2010 (4) TMI 603 - HC - Companies Law

Whether at the time of the preliminary hearing that the impugned order is ex facie illegal having been passed without affording any hearing to the appellant which was required to be given to him before removing him as a Director of MRL and cancelling his entire shareholding which he had acquired by paying lakhs of rupees? Held that - by way of abundant caution only application for condonation of delay had been moved and benefit of section 14 of the Limitation Act was being sought in the event of this Court finding the appeal to be time-barred. Learned counsel further submitted that the impugned order is causing undue hardship to the appellant because of his having been removed from the Directorship of MRL and cancellation of his entire shareholding by one stroke of pen of the CLB and, therefore, that order should not be allowed to continue to operate against the interests of the appellant. Thus the contentions raised in the appeal need to be gone into and notice deserves to be issued to the respondents. Notice of this appeal, condonation of delay application (being CA No. 785/09) as well as stay application (being CA No. 784/09) is ordered to be issued returnable for 30-4-2010. Till then, the operation of the impugned order dated 31-1-2008 passed by the CLB insofar as it has cancelled the shareholding of the appellant and Directorship in MRL is stayed.

Summary

Issues:
1. Appeal against Company Law Board's order dated 31-1-2008.
2. Allegations of oppression and mismanagement between two groups claiming control of a company.
3. Legality of the order passed without hearing the appellant.
4. Jurisdiction of Company Law Board to pass the order.
5. Condonation of delay in filing the appeal.

Analysis:
The judgment involves an appeal against an order passed by the Company Law Board (CLB) on 31-1-2008. The appellant, a Director and shareholder of M/s. Montreaux Resorts (P.) Ltd. (MRL), challenged the order which set aside decisions taken by the board of directors under the Chairmanship of Ms. Sonia Khosla. The appellant contended that the order was passed without affording him a hearing or issuing any notice, causing his shareholding and Directorship to be canceled abruptly.

The case revolved around disputes between two groups, namely the 'Khosla Group' and 'Bakshi Group,' both claiming the right to manage MRL. The CLB's order canceled the allotment of shares and induction of new Directors made by the Khosla Group. The appellant, feeling aggrieved by the order, filed a petition seeking its quashing. Initially, the appellant was allowed to maintain status quo regarding his shareholding and participate in the Company's meeting. Subsequently, the petition was withdrawn, and the appellant was advised to file an appeal under section 10F of the Companies Act.

During the preliminary hearing, the appellant's counsel argued that the impugned order was illegal as it was passed without hearing the appellant, contrary to the required procedure for removing a Director and canceling shareholding. The appellant also raised concerns about the CLB's jurisdiction, citing a pending application under the Arbitration and Conciliation Act, 1996. An application for condonation of delay was filed as a precautionary measure, seeking the benefit of section 14 of the Limitation Act.

The Court acknowledged the need to delve into the raised contentions and issued notices to the respondents. Consequently, notice of the appeal, condonation of delay application, and stay application were ordered to be returnable for a specified date. The operation of the CLB's order canceling the appellant's shareholding and Directorship was stayed until further proceedings.

In conclusion, the judgment addressed various legal aspects, including procedural fairness, jurisdictional issues, and the appellant's right to challenge the order. The Court's decision to issue notices and stay the operation of the impugned order reflected a balanced approach to the complexities of the case.