2011 (3) TMI 1485 - HC - Companies Law

Court upholds Company Law Board's power in reinstating director & shares purchase. Appeal dismissed, no costs.

Venture India Properties (P.) Ltd. Versus Capt. Manmohan Singh Kohli

The court dismissed the appeal, upholding the Company Law Board's orders directing the reinstatement of respondent No. 1 as a director or the purchase of ... Orders dated March 15, 2004 and October 4, 2004, passed by the Company Law Board directing appellants to purchase 33 per cent. shares owned by respondent No. 1 on the basis of balance-sheet dated March 31, 1999, by the order dated October 4, 2004, the Company Law Board appointed a valuer to value the said shares.? Held that:- The Company Law Board, in exercise of its jurisdiction under sections 397 and 398 read with section 402 of the Companies Act has the requisite jurisdiction to direct a shareholder to sell his shares to the other, although no case for winding up of the company has been made out or no actual oppression on the part of the director has been proved. Ordinarily, therefore, in a case where a case of oppression has been made a ground for the purpose of invoking the jurisdiction of the Board in terms of sections 397 and 398 of the Act, a finding of fact to that effect would be necessary to be arrived out. But the jurisdiction of the Company Law Board to pass any other or further order in the interest of the company, if it is of the opinion, that the same would protect the interest of the company, it would not be powerless. The jurisdiction of the Company Law Board in that regard must be held to be existing having regard to the aforementioned provisions. Keeping in view the fact that there are only two shareholders and two directors and bitterness having crept in their personal relationship, the same, in our opinion, will have a direct impact on the matter of conduct of the affairs of the company.When there are two directors, non-co-operation by one of them would result in a stalemate and in that view of the matter the Company Law Board and the High Court have rightly exercised their jurisdiction. Appeal dismissed. Issues Involved1. Validity of the Company Law Board's (CLB) orders dated March 15, 2004, and October 4, 2004.2. Whether the appellants can be compelled to purchase the shares of respondent No. 1.3. Jurisdiction and powers of the Company Law Board under Sections 397, 398, and 402 of the Companies Act, 1956.4. Barred by limitation and maintainability of the appeal.Detailed Analysis1. Validity of the Company Law Board's OrdersThe appeal challenges two orders by the Company Law Board: the order dated March 15, 2004, which directed the appellants to either reinstate respondent No. 1 as a director or purchase his shares based on a balance-sheet dated March 31, 1999, and the order dated October 4, 2004, which appointed a valuer to value the shares. The appellants argued that since they had reinstated respondent No. 1, they should not be compelled to purchase his shares.2. Compulsion to Purchase SharesThe appellants contended that the CLB cannot compel them to purchase the shares of respondent No. 1, especially when the allegations of oppression were rejected. They suggested that respondent No. 1 could find a third-party purchaser instead. However, the court clarified that the CLB had given an option to respondent No. 1 to either get reinstated or exit the company after getting his shares valued, thus the appellants' argument was unfounded.3. Jurisdiction and Powers of the Company Law BoardThe court discussed the wide amplitude of the CLB's powers under Sections 397, 398, and 402 of the Companies Act, 1956. It cited several precedents, including the Bombay High Court's decision in Bennet Coleman & Co. v. Union of India, which emphasized that the powers under these sections are not subject to other provisions of the Act dealing with normal corporate management. The court reiterated that the CLB has broad discretion to pass orders to end oppression or mismanagement and to protect the interests of the company and its shareholders.The court also referenced the Supreme Court's rulings in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad and Manish Mohan Sharma v. Ram Bahadur Thakur Ltd., which affirmed the CLB's jurisdiction to issue orders even if no case for winding up or actual oppression is proved, provided it serves the interests of the company.4. Barred by Limitation and Maintainability of the AppealRespondent No. 1 argued that the appeal was barred by the 120-day limitation period concerning the order dated March 15, 2004, and that the order dated October 4, 2004, was a consent order. The court, however, decided to dispose of the appeal on merits rather than on technical legal grounds.ConclusionThe court dismissed the appeal, stating that the submissions by the appellants were untenable in law. It upheld the CLB's orders and emphasized the extensive powers granted to the CLB under the Companies Act to address issues of oppression and mismanagement. The appeal was dismissed with no order as to costs.