BEFORE THE
COMPANY LAW BOARD, SOUTHERN REGION BENCH, CHENNAI
IN THE MATTER OF COMPANIES ACT, 1956 (I OF 1956)
SECTION 634A
AND
IN THE MATTER OF M/S KLEN &
MARSHALLS MANUFACTURERS & EXPORTERS LIMITED
APPLICANT:
ICICI Bank Limited
RESPONDENTS:
1. Klen & Marshalls Manufacturers
& Exporters Limited
2. The Registrar of Companies, Tamil
Nadu, Chennai.
PRESENT ON BEHALF OF PARTIES:
1.
Shri H.Karthik Seshadri, Advocate for the applicant.
2.
Shri S. Srinivasan, Practicing Company Secretary for the applicant.
3.
Shri M.R.Ramachandra Variar, Chartered Accountant for Respondent
No.1.
4.
Shri S.M.Sunil Kumar, Advocate, for Respondent No.1
This is an application filed under Section 634A
of the Companies Act, 1956 (“the Act”) on 4.9.2000 against M/s Klen &
Marshalls Manufacturers & Exporters Limited (“the Company”) for enforcement
of the order dated 12.07.2000 of the Company Law Board (“CLB”). The Registrar of Companies is a pro forma
party. The application came up for
hearing from time to time and finally on 15.02.2002.
2. According to Shri H. Karthik Seshadri,
Advocate for the applicant-Bank, the Bank had sanctioned certain credit
facilities aggregating Rs.27,50,00,000/- to the Company in consideration of
which the Company had created charge on 22.10.97 in favour of the Bank in
respect of the whole of the Company’s entire stocks of raw-materials,
semi-finished and finished goods, consumable stores and other movables set out
in the deed of hypothecation dated 22.10.97.
The Company ought to have filed the particulars of the charge with the
second respondent within a period of 30 days after the date of its creation. As the Company had failed to file
particulars of the charge with the second respondent, in spite of the efforts
made by the Bank, the latter sought the intervention of the CLB under Section
614(1) of the Act. The CLB, after
considering the various objections raised by the Company by an order dated
12.07.2000 directed the Company to forward the particulars of the charge
created by virtue of deed of hypothecation dated 22.10.97 to the second
respondent for being entered in the register of charges in the manner
prescribed under the Companies (Central Government’s) General Rules &
Forms, 1956, within 21 days from the date of receipt of a copy of the order.
However, the Company preferred an appeal against the order dated 12.07.2000 of
the CLB in CMA No.1628/2000 before the High Court of Madras. Later, the appeal in CMA No.1628/2000 was
dismissed on 5.12.2001 with cost, upon which the Company filed an appeal in SRA
No.1040 of 2002 before the Division Bench of the High Court of Madras. Shri Karthik Seshadri has pointed out that
the Division Bench of the High Court has not stayed the order passed by the
CLB. The Company has not so far filed
the particulars of the charge till date even after expiry of nearly five years
and in spite of the order of the CLB.
According to him, no prejudice would be caused to the Company by executing
the order of the CLB. Any delay by the
Company would cause irrepairable loss to the Bank. Moreover, there is every scope for alienation of the securities
by the Company. The present application is mainly with the object to maintain
the status-quo in regard to the securities.
At this stage the CLB is concerned only with execution of the
order. The various contentions raised
by the Company so as to protract the proceedings are frivolous and do not merit
any consideration in the execution proceedings. Section 634A provides that any order made by the CLB may be
enforced by it in the same manner as if it were a decree made by a court in a
suit pending therein. In this connection,
he invited my attention to the provisions of Order XXI Rule 34 of the Code of
Civil Procedure, 1908, which prescribes the machinery for enforcing a decree
directing execution of a document.
Accordingly, the Bank has delivered a draft of form 8 & 13 along
with the application, on which the Company has not filed any objection. In the circumstances, Shri Karthik Seshadri
urged that the Bench Officer may be appointed to execute and sign form 8 &
13 as sought in the application in accordance with the provisions of the Order
XXI Rule 34.
3. Shri M.R. Ramachandra Variar before initiating
his arguments moved an application in CA No. 20/2002 for adjournment on the
ground that the appeal filed in SRA No.1040/2002 before the Division Bench of
the High Court of Madras has been returned on the ground that the order dated
5.12.2001 of the High Court passed in CMA No.1628 of 2000 does not give the
correct number of the Company Application, namely, CA No. 53/614(1)/SRB/2000,
by which the Company is handicapped to prosecute the appeal preferred against
the order dated 5.12.2001, stated supra.
Shri Variar proceeded with his submissions on merits of the case and
opposed the application on the following among other grounds:-
(a)
Section 634A does not empower the applicant to invoke the
provisions of this Section enforcing the order of the CLB.
(b)
The Company has filed an appeal against the order dated 5.12.2001
of the High Court before the Division Bench of the High Court and the appeal is
pending. Consequently, the order of the
CLB has not become final and does not amount to a decree executable under
Section 634A.
(c)
Order XXI Rule 34 of the CPC applies to money decrees. In the present case, the order of the CLB
not being a money decree cannot be executed, as prescribed in Order XXI Rule
34.
(d)
The Company has cleared certain loans by entering into a compromise
arrangement with the Bank and as a result the Company has made an excess
payment of Rs.38.77 lakhs. At present,
the Company does not owe any amount to the Bank.
(e)
The Company is denying the entire liability of Rs.475 lakhs, said
to be due under Inland Bill Discounting facility (the Bills). The Company being a endorser of the Bills,
is not a principal debtor under Negotiable Instruments Act. The Bank ought to have given a notice of
dishonour of the Bills to the endorser, but failed to comply with the mandatory
requirement of the provisions of Section 93 read with Section 106 of the
Negotiable Instruments Act, thereby impairing the rights of the endorser. The Bank guarantee of Rs.475 lakhs of Jammu
& Kashmir Bank provided by the acceptor of Bills does not create any charge
over the assets of the Company requiring registration under Section 125. The Bank has already initiated civil
proceedings before the competent Court at Jammu in respect of this liability.
(f)
The Bank has filed a suit on 20.8.2000 against the Company for
recovery of the outstanding dues before the Debt Recovery Tribunal enforcing
the securities. The Bank cannot maintain parallel proceedings before the CLB,
as held in Indian Overseas Bank Vs. Essar Machine Works Limited – C.P.
Nos. 11&12/614(1)/SRB/2001(CLB).
4.
Shri Karthik Seshadri, in his reply, contended that the CLB cannot
suo-motto execute its order, in view of the fact that it cannot keep track of
the orders complied or not complied by the parties. It is left to the aggrieved person to move the CLB under Section
634A for execution of its order. He
further pointed out that the order of the CLB dated 12.07.2000 is a decree
within the meaning of Section 2(2) of the CPC.
Unless the order dated 12.07.2000 of the CLB is stayed by the Division
Bench of the High Court, it is left to the CLB to execute the order. He further pointed out that Order 21
applies to all suits including money suits and that the Company has not chosen
to invoke the provisions of Order 21 Rule 24 for stay of execution of the order
of the CLB. In the circumstances, the
CLB may enforce the order passed by it, in support of which he relied on the
decision Shasan Projects India Limited Vs. Assam Brooke Limited – Vol.85
1996 CC 662. Shri Karthik
Seshadri, while concluding his arguments submitted that the Bank, being a
public financial institution, public money is involved and by depriving
registration of the charge, the public interest is adversely affected. He, therefore, sought for the reliefs made
in the application.
5. After considering the pleadings and oral
submissions made on behalf of the petitioner and the Company, the issue that
arises for my consideration is whether the order dated 12.07.2000 made by the
CLB may be enforced by it in the facts and circumstances of the case.
6. Before going into merits of the case, I
shall deal with the application seeking adjournment made on behalf of the
Company. The Company has admittedly
obtained certified copy of the order dated 5.12.2001 of the High Court on
11.12.2001. Nevertheless, the Company
is not diligent enough to take early steps for curing the infirmity crept in
the order and no documentary evidence is produced to show corrective measures,
if any, taken by the Company. At this
juncture, it would not be irrelevant to point out that the Authorised
Representative of the Company moved earlier an application in CA No.19/2002 for
adjournment to a future date for his oral submissions, when Counsel for the
petitioner concluded his arguments on 11.2.2002, which was readily conceded to
by this Bench. But, now adjournment is sought for different reasons. There is, therefore, no justification for
the adjournment moved on behalf of the Company.
7.
While it is contended by the petitioner that the order of the CLB
can be enforced in the present proceedings, it is stoutly denied by the Company
that the application is enforceable either under law or on facts of the
case.
8.
Section 634A, dealing with enforcement of orders of the CLB, reads
as under:-
“Any
order made by the Company Law Board may be enforced by that Board in the same
manner as if it were a decree made by a Court in a suit pending therein, and it
shall be lawful for that Board to send, in the case of its inability to execute
such order, to the Court within the local limits of whose jurisdiction, -
(a) in the case of an
order against a company, the registered office of the company is situated, or
(b) in the case of an
order against any other person, the person concerned voluntarily resides, or
carries on business or personally works for gain.”
A plain reading
of Section 634A shows that an order of the CLB is enforceable in the same
manner as if it were a decree of a court in a suit. If the CLB cannot execute it, the decree may be sent to the
appropriate court for execution.
Execution procedure is contained in Order 21 of the CPC. At this juncture I may point out that the
proceedings before the CLB are not governed by the provisions of the CPC as
held in Kshounish Chowdhary Vs. Kero Rajendra Monolethic Ltd. – (1999) 34
CLA 304 (CLB). Nevertheless,
the underlying principles of the CPC are being followed by the CLB. Admittedly, the Company failed to execute
and sign form 8 & 13 in terms of the order dated 12.07.2000 of the CLB. However, the Company filed an appeal
challenging the order of the CLB before the High Court of Madras, which was
later dismissed on 5.12.2001, against which the Company has filed second appeal
before the Division Bench of High Court of Madras. The second appeal is pending, but no stay has been obtained
against the order of the CLB. Mere
filing of an appeal without obtaining an order of stay, does not prohibit the
CLB from enforcing the order dated 12.07.2000.
The plea that the order of the CLB is not executable is
misconceived. In this connection,
beneficial reference is invited to the decision in Bertrand Faure
Sitztechnik GMBH & Co. KG Vs. IFB Automotive and Seating Systems Limited –
[1999] 34 CLA 277(CLB), wherein it has been held that the CLB has power
to enforce any order passed by it. The
order need not be a money decree.
Therefore, the plea raised on behalf of the Company that the petitioner
cannot invoke the provisions of Section 634A and that the order dated
12.07.2000 of the CLB not being a money decree cannot be executed must also
fail. Though Shri Variar stoutly
contended that the amount due to the Bank has not only been repaid in full but
also made an excess payment of Rs.38.77 lakhs by entering into a compromise
agreement with the Bank, no attempt was made to substantiate this contention by
producing any material evidence. It is
observed that no records are filed in this behalf with the CLB. In regard to the Bank guarantee liability,
the contentions of the Company do not merit any consideration in the light of
the findings of this Bench in its order dated 12.07.2000, relevant portion of
which reads as under:-
“A
careful scrutiny of the records made available before this Bench show that the
pending proceedings before the Courts at Jammu, Chennai as well as the Supreme
Court of India do not have any bearing on the subject matter of the petition,
especially when the affidavit dated 9.6.2000 filed on behalf of the
petitioner-Bank containing details of the Court proceedings between the parties
has not been contravened by the Company.
The Company has neither advanced any argument on this contentious
issue. I am, therefore, convinced that
the subject matter of the Company Petition is not being agitated in any of the
Court proceedings stated supra.” (page 6).
Moreover, the
questions raised by the Company in the present proceedings must relate to the
enforcement of the obligation created by the order dated 12.07.2000 of the CLB
and must have reference to matters arising subsequent to the passing of the
order and not antecedent to it as has been held in Narain Vs. Rameshwar,
(6 CWN 796). It is reported
that the Bank has filed a suit against the Company before the Debt Recovery
Tribunal for recovery of the outstanding amount, admittedly after the order
dated 12.07.2000 of the CLB, in which case, the decision in Indian
Overseas Bank Vs. Essar Machine Works Limited cited supra is not
applicable to the facts of the present case, when especially the suit filed by
the creditor in the other matter is prior in time to the initiation of the
proceedings before the CLB.
9.
After taking into consideration the facts and circumstances of the
case, submissions made on behalf of the petitioner as well as the Company,
legal position explained here above and the fact that there is no stay against
the order of the CLB and also in the public interest, it is hereby ordered that
the Company shall comply with the order dated 12.07.2000 of the CLB by
28.02.2002 failing which, Shri A.M. Sridharan, Bench Officer is authorized to
execute and sign form 8 & 13 on behalf of the Company as prayed in the
application. This order is however,
subject to the order that may be passed in SRA No.1040/2002 by the Division
Bench of the High Court of Madras.
10.
With the above directions, the main application as well as the
application seeking adjournment made by the Company stand disposed of, without
any order as to cost.
(K.K. BALU)
Member
Dated this the 20th
day of February, 2002