Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
There was a specific objective
behind section 397/398 of the Companies Act, 1956 and a great responsibility is
cast upon the Company Law Board to protect the interests of the minority
shareholders, to put an end to the matters complained of and to regulate the
affairs of the Company. The absence of an effective remedy to address the
serious grievances of the shareholders in the Company will directly impact the
growth of corporate world. We know growth and contribution of Private Limited
Companies and Small Enterprises in our economy rather the big listed Public
Companies. To the extent possible, differences between the shareholding groups
in any Company is to be addressed and every effort is to be taken to ensure
that the Company functions smoothly rather resorting to winding-up. The same is
the object behind constitution of BIFR and section 391 to 394 of Companies Act,
1956. It is more important to protect the interests of the shareholders in a
Company and it is very important to deal with the issues of oppression and
mis-management. Some feel that the remedy provided under section 397/398 of the
Companies Act, 1956 is not effective and some plead that the unscrupulous are
abusing section 397/398 of the Companies Act, 1956 and tries to create numerous
problems to the controlling majority in the Company. While it is true that in
few cases, a negligible minority tries to abuse the remedy under section
397/398 of the Companies Act, 1956; in many cases the minority feels that their
rights are not property and effective protected under section 397/398 of the
Companies Act, 1956. A proceeding under section 397/398 of the Companies Act, 1956
is really complicated and as usual there exist difficulties when it comes to
execution of an order. It was really shocking to me to see the parties before
the Company Law Board pleading pure technicalities without any logic and fair
play and we can find judgments stressing on provisions of C.P.C etc. But, as I
opine always, there was a change in the manner in which the proceedings before
the Company Law Board under section 397/398 of Companies Act, 1956 are
entertained. Technicalities are ignored now and there is enough proof for this.
Now, petitions questioning maintainability of petitions under Section 397/398
of the Companies Act, 1956 are not taken seriously at the inception. There were
judgments saying that even in the absence of clear oppression and
mis-management, nothing prevents the CLB in passing orders in the interests of
the shareholders. Barring the part of execution and the issues of contempt,
now, I am sure that the aggrieved can definitely get a relief in a proceeding
under section 397/398 of the Companies Act, 1956 and it is difficult to misuse
the process.
The important aspect of a
proceeding before the Company Law Board is about the procedure and the
applicability of the provisions of Civil Procedure Code. The intention behind
constitution of Special Tribunals is to simplify the procedure and to avoid the
enormous delay in Courts due to strict applications of provisions of Civil
Procedure Code. Despite all this, technicalities were pleaded in a proceeding
under Section 397/398 of the Companies Act, 1956 very often. I firmly believe
that the CLB can follow any reasonable procedure in a proceeding under section
397/398 of the Companies Act, 1956 in adherence to the principles of natural
justice, fair play and in adherence to the object of the provision. In a recent
judgment under section 10 (F), the Hon’ble Madras High Court has dealt with the
issue some what clearly and it has straight-away addressed the issue of
applicability of the provisions of Civil Procedure Code in a proceeding under section
397/397 of the Companies Act, 1956. While dealing with the issue, the Court has
considered the difference between the Company Court rules and the regulations
of Company Law Board, the amended provisions of Companies Act, the dictum in
Needle Industries case, and consequent amendments to the few connected
provisions. The Hon’ble Madras High Court, in Company Appeal No.6 of 2009,
between K. Muthusamy & Another Vs. S. Balasubramanian & Others, CDJ
2011 MHC 959, was pleased to observe as follows:
“39. The second contention of the
appellants is that the law of pleadings and the provisions of the Indian
Evidence Act, apply to the proceedings before the Company Law Board. Therefore,
the Company Law Board ought not to have taken note of the new pleadings made by
the impleaded parties and ought not to have accepted the pleadings made without
any evidence.
40. Section 10E (4C) of the
Companies Act, 1956, vests with the Company Law Board, the same powers, as are
vested in a Civil Court under the Code of Civil Procedure, 1908, for (i)
discovery and inspection of documents (ii) enforcing the attendance of
witnesses (iii) compelling the production of documents (iv) examining witnesses
on oath (v) granting adjournments and (vi) reception of evidence on affidavits.
Sub section (4D) of Section 10E declares that the Company Law Board shall be
deemed to be a Civil Court for the purposes of Section 195 of the Code of
Criminal Procedure. However, sub section (5) of Section 10E states that the
Board, in the exercise of its powers and discharge of its functions, shall be
guided by the principles of natural justice and shall act in its discretion.
Sub section (6) of Section 10E also empowers the Board to regulate its own
procedure.
41. Therefore, it is clear that
strict rules of pleading and proof, as required in Civil Courts, are not
applicable to the proceedings before the Company Law Board. As a matter of
fact, the rules of procedure to be followed by this Court as a Company Court
are regulated by The Companies (Courts) Rules 1959. Rule 2(4) defines the word
"Code" to mean the Code of Civil Procedure, 1908 and Rule 6 of The
Companies (Courts) Rules, 1959, makes it clear that 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. Rule 6 also states that the
Registrar (Registrar of the Company Court) may decline to accept any document
which is presented otherwise than in accordance with these rules or the
practice and procedure of the Court.
42. In contrast, the Company Law
Board Regulations 1991, issued in exercise of the powers conferred by Section
10E(6) of the Act, do not either define the word "Code" or contain a
provision similar to Rule 6 of the Companies (Courts) Rules 1959. Regulations
11 to 13 indicate the form and contents of a petition to be filed before the
Board. Regulation 14 prescribes the procedure for filing the petition.
Regulation 18 makes it necessary to enclose documents as prescribed in Annexure
III, to the petition. Regulation 22 requires every respondent before the Board
to file a reply to the petition along with the documents relied upon by the
respondents. Regulation 38 imposes a bar upon the withdrawal of a petition
under Section 397 or 398, without the leave of the Board. Regulation 47
declares that the Bench of the Board will be deemed to be a Court for the
purpose of prosecution or punishment of a person who willfully disobeys any
order of the Bench. More importantly, Regulation 48 empowers the Board, for
reasons to be recorded in writing, to dispense with the requirements of any of
these regulations subject to such terms and conditions as may be specified.
43. Thus, the law makers have
maintained a clear distinction between the rules of procedure to be adopted by
the Company Court under the Companies (Courts) Rules, 1959 and the rules of
procedure to be adopted by the Company Law Board under the Regulations of 1991.
Not only does Section 10E(5) & (6) confer a discretion upon the Board to
regulate its own procedure and be guided by the principles of natural justice,
but Regulation 48 goes a step further by empowering the Bench to dispense with
the requirements of any of the regulations.
44. In Needle Industries (India)
Ltd., the Supreme Court observed as follows:-
"It is generally
unsatisfactory to record a finding involving grave consequences to a person on
the basis of affidavits and documents without asking that person to submit
himself to cross-examination. It is true that men may lie but documents will
not and often, documents speak louder than words. But a total reliance on the
written word, when probity and fairness of conduct are in issue, involves the
risk that the person accused of wrongful conduct is denied an opportunity to
controvert the inference said to arise from the documents".
But, it must be remembered that
at the time when Needle Industries was decided, sub sections (5) and (6) of
Section 10E were differently worded. They were replaced by new sub sections (5)
and (6) only with effect from 31.5.1991. Before 31.5.1991, the conduct of the
proceedings before the Board was governed by The Company Law Board (Bench)
Rules 1975. They were replaced by the Company Law Board Regulations 1991.
Therefore, the procedure to be followed by the Board has to be understood in
the context of the amended sub sections (5) and (6) of Section 10E and the
provisions of the Company Law Board Regulations 1991.
57. Interestingly, the appellants
who make a big hue and cry about strict rules of pleadings and evidence have
not taken note of the relevant provisions of the regulations. Regulation 22 (2)
of the Company Law Board Regulations 1991, enables a respondent before the
Company Law Board to file a reply containing such additional facts as may be
found necessary for the just decision of the case. Regulation 23 empowers the
Company Law Board to give an opportunity to the petitioner before the Board to
file a counter-reply to the reply of the respondent, whenever additional facts
are pleaded in the reply. Therefore, there is no bar for a respondent before
the Company Law Board to plead additional facts. But there is no provision for
a contesting respondent to file a counter-reply to the reply of a
co-respondent, since the opportunity available under Regulation 23 is actually
to the petitioner. However, without sticking on to the dry letter of the law,
as always done by persons who have no case on merits, the Company Law Board
permitted the appellants herein (who were respondents 2 and 3 before them) to
file a reply to the Statements filed by the Receiver (5th respondent). By doing
so, the Board actually complied with the letter and spirit of Section 10E (5).”
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
