TaxTMI 
TaxTMI 
2015 (11) TMI 133
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.... order dated 15.4.2015 rendered by the High Court of Judicature at Hyderabad, for the State of Telangana and State of Andhra Pradesh, in Company Appeal No. 17 of 2014 preferred by the respondent Nos. 1, 2 and 3 herein, under Section 10F of the Companies Act, 1956 (for short hereinafter to be referred to as "the Act") assailing the order dated 6.8.2014 passed by the Company Law Board, Chennai Bench (for short, hereinafter to be referred to as "CLB") in Company Petition No. 36 of 2014 filed by them. 3. While entertaining the instant appeals, this Court by order dated 12.5.2015, having regard to the considerations referred to therein and as accepted by the learned counsel for the parties, did make an endeavour to effect an amicable settlement through mediation which, however, did not fructify. The learned counsel for the parties, as is recorded in the order dated 21.7.2015, on instructions, vouched that the day-to-day functioning of the company, however would be allowed to continue. The appeals, in this backdrop have, thus, been analogously heard on merits for disposal. 4. We have heard Mr. P.S. Raman, learned senior counsel for the appellants in Civil Appeal arising out of S.L.....
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....jay Kumar Datla having departed, did reconsider his decision and addressed another letter dated 9.4.2013 to the Board of Directors expressing his inclination to continue as the Director of the Board, intimating as well that thereby he was withdrawing his resignation letter dated 6.4.2013. 9. On the same day i.e. 9.4.2013, a meeting of the Board of Directors was convened by Mr. G.V. Rao, in the capacity of a Director of the company, which was attended amongst others, by the three daughters of the respondent No.1 i.e. Ms. Purnima Manthena (respondent No. 4), Ms. Indira Pusapati (respondent no. 5) and Ms. Mahima Datla (appellant). The respondent No. 1 did not attend the meeting and as the minutes of the proceedings would record, leave of absence was granted to her. In the same meeting, Mrs. Indira Pusapati (respondent No. 5) was inducted as the Director of the company to fill up the casual vacancy caused by the death of Dr. Vijay Kumar Datla. Mr. G.V Rao (respondent No. 6), was authorised, inter alia, to verify all acts and deeds as would be necessary, expedient and desirable to give effect to the resolutions adopted. 10. Thereafter, on 10.4.2013 and 11.4.2013 as well, meetings ....
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....atla (appellant) as the Managing Director, thereby seeking the "blessings and guidance" of all concerned for enabling her to discharge her new responsibility. Respondent No. 1, however, at a later point of time, did allege exertion of pressure and undue influence by the other Directors to which she wilted, being in an anguished and forsaken state of mind, still mourning the sudden demise of her husband, Dr. Vijay Kumar Datla. 13. While the matter rested at that, the respondent No. 1, Mrs. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No. 5) and Ms. Mahima Datla (appellant) addressed a letter dated 24.5.2013 to the Board of Directors conveying the decision of the members of the HUF on consensus to divide 4594 shares thereof (HUF) held by Dr. Vijay Kumar Datla, in equal shares. They also appended to the letter, a Memorandum Of Undertaking to this effect and requested the company to effect transmission of shares in their favour, on the said basis. 14. Incidentally on the same day i.e. 24.5.2013, a meeting of the Board of Directors was convened in which, as respondent No. 1 was absent, leave of absence was granted to her. In the said meeting, amongst other....
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....er considering the rival pleadings and the documents laid before it, observed on a prima facie evaluation of the facts portrayed, that the respondent No. 1 had recognised her three daughters Ms. Purnima Manthena (respondent No. 4), Mrs. Indira Pusapati (respondent No. 5) as the Directors and Ms. Mahima Datla (appellant) to be the Managing Director of the company. It was of the view that, though she received the letter of withdrawal of resignation of Mr. G.V. Rao- respondent No. 6, she had not responded thereto either accepting or rejecting the same. On an appraisal of the pleaded facts and the documents on record, the CLB returned a finding that there was neither any change in the Board of Directors nor in the management of the company nor there was any likelihood of change in the ownership of the company nor any likelihood of the new management taking over the company nor any change in the shareholding pattern of the company and concluded in the context of Section 409 of the Act that respondent No. 1 had not made out any ground for grant of any interim relief, as prayed. Noting the assertion of the respondents therein that the company had the necessary reserves to meets its debts ....
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....elation thereto and to hand over the possession of the share certificates to her. Her alternative prayer, without prejudice to this relief, was for delineating her extent of claim to the shares in the capacity of a working spouse/widow of late Dr. Vijay Kumar Datla. 20. As the flow of the developments thereafter would demonstrate, the respondent No. 1 withdrew the Company Petition No. 1 of 2013 in July, 2014 with a liberty to approach the appropriate forum for appropriate reliefs in a manner known to law. The Company Petition No.1 of 2013, was, accordingly closed. 21. The respondent No. 1, in her renewed pursuit for redressal of her grievances as perceived by her, next instituted another petition before the CLB, which was registered as Company Petition No. 36 of 2014 under Sections 111A, 237, 397,398,402,403,404,406 of the Act, 1956 and Sections 58 and 59 of the Companies Act, 2013. As the pleaded assertions made therein would attest, those were in substantial reiteration of the facts narrated hereinabove, with the added imputation that the respondents therein were contemplating to transfer and consign the undertakings of the company to other companies incorporated and manage....
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.... of first hearing, the primary facts, as adverted to hereinabove, having a bearing on the dissensions were addressed and the CLB, after taking note of the fact that the meeting of the company for considering the scheme of demerger was scheduled to be held on 7.8.2014, as directed by the High Court, construed it to be inexpedient to intervene in that regard. It observed as well, that meanwhile a suit had been filed by the respondent No.1 on the basis of a will said to have been executed in her favour and that the same was pending adjudication and concluded that it would not be appropriate to restrain the appellant (Ms. Mahima Datla) from exercising her voting right in respect of 400961 equity shares. Noticeably, in course of the submissions, it was pleaded on behalf of the respondent No. 1 that the suit would be withdrawn. Qua the alienation of immovable properties of the company, the CLB recorded the submission on behalf of the respondents therein that there was no intention to do so vis-a-vis the movable and immovable properties of the company except that may arise under the scheme of demerger. In response to the submissions made on behalf of the respondent No. 1 that she ought no....
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....and the accompanying applications were disposed of as infructuous. In arriving at its penultimate conclusions, leading to the arrangement configured by the operative directions, as extracted hereinabove, the High Court elaborately delved into the factual details bearing on all facets of the surging disputes between the parties, tracing from the issue of validity or otherwise of the continuance of Mr. G.V. Rao as the Director of the company, to the imputation of mis-management and oppression, allegedly indulged in by the appellants and other Directors including the perceived imminent possibility of slicing off the assets of the establishment through a process of demerger. 26. En route to the final deductions, the High Court did dwell upon the validity of the Board meetings held on 9.4.2013, 10.4.2013 and 11.4.2013 in particular and also of the Annual General Meeting conducted on 18.12.2013, the claim made by the respondent No. 1 in her suit based on a will claimed to be executed in her favour by Dr. Vijay Kumar Datla (since deceased), the letter dated 15.4.2013 written by the respondent No. 1 as well as the accusation of manipulation of the transfer of the majority of the shares ....
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....arties pending the examination thereof by the statutorily prescribed forum of original jurisdiction i.e. the CLB in an appeal under Section 10F of the Act and the decisive bearing thereof, is the focal point of impeachment in the instant proceedings. 30. Learned senior counsel for the appellants in all the appeals have, at the threshold, urged that as the order dated 6.8.2014 of the CLB did not generate any question of law, as enjoined by Section 10F of the Act, the High Court ought to have summarily dismissed the appeal. According to the learned senior counsel, none of the issues involved had been considered and decided by the CLB and rightly, in absence of the pleadings of the appellants and, thus, no appeal under Section 10F of the Act was contemplated. The CLB vide its order dated 6.8.2014, having plainly deferred the scrutiny of the issues, taking note of the undertaking offered on behalf of the appellants regarding the alienation of the properties of the company and the assurance of the office of the Executive Director of the respondent No. 1, there was no finding based on any adjudication and thus no question of law did emanate to permit an appeal therefrom under Section ....
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....ation and the scheme of demerger involving the company was also subjudice before the High Court in a separate proceeding being Petition Nos. 721-722 of 2014, the apprehension expressed on behalf of the respondent No. 1 of imminent alienation of the properties of the company at their whims to irreparably wreck the existence thereof, was grossly belied, and thus, could not have been a consideration for superseding the existing Board of Directors and replacing it by an ad hoc body with the respondent No. 1 as the Managing Director. They urged that the interim arrangement modelled by the High Court making it co- terminus with the suit tantamounts to grant of reliefs claimed in the Company Petition No. 36 of 2014 finally, pending disposal of the proceeding before the Board and on this count alone, the impugned decision is liable to be interfered with. 32. To endorse the above pleas, the following decisions were pressed into service: 1. V.S. Krishnan and Others etc. v. Westfort Hi-tech Hospital Ltd. and Others etc. (2008) 3 SCC 363 2. Wander Ltd. and Another v. Antox India P. Ltd. 1990 (suppl.) SCC 727, 3. Election Commission of India and Another v. Dr. Subramaniam Swamy and ....
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....ent No. 1, purportedly accepting the induction of her daughters in the Board of Directors, was not issued on her volition, and thus was wholly inconsequential. As the progression of events from 9.4.2013 did irrefutably demonstrate, the endeavours of the appellant and the other Directors of the Board to cast aside the respondent No. 1 and assume the absolute charge of the company to its detriment and prejudice of its constituents, resulting in oppression and mis-management of its affairs, the High Court was eminently justified for its remedial intervention in the overall well-being of the company, they pleaded. The learned senior counsel argued that the rejection by the CLB of the interim reliefs sought for by the respondent No. 1 did give rise to a question of law, and thus the appeal under Section 10F of the Act was unquestionably maintainable. According to the learned senior counsel, the contemplation of the demerger of the company did signal imminent cleavage of its vital assets to reduce it to a carcass for the unlawful gain of a selected few though unauthorisedly at the helm of affairs, warranting the substitution of Board of Directors by the ad hoc body as effected by the imp....
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....or further interim relief and granted time to the contesting respondents therein to file their pleadings. It is a matter of record that till the stage of filing of the appeal under Section 10F of the Act before the High Court, the contesting Board of Directors in the proceeding before the CLB had not filed their pleadings. 36. In the above prefatory, yet presiding backdrop and having regard to the decisive bearing of a finding on the maintainability or otherwise of the appeal before the High Court or the permissibility of the ambit of scrutiny undertaken by it, expedient it would be to assay at the threshold, these cardinal aspects in the proper legal perspective. 37. Section 10F of the Act, which provides for appeal against the order of the Company Law Board, for ready reference is extracted hereunder: "10F: Appeals against the order of the Company Law Board. Any person aggrieved by any decision or order of the Company Law Board [made before the commencement of the companies (Second Amendment) Act, 2002] may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law aris....
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....n of law. It was clarified that, perversity of a finding itself, becomes a question of law. Reverting to the facts of that case, this Court observed that the CLB had rendered its decision in a very cursory and cavalier manner without going into the real issues which were germane for the determination of the controversy involved, and thus approved the exercise of the High Court in elaborately dealing with the matter. 42. While reiterating in V.S. Krishnan and others (supra), that the CLB is the final authority on facts and that no question of law arises unless its findings are perverse, based on no evidence or are otherwise arbitrary, this Court reiterated that in an appeal under Section 10F "on a question of law", the jurisdiction of the appellate court is restricted to the question as to whether on the facts as noticed by the Company Law Board and as placed before it, its conclusion was against law or was founded on a consideration of irrelevant material or was as a result of omission to consider the relevant material. 43. Adverting to the right of appeal, as a creature of statute, as provided by Section 35 of the Foreign Exchange Management Act, 1999, this Court in Raj Kuma....
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....nciples of administration of such interlocutory remedy which is both temporary and discretionary. Referring to the fundamental object of interlocutory injunction, this Court noted with approval that the need for such protection of the plaintiff against injury by violation of his rights must be weighed against the corresponding need of the defendant to be protected against any injury resulting from the restraint on the exercise of his rights, as sought for, which he could not be adequately compensated. The need of one, thus was required to be compared against the other, to determine the balance of convenience to ensure an appropriate exercise of discretion for an interim remedy as suited to a particular fact situation. 45. The unequivocal legal propositions as judicially ordained, to ascertain the emergence and existence of a question of law, the scope of examination thereof by a court of appellate jurisdiction and the balancing of the competing factors in the grant of interlocutory remedy, hallowed by time, indeed are well settled. A question of law, as is comprehended in Section 10F of the Act, would arise indubitably, if a decision which is the foundation thereof, suffers from....
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.... logically present varying canvases to traverse and analyse. These too would define the limits of adjudication qua the appellate forum. Whereas in an appeal under Section 10F from an order granting or refusing interim relief, being essentially in the exercise of judicial discretion and based on equity is an appeal on principle and no interference is merited unless the same suffers from the vice of perversity and arbitrariness, such constrictions may not necessarily regulate and/or restrict the domain of examination in a regular appeal on facts and law. Section 10F, thus, statutorily demarcates the contours of the jurisdictional exercise by an appellate forum depending on the nature of the order impugned i.e. interlocutory or final and both cannot be equated, lest the pending proceeding before the lower forum, if the order impugned is purely of interlocutory nature, and does not decide any issue on a consideration of the rival assertions on merits, stands aborted and is rendered superfluous for all intents and purposes. 47. Reverting to the present facts, noticeably the parties are contentiously locked on several issues, legal and factual, a brief outline whereof has been set-out....
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....he impugned decision would demonstrate, being fully conscious that the proceeding before the CLB was pending for final adjudication, proceeded to undertake an in-depth exercise to fathom and analyse the facts and the law involved and has recorded its decision on merits in total substitution of the order of the CLB. This to reiterate, is in absence of any pleadings by the appellants, the contesting Directors before the CLB. This assumes importance as the High Court did resort to a full-fledged scrutiny of the factual and legal aspects, to test the legality and/or validity of the order dated 6.8.2014 of the CLB at the stage of mentioning. Having regard to the fact that the appeal before the High Court under Section 10F of the Act was one from an interim order passed in exercise of judicial discretion at the stage of mentioning, in our view, bearing in mind the permissible parameters of exercise of appellate jurisdiction in such matters, the elaborate pursuit so undertaken by it, is neither contemplated nor permissible. The High Court, in any view of the matter, was not dealing with a regular appeal under Section 10F of the Act on a question of law from a decision rendered by the CLB ....
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....s been secured and further alienation of the assets of the company, otherwise has been restrained. Assuredly, these are based on undertakings before the CLB as given by the appellants, the contesting Directors and the CLB having taken note thereof, the same are as good as binding directions on the parties. The aspect of demerger as adverted to hereinabove, is the subject matter of adjudication in a separate proceeding on which, at this stage, no observation is called for. Suffice it to state however, that the aspect of demerger for the present cannot ipso facto be an impelling factor to conclude in favour of allegation of oppression and mis-management as made by the respondent No. 1. 52. In the wake up of above, we feel persuaded to interfere with the impugned decision of the High Court, without observing any final opinion on the merit of the contrasting assertions. In our comprehension, having regard to the relief provided by the CLB by its order dated 6.8.2014 to the parties, it ought to be left to decide the petition on merits after affording them a reasonable opportunity of furnishing their pleadings. As in the course of hearing, some grievance was expressed on behalf of res....