellants within 30 days from the date of receipt of the Company Law Board's order; the first respondent would be at liberty to give the status of the implementation of the order and in the event of non-implementation, it directed the sending of the order to the Court within the local limits for execution of the decree; till such time, the prayer relating to an injunction to restrain the appellants from dealing with, disposing or encumbering of the assets mentioned in the application shall continue to operate and shall stand vacated on the implementation of the prayer relating to the payment of the sum to the first respondent. 12. Aggrieved by the said order, the present appeal is filed by the appellants. 13. Learned senior counsel appearing for the appellants, challenging the order of the Company Law Board, made submissions on two points, viz., one on the question of jurisdiction of the Company Law Board to act under Section 634A of the Companies Act. Secondly, learned senior counsel pointed out that even assuming that the Company Law Board has jurisdiction to act as an Executing Court, yet, it overstepped its jurisdiction in reviewing the order of this Court and thereby modifying the terms of the order of this Court by prescribing the time limit for payment. She pointed out that since this Court had not fixed any time limit for payment, the order passed by the Board went beyond the terms of the order passed by this Court. Hence, the same is liable to be set aside by this Court. 14. In the course of the argument, learned senior counsel submits that as against the order passed by this Court, the appellants have preferred an appeal before the Apex Court. In the circumstances, pending the appeal before the Supreme Court in which a claim has been made as regards the payment due to the appellants under the Machilipatnam Port Project, the order now passed by the Company Law Board has to be set aside. 15. In support of her contentions, learned senior counsel submitted that when the order of this Court is very specific as regards the valuation to be done to arrive at the value of the shares to be transferred and there being no time limit fixed in the order passed by this Court, it is not open to the Company Law Board to fix the time limit for compliance of the payment of Rs.52.50 crores to the first respondent herein. In the circumstances, when this Court https://hcservices.ecourts.gov.in/hcservices/ has not fixed the time limit within which the transfer of shares had taken place, with the default clause and the interests of the first respondent herein sufficiently safeguarded, even assuming that the Company Law Board is the Executing court, it went beyond the terms of the order passed by this Court; hence, the order has to be set aside. 16. Learned senior counsel appearing for the appellants pointed out that the Companies Act is a special enactment and it overrides the Civil Procedure Code, it being a general law. Pointing out to the scope of the provisions of Sections 634 and 634 A of the Companies Act, she pointed out that in the face of Section 634 of the Companies Act, Section 37 of the Civil Procedure Code has no relevance; that as regards the order passed by the High Court under Section 10F of the Companies Act, an application for execution could be presented only in the High Court and not before the Company Law Board; hence the application under Section 634A of the Companies Act is totally misconceived. In any event, the Company Law Board cannot pass a recovery decree with a default clause, in a petition under Section 397 and 398 of the Companies Act. 17. In sum and substance, learned senior counsel pointed out that the proper forum for execution of the order passed by this Court under Section 10F of the Companies Act would be this Court alone and not the Company Law Board. Thus on the question of want of jurisdiction and even assuming there is jurisdiction, the Company Law Board went beyond the terms of the order passed by this Court and hence, the order passed by the Company Law Board is liable to be set aside. 18. Per contra, learned senior counsel appearing for the first respondent/caveator brought to my attention the relief sought for by the appellants herein in the petition filed under Sections 397 and 398 of the Companies Act before the Company Law Board. Taking note of the nature of disputes raised alleging oppression and mismanagement, the Company Law Board directed the appellants herein to pay the agreed consideration, or in the alternative, to go for an approved valuer to value the shares, so that there is a smooth exit of the first respondent from the second respondent company. Referring to the order passed by this Court in Company Appeal Nos.11 to 15 of 2009 dated 28.8.2009, learned senior counsel further pointed out that this Court had reversed the finding of the Company Law Board on the question of oppression; however, in terms of Section 402 of the Companies Act, this Court directed sale of the interest of the first respondent in the second respondent company at an agreed consolidated price of Rs.52.50 crores or any fair value to be arrived at by an independent Expert Valuer as at 31.3.2009, whichever is higher, and a specific time frame was given to the first respondent herein to make an application before the Company Law Board for appointing a valuer. Hence, rightly the first respondent herein went before the Company Law Board as an Executing Court under Section 634 https://hcservices.ecourts.gov.in/hcservices/ A of the Companies Act for necessary relief. Learned senior counsel pointed out that Section 634 of the Companies Act only speaks about the manner of enforcement of orders made by a Court under the Companies Act as a decree. It does not say or restrict by prescribing this Court as the execution Court for the purpose of enforcement of orders made by this Court as an appellate Court under the Companies Act. 19. He made a specific reference to the scope of appeal before the High Court under Section 10F of the Act and in particular, the definition to Section 2(11) as to "Courts" and Section 10 of the Companies Act on the "jurisdiction of the Courts" and pointed out that having regard to the law declared by the Apex Court in the decision reported in (1994) 1 SCC 34 (Stridewell Leathers (P) Ltd. And others Vs. Bhankerpur Simbhaoli Beverages (P) Ltd. And others) that the original jurisdiction of the High Court in respect of matters under Section