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2013 (11) TMI 1295 - HC - Companies LawValidity of order passed - Notice under Section 400 of the Act was not served by the CLB on the Appellant - Whether the Order passed by the CLB, Mumbai Bench, dated 28th March, 2013 is nonest, ex facie not valid and the entire proceedings in Company Petition No. 62 of 2009, stand vitiated since the notice of the Application/Petition made by the Original Petitioner to the CLB under Sections 397 and 398 of the Act was not served on the Central Government by the CLB itself under the provisions of Section 400 of the Act - Held that - Advocates for the Respondent No.2 (Original petitioner) had served a copy of the Petition on the Regional Director, Western Region on 18th June, 2009 and has also put the Regional Director, Western Region to notice of the fact that the hearing of the said Petition would take place before the CLB on 22nd June, 2009, and the Regional Director was requested to remain present at the said hearing. In fact, the Petition was served on the Central Government through the Regional Director, Western Region, after the Petition was numbered on the next day of its filing and therefore the question of such service being treated as a preacceptance /admission or prehearing notice does not arise. Object of Section 400 of the Act as well as Regulation 14 (3) is to give notice to the Central Government about the Petition having been filed under Sections 397 and 398 of the Act before the CLB, to enable the Central Government to make its representations if any before the CLB, which the CLB would take into consideration before passing its final order on the Petition. However, the Central Government through the Regional Director, Western Region did not choose to appear before the CLB on 22nd June, 2009 or on any other date of hearing which took place on about 30 occasions over a span of four years. Even if it is held that the service of the Petition on the Central Government under CLB Regulations, 1991 does not amount to strict compliance of Section 400 of the Act, there is a substantial compliance of Section 400 of the Act in this case by reason of the notice given by the Advocates for the Petitioner to the Central Government. The provisions of Section 400 of the Act are not mandatory in so far as the identity of the person or body giving the notice. What is mandatory is that notice of every application under Sections 397/398 of the Act has to be given to the Central Government. The form of the notice, the manner of its service and the identity of the server are not of mandatory nature but are directory. Shareholders holding almost 100% of the shareholding in the Respondent No. 3 Company have already represented themselves before the CLB. All of them are also represented in the present Appeal and as recorded hereinabove all of them including the Auditors SHARP & TANNAN have submitted before this Court that without prejudice to the contentions raised by them in their respective Appeals they do not support the contention of the Appellant in the present Appeal viz. that the impugned order of the CLB be quashed and set aside because the notice required to be served on the Central Government under Section 400 of the Act was not served by the CLB itself, though the Petition was served on the Central Government by the Original Petitioner and in fact the Central Government was also informed of the hearing of the Petition. In fact, in the instant case the Appellant has in the Memo of Appeal or in its written submissions not even mentioned what representation it was desirous of making before the CLB before the final orders were passed and how the impugned order passed is against public interest and/or the minority shareholders - Therefore, question of quashing and setting aside the Order dated 28th March, 2013 passed by the CLB does not arise - Decided against appellant. Jurisdiction of CLB - Removal of auditors appointed in view of the provisions contained in Section 224(7) - Whether CLB has power or jurisdiction to remove an auditor duly appointed by the Respondent No. 3 in view of the provisions contained in Section 224 (7) of the Act - Held that - An examination of the Sections clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed there under and the object sought to be achieved by these Sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court s power. Court s powers under Section 398 read with Section 402 should not be read as subject to the other provisions of the Act dealing with normal corporate management or that the court s orders and directions issued thereunder must not be in consonance with the other provisions of the Act - Therefore, objection of the Appellant based on Section 224 (7) of the Act is completely misconceived and without substance - Decided against appellant.
Issues Involved:
1. Whether the Order passed by the CLB, Mumbai Bench, dated 28th March, 2013, is nonest and invalid due to the lack of notice to the Central Government under Section 400 of the Companies Act, 1956. 2. Whether the CLB has the jurisdiction to remove an auditor duly appointed by the company under Section 224 (7) of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Validity of the CLB Order due to Lack of Notice under Section 400: The Appellant, Union of India, contended that the CLB's order is nonest and invalid as it was passed without complying with the mandatory provisions of Section 400 of the Companies Act, 1956, which requires the CLB to give notice of every application under Sections 397 and 398 to the Central Government. The Appellant argued that the CLB is statutorily bound to issue this notice and consider the Government's submissions before passing final orders. The Appellant supported its argument by citing the Supreme Court's decision in Cosmosteels Pvt. Ltd. vs. Jairam Das Gupta and the Delhi High Court's decision in Sakthi Trading Co. P. Ltd. vs. Union of India, which emphasized the necessity of such notice. However, the Respondents argued that the notice requirement under Section 400 was substantially complied with by the Petitioner serving a copy of the petition on the Regional Director, Western Region, Ministry of Company Affairs. They pointed out that Regulation 14 (3) of the CLB Regulations, 1991, requires the Petitioner to serve a copy of the petition on the Central Government, which was done in this case. The Respondents also highlighted that the Central Government did not make any representation or appear before the CLB during the four-year span of the proceedings, indicating a lack of interest in participating in the matter. The court held that the object of Section 400 is to give the Central Government an opportunity to make representations, which was achieved by the service of the petition by the Petitioner. The court noted that the CLB had historically treated service by the Petitioner as sufficient compliance with Section 400, and the Central Government had not raised any objections to this practice. The court concluded that there was substantial compliance with Section 400, and the absence of a formal notice from the CLB did not vitiate the proceedings. 2. Jurisdiction of the CLB to Remove an Auditor under Section 224 (7): The Appellant argued that the CLB lacked the power to remove an auditor duly appointed by the company, as Section 224 (7) of the Companies Act, 1956, stipulates that an auditor can only be removed before the expiry of his term by the company in a general meeting with the previous approval of the Central Government. The Appellant cited cases like Basant Ram and Sons vs. Union of India and Devinder K. Jain vs. Union of India to support its contention. The Respondents countered that the CLB has wide powers under Section 402 of the Act to pass orders necessary to bring an end to oppression and mismanagement. They argued that these powers are not constrained by Section 224 (7), which applies in a different context. The Respondents cited the decision of the Bombay High Court in Bennet Coleman & Co. vs. Union of India, which recognized the CLB's broad authority under Sections 402 and 403 to pass orders for the management of company affairs. The court agreed with the Respondents, stating that the powers of the CLB under Sections 397, 398, and 402 are not limited by Section 224 (7). The court emphasized that the CLB has the widest powers to pass orders to address issues of oppression and mismanagement, and these powers are not subject to the usual provisions dealing with corporate management. The court concluded that the CLB had the jurisdiction to remove the auditor in the exercise of its powers under Section 402. Conclusion: The court dismissed the appeal, holding that the CLB's order was valid and that there was substantial compliance with Section 400 of the Companies Act, 1956. The court also affirmed the CLB's jurisdiction to remove the auditor under Section 402, despite the provisions of Section 224 (7). The court granted liberty to the Appellant to make further representations in the appeals filed by the Respondents against the CLB's order.
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