Delhi High Court
Consulting Engineers Services (I) Ltd. vs Shri Kaikhosrou K. Framji on 22 April, 2002
Author: Mukul Mudgal
Bench: Mukul Mudgal
JUDGMENT Mukul Mudgal, J.
1. This is an appeal under Section 10F of the Companies Act, 1956 (hereinafter referred to as the Act) against the order dated 23rd January 2002 passed by the Principal Bench, New Delhi of the Company Law Board (hereinafter referred to as the Board) in company petition No. 97 of 1997 under Section 634A of the Act.
2. The brief facts relevant for the decision of the present appeal are as under:
The respondent before this Court who is the petitioner in the Company Law Board had filed a petition under Sections 397-98 of the Companies Act, 1956 (hereinafter referred to as the said Act) alleging that he held 14.5 per cent of the capital of the company and challenged as oppressive the proposal of the company to issue more than 70 per cent shares which were to be allotted to the share holders who were in whole time employment of the company and to another company under the same management.
3. At the time of hearing before the Board a settlement in writing was arrived at by which the original petitioner/respondent herein, had agreed to sell shares of all the three companies to the appellant company herein, which had agreed to purchase the shares at a fair value to be determined by M/s Price Waterhouse and Company. The terms of the settlement between the parties reads as follows:
"1. The petitioner and the respondents would make a joint request to PW to arrive at the fair value of the shares of the above mentioned companies. Both the parties would have an opportunity to be heard by PW before the final report is given by them.
2. The parties have agreed that the valuation shall be made on the following alternative basis.
a) That the petitioner holds 14% of share capital of share capital of CESIM and 25% of share capital of CESWRDMC and
b) The petitioner holds to 10.63% share capital of CES present of the share capital of CESIM and 25% of the share capital of CESWRDMC.
3. The valuation of shares of CESIM shall be made on the following two alternative basis.
a) On the footing that the transfer of shares held by CESIM in CES after 1994 did not take place.
b) By giving effect to the said transfer of shares held by CESIM in CES.
4. Parties will be entitled to make submissions to CLB on the valuation and also which of the alternative basis of valuation should be adopted and Company Law Board shall decide the same.
5. Respondents undertake not to raise any objection to the effect that no petition against CESIM or CESWARDMC or any of other technical objections whatsoever which was counter to the intent of this settlement.
6. Respondents undertake to make available to PW all the information, particulars and records which may be required for the purpose of valuation.
7. PW shall be entitled to avail of the services of other expert valuers for valuation of the properties of the company.
8. PW would give their report within 6 week from the date of request for the same. The cost of the valuation would be borne equally both the parties.
In accordance with the above agreed terms and in order to facilities the parties to come to a final settlement we adjourn the case to 5.8.98 at 4.00 p.m. when the parties can make their submissions as per Clause 4 above."
4. Thereafter the valuer was changed from M/s Price Water House & Co. to M/s S.R. Batliboi & Co. The report of valuation of M/s SR Batliboi & Co. was found unacceptable by both the parties who sought the rejection of the said report and the respondent consequently sought the appointment of another valuer whereas the appellant sought the dismissal of the petition as not maintainable.
5. The Company Law Board in its impugned order dated 23rd January, 2002 recorded the following findings:
(a) That even though the pleadings had been completed as early as in january 1998 the matter was not heard obviously in view of the order dated 28th May 1998. Even in the comments to the valuation report made by the newly appointed valuer, M/s S.R. Batliboi & Co., the appellant had not taken the stand that they did not have any obligation to purchase the shares held by the respondent.
(b) Even in the memo of objections filed on 31st May 2000 the respondent had sought the rejection of valuation by M/s. S.R. Batliboi & Co. and sought the remand for review/consideration in light of these objections raised;
(c) the last paragraph of the order dated 28th May 1998 relied upon by the appellant to contend that the settlement recorded on 28th May 1998 was only facilitatory and not a final settlement cannot be read in isolation in view of the terms of Clause 4 of the order which only left the question of valuation to the Company Law Board and in so far as the question of sale and purchase of shares is concerned, it has become final.
(d) in view of the differences in the valuation contended by rival parties only the new valuer was required to be appointed to determine the fair price.
(e) The parties had agreed that the respondent would sell its shares and the appellant would purchase the same and the respondents had given an undertaking not to raise any objection contrary to the intent of this settlement. Having done so the respondents cannot turn around and claim now at this stage that the petition is not maintainable and it is no longer interested in purchasing the shares of the petitioner.
(f) Even if the petition was to fail on merits as stated by Mr. Chaudhary, the respondents having agreed to purchase the shares are estopped from raising this issue now.
(g) The only issue which survives is the issue for working out the consent order the determination of the fair price of the shares of all the three companies and the question of getting into the merits of the case does not arise.
(h) The observation of the Division Bench of the Madras High Court in Kulki Leather Private Limited v. T.N.K. Govindraju Chetiar & Co. dated 28-8-2001 in LPA 123/2001 are fully applicable in so far as the appellants have tried to avoid their obligations under the settlement.
6. This order was challenged in appeal before this Court and the primary plea of the learned counsel for the appellant herein, Mr. U.K. Chaudhary, is that in view of the provisions of Section 634A of the Act the application under Section 634A to enforce the order dated 28th May 1998 cannot be equated with a decree and any order sought to be enforced under Section 634A had to be a decree and consequently since the order dated 28th May, 1998 was not a decree the application under Section 634A was not maintainable. He further contended that the Section 634A only envisaged a final order which ought to be a decree and the terms of compromise of 28th May 1998 clearly indicated that it was not a final order. He further submitted that the words "In accordance with the above agreed terms and in order to facilitate the parties to come to a final settlement we adjourn the case to 5.8.98 at 4.00 p.m. when the parties can make their submissions as per Clause 4 above in the agreement dated 28th May, 1998 clearly stipulate and indicate that a settlement had not been arrived at and the agreement sought to be enforced was merely a facilitatory and not a final agreement.
7. Mr. Rajiv Sawhney, learned counsel for the respondent, on the other hand, contended that the phraseology of Section 634A clearly indicates that an order made by the Company Law Board may be enforced by the Board in the same manner as if it were a decree made by a Court in the Civil Suit, could not be a decree in view of the words "as if it is a decree". Section 634A of the Companies Act reads as under:
"634A. Enforcement of orders of Company Law Board - Any order made by the Company Law Board may be enforced by that Board in the same manner as if it were a decree made by a court in a suit pending therein and it shall be lawful for that Board to send, in the case of its liability to execute such order, so the court within the local limits of whose jurisdiction:-
a) in the case of an order against a company, the registered office of the company is situated, or
b) in the case of an order against any order against any other person, the person concerned voluntarily resides, or carries on business or personally works for gain.
8. Mr. Sawhney further submitted that in view of the provisions of Clause 5 of the settlement between the parties, no technical objection whatsoever which runs counter to the intent of the settlement could be raised and the import of the said clause did not permit the appellant to rely upon the plea that the petition is not maintainable.
9. A bare perusal of Section 634A of the Act clearly shows that the plea of Mr. Chaudhary regarding the narrow interpretation sought to be given to words "any order" cannot be countenanced as the phrase "any order" must be given its full natural meaning and effect and consequently will clearly include the order passed on 28th May 1998. Further the stipulation in the section that the order can be enforced by the Board in the manner similar to a decree is a clear pointer to the fact that said order could not be a decree as sought to be contended by the learned counsel for the appellant. In fact if the order contemplated by Section 634A is construed be a decree, the words "in the same manner as if it was a decree" are totally redundant and superfluous and a Court cannot construe the mandate of the statute to hold that the legislature intended to use superfluous words.
10. In this view of the matter, I am satisfied that the order dated 28th May 1998 was an order contemplated by Section 634A and can be enforced by the Board as sought to be done by the order dated 23rd January 2002. Furthermore, there is no merit in the plea of the learned counsel for the appellant that the order dated 28th May 1998 was a facilitatory one and not a final settlement. The only factor which were to be considered after the settlement of 28th May 1998 was about the valuation of the shares to be done eventually by the Company Law Board. On this plea I respectfully agree with the view of the Madras High Court in Kulki Leather case where the Division Bench in Kulki Leather Private Ltd. v. T.N.K. Govindaraju Chetiar & Co. Letter Patent Appeal No. 123/2001 dated 28.8.2001 held as follows:
"..... The submission that the Board had no jurisdiction at all to make the kind of order that was made on that date is also a submission which is required to be rejected. Counsel does not rightly dispute that the Company Law Board can direct the purchase of shares in proceedings under Sections 397 and 398 of the Companies Act. While the proceedings that was initiated was one under Section 235, that fact by itself is not to be regarded as placing an embargo on orders other than that warranted under Section 235 being made, if parties to the proceedings agreed to such an order and the agreement is not against the public policy, is not illegal and is not violative of any of the provisions of the Companies Act or of any other law and it is not an agreement which itself is beyond the competent of the Board to record under the provisions of the Companies Act. It is not the case of the appellate that the proceeding recorded on 22nd January 1998 is against public policy or is illegal or is an agreement which the provisions of the Companies Act or under any other law. The submission that the order is vitiated by reason of total lack of jurisdiction in the Company Law Board, therefore, cannot be accepted." In paragraph 19, the court has observed: "We must strongly depricate the attempt of the appellant to avoid carrying out a solemn promise through their responsible counsel to the CompanY Law Board by seeking to raise hyper technical pleas when faced with the demand for compliance with the terms of their order. Although we have considered the submissions made by the counsel and examined those submissions, we make it clear that the appellant are not entitled in law to urge any of those grounds, as allowing the appellant who do so successfully would mean closing eyes by the court to a fraud played by a party and the counsel on the Company Law Board. As stated by us earlier, no counsel or litigant has a right to paly fraud on a court or the tribunal and any attempt to do so must be discouraged and should invite the heaviest penalties"
11. The above observations made by the Madras High Court apply with equal force to the attempt of the appellant in the present case to avoid carrying out a solemn promise made through their responsible counsel duly recorded by the Board in its order dated 28th May 1998 by seeking to raise hyper technical pleas when faced with the prospect of compliance of the terms of the order. In fact to permit the appellants to resile from the obligations imposed upon the parties by Clause 5 not to raise any technical plea contrary to the intent of the settlement would be unjust. Furthermore the mandate of Clause 5 which debarred the parties from raising any technical plea which ran counter to the intent of the settlement dated 28th May 1998 makes it unnecessary to consider the question whether there was deadlock in the company to confer jurisdiction on the Board to entertain the petition under Sections 397 and 398 of the Act.
12. Accordingly the appeal lacks merit and is accordingly dismissed.