TaxTMI 
TaxTMI 
2013 (11) TMI 1295
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....w taken up for final hearing. 3. The following Questions of Law are framed for consideration in the present Appeal: (a) Whether the Order passed by the CLB, Mumbai Bench, dated 28th March, 2013 is nonest, ex facie not valid and the entire proceedings in Company Petition No. 62 of 2009, stand vitiated since the notice of the Application/Petition made by the Original Petitioner (Respondent No. 2) to the CLB under Sections 397 and 398 of the Act was not served on the Central Government by the CLB itself under the provisions of Section 400 of the Act? (b) Whether the CLB, whilst passing a final order in the Petition alleging oppression and mismanagement, can by exercising its powers under Section 402 of the Act, remove the Auditor duly appointed by the Respondent No. 3 Company, in view of the provisions contained in Section 224 (7) of the Act which stipulates that, "any auditor appointed under Section 224 (7) of the Act may be removed from office before expiry of his term only by the Company in general meeting, after obtaining the previous approval of the Central Government in that behalf". 4. The relevant facts in brief are as set out hereunder: 5. Respondent No.3 - M/s....
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....side and Respondent Nos. 3 to 8 be directed to rectify the Register of Members ("RoM") of Respondent No.3 by inserting the name of the Respondent No. 2 in relation to 80722 shares held by the Respondent No. 2. 7. The said Petition No. 62 of 2009 was filed by Respondent No. 2 before the CLB Mumbai Bench, on 17th June, 2009. On 18th June, 2009, the Advocate for the Respondent No. 2 forwarded a copy of the Petition to the Regional Director, Western Region, Ministry of Company Affairs, by hand delivery, informing the Regional Director, that the said Company Petition will be on Board before the CLB, Mumbai Bench, for hearing on Monday 22nd June, 2009 at 11.00 a.m. at which time he was requested to remain present. By a letter dated 19th June, 2009, the Advocate for the Respondent No. 2, informed the CLB that a copy of the Company Petition No. 62 of 2009 was inter alia served on the Regional Director with an intimation that the matter would be on Board before the CLB, Mumbai Bench on 22nd June, 2009 at 11.00 a.m. or thereabout. A copy of the letter dated 18th June, 2009, addressed to the Regional Director was also forwarded to the CLB along with the said letter dated 19th June, 2009. ....
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....ions pertaining to transfer of shares of the Respondent No. 2 in favour of Respondent No. 6 and directing the shares to be once again shown in the name of the Respondent No. 2 in the Register of Shares of Respondent No.3, the Learned Member ordered a fresh valuation of shares with a direction to the Respondent No.2 to transfer its shares in favour of Respondent Nos. 3 to 8 as per the valuation determined through fresh valuation. The Learned Member has in exercise of his powers under Section 402 of the Act also removed Respondent No. 9 -SHARP & TANAN as Auditors of the Respondent No. 3 Company. 11. A copy of the impugned Order dated 28th March, 2013, was forwarded by the CLB, Mumbai Bench, to the Ministry of Corporate Affairs under cover of its letter dated 2nd April, 2013, which was received by the Ministry of Corporate Affairs on 9th April, 2013. Thereafter, the Ministry of Corporate Affairs by its email dated 10th April, 2013, enquired with the CLB whether a copy of the Petition was served on it. The Bench Officer of the CLB by his letter dated 12th April, 2013, addressed to the Joint Director (Inspection), Ministry of Corporate Affairs, inter alia, recorded that since the ser....
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.... a copy of the Petition even from the Original Petitioner i.e. Respondent No. 2 herein. According to the Appellant, at this stage they are unable to trace either the letter dated 18th June, 2009, received from the Advocate for the Respondent No. 2 or the copy of the Petition in their office. 13. Respondent No.2 , Respondent Nos. 4 to 8 - Mr. Arunachalam Muthu and others, Respondent No. 9 - SHARP & TANNAN and Respondent No. 10 - Lesaffre Group have all filed their respective Appeals impugning certain directions contained in the impugned Order by which they are aggrieved. However all the Respondents including the Respondent No.9 - SHARP & TANNAN who are removed by the CLB as Auditors of the Respondent No. 3, have submitted that they do not support the stand taken in the above Appeal by the Appellant - Union of India viz. that the final Order passed by the CLB after hearing the Company Petition No. 62 of 2009 over a period of four years stands vitiated because the notice of filing of the Petition was not given to the Central Government by the CLB itself under Section 400 of the Act. 14. Mr. Shyam Mehta, the Learned Senior Advocate appearing for the AppellantUnion of India, has s....
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.... has been recorded in the inward register as a letter received from the Attorneys of the Respondent No. 2 pertaining to Company Petition No. 62 of 2009. Regulation 14 (3) requires the Respondent No. 2 to serve a copy of the Petition on the concerned Registrar of Companies and file the acknowledgement proof with the CLB at the time of filing the Petition. Regulation 14 (3) further requires the Respondent No. 2 to serve a copy of the Petition on the Central Government. However, the Petition was already filed with the CLB on 17th June, 2009 and therefore there was no compliance by the Respondent No. 2 and by the CLB with Regulation 14 (3), as the acknowledgement was not attached and presented with the Petition to the CLB, as required for filing and prescribed in the said Regulation. However, it is submitted that even assuming that Regulation 14 (3) had been complied with, the mere procedural act in complying with the CLB Regulations does not absolve the CLB from its obligation to separately give notice of the Petition as mandated under Section 400 of the Act. It is further submitted that the procedure prescribed in Regulation 14 (3) by the CLB is required to be followed for filing a P....
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....removal of a Statutory Auditor appointed under the said Section before expiry of the term, except as provided in the proviso to subsection (5), requires the prior approval of the Central Government in this behalf. It is submitted that in the cases of Basant Ram and Sons vs. Union of India [2002] 110 Company Cases 38 and Devinder K. Jain vs. Union of India and others [2007] 139 Company Cases 896 , which concerned the removal of statutory auditors under Section 224 (7) of the Act, the same was challenged by filing Writ Petitions before the Delhi High Court and the CLB was not approached for redressal under Section 224 (7) of the Act. It is therefore submitted that in the public interest the Central Government has to protect the powers given to it by the Legislature under the provisions of the Act. The noncompliance of statutory provisions of Section 400 of the Act and the encroachment of the Central Government's powers under Section 224 (7) of the Act, renders the impugned Order redundant. 18. The Appellants have therefore prayed that the impugned Order dated 28th March, 2013, passed by the CLB, Mumbai Bench, be quashed and set aside. 19. Mr. De'vitre, the Learned Senior Advoca....
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....val and have filed a separate Appeal impugning their removal as Auditors of Respondent No. 3 Company on the grounds stated therein. 21. Mr. De'vitre submitted that therefore the Appeal be dismissed with costs. 22. Mr. Dwarkadas, the Learned Senior Advocate appearing for Respondent Nos. 4 to 6 and 8, submitted that the primary ground of challenge made out in the captioned Appeal relates to the alleged failure of the CLB in giving notice as mandated under Section 400 of the Act. The powers and functions of the Central Government under Section 400 of the Act have been delegated to the relevant Regional Director under Notification dated 31st May, 1991. The second ground of challenge made out in the captioned Appeal relates to the alleged failure of the Respondent No. 2 in serving a copy of the Petition as mandated by Regulation 14 (3) of the CLB Regulations, 1991. 23. As regards the first ground i.e. the alleged failure to serve the notice on the Central Government by the CLB, Mr. Dwarkadas submitted that prior to the amendment to the Act in 1991, the jurisdiction inter alia u/s 397, 398 of the Act vested with this Court, and the same was shifted to the CLB only after the said am....
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....rement under Regulation 14 (3) was expressly complied with. It is submitted that since under the Regulations as framed by the CLB, the requirement of serving the Petition on the Central Government, has by an express delegation made by the CLB, been delegated to the Petitioner, the submission on behalf of the Central Government that the Petition should be served by the CLB alone is not sustainable. In any event, it is submitted that the object and purpose under Section 400 of the Act is to notify the Central Government of the filing of the Petition under Sections 397 and/or 398 of the Act. Mr. Dwarkadas has relied on the decision in the case of Ghanshyam Dass and others vs. Dominion of India and others AIR 1984 SC 1004 wherein the Hon'ble Supreme Court has inter alia held that the notice under Section 80 of the Code should be held to be sufficient if it substantially fulfills its object of informing the parties concerned about the nature of the suit to be filed. Mr. Dwarkadas submitted that the ratio of the said decision is squarely applicable to Section 400 of the Act as well. Mr. Dwarkadas also relied on the decision of the Hon'ble Supreme Court in the case of Jang Singh vs. Brijl....
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....ph 1 of the Memorandum of Appeal between notice given by the CLB and service of a copy of the Petition by the Respondent No. 2 as per the CLB Regulations, is a distinction without a difference. Mr. Khambata submitted that relying upon Regulation 21 (1), it was contended by the Appellant that the obligation to issue notice is that of the CLB and that no notice was issued by the CLB in the present case and that the failure is fatal in terms of Section 400 of the Act. Mr. Khambata submitted that Regulation 21 has no application to the facts of the present case. Without prejudice to the said contention, Mr. Khambata submitted that Regulation 21 (1) (i) contemplates service by the party itself. In the alternative, Mr. Khambata submitted that in the event that this Court is pleased to hold that service by the Respondent No. 2 under the CLB Regulations does not amount to strict compliance of Section 400 of the Act, it is submitted that the provisions of Section 400 of the Act are not mandatory in so far as the identity of the person or body giving the notice is concerned. What is mandatory is that notice of every application under Section 397 and/or Section 398 has to be given to the Cent....
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....d Shanti Prasad Jain vs. Union of India 1973 (75) BLR 778 Mr. Khambata submitted that it is well settled that the CLB has the widest power under Sections 402 and 403 of the Act to pass such orders as it thinks fit to bring about the desired results in the management of the affairs of the Company and that the exercise of such power is not subject to the other provisions of the Act. 31. Mr. Khambata submitted that therefore, none of the contentions of the Appellant have any merit and the present Appeal ought to be dismissed with costs. 32. I have considered the aforestated submissions advanced on behalf of the parties as well as the case law cited by them. 33. Section 400 of the Companies Act, 1956 requires that: "the Company Law Board shall give notice of every application made to it under Section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order under that Section". As submitted by the Respondents, the term "give notice" indicates that the notice is one by way of service of proceedings rather than a notice from a Court or Tribunal issued to a Respondent/Defendant, ....
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....ver the years, the Central Government, through the Regional Director, Western Region, has also not raised any objection for receiving the notice of an application filed under Sections 397 and 398 of the Act from the Petitioner and not the CLB itself. This is obviously so because the object of giving notice to the Central Government of an Application filed before the CLB under Sections 397 and 398 of the Act, thereby giving an opportunity to the Central Government to make its representations before the final orders are passed in the Petition, is complied with/achieved by service of the Petition on Central Government by the Petitioner as directed by the CLB Regulations, 1991. In the instant case, admittedly, the Advocates for the Respondent No.2 (Original petitioner) had served a copy of the Petition on the Regional Director, Western Region on 18th June, 2009 and has also put the Regional Director, Western Region to notice of the fact that the hearing of the said Petition would take place before the CLB on 22nd June, 2009, and the Regional Director was requested to remain present at the said hearing. In fact, the Petition was served on the Central Government through the Regional Dire....
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....by a party as a permissible mode of service by the CLB. 36. In my view the object of Section 400 of the Act viz. "to give notice" by way of service of the proceedings to the Central Government, is to enable the Central Government to make any representation in the matter which would be considered by the CLB before passing a final order under Sections 397 and 398 of the Act is strictly complied with. In view thereof, the decision of the Hon'ble Supreme Court in the case of Cosmosteels Pvt. Ltd. vs. Jairam Das Gupta and others (supra) and the decision of the Delhi High Court in the case of Sakthi Trading Co. P. Ltd. and another vs. Union of India and another (supra) (relied upon by the Appellant in support of their case that it is obligatory on the CLB to give notice of the Petition to the Central Government and the CLB should exercise its powers under Sections 397, 398 and 402 of the Act after hearing the Central Government) does not render assistance to the Appellant. The Appellant has also relied on the decision of the Hon'ble Delhi High Court in re. YKM Holdings Pvt. Ltd. (supra). Section 391 of the Act allows an application to be filed for a proposed compromise or arrangement ....
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....ice given by the Advocates for the Petitioner to the Central Government. The provisions of Section 400 of the Act are not mandatory in so far as the identity of the person or body giving the notice. What is mandatory is that notice of every application under Sections 397/398 of the Act has to be given to the Central Government. The form of the notice, the manner of its service and the identity of the server are not of mandatory nature but are directory. The Hon'ble Supreme Court in K. Kamaraja Nadar vs. Kunju Thevar (supra) and M.Y. Ghorpade vs. Shivaji Rao M. Poal (supra) had the occasion to decide whether Section 117 of the Representation of the Peoples Act, 1951 (which required the deposit by the Petitioner of Rs. 1000/as security for costs of an Election Petition) is mandatory or not. The Hon'ble Supreme Court held that the requirement of deposit was mandatory but the manner of deposit was not. The Hon'ble Supreme Court whilst construing Section 117 held that whereas the deposit was mandatory "the mode of deposit as well as the person who could make a deposit has to be complied with the rules of the High Court in question and as such has been held to be directory in several dec....
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....ilised the section merely to raise technical defences contending either that no notice had been given or that the notice actually given did not comply with the requirements of the section...." 39. The Appellant has placed reliance on the decisions of the India Rayon Corporation Ltd. vs. Raunaq and Company (P) Ltd. (supra) and Secretary to Govt. of Karnataka and another vs. V. Harishbabu (supra), wherein it is held that the issuance of a notice under Section 14 (2) of the Arbitration Act, 1940, by the Court is a mandatory requirement. Relying on the said judgments, the Appellant submits that the Respondents cannot be heard to say that Section 400 of the Act has been substantially complied with in the case at hand. 40. Subsections (1) and (2) of Section 14 of the Arbitration Act, 1940, read as under: "(1) When the arbitrators or umpire have made their award, they shall sign it, and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award. (2) The arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such pa....
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....ct,1963 read with Section 14 (2) of the Arbitration Act, 1940. 41. As mentioned hereinabove, since Section 400 of the Act contemplates giving notice to the Central Government by way of service of the proceedings thereby giving an opportunity to the Central Government to make representations, if any, to the CLB, which the CLB would consider before passing final orders under Sections 397/398 of the Act, the notice contemplated under Section 400 of the Act cannot be compared to the notice required to be given under Section 14 (2) of the Arbitration Act, 1940. The Appellant therefore cannot draw support from the decisions in India Rayon Corporation Ltd. (supra) or Secy. to the State of Karnataka (supra). Therefore, in the instant case, the Respondents are correct in contending that even if it is held that Section 400 of the Act has not been strictly complied with, the same is substantially complied with in the case at hand. 42. In fact, a learned Single Judge of the Madhya Pradesh High Court in the case of Marble City Hospital and Research Centre (P) Ltd. v. Sarabjeet Singh Mokha(supra) has in para 42 held as follows: "Even though by placing reliance on the judgment in the cas....
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....d in fact the Central Government was also informed of the hearing of the Petition. In fact, in the instant case the Appellant has in the Memo of Appeal or in its written submissions not even mentioned what representation it was desirous of making before the CLB before the final orders were passed and how the impugned order passed is against public interest and/or the minority shareholders. 43. As submitted by the Respondents, the Appeal by the present Appellant must also be viewed in the context of the undisputed position that the Central Government almost without exception never responds to any notice of proceedings before the CLB under Sections 397/398 of the Act and has never appeared before the CLB in such proceedings. The consequence of the CLB's failure to give notice to the Appellant cannot be visited upon the litigants. It is a well settled principle that parties cannot suffer due to an act of the Court. The Hon'ble Supreme Court has in the case of Jang Singh vs. Brijlal and others (supra) held that, "there is no higher principle for the guidance of the Court than the one that no act of Courts should harm a litigant and it is the bounden duty of Courts to see that if a p....
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....power or jurisdiction to remove an auditor duly appointed by the Respondent No. 3 in view of the provisions contained in Section 224 (7) of the Act. 48. Section 224 (7) provides as follows: "224 (7). Except as provided in the proviso to subsection (5), any auditor appointed under this section may be 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". From a plain reading of the Section it is clear that it prohibits a company in its general meeting from removing a statutory auditor before the expiry of his term if the previous approval of the Central Government in that behalf has not been obtained. As submitted by the Respondents, it would defy logic to interpret Section 224 (7) of the Act as meaning that even a Court or Tribunal such as the CLB has no jurisdiction to remove a statutory auditor before the expiry of his term unless such Court/Tribunal first obtained the approval of the Central Government. Sections 397 and 398 of the Companies Act, 1956 confer jurisdiction upon the CLB in respect of the matters stated therein. There is nothing in these section....
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....ders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the legislature wanted to do so it has made a distinction between powers conferred on the Government (vide Section 408) and powers conferred on the court (vide Section 402} while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the Court's powers." The Hon'ble Division Bench of this Court whilst laying emphasis on the widest powers of the CLB under Sections 402 and 403 of the Act, has observed as under: "An examination of the aforesaid Sections clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limit....