2018 (4) TMI 548 - HC - Companies Law

Removal of director - reconstitution of Board of the Directors of the Respondent Company alleging that the affairs of the Company are being mismanaged and conducted in a manner oppressive to other member - Held that - Bare perusal of the order dated 12.5.09 reveals that the parties agreed that the Appellant herein shall go out of the company for total consideration of ₹ 3.25 crores to be paid by the Respondents. But at the same time, the time frame given by the Respondents was not accepted by the Appellant herein and therefore, as a matter of fact, no agreement of binding nature could be arrived at between the parties and the CLB while advising the Respondents to compress the period to the shortest possible minimum period, adjourned the matter while directing payment of ₹ 50 lakhs in the meantime to work out the terms once the period of payment is agreed to. Thus, from the tenor of the order dated 12.5.09, in no manner, it could be inferred that the terms of compromise between the parties were finally settled vide order dated 12.5.09. As a matter of fact, while considering the binding nature of the terms of compromise incorporated in the order dated 8.9.09, there was no occasion for the CLB to refer to the failure of compromise intended between the parties in terms of order dated 12.5.09 and thus, the finding arrived at by the CLB that the compromise between the parties arrived at vide order dated 8.9.09 had not attained finality and the same had failed in the same manner as the earlier compromise entered into between the parties covered by order dated 12.5.09, is ex facie erroneous and perverse. Undoubtedly, Section 634-A confers power on CLB to enforce its orders in the same manner as if it were a decree. A compromise or a consent order is also executable by the CLB in exercise of the power conferred under Section 634-A. Thus, the Respondents cannot wriggle out from the compromise arrived at and the terms thereof, which have attained finality and binding on the parties for the reasons aforementioned. Appeal succeeds, it is hereby allowed. The order impugned dated 4.11.10 passed by the Company Law Board, New Delhi Bench, New Delhi in Company Petition is set aside. The Company Law Board is directed to enforce the order dated 8.9.09 treating the terms thereof regarding the Appellant going out of the Company on payment of ₹ 2.85 crores in one go and giving away of the Haveli premises by the Respondents to the Appellant as binding upon the parties.

Summary

Issues involved:
1. Enforceability of the order dated 8.9.09 passed by the Company Law Board (CLB).
2. Interpretation of the compromise agreement between the parties.
3. Applicability of Section 634-A of the Companies Act, 1956.

Detailed Analysis:

1. Enforceability of the order dated 8.9.09 passed by the Company Law Board (CLB):
The primary issue is whether the order dated 8.9.09, which was based on a compromise between the parties, is enforceable. The appellant contended that the order was clear and binding, requiring the respondent to pay ?2.85 crores in one go and transfer the Haveli premises. The CLB, however, interpreted that the order did not attain finality as the respondent sought time to consult their bankers, and the subsequent proposal by the respondent on 18.9.09 was not accepted by the appellant. The High Court found the CLB's interpretation to be incorrect, stating that the order dated 8.9.09 was a binding consent order, and the respondent's request for time was merely to indicate when the payment could be made, not whether it could be made.

2. Interpretation of the compromise agreement between the parties:
The appellant argued that the order dated 8.9.09 was a clear and binding compromise, whereas the respondent claimed it was conditional and subject to further agreement. The High Court held that the order dated 8.9.09 was a binding compromise, and the respondent's subsequent proposal on 18.9.09, which included additional terms, did not nullify the original agreement. The court emphasized that the terms of the order dated 8.9.09 were final and binding, and the respondent could not impose new conditions beyond those terms.

3. Applicability of Section 634-A of the Companies Act, 1956:
Section 634-A allows the CLB to enforce its orders as if they were decrees of a court. The appellant argued that the order dated 8.9.09 was enforceable under this section. The High Court agreed, stating that the order was a consent order and thus executable under Section 634-A. The court directed the CLB to enforce the order dated 8.9.09, treating the terms regarding the appellant's exit from the company and the payment of ?2.85 crores in one go, along with the transfer of the Haveli premises, as binding.

Conclusion:
The High Court allowed the appeal, set aside the CLB's order dated 4.11.10, and directed the CLB to enforce the order dated 8.9.09. The court emphasized that the terms of the compromise were binding and enforceable under Section 634-A of the Companies Act, 1956. The decision underscores the binding nature of consent orders and the enforceability of such orders under the Companies Act.