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TMI Blog2009 (12) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... utions passed at the meeting shall not be implemented "till the completion of the suit proceedings in the High Court of Bombay and also the arbitration proceedings". The dispute between the parties relates to a company by the name of Mukat Pipes Ltd., a public limited company which has been listed, the court is informed, on the stock exchanges at Delhi, Mumbai and Ludhiana. About 40 per cent, of the shareholding is held by the members of the public, consisting of nearly 12,000 shareholders. The bone of contention relates to about 43.38 per cent, of the shareholding which stood in the name of Rajinder Singh. The appellant and the third respondent are brothers of Rajinder Singh who died on May 11, 2005. The first respondent is the widow of the deceased. Rajinder Singh and the mother of the appellant and the third respondent formed a partnership firm by the name of Muktanandan Corporation on September 17, 1975. According to the appellant the partnership was reconstituted by a supplemental deed dated April 2, 2003, with the earlier two partners, the appellant and the first and the third respondents. About 33,24,400 shares of the second respondent were held in the name of Rajinder Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The consent terms record as follows : "1. A general meeting of respondent No. 2 company will be held on June 11, 2007, at 11.00 a.m. at an agreed venue in Bombay to, inter alia, consider the ratification of the appointment of (i) Mr. Sandeep Ahluwalia and (ii) Mrs. Mandeep Pahwa Ahluwalia as directors. 2. In view of the fact that the impugned order observes that the appellant should agitate his grievances with regard to the disputed 33,24,400 shares in civil suit, the appellants will be at liberty to file a suit within a period of 8 weeks in respect of the disputes arising in the company petitions filed before the Company Law Board. The suit and all proceedings therein will proceed without being in any manner influenced by the findings of the Company Law Board in any manner whatsoever. The directions contained in the impugned order regarding the appointment of directors will be subject to orders passed in the suit or in any interlocutory proceedings therein. 3. Respondent No. 1 for a period of eight weeks from the date of this order will not sell, alienate, pledge or create any third party rights of the disputed 33,24,400 shares which are pledged with I. D. B. I. in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed single judge of this court on May 7, 2009. The learned single judge held that prima facie the shares in question constituted property of the partnership firm and that Rajinder Singh held the shares on behalf of the firm. The learned single judge entered a prima facie finding that those shares were never treated by him as his self acquired shares. Consequently, by the order of the court, the court receiver came to be appointed as receiver in respect of the shares. Pending disposal of the arbitral proceedings and for a period of four weeks thereafter, the parties were restrained by an order of injunction from transferring, alienating, disposing of or creating any third party rights in respect of the assets and properties of the firm and from acting upon the corporate and legal benefits arising from the said shares. On June 12, 2009, Surindra Engineering Ltd., which is a shareholder of the second respondent requisitioned an extraordinary general meeting of the company on August 8, 2009. On July 13, 2009, when the appeal filed by the third respondent against the order of the learned single judge dismissing the suit was heard, a notice of motion was moved by the first respondent befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that the application under section 634A that was filed before the Company Law Board was not maintainable inasmuch as the order of the Company Law Board dated February 14, 2007 (Smt. Sandeep Kaur Ahluwalia v. Mukat Pipes Ltd. [2007] 138 Comp Cas 33 ), of which execution was sought had merged with the order passed by this court on May 4, 2007, in the appeal under section 10F. It was also contended that the Member who had passed the order dated August 4, 2009, had no jurisdiction to entertain the application in view of the Company Law Board Regulations, 1991, read with an order dated March 25, 2008, constituting Benches for the purposes of exercising and discharging powers and functions under the Act. On behalf of the first respondent it was urged before the learned single judge that the Principal Bench of the Company Law Board had jurisdiction to hear the application of the first respondent and the order dated August 4, 2009, was accordingly passed by the Principal Bench of the Company Law Board. The learned single judge, by his order dated August 6, 2009, held that it was not appropriate to interfere with the order dated August 4, 2009, since the application filed by the first re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2007] 133 Comp Cas 33), merged with the order of this court dated May 4, 2007, passed on an appeal under section 10F and that consequently no application for execution of the order dated February 14, 2007, could have been entertained ; (ii) The appeal was lodged before the New Delhi Bench of the Company Law Board; pleadings and affidavits were filed before the New Delhi Bench on that basis and the appeal was heard and disposed of by Vasudevan J. who was a Member of the New Delhi Bench. Vasudevan J. was at the material time not a Member of the Principal Bench of the Company Law Board and he would have no jurisdiction to entertain the application, even assuming that an application for the execution of the order dated February 14, 2007, could lie before the Principal Bench of the Company Law Board ; (iii) The Company Law Board which has been constituted under the provisions of section 10E has provided for the distribution of work between its Benches. The distribution of work between the Benches is governed by the Company Law Board Regulations, 1991, as amended in 2008. On March 25, 2008, a statutory order has been issued by the Company Law Board under section 10E(4B) constitutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) and the definition of the expression "Bench" and "Member" in the regulations. The submission was that the orders passed by the Company Law Board under regulation 4 specifying matters which may be dealt with by the Regional Benches does not limit the inherent jurisdiction of the Principal Bench to hear matters assigned to the Regional Benches; (vi) In any event, the principle laid down in section 21 of the Code of Civil Procedure would govern and an objection as regards the place of suing cannot be allowed to be taken unless it is taken in the court of first instance at the earliest possible opportunity and unless there has been a consequent failure of justice. In the present case it was urged that no material has been placed before the court to establish that there is a consequent failure of justice ; (vii) The orders passed by this court in the arbitration petition under section 9 and in the appeal arising out of the order of the learned single judge contain only a prima facie finding that the shares in question though held by Rajinder Singh constitute an asset of the partnership. A special leave petition has been filed before the Supreme Court which is pending. In the meanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the final disposal of the petition) shall be placed for orders. In the absence of the Member so specified every such matter has to be placed before any other Member of the Bench who is present. The expression "Bench" is defined by regulation 2(e) to mean that a Bench of the Board and to include the Principal Bench, Additional Principal Bench and a Member sitting singly. The expression "Member" is defined by regulation 2(m) to mean a Member whether technical or judicial of the Board and to include the Chairman and Vice-Chairman. 16. Regulation 4 provides that it shall be lawful for the chairman to provide that matters falling under sections 247, 250, 269, 388B of the Act and under section 2A of the Monopolies and Restrictive Trade Practices Act, 1969, shall be dealt with by the Principal Bench. Sub-regulation (3) of regulation 4 postulates that it shall be lawful for the chairman to provide that matters falling under all other sections of the Act shall be dealt with by Regional Benches, viz., by the Benches at New Delhi, Chennai, Kolkata and Mumbai. The exception in the proviso to sub-regulation (3) is that matters which were pending before the Principal Bench and Additional Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B) of section 10E read with regulation 4. For the purposes of these proceedings it would be appropriate to extract the text of the notification in its entirety. The notification reads as follows : "In exercise of the powers conferred by sub-section (4B) of section 10E of the Companies Act, 1956 (1 of 1956) read with regulation 4 of the Company Law Board Regulations, 1991, amended from time to time and in supercession of all earlier orders, the Company Law Board hereby constitutes the following Benches for the purpose of exercising and discharging its powers and functions in the manner specified below : (a)Matters pending before the Principal Bench as on March 31, 2008, shall be dealt with by the Principal Bench consisting of any one of the following : 1.Shri S. Balasubramanian, Chairman 2.Shri K. K. Balu, Vice-Chairman 3.Smt. Vimla Yadav, Member 4.Shri Kanthi Narahari, Member 5.Shri V. S. Rao, Member (b)Matters pending before the Additional Principal Bench as on March 31, 2008, shall be dealt with by the Additional Principal Bench at Chennai consisting of any one of the following : 1.Shri S. Balasubramanian, Chairman 2.Shri K. K. Balu, Vice-Chairman 3.Shri Kanthi Naraha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted position that the petition under section 397 had been disposed of by the Company Law Board on February 14, 2007. No proceeding was pending before the Principal Bench as on March 31, 2008. The second important facet that may be noted is that Vasudevan J. was not a Member of the Principal Bench as notified on March 25, 2008. It may be noted that Vasudevan J. came to be appointed as a Member of the Principal Bench by a notification issued by the Government of India on September 14, 2009, much after he passed the impugned order on August 7, 2009. On the date of the impugned order Vasudevan J. was admittedly not a Member of the Principal Bench. With effect from April 1, 2008, the constitution of Benches came to be governed by the statutory order dated March 25, 2008. The order specifies that matters relating to sections 247, 250, 269 and 388B of the Act and section 2A of the Monopolies and Restrictive Trade Practices Act, 1969, fall within the purview of the Principal Bench. The two Members of the Principal Bench were notified to be (i) S. Balasubramanian, Chairman and (ii) K.K. Balu, Vice-Chairman. Matters other than those falling under the aforesaid sections of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mentioning days during the absence of the hon'ble Chairman". A notice by the Bench Officer can by no stretch of imagination be construed as conferring jurisdiction on Vasudevan J. to hear and dispose of an application purportedly for the execution of an order passed by the Principal Bench of which he was admittedly not a Member. 22. The effort which has been made before the court on behalf of the first respondent to rely upon the provisions of rule 6 of the Companies (Court) Rules, 1959, suffers from a clear error of approach. The Companies (Court) Rules, 1959, govern the practice and procedure before the company court. Rule 6 of the Companies (Court) Rules, 1959, provides as follows : "R6. Practice and procedure of the court and provisions of the Code to apply.-Save as provided by the Act or by these rules, the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the court." 23. Rule 6 is prefaced by the words "save as provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate jurisdiction of the High Court under section 10F. The special provisions of the Companies Act, 1956, in relation to the filing of appeals and the execution of orders must alone be looked at as opposed to the general principles which are contained in the Code of Civil Procedure, 1908. 24. The reliance that has been placed on section 21 of the Code of Civil Procedure, 1908, is misconceived. Section 21 postulates that no objection as to the competence of the executing court with reference to the local limits of its jurisdiction shall be allowed by any appellate or revisional court unless such objection was taken in the executing court at the earliest possible opportunity and unless there has been a failure of justice. These provisions have been construed in the judgment of the Supreme Court in Harshad Chiman Lal Modi v. DLF Universal Ltd. [2005] 7 SCC 791. The Supreme Court held that the jurisdiction of a court consists of (i) territorial or local jurisdiction ; (ii) pecuniary jurisdiction ; and (iii) jurisdiction over the subject-matters. In so far as territorial and pecuniary jurisdiction is concerned, an objection which is not taken at the earliest possible opportunity cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be subject to the orders that may be passed in the suit or in any interlocutory proceedings therein. The appeal was disposed of in terms of the agreed understanding "without prejudice to the rights and contentions of the parties". In other words, the consequence of the order of this court dated May 4, 2007, was that the entire issue relating to the shareholding comprising 33,24,400 shares would abide by the result of the suit which was to be instituted in pursuance of the observations contained in the order of the Company Law Board. Consequently even the directions entitling the first respondent to the appointment of two out of five directors was subject to the orders that may be passed in the suit or in any interlocutory proceedings therein. The order of this court confirms in certain respects the directions issued by the Company Law Board but makes it clear that those directions would have to abide by an adjudication that may be rendered in a duly constituted proceeding referred to in the consent terms. Once the order passed by this court on May 4, 2007, albeit with the consent of the parties, came to hold the field there was no occasion to enforce the order of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the judgment of the Supreme Court are relevant to the question involved in this case and are as follows (page 382 of 245 ITR) : "(i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law . . . (iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it." 28. The doctrine of merger must apply to an appellate judgment of the High Court rendered in an appeal under section 10F of the Companies Act, 1956. The doctrine of merger is applicable where the appellate court or the court of superio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , interpret and apply the orders passed by the learned single judge and by the Division Bench in appeal. That the Company Law Board has chosen not to do so discloses a lack of judicial discipline. 30. The manner in which the proceedings were entertained by Vasudevan J. who had clearly no jurisdiction to entertain the proceedings in the first place leaves much to be desired. Once the jurisdiction of diverse Benches of the Company Law Board is structured and governed by the regulations framed under section 10E and by the statutory notification dated March 25, 2008, every Member of the Company Law Board is bound to ensure that he acts strictly within the folds of the powers which are conferred upon him and does not bypass those powers. The credibility of every judicial institution lies in a restrained exercise of power and in the exercise of power which conforms to the law which regulates the conferment and the structure of its jurisdiction. Judges above all are bound by the law and as upholders of the law they are liable to erode public confidence in the administration of justice if they act in a manner in which Vasudevan J. acted in these proceedings. The consequence of the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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