COMPANY LAW BOARD IS HAVING POWER TO REVIEW ITS OWN INTERIM ORDER

[Mr. M. GOVINDARAJAN]

Interim order is usually passed by judicially authority to prevent from imminent danger to a petition. This order will be issued to be effective for some period which may be extended from time to time.   The interim order may be a stay order or maintaining status quo order etc.,   The said order may be made permanent or not only at the time of final judgment. In this article the issue taken to be discussed is whether the Company Law Board is having power to review its own interim order with reference to decided case law in ‘(2013) 117 CLA 667 (CLB)’ decided by Mumbai CLB.   In this case two petitions were together decided by the Bench. One is ‘Rajan Shivnath Puri V. Crimplon Yarns (P) Limited and others and the other is ‘Hari Textiles (P) Limited V. Rajan Shivanath Puri and Others’.

The petitioners has invoked the jurisdiction of the CLB, Mumbai Bench under Section 397 and 398 of the Companies Act, 1956 alleging certain acts of oppression and mismanagement committed by the respondent Nos. 2 to 4 in the affairs of the R1 company. The petitioners sought for various reliefs as well as interim reliefs one among them is to pass an order restraining the respondent No. 5 from further executing, amending, altering, rectifying and registering any deed or document in respect of properties owned by $1 company, inter alia, contending that the respondents No. 1 to 4 have transferred the ‘Vapi property’ in favor of the respondent No. 5 through the impugned deed of assignment dated 30.04.2012 on gross undervalue price.   Another property of the company situated at Silvassa is also being sold for highly inadequate price.

The CLB has already passed an order restraining R5 from creating any third party interest on the ‘Vapi Property’ without prior approval of the Bench.   Since there was a case before the Civil court for the property at Silvassa the CLB did not pass any order. The petitioner brought to the notice of the Bench that R5 has started construction of the said property and if such construction is allowed to be raised on the property, it may hamper the interest of the petitioner and also may raise further complications. R5 did not represent for this petition.   The CLB directed the parties to maintain status quo and the application is still pending.

Being aggrieved against the order of maintaining status quo, the respondent No. 5 filed an application before the Bench for recall of the said order along with the earlier orders passed by the bench.   The Bench heard both the cases. The petitioners produced the valuation of the properties and the loss caused to the company through a chart in respect of the Vapi property and submitted to the CLB. The following were submitted before the Bench by the petitioners:

• The respondents 2 to 4 deliberately to fulfill their ill-design to siphon of the funds of the company first got undervalued both the properties of the company through a valuer;
• According to the valuation report the value is Rs.635 lakhs for land, building and machineries;
• The said property has been transferred to R5 for a paltry sum of Rs.1.90 crores as against their own valuation of Rs.6.35 crores and therefore the petitioner has reasons to believe that the respondents 2 to 4 must have siphoned off the unaccounted money parted by the respondent No. 5;
• The sale of the property in favor of R5 is illegal being contrary to the provisions of the act;
• As a result of sale on such low price of the Vapi property, the interest of the company as well as the rights of the petitioner being minor shareholder has been seriously prejudiced.

A preliminary objection was raised against the petition filed by R5 on the ground that once CLB passes an order it is not empowered to review its own order and hence the application deserved to be dismissed being not maintainable. The property has been sold on a value of 35% only of the valuation assessed by respondent 1 to 4 themselves.   Therefore such sale for gross undervalue price is nothing but mismanagement in the affairs of the company and also an oppressive acts to the petitioner as defined under Sections 397 and 398 of the Act. They further refuted the contention of R5 that the transaction being a conclusive one cannot be assailed after a period of 3 months.

R5 contended that they are bona fide purchaser of the property in question for value without notice.   They have nothing to do with any dispute relating to internal arrangement of the company.   The impugned sale being concluded, cannot be assailed after a period of three months in terms of provisions contained in Section 402(f) of the Act. If the main relief is non cognizable being time barred, the interim relief also cannot be granted by the court.   Therefore the interim already passed should be vacated.

The CLB considered deciding the issue whether an ex-parte order passed by the bench deserved to be modified, varied and/or to be set aside or it needed to continue until the disposal of the case.

Considering the submissions put forth by the parties to these cases, the Bench came to the conclusion that the preliminary objection taken that once having passed an ad-interim order, the Bench is not empowered to review its own order, is not tenable and liable to be rejected out rightly. In this opinion of the Bench R5 is entitled to seek variation of the order passed in its absence.   It is further established law that a party has right to seek modification, variation or recalling of an ad-interim injunction order passed by the Bench at a later stage during the pendency of the petition. The earlier order dated 25.3.2013 was passed keeping in mind the facts that the case the R5 is not restrained from alienating, transferring the property in dispute and/or creating any third party interest over it, further complications may arise.   Similarly the dated 20.06.2013 to maintain status quo was passed ex-parte in order to prevent R5 from claiming any equity for the reason that he has already raised construction and has spent considerable amount on it. The impugned transfer of the Vapi property through contract is a question which is to be examined at the final state.   It is also to be examined as to whether the relief sought for is time barred as contended by R5.

The Bench opined that if the construction is allowed to be raised further, the value of the property is not going to be diminished. Further no prejudice is going to be caused to the petitioner.   The equities may be balanced by directing R5 to submit an undertaking that in the event, the impugned transfer of the property is found collusive and the court cancels the deed of assignment and pass an order directing it to redeliver the possession of the property in dispute as prayed by the petitioner, R5 will not claim any benefit or any right whatsoever in respect of the constructions raised by it.   Further R5 will be debarred from raising any claim or plea relating to the disputed constructions. The modification of the order to this extent will sufficiently protect the interest of both the sides.   Therefore the Bench directed that upon filing of an undertaking by R5, the impugned order stand modified to the extent that R5 may continue to raise further constructions. However the order restraining R5 from creating any third party interest over the property in dispute will continue.