Back
2011 Supreme(Cal) 1045
High Court of Judicature at Calcutta
ANIRUDDHA BOSE
Birla Corporation Ltd. & Others
Versus
Birla Education Trust & Others
ACO No. 82 of 2011, 83 of 2011 WITH APOT No. 318 of 2011, 320 of 2011, CP No. 1 of 2010
Decided On : 04-08-2011
For the Petitioners: Mr. Anindya Kumar Mitra (Sr. Adv.), Mr. Pratap Chatterjee (Sr. Adv.), Mr. Malay Kumar Ghosh, Ms. Manju Bhuteria, Ms. Paritosh Sinha, Mr. Debangsu Basak, Mr. Sachchida Nand Pandey, Mr. Kalyan Kumar Bandopadhyay, (Sr. Adv.) Mr. Ranjan Bachawat, Mr. S. Roy Chowdhury, Mrs. D. Roy, Mr. Rajesh Upadhyay,
For the Respondents:R1 to 6, Mr. S. K. Kapur (Sr. Adv.), Mr. Bimal Chatterjee (Sr. Adv.), Mr. S. Sarkar (Sr. Adv.) Mr. S. N. Mookherjee (Sr. Adv.), Mr. P. S. Sengupta, Mr. Jishnu Saha, Ms. M. Bhattacharyya, Mr. Ravi Kapur, Ms. Soorjya Ganguli, Ms. Pooja Chakrabarti, Mr. A. Mehta, R7, Mr. P. C. Sen (Sr. Adv.), Mr. Sanjiv Kr. Trivedi, Mr. Debanjan Mandal, Mr. Sandip Dasgupta, Mr. Soumya Ray Chowdhury, Mr. Sourya Sadhan Bose, Mr. Deepnath Roy Chowdhury, Mr. Satadeep Bhattacharyya, Mr. Sirsanya Bandopadhyay, R16 to 40, Mr. Abhrajit Mitra, Ms. Sudeshna Bagchi, Mr. Jishnu Chowdhury, Mr. Sarvapriya Mukherjee, Ms. Debasri Dutta, Advocates.
The principles of natural justice, including the right to be heard, are applicable to proceedings before the CLB, and any order passed in violation of these principles is liable to be set aside.
Headnote:
COMPANY LAW - Sections 235, 237, 247, 250, 397, 398, 402, 10E(5) - Company petition alleging mismanagement and oppression - Application for interim relief - Donation to charitable trust - Allegation of siphoning of funds - CLB order directing production of documents and impleadment of trust - Challenge on procedural and merit grounds - Violation of principles of natural justice - Adjournment sought due to personal bereavement of Senior Counsel - Hearing concluded midway without fixing further date - Prima facie violation of principles of natural justice - Interim stay of CLB order granted - Records of CLB to be produced for further consideration.
Fact of the Case:
A company petition was filed under Sections 235, 237, 247, 250, 397, 398, and 402 of the Companies Act, alleging mismanagement and oppression in the respondent company. The company had donated significant sums of money to the Madhav Prasad Priyamvada Birla Apex Charitable Trust, which was controlled by the Chairman of the company's Board of Directors. The applicants sought to prevent further flow of funds to the trust. The CLB directed the company to produce certain documents and required the trust to justify the receipt of such funds.
Finding of the Court:
The court held that the CLB's order was passed in violation of the principles of natural justice as the appellants were not given adequate opportunity to be heard. The court noted that the trust had sought an adjournment on the ground of personal bereavement of their Senior Counsel, which was a legitimate reason. The court also observed that the CLB had abruptly concluded the hearing midway without recording that the hearing was being concluded on the question of issuing an ad interim order and without fixing a further date for order.
Issues: 1. Whether the CLB's order was passed in violation of the principles of natural justice? 2. Whether the appellants were given adequate opportunity to be heard before the CLB?
Ratio Decidendi: 1. The principles of natural justice are applicable to proceedings before the CLB, which is vested with the powers originally exercised by the Company Court. 2. The right to be heard is a fundamental principle of natural justice and includes the right to present one's case and to cross-examine the witnesses of the opposing party. 3. In the present case, the trust was not given an opportunity to present its case before the CLB as the hearing was concluded midway without recording that the hearing was being concluded on the question of issuing an ad interim order and without fixing a further date for order.
Final Decision: The court granted an interim stay of the CLB's order and directed the production of the records of the CLB pertaining to the interlocutory applications for further consideration.
ANIRUDDHA BOSE, J.
1. In these two appeals, under challenge is an order of the Company Law Board, Principal Bench dated 11 July 2011. This order was passed in an interlocutory proceeding registered as C.A. no. 332 of 2011 arising out of a company petition, being C.P. No. 01 of 2010. Another application, registered as C.A. No.338 of 2011, taken out by the Birla Corporation Limited and the appellants in ACO No.82 of 2011 (the company), seeking dismissal of the said interlocutory application was also considered in the said order and direction for affidavits has been given in that application. The company petition was filed by the respondent no. 1 to 6 representing more than 10% shareholders of the company alleging mismanagement and oppression in the respondent company. This petition was filed under the provisions of Sections 235, 237, 247, 250, 397, 398 and 402 of the Companies Act.
Earlier, two other orders were passed by the Company Law Board (CLB) in different interlocutory proceedings arising out of the same company petition on 9 February 2011 and 17 June 2011 and these two orders are also under challenge before this Court in two different appeals. In the application registered as C.A. No 332 of 2011, the applicants (respondent nos. 1 to 6 in these two appeals) have raised grievances on different counts over running of the said company by the existing management. So far as the impugned order is concerned, the controversy relates to donation of significant sums of money to Madhav Prasad Priyamvada Birla Apex Charitable Trust, who are the appellants before me in ACO No 83 of 2011. Allegations of the applicants in the main company petition is that one Harsh Vardhan Lodha (HVL), who is the Chairman of the Board of Directors of the said Company is seeking to control the promoter groups’ share in the said company without the authority of law. In C.A.No.332 of 2011, the complain of the applicants is that HVL and his family/associates control the said trust and such donations in substance constitute siphoning of funds of the company to the HVL controlled trust. One of the prayers of the applicants in C.A. 332 of 2011 is to prevent further flow of funds to the said trust. Altogether, a sum of rupees 23.5 crores approximately has been donated to the trust by the company.
2. In the order appealed against, it has been held;-
“Considering the Respondents’ reply arguments so far to the allegations in this C.A., looking at the Directors’ Reports of the R-1 Company for the years 2006-2007 to 20092010 which do not mention that the funds are for setting up of a hospital or for what purpose, looking at an undated project report which mentions the date as 25th January 2010 (written in hand) without disclosing as to who prepared the Report, for whom and when, at whose’s instance and what the project really is, the Applicants have succeeded in making out a prima facie case that the project Report is a sham, and is an afterthought, no details are forthcoming from the respondents in this regard, in the facts and circumstances of this case, the Applicants having succeeded in making out a prima facie case of continuing of mismanagement and oppression by siphoning off of R-1’s funds to an apparently a moribund Trust since 2001, a trust the main trustee of which happens to be the Chairman of the R-1 Company and another trustee being his wife and the third trustee being nobody else but his alter ego, in the facts and circumstances of this case the R-1 Company is hereby required to produce three certified copies of each document/detail/records as mentioned from (a) to (e) in para 28 of this Company Application at pages 16 & 17 to the Bench officer of the Principal Bench (Shri Saud Ahmad) in a sealed cover on or before 20th July 2011. On receipt of the documents, the Bench officer shall forward one copy each to the Auditors of the R-1 Company as well as to Ernst and young, already appointed in this matter in CA 302/11, for giving their detailed
