WHETHER THE COMPANY LAW BOARD HAS POWER TO DECIDE PRELIMINARY ISSUES?

[Mr. M. GOVINDARAJAN]

The Company Law Board ('CLB' for short) has been constituted under Sec.10E of the Companies Act.  The CLB shall exercise and discharge such powers and functions as may be conferred on it by or under the Companies Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under the Companies Act or any other laws as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of the Companies Act or that other law.

Sec. 10 E (4B) provides that the Board may, by order in writing, form one or more Benches from among its members and authorize each such Bench to exercise and discharge such of the Board's powers and functions as may be specified in the order; and every order made or act done by a Bench in exercise of such powers or discharge of such functions shall be deemed to be the order or act, as the case may be, of the Board.

Sec. 10E (4C) provides that every bench formed under sub section 4B shall have powers which are vested in a Court under the Code of Civil procedure, 1908 while trying a suit, in respect of the following matters, namely:-

§ discovery and inspection of documents or other material objects as evidence;

§ enforcing the attendance of witnesses and requiring the deposit of their expenses;

§ compelling the production of documents or other material objects producible as evidence and impounding the same;

§ examining witnesses on oath;

§ granting adjournments;

§ reception of evidence on affidavits.

Sec.10E (5) provides that the CLB shall in exercise of its powers and the discharge of its functions under the Companies Act or any other law be guided by the principles of natural justice and shall act in its discretion. Sec. 10E (6) provides that the CLB shall have power to regulate its own procedures subject to the provisions of the Companies Act. The CLB framed regulations of its own called as Company Law Board Regulations, 1991.

The discussion taken for this article whether the Company Law Board is having power to decide preliminary issues with reference to decided case law 'B. Subba Reddy V. S.S. Organics Ltd.,' - (2009) 96 SCL 466 (AP). 

The petitioner filed the petition under sections 111A, 163, 196, 237(b), 397, 398, 402, 403, 406, 408 and Schedule XI of the Companies Act, 1956 challenging the allotment of 20 lakhs shares of Rs.10 each made in M/s S.S. Organics ltd., in exclusion of the petitioner as oppressive and alleging several acts of misappropriation. The respondents moved Company Application questioning the jurisdiction of the CLB to entertain the company petition mainly for Industrial and Financial Reconstruction sanctioning the scheme of rehabilitation of the company. This application was opposed by the petitioner.

The CLB disposed the misc. petition as follows - "The provisions of sections 15 and 19 of the SICA provide a scheme where a company which has become sick can register itself with the BIFR which is vested with the powers under the provisions of the said Act which shall after making enquiry may provide for package for rehabilitation of the company and/or make the company viable to that the business of the company can continue. Whereas section 397 and 398 a code by itself containing special provisions empowering the CLB to make such orders as it thinks fit with a view to brining to an end, the acts of oppression and mismanagement, complained of by any aggrieved members  Thus, the scope and jurisdiction of the BIFR and the CLB are entirely different.   The acts of the mismanagement and statutory violations set out in the company petition could be bifurcated and deal with separately and accordingly jurisdiction could be exercised by the CLB to adjudicate the disputed issues in regard to the alleged mismanagement and statutory violations.

Both parties filed appeals before the High Court against the findings of the CLB. The High Court has taken these two appeals since they are having common grounds. The petitioner in his appeal contended that the CLB it not vested with the power to entertain preliminary objections. The respondents contended that the CLB ought to have rejected the company petition in view of the pendency of the proceedings before the BIFR  in view of Sec.26 of the Sick Industrial Companies (Special provisions) Act, 1985 (SICA for short)

The High Court held that it is no gain saying that the CLB is a creature of a statute under Section 10E of the Companies Act.   Its proceedings are governed by the regulations made by the Company Law Board under section 10E (6) of the Companies Act.  These regulations known as Company Law Board Regulations, 1991 promulgated by the CLB do not contain any regulation, which specifically confer power on the CLB to decide preliminary issues. The respondent filed an interlocutory application under regulation 44 of the Regulations, which in the considered opinion of this court do not even remotely suggest that the power to decide preliminary issues inheres in the Company Law Board.

The High Court invited a reference to the decision made by the Supreme Court in 'All India Indian Overseas Bank SC and ST Employees' Welfare Association V. Union of India' -(1996) 6 SCC 606.  In this case the National Commission for Scheduled Castes and Scheduled Tribes directed the executive director of the IOB to stop promotion process pending further investigation into the allegation of contravention of the Government directives relating to reservation of SC/ST employees in IOB.   Accordingly IOB stayed the promotions.  IOB Officers' Association and other candidates challenged the same before the Delhi High Court by filing a writ petition. On the ground that the National Commission had no power to issue interim orders, the writ petition was allowed.  The same was challenged by the All India IOB SC/ST Employees' Welfare Association.   Reliance was placed on clauses (5) and (8) of article 338 of the constitution of India in support of the contention that the Commission had power to pass such orders.  It was held that the all the procedural powers of a civil court are given to the Commission for the purpose of investigating and inquiring into these matters and that too for that limited purpose only.  The powers of a civil court of granting injunctions, temporary or permanent, do not inhere in the Commission nor can such a power be inferred or derived from a reading of clause (8) of article 338 of the Constitution.

The High Court held that the respondents have not placed before the Court any provision of the Companies Act or Regulations which confers the power on the company law Board to decide the preliminary issues as per Order XIV, rule 2 of the CPC.  It must, therefore, be held that the Company Law Board has no power to decide preliminary issues nor can exercise powers under CPC other than those conferred under Section10E (4C) of the Companies Act.