CLB’s responsibility to supervise the Company affairs even after passing final orders in a petition under section 397/398?

In any litigation, the Court or the authority adjudicating the matter can pass interim orders and the matter will get finally disposed of. Once the matter is dispose of finally, there ends the litigation and the final order can be executed. If there is a provision for review having limited scope, the court can review its order. This is the procedure in any case; be it a suit for recovery of money, be it a petition seeking divorce, be it a petition for compensation under Motor Vehicle Law and be it a Writ Petition. But, the Company Law Board entertaining a petition alleging oppression and mismanagement under section 397/398 of the Companies Act, 1956 can entertain applications under section 402 even after passing the final order. Because, the responsibility of the Company Law Board does not end with giving a finding on the allegations after looking into evidence and after hearing the submissions from both sides. The responsibility of the Company Law Board under section 397/398 of the Companies Act, 1956 is to put an end to the matters complained of and to regulate the future affairs of the Company. The Company Court has a responsibility while entertaining a petition seeking winding-up and the Court considers various issues and may want to listen to various other interested parties too while passing an order. The Company Court may try to rescue the Company rather winding-up the Company by technically applying the principles governing the winding-up of the Company. On the same principle, a great responsibility is cast upon the Company Law Board under section 397/398 of the Companies Act, 1956 and every endeavor is normally made to put end to the matters complained of and to regulate the affairs rather suggesting to wind-up the Company. That is why, the proceedings before the Board under section 397/398 of the Companies Act and the procedure followed is interesting and complicated. Many aspects under section 397/398 of the Companies Act, 1956 are interesting and also complicated.

If the Company Law Board is able to convince the warring parties or groups towards amicable settlement in a Petition under section 397/398 of the Companies Act, 1956 or if any group quits from the Company by selling their shares, there can not be any further problem in the Company and the Company will remain a going concern without any internal disturbance. But, when the warring shareholding groups decides to stay in the Company and when the Petitioners want remedial and regulatory orders and when the Company Law Board decides to pass orders to regulate the affairs of the Company, then, it is likely that the litigation continues even after final disposal of the Company Petition under section 397/398 of the Companies Act, 1956. There may be problems as to how the final order is to be understood and there may be problems in implementing the orders of the Board and as such, there can be a need for the aggrieved shareholding group or the majority group to approach the Company Law Board under section 402 of the Companies Act, 1956 even when the main petition under section 397/398 is finally disposed of.

There are two aspects in this regard in my opinion. The Board itself can clearly aver its further jurisdiction in the course of implementation of its final order and the Board may itself can keep the matter pending though final orders were passed. There is also a chance where the Board intends to pass detailed final order in a petition under section 397/398 of the Companies Act, 1956 without expressing anything on its further jurisdiction in the matter. In my opinion, in both the cases, the Company Law Board can entertain applications under section 402 of the Companies Act, 1956 in view of the object of section 397/398 of the Companies Act, 1956 and the complications involved in many corporate disputes among shareholding groups.

Dealing with entertaining applications under section 402 of the Companies Act, 1956 even when the main petition under section 397/398 of the Companies Act, 1956 is disposed of, the Hon’ble Bombay High Court, in Mohinidevi Choraria & another Vs. Apsara Cinema Pvt. Ltd & others, 1988 (4) BCR 597, 1988 MAH.L.J 1004, was pleased to observe as follows:

“The future conduct of Company’s affairs can be regulated by the order made under Section 397 or 398 of the Act and not by an independent proceeding. This does not, however, mean that such an order under section 402 cannot be made subsequent to the termination of the petition under Section 397 or 398 of the Act. An order regulating the conduct of the Company’s affairs in future may be made under section 402 after the disposal of the petition under Section 397 or 398 of the Act, provided, the circumstances of the case show that by its order under sections 397 or 398, the Court had retained seisin over the matter. Whether the Court has retained seisin depends upon the facts and circumstances of each case. The cases of Richardson and Cruddas Ltd., Life Insurance Corporation of India v. Haridas Mundhra and others, A.I.R. 1959 Cal. 695, (Lord Krishna Sugar Mills Ltd., v. Smt. Abnash Kaur), (1974)44 Company Cases 210 and (Bhagwati Prasad Bajoria and others v. British India Corporation Ltd., Kanpur and others), A.I.R. 1964 All. 75, illustrate cases where seisin may be inferred. In other words, the order under Section 397 and or 398 by its very nature must leave the doors open for future application under section 402 of the Act.”

The jurisdiction of Company Law Board to entertain applications under section 402 of the Companies Act, 1956 even when the main petition under section 397/398 of the Companies Act, 1956 disposed of depends on the facts and circumstances of the case and especially the final order passed by the Board.

Note: the views expressed are my personal and view point only.

Author:

V.DURGA RAO, Advocate, Madras High Court.

Email: vdrao_attorney@yahoo.co.in

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Category : Company Law (4138)
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Tags : Companies Act (2596) section 397 (31) section 398 (23)

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