TaxTMI 
TaxTMI 
2021 (12) TMI 361
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....e dispute is the execution order passed by the Company Law Board in respect of about 25 acres of land ( 17.15 acres + 7.80 acres ) held by Vasantha Mills Limited, one of the subsidiary company of Cheran Enterprises Private Limited. 3.Main parties to the litigation and their interest/claim: Cheran Enterprises Private Limited ( "CEPL" in short): This company was incorporated on 12/11/2003 with authorised capital of Rs. 10 crores. The authorised capital was increased to Rs. 28 crores after the share purchase agreement dated 13/01/2004, entered between C.G.Holdings and CEPL. 45% of the shares issued, subscribed and paid up capital of CEPL held by CG Holdings Pvt. Limited. 45% of the share issued, subscribed and paid up capital of CEPL held by ORE Holdings Limited. 10% of the share issued, subscribed and paid up capital of CEPL held by Athappan. In respect of this company, the exit scheme was ordered and executed by CLB. The order passed in the execution petitions is the subject matter of these appeals. C.G.Holdings Private Limited ('CG Holdings' in short): Incorporated on 09/01/2004. K.C.Palanisamy (in short "KCP") is the Director and Authorised Signatory of this company. It h....
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....ivate Limited for the relief to formulate a scheme of exit of the 2nd respondent ( ORE Holdings ) alleging oppression. The 3rd respondent in C.P.No.76/2005 filed by ORE Holdings for an order of investigative audit to determine the amount misappropriated, misapplied or diverted by C.G.Holdings and KCP alleging mismanagement and misappropriation. 4. Journey of the litigation: KCP, who took control of the sick company VML offering rehabilitation proposal to BIFR and the promoter of CPL was in need of fund to promote the lands held by VML and CPL. During the year 2003, ORE and N.Athappan got introduced to KCP and offered to arrange funds provided, KCP offers shares in VML, CPL and certain other companies controlled by KCP. After negotiation, a joint Venture Agreement was entered between the parties on 30/01/2004. Before that, CEPL was incorporated on 12/11/2003. Share purchase agreement was entered on 13/01/2004. Accordingly, CG Holdings sold its 80% share in CPL and 17.4% share in VML to CEPL. In consideration, 45% shares in CEPL was allotted to CG Holdings. Athappan, who infused Rs. 4 crores, sold his holdings in CPL and VML in exchange of 10% share in CEPL. ORE infused Rs. 75 ....
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.... (f) to formulate a scheme/method of exit of the second respondent from CEPL after taking into account the loss occasioned to CEPL. 6.At the same time, ORE alleging that KCP by misrepresentation induced ORE to enter into Joint Venture Agreement and made ORE to invest Rs. 75 crores. Instead of investing the company (CEPL) fund for development of and sale of hotels and IT parks as agreed, divested the fund to discharge the liabilities of his subsidiary companies. Minutes of the Board meeting were fabricated by KCP to enable siphoning of CEPL fund. Listing out the diversion of fund, misapplication of company (CEPL) fund and material breach of Joint Venture Agreement C.P.No.76/2005 was filed by ORE Holding Company. 7.The relief sought in CP 76/2005 are:- (i) to remove KCP from the office of Director, Chief Executive Officer and Managing Director of CEPL; (ii) to restrain KCP and C.G. Holdings, and/or any nominees of CG Holdings from in any manner acting on behalf of CEPL; (iii) to constitute a Board of Management for CEPL, consisting of independent Directors and the nominee of ORE; (iv) to direct the CEPL to give effect to all resolutio....
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....of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable law , as consideration for reduction of capital and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG Holdings and KCP. CEPL is consequently authorized to reduce its share capital and in the meantime, operation of the impugned agreements is suspended, to expedite and ensure due completion of the modalities of exit by ORE and Athappan, thereby, bringing to an end the acts complained of in the present proceedings. CEPL shall ensure necessary statutory compliances till the whole process, in accordance with the aforesaid directions, is properly completed. The parties are at liberty to apply in the event of any difficulty in implementation of the smooth exist of ORE and Athappan from CEPL." 9.On considering the allegations and grievances made against each other, the CLB passed the above order framing a scheme for smooth exit and gavelibe....
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....idence or materials. The order dated 03/08/2009 virtually nullifies the earlier order. Therefore, the High Court set aside the permission granted to C.G.Holdings and K.C.Palanisamy to deal with 50% of the amount lying in SBI, Erode Branch. Further clarified that, in the event of remote need, the properties of Vasantha Mills Limited i.e. 17.5 acres are to be conveyed to ORE and 7.80 acres to Athappan. O.R.E being a non-resident Company, is not permitted to hold immovable properties in India, however, subject to approval/permission to be obtained by ORE from the competent authority such transfer to be made. 15.As a result, the Company Appeal Nos.21 and 29 of 2009 preferred by ORE and Company Appeal Nos.25 and 27/2009 preferred by N.Athappan and R.Athappan allowed. Company Appeal No.27/2009 disposed of modifying the order of the CLB, dated 03/08/2009 in C.A. No.155/2008 to the effect that the conveyance of immovable properties to nominee of O.R.E is subject to all applicable laws and regulations. 16.To enforce the order of the CLB as modified and clarified by the High Court, O.R.E. Holdings filed E.P.No.36/2011 and N.Athappan filed E.P.No.35/2011 before CLB. Contesting the execu....
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....Company Appeal No.10/2016 against the order dated 31/12/2015 passed in E.P.No.35/2011 in C.P.No.65/2005. 21.In all these appeals, the main contesting respondents are ORE Holdings Private Limited Company, a foreign investor incorporated under the laws of Mauritius and Nandakumar Athappan, S/o Ramasamy Athappan (NRI), a resident of Singapore. The execution petitions filed by them were allowed and the land of VML to an extent of 17.15 acres and 7.80 acres respectively vested on ORE and Athappan. Maintainability: 22.Before going into the merit of the appeals, a preliminary oral objection regarding maintainability of the company appeals before the High Court under Section 10 F of the Companies Act 1956, raised by the learned counsel appearing for Athappan the petitioner in E.P.No.35/2011 and one of the respondents in these appeals, in view of the notification of 'such date' for giving effect to Section 434 (1)(c) of the Companies Act, 2013. 23.According to Thiru.J.Sivanandaraj, the learned counsel for the respondent Athappan, Section 434(1)(c) of the Companies Act 2013 mandates all proceedings under the Companies Act 1956, pending before the District Court and High Court, ar....
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....Act, 1956 within the permissible period of limitation. The orders impugned in these appeals are dated 30/12/2015 and 31/12/2015. The appeals were filed during the month of March, 2016. On the date of filing these appeals, Section 434 of the Companies Act, 2013 was not notified. In exercise of the power conferred under Section 419(1) of the Companies Act, 2013 the Central Government constituted NCLT and NCLAT on 01/06/2016. On the same day, notification issued for transfer of pending matters or proceedings or cases before Company Law Board to National Company Law Tribunal (NCLT). Section 434 (1) (a) and (b) came into effect from that day. As far as, the appeals against the order of CLB passed before the 01/06/2016, the governing provision is Section 434(1)(b) which reads as under:- "Section 434 (1) ( b): any person aggrieved by any decision or order of the Company Law Board made before such date 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 arising out of such order: Provided that the High Court may if it is satisfied that the appellant was preven....
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.... new Act, the forum of first instance of all company disputes is NCLT and the Appellate forum is NCLAT. The decision of CLB cannot be challenged before NCLT since is it not an appellate forum. Like wise, the decision of CLB cannot be challenged before NCLAT, since it is an appellate forum for decision or order passed by NCLT and not for CLB. Therefore, legally and logically, the High Court alone be the appellate Court to decide these appeals. 30.The plea of the respondents Counsel that Section 434(1)(c) has to be applied and the appeals have to be transferred to Tribunal has no force. As submitted by the learned Senior Counsel for the appellants, the appropriate appellate forum against the decisions of the CLB prior to 01/06/2016 is the High Court under Section 434(1)(b). Hence, this Court holds that these appeals are maintainable. 31.Comp. Appeal Nos. 5 and 6 of 2016: These two appeals are against the order of the CLB dated 30/12/2015 passed in the applications filed by Vasantha Mills Limited (VML). Aggrieved by the dismissal of the Application No.2/2015 in E.P.No.35/ 2011 and Application No.2/2015 in E.P.No.36 of 2011, these two appeals are filed by VML raising the follo....
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....by the Hon'ble Supreme Court in a collateral proceeding and was held as final. The execution petitions filed under Section 634 A to enforce the said order allowed and reached finality. The applications by VML is filed, after lapse of several years invoking the protection under Section 22 (1) SICA, even without furnishing the appeal number pending before AAIFR. Not only the latches but the timing of filing, these applications also found to be ill-motivated. In the Execution petition, VML engaged counsel and filed counter. After arguments orders were reserved. Till then, neither in the company petitions No:65/2005 and 76/2005 nor in E.P.Nos.35 and 36/2011, VML never raised the plea of pendency of matter before BIFR or AAIFR. Just before delivery of the order, a plea unfound, raised in these applications for stay of the execution. 34.Further more, VML was declared a sick company as early as 1985. KCP got control of the assets and liability of VML in the year 1992. Much water had flowed since then, more particularly after 2003, when ORE and Athappan came forward to promote the land held by VML. The Joint Venture Agreement between KCP, ORE and Athappan and the incorporation of 'C....
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....se? (II)Whether the Madras High Court Order dated 05.08.2011 should be interpreted to water down the CLB Order and if so is the N.Athappan's prayer to seek a transfer of the property of the Appellant as a matter of right misconceived? (III) Whether the CLB ought to have considered that the return of monies to ORE was a consideration for buy-back of its shares and thus, the entire transaction was subject to all applicable? (IV)Whether the CLB ought to have considered that the return of monies to N.Athappan was a consideration for buy-back of his shares and thus, the entire transaction was subject to all applicable laws? (V)Whether the impugned order permits execution of debt like features in an equity transaction, which has been specifically barred by the RBI vide its circular dated 09.01.2014? (VI)Should the wording of the Madras HC Order (05.08.2011) be given an interpretation which is in consonance with Statute and which prevents unjust enrichment of the decree holder? If so, does the interpretation provided by the Hon'ble CLB render the wording of the Madras High Court Order (5.8.2011) contrary to Order XXI, Rule 64 of the Cod....
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....)The subsequent order of CLB dated 03/08/2009 modifying the 13/08/2008 when challenged before the High Court in Company Appeal Nos.21 and 25 to 27/2009 and 29/2009 and O.S.A.Nos.2 to 5/2009, and O.S.A No. 258/2009, the High Court has passed a comprehensive order on 05/08/2011. This order has reached finality with the seal of approval by the Hon'ble Supreme Court in the batch of civil appeals In Chandran Rathnaswami -vs- K.C.Palanisamy and others etc. by order dated 09/05/2013. iii) The transfer of VML property is a right conferred to the investors namely ORE and Athappan in case of failure to pay back the invested money with interest within the period of 12 months. The claim of the appellants that, the return of monies invested by ORE and Athappan was for a consideration for buy-back of shares is false and mischievous. The order of the CLB is pursuant to the prayer sought by C.G.Holdings to frame a scheme of exit and passed in exercise of its power under Section 402 of the Companies Act, 1956 to bring an end to the joint venture agreement. iv) As per the High Court order dated 05/08/2011 in Company Appeal Nos.21 and 25 to 27/2009 and 29/2009, ORE has obtained ....
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....ting C.G.Holdings submitted that, the CLB, after its order dated 13/08/2008, had become functus officio. Any change must be only by and before the Appellate Court. The order sought to be executed is the order modified without authority of law. Nullity can be questioned at any stage. Further, in the Division Bench Order, no time limit fixed for repayment of the money invested with interest. Therefore, the stage of 'remote need' never reached in this case. Hence, the declaration and vesting order are pre mature without authority and a nullity. 43.Per contra, the learned counsels appearing for the respondents contented that, the plea of "functus officio" is ill conceived. The order which was executed by the CLB in exercise of its power under Section 634 A of the Companies Act, is the order passed by the Division Bench of the High Court, which interfered the order modified by the CLB. The original order of the CLB dated 13/08/2008 was not challenged by anyone. The CLB order is of three parts:- First: CEPL shall return a sum of Rs. 75 crores and Rs. 4 crores invested by ORE and Athappan respectively, together with simple interest at the rate of 8% per annum from the date of ....
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....ction 10 E of the Companies Act, are to be enforced by CLB itself. Only in case of inability to execute the order, CLB need to send the case to the Court. Therefore, these appeals, which lack any question of law, are abuse of law to prevent the decree holder from enjoying the fruits of the decree. 46. Heard the erudite arguments of the Mr.T.R.Rajagopalan (Senior Counsel) and Mr.V.Ramakrishnan (Senior Counsel) for the appellants. Mr.ARL.Sunderasan (Senior Counsel) and Mr. J.Sivanandaraj for the contesting respondents. Apart from their respective oral submission, this Court also had an additional advantage of guidance by way of the judgments of the Division Bench of this Court passed in Company Appeals No. 21 and 25 to 27 and 29/2009 and the order of the Hon'ble Supreme Court in the collateral proceedings, which has dealt this case earlier and rendered a detailed judgment. 47.To buttress their arguments, the learned counsels relied upon the following judgments as binding precedent: (i)Dwarakadas -vs- State of Madhya Pradesh:- 1999(3) SCC 500; (ii)K.Rajamouli -vs- A.V.K.N.Swamy :- 2001(5) SCC 37; (iii)Rafique Bibi (Dead) by Lrs. -vs- Sayed Waliuddi....
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....hus being not entitled to vary the terms of the judgments, decrees and orders earlier passed. The corrections contemplated are of correcting only accidental omission or mistakes and not all omissions and mistakes which might have been committed by the Court, while passing the judgment, decree or order. The omission sought to be corrected, which goes to the merits of the case is beyond the scope of Section 152 for which the proper remedy for the aggrieved party is to file appeal or review application. It implies that the Section cannot be pressed into service to correct an omission which is intentional, how erroneous that may be. It has been noticed that the Courts below have been liberally construing and applying the province of Sections 151 and 152 of the CPC even after passing off effective orders in the lis pending before them. No Court can under the cover of the aforesaid Sections modify, alter or add to the terms of its original judgment, decree or order. In the instant case, the trial Court specifically held the respondents-State liable to pay future interest only, despite the prayer of the appellant for grant of interest with effect from the date of alleged breach, which imp....
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....by, the defendants filed an application under Section 115 CPC which was allowed by the High Court by extending the time enabling the defendants to deposit the second installment. Against the order of the High Court, the plaintiff filed Civil Appeal (CA) before the Supreme Court. The said Civil Appeal was disposed of on 30th October, 2002 with the following observation:- "It is not disputed that the settlement arrived at between the parties was made part of the decree of the Court. It was a decree like any other decree passed by the Civil Court. Once a decree is passed by the Court, it becomes functus officio to modify the decree. It is only the higher court either to set aside the decree or to modify the decree. Since the court, after passing the decrees became functus officio, it also had no power under Section 148 CPC to extend the time for depositing the money by modifying the terms of the decree which was passed on settlement between the parties. If the Court modifies the decree, it varies the terms of the settlement which is not permissible. In that view of the matter, the High Court fell in error in extending the time for depositing the second installment by the defe....
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....ferred to: (a)Needle Industries (India) Ltd. And Others v. Needle Industries Newey (India) Holding Ltd. And Others, (1981) 3 SCC 333. (b)M.S.Madhusoodhanan & Anr. v. Kerala Kaumudi (P) Ltd. & Ors., (2004) 9 SCC 204. (c)Dale and Carrington Investment (P) Ltd. & Anr. v. P.K.Prathapan & Ors., (2005) 1 SCC 212. (d)Sangramsinh P.Gaekwad & Ors. v. Shantadevi P.Gaekwad (Dead) Through L.Rs & Ors. (2005) 11 SCC 314. (e)Kamal Kumar Dutta & Anr. v. Ruby General Hospital Ltd., & Ors. (2006) 7 SCC 613." 55.From the above decisions, it is clear that oppression would be made out: (a)Where the conduct is harsh, burdensome and wrong. (b)Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. (c)The action is against probity and good conduct. (d)The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legal....
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.... case in hand. In all the judgments cited, the Court which has passed the decree later, has altered or modified the decree either by extending the time limit or by awarding interest pendente lite. Whereas in the instant case, the order of CLB dated 13/08/2008 as modified by the subsequent order dated 03/08/2009 was altered and clarified by the appellate Court, thus the order of CLB merged with the order of the High Court. The CLB in exercise of its power under 634 A had executed the order which has the approval of High Court and the Supreme Court. Under Section 10E (5) of the Companies Act, 1956, without prejudice to the provisions of Sub-Section (4C) and (4D) CLB shall in exercise of its powers and in discharge of its functions under the Act or any other law be guided by the principles of natural justice and shall act in its discretion. 58.It is trite principle of law that the decree, which is the formal expression of the adjudication, should go in tune with the judgment/order. The final order in the instant adjudication is the order dated 05/08/2011 passed by the High Court in exercise of the appellate power. On comparing the High Court order with the operative portion of the ....
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....nt on its face in order to enable the executing Court to come to the conclusion that the decree is a nullity. 63.In Rafique Biby (Dead) by Lrs. -vs- Sayed Waliuddin (Dead) by Lrs. & Others reported in 2004 (1) SCC 287, the Hon'ble Supreme Court has held that: "A distinction exists between a decree passed by a Court having no jurisdiction and consequently being a nullity and not executable and a decree of the Court which is merely illegal and nor passed in accordance with the procedure laid down by law. A decree suffering from illegality or irregularity of procedure, cannot be termed inexecutable by the executing court; the remedy of a person aggrieved by such a decree is to have it set aside in a duly consituted legal proceedings or by a superior Court failing which he must obey the command of the decree. A decree passed by a Court of competent jurisdiction cannot be denuded of its efficacy by any collateral attack or in incidental proceedings." 64.In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman & others, reported in (1970) 1 SCC 670, it has been held:- "When the decree is made by a Court which has no inherent jurisidction to make it, objection as to....
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....ith passing order but it is also empowered with the power under Section 634A to execute its order. CLB constituted under Section 10E of the Act, is vested with the power of a Civil Court in respect of certain matters enumerated under Section 10E (4C). It is to be noted that, all the 6 heads enumerated under Section 10E (4C) are matters related to pre-trial and during trial but not related to execution. To make it more clear, the matters enumerated are:- (a)Discovery and inspection:(Or XI CPC) (b)Enforcing attendance of witnesses: (Or XVI CPC) (c)Compelling the production of documents:(Or XIII CPC) (d)Examining witnesses on oath: (Or X, XVIII CPC) (e)Granting Adjournments: (Or XVII CPC) (f)Reception of evidence on affidavits (Or XIX CPC) 68. In exercise of its powers and the discharge of its functions, CLB has to be guided by principles of natural justice and shall act in its discretion. It also has power to regular its own procedure [See Section 10 E (5) and (6)]. The CLB while dealing applications filed under Section 634 A of the Act sit as executing Court. Section 634A empowers CLB to execute its own order. It enables CLB t....
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.... proportional to the money payable. At present the value of the property is nearly Rs. 500 crores. Whereas the principle and interest payable to ORE and Athappan is far less. The impugned order in not equitable and therefore, liable to be set aside. 73.In response, the counsels for the respondents submitted that, the submission is appellants is devoid of merit and bonafide. On the date of CLB order which framed the exist scheme, the money invested and the extend of land ordered to be conveyed was proportionate and accepted without any demur. After enjoying the benefit of the exit scheme taking the absolute control of CEPL and its subsidiaries the appellants cannot retract from their commitment. 74. Paragraph 144 of the Division Bench order dated 05/08/2011 read: "ORE, being a non-resident Company is not permitted to hold immovable property, in India. In the first limb, the properties of VML are kept as security and only in the event of remote need, the properties of VML i.e 17.15 acres are to be conveyed to ORE and 7.80 acres to Athappan. ORE, being a non-resident Company, is not permitted to hold immvoable properties in India, however, subject to approval/permission....
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.....80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable law, as consideration for reduction of capital and surrender of the shares of ORE and Athappan. 78.The directions of CLB extracted above without any ambiguity indicates that the order is complete and composite scheme for smooth exit of ORE and Athappan from Cheran groups of company. The immovable property to be conveyed is not alone for the money invested but to relinquish right in the CEPL and its subsidiary companies. 79.In a matter involving an exit scheme framed under the Companies Act, one party is eased out from the management of the Company for a consideration. In such circumstances, the money invested is not the sole criteria for fixing the quit pro quo . There are several other factors come into play to ascertain the 'quit pro quo' to ease out the deadlock for smooth exit. Weighing the money invested in the year 2003-2004 at one hand and the present value of the property at another hand is not fair or equitable test for proportionality. The CLB order dated 13/08/2008 was accepted by the parties without demur, except the a....