1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. COMPANY APPEAL NO.46 OF 2009 IN COMPANY APPLICATION NO.389 OF 2009 IN COMPANY PETITION NO.112 OF 2005 Ravindra Singh Ahluwalia, of Mumbai Indian Inhabitant, Director, Mukat Pipes Limited, having his address at Surindra House, Safed Pool, Kurla Andheri Road, M.V. Road, Andheri (East), Mumbai 400 072. ..Appellant. Vs. 1. Mrs Sandeep Kaur Ahluwalia of Mumbai India Inhabitant having her address at 37, Parag Apartments, Versova, Mumbai 400 061. 2. Muka23t Pipes Limited a Public Limited Company incorporated under the Companies Act, 1956 having its registered office at Surindra House, Safed Pool, M.V. Road, Mumbai 400 072. 2 3. Kuljinder Singh Ahluwalia of Mumbai Indian Inhabitant Director, Mukat Pipes Limited having his address as Surindra House, Safed Pool, Kurla – Andheri Road, Andheri (East), Mumbai 400 072. ..Respondents. .... Mr. Navroz Seervai, Senior Advocate with Mr. Pratik Saxeria and Mr. Vishal Thakkar i/b Ms Anjali Trivedi for the Appellant. Mr. Anil K. Aggrawal with Mr. Simil Purohit, Ms Sowmya Srikrishna, Ms Swapnil Khatri and Ms Jasmine Sheth i/b M/s. Wadia Ghandy & Co. for Respondent No.1. Mr. Anil K. Aggrawal with Ms Swapnil Khatri and Ms Jasmine Sheth i/b M/s. Wadia Ghandy & Co. for Respondent No.2. Mr. Pravin Samdani, Senior Advocate with Mr. Chetan Kapadia and Mr. Sanjay Jain i/b M/s. Nankani & Associates for Respondent No.3. .... CORAM: DR. D.Y. CHANDRACHUD, J. 4th December, 2009. ORAL JUDGMENT : 1. Admit. Counsel for the Respondents waive service. With the consent of Counsel and at their request taken up for final hearing. 1A. The Appeal under Section 10-F of the Companies Act, 1956 arises out of an order passed by the Company Law Board (‘CLB’) on 7th August, 2009. By that order the CLB in a petition under Section 3 397 of the Companies Act, 1956 declined to stay the holding of an Extra Ordinary General Meeting of the Second Respondent, but nonetheless directed that the resolutions passed at the meeting shall not be implemented “till the completion of the suit proceedings in the High Court of Bombay and also the arbitration proceedings”. The dispute between the parties relates to a company by the name of Mukat Pipes Limited, a public limited company which has been listed, the Court is informed, on the Stock Exchanges at Delhi, Mumbai and Ludhiana. About 40% of the shareholding is held by the members of the public, consisting of nearly 12,000 shareholders. The bone of contention relates to about 43.38% of the shareholding which stood in the name of Rajinder Singh. The Appellant and the Third Respondent are brothers of Rajinder Singh who died on 11th May, 2005. The First Respondent is the widow of the deceased. Rajinder Singh and the mother of the Appellant and the Third Respondent formed a partnership firm by the name of Muktanandan Corporation on 17th September, 1975. According to the Appellant the partnership was reconstituted by a supplemental deed dated 2nd April, 2003 with 4 the earlier two partners, the Appellant and the First and Third Respondents. About 33,24,400 shares of the Second Respondent were held in the name of Rajinder Singh. The case of the Appellant is that though these shares stood in the name of Rajinder Singh, the shares were purchased out of the funds of the partnership and the ownership of the shares has been reflected in the books and records of the partnership firm signed and acknowledged by Rajinder Singh during his lifetime. Upon the death of Rajinder Singh on 11th May, 2005 the shares were transmitted to the name of the First Respondent. 2. On 13th December, 2005 the First Respondent filed a company petition under Section 397 before the Principal Bench of the CLB at New Delhi. The Appellant and the Third Respondent filed an application under Section 111-A challenging the transmission of shares to the name of the First Respondent. Both the petitions were disposed of by a judgment dated 14th February, 2007 of the CLB. By its judgment the CLB held that the resolution of the Board of Directors 5 dated 5th December, 2005 for the retransmission of shares to the individual partners of the partnership firm viz. the Appellant and the First and Third Respondents would have to be set aside. The order of the CLB holds that the First Respondent validly held shares representing 43.38% of the capital and consequently, the First Respondent would be entitled to atleast two directors out of a total of five directors on the Board of the company who would be appointed at the next Annual General Meeting which was directed to be convened within a period of one month. The order stipulated that the First Respondent would continue to have “the same proportion of representation on the Board in the event of increase in the number of directors in future”. The petition under Section 111A of the Companies Act, 1956 was dismissed. The CLB held that the question as to the genuineness or otherwise of the supplementary partnership deed could not be enquired into for which the Respondents to the proceedings viz. the Appellant and the Third Respondent hereto would have to approach a Court of law for relief. 6 3. The order of the CLB was carried in appeal before this Court under Section 10-F. During the course of the proceedings on 4th May, 2007 Consent Terms were filed before this Court in terms whereof the Company Appeal was disposed of. The Consent Terms record as follows : “1. A general meeting of Respondent No.2 Company will be held on 11/6/2007 at 11.00 a.m. at an agreed venue in Bombay to inter alia consider the ratification of the appointment of (i) Mr. Sandeep Ahluwalia and (ii) Mrs. Mandeep Pahwa Ahluwalia as directors. 2. In view of the fact that the impugned order observes that the Appellant should agitate his grievances with regard to the disputed 33,24,400 shares in civil suit, the Appellants will be at liberty to file a suit within a period of 8 weeks in respect of the disputes arising in the Company Petitions filed before the Company Law Board. The suit and all proceedings therein will proceed without being in any manner influenced by the findings of the Company Law Board in any manner whatsoever. The directions contained in the impugned order regarding the appointment of Directors will be subject to orders passed in the suit or in any interlocutory proceedings therein. 3. Respondent No.1 for a period of eight weeks from the date of this order will not sell, alienate, pledge or create any third party rights of the disputed 33,24,400 shares which are pledged with I.D.B.I. in favour of any other third party except to discharge the dues of I.D.B.I.” 7 4. Prior to the passing of the order of this Court dated 4th May, 2007, but after the order of the CLB, the First Respondent and her daughter were appointed as additional directors at a meeting held on 8th March, 2007. 5. The Third Respondent instituted a suit before this Court on the Original Side in terms of the directions issued by the CLB on 14th February, 2007 in which a Motion for interlocutory relief was taken out. By the ad interim orders of this Court dated 7th June, 2007, 3rd July, 2007 and 24th July, 2007 an Annual General Meeting of the company which was scheduled to be held on 10th August, 2007 came to be deferred. Consequently, the exercise of rights under the said shares by the First Respondent came to be restrained. On 16th December, 2008 a Learned Single Judge of this Court dismissed the suit at the hearing of the Notice of Motion. The order of the Learned Single Judge was challenged in appeal by the Third Respondent. During the pendency of the appeal, the interim orders were continued and the appeal was to be heard at the stage of admission. 8 6. The First Respondent called for the convening of an Annual General Meeting on 27th April, 2009. In the meantime, on 16th April, 2009 the Appellant issued a notice for the dissolution of the partnership, Muktanandan Corporation. The Appellant thereupon filed an arbitration petition before this Court under Section 9 of the Arbitration and Conciliation Act, 1996 inter alia for the appointment of a Receiver and for the grant of an injunction in respect of the books of account, goodwill and the assets of the firm including the corporate and legal benefits arising from the 33,24,400 shares of the company. The arbitration petition, the Court has been informed was heard until 2nd May, 2009 on a day to day basis. In the appeal filed by the Third Respondent against the dismissal of the suit, the Division Bench directed by an order dated 24th April, 2009 that the decisions in the AGM, will not be implemented till further orders. On 27th April, 2009 an AGM was held at which the First Respondent and her daughter were appointed as directors of the company. 9 7. The arbitration petition under Section 9 was allowed by a Learned Single Judge of this Court on 7th May, 2009. The Learned Single Judge held that prima facie the shares in question constituted property of the partnership firm and that Rajinder Singh held the shares on behalf of the firm. The Learned Single Judge entered a prima facie finding that those shares were never treated by him as his self acquired shares. Consequently, by the order of the Court the Court Receiver came to be appointed as Receiver in respect of the shares. Pending the disposal of the arbitral proceedings and for a period of four weeks thereafter, the parties were restrained by an order of injunction from transferring, alienating, disposing of or creating any third party rights in respect of the assets and properties of the firm and from acting upon the corporate and legal benefits arising from the said shares. On 12th June, 2009 Surindra Engineering Limited, which is a shareholder of the Second Respondent requisitioned an Extra Ordinary General Meeting of the company on 8th August, 2009. On 13th July, 2009 when the appeal filed by the Third Respondent against the order of the Learned Single 10 Judge dismissing the suit was heard, a Notice of Motion was moved by the First Respondent before the Division Bench for ad interim relief seeking stay of the convening and holding of the Extra Ordinary General Meeting on 8th August, 2009. No relief was granted on the Motion. Eventually by an order dated 23rd July, 2009 a Division Bench of this Court allowed the appeal and set aside the order of the Learned Single Judge dated 16th December, 2008 dismissing the suit. 8. An appeal was filed by the First Respondent challenging the judgment of the Learned Single Judge dated 7th May, 2009 on the petition under Section 9 of the Arbitration and Conciliation Act, 1996. The judgment was reserved in the appeal on 3rd August, 2009. Once again, an oral application was made before the Division Bench for postponing the Extra Ordinary General Meeting of the Second Respondent which was scheduled to take place on 8th August, 2009 by the advocate for the First Respondent. The prayer for the grant of a postponement of the Extra Ordinary General Meeting was not acceded to by the Division Bench. 11 9. On 3rd August, 2009 the Appellant was served with an application1 purportedly filed by the First Respondent under Section 634-A of the Companies Act, 1956 before the New Delhi Bench of the CLB. The notice mentioned that the First Respondent would be moving an application before the New Delhi Bench of the CLB on 4th August 2009 at 2.30 p.m. for the grant of relief. The relief that was sought in the application was the stay of the holding of the Extra Ordinary General Meeting of the company on 8th August, 2009 on the ground that the convening of the meeting is in violation and contravention of the order of the Principal Bench dated 14th February, 2009 in the petition under Sections 397 and 398 of the Companies Act, 1956. This Court has been informed that the application was heard by a member of the CLB at 2.30 p.m. on 4th August, 2009. Initially an order was passed staying the Extra Ordinary General Meeting on 8th August, 2009. But the Member of the CLB later scored off the signed sheet and placed the proceedings on 7th August, 2009 for hearing. On 5th August, 2009 an appeal under Section 10-F was 1 Application 389 of 2009. 12 filed before this Court against the registration of Company Application 389 of 2009 and the entertainment of the application by the CLB. On 6th August, 2009 a Learned Single Judge of this Court recorded the submission of the Appellant that the application under Section 634-A that was filed before the CLB was not maintainable inasmuch as the order of the CLB dated 14th February, 2007 of which execution was sought had merged with the order passed by this Court on 4th May, 2007 in the appeal under Section 10-F. It was also contended that the Member who had passed the order dated 4th August, 2009 had no jurisdiction to entertain the application in view of the Company Law Board Regulations, 1991 read with an order dated 25th March, 2008 constituting Benches for the purposes of exercising and discharging powers and functions under the Act. On behalf of the First Respondent it was urged before the Learned Single Judge that the Principal Bench of the CLB had jurisdiction to hear the application of the First Respondent and the order dated 4th August, 2009 was accordingly passed by the Principal Bench of the CLB. The Learned Single Judge, by his order dated 6th August, 2009 held that it 13 was not appropriate to interfere with the order dated 4th August, 2009 since the application filed by the First Respondent had been fixed for hearing on 7th August, 2009. This Court also recorded that at the same time it was necessary to take notice of the fact that the Extra Ordinary General Meeting had been convened at the instance of a shareholder - Surindra Engineering Limited which was not a party to the proceedings before the CLB. The CLB was directed by this Court to pass orders after considering all issues arising under the application including the issue pertaining to maintainability and jurisdiction and to issue atleast a reasoned prima facie finding by 5.00 p.m. on 7th August, 2009 as regards the holding of the Extra Ordinary General Meeting which was scheduled to take place at. 4.00 p.m. on 8th August, 2009. 10. The Member of the CLB, Mrs. Vimala Yadav, J., who had heard the proceedings on 4th August, 2009 was not available on 7th August, 2009. Accordingly the application was heard on 7th August, 2009 by another Member (Vasudevan J.). By his order dated 7th 14 August, 2009 the Member of the CLB, while declining to grant an absolute stay on the holding of the Extra Ordinary General Meeting directed that the resolutions that may be passed at the meeting shall not be implemented until the proceedings in the suit before this Court and the arbitral proceedings were concluded. According to the Appellant a copy of the order was made available at 7.40 p.m. on 7th August, 2009 together with the attendance- cum- order sheet. The Appellant has made a serious grievance of the fact that though when the attendance- cum- order sheet was signed by the advocates, the attendance sheet was of proceedings before the New Delhi Bench of the CLB, this was subsequently struck off by substituting the words “Principal” so as to read as if the proceedings and the hearing took place before the Principal Bench of the CLB. The Company Appeal has thereupon been listed before this Court. With the consent of the learned counsel, the Appeal has been taken up for hearing and final disposal. 11. Principally, on behalf of the Appellant, the jurisdiction of 15 the CLB to entertain the application purportedly under Section 634-A has been called into question. The submission of the Appellant before this Court has been that (i) the order passed by the CLB on 14th February, 2007 merged with the order of this Court dated 4th May, 2007 passed on an appeal under Section 10-F and that consequently no application for execution of the order dated 14th February, 2007 could have been entertained; (ii) The Appeal was lodged before the New Delhi Bench of the CLB; pleadings and affidavits were filed before the New Delhi Bench on that basis and the appeal was heard and disposed of by Vasudevan, J. who was a Member of the New Delhi Bench. Vasudevan, J. was at the material time not a Member of the Principal Bench of the CLB and he would have no jurisdiction to entertain the application, even assuming that an application for the execution of the order dated 14th February, 2007 could lie before the Principal Bench of the CLB; (iii) The CLB which has been constituted under the provisions of Section 10-E has provided for the distribution of work between its Benches. The distribution of work between the Benches is governed by the CLB Regulations, 1991 as amended in 16 2008. On 25th March, 2008 a statutory order has been issued by the CLB under Section 10-E(4-B) constituting Benches for the exercise and discharge of its powers and functions. Under the regulations and the order dated 25th March, 2008 the Principal Bench had no jurisdiction whatsoever to entertain the application even assuming that it was an application for execution of the order dated 14th February, 2007. In any event, Vasudevan, J. was not a Member of the Principal Bench at the material point of time and was therefore not entitled to adjudicate upon the matter. 12. On behalf of the First Respondent it has been submitted that (i) The order of the CLB dated 14th February, 2007 did not as a matter of fact merge with the order of this Court dated 4th May, 2007, since the order of the CLB was neither set aside, modified or confirmed by this Court; (ii) Even assuming that there was a merger of the order of the CLB with the order passed by this Court on 4th May, 2007, even then an application for execution of the order dated 14th February, 2007 could only lie before the CLB in view of the 17 provisions of Sections 37 and 38 of the Code of Civil Procedure, 1908; (iii) Upon the transfer of jurisdiction of the High Court under Sections 397 and 398 to the CLB, Rule 6 of the Company Court Rules will continue to apply and hence all applications for execution of orders passed by the CLB must be governed by the provisions of the CPC; (iv) The order dated 14th February, 2007 was passed by the Principal Bench of the CLB. On 25th March, 2008 an administrative direction was issued for the constitution of Benches and the concept of Regional Benches of the CLB was brought in for the first time thereby. When the application under Section 634-A was filed by the First Respondent the Chairman who sits at Delhi was on leave between 22nd July and 7th August, 2009. Consequently, a notice was issued on 24th July, 2009 by the Registrar of the CLB to the effect that in his absence applications before him would be heard by the Member of the CLB. This, it was urged, would mean that the Member who was present in Delhi during his absence. Consequently, the application was rightly heard by Vasudevan, J. who was a Member of the New Delhi Bench, though he heard it in the name of the Principal Bench; 18 (v) Reliance was placed on the provisions of Regulations 3(2) and 3(3) and the definition of the expression “Bench” and “Member” in the regulations. The submission was that the orders passed by the CLB under Regulation 4 specifying matters which may be dealt with by the Regional Benches does not limit the inherent jurisdiction of the Principal Bench to hear matters assigned to the Regional Benches; (vi) In any event, the principle laid down in Section 21 of the Code of Civil Procedure would govern and an objection as regards the place of suing cannot be allowed to be taken unless it is taken in the court of first instance at the earliest possible opportunity and unless there has been a consequent failure of justice. In the present case it was urged that no material has been placed before the Court to establish that there is a consequent failure of justice; (vii) The orders passed by this Court in the arbitration petition under Section 9 and in the appeal arising out of the order of the Learned Single Judge contain only a prima facie finding that the shares in question though held by Rajinder Singh constitute an asset of the partnership. A Special Leave Petition has been filed before the Supreme Court which is pending. In 19 the meantime, in the event that the Extra Ordinary General Meeting is allowed to proceed and the resolutions proposed thereon are passed, that would result in a change in the management of the company by the ouster of the First Respondent as a director of the company. This, it was submitted should not be allowed. 13. In dealing with the rival submissions it would at the outset be necessary for the Court to elucidate the statutory basis for the exercise of jurisdiction by the CLB and by its Benches. Section 10-E of the Companies Act, 1956 provides for the constitution of the CLB. Sub section (4-B) of Section 10-E provides that the Board may by an order in writing form one or more Benches from among its Members and authorize each such Bench to exercise and discharge such of the powers and functions of the Board as may be specified in the order. Every order or act done by a Bench in the exercise of such powers or the discharge of such functions shall be deemed to be the order or act, as the case may be, of the Board. Every Bench as referred to in sub section (4-B) is conferred with certain specified powers which are 20 vested in a civil Court while trying a suit, under the Code of Civil Procedure 1908 in respect of certain matters. In other words, what sub section (4-B) of Section 10-E emphasizes is that the Board is empowered to constitute Benches from amongst its Members. Each such Bench is authorized upon constitution to exercise and discharge such of the powers and functions of the Board, as may be specified in the order. 14. The CLB Regulations were notified in 1991 and came to be amended in 2008. Regulation 3 provides that subject to Regulation 4 every Bench of the Board formed under sub section (4-B) of Section 10-E may consist of one or more Members. The order of the Chairman forming a Bench shall specify the powers which shall be exercised and functions which shall be discharged by the Bench. Consequently, once a Bench has been constituted and formed the powers and functions which are to be exercised or, as the case may be, discharged are structured by the order of the Chairman constituting the Bench. Under sub Regulation (3) of Regulation 3, the 21 Chairman in relation to each Bench formed has to specify the Member of the Bench before whom every matter requiring the decision of the Board (otherwise than a matter affecting the final disposal of the petition) shall be placed for orders. In the absence of the Member so specified every such matter has to be placed before any other Member of the Bench who is present. The expression “Bench” is defined by Regulation 2(e) to mean that a