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2013 (9) TMI 826 - HC - Companies LawJurisdiction of Company Law Board - Removal of auditors - Power to pass order u/s 402 - Whether, CLB was justified in law in not exercising the said powers and in directing the applicant to move a fresh application before the Regional Director under Section 224(7) - Held that - Regional Director, being the delegatee of the Central Government, is empowered to accord previous approval under Section 224(7) for the removal of the auditors on an application being made to him by the company. Notwithstanding that Section 224(7) of the Act names the Central Government as the authority competent to accord previous approval for the removal of the auditors on the application of the company, it would still be open to the Company Law Board, to accord or refuse such approval while dealing with a petition under Section 397/398 of the Act provided the exercise of such a power has a nexus with the object sought to be achieved by the ultimate order passed under Section 402. In the case before me the pleadings before the Company Law Board show that the removal of the auditors was specifically raised. If, as held by the CLB, the Regional Director is to deal with the question of removal of the auditors, it would result in this situation, namely, that a part of the grievance in the petition under Section 397-398 would be dealt with by the RD, while the other parts of the same grievance would be dealt with by the CLB. This would result in a very anomalous situation. It is well-settled that oppression and mis-management, within the meaning of Sections 397-398, are not constituted by distinct and separate acts, but are constituted by a single continuous act and it is not permissible to dissect the conduct of the alleged oppressor into separate acts of oppression or mis-management. Order passed by the CLB is set-aside and the appeal is allowed. The CLB will now deal with the question of removal of the auditors while disposing of the appellant s petition under Sections 397 and 398 of the Companies Act.
Issues Involved:
1. Validity of the application before the Company Law Board (CLB). 2. Power of the CLB under Section 402 of the Companies Act, 1956. 3. Jurisdiction of the Regional Director vs. CLB in the removal of statutory auditors. 4. Authority of a shareholder to file an application on behalf of the company. Detailed Analysis: 1. Validity of the Application Before the CLB: The appeal questions whether there was a valid application before the CLB to pass the impugned order. Section 224(7) of the Companies Act, 1956, allows the company to seek the Central Government's approval for removing auditors. The Regional Director, as the delegatee of the Central Government, did not decide on the removal due to the pending petition under Sections 397 and 398 before the CLB. The CLB noted that the application was not filed by the company but by respondent No.3, who was not authorized by the company to do so. Consequently, the application lacked validity, and the CLB should not have entertained it. 2. Power of the CLB under Section 402 of the Companies Act, 1956: Section 402 grants the CLB wide powers to make orders it deems fit to end matters of oppression and mismanagement. The Bombay High Court in Shanti Prasad Jain vs. Union of India emphasized that the powers under Section 402 are not curtailed by other provisions of the Act and are meant to address extraordinary circumstances. The Supreme Court in Cosmosteel P. Ltd. vs. Jai Ram Das Gupta reinforced that the CLB's powers under Section 402 can override other statutory provisions if they are inextricably linked to the relief sought under Sections 397 and 398. 3. Jurisdiction of the Regional Director vs. CLB in the Removal of Statutory Auditors: The Regional Director opined that it was not proper to issue an order on the removal of auditors while the petition under Sections 397 and 398 was pending before the CLB. The CLB, however, has the authority under Section 402 to address the removal of auditors as part of its broader mandate to resolve issues of oppression and mismanagement. The CLB's jurisdiction in this matter is justified given the interconnected nature of the grievances. 4. Authority of a Shareholder to File an Application on Behalf of the Company: The appeal challenges the legitimacy of respondent No.3 filing the application before the CLB without authorization from the company. The principle that a company is distinct from its shareholders means that actions on behalf of the company must be authorized. The CLB acknowledged that respondent No.3 lacked such authorization, rendering the application invalid. The argument that the shareholder's act could be considered the company's act was rejected, as it conflicts with established legal principles distinguishing a company from its shareholders. Conclusion: The appeal is allowed, and the impugned order of the CLB is set aside. The CLB is directed to address the issue of the removal of auditors while disposing of the petition under Sections 397 and 398, given its comprehensive powers under Section 402. This ensures that the entire grievance is handled by a single authority, avoiding jurisdictional conflicts and ensuring a holistic resolution of the oppression and mismanagement claims.
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