2008 (4) TMI 510 - HC - Companies Law

Court Upholds Company Law Board's Order Preventing Directorship Exclusion

The High Court of Madras dismissed the civil miscellaneous appeal and confirmed the Company Law Board's order dated 28-11-2007. The court held that the ... Whether the consent order, dated 8-9-2006, has rendered the Company Law Board 'functus officio' ? Whether the Company Law Board has exceeded its powers under regulation 44 of the Company Law Board Regulations, 1991, by issuing the order, dated 28-11-2007 ? Whether the civil miscellaneous appeal has to be allowed, on the aforesaid grounds raised by the appellants herein ? Held that:- It is clear that the consent order, dated 8-9-2006, has direct nexus with the earlier order, dated 18-8-2005, whereby the directors belonging to the respondents group were given proper protection. However, under the guise of the order, dated 8-9-2006, cleverly bypassing the direction given by the Board on 18-8-2005, the annual general body meeting has been conducted on 24-8-2005. From the impugned order, it is clear that the intention of the Company Law Board is only to prevent the said abuse of process of the Bench and to meet the ends of justice and therefore, considering the facts and circumstances, answer all the substantial questions of law raised by learned counsel for the appellants against the appellants, holding that there is no error or infirmity in the impugned order passed by the Company Law Board, so as to exercise its power under regulation 44 of the Company Law Board Regulations, 1991. Appeal dismissed. Issues Involved:1. Whether the consent order dated 8-9-2006 rendered the Company Law Board 'functus officio'.2. Whether the Company Law Board exceeded its powers under regulation 44 of the Company Law Board Regulations, 1991, by issuing the order dated 28-11-2007.3. Whether the civil miscellaneous appeal should be allowed based on the grounds raised by the appellants.Issue-wise Detailed Analysis:1. Whether the consent order dated 8-9-2006 rendered the Company Law Board 'functus officio':The appellants argued that the consent order dated 8-9-2006 was the final order in the company petition, merging all prior interlocutory orders, and thus made the Company Law Board 'functus officio'. They contended that once a final compromise order is passed, it cannot be modified or altered by the Company Law Board without the consent of all parties involved. The respondents, however, relied on the decision in Shoe Specialities (P.) Ltd. v. Standard Distilleries and Breweries (P.) Ltd., asserting that the Company Law Board had not lost seisin over the matter and was entitled to pass further orders.The court noted that the consent order was subject to the earlier order dated 18-8-2005, which directed that directors from the respondents' group would continue to be directors irrespective of the decisions at the annual general body meeting until further orders. The appellants had excluded the first respondent from the office of director, contrary to the earlier order, thereby abusing the process. The Company Law Board, therefore, did not become 'functus officio' after the consent order.2. Whether the Company Law Board exceeded its powers under regulation 44 of the Company Law Board Regulations, 1991, by issuing the order dated 28-11-2007:The appellants argued that the Company Law Board exceeded its powers by modifying the consent order without the consent of all parties. They cited the principle that a court cannot interfere with a compromise order unless obtained by fraud, misrepresentation, or coercion. The respondents countered that regulation 44 of the Company Law Board Regulations, 1991, grants the Board inherent power to make necessary orders to prevent abuse of process and meet the ends of justice.The court upheld the Company Law Board's use of regulation 44, noting that it is akin to the inherent powers of a civil court under section 151 of the Code of Civil Procedure. The Board's decision to pass the impugned order was justified to prevent abuse of process and ensure justice, especially given the appellants' actions to exclude the first respondent from the directorship in violation of the earlier order.3. Whether the civil miscellaneous appeal should be allowed based on the grounds raised by the appellants:The court examined the substantial questions of law raised by the appellants and found no error or infirmity in the Company Law Board's impugned order. The Board's decision was aimed at protecting the rights of the shareholders and preventing the abuse of the process. The appellants' attempt to exclude the first respondent from the directorship was contrary to the consent order and the earlier order dated 18-8-2005.The court concluded that the Company Law Board acted within its powers under regulation 44 to ensure justice and prevent abuse. Therefore, the civil miscellaneous appeal was dismissed, and the impugned order dated 28-11-2007 was confirmed.Conclusion:The High Court of Madras dismissed the civil miscellaneous appeal, confirming the Company Law Board's order dated 28-11-2007. The court held that the Company Law Board did not become 'functus officio' after the consent order and acted within its inherent powers under regulation 44 to prevent abuse of process and ensure justice. The appellants' grounds for appeal were rejected, and the respondents' rights as shareholders were upheld.