BIFR and AAIFR jurisdiction bars share-allotment challenges, but separate oppression and mismanagement claims may still be heard.
Where a share allotment dispute is part of a rehabilitation scheme sanctioned or pending before BIFR or AAIFR, the Company Law Board lacks jurisdiction to set aside that allotment because the sick-company regime and Section 26 of the Sick Industrial Companies Act, 1985 place that controversy within the special fora. At the same time, allegations of oppression, mismanagement, and statutory violations that are independent of the allotment challenge are not barred merely because the allotment issue is pending before the sick-company authorities. Those separable grievances may be bifurcated and decided by the Company Law Board under Sections 397 and 398 of the Companies Act, 1956.
Issues: (i) Whether the Company Law Board had jurisdiction to set aside the allotment of 20 lakhs shares challenged in the company petition. (ii) Whether the acts of mismanagement and statutory violations complained of could be bifurcated from the challenge to the share allotment and separately adjudicated.
Issue (i): Whether the Company Law Board had jurisdiction to set aside the allotment of 20 lakhs shares challenged in the company petition.
Analysis: The allotment was asserted to have been made in pursuance of the rehabilitation scheme sanctioned by the Board for Industrial and Financial Reconstruction. The same allotment and the surrounding challenge to the sanctioned scheme were also pending in proceedings before the Appellate Authority for Industrial and Financial Reconstruction. In view of the statutory scheme governing sick industrial companies and the bar under Section 26 of the Sick Industrial Companies Act, 1985, the Board declined to interfere with the allotment issue, as that controversy lay within the domain of BIFR/AAIFR.
Conclusion: The Company Law Board had no jurisdiction to set aside the impugned allotment of 20 lakhs shares.
Issue (ii): Whether the acts of mismanagement and statutory violations complained of could be bifurcated from the challenge to the share allotment and separately adjudicated.
Analysis: The Board distinguished the statutory field occupied by BIFR/AAIFR from the jurisdiction under Sections 397 and 398 of the Companies Act, 1956. It held that Section 26 of the Sick Industrial Companies Act, 1985 did not bar the Company Law Board from examining independent allegations of oppression, mismanagement, and statutory violations merely because the allotment dispute was pending before AAIFR. The Court rejected the argument that bifurcation was impermissible and held that the remaining grievances could be decided separately.
Conclusion: The acts of mismanagement and statutory violations could be bifurcated and adjudicated by the Company Law Board.
Final Conclusion: The challenge to the share allotment was left to the sick-company fora, but the Company Law Board retained jurisdiction over the separate oppression and mismanagement allegations.
Ratio Decidendi: Where a dispute concerning allotment of shares falls within the matters pending before BIFR or AAIFR under the sick industrial company regime, the Company Law Board cannot adjudicate that issue, but it may still decide independent oppression and mismanagement allegations that are separable from the BIFR/AAIFR controversy.
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