2015 (10) TMI 2257 - HC - Companies Law

Valuation of Shares Petition filed under Section 397 and 398 of Companies Act, 1956 - Appellant challenges the order on grounds that CLB had no jurisdiction to entertain the application and order of disposal of petition had merged with appellate order which had since been complied Revenue contends that CLB has wide powers under provisions of Sections 397 and 398 read with Section 402 As per Regulations 29 and 44 of CLB Regulations, 1991, CLB has power to pass such orders to give effect to its orders for meeting ends of justice and preventing abuse of process of Bench Valuer abused order by not valuing the shares at specified date and as such CLB was well within its rights to pass the impugned order. Held That - Powers under Section 402 are wide and extensive but once CLB disposes of petition finally, it ceases to exercise any jurisdiction - Regulation 29(6) does not suggest that after the board divests itself of jurisdiction over the matter, it still retains its jurisdiction to issue further orders - CLB had not retained any seisin over the matter to enable parties to approach it upon valuation to be carried out by statutory auditor and as such it is not permissible for Jain group to approach CLB, if it is aggrieved by valuation of statutory auditor Valuer has determined the value of shares in accordance with the directions of the CLB as at the date of 31 March 1999 and after considering all relevant material - Valuation does not give rise to any ground to approach the CLB in challenge of the same - It is not open to CLB to interfere with original order of CLB which has since been confirmed with modification by this Court Decided against the Appellant.

Issues Involved:
1. Jurisdiction of the CLB post-disposal of the company petition.
2. Doctrine of merger of the CLB order with the appellate court's order.
3. Validity and correctness of the share valuation by the statutory auditor.
4. Powers of the CLB under Sections 397 and 398 read with Section 402 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Jurisdiction of the CLB Post-disposal of the Company Petition:
The appellants contended that the CLB, having disposed of the company petition by its order dated 8 December 2000, had no jurisdiction to entertain further applications related to the petition. The CLB had become functus officio, meaning it no longer had the authority to interfere with the steps taken by the parties in pursuance of the order. The respondents argued that the CLB has wide powers under Sections 397 and 398 read with Section 402 of the Companies Act, 1956, allowing it to supervise the implementation of its orders until disputes are fully resolved. However, the court concluded that the powers of the CLB must be exercised only when it is in seisin of the matter and not after it becomes functus officio. Once the CLB disposes of a petition by making a final adjudication, it ceases to exercise any jurisdiction. The court held that the CLB did not retain seisin over the matter and thus had no jurisdiction to entertain the application filed by the respondents nearly two and a half years after the original order was implemented.

2. Doctrine of Merger of the CLB Order with the Appellate Court's Order:
The appellants argued that the original order of the CLB had merged with the appellate order passed by the High Court, which had since been complied with. The doctrine of merger implies that once a trial court order is affirmed by an appellate court, it merges with the appellate court's order, and it is the appellate court's order that holds the field. The High Court had dismissed the appeal against the CLB's order and directed the statutory auditor to value the shares in accordance with the CLB's directions. This order was fully implemented, including the valuation, payment for the shares, cancellation of shares, and withdrawal of the related suit. The court agreed with the appellants, stating that after the appellate court's order is implemented, it is not open to the CLB to interfere with the original order that has merged with the appellate court's order.

3. Validity and Correctness of the Share Valuation by the Statutory Auditor:
The respondents challenged the valuation report prepared by the statutory auditor, arguing that it was not in accordance with the CLB's directions. The appellants contended that the valuation was done as per the specified date of 31 March 1999, considering all relevant factors. The court examined the valuation report and found that the auditor adopted the Asset Based Method, which was appropriate given the company's circumstances. The auditor considered all assets and liabilities, including the contingent value of an arbitration award. The court concluded that the auditor had determined the value of the shares in accordance with the CLB's directions and that the valuation did not give rise to any grounds for challenge before the CLB.

4. Powers of the CLB under Sections 397 and 398 read with Section 402 of the Companies Act, 1956:
The respondents argued that the CLB has wide and extensive powers under Sections 397 and 398 read with Section 402 to pass orders necessary for meeting the ends of justice and preventing abuse of process. The court acknowledged the wide powers of the CLB but emphasized that these powers must be exercised while the CLB is in seisin of the matter. Once the CLB disposes of a petition, it ceases to have jurisdiction. The court distinguished the present case from other cases cited by the respondents, noting that in those cases, the CLB had retained seisin over the matter, which was not the case here.

Conclusion:
The court concluded that the CLB had no jurisdiction to entertain the application filed by the respondents after the original order was implemented and that the doctrine of merger applied, making the appellate court's order the operative order. The valuation by the statutory auditor was found to be in accordance with the CLB's directions. Consequently, the impugned order of the CLB was set aside, and the appeal was allowed.

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