COMPANY LAW BOARD CAN GIVE ONLY EQUITABLE RELIEF

[Mr. M. GOVINDARAJAN]

                        The Company Law Board ('CLB' for short) is given power under Sec. 402 of the Companies Act, 1956 ('Act' for short) on the applications filed under Sec. 397 and 398 of the Act-

to regulate the conduct of the company's affairs in future;

for the purchase of the shares or interests of any members of the company by other members thereof or by the company;

in the case of purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;

for the termination, setting aside or modification of any agreement arrived at between the company and the Managing Director or any other Director or the Manager upon such terms and conditions as may, in the opinion of CLB, be just and equitable in all the circumstances of the case;

for the termination, setting aside or modification of any agreement between the company and any person not referred to above after giving reasonable opportunities of being heard;

for the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under Section 397 and 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

any other matter for which in the opinion of CLB it is just and equitable that provision should be made.

Sec. 403 of the Act provides that pending the making by it of a final order under Section 397 or 398, as the case may be, the CLB may, on the application of any party to the proceeding make any interim order which it thinks fit for regulating the conduct of the company's affairs, upon such terms and conditions as appear to it to be just and equitable.

            Thus the CLB may make any interim order which it thinks fit for regulating conduct of the company's affairs, upon such terms and conditions and appeared to be just and equitable. The proceedings under Section 397 and 398 are summary proceedings and the CLB can grant only equitable relief and cannot go into the disputed points. The same has been upheld by the Chennai CLB bench in 'H. Ramsey and others V. Aparna Theatres (P) Ltd.,' - (2010) 94 CLA 295 (CLB). The respondent company entered into a lease agreement dated 11.02.1974 with the respondents 3 and 4 who are the owners of the property for a period of 36 years from 01.10.1973 till 30th September, 2009. The said deed was duly registered. It was agreed in the said deed that the company had to construct a building on the said property and carry on the business of cinema theatre and that after expiry of the lease period the building and land would back to the owners. After this, according to the petitioner, another leased deed dated 28.12.1977 was entered into between the parties agreeing to extend the tenure of the original tenure by 9 years i.e., from 01.10.2009 to 01.10.2018. The petitioners apprehend that since the original lease period is coming to an end on 30.09.2009, the respondents 3 and 4 being owners of the leased property may not give effect to the subsequent lease deed thereby the only business of the first respondent company may come to a standstill and requested the Bench to grant interim relief to protect the interest of the shareholders.

            The petitioners contended that the respondents are bound by the terms of the agreement of lease dated 28.12.1977 in the interests of the company as they hold their position in the company as the joint managing director and director in a fiduciary capacity. The respondents seem to have entered a memorandum of developmental agreement dated 18.04.2005 with a third party for developing the premises.  In that apprehension the petitioners prayed the CLB to grant interim injunction restraining the respondents from evicting the respondent company from the leased property and also give effect to the lease deed dated 28.12.1977.

            The respondents submitted the following:

The Bench does not have the jurisdiction to entertain the application since the matter is purely covered by the jurisdiction of civil court as far as the matters touching any right, title or interest of a person/entity in respect to any immoveable property;

The prayer of the petitioners is unsustainable in law or facts due to the very reason that the petitioners cannot seek a relief beyond the existing contract which would come to an end by 30.09.2009 ;

No court can either extend or curtail the rights and liabilities arising under any valid contracts;

The registered lease deed speaks of the duration of lease period shall be 36 years;

The lease period is certain, emphatically imbibed in the deed to mean that the parties were positive, firm and definite in respect of the period of lease;

The deed is duly stamped and registered before the jurisdiction of Sub-Registrar;

The alleged deed dated 28.12.1977 is not duly stamped and also is unregistered and not being acted upon the parties;

The CLB perused the original lease dated. It is made clear in para 8 of the said lease deed that upon the expiry of the period of lease i.e., 36 years to deliver un to the lessor the cinema theatre and other buildings erected thereon by the lessee. The CLB held that under Section 397 or 398 of the Act it is the right of the shareholders to invoke this Bench alleging certain acts of oppression and mismanagement that are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it as just and equitable that the company should be wound up. In the present case, the petitioners being the shareholders amongst other things the acts of mismanagement, the Bench can look into those aspects complained of only after affording an opportunity to the respondents by filing their counters and objections, if any. The CLB further held that so far as the prayer seeking an interim injunction restraining the 3^rd and 4^th respondents from evicting the respondent company from the leased property and also to give effect to the lease deed dated 28.12.1977, this Bench does not have any powers under Section 402 of the Act. The provisions of Section 402 gives very wide powers to the CLB to regulate the conduct of the company's affairs, if the acts of oppression and mismanagement complained thereof is found to be oppressive. The deed dated 11.02.1974 is a time bound agreement and the parties to the deed have expressly accepted the terms and conditions of the agreement. Therefore the provisions of Sec 402 of the Act will not be applicable to this agreement.  The deed dated 28.12.1977 is not a registered document and cannot be valid and therefore, courts cannot take into cognizance of the same and the parties also have not been acted upon the said agreement. Since the said deed is a disputed one this Bench does not have power to pass orders to give effect to such document.   The provisions of section 397 or 398 of the Act are summary proceedings and this Bench can only grant equitable relief and cannot go into the disputed documents.  If there is breach of any contractual obligations the aggrieved parties can approach the competent court of law but not before CLB.