2009 (9) TMI 1066 - Board - Companies Law

Summary

Issues Involved:
1. Whether the matter in issue before the Court of Subordinate Judge, Coimbatore in O.S. No. 235 of 2008 is directly and substantially the same in the company petition (C.P. No. 243 of 2008) pending before the Company Law Board, attracting the mandatory provisions of Section 10 of the CPC?
2. Whether the Company Law Board in exercise of the inherent power vested in regulation 44 of the Company Law Board Regulations, 1991, shall stay the proceedings in C.P. No. 243 of 2008 until the disposal of the civil suit in O.S. No. 235 of 2008?
3. Whether the BIFR order dated February 16, 2006, prohibiting the promoter/guarantors from changing their shareholding pattern or alienating/encumbering or disposing of their shares in the company without its specific permission, is a legal bar against the transfer of shares in favor of SM?

Issue-wise Detailed Analysis:

Issue (i) and (ii):
The issues (i) and (ii) are intertwined and adjudicated simultaneously. Section 10 of the CPC mandates that no court shall proceed with the trial of a suit where the matter in issue is directly and substantially the same as in a previously instituted suit pending between the same parties. Regulation 44 of the Company Law Board Regulations, 1991, akin to Section 151 of the CPC, allows the Company Law Board to make orders necessary for the ends of justice or to prevent abuse of the process of the Bench.

In the civil suit (O.S. No. 235 of 2008), NS seeks a permanent injunction restraining the company from effecting the transfer of shares to SM or his nominees. NS claims the memorandum of understanding and agreement were for pledging shares, not for transferring them. SM advanced Rs. 10.55 crores to the company and Rs. 6.50 crores to the promoters as a loan, categorized as "unsecured loans" in the company's books.

In the company petition (C.P. No. 243 of 2008), SM contends that NS and VA agreed to transfer 100% of the company's shares to SM for Rs. 15 crores. SM lodged the share certificates and transfer forms with the company, which neither registered the transfer nor conveyed any refusal. NS then filed the civil suit and obtained an injunction against the transfer.

The Company Law Board has exclusive jurisdiction under Section 111/111A of the Act to order rectification of the register of members. However, if rectification involves complicated questions of facts or law, the parties will be relegated to a competent civil court, as supported by the Supreme Court's observations in Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. [1998] 94 Comp Cas 310.

The High Court directed SM to approach the trial court under Order 7, Rule 11 of the CPC for rejection of the plaints in O.S. No. 235 of 2008 and O.S. No. 1232 of 2008. The prayer for rectification in the company petition involves the same issue of whether the memorandum of understanding/agreement is for the sale or pledge of shares, which should be decided by the civil court first to avoid conflicting decisions.

Therefore, the proceedings in the company petition must be stayed until the final adjudication of the civil suit in O.S. No. 235 of 2008 to meet the ends of justice. The issues (i) and (ii) are answered in the affirmative.

Issue (iii):
The memorandum of understanding and agreement were executed in November 2005, with Rs. 10 crores paid as advance and Rs. 4.50 crores towards workers' dues. The share certificates and transfer forms for 90% of the shares were delivered to SM. The BIFR order dated February 16, 2006, prohibited the company from disposing of or encumbering its assets and the promoters from changing their shareholding pattern without BIFR's permission.

The BIFR, in its hearing on November 15, 2007, noted the disputes between the company and SM regarding the transfer of shares and assets. The BIFR order dated March 16, 2009, clarified that its proceedings would not prejudice any order by the Company Law Board, but this clarification was later deleted. The High Court stayed the deletion, allowing the Company Law Board proceedings to continue.

However, the company petition must wait for the civil suit's outcome. The issues related to the rehabilitation schemes, promoter status, and BIFR orders should be addressed before the BIFR.

Conclusion:
The proceedings in C.P. Nos. 244 to 252 of 2008 are also stayed pending the final adjudication of the civil suit in O.S. No. 235 of 2008. The parties may apply for further orders upon the civil suit's disposal.