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TMI Blog2010 (5) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... he Agarwal group pursuant to the order dated December 31, 2001, passed by the Company Law Board in C. P. No. 82 of 2000 shall first be appropriated against the interest payable up to August 31, 2002 and the remaining amount shall be appropriated against the principal amount. - COMPANY APPEAL NOS. 8 OF 2004 AND 4 OF 2005 - - - Dated:- 3-5-2010 - B. P. KATAKEY J. S. N. Mukherjee, M. Bhuyan, R. Banerjee and P. Hazarika for the Appellant. M. Hazarika, A. Ajitsaria, A. Medhi, K. Agarwal, R.J. Barua , D. Kakati, K. Goswami and J. M. Saikia for the Respondent. JUDGMENT B.P. Katakey, J . These two appeals, under section 10F of the Companies Act 1956 (in short "the Act"), are directed against the orders dated June 15, 2004, passed in C. A. No. 41 of 2004 and dated July 19, 2005, passed in C.A. No. 99 of 2005, by the Company Law Board, both arising out of C.P. No. 82 of 2000. By order dated June 15, 2004, which is the subject-matter in Company Appeal No. 8 of 2004, the Company Law Board has rejected the application, registered and numbered as C. A. No. 41 of 2004, filed by the appellant, praying for a direction for adjustment of the amount paid by respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Lohia group had brought in an additional amount of Rs. 2.25 crores to the company, either as unsecured loans or as advances against booking of space in the building to be constructed in the plot of which respondent No. 1 was the owner. The further case of the appellant was that sometime in the month of November, 1999, he noticed certain discrepancies in the accounts of the company, which respondent No. 3 could not satisfactorily explain and which led to the appointment of an arbitrator and execution of a memorandum of understanding by and between the parties on May 2, 2000: According to the appellant, the said memorandum of understanding was not honoured by the Agarwal group and thereafter the said group by fabricating the records maintained by the company, had inducted two additional directors belonging to the Agarwal group thereby reducing the Lohia group to a minority. It was further contended in the said application that on September 1, 1999, allotment of 2,600 shares were made in favour of the Agarwal group, whereas 2,400 shares were allotted to the Lohia group and such allotment was made by fabricating and falsifying the company's record and in breach of the understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, one of the groups should go out of the company. Relating to the payment of interest, the Company Law Board having noticed that the appellant did not get any benefit out of his investment in view of his going out of the company and respondent No. 1 company has utilised the said amount on the project to which it would have otherwise raised funds on interest, found it appropriate to direct payment of interest at 20 per cent, (simple) from the date of receipt of the funds by respondent No. 1 company till the date of payment to the appellant with a further direction to pay the principal amount and interest in one or more instalments on or before August 31, 2002 and till such time, it was further directed that, the appellant will continue to be a director in the company and the shareholders from his group (Lohia group) will exercise all the rights as shareholders. ( iv ) The said order of the Company Law Board was put to challenge by respondents Nos. 1 and 3 in Company Appeal No. 1 of 2002, before the High Court, under section 10F of the Act, which was however, dismissed vide- judgment and order dated January 29, 2004. ( v ) An application was, thereafter, filed by the appellant b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outstanding principal amount in respect of the entities in annexures P4 and P5. In the said objection, it has further been stated that it would be inequitable and harsh for the company to pay a further sum of Rs. 81 lakhs on account of annexure P4 entities and a sum of Rs. 2.32 crores on account of annexure P5 entities and calculation of such amount is erroneous and incorrect, when the payments made by respondent No. 1 company were to be adjusted against the principal and not intended to be adjusted against the interest payable. ( vii ) The averments made in the said application as well as the objection filed thereto, gave rise to the question before the Company Law Board, as to whether the amount paid by respondent No. 1 company to the Lohia group, in terms of the order dated December 31, 2001, passed by the Company Law Board in C. P. No. 82 of 2000, is to be adjusted against the principal amount due and payable or against the interest accrued thereon, first. The Company Law Board by order dated June 15, 2004, has held that since the order for payment of interest was based purely on equitable grounds, in exercise of its equitable jurisdiction, to do justice to the parties, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed senior counsel appearing for respondents Nos. 1 and 3, Mr. K. Agarwal, learned counsel appearing for respondents Nos. 8 to 20, Mr. R. J. Baruah, learned counsel appearing for respondents Nos. 2 and 4 and Mr. K. Goswami, learned counsel appearing for respondents Nos. 21 to 30. 4. Mr. Mukherjee, learned senior counsel for the appellant referring to the order dated December 31, 2001, passed by the Company Law Board in C. P. No. 82 of 2000 as well as the provisions in sections 397 and 398 of the Act has submitted that any order including the order passed by the Company Law Board under section 397/398 of the Act being enforceable, under section 634A of the Act, like a decree passed by a civil court, there cannot be any differentiation of the order passed by the Company Law Board in exercise of its equitable jurisdiction, as the Company Law Board under section 397 of the Act is empowered to make such order, as it thinks fit, for bringing-to an end the matters complained of, it having passed the order for payment of interest at 20 per cent, on the principal amount due and payable to the appellant. It has further been submitted that the Company Law Board having decided the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able jurisdiction. 6. Learned senior counsel in support of his contentions has placed reliance on the decisions of the apex court in Gojer Brothers (P.) Ltd. v. Ratan Lal Singh AIR 1974 SC 1380, in Industrial Credit and Development Syndicate v. Smt. Smithaben H. Patel [1999] 96 Comp. Cas. 1; [1999] 3 SCC 80, in Manish Mohan Sharma v. Ram Bahadur Thakur Ltd. [2006] 131 Comp. Cas. 149 ; [2006] 4 SCC 416, of the Calcutta High Court in Hanuman Prosad Verma v. Stock and Finance Ltd. [1985] 58 Comp. Cas. 338 and in Shaw Wallace and Co. Ltd. v. Ghoom Investment Co. (P.) Ltd. [2003] 2 CHN 484. 7. Mrs. Hazarika, learned senior counsel appearing for the contesting respondents referring to the decision of the Company Law Board dated December 31, 2001, passed in C. P. No. 82 of 2000 has submitted that the direction for payment of interest was passed in exercise of the equitable jurisdiction and as such the Company Law Board is within its jurisdiction to alter the same, keeping in view the fact situation of the case and the difficulties faced by the answering respondents, more so, when the Company Law Board in the order dated December 31, 2001, gave liberty to the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the interim orders passed earlier were vacated and as such the said order is a final order enforceable under section 634A of the Act. Learned counsel appearing for the other respondents have supported the argument advanced by Mr. Mukherjee, learned senior counsel for the appellant. 9. I have considered the submissions of learned counsel for the parties and also perused the materials made available on record of the appeals as well as the various orders passed by the Company Law Board including the orders impugned in the present appeals. 10. F rom the facts narrated above as well as the arguments advanced by learned counsel for the parties, the questions of law which arise for determination in these appeals are : "(A) In Company Appeal No. 8 of 2004 : (i) Whether the order dated December 31, 2001, passed by the Company Law Board in C. P. No. 82 of 2000 is final disposing of the application filed under section 397/398 of the Act and enforceable under section 634A of the Act and if so, whether the amount paid by the contesting respondents to the appellant pursuant to the said order dated December 31, 2001, is to be appropriated first against the interest payable and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Board is to be enforced. It provides that any order made by the Company Law Board may be enforced by that board in the same manner as if it were a decree made by a court in a suit pending therein. The Company Law Board can, in case of its inability to execute such order, send the same to the court within the local limits of whose jurisdiction the registered office of the company situated, when such an order was passed against the company or where the person concerned voluntarily resides and carries on business or personally works for gain, when the order is against any other person, for execution. The proviso to the said provision stipulates that the said provisions shall not be applied on or after commencement of .the Companies (Second Amendment) Act, 2002, which has admittedly not been enforced till date. 12. The said provisions of the Act, therefore, make it clear that the Company Law Board, apart from passing orders, as it thinks fit, while dealing with an application under section 397/398 of the Act, is also empowered to pass any such order, which in its opinion is just and equitable. The validity of an order passed, by the Company Law Board, therefore, is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the same was a final order passed in a proceeding instituted under section 397/398 of the Act. The final character of the said order would not be changed, as the liberty was given to the parties' to approach the Company Law Board in case of difficulties in implementing the said order, which part of the order was passed in exercise of the power under section 402 of the Act. 14 . The order of the Company Law Board dated December 31, 2001, though in stricto sensu is not a decree passed by the civil court under the provisions of the Civil Procedure Code, it, however, can be enforced by the Company Law Board, under section 634A of the Act, in the manner as if such order was made by a court in a suit pending therein. The order passed by the Company Law Board, therefore, is executable in the same manner in which a decree passed by the civil court is executed. The Company Law Board may enforce its own order or may send the same to the court for its execution, in the case of its inability to execute such order, though as noticed above, the order passed by the Company Law Board is not a decree as such passed by a civil court. 15. The Company Law Board in its order dated Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence set aside. 18. By the other order dated July 19, 2005, which is the subject-matter in Company Appeal No. 4 of 2005, the Company Law Board while rejecting the prayer of the Agarwal group for waiver of interest has directed that the payment of interest at 20 per cent, per annum would be restricted to August 31,' 2002, keeping in view the various difficulties faced by the Agarwal group in implementing the order dated December 31, 2001. As held above, the Company Law Board in exercise of its jurisdiction under section 402 of the Act had passed an order giving liberty to both the parties to approach it, in case of any difficulty in implementing the order and also for consequential directions. The order dated December 31, 2001, though was challenged in the High Court by Agarwal group in the appeal filed under section 10F of the Act, the same, however, had been' dismissed without interfering with the order passed by the Company Law Board. The Lohia group had also not challenged such directions contained in the said order giving liberty to the parties to approach the Company Law Board in case of any difficulty in implementing the order and for any consequential order. The Lohia g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of principal and interest having been affirmed by the High Court such direction naturally merges with the order passed by the High Court in an appeal under section 10F of the Act. It however, does not mean, that the Company Law Board, in the absence of any challenge and in the absence of interference with the order contained in the said order dated December 31, 2001, granting liberty to the parties to approach it again, cannot entertain the subsequent application pursuant to the liberty granted by it to the parties, since such an order was passed under section 402 of the Act. The appellant, in fact, took advantage of the said liberty and filed the application, which is the subject-matter in Company Appeal No. 8 of 2004. 21. In view of the aforesaid discussion, the decision of the Calcutta High Court in Hanuman Prosad Verma [1985] 58 Comp. Cas. 338 , has no application in the case in hand. The decision of the Calcutta High Court in Shaw Wallace and Co. Ltd. [2003] 2 CHN 484, cannot also be applied, in view of the facts and circumstances of this case, as narrated above. There is also no dispute to the proposition of law as enunciated by the apex court in Manish Moha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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