2007 (9) TMI 413 - HC - Companies Law

Whether in the facts and circumstances of the case, the Company Law Board erred in law in granting interim relief to the respondents by directing the implementation of the resolutions for removal of the existing directors, pending disposal of the main company petition ? Held that - The findings given by the Company Law Board are based on valid materials and evidence on record. The Company Law Board has considered all the relevant materials, especially the extraordinary general meeting convened by the majority of shareholders and thereafter resolutions were passed by the majority of the shareholders. Thus do not find any error or illegality in the order of the Company Law Board so as to warrant interference. The order of the Company Law Board is in accordance with law and it is therefore confirmed. Taking into consideration the facts and circumstances of the case, especially in the interest of justice, and also the allegations and the counter allegations made by both the sides and in view of the alternative submission made by the respondents, it would be more appropriate to give direction to the Company Law Board to dispose of the main petition in C. P. No. 64 of 2006 pending before it and consider the same after giving opportunity to all the parties to raise their contention, and pass orders in accordance with law on or before 31-1-2008.

Summary

Issues Involved:
1. Granting interim relief by the Company Law Board (CLB) for implementing resolutions for the removal of existing directors.
2. Validity of the extraordinary general meeting (EGM) held on 5-1-2007 and its resolutions.
3. Allegations of oppression and mismanagement.
4. Role and continuation of the Commissioner appointed by the Debts Recovery Tribunal (DRT).
5. Compliance with procedural requirements under the Companies Act.
6. Interim relief versus final relief in company law disputes.

Detailed Analysis:

1. Granting Interim Relief by the CLB:
The primary issue was whether the CLB erred in granting interim relief by directing the implementation of resolutions for the removal of existing directors pending the disposal of the main company petition. The appellants argued that such interim relief was tantamount to allowing the main petition at the interim stage itself, which involved mixed questions of fact and law that could not be adjudicated at an interim stage. However, the court held that the CLB's interim order was subject to the final outcome and did not amount to granting final relief.

2. Validity of the EGM Held on 5-1-2007 and Its Resolutions:
The EGM was convened by the majority shareholders representing about 64% of the share capital, following a requisition notice under Section 169 of the Companies Act. The resolutions passed at the EGM, which included the removal of certain directors and the appointment of new ones, were supported by shareholders holding more than 70% of the shares. The court found no procedural irregularities in the conduct of the EGM and upheld the resolutions, emphasizing the importance of corporate democracy and the collective wisdom of the majority shareholders.

3. Allegations of Oppression and Mismanagement:
The respondents filed a company petition under Sections 397, 398, 402, and 403 of the Companies Act, alleging acts of oppression and mismanagement by the appellants. The court noted that the allegations and counter-allegations were to be adjudicated in the main petition. The CLB's interim order allowing the implementation of the EGM resolutions was deemed appropriate to prevent further prejudice to the majority shareholders.

4. Role and Continuation of the Commissioner Appointed by the DRT:
The court addressed concerns regarding the continuation of the Commissioner appointed by the DRT to manage the company's affairs. The CLB's order allowed the newly appointed directors to act subject to the DRT's order, ensuring that the Commissioner could continue to oversee the company's management.

5. Compliance with Procedural Requirements Under the Companies Act:
The court scrutinized the compliance with procedural requirements under Section 169 of the Companies Act for convening the EGM. It found that the requisition notice and the subsequent EGM were conducted in accordance with the law. The appellants' failure to challenge the CLB's earlier order permitting the EGM further weakened their case against the resolutions passed.

6. Interim Relief Versus Final Relief in Company Law Disputes:
The court acknowledged that interim relief could sometimes resemble final relief, especially in cases where immediate action was necessary to protect the interests of the majority shareholders. The CLB's discretion in granting interim relief was upheld, as it was based on valid materials and evidence, and was subject to the final decision in the main petition.

Conclusion:
The court dismissed the appeal, confirming the CLB's order allowing the implementation of the EGM resolutions with certain conditions. It directed the CLB to dispose of the main petition expeditiously and provided additional directions to ensure that no major policy decisions or asset transfers occurred without the CLB's consent. The judgment reinforced the principles of corporate democracy and the judicial discretion in granting interim relief in company law disputes.