Rajasthan High Court - Jaipur
Gharib Ram Sharma vs Daulat Ram Kashyap And Ors. on 11 January, 1994
Equivalent citations: [1994]80COMPCAS267(RAJ)
JUDGMENT G.S. Singhvi, J.
1. This company appeal has been filed under Section 10F of the Companies Act, 1956 (for short, "the Act"), with a prayer to quash the order dated July 30, 1993, passed by the Company Law Board in Company Petition No. 6 of 1993, Gharib Ram Sharma v. Danlat Ram Kashyap.
2. Respondent No. 3 is a private limited company incorporated with the object to carry on business as manufacturers, exporters, importers and dealers in plywood, hardwood, veneer, blocks of flooring and various other purposes. The authorised capital of the company is Rs. 4 lakhs only divided into 4,000 equity shares of Rs. 100 each. These shares are divided into two groups, one led by respondent No. 2 and the other led by respondent No. 1. Respondents Nos. 1 and 2 were the first two directors of the company and this position continued till May 7, 1991. On May 7, 1991, respondent No. 2 ceased to be a director because he absented himself from three consecutive meetings of the board of directors held on December 15, 1990, February 28, 1991, and April 10, 1991. On May 7, 1991, the appellant was taken as a director on the board of directors of the company. After the appellant took over as one of the directors of respondent No. 3, a number of developments have taken place. A criminal case has also been instituted between the parties. According to the appellant, respondent No. 1 took steps for revival of the unit, and since the company has been making steady progress, respondent No. 2, who had gone out of the picture, filed a petition under Sections 397 and 398 of the Act against respondents Nos. 1 and 5 alleging mismanagement and oppression. The appellant has not been impleaded as a party in the said petition even though he has been described as a stranger in the petition filed by respondent No. 2. In the reply filed by respondent No. 1, it came to be alleged that the appellant has been inducted as director of the company. A rejoinder came to be filed by respondent No. 2 before the Company Law Board. But he did not take any step to implead the appellant as a party before the Company Law Board. Final arguments were heard by the Company Law Board even in the absence of the appellant and after hearing the final arguments, the Company Law Board passed the impugned order dated July 30, 1993, directing that the petitioner, O.S. Dhawan (respondent No. 2 in the appeal), and Daulat Ram Kashyap (respondent No. 1 in the appeal), who are only directors of the company will jointly manage the business and no transaction, including sale or purchase of any raw material or finished product disposal of the assets of the company and any other matter arising out of the ordinary course of business can be conducted unless it is approved by both the directors.
3. This order has been assailed by the appellant on the ground that the Company Law Board has acted without jurisdiction and that this order is contrary to the principles of natural justice apart from being arbitrary and unreasonable.
4. Shri C.K. Garg, learned counsel for the appellant, has argued that once the appellant has been lawfully inducted as a director of the company, no order could be made by the Company Law Board affecting the business of the company without a notice to the appellant. Shri Garg argued that the Company Law Board had no authority to pass an order in the nature of one passed on July 30, 1993. Shri Garg drew the attention of the court to the provisions of Section 10 of the Act and submitted that Section 10E of the Act contains a statutory adoption of the principles of natural justice and this provision has been breached by the Company Law Board.
5. Shri Arvind Khullar, learned counsel for respondent No. 2, argued that the appeal against the order dated July 30, 1993, is not maintainable under Section 10F of the Act and, therefore, the appellant cannot seek any remedy from this court. Shri Kullar argued that an order to be appealable under Section 10F must be an order which finally decides the rights of the parties and since the impugned order does not decide the rights of the parties, the appeal filed by the appellant, Gharib Ram Sharma, is liable to be dismissed. He further argued that the removal of respondent No. 2 from the board was itself unlawful. A fraud had been played by respondent No. 1 and such fraudulent act cannot be made the basis for making a claim before this court.
6. In order to decide the controversy between the parties, it will be necessary to make a brief reference to the documents which have been placed on record. Annexure A filed along with this appeal is a photostat copy of the minutes book containing the minutes of the meeting of the board of directors, held on May 7, 1991, at Bhiwandi. In paragraph 1 of these minutes, it has been noted that as per article 51 of the articles of association of the company and under Section 283(1)(g) of the Companies Act, 1956, Shri O.S. Dhawan, who has absented himself without leave during the three consecutive meetings held on December 15, 1990, February 28, 1991, and April 10, 1991, has ceased to be the director of the company. Para 2 of the minutes shows that in terms of article 33 of the articles of association, the appellant has been inducted as a director. The second document is the copy of the minutes of the fifth annual general meeting of respondent No. 3. Para 8 of these minutes shows that a resolution was passed to the effect that the appellant shall be appointed as a director, not liable to retire by rotation. The third document is Form No. 32. This form contains information regarding induction of the appellant as a director and cessation of respondent No. 2 as a director. The next three documents are minutes of meetings of the directors held on December 15, 1990, February 28, 1991, and April 10, 1991. All these minutes show that the meetings had been adjourned for want of quorum. Another document is the first information report lodged by Gautam, son of Ram Bharat, against respondent No. 2 alleging commission of offences under Sections 461, 382, 279 and 342 of the Indian Penal Code. Annexure G is the petition filed by respondent No. 2, before the Company Law Board under Sections 397 and 398 of the Act. Annexure H is an application filed by respondent No. 2 under regulation 46 of the Company Law Board Regulations, 1901.
7. Sections 10E and 10F of the Act deserve to be quoted for the purpose of proper appreciation of the contentions raised by learned counsel for respondent No. 2 that the appeal is not maintainable against an order passed by the Company Law Board which does not finally decide the controversy raised before :
"10E. Constitution of Board of Company Law Administration.--(a) As soon as may be after the commencement of the Companies (Amendment) Act, 1963, the Central Government shall, by notification in the Official Gazette, constitute a board to be called the Board of Company Law Administration to exercise and discharge such powers and functions conferred on the Central Government by or under this Act or any other law as may be delegated to it by that Government."
" 10F. Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order :
Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days."
8. A look at the provisions, quoted hereinabove, clearly shows that the Company Law Board has been empowered to exercise the powers and discharge functions as provided by the Act, or any other law as also those powers and functions which are conferred upon it by the Central Government by a notification issued in the Official Gazette either under the Act or under any other law. Sub-section (5) of Section 10E provides that the Company Law Board shall be guided by the principles of natural justice. Sub-section (6) of Section 10E of the Act empowers the Company Law Board to regulate its own procedure, but power conferred under this provision is subject to other clauses. Section 10F provides for an appeal to the High Court against any decision or order of the Company Law Board against which any person may be aggrieved. The period of limitation of appeal is 60 days with power to the High Court to extend the period of limitation by another sixty days on showing of sufficient cause by the appellant. The expression "any person aggrieved by any decision or order of the Company Law Board" shows that any person aggrieved against any decision or order passed by the Company Law Board can file an appeal and that appeal is maintainable. Shri Khullar wants this court to give a restrictive and narrow meaning to the words "any other order" by applying the principle of ejusdem generis. He submits that the language employed in Section 10F is in pari materia to Section 18 of the Rajasthan High Court Ordinance, 1949, and since under the High Court Ordinance an appeal against interlocutory order is not maintainable, the appeal filed by the appellant against the order, which is interlocutory in nature, should be dismissed without considering it on merits. I am of the considered view that there is no justification for importing the interpretation which has been placed on Section 18 of the Rajasthan High Court Ordinance, 1949, for the purpose of interpreting Section 10F of the Act. The language employed in Section 18 shows that an appeal is maintainable to the High Court against the judgment of one judge of the High Court. This jurisdiction is also not available in cases where the judgment has been passed in exercise of appellate jurisdiction in respect of a decree or order made in exercise of appellate jurisdiction by a court subject to the superintendence of the High Court. Such appeal is also not maintainable against an order made in exercise of revisional jurisdiction, or a sentence or order passed under Section 43 in exercise of criminal jurisdiction. It is, therefore, clear that no expression like "any decision or order" has been incorporated in Section 18 of the Rajasthan High Court Ordinance, 1949. The very use of the words "any decision or order" shows that an appeal can be filed against any order of the Company Law Board. That would obviously include an order which may not finally decide the rights of the parties. Thus, I hold that the appeal filed by the appellant under Section 10F is maintainable as against the order dated July 30, 1993, passed by the Company Law Board.
9. On the merits of the case, I may observe that a number of arguments have been advanced by either side, but in my opinion, it is not necessary to deal with all of them. In my opinion, the appeal deserves to be allowed on the short ground that the Company Law Board has passed the impugned order in violation of the principles of natural justice. The allegations levelled by respondent No. 2 in the petition show that they relate to the alleged oppression and mismanagement. Respondent No. 1 has contested the petition and, in his reply, respondent No. 1 has categorically stated that while the petitioner has ceased to be a director, the appellant in this appeal has been appointed as a director on the board of directors in accordance with Section 260 of the Act and article 47 of the articles of association. It can, thus, be said that while respondent No. 2 is fully aware of the fact that the appellant is one of the directors of the company and the Company Law Board has been appraised of the fact that the appellant is the director of respondent No. 3, so far as respondent No. 2 is concerned, he has not taken any step to implead him as appellant in the proceedings. The Company Law Board proceeded on the erroneous assumption that Shri O.S. Dhawan continues to be a director of the company. In fact, the Company Law Board has passed the order by presuming that only respondents No. 1 and 2 are directors of the company. Clearly, the Company Law Board has ignored the basic principles of natural justice. The Company Law Board has failed to act in consonance with the requirement of the principles of natural justice while passing the impugned order. Once the appellant has been inducted on the board of the company, it was imperative for the Company Law Board to have issued a notice to the appellant before making an order which could affect the position of the appellant as a director. If there is any dispute regarding the validity of the resolution passed on May 7, 1991, declaring that respondent No. 2 has ceased to be on the board and induction of the appellant as director is challenged by respondent No. 2, the minimum which was required to be done by the Company Law Board was to give an opportunity of hearing to the appellant. This having not been done, there is no escape from the conclusion that the impugned order is liable to be set aside on the ground of breach of principles of natural justice.
10. For the reasons stated above, the appeal succeeds and it is hereby allowed. The order dated July 30, 1993, passed by the Company Law Board is declared illegal and it is hereby quashed. The parties are left to bear their own costs.