Company Law Board
Jindal Vijaynagar Steel Limited vs Jindal Praxair Oxygen Company Private ... on 31 January, 2005
Equivalent citations: [2006]129COMPCAS939(CLB), [2005]62SCL659(CLB)
ORDER
K.K. Balu, Member
1. This is an application filed by M/s. Jindal Vijaynagar Steel Limited (JVSL) under Regulation 44 of the Company Law Board Regulations, 1991 ("the Regulations") read with Section 10 of the Civil procedure Code, 1908 ("the CPC") seeking directions of this Bench for stay of the proceedings initiated under Section 167 of the Companies Act, 1956 ("the Act" by M/s Praxair Pacific Limited ("PPL") in CA. No. 70/2004 for directing M/s Jindal Praxair Oxygen Company Private Limited, ("the Company") to call for a general meeting for the purpose of appointing its statutory auditor and giving appropriate consequential directions to the calling, holding and conducting of the meeting till the final disposal of the writ petition (W.P.No. 34393/2004) filed by the Company before the High Court of Madras for issuing a direction prohibiting the Regional Director, Department of Company Affairs from taking any action in the application filed by JVSL under Section 224(3) of the Act for appointment of the statutory auditor of the Company or in the alternate to stay the proceedings under Section 167 of the Act (CA.No. 70/2004) initiated by PPL until the disposal of the application filed by JVSL under Section 224(3) of the Act before the Regional Director.
2. Shri T.K. Seshadri, learned Counsel, appearing for JVSL sought to stay the proceedings under Section 167 of the Act (CA No. 70/2004) initiated by PPL before this Bench for the following among other reasons:
At the eighth annual general meeting of the Company held on 20.12.2003, all the items of the business were duly transacted except appointment of the statutory auditor for want of consensus between JVSL and PPL, leading to adjournment of the annual general meeting for five times. When the Company could not appoint the statutory auditor at its annual general meeting, JVSL filed on 18.08.2004 an application under Section 224(3) of the Act before the Regional Director to exercise his powers to appoint the statutory auditor of the Company. Despite the pendency of the application before the Regional Director, PPL in concert and collusion with the Company approached the CLB on 29.09.2004, abusing the process of law, for directions against the Company under Section 167 to call for the adjourned annual general meeting to appoint the statutory auditor and thereafter, sought for stay of the proceedings under Section 224(3) of the Act, which was ultimately declined by this Bench by an order dated 23.11.2004. However, the Company filed a writ petition before the High Court of Madras for issue of a writ prohibiting the Regional Director from taking any action in the application filed by JVSL under Section 224(3) of the Act and obtained an ex-parte interim order on 25.11.2004, staying the proceedings before the Regional Director. The matter in issue before the High Court, being the appellate court and the CLB is substantially the same, which is the determining test (i.e) appointment of the statutory auditor of the Company. The grounds raised in the writ petition are the basis for the petition under Section 167 before the CLB. There is substantial identity of matter in issue in both the proceedings. The decision in one proceeding will non-suit or frustrate the other proceeding. The Regional Director and Union of India, not being the effective parties to the writ petition, the other parties are the same as in the CLB proceedings. If the proceedings before both the forums are allowed to continue, there would be a possibility of conflicting decisions on the common issues as well as the subject and therefore, by virtue of Section 10 of the CPC the CLB proceedings must be stayed, as held in Dr. Mrs. Mrunalini Devi Puar v. Gaekwad Investment Corporation Pvt. Ltd- (1995) Vol. 82 CC 899;
National Textile Corporation (Uttar Pradesh) Ltd. v. Swadeshi Polytex Ltd - (1998) Vol 92 CC 315 and Arjies Alumlnim Udyog v. Sudhir Batra - AIR 1997 DELHI 232.
Any decision, which may be taken by the Madras High Court in the pending writ proceedings, will apply to the proceedings before this Bench. It would, therefore, amount to judicial impropriety on the part of the CLB and transgression on the authority vested in the High Court to adjudicate the issue in relation to appointment of the statutory auditor of the Company. The present application is to minimize multiplicity of the proceedings regarding the subject issue. The subject mater in issue though not the relief in the application made under Section 224(3) as well as Section 167 is identical. The manner of appointment of the statutory auditor in Section 224(3) and Section 167 proceedings is different, but the object as well as purpose of these proceedings is appointment of the statutory auditor of the Company, as borne out by the specific averments of the Company made in the writ petition that in the event of any order that may be passed by the Regional Director in the application under Section 224(3), the application before the CLB would be rendered infructuous. The powers of the Regional Director would prevail over those of the CLB, since the powers granted in favour of the former under the Act are specific, whilst those of the CLB are general. The proceedings before the Regional Director being earlier in point of time any order that may be passed by the CLB in the proceedings under Section 167 would render the former proceedings infructuous.
PPL before the CLB in CA No. 77/2004 while seeking directions for stay of the proceedings initiated by JVSL under Section 224(3) contended that the subject matter and parties before the CLB and the Regional Director are the same. The order of the CLB dated 23.11.2004 made in CA No. 77/2004, having become final is binding on the parties to the proceedings. If the proceedings under Section 167 are not stayed, it would amount to contradicting its own order dated 23.11.2004 made in CA No. 77/2004, wherein it has been held that the authority vested in the Regional Director for appointment of the statutory auditor under Section 224(3) shall not be interfered by the CLB. PPL is seeking to frustrate the proceedings before the Regional Director by preventing him to appoint the statutory auditor of the Company. The CLB in exercise of the inherent power under Regulation 44 which is analogous to Section 141 of the CPC shall ensure to avoid any conflict of decisions on the common issues by staying its own proceedings as held in Krishnan v. Krishnamurthy-1982 MLJ 4 and Atula Bala Dasi v. Nirupama Devi - AIR (38) 1951 Calcutta 561, wherein the inherent power of the civil courts have been recognized by the Courts.
The Counsel on record for PPL before the CLB represented the Company in Section 224(3) proceedings, in which case PPL must be aware of the proceedings before the Regional Director, but suppressed these proceedings in the petition filed under Section 167 of the Act, which amounts to abuse of the process of law.
3. Shri Arvind P Datar, learned Senior Counsel, appearing for PPL while opposing the prayer for stay of the CLB proceedings, urged for dismissal of the application on the following among other grounds:
* The Company could not appoint M/s Price Waterhouse & Co., (PWC) as its statutory auditor at the eighth annual general meeting held on 20.12.2003, on account of the differences between PPL and JVSL and the meeting was adjourned from time to time for completing the only business of appointment of the statutory auditor. At the adjourned annual meeting on 20.08.2004, when PPL's resolution for re-appointment of PWC as well as JVSL resolution for appointment of M/s Deloitte Hoskins & Sells was sought be considered, JVSL stayed away, and at the adjourned meeting held on 27.08.2004 also JVSL failed to participate, thereby the statutory auditors could not be appointed for want of quorum, necessitating PPL to invoke the jurisdiction of the CLB under Section 167 of the Act.
* While the Regional Director and Union of India are parties to the writ proceedings before the High Court, they are strangers before the CLB. The issue in the present proceedings is in regard to the calling of a general meeting of the Company on the directions of the CLB under Section 167, which cannot be exercised by the High Court. The subject matter of the writ petition is in respect of exercise of the jurisdiction by the Regional Director under Section 224(3) of the Act to appoint the statutory auditor of the Company. All the grounds set out in the writ petition deal with the requirements as per Section 224(3) of the Act. The consequences but not the issues of both the proceedings are the same. The CLB proceedings having been initiated prior to the filing of the writ petition, the CLB proceedings cannot be stayed, as it is not in consonance with the ingredients of Section 10. Shri Datar, learned Senior Counsel, while referring to the decisions cited supra, contented that in Dr. Mrs. Mrunalini Devi Puar v. Gaekwad Investment Corporation Pvt. Ltd. the parties involved in the proceedings therein are same and the matter in issue is identical unlike in the present proceedings. In Arjies Aluminim Udyog v. Sudhir Batra, there is identity of the subject matter, which is rather missing in the matter before the CLB.
* The power of the Regional Director under Section 224(3) of the Act would arise upon failure to appoint the statutory auditor of a company, despite conclusion of the annual general meeting. In view of this, the plea of JVSL that the application filed under Section 224(3) is prior in time is rather superfluous.
* The defence of JVSL raised in CA No. 77/2004 that the application made under Section 224(3) is an independent one and cannot be linked to the proceedings under Section 167 and further that the reliefs claimed in both these proceedings are different is contrary to the claim made in the present proceedings.
* There must be calling, holding and conducting of the annual general meeting, where four items constitute ordinary business - (i) consideration of accounts and reports of the Board of directors and auditors, (ii) declaration of dividend, (iii) appointment of directors and (iv) appointment of auditors and fixing their remuneration, in the absence of any of which, no annual general meeting would be deemed to have been concluded. If the provisions of Section 167 could be invoked seeking directions for calling of the annual general meeting, the CLB will give appropriate directions in this behalf.
* PPL is not a party to the proceedings before the Regional Director and the issue involved in the respective proceedings is not common and therefore, details of the proceedings under Section 224(3) are not furnished in the petition filed under Section 167.
* PPL holding 74% of equity shares of the Company is capable of passing all ordinary resolutions and JVSL with 26% of shareholding is not to block any such resolutions by absenting themselves from the annual general meeting and frustrate the rights of PPL to appoint the statutory auditor.
* The application under Section 224(3) cannot bar an application under Section 167. While the application before the CLB being prior in operation and jurisdiction cannot be subject to exercise of the powers under Section 224(3), the proceedings before the Regional Director will be subject to the proceedings before the CLB under Section 167. The jurisdiction of the Regional Director would arise on conclusion of the annual general meeting and upon exercise of the jurisdiction and requirements under Section 166 and Section 167 by the CLB. The orders which may be passed by the High Court of Madras will not apply to the CLB proceedings, and exercise of the jurisdiction by the CLB under Section 167 will not amount to judicial impropriety, as claimed by the applicant.
* The claim of JVSL in their rejoinder filed in CA No. 80/2004 that an application under Section 224(3) can be made even if the annual general meeting has not been concluded, that the general meeting has been adjourned five times till date for want of consensus between the two shareholders regarding appointment of the statutory auditor of the Company and that the said meeting for the year 2002-03 has not been concluded even after 20 months since the end of the financial year 2002-03 clearly establishing the fact that jurisdiction of the Regional Director under Section 224(3) has not arisen.
4. In the background of the arguments advanced, the questions of law which arise for my consideration in this application, are -
1) Whether the matter in issue in the petition filed by PPL before the CLB under Section 167 is directly and substantially in issue in the writ petition filed before the High Court of Madras by the Company, or is identical, attracting the provisions of Section 10 of the Code, thereby warranting stay of the proceedings in the petition before the CLB, until the conclusion of the writ proceedings before the High Court?
2) Whether the CLB in exercise of the inherent power vested in Regulation 44 of the Regulations shall stay its proceedings (CA. NO. 70/2004) initiated by PPL until the disposal of the application filed under Section 224(3) of the Act by JVSL before the Regional Director, Southern Region, Chennai?
Issue Nos. 1 & 2:-
The issues 1 and 2 are inter-related, and therefore, are dealt with together. Before proceeding to consider these issues, it would be appropriate, if a reference is made to the provisions of Section 10 of the Code dealing with stay of the proceedings, Regulation 44 of the Regulations, pertaining to inherent power of the CLB, Section 224(3) relating to appointment of auditors and Section 167 dealing with power of the CLB to call annual general meeting of the company.
Section 10 of the Code, reads as under:-
"No Court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between parties under whom they or any of them claim litigating under the same title where such suit is pending in the same or any other Court in (India) having jurisdiction to grant the relief claimed, or in any Court beyond the limits of (India) established or continued by (the Central Government and having like jurisdiction, or before (the Supreme Court)) Explanation. - The pendency of a suit in a foreign Court does not preclude the Courts in (India) from trying a suit founded on the same cause of action".
From a reading of the provisions of Section 10 of the Code, it would become amply clear that the following are the pre-requisites:
a) There must be two pending suits on same matter.
b) These suits must be between same parties or parties under whom they or any of them claim to litigate under same title.
c) The matter in issue must be directly and substantially same in both the suits.
d) The suits must be pending before competent Court or Courts.
Regulation 44 provides that the CLB in exercise of the inherent power may make appropriate orders for the ends of justice or to prevent abuse of the process of the Bench.
Section 224(3) of the Act stipulates that where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy. Where appointment by the Central Government becomes necessary, the application has to be made to the "Regional Director to whom the powers of the Central Government under this section have been delegated. According to JVSL, at the eighth annual general meeting of the Company held on 20.12.2003, they opposed the resolution proposed for re-appointment of PWC as the Company's statutory auditor on the ground that PWC purportedly failed to discharge their duties in relation to the audit of the accounts of the Company for previous financial years in accordance with recognized accounting standards and principles. The meeting was adjourned five times on account of disagreements on appointment of the statutory auditor. JVSL proposed to the Company and PPL, the names of certain reputed accounting firms for appointing any one of them as the statutory auditor of the Company, but it was not acceptable to PPL. While JVSL served a special notice dated 31.01.2004 under Section 225 of the Act upon the Company for appointment of M/s Deloitte Haskins & Sells, PPL gave a special notice dated 05.08.2004 for re-appointment of PWC as the statutory auditor of the Company. At this juncture, when the adjourned annual general meeting of the Company was held on 20.08.2004 JVSL did not attend the meeting which resulted in adjournment of the meeting to 27.08.2004 for want of quorum. The adjourned annual general meeting could not also be held on 27.08.2004 on account of the absence of JVSL. In the meanwhile, JVSL made an application on 18.08.2004 under Section 224(3) before the Regional Director for appointment of the statutory auditor of the Company.
Section 167 of the Act provides that in case of default in holding an annual general meeting as required by Section 166, the CLB may exercise the power to call or direct the calling of a general meeting on the application of any member of the Company. According to PPL, the eighth annual general meeting of the Company remained inconclusive, though stood adjourned several times without completing the business of appointment of the statutory auditor, on account of the differences between PPL and JVSL. While JVSL proposed M/s Deloitte Haskins & Sells, PPL moved a resolution for re-appointment of PWC as the statutory auditor. At the adjourned annual general meeting held on 20.08.2004, when the resolutions of JVSL and PPL were sought to be transacted, JVSL stayed away from the meeting and further abstained from the adjourned meeting held on 27.08.2004, compelling PPL to approach the CLB on 29.09.2004 in exercise of their right under Section 167 to direct the Company for calling the adjourned annual general meeting in order to transact the lone pending business viz., appointment of the statutory auditor of the Company.
This being the position, the Company filed a writ petition before the High Court of Madras for issue of a writ prohibiting the Regional Director from taking any action in the application filed by JVSL under Section 224(3) of the Act, on the following among other main grounds:-
(i) The jurisdiction of the Regional Director under Section 224(3) would arise when the annual general meeting of the Company is concluded and no auditor is appointed at such meeting or adjourned meetings on the application made by the Company. The application filed by JVSL is ex facie not maintainable.
(ii) The eighth annual general meeting or the adjourned meeting was yet to be concluded, thereby the requirements of Section 224(3) had not arisen. The Regional Director has absolutely no jurisdiction to entertain the application under Section 224(3).
(iii) The Regional Director committed gross judicial impropriety in proceeding with the application under Section 224(3), despite the pendency of the application under Section 167 before the CLB on the same issue
(iv) Any order which may be made by the Regional Director would render the CLB proceedings infructuous.
It is thus clear that while the CLB is empowered to direct the calling of a general meeting of the company in the event of any default in holding an annual general meeting as per Section 166, the Regional Director has the authority to appoint auditors, in case no auditors are appointed at an annual general meeting of the company. The jurisdiction of Section 167 is exclusively vested in the CLB. The exercise of power under Section 224(3) is in the domain of the Regional Director. JVSL approached the Regional Director, when PPL invoked the jurisdiction of the CLB for appointment of the statutory auditor of the Company, but adopting different course of action under the Act. Thus, the end result or consequence of these two independent actions before the different Authorities is one and the same. The Company invoked the writ jurisdiction of the High Court questioning the jurisdiction of the Regional Director under Section 224(3). The High Court, while disposing the writ petition will consider, inter alia, the plea of Company specifically raised in the writ petition, which are enumerated elsewhere. The defence put forth by PPL before the CLB will also be weighed in the writ proceedings.. They are - (i) whether jurisdiction of the Regional Director under Section 224(3) would arise, without the requirements of Sections 166 and 167 of the Act in regard to the annual general meeting are duly met; (ii) whether Section 224(3) could be invoked only when no auditor could be appointed by a company despite conclusion of the annual general meeting; (iii) whether an application under Section 167 of the Act could be maintained, despite the pendency of the proceedings under Section 224(3); and (iv) whether the application before the CLB, being prior in operation and jurisdiction can be subject to exercise of the powers of the Regional Director under Section 224(3). It cannot, therefore, be said that the matter in issue before the CLB is not substantially in issue in the writ petition filed by the Company. At the same time it shall be seen whether there is commonality of parties in the writ and CLB proceedings. The Regional Director and Union of India, who are parties to the writ petition, have not been arrayed as parties to the petition under Section 167. The expression "same parties" in Section 10 of the Code envisages the same effective parties as between whom the matter substantially in issue has arisen and has to be decided. In this context, the Regional Director, though not Union of India, in the writ petition cannot said to be a pro forma party, especially when the very jurisdiction of the Regional Director is challenged and a writ of prohibition is sought against the Regional Director. It is, therefore, far from doubt that the proceedings before the High Court and the CLB are not between the same parties. Furthermore, under Section 10 of the CPC, a party cannot be restrained from proceeding with the previously instituted suits. It is not under dispute that the writ petition has been filed in November, 2004, while the petition before the CLB has been filed prior in point of time. Thus, these essential pre-requisites of Section 10 are absent in the matter before me. Reliance placed by the learned counsel for the applicant on the judgments in Dr. Mrs. Mrunalini Devi Puar v. Gaekwad Investment Corporation Pvt. Ltd; National Textile Corporation (Uttar Pradesh) Ltd. v. Swadeshi Polytex Ltd and Arjies Aluminim Udyog v. Sudhir Batra would not go to the rescue of the applicant in as much as in the said cases, the proceedings in the subsequently filed suits were stayed until the conclusion of the proceedings in the previously instituted suits, on fulfilling the requirements of Section 10 of the CPC, as provided under the Act. Having found that the matter in issue before the CLB is substantially in issue in the writ petition instituted before the High Court, there is little doubt that any decision that may be taken by the High Court in the writ proceedings would necessarily have direct bearing on the CLB proceedings, in which case there would be every possibility of conflicting decisions on the common issues. Against this background, the inherent power of the CLB assumes utmost importance. In this connection, a reference may be made to the judgment of the Calcutta High Court in Atula Bala Dasi v. Nirupama, (Supra), wherein the High Court while considering the power of Court to stay its own proceedings under Section 151 of the CPC held thus:
"A Court has jurisdiction to postpone the hearing of a suit which is pending before that Court. The grounds for such postponement may be as under Section 10, Civil P.C. or, even when the grounds cannot be brought within the four corners of that section the Court has an inherent power of staying its own proceedings. Such inherent power to postpone the hearing of a suit, pending the decision of a selected action, may be founded on grounds of convenience and is to be exercised to facilitate that real and substantial justice is done."
Section 151 of the CPC deals with the inherent power of the Court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court. The provisions of Section 151 of the CPC are in pari materia with the provisions of Regulation 44 of the Regulations. Considering the facts as well as circumstances of the present proceedings before me and the foregoing conclusions, I am firmly of the view that in exercise of the inherent power of the CLB vested in Regulation 44, the proceedings under Section 167 must be deferred till the final disposal of the writ petition (W.P. No. 34393/2004) filed by the Company before the High Court of Madras, in order to avoid any possibility of conflicting decisions on the common issues pending before the CLB as well as the Madras High Court, which would, in my view, meet the ends of justice. Ordered accordingly. With these directions the application stands disposed of.