TaxTMI 
TaxTMI 
2013 (9) TMI 826
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....3.03.1970 with an authorised share capital of Rs. 15 lakhs. The appellant and respondent No.2 were the promoter directors of the respondent-company. M/s. Vinod Sanjeev Bindal & Co. Chartgred Accountants, were appointed the statutory auditors of respondent No.1 in 1980's. It would appear that the appellant was removed from the Board of Directors on 20.06.2009 under Section 283(1)(g) of the Act; earlier on 18.11.2008, respondent No.3 had been appointed as director of respondent No.1, allegedly without any meeting of the Board of Directors. Since differences between the appellant on the one hand and respondent No.2 and respondent No.3 on the other had cropped up, a petition under Section 397 and 398 of the Act was filed by the appellant before the CLB against the present respondents. The same was withdrawn on the ground that there were some technical errors and after rectifying them, it was filed again. 3. On 25.01.2010, the company petition came up for hearing before the CLB and status quo was granted. 4. On 17.02.2011 an application was filed by respondent No.1 before the Regional Director (NR), Ministry of Corporate Affairs, seeking removal of the statutory auditors M/s. Vino....
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.... it would not be proper to issue any order by this office in the matter till matter is under consideration of the Hon'ble Company Law Board. Therefore, the applicant Company may consider to approach the Hon'ble Company Law Board for necessary direction, if so desire. The present application is accordingly disposed off. However Company may apply again to this office, after obtaining necessary directions from the Hon'ble Company Law Board in the matter." 7. After the aforesaid order was passed by the Regional Director, respondent No.3 filed an application before the CLB in Company Application No.156/2013 [in CO. PET. No.1(ND)/2010]. The prayers made in this application were (i) for passing directions for removal of the statutory auditors and for directing that the decision of the CLB shall be final and binding in this regard and no further approval from any other authority shall be required; (ii) for passing an order confirming the appointment of M/s. K.N.A. Associates, Chartered Accountants, as the statutory auditors of the company for the financial year 2009-2010 and (iii) for passing such other orders or directions which the CLB may deem fit and proper. It needs to be noted ....
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....sons stated by him, it is open to R-1 to take appropriate remedial measures as provided in law against such order. It is clarified that pendency of CP No.1(ND) of 2010 before this Board should in no manner be a ground for the Regional Director to decline to exercise jurisdiction vested in him by law under section 224(7) of the Companies Act 1956. Exercising liberty given by the Regional Director the Company may also choose to move a fresh application before the Regional Director under section 224(7) for the said purpose. 6. It is also seen that the present application CA No.156/2013 has not been moved by R-1 company but only by R-3 who is not shown to be the authorized by R-1 to file such application. Even the affidavit of R-3 does not reveal that she has been authorized by the company to file the application on behalf of R-1 company. 7. With the aforesaid clarification, the application CA No.156/2013 is disposed off. 8. The matter is already listed on 22nd May 2013 at 10.30 A.M. Sd/- [Justice D.R. Deshmukh] Chairman" 11. The present appeal has been filed against the aforesaid order passed by the CLB on 26.04.2013 in Company Application No.156/2013. 12. The contentio....
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.... the CLB and for this purpose there was no need to obtain any authorisation from the company. It was submitted that the statutory auditors are removed only by the majority shareholder in the annual general meeting and not by the company and, therefore, if there is any impediment in such removal, the majority shareholders is the person who is aggrieved and who is entitled to agitate the matter before the higher forum. It was submitted in this behalf that though Section 224(7) refers to the removal of the statutory auditors by the company, the company acts only through human agency, which in this case is the majority shareholders, of which respondent No.3 is one and if this right to remove the statutory auditors is affected in any manner, it is open to the individual shareholder, as part of the majority shareholders, to seek the removal of the statutory auditors before the CLB, even if the company does not take any step in this behalf. It is also argued that the appellant herein cannot be said to be aggrieved by the order passed by the CLB and that whatever objections he has, can be ventilated before the Regional Director who stands seized of the matter, pursuant to the directions gi....
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....ny which can remove them, subject to the prior approval of the Central Government. In the present case, it was the company which made an application to the Central Government (and rightly so) for removal of M/s. Vinod Sanjeev Bindal and Co., Chartered Accountants. The Central Government acting through the Regional Director (NR), Ministry of Corporate Affairs, opined that it would not be proper to issue any order on the application of the company since the petition under Section 397 and 398 was pending consideration before the CLB. Accordingly no decision was taken on the application of the company. However, it was observed by him that the applicant-company may consider approaching the CLB for necessary directions, if it so desired. The company's application before the RD was not kept pending, but was disposed of. The company was advised to apply again, after obtaining the directions from the CLB in the matter. Thus it was the company which was given the liberty to approach the CLB. What, however, happened was that the company did not move any application before the CLB; it was respondent No.3 who filed the application before the CLB in Company Application No.156/2013. She was not a....
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....removed from office before the expiry of his term "only by the company in general meeting", after obtaining the previous approval of the Central Government in that behalf. The auditors can be removed only by the company but the power has to be exercised in the general meeting of the shareholders. There is always a distinction between the company and its shareholders and this is the effect of registration of a company, under Section 34 of the Act. Upon registration the company is constituted as a distinct and independent person in law and is endowed with special rights and privileges. It is in point of law a person distinct from its members. This well-settled principle emanates from the judgment of the House of Lords in the case of Salomon vs. Salomon & Co. Ltd., (1897) Appeal Cases 22. There it was observed that a company is at law a different person altogether from the subscribers to the memorandum; it is not in law the agent of the subscribers or trustee for them. In Tata Engineering and Locomotive Company Ltd. vs. State of Bihar, AIR 1965 SC 40, it was held that a company being distinct from its board of directors, they cannot seek to enforce a right in their individual capacity....
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....too flagrantly opposed to justice, convenience or the interests of the Revenue. No such situation arises in the present case. It appears that the rule has never been invoked in any case where a shareholder seeks to justify his act by saying that he and the company are one and the same and when he acted, it amounted to the company itself acting. It would be dangerous to accept such a sweeping proposition. In other words where the law requires a company to act or do a particular thing, it would be no answer for a shareholder, who acts independently of the company, to invoke the doctrine of piercing the corporate veil and contend that his act was actually the act of the company. This position was recognised and invoked by Badar Durrez Ahmed, J. (as he then was) of this court in Prem Lata Bhatia vs. Union of India & Ors., (2004) 58 CL 217 = (2003) 108 DLT 346, and the following observations are pertinent: - "12. The question therefore is - can the corporate veil be lifted in the present case to reveal the identity of the person or persons behind it? In all cases where courts have permitted the lifting of the corporate veil, it has been so done to reveal the "true" identity of the co....
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....ntral Government, is empowered to accord previous approval under Section 224(7) for the removal of the auditors on an application being made to him by the company. However, clause (g) of Section 402 of the Act which deals with the powers of the CLB vis-a-vis an application under Section 397 or 398, confers wide powers upon the CLB while dealing with the application. It states that the CLB may pass any order under Section 397 or 398 providing for any matter, other than those specified in clauses (a) to (f), for which in its opinion it is just and equitable that provision should be made. The powers under clause (g) are very wide and while exercising them the only condition that needs to be satisfied is that there should be a nexus between the order that may be passed under the aforesaid clause and the object sought to be achieved by Sections 397 and 398. In Shanti Prasad Jain vs. Union of India, 1978 Bom. LR 778, Tulzapurkar, J. (as he then was) speaking for the Division Bench of the Bombay High Court dealt with the powers of the Court under Section 402 of the Act in extenso. In the opinion of the Division Bench, there are certain provisions in the Companies Act which deal with corpo....
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...., the Court must have the power to supplant the entire corporate management (or corporate mis-management) by resorting to non-corporate management which may take the form of appointing an administrator or special officer or a committee of advisors to be in charge of the affairs of the company. It was eventually held by the Division Bench of the Bombay High Court that the powers of the Court under Section 402 of the Act cannot obviously have any regard to or be subject to the other provisions dealing with the corporate form of management. 20. The decision of the Bombay High Court (supra) highlights the position that Section 402 comes into operation under extraordinary circumstances and, therefore, the other provisions of the Act, which apply under normal circumstances, cannot curtail the powers of the Court exercised under that Section. 21. In Cosmosteel P. Ltd. and Ors. vs. Jai Ram Das Gupta and Ors., AIR 1978 SC 375 = (1978) 48 COMPANY CASES 312, a three Judge Bench of the Supreme Court, speaking through D.A. Desai, J. was confronted with the question whether the direction of the Court under Section 402 of the Act for purchase of its own shares by a company, which involves a....
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....e articles of association; it even has the right to terminate, set-aside or modify any contractual arrangement between the company and any person. It was further observed that the just and equitable principle embodied in clause (g) of Section 402 is an equitable supplement to the common law of the company which is to be found in its memorandum and articles of association. This judgment has been approvingly cited by the Supreme Court in M.S.D.C. Radha Ramanan vs. M.S.D. Chandrasekara and Anr., (2008) 6 SCC 750. 23. In Sangramsingh P. Gaekwad vs. Shantadevi P. Gaekwad, (2005) 11 SCC 314 the Supreme Court held that the Court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation any further relief or reliefs, as the Court may deem fit and proper, are warranted. 24. Having regard to the settled legal position as above, I have no hesitation in holding that notwithstanding that Section 224(7) of the Act names the Central Government as the authority competent to accord previous approval for the removal of the auditors on the application of the company, it would still be open to the Company Law Board, to ....