Company Law Board
Icici Bank Limited vs Klen & Marshalls Manufacturers & ... on 20 February, 2002
ORDER
K.K. Balu, Member
1. This is an application filed under Section 634A of the Companies Act, 1956 ("the Act") on 4.9.2000 against M/s Klen & Marshalls Manufacturers & Exporters Limited ("the Company") for enforcement of the order dated 12.07.2000 of the Company Law Board ("CLB"). The Registrar of Companies is a pro forma party. The application came up for hearing from time to time and finally on 15.02.2002.
2. According to Shri H. Karthik Seshadri, Advocate for me applicant-Bank, the Bank had sanctioned certain credit facilities aggregating Rs. 27,50,00,000/- to the Company in consideration of which the Company had created charge on 22.10.97 in favour of the Bank in respect of the whole of the Company's entire stocks of raw-materials, semi-finished and finished goods, consumable stores and other movables set out in the deed of hypothecation dated 22.10.97. The Company ought to have filed the particulars of the charge with the second respondent within a period of 30 days after the date of its creation. As the Company had failed to file particulars of the charge with the second respondent, in spite of the efforts made by the Bank, the latter sought the intervention of the CLB under Section 614(1) of the Act. The CLB, after considering the various objections raised by the Company by and order dated 12.07.2000 directed the Company to forward the particulars of the charge created by virtue of deed of hypothecation dated 22.10.97 to the second respondent for being entered in the register of charges in the manner prescribed under the Companies (Central Government's) General Rules & Forms, 1956, within 21 days from the date of receipt of a copy of the order. However, the Company preferred an appeal against the order dated 12.07.2000 of the CLB in CMA No. 1628/2000 before the High Court of Madras. Later, the appeal in CMA No. 1628/2000 was dismissed on 5.12.2001 with cost, upon which the Company filed an appeal in SRA No. 1040 of 2002 before the Division Bench of the High Court of Madras. Shri Karthik Seshadri has pointed out that the Division Bench of the High Court has not stayed the order passed by the CLB. The Company has not so far filed the particulars of the charge till date even after expiry of nearly five years and in spite of the order of the CLB. According to him, no prejudice would be caused to the Company by executing the order of the CLB. Any delay by the Company would cause irrepairable loss to the Bank. Moreover, there is every scope for alienation of the securities by the Company. The present application is mainly with the object to maintain the status-quo in regard to the securities. At this stage the CLB is concerned only with execution of the order. The various contentions raised by the Company so as to protract the proceedings are frivolous and do not merit any consideration in the execution proceedings. Section 634A provides that any order made by the CLB may be enforced by it in the same manner as if it were a decree made by a court in a suit pending therein. In this connection, he invited my attention to the provisions of Order XXI Rule 34 of the Code of Civil Procedure, 1908, which prescribes the machinery for enforcing a decree directing execution of a document. Accordingly, the Bank has delivered a draft of form 8 & 13 along with the application, on which the Company has not filed any objection. In the circumstances, Shri Karthik Seshadri urged that the Bench Officer may be appointed to execute and sign form 8 & 13 as sought in the application in accordance with the provisions of the Order XXI Rule 34.
3. Shri M.R. Ramachandra Variar before initiating his arguments moved an application in CA No. 20/2002 for adjournment on the ground that the appeal filed in SRA No. 1040/2002 before the Division Bench of the High Court of Madras has been returned on the ground that the order dated 5.12.2002 of the High Court passed in CMA No. 1628 of 2000 does not give the correct number of the Company Application, namely, CA No. 53/614(1)/SRB/2000, by which the Company is handicapped to prosecute the appeal preferred against the order dated 5.12.2001, stated supra. Shri Variar proceeded with his submissions on merits of the case and opposed the application on the following among other grounds:-
(a) Section 634A does not empower the applicant to invoke the provisions of this Section enforcing the order of the CLB.
(b) The Company has filed an appeal against the order dated 5.12.2001 of the High Court before the Division Bench of the High Court and the appeal is pending. Consequently, the order of the CLB has not become final and does not amount to a decree executable under Section 634A.
(c) Order XXI Rule 34 of the CPC applies to money decrees. In the present case, the order of the CLB not being a money decree cannot be executed, as prescribed in Order XXI Rule 34.
(d) The Company has cleared certain loans by entering into a compromise arrangement with the Bank and as a result the Company has made an excess payment of Rs. 38.77 lakhs. At present, the Company does not owe any amount to the Bank.
(e) The Company is denying the entire liability of Rs. 475 lakhs, said to be due under Inland Bill Discounting facility (the Bills). The Company being a endorser of the Bills, is not a principal debtor under Negotiable Instruments Act. The Bank ought to have given a notice of dishonour of the Bills to the endorser, but failed to comply with the mandatory requirement of the provisions of Section 93 read with Section 106 of the Negotiable Instruments Act, thereby impairing the rights of the endorser. The Bank guarantee of Rs. 475 lakhs of Jammu & Kashmir Bank provided by the acceptor of Bills does not create any charge over the assets of the Company requiring registration under Section 125. The Bank has already initiated civil proceedings before the competent Court at Jammu in respect of this liability.
(f) The Bank has filed a suit on 20.8.2000 against the Company for recovery of the outstanding dues before the Debt Recovery Tribunal enforcing the securities. The Bank cannot maintain parallel proceedings before the CLB, as held in Indian Overseas Bank v. Essar Machine Works Limited - C.P. Nos. 11 & 12/614(1)SRB/2001(CLB).
4. Shri Karthik Seshadri, in his reply, contended that the CLB cannot suo-motto execute its order, in view of the fact that it cannot keep track of the orders complied or not complied by the parties. It is left to the aggrieved person to move the CLB under Section 634A for execution of its order. He further pointed out that the order of the CLB dated 12.07.2000 is a decree within the meaning of Section 2(2) of the CPC. Unless the order dated 12.07.2000 of the CLB is stayed by the Division Bench of the High Court, it is left to the CLB to execute the order. He further pointed out that Order 21 applies to all suits including money suits and that the Company has not chosen to invoke the provisions of Order 21 Rule 24 for stay of execution of the order of the CLB. In the circumstances, the CLB may enforce the order passed by it, in support of which he relied on the decision Shasan Projects India Limited v. Assam Brooke Limited - Vol 85 1996 CC 662. Shri Karthik Seshadri, while concluding his arguments submitted that the Bank, being a public financial institution, public money is involved and by depriving registration of the charge, the public interest is adversely affected. He, therefore, sought for the reliefs made in the application.
5. After considering the pleadings and oral submissions made on behalf of the petitioner and the Company, the issue that arises for my consideration is whether the order dated 12.07.2000 made by the CLB may be enforced by it in the facts and circumstances of the case.
6. Before going into merits of the case, I shall deal with the application seeking adjournment made on behalf of the Company. The Company has admittedly obtained certified copy of the order dated 5.12.2001 of the High Court on 11.12.2001. Nevertheless, the Company is not diligent enough to take early steps for curing the infirmity crept in the order and no documentary evidence is produced to show corrective measures, if any, taken by the Company. At this juncture, it would not be irrelevant to point out that the Authorised Representative of the Company moved earlier an application in CA No. 19/2002 for adjournment to a future date for his oral submissions, when Counsel for the petitioner concluded his arguments on 11.2.2002, which was readily conceded to by this Bench. But, now adjournment is sought for different reasons. There is, therefore, no justification for the adjournment moved on behalf of the Company.
7. While it is contended by the petitioner that the order of the CLB can be enforced in the present proceedings, it is stoutly denied by the Company that the application is enforceable either under law or on facts of the case.
8. Section 634A, dealing with enforcement of orders of the CLB, reads as under:-
"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 inability to execute such order, to 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 other person, the person concerned voluntarily resides, or carries on business or personally works for gain."
A plain reading of Section 634A shows that an order of the CLB is enforceable in the same manner as if it were a decree of a court in a suit. If the CLB cannot execute it, the decree may be sent to the appropriate court for execution. Execution procedure is contained in Order 21 of the CPC. At this juncture I may point out that the proceedings before the CLB are not governed by the provisions of CPC as held in Kshounish Chowdhary v. Kero Rajendra Monolethic Ltd. - (1999) 34 CLA 304 (CLB). Nevertheless, the underlying principles of the CPC are being followed by the CLB. Admittedly, the Company failed to execute and sign form 8 & 13 in terms of the order dated 12.07.2000 of the CLB. However, the Company filed an appeal challenging the order of the CLB before the High Court of Madras, which was later dismissed on 5.12.2001, against which the Company has filed second appeal before the Division Bench of High Court of Madras. The second appeal is pending, but no stay has been obtained against the order of the CLB. Mere filing of an appeal without obtaining an order of stay, does not prohibit the CLB from enforcing the order dated 12.07.2000. The plea that the order of the CLB is not executable is misconceived. In this connection, beneficial reference is invited to the decision in Bertrand Faure Sitztechnik GMBH & Co. KG v. IFB Automotive and Seating Systems Limited - [1999] 34 CLA 277 (CLB), wherein it has been held that the CLB has power to enforce any order passed by it. The order need not be a money decree. Therefore, the plea raised on behalf of the Company that the petitioner cannot invoke the provisions of Section 634A and that the order dated 12.07.2000 of the CLB not being a money decree cannot be executed must also fail. Though Shri Variar stoutly contended that the amount due to the Bank has to only been repaid in full but also made an excess payment of Rs. 38.77 lakhs by entering into a compromise agreement with the Bank, no attempt was made to substantiate this contention by producing any material evidence. It is observed that no records are filed in this behalf with the CLB. In regard to the Bank guarantee liability, the contentions of the Company do not merit any consideration in the light of the findings of this Bench in its order dated 12.07.2000, relevant portion of which reads as under:-
"A careful scrutiny of the records made available before this Bench show that the pending proceedings before the Courts at Jammu, Chennai as well as the Supreme Court of India do not have any bearing on the subject matter of the petition, especially when the affidavit dated 9.6.2000 filed on behalf of the petitioner-Bank containing details of the Court proceedings between the parties has not been contravened by the Company. The Company has neither advanced any argument on this contentious issue. I am, therefore, convinced that the subject matter of the Company Petition is not being agitated in any of the Court proceedings stated supra."
(page 6).
Moreover, the questions raised by the Company in the present proceedings must relate to the enforcement of the obligation created by the order dated 12.07.2000 of the CLB and must have reference to matters arising subsequent to the passing of the order and not antecedent to it as has been held in Narain v. Rameshwar, (6 CWN 796). It is reported that the Bank has filed a suit against the Company before the Debt Recovery Tribunal for recovery of the outstanding amount, admittedly after the order dated 12.07.2000 of the CLB, in which case, the decision in Indian Overseas Bank v. Essar Machine Works Limited cited supra is not applicable to the facts of the present case, when especially the suit filed by the creditor in the other matter is prior in time to the initiation of the proceedings before the CLB.
9. After taking into consideration the facts and circumstances of the case, submissions made on behalf of the petitioner as well as the Company, legal position explained here above and the fact that there is no stay against the order of the CLB and also in the public interest, it is herby ordered that the Company shall comply with the order dated 12.07.2000 of the CLB by 28.02.2002 failing which, Shri A.M. Sridharan, Bench Officer is authorized to execute and sign form 8 & 13 on behalf of the Company as prayed in the application. This order is however, subject to the order that may be passed in SRA NO. 1040/2002 by the Division Bench of the High Court of Madras.
10. With the above directions, the main application as well as the application seeking adjournment made by the Company stand disposed of, without any order as to cost.