Company Law Board
M.V. Paulose vs City Hospital (Private) Limited And ... on 23 October, 1997
Equivalent citations: [1999]96COMPCAS588(CLB)
ORDER
1. This order disposes of two applications namely C. A. No. 75 of 1997 filed by the petitioners' side and C. A. No. 76 of 1997 filed by the respondents' side in C. P. No. 47 of 1993. C. A. No. 75 seeks certain directions with regard to the annual general meetings of City Hospitals Private Ltd. (hereinafter called "the company") in particular regarding the appointment of another chairman in the place of Justice Verghese Kaliath, who was appointed as per our consent order dated January 15, 1997, for the annual general meeting for the periods 1991, onwards. C. A. No. 76, however, has sought a review of the above said order dated January 15, 1997, on the ground that the impugned order was passed in violation of the principles of natural justice and without giving an opportunity to any of the other respondents at the hearing. Both the applications were heard together and are now being disposed of by this common order in view of the subject-matter being the same namely our order dated January 15, 1997, relating to calling of the annual general meeting.
2. Before coming to the details of the applications, it is appropriate to set out briefly the background of the dispute between the parties. C. P. No. 47 of 1993 was filed by one M. V. Paulose holding 4.3 per cent of the share capital of the company with consent from six other shareholders holding another 7.8 per cent. The main dispute relates to the validity of three board meetings stated to have been held on August 18, 1992, August 29, 1992 and September 5, 1992, which, inter alia, relate to assumption of liability to the banks to the extent of Rs. 26 lakhs, co-option of three directors on the board, leasing out of the hospital belonging to the company, forfeiture of 97 shares belonging to one shareholder and reallotment of those shares to another person. The prayers include an order to call the annual general meeting for the year ended March 31, 1992, and to nominate a chairman to preside over the meeting and permitting the shareholders to elect the board of directors.
3. It should also be noted that some of the other shareholders of the company have initiated civil proceedings with regard to the impugned resolutions. There are also other civil proceedings filed by both the sides, in addition to the above. One of the suits filed by four shareholders in the sub-court, Ernakulam, is reported to have been finally decided declaring the three board meetings as illegal and of no effect. Against these orders appeals have been filed by the respondents side and arguments are stated to be already complete and orders are awaited from the High Court of Kerala. The petitioners who are not litigants before the civil court in respect of the matters complained of insist that the proceedings before the Company Law Board are independent and should be continued. They also state that the attempt of the respondents to obtain a stay from the Kerala High Court with regard to the present proceedings has been unsuccessful Hence, according to them there should be no bar on continuation of the present proceedings.
4. While the petition was under consideration, at the hearing held on January 15, 1997, C. A. No. 8 of 1997 by the petitioner praying for ordering of the annual general meeting was mentioned and when the advocates for the petitioner, respondent No. 1 namely the company and respondent No. 2 namely Dr. T. M. Paul were present, all agreed before the Bench that the annual general meeting for the years from 1992-96, should be held under the chairmanship of an impartial observer. They also agreed that Hon'ble Justice Verghese Kaliath could be appointed as the chairman of the meeting subject to his accepting this appointment. Accordingly it was ordered, that the annual general meetings as proposed will be held with Justice Verghese Kaliath in the chair and that the agenda to be circulated was to be decided by the present board of directors in consultation with the chairman. The meetings were to be held within a period of six months and the remuneration of the chairman was also fixed. The three counsel also subscribed their signatures in the attendance-cum-order sheet signifying their consent which was recorded in that sheet.
5. The petitioners, by their application C. A. No. 75 of 1997, have stated that Justice Verghese Kaliath had expressed his inability to preside over the proposed meeting and, therefore, prayed for the appointment of another chairman for this purpose. The respondents' side by their application C. A. No. 76 of 1997, have stated that while considering the application C. A. No. 8 of 1997 filed on behalf of the petitioners for convening the annual general meetings since since 1991, onwards at the hearing held on January 15, 1997, their side objected to the convening of the annual general meeting on various grounds which were not considered by the Company Law Board. It is also stated that counsel for respondent No. 1 and respondent No. 2 did not give any consent as recorded in the order. In this connection an affidavit filed by Shri Shaju Francis, advocate, attached to C. N. Shree Kumar, advocate on record for respondent No. 2 has also been filed. In this affidavit, the advocate has stated, that he had objected to the convening of the annual general meeting on various grounds but the "learned member was of the view that under Section 167 of the Companies Act the Board has the power to direct the convening of annual general meeting". In the affidavit, the advocate, however, confirmed that he did not make any objection to the appointment of Hon'ble Justice Verghese Kaliath as the chairman for the meeting. According to him the order cannot be construed as a consent order and the various objections raised by him have not been recorded in the order. It is, therefore, prayed on behalf of respondents Nos. 1 and 2, that the order dated January 15, 1997, should be reviewed by the Company Law Board.
6. In the reply to the above review application the petitioners' side has stated, that, the review petition is not maintainable either in law or on facts. As per old regulation 27 of the Company Law Board Regulations, a review was possible only in case of any mistake or error apparent on the face of the records which also has been deleted now. It is also challenged that no one has authorised from the side of respondent No. 1 to file the review petition. The contention of the respondents that "on account of the injunction order in a suit filed by four other directors the board meetings or annual general meeting could not be held" is incorrect and is conflicting with the statement of respondent No. 2 in his reply to the main petition wherein it is stated that the annual general meeting could not be held because of an EGM called by certain shareholders. Further, the civil suit has also been decreed against respondent No. 2. According to the petitioner, there is no bar on holding the annual general meeting. The objection that no consent was given on behalf of the respondents to hold the meetings and that consent was given only for appointment of chairman of the meeting is devoid of merit. The second respondent was removed from directorship at the EGM on November 6, 1992, and he is afraid that if a meeting is held he will be ousted. As regards the objection that other respondents were not heard in the matter it is stated that no other respondents excepting 1 and 2 entered appearance since 1993. Further, respondents Nos. 3 to 10 are unnecessary parties as regards the annual general meeting. Further, the suggestion by respondent No. 2 that annual general meeting be deferred till the dispute regarding the transfer of 97 shares from one member to another member is decided is irrelevant and cannot be entertained.
7. A rejoinder has also been filed on behalf of the applicants in C. A. No. 76. In this rejoinder, it is stated that the High Court of Kerala has already directed, in 1994, that the status quo prior to the date of judgment of the civil court should be maintained. In such circumstances, Dr. V. K. Thomas, is not competent and has no authority to act as chairman and managing director till a final decision is given by the Kerala High Court, since the judgment of the civil court has already been stayed.
8. At the hearing held on September 17, 1997, A. N. Haksar, senior advocate argued on behalf of the respondents that the shareholding position in the company is under dispute and the Kerala High Court is already seized of this matter. Any decision to hold the annual general meeting without deciding on the shareholding position would unfairly prejudice the parties and, as such, he advocated that the decision regarding annual general meeting be postponed till the Kerala High Court decides the issue regarding the shareholding position. He further argued that the applicants are not the petitioners and with the demise of the petitioner, the petition no longer survives. Besides, he also contended that the consent to the main petition is defective and as such the petition itself is not maintainable. Hence, no interim order on the petition be issued till the maintainability is decided.
9. C. N. Sreekumar, advocate, for respondent No. 2 submitted that the advocate from his side did not consent to the holding of the annual general meeting. He also stated that respondent No. 1, namely the company, is being represented by him and not by Shri Santosh Paul, the other advocate. According to him the order has been obtained by collusion and by misrepresentation before the Bench.
10. Shri Santosh Paul, refuting the statement of Shri Sreekumar, stated that his representation of the company is backed by a board resolution and that he has a valid vakalatnama signed by Dr. V. K. Thomas, MD. He also produced a certified true copy of the board resolution dated June 9, 1997, certified by V. K. Thomas as chairman, while Shri Sreekumar has not produced any board resolutions authorising him to represent the company.
11. On behalf of the petitioners side, it was argued by Shri Romy Chacko that on the consent order the advocate representing respondent No. 2 is the main objecting party who has however signed the attendance-cum-order sheet signifying his consent to the convening of the annual general meeting. The statement of the advocate that he consented only to the appointment of chairman of the meeting but did not consent to the meeting as such cannot be accepted as there cannot be a chairman without a scheduled meeting. Secondly the Company Law Board does not have any power to review as relevant regulation in this regard has been already deleted. Thirdly it was contended that a consent order to which the advocate representing the respondent has signified his consent along with that of the petitioner's counsel is binding on the parties and is executable. Even though Order 23, rule 3 of the Civil Procedure Code specifies that consent should be in writing and signed by the parties, the counsel signing the compromise does bind the parties and a judgment by consent is as much as a judgment from a decision of the court at the end of a long drawn out fight. A compromise decree creates an estoppel by judgment. In this connection Shri Santosh Paul, advocate, drew our attention to the decision of the Supreme Court in Byram Pestonji Gariwala v. Union Bank of India [1991] SCR 187. Reliance was also placed on Suvaran Rajaram Bandekar v. Narayan R. Bandekar [1996] 10 SCC 255 wherein the Supreme Court has held that in a consent decree on compromise the court would be loathe to interfere with the terms thereof by way of modification unless both parties give their consent thereto.
12. Shri Romy Chacko, advocate on behalf of the petitioners, was agreeable for an order for holding the annual general meeting without the exercise of voting rights in respect of the 117 shares whose transfer is being disputed in the High Court of Kerala.
13. We have carefully considered the written pleadings and the oral arguments. The contentious issues which arise are :
(a) Whether there was a consent order and if so whether it needs to be reviewed ?
(b) If the order is valid whether the annual general meeting can go on ?
14. As regards the first issue it is to be noted that an application C. A. No. 8 of 1997 was filed by the petitioners praying for ordering the annual general meeting of the company for the years 1991 onwards. This application was mentioned on January 15, 1997, when it was scheduled to be heard. At the time of the hearing, undisputedly Shri Romy Chacko, advocate for the petitioner, and Shri Shaju Francis, advocate for respondent No. 2 were present. Shri Santosh Paul, advocate, also signed the attendance register indicating that he was representing respondent No. 1, namely the company. A scrutiny of the attendance-cum-order sheet shows that on this date at least the parties who were represented at the hearing agreed for the holding of the annual general meeting from 1992 to 1996. The attendance-cum-order sheet has been signed by all the three advocates after the order was recorded as below signifying their consent :
"Parties agree for the holding of annual general meeting from 1992-96. Orders to be issued accordingly".
15. It is necessary to note that the above order does not specifically indicate the name of the chairman to preside over the meeting. Thus, the consent was exclusively with regard to the holding of the annual general meeting. Thereafter, a detailed order was issued specifying the name of the chairman as agreed to orally by the parties during the hearing. The advocate for respondent No. 2 now contends that he signified his consent by subscribing his signature only with regard to the chairman of the meeting but not for holding the meeting as such. The attendance-cum-order sheet on the other hand specifically mentions the consent is for the meeting and the name of the chairman is not at all spelt out in the sheet. It is further contended by the advocate that his objections for holding the annual general meeting have not been recorded by the Bench. A glance at the attendance-cum-order sheet further shows that not only the advocate agreed for the annual general meeting but there is no conditional acceptance of the consent terms from the side of the advocate for respondent No. 2. In the circumstances, we are of the opinion that it is unfair for counsel to file an affidavit totally contrary to the facts as recorded in the attendance-cum-order sheet. We are constrained, in this context, to express our total unhappiness on the conduct of the advocate. We, however, would prefer to exercise restraint with a word of caution in view of the fact that he is a professional with career prospects ahead and the incident is the first one of this nature before us. We are convinced that consent was given by the three advocates for holding the annual general meetings and as such the order is a valid consent order.
16. While upholding the validity of the order it is also necessary to deal with the objection that opportunity was not provided to the other respond ents and that their consent was not obtained. In this connection it is necessary to note that most of the other respondents are either co-opted directors whose appointment in any case would come for regularisation in the annual general meeting or those who have acquired shares or the lease of the property of the company which are under challenge. After the filing of the petition in 1993, none of these respondents have put in appearance nor have they appointed advocates to represent them before the Bench excepting that respondent No. 10 who is a lessee has contended that he is not a necessary party at all to the petition. On January 15, 1997, when the petition was to be finally heard these parties were neither present nor represented. As and when parties appear, the date of the subsequent hear ing is fixed in the presence of the parties and their acquiescence is also obtained. The hearing of January 15, 1997, was fixed on August 27, 1996, when the advocate for the petitioner alone was present. Therefore, the petitioner was directed to send a copy of the order fixing the date of next hearing of January 15, 1997, to all respondents within a week's time. None of the respondents has challenged that the petitioner has not served the copy on the respondents. On the other hand, the presence of the advocate for respondent No. 2 on January 15, 1997, undisputedly shows that the respondents had notice of this hearing whereas respondents Nos. 3 to 10 have chosen to stay away from the hearing. Therefore, it is improper for respondent No. 2 to state that opportunity has not been afforded to the other respondents. In fact it is surprising to find that such a challenge has not been made by the other respondents but only by respondent No. 2. As such the contention of denial of natural justice to the other respondents has no validity. Further, when the notice of the annual general meeting would be served on all shareholders, they would again get one more opportunity to challenge if at all they would like to. In the circumstances we are convinced that none of the respondents' interests would be adversely affected by the consent order for holding the annual general meeting.
17. As regards the question whether the consent order can be reviewed. We are in full agreement with the contention of the petitioner's advocate that the Board has no review powers. In fact the power of review should be granted by the Companies Act which power is not available as at present in the Act though the new Companies Bill is specifically proposing to grant the power of review. Even the review power contained in the Company Law Board Regulations, 1991, namely regulation 27 has been omitted by the Company Law Board Amendment Regulations, 1992. As such, an order of the Bench cannot be reviewed. However, it may be open to the Board to exercise its inherent powers to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench. The application of the respondents, however, is not for invoking these inherent powers. In any case the question of review does not arise in view of our detailed findings herein. When a valid consent order is not implemented, an aggrieved party can always approach the Company Law Board for execution of its orders. It is on this ground that the petitioners have applied for the appointment of an alternate chairman for the annual general meeting in the place of Justice Verghese Kalliath, since he has not accepted the assignment. We are, therefore, convinced that not only the order cannot be reviewed but also, being a consent order, the same has to be executed. Further, according to Order 23, rule 3 of the Civil Procedure Code a court should not interfere with the terms of the consent order unless both the parties give consent for such modification. This has now been squarely laid down by the Supreme Court in Suvaran Rajaram Bandekar v. Narayan R. Bandehar [1996] 10 SCC 255 which has been cited by Shri Santosh Paul, advocate. He has also very rightly relied on the Supreme Court decision in Byram Pestonji Gariwala v. Union Bank of India [1991] SCR 187 wherein it is laid down that consent by the advocate on behalf of a party has the same binding effect as if the party itself has given the consent. These two cases very distinctly establish that the court does not have any discretion in respect of a consent order.
18. As regards the objection on behalf of the respondents that the applicant in C. A. No. 75 of 1997 is not the petitioner and that the main petition cannot be sustained due to the demise of the petitioner. On perusing the records we find that an order impleading the applicant has already been passed on August 27, 1996, on the application of the legal representatives of the petitioner and the respondents are aware of the same. As regards the challenge to the maintainability of the petition on the ground that the consent given by other members is questionable, we have to observe that the case has been pending since 1993, and a number of hearings have taken place, and in none, was this preliminary issue raised. As such prima facie we find there is nothing adverse regarding the maintainability, though it is open to the respondents to take it up for detailed consideration at the time of final hearing.
19. In regard to the second issue, while upholding the contentions of the petitioner and rejecting the contentions of the respondents with regard to the validity of the consent order dated January 15, 1997, we also appreciate the difficulty in the implementation of the order as pointed out by the respondents. In this connection we have to consider the arguments of A. N. Haksar, senior advocate, pointing out the genuine difficulty in conducting the proceedings at the general body meeting in view of the question of exercise of voting rights in respect of two blocks of 97 shares and 20 shares is pending decision by the Kerala High Court in the appeal preferred by the respondents. To this the petitioners' advocate suggested that his clients are agreeable for the freezing of voting rights in respect of these two blocks of shares and annual general meetings could be held accordingly. According to Shri Haksar, his clients are claiming that the voting rights in respect of these shares belong to their group and any decision to the contrary will unfairly prejudice his clients' case. In fact the total number of shares are 1,000 in the company a,nd out of this voting rights of 117 shares will have to be suspended. Of course for suspending the voting rights the parties concerned with these shares have not been heard. We also note that in the previous requisitioned meeting the petitioners have commanded a voting strength of 520 shares. Thus, the position seems to be more or less equally balanced and any freezing or unfreezing of 117 shares is bound to unfairly tilt the balance. Further, we will be putting the chairman of the meeting to an embarassing situation in the conduct of the meeting. We further understand that the hearing before the Kerala High Court in the matter is already over and the order is expected. In view of this position, in exercise of our powers under Section 403 of the Act read with regulations 43 and 44 of the Company Law Board Regulations we consider it appropriate that the implementation of the order dated January 15, 1997, should be postponed till the findings of the Kerala High Court with regard to the voting rights in respect of the two blocks of shares are available. Accordingly, the implementation of our order has to be deferred with liberty to both the parties to approach us as soon as the High Court order is available.
20. While disposing of these two applications we have also taken into account the apprehensions of the petitioners in the main petition, rejoinder and reply to C. A. No. 76 of 1997 and in the oral submissions that the interest of the company should be protected. In this connection, we have noted that the hospital which is the only activity of the company has been leased out on a monthly consideration of Rs. 1 lakh. It is, therefore, appropriate that this monthly income is kept intact till the final decision in this case. We also consider it appropriate that no further encumbrance to the properties of the company should be created. Accordingly we direct that the lessee of the hospital, namely, respondent No. 10 shall keep each monthly lease consideration deposited in the name of the company in a scheduled bank in fixed deposit for a period of three months and file a photo copy of the FDR along with an affidavit within the first week of each month. We also direct that no further encumbrance in the form of lease, mortgage, sale or disposal of the fixed assets of the company shall take place without our prior approval. Liberty however is granted to the parties in case of any difficulty in the implementation of the order. Since the pleadings in this case are now complete, we shall hear the main petition on February 18, 1998, at 10.30 a.m.