Company Law Board
A.N.Z. Grindlays Bank vs National Hydro Electric Power ... on 15 March, 1994
Equivalent citations: [1995]82COMPCAS745(CLB)
ORDER
1. A.N.Z. Grindlays Bank (ANZ) has filed a petition under Section 111 of the Companies Act, 1956, on March 9, 1993, praying, inter alia, for rectification of the register of bond-holders. The respondents in this case apart from the company concerned, namely, National Hydro Power Corporation Limited (NHPC), include Smt. Promod Gupta and Shri Sanjay Gupta, residents of 6, Anand Lok, New Delhi-49. The other respondents are Fairgrowth Financial Services Limited (respondent No. 4) and Fairgrowth Investments Ltd. (respondent No. 5). The case of the petitioner is that on or about March 17, 1992, they purchased from Smt. Promod Gupta and Shri Sanjay Gupta, respondents Nos. 2 and 3, respectively (the original allottees and the joint holders), 9 per cent. NHPC 1987 (B series) bonds issued by the National Hydro Electric Power Supply Corporation Ltd. (respondent No. 1) of a total face value of Rs. 9,63,40,000 for a total consideration of Rs. 6,73,41,062 covered by bonds certificate No. 0619665. The bonds carried interest at the rate of 9 per cent. per annum free of income-tax and the same is payable through post-dated interest warrants issued along with the bond certificate. When respondents Nos. 2 and 3 sold the bonds to the petitioner, on or about March 17, 1992, they omitted to deliver the cheques/interest warrants in respect of interest due thereafter except one due on March 31, 1992, and retained the balance post-dated cheques with themselves.
2. The petitioner (ANZ) further transferred these bonds immediately thereafter for valuable consideration to respondent No. 4 (a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, along with one interest warrant in respect of interest due on March 31, 1992). In turn, respondent No. 4 transferred the bond to respondent No. 5 along with the interest warrant in respect of the interest due on March 31, 1992. Respondent No. 5 got the said bonds registered in its name in the records of NHPC. Thereafter, respondent No. 5 transferred the said bonds back to respondent No. 4 by signing/endorsing on the reverse of the bonds certificate as transferors and delivered the certificate to respondent No. 4. ANZ again purchased these bonds from respondent No. 4 on or about April 16, 1992, through a firm of brokers. Thus, the bonds took exactly a reverse course.
3. On non-registration of the bonds by NHPC, ANZ has filed this petition under Section 111 of the Companies Act, which include prayers against respondents Nos. 2 and 3 as well with regard to interest warrants.
4. An application dated May 10, 1993, was filed on behalf of respondents Nos. 2 and 3 praying that the petition deserves to be dismissed summarily in view of the fact that the securities in question were tainted securities and would be within the exclusive competence and jurisdiction of the custodian appointed under the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. It was further contended that even assuming that the Company Law Board has jurisdiction to entertain the petition, there was no need for impleading respondents Nos. 2 and 3 inasmuch as under Section 111, the relief sought is only for rectification of the register for the bonds and these bonds have already been transferred by respondents Nos. 2 and 3 and, therefore, there is no cause of action against them. During the hearing on August 12, 1993, Shri L.R. Gupta, appearing on behalf of respondents Nos. 2 and 3, reiterated the contentions made in the application. Since the issue relating to the applicability or otherwise of the Special Court Act to the transactions involved would require going into the full details of the case and as per interpretation of Section 111, the Company Law Board has to decide the issue relating to interest also as contended by counsel for the petitioner, with a view to maintain the status quo, we ordered that the interest payable on these bonds should be kept in a fixed deposit with the company's main bankers. The preliminary objections raised by respondents Nos. 2 and 3 could not be decided in isolation without looking into the facts of the case, as it is a mixture of law and facts. The mixed questions of law and facts in this case are : (a) whether the interest warrants are separable from the bond certificate ; (b) whether there was an agreement between ANZ and respondents Nos. 2 and 3 earlier to purchase and sell only the bonds excluding the interest warrants; and (c) whether the Company Law Board is divested of the power available under Section 111(6)(c) with regard to incidental or consequential orders particularly relating to interest warrants in this case. In the above connection, the observation of the Supreme Court in Major Khanna (S.S.) v. F.J. Dhillon, AIR 1964 SC 497, in which it was held that where issues of both law and of facts arise in the same suit, the court should try all the issues especially when the decision on issues even of law depend upon the decision on issues of fact and not to do so would result in a lopsided trial of the suit, is relevant. Accordingly, we considered it appropriate to come to final conclusions only after hearing the facts in addition to law with regard to the maintainability of the petition. Counsel were advised to go ahead with their arguments on the main petition also so that the order relating to maintainability of the petition could also be included in the final order which practice the Company Law Board has been following all along. This line of action is also in the spirit of the decision of the Supreme Court in Maheshwari (D.P.) v. Union of India, AIR 1984 SC 153. In the meanwhile aggrieved by the interim orders directing respondent No. 4 to deposit the interest which have become due, vide our order dated August 26, 1993, the applicant filed an appeal in the High Court against this order raising various issues and the High Court, vide its order dated November 17, 1993, gave certain directions to the Company Law Board. In the meanwhile, as there was a change in the composition of the Bench of the Company Law Board, the whole case had to be heard de novo. Many hearings took place on various dates before the present Bench.
5. During these hearings a reference was made to certain submissions made on behalf of the custodian before the Western Region Bench of the Company Law Board in certain other matters related to tainted securities. At this point we decided to call for clarification and advice from the custodian as to whether the securities before us are already attached or are being attached. In reply the custodian, vide his letter No. 3351/CUS/ ANZ/CLB/Pet.93(1226) dated January 20, 1994, categorically asserted that these bonds became attached properties simultaneously with the issue of the notification by the custodian in 1992, and can be dealt with only as directed by the Special Court. In addition to this categorical assertion, the custodian also stated that the Special Court has constituted a committee to examine transactions and file reports in the Special Court where the holders of the securities claim that the purchases were made prior to the issue of the notification. As such according to him this case also appears to be within the purview of the committee appointed by the Special Court. We made available to the parties, copies of this letter dated January 20, 1994, of the custodian to react on the same, during the hearing held on January 24, 1994. Since the parties needed time to react, we adjourned the case to February 2, 1994. On this date however our attention was drawn to an ordinance promulgated by the President of India on January 25, 1994, namely, the Special Court (Trial of Offences Relating to Transactions in Securities) Act, Amendment Ordinance, 1994, by which it appeared that our very jurisdiction to hear this case has been taken away. We, therefore, asked the parties to argue this first. Both the parties agreed to study the Ordinance and present their views and accordingly, we decided to hear them on February 4, 1994. On this date, Shri V. N. Kaura, advocate, for the petitioner stated that as per the new Section 9A(2) introduced by Clause 3 of the Ordinance 11 suits, claims and other legal proceedings pending before any court before the commencement of the Ordinance relating to securities, arising out of the transactions entered into between April 1, 1991, and June 6, 1992, in which a notified person is involved as a party/broker/intermediary or in any other manner, the entire proceedings stand transferred to the Special Court, on the coming into force of the Ordinance. According to him the jurisdiction of the Company Law Board has been completely withdrawn with regard to the matter relating to these transactions as respondent No. 4, Fairgrowth Financial Services Ltd. is a notified person. Hence the present proceedings before the Company Law Board including the main petition have to be transferred to the Special Court. Shri L.R. Gupta, however, submitted on behalf of the respondents that an exception for transfer has been carved out in Section 9A(2) in respect of appeals. His contention was that the present proceedings of the Company Law Board arose out of the order of the Delhi High Court from an appeal against an interim order passed by the Company Law Board. His case was that as a part of the appeal proceedings, the High Court has directed the Company Law Board to decide about the jurisdiction and maintainability of the petition against respondents Nos. 2 and 3. As such this falls under Rule 25 of Order 41 of the Civil Procedure Code, whereby the appeal court directs one or more issues to be decided by the trial court after which the matter goes back to the appeal court. To this extent the present proceedings be construed as mere extension of the appeal proceedings. In this connection, a question was raised by petitioner as to whether the petitioner can prefer an appeal in case the order goes against him, because no fresh proceedings can be entertained by any court on these matters after the promulgation of the Ordinance. In reply, Shri Lala Ram Gupta stated that the petitioner could prefer a cross appeal before the same High Court where the appeal is already lying.
6. We have observed from the office copy of the order sheets dated October 12, 1993, read with that dated November 17, 1993, of the High Court that the appeal is at a very preliminary stage, that is the stage of admission, for which show-cause notice was given to the respondents. The question of High Court framing the issues and referring them for trial to the court appealed from as per Rule 25 of Order 41 of the Civil Procedure Code, arises only after the appeal is admitted. In the present case, since there is no finding given by us with regard to the jurisdiction and maintainability, the High Court has decided with the concurrence of parties that we should first pronounce our judgment on jurisdiction and maintainability. Respondents Nos. 2 and 3 also attempted to search our records perhaps to ascertain whether we have recorded any decision on jurisdiction and maintainability on which they could not find anything on record. The appellants themselves have admitted that we have heard the parties on issues regarding jurisdiction and maintainability but we have not passed any orders on the issue. Such a situation does not fall squarely within Rule 25 of Order 41 of the Civil Procedure Code. If at all any issue or any fact has not been considered, such a reference may arise from the appellate court after the petition is admitted. Therefore, we are of the view that this is not a case which falls under Rule 25 of Order 41, as contended by Shri L.R. Gupta.
7. Even the order dated November 17, 1993, of the Delhi High Court contains directions to the Company Law Board on the basis of an agreement between the parties in these proceedings, that we should hear the question of jurisdiction and maintainability of the petition qua respondents Nos. 2 and 3 first and it is also seen from order dated December 14, 1993, of the Delhi High Court that in case we decide the question of jurisdiction and maintainability against respondents Nos. 2 and 3, then we should also decide on the interim relief sought by the respondents in appeal.
8. From the reading of the above, it is apparent that what we have been directed to do is within our own original jurisdiction and cannot be construed as proceedings in appeal as contended by Shri Gupta.
9. Accordingly, in view of the fact that transaction in the bonds in view of the involvement of a notified person, falls within the provisions of the Ordinance, we are of the view that as per Section 2 of the Ordinance, the proceedings before us automatically stand transferred to Special Court with effect from January 25, 1994, and our jurisdiction is barred as provided under Section 3 of the Ordinance which reads as follows :
"(3) On and from the commencement of the Special Court (Trial of Offences relating to Transactions in Securities) Amendment Ordinance, 1994, no court other than the Special Court shall have, or be entitled to exercise, any jurisdiction, power or authority in relation to any matter or claim referred to in Sub-section (1)".
Therefore, we are of the view that we have no jurisdiction at this point of time to proceed with this case.
10. We may also note, in passing, that the main contention of respondents Nos. 2 and 3 has all along been, that the petition is not maintainable and falls within the jurisdiction of the Special Court, which issue we have been examining but has become infructuous in view of the Ordinance.