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TMI Blog2013 (11) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Company Appeal (L) No. 36 of 2013, Company Petition No. 62 of 2009 - - - Dated:- 13-8-2013 - S. J. Kathawalla,JJ. For the Appellant : Mr. Shyam Mehta, Senior Advocate, instructed by Mr. G. Hariharan For the Respondent : Mr. Fredun De'Vitre, Senior Advocate, along with Mr. P.K. Samdani, Senior Advocate, Mr. Ciccu Mukhopadhyaya, Mr. Vaibav Mishra, Mr. Omar Ahmed JUDGMENT 1. The Appellant - Union of India, represented by the Ministry of Corporate Affairs, through the Regional Director, Western Region, has filed the present Appeal under Section 10F of the Companies Act, 1956 ( the Act ) seeking to set aside the Order dated 28th March, 2013, passed by Respondent No. 1 -the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent No. 2 in Company Petition No. 62 of 2009 is that Respondent Nos. 4 to 8 have transferred the shares of the Respondent No. 2 in the Board Meetings of Respondent No.3 held on 23rd May, 2009, and 25th May, 2009. According to the Respondent No. 2, the said Board Meetings were held without issuing notices to the Respondent No. 2 and therefore are nonest, illegal and unlawful and the Resolutions passed thereat are invalid and ineffective, and thus liable to be set aside. According to the Respondent No. 2, in an earlier meeting held on 29th January, 2009, again without giving notice to the Respondent No. 2, a decision was taken to appoint Respondent No.9 - SHARP TANNAN as the Statutory Auditor for determining the fair value of the equity shares of Respondent No. 3 and forwarding the valuation report to the Lesaffre Group. According to the Respondent No. 2, this meeting was also illegal for want of notice upon the Directors of the Respondent No. 2 and for noncirculation of agenda, etc. According to the Respondent No. 2, the valuation report obtained by M/s. Saf Yeast is also not based on the recognized principles for the valuation of a Company and the duplicate shares issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby chose not to make any representation in the said matter before the CLB. 10. The Learned Member of the CLB by his impugned Order dated 28th March, 2013, decided that the Respondent No. 2 did in fact enter into a Memorandum of Understanding ( MoU ) dated 23rd January, 2009 and agreed to transfer its shares in favour of Respondent Nos. 4 to 8 for consideration as determined by the Statutory Auditors under Article 17 of the Articles of Association. However, the Learned Member came to the conclusion that the valuation report of Respondent No. 9 was in contravention of the statutory guidelines and was not based on recognized principles for the valuation of a Company and therefore deserved to be set aside. The Learned Member also came to the conclusion that the meetings in which the shares were transferred from the name of the Respondent No. 2 in favour of Respondent No. 6 were not valid since the notices for such meetings were not given to the Respondent No. 2 and therefore the Resolutions passed at the said meetings also deserved to be set aside. The Learned Member therefore passed a composite order whereunder, after holding that the MoU to sell the shares of the Respondent No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving notice to the Central Government as required under Section 400 of the Act and moreover as per Regulation 14 (3) of the CLB Regulations the Respondent No. 2 was required to serve a copy of the Application to the Central Government which in the present case has not been done by the Respondent No. 2 and therefore the impugned Order was liable to be set aside on this ground also. The Appellant also contended that the CLB, in view of the provisions contained in Section 224 (7) of the Act, had no power or jurisdiction to remove Respondent No. 9, who was duly appointed by the Respondent No.3. However, when the Advocates for the Respondent No. 2 produced a copy of the letter bearing the acknowledgment of the Regional Director, Western Region, dated 18th June, 2009, acknowledging the receipt of a copy of the Petition along with the notice that the hearing would take place before the CLB, Mumbai Bench on 22nd June, 2009 at 11.00 a.m. and with a request to the Regional Director to remain present, the Union of India filed an additional affidavit of the Appellant admitting that the Office of the Regional Director had indeed received the notice dated 18th June, 2009 from the Advocates for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment, the Appellant has relied on the decision of the Hon'ble Supreme Court in the case of Cosmosteels Pvt. Ltd. vs. Jairam Das Gupta and others AIR 1978 SC 375 and the decision of the Delhi High Court in the case of Sakthi Trading Co. P. Ltd. and another vs. Union of India and another [1985] 57 Company Cases 789. In support of its contention that the provisions of Section 394A are in consonance with Section 400 of the Act and therefore as a necessary corollary, Section 400 of the Act must be provided the same recognition and interpretation as provided to Section 394A in the said case, the Appellant has also relied on a decision of the Delhi High Court in re. YKM Holdings Pvt. Ltd. [2001] 105 Company Cases 249. 15. The Learned Senior Advocate appearing for the Appellant has further submitted that the compliance with the CLB Regulation 14 (3) are procedural acts performed by the party in the process of filing the Petition before the CLB. The requirements of the CLB under Regulation 14 (3) are procedural requirement of attaching and presenting the acknowledgement of service with the application filed with the CLB. The obligations cast on the party by virtue of Regulation 14 (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing the final orders, whereas Regulation 14 (3) has no effect once a petition is filed. It is further submitted that a conjoint reading of Section 400 with Regulation 21 would show that a notice to the Central Government issued by the CLB under Section 400 of the Act will have to comply with the service provisions in Regulation 21. In support of its submission that the mandatory requirement to issue notice cannot be implied but must be strictly complied with and that there is no substitute to the specific provision in a statute which requires the Court to issue notice, the Appellant has relied on the decisions of the Hon'ble Supreme Court in the cases of Secretary to Govt. of Karnataka and another vs. V. Harishbabu [1996] 5 SCC 400 and India Rayon Corporation Ltd. vs. Raunaq and Company (P) Ltd. [1988] 4 SCC 31. Relying on the decision of the Hon'ble Supreme Court in the case of Raghunath Rai Bareja and another vs. Punjab National Bank and others [2007]2 SCC 230 , the learned Senior Advocate appearing for the Appellant submitted that the statute must be interpreted literally and where the words of the statute are unequivocal, there is no scope for importing any rule of interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ministry of Corporate Affairs qua the service of Company Petition No. 62 of 2009 on the Central Government by the CLB, the Bench Officer of the CLB by his letter dated 12th April, 2013, proceeded on the basis that service of notice of the Petition under Sections 397398 was to be effected by Respondent No.2. This is consistent with the manner of service provided for in Regulation 14 (3) of the CLB Regulations, 1991. Mr. De'vitre therefore submitted that it is clear that there has been substantial compliance with the requirement of law. The object of Section 400 of the Act is to enable the Central Government to make representations, if any, before the passing of a final order in a Petition under Sections 397398 of the Act. In the present case, the Central Government did not file any representation nor did it appear before the CLB though the Petition was heard for an extended period between July 2010 and April 2012 and again from January to March, 2013 for a total of more than 30 days, spread over a period of four years. Mr. De'vitre also submitted that the CLB has wide powers under Section 402 of the Act and the Appellant cannot be heard to say that in view of Section 224 (7) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays before the date fixed for the hearing of the petition. Mr. Dwarkadas submitted that the said Rule 89 is framed in order to ensure compliance with Section 400 of the Act which is demonstrable by virtue of the fact that the heading of the Chapter in which Rule 89 is contained reads as Relief in case of Oppression or Mismanagement [Sections 397 to 407] which is clearly indicative of the fact that the Rules in this Section have been framed in pursuance of Sections 397 to 407 of the Act. Mr. Dwarkadas submitted that it is further relevant that while Section 400 of the Act specifies that the Court is required to give notice to the Central Government (through its Regional Director), Rule 89 does not make any specific mention as to who is required to give such notice. In Hungerford Investment Trust Ltd., Re. (in Voluntary Liquidation) vs. Turner Morrison and Co. Ltd. [1972] ILR 1 Cal. 286 at para 67 , the Calcutta High Court observed that a notice as required under Section 400 of the Act when given by the Petitioner was in compliance with the requirement of the Act. 24. Mr. Dwarkadas submitted that after the jurisdiction to hear matters inter alia under sections 397, 398 and 402 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle of substantial compliance would apply. 26. Mr. Dwarkadas submitted that in so far as the ground raised by the Appellant that the CLB does not have jurisdiction to remove the Statutory Auditors without prior approval of the Central Government, the powers of the CLB under Section 402 of the Act are not constrained by the provisions of Section 224 (7) of the Act, which apply in a different context. The wide powers of the CLB under Section 402 of the Act and in particular under Section 402 (g) of the Act have been recognized by the decision of this Court in the case of Bennet Coleman Co. vs. Union of India [1977] 47 Company Cases 92 (Bom) pages 122-123. Mr. Dwarkadas clarified that the submissions made by him on behalf of his clients are without prejudice to the contention of his clients that the CLB ought not to have removed the Statutory Auditors in exercise of its powers under Section 402 of the Act. 27. Mr. Dwarkadas submitted that the Appeal therefore be dismissed with costs. 28. Mr. Khambata, the Learned Senior Advocate appearing for Respondent No. 10 - Lesaffre Group, has repeated and reiterated the submissions made on behalf of the Respondent No. 2. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at noncompliance with the provisions of Section 400 of the Act did not vitiate the proceedings. Mr. Khambata therefore submitted that by virtue of service of the proceedings by the Respondent No. 2 upon the Appellant on 18th June, 2009, Section 400 of the Act in any event stands substantially complied with. 30. As regards the contention of the Appellant that in view of Section 224 (7) of the Act, the CLB does not have the power or jurisdiction to remove the Statutory Auditor whilst deciding a Petition under Sections 397398 of the Act, Mr. Khambata has submitted that such an objection is completely misconceived and without substance. He has submitted that from a reading of Section 224 (7) of the Act it is clear that the said Section prohibits a company in a general meeting from removing a Statutory Auditor before the expiry of his term, if the previous approval of the Central Government in that behalf has not been obtained. Section 224 (7) cannot be interpreted to mean that the CLB has no jurisdiction to remove a statutory auditor before the expiry of his term unless the CLB first obtains the approval of the Central Government. There is nothing in Sections 397 and 398 which indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned Registrar of Companies having jurisdiction over the Company and shall attach to and present with his petition, reference an acknowledgement from the office of the Registrar of Companies receiving a copy of the petition, reference, so served: Provided that ... . .. Provided further that, in case of a petition or complaint under Sections 235, 237, 250, 397, 398, 408 and 409 of the Act, a copy thereof shall also be served upon the Central Government It is clear that the CLB therefore framed Regulation 14 (3) requiring the Petitioner to serve a copy of any Petition inter alia under Sections 397 and 398 of the Act upon both, the concerned Registrar of Companies as well as the Central Government. The CLB by virtue of the second proviso to Regulation 14 (3) of the CLB Regulations, authorised the Petitioner as its agent or delegate to serve the Petition under Sections 397/398 on the Central Government. Such service by the agent is therefore service by its principal (viz. the CLB), for the purpose of service. The CLB itself has till date treated the service by the Petitioner as service by the CLB, as can be seen from its letter addressed to the Department of Company Affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 400 of the Act is one under Regulation 21 (1) of the CLB Regulations which reads as follows: 21. Service of notice and process issued by the Bench.( 1) Any notice or process to be issued by the Bench may be served by any of the following modes directed by the Bench: (i) service by the party itself; (ii) by hand delivery (dasti) through a messenger of the Office of the Bench; (iii) under Certificate of Posting; (iv) by registered post with acknowledgement due if so required by an order of the Bench; (v) where the Central Government is a party, through the Secretary of the concerned Ministry or Department or through Branch Secretariat of the Ministry of Law or through Standing Counsel of the Central Government; (vi) where the State Government is a party, through the Chief Secretary or the Standing Counsel of the State Government. In the first place, whilst Regulation 21 of the CLB Regulations, speaks of a notice or process issued by the Bench generally, Regulation 14 (3) speaks of a specific notice having reference to proceeding under Sections 397/398 of the Act. Regulation 14 (3) being a specific provision delegating the authority to give notice of a Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder subsection (2) of Section 391 of the Act or Section 394 of the Act and not at the initial stage of an application under subsection (1) of Section 391 of the Act for calling of Meeting of the creditors and members of the Company for considering the scheme of arrangement or compromise. The same is not the case in a petition under Sections 397/398 of the Act. In the case of a Petition filed under Sections 397/398 of the Act, a notice is given to the Central Government of the filing of the Petition to enable the Central Government to make its representations if any, which could then be taken into consideration by the CLB before passing the final order under the said Sections. The CLB may hear the petition at any time. Thus having regard to the object of such notice/service under Section 400 of the Act and under Regulation 14 (3) of the CLB Regulations, the reasoning of the Hon'ble Delhi High Court in re. YKM Holdings Pvt. Ltd. (supra) in connection with a notice to the Central Government under Section 391 of the Act cannot be made applicable to the notice for the purposes of Sections 397/398 of the Act. 37. In any event, as submitted by the Respondents, even if it is held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that the notice should be scrutinised in a pedantic manner divorced from common sense. The point to be considered is whether the notice gives sufficient information as to the nature of the claim such as would the recipient to avert the litigation . The Court further held as follows: 34. Our laws of procedure are based on the principle that as far as possible, no proceeding in a court of law should be allowed to be defeated on mere technicalities . Here all the requirements of Section 80 of the Code were fulfilled. Before the suit was brought, the Dominion of India received a notice of claim from Seth Lachman Dass. The whole object of serving a notice under Section 80 is to give the government sufficient warning of the case which is going to be instituted against it was that the Government, if it so wished, settle the claim without litigation or afford restitution without recourse to a court of law. That requirement of Section 80 was clearly fulfilled in the facts and circumstances of the present case. 35. It is a matter of common experience that in a large majority of cases the Government or the public officer concerned make no use of the opportunity afforded by the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the parties of the filing of the Award. This notice by the Court is of extreme relevance /importance to the parties, since the right of a party to get the Award set aside or to get an Award remitted for reconsideration is barred under Article 119 (b) after thirty days from the date of service of the notice of the filing of the Award. The issuance of such notice by the Court would therefore certainly be a mandatory requirement. However, it is pertinent to note that though subsection (2) of Section 14 of the Arbitration Act, 1940 states that the notice should be by the Court to the parties, the Hon'ble Supreme Court has clarified in its decision in Secy. To Govt. of Karnataka vs. V. Harishbabu (supra) that the notice to the pleaders of the parties who are representing the parties before the Court, would be sufficient compliance with the requirements of subsection (2) of Section 14 of the Arbitration Act, 1940, and further that in a case where a party has knowledge aliunde of the filing of the Award and seeks time to file objections to the Award, absence of a formal notice from the Court would be rendered immaterial and in such a case the date when the party enters its appearance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment is incorporated. Consideration of the representation contemplated is for obtaining the views of the Central Government in order to protect the right of the unrepresented minority shareholders, whose interest is to be seen in a proceedings pertaining to winding up of a company or other matters where public interest is involved. There is nothing under law to indicate that noncompliance with the aforesaid provision renders the proceeding vitiated in all cases, even when no public interest or right of any other member of the company, unrepresented, is involved (Ref. C.R. Datta on the Company Law, Sixth edition 2008 ; pages 5700 to 5702). In the present case, the 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affecting each and every order passed by the CLB under Sections 397/398 of the Act, since it is now an undisputed position on record that the CLB never used to serve any notice upon the Regional Director in any matter prior to April, 2013, and the Central Government has never objected to the same. In view of the facts and circumstances of the present case, the decision of the Hon'ble Supreme Court in the case of Raghunath Rai Bareja and another (supra) is of no assistance to the Appellant. 46. In the circumstances, the question of quashing and setting aside the Order dated 28th March, 2013 passed by the CLB does not arise and the Question No.1 framed above is answered in the negative. However this Court has noted that the CLB has in its letter to the Central Government dated dated 12th April, 2013, inter alia recorded that the CLB itself has forthwith started giving notice to the Central Government under Section 400 of the Act which the CLB will surely adhere to. This Court also grants liberty to the Appellant to make its representations (other than the submissions made and decided herein) in the Appeals filed by the Respondents herein impugning the Order of the CLB dated 28th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be answered as to whether the powers of the court under Chapter VI (which includes Sections 397, 398 and 402) should be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company and, in our view, in the context of this scheme having regard to the object that is sought to be achieved by Sections 397 and 398 read with Section 402, the powers of the court thereunder cannot be so read. Further an analysis of the Sections contained in Chapter VI of Part VI of the Act will also indicate that the powers of the court under Section 397 or 398 read with Section 402 cannot be read as being subject to the other provisions contained in Sections dealing with usual corporate management of a company in normal circumstances. As stated earlier, Chapter VI deals with the prevention of oppression and mismanagement and the provisions therein have been divided under two heads under head A powers have been conferred upon the court to deal with cases of oppression and mismanagement in a company falling under sections 397 and 398 of the Act while under head B similar powers have been given to the Central Government to deal with cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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