2009 (12) TMI 507 - HC - Companies Law

Transmission of shares to the name of the first respondent - CLB declined to stay the holding of an extraordinary general meeting of the second respondent Held that - The manner in which the proceedings were entertained by Vasudevan J. who had clearly no jurisdiction to entertain the proceedings in the first place leaves much to be desired. Once the jurisdiction of diverse Benches of the Company Law Board is structured and governed by the regulations framed under section 10E and by the statutory notification dated March 25, 2008, every Member of the Company Law Board is bound to ensure that he acts strictly within the folds of the powers which are conferred upon him and does not bypass those powers. The credibility of every judicial institution lies in a restrained exercise of power and in the exercise of power which conforms to the law which regulates the conferment and the structure of its jurisdiction. Judges above all are bound by the law and as upholders of the law they are liable to erode public confidence in the administration of justice if they act in a manner in which Vasudevan J. acted in these proceedings. The consequence of the order passed by the Member of the Company Law Board would be to obstruct the effective exercise of rights by a shareholder of the company from seeking recourse to his remedy of convening an extraordinary general meeting and for seeking enforcement of the resolutions that may be passed at such a meeting. In Life Insurance Corporation of India v. Escorts Ltd. 1985 (12) TMI 289 - SUPREME COURT OF INDIA , the Supreme Court affirmed the right of every shareholder to convene a meeting including a meeting for the removal of a director. The right of a shareholder to convene and hold such a meeting cannot be questioned. Judicial intervention in such matters particularly by a Bench which had no jurisdiction to entertain the proceedings justifiably gives rise to a feeling of grave disquiet. This court must with a measure of restraint observe that the provisions of the regulations ought to have been observed by the Member of the Company Law Board. Unfortunately they were not. Appeal allowed.

Issues Involved:
1. Jurisdiction of the Company Law Board (CLB) to entertain the application under section 634A.
2. Whether the order of the CLB dated February 14, 2007, merged with the order of the High Court dated May 4, 2007.
3. Validity of the order passed by the CLB on August 7, 2009.
4. The right of shareholders to convene and hold meetings.
5. Judicial discipline and adherence to regulations by the CLB members.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Company Law Board (CLB) to entertain the application under section 634A:
The appellant challenged the jurisdiction of the CLB to entertain the application under section 634A, arguing that the order of the CLB dated February 14, 2007, had merged with the High Court's order dated May 4, 2007. The CLB's jurisdiction is structured by the Company Law Board Regulations, 1991, and the statutory notification dated March 25, 2008, which delineates the powers of the Principal Bench and Regional Benches. The New Delhi Bench, which heard the application, did not have jurisdiction over matters under sections 397 and 398 of the Companies Act, 1956, which fall within the jurisdiction of the Regional Benches. The court held that the application for execution was incorrectly heard by the New Delhi Bench and that the member, Vasudevan J., was not authorized to entertain the proceedings.

2. Whether the order of the CLB dated February 14, 2007, merged with the order of the High Court dated May 4, 2007:
The court examined whether the order of the CLB merged with the High Court's order, which disposed of the appeal under section 10F based on consent terms. The doctrine of merger applies when an appellate court's order supersedes the lower court's order. The High Court's order dated May 4, 2007, confirmed that the entire issue relating to the disputed shares would abide by the result of a suit to be instituted, and the directions regarding the appointment of directors were subject to the suit's outcome. Therefore, the CLB's order merged with the High Court's order, and there was no basis for the first respondent to seek enforcement of the CLB's order.

3. Validity of the order passed by the CLB on August 7, 2009:
The order passed by the CLB on August 7, 2009, directed that resolutions passed at the extraordinary general meeting shall not be implemented until the completion of the suit and arbitration proceedings. The court found that the CLB's order was without jurisdiction and lacked judicial discipline. The CLB failed to follow the High Court's orders and the prima facie findings regarding the shares being an asset of the partnership. The court emphasized that the CLB members must act within the bounds of their conferred powers and adhere to the regulations.

4. The right of shareholders to convene and hold meetings:
The court reaffirmed the right of shareholders to convene and hold meetings, including meetings for the removal of directors, as upheld by the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. The court noted that judicial intervention in such matters, particularly by a Bench without jurisdiction, obstructs shareholders' rights and causes disquiet.

5. Judicial discipline and adherence to regulations by the CLB members:
The court criticized the lack of judicial discipline by the CLB member, Vasudevan J., who entertained the proceedings without jurisdiction. The court underscored the importance of adhering to the regulations and exercising power within the legal framework to maintain public confidence in the administration of justice.

Conclusion:
The appeal was allowed, and the order passed by the CLB on August 7, 2009, was set aside. The application under section 634A was dismissed, and the application for stay was refused.

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