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TMI Blog2008 (3) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... be noticed for better appreciation of the submissions of the counsel. First respondent M/s. APAKSH Broadband Limited ("APAKSH", for brevity) is a company registered under the Act in the State of Andhra Pradesh. Its business is in the field of telecommunications, information technology and entertainment. Its entire authorised capital of Rs. 175 crores is issued and fully/partly subscribed (10,19,62,500 equity shares fully paid-up and 19,80,37,500 shares of Rs. 3 paid). The first petitioner is an incorporated company and the second petitioner is its managing director. All the petitioners hold fully paid up shares in APAKSH and allegedly constitute forty per cent, of the total number of members of the first respondent. Respondents Nos. 2 to 4 are directors of APAKSH. Respondent No. 5 holds 10,17,87,500 fully paid-up shares equivalent to 57 per cent, in APAKSH. In addition to these, petitioners group was allotted 7,38,75,000 partly paid shares and the fifth respondent was allotted 12,41,62,500 partly paid shares. The Government of Andhra Pradesh in the Ministry of Communications and Information Technology proposed broadband network providing connectivity to all the Government offices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t consideration and consequently annul the said shares and direct the modification of the shareholding of the first respondent-company; (v)Vest the day-to-day administration of the first respondent-company to a committee of directors comprising of a nominee from each group viz., the petitioners, APTS and the fifth respondent and pass such other order(s) as the hon'ble Board deems fit and proper in the circumstances of the case. They alleged that majority equity holders and EPC contractor AKSH mismanaged funds and operation of the company. Their contention was that project was delayed due to various acts of commission and omission on the part of AKSH and project implementation remained incomplete even after expiry of the project implementation period, i.e., December, 2006. The respondent opposed company petition contending that contractual obligations under EPC contract fall outside the scope of sections 397 and 398 of the Act and the right of the petitioners as shareholders is no way affected. The second petitioner being director and vice-chairman is also member of the managing committee to monitor project implementation and he never made out any grievance with regard to EPC con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes an important principle of judicial adjudicative resolution. It is to the effect that the Company Law Board, in exercise of its powers and discharge its functions under the Act, shall be guided by the principles of natural justice. After entrustment of corporate dispute resolution to the Company Law Board by reason of the Companies (Amendment) Act, 1988, many of the powers and functions hitherto exercised by the High Court under section 10(1) of the Act, are now exercised by the Company Law Board Adjudication of dispute between minority shareholders and majority shareholders regarding controlling management of the company is one such subject which is in the realm of the Company Law Board's jurisdiction. All orders passed by the Company Law Board in exercise of their jurisdiction are judicial orders. The orders of the Company Law Board, therefore, cannot be lightly interfered with. That is the reason why section 10F of the Act which makes orders of the Company Law Board appealable to the High Court prescribes that an appeal against the order of the Company Law Board lies only "on any question of law arising out of order of the Company Law Board. It is not an appeal on facts nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minority shareholders. The Company Law Board has power under section 402(e) of the Act to terminate or modify the agreement between company and any person. The failure to exercise such power is a question of law arising out of order. Respondents filed counter opposing admission of the appeal. Learned senior counsel for the respondents submits that the Company Law Board considered all documents, it has not ignored any issues, applied law correctly and, therefore, same is not vitiated by any error apparent on the face of the record nor a question of law would arise for consideration under section 10F of the Act. He nextly contends that none of the rights of the petitioners is affected and therefore, a petition under sections 397 and 398 of the Act for mismanagement and oppression would not lie. When the petition itself would not lie, there is no question of the Company Law Board exercising powers under section 402 of the Act. He pointed out that the second respondent was the vice-chairman of the company, that he presided over meetings of the board, that he signed cheques and that he was also a member of man aging committee to monitor project and, therefore, petitioners' complaint b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors collectively called board of directors or the board. In the absence of any constitution of the board as such, members of the company shall be deemed to be directors (section 254 of the Act). As per section 291 of the Act, the board shall be entitled to exercise all such powers and do all such things as the company is authorised to do. If the board acts in deviation of memorandum and articles of association, or provisions of the Act or ignoring section 293 (restrictions and powers of board), the law does not let off the directors of the board. There are provisions and remedies for the members (shareholders) of the company for enquiry and investigation of acts of malfeasance and misfeasance (sections 235 to 250 of the Act). In the event it is found that the directors are guilty of malfeasance and misfeasance, and acts and omissions, they can even be prosecuted under the Indian Penal Code for breach of trust and misappropriation. In the entire scheme of the Act, role of share holders in day-to-day administration and management of the company is nil. The reason for such a thing is that if all the shareholders have management role even remotely, the company cannot run and progress i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d emphatically say this than quoting from the judgment of justice P. N. Bhagwati (as his Lordship then was) in National Textile Workers' Union v. P. R. Raimkrishnan [1983] 53 Comp Cas 184 (SC) ; [1983] 1 SCC 228 ; AIR 1983 SC 75 (page 196 of 53 Comp Cas) : "It is now accepted on all hands, even in predominantly capitalist countries, that a company is not property. The traditional view that the company is the property of the shareholders is now an exploded myth. There was a time when a group controlling the majority of shares in a company used to say : 'This is our concern. We can do what we like with if. The ownership of the concern was identified with those who brought in capital. That was the outcome of the property-minded capitalistic society in which the concept of company originated. But this view can no longer be regarded as valid in the light of the changing socio-economic concepts and values. Today social scientists and thinkers regard a company as a living, vital and dynamic social organism with firm and deep-rooted affiliations with the rest of the community in which it functions. It would be wrong to look upon it as something belonging to the shareholders. It is true th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H and AKSH. A statutorily constituted Tribunal no doubt would be committing an error if they failed to exercise jurisdiction vested in it or exercised jurisdiction, which does not vest in it and/or exercised jurisdiction vested in it erroneously. None of these is pleaded nor substantiated before this court. In the impugned order, the learned Company Law Board noticed that the second petitioner, who is the managing director of the first petitioner was active in the management of APAKSH either as vice-chairman of the board or the member of project monitoring committee, that he signed as many as nine cheques, that he himself opposed the audit of previous year accounts by M/s. S. R. Batliboi and Associates and that the petitioners failed to bring in the final call money even after the learned Company Law Board passed orders on March 20, 2003, to that effect. These are matters which are questions of fact and were proved before the Company Law Board by necessary material. It is not, therefore, proper for this court to go into these matters, which are not contentious. The learned Company Law Board considered all the material for appreciating the facts, applied law and recorded findings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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