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10/18/10

Judgement on section 403 of Companies Act - an example of corporate complications?

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED: 22.9.2010

THE HONOURABLE MR. JUSTICE K. VENKATARAMAN

Company Appeal No.21 of 2010 & M.P.No.1 of 2010

Dr. K. Balasundaram ….Appellant.

Vs.

Coromandel Engineering Company Ltd. & Others …..Respondents.

Appeal filed under Section 10F of the COMPANIES ACT, 1956 to set aside the order dated 12.7.2010 made in C.A.No.84 of 2010 in C.P.No.7 of 2009 passed by the Company Law Board, Chennai Bench.

For the Appellant : Aravind Dattar, S.C., for M/s. Durga Rao & Asso, Advocates.

For the Respondents: R1, P.S. Raman, S.C., for B. Giridhara Rao, R2, R3 & R5 to R7, Karthik Seshadri for M/s. Iyer & Thomas, Advocates.


Challenging the order dated 12.7.2010 made in Company Application No.84 of 2010 in Company Petition No.7 of 2009 of the Company Law Board, Chennai Bench and for setting aside the same, the present company appeal was filed.

2. The short facts leading to the filing of the appeal as put forth by the appellant, are set out here under:-

(a) The second respondent is a private company incorporated on 23.10.1980. Late G. Kandaswamy was the in-charge of the second respondent company and other group companies until his demise. The appellant could not involve in the day to day affairs of the second respondent company and other companies as he had to travel to United Kingdom often for his treatment. During the life time of the said G. Kandaswamy, respondents 3 and 5 have been actively involved in the day to day affairs of the company and running the same. The appellant is entitled to about 28.29% of the shares in the second respondent company pursuant to the demise of his father. After the demise of his father, respondents 3 and 5 were running the second respondent company as if it was their proprietary concern and the appellant was kept in isolation as regards the affairs of the company.

(b) The appellant was shocked to notice some construction being carried on in the land belonging to the company situated at Athipalayam Road, Chinnavedampatti Village, Coimbatore, which is of an extent of 10 acres. The enquiry done by the appellant revealed that the said 10 acres valuable property of the company was being jointly developed along with M/s. Coramandal Engineering Company Limited, the first respondent herein. On further enquiry, the appellant came to know that a fraudulent transaction took place by which, sale deed was executed in favour of respondents 6 and 7, who are the sons of the fifth respondent. The said sale has been challenged before the Company Law Board by the appellant. The sale was made for the value which was below the market value. The execution of the company seal of the seller was duly authorized by the resolution of the shareholders in the Extraordinary General Meeting of the company held on 21.11.2005 and duly authorized by the Board of Directors of the company on the same day.


(c) The second respondent company has created a charge by way of an equitable mortgage on another property of the company situated at Chinnavedampatti Village, Coimbatore of the total extent of 3.37 acres on 29.5.1998 in favour of Dena Bank, Coimbatore to secure the facilities sanctioned by the said Bank to M/s.Akkammal Steel Private Limited to an extent of Rs.277 lakh. M/s.Akkammal Steel Private Limited is a group of company and the respondents hold the entire shares and control in the said entity and as such, the mortgage is completely illegal and any payment to and for the benefit of M/s.Akkammal Steel Private Limited from and out of the funds of the second respondent company is nothing but an unjust enrichment to respondents 3 and 5. On the strength of the said mortgage, the Dena Bank has extended credit facilities upto Rs.747 lakh to M/s.Akkammal Steel Private Limited. The credit facilities would also show that the sale of 6.63 acres of land to respondents 6 and 7 for a meagre amount of Rs.51,00,000/- is illegal resulting huge loss to the second respondent company and loss to the appellant herein, who is a substantial shareholder in the company.

(d) The appellant had approached the Company Law Board under SECTION 397/398 of COMPANIES ACT, 1956 vide C.P.No.7 of 2009 seeking some reliefs. As the first respondent did not move forward with the project pursuant to the filing of the Company Petition No.7 of 2009, the appellant did not pursue the issue of getting an order of stay against the first respondent.

(e) The value of the property sold by the second respondent would be Rs.15 Crores as per the market value at the relevant point of time. The first respondent filed C.A.No.84 of 2010 for a direction from the Company Law Board that the first respondent is entitled to proceed with the terms of the Joint Development Agreement dated 23.5.2008. The said application was allowed by the Company Law Board of its order dated 12.7.2010 and the same is under challenge in the present appeal.

3. The following substantial questions of law are framed for consideration in this appeal:-

(i) Whether the Company Law Board passed an order in favour of a third party and against a Minority Shareholder approaching the Board under SECTION 397/398 of the COMPANIES ACT, 1956?

(ii) Whether the Company Law Board passed an interim order against the petitioner under SECTION 397/398 of the COMPANIES ACT, 1956 without looking at the prima facie case and the evidence adduced?

(iii) Whether the Company Law Board justified an order affecting the rights of the petitioner under SECTION 397/398 of the Company Act, 1956 on the sole ground that the company has other properties too?

(iv) Whether the Company Law Board passed an interim order which amounts to giving a determination on the main Company Petition itself in a proceeding under SECTION 397/398 of the COMPANIES ACT, 1956?

(v) Whether the Company Law Board confined its role to look at the alleged interests of the company alone when apparently larger public interest is involved by allowing the application through the impugned order?

4. I have heard Mr. Aravind Dattar, learned Senior Counsel for M/s.Durga Rao and Associates for the appellant, Mr. P.S. Raman, learned Senior Counsel, for Mr. B. Giridhara Rao, learned counsel for the first respondent and Mr. Karthik Seshadri, learned counsel for M/s. Iyer and Thomas, learned counsel for respondents 2 to 7.

5. The second respondent company is a private company incorporated on 23.10.1980. One G. Kandaswamy, the father of the appellant and respondents 3 and 5 were the major shareholders. The name of the shareholders and the number of shares held by them are set out here under:-

Name of the Shareholders

Number of share held

G.Kandasamy (HUF)

10705

K.Narayanaswamy

5480

K.Narayanaswamy

415

K.Balasundaram

5185

K.Venkatesh

5558

K.Lakshmiammal

3027

Master Sujay Senthil

625

Ranga Sai Chit Funds P.Ltd

5

G.K.Steels (Coimbatore) Ltd

4000

Total:

35000

6. After the death of the said G. Kandaswamy, the shares held by him devolved on his sons. The appellant approached the Company Law Board under SECTION 397/398 of the COMPANIES ACT, 1956 (herein after referred to as the Act) in C.P.No.7 of 2009 seeking the following reliefs:-

(a) for a declaration that the impugned sale of the land belonging to the company to an extent of 6.63 acres under the Deed of Indentures dated 9.12.2005, 20.12.2005 and sale deed dated 21.7.2007 to the 5th and 6th respondents are illegal, non-est and void in law.

(b) To set aside all MOUs, Power of Attorney, Agreements, etc. entered into by the respondents in relation to the sale and joint-development of land to an extent of 10 acres situated at G/F,Nos.23/1, 24/2, 25/2, G.S.No.23/2A and S/F No.22/1A, Chinnavedampatti Village, Coimbatore.

(c) For directing an investigation into the affairs of the first respondent company and surcharge the respondents to make good the loss caused to the first respondent company through their various acts of mismanagement.

(d) To appoint a management committee consisting of the petitioner and one person from the respondent’s group and direct that the company be managed by the Managing Committee.

(e) To remove the respondents 2 and 3 as Directors of the company and to declare that such persons are unfit to manage the company.

(f) To regulate the conduct of the affairs of the first respondent company in future.

(g) Grant such other reliefs and this Hon’ble Board may deem fit in the interest of justice and equity.

7. The grievance of the appellant is that out of 10 acres of the lands situated at Athipalayam Road, Chinnavedampatti Village, Coimbatore, 6.63 acres of lands were sold by respondents 3 and 5 in favour of respondents 5 and 7, who are none else than the sons of the fifth respondent. A Joint Development Agreement was entered into with the seventh respondent. Hence, the said company petition came to be filed before the Company Law Board.

8. In the said proceeding, the first respondent filed an application in C.A.No.84 of 2010 under Section 403 of the COMPANIES ACT read with Regulation 44 of the CLB Regulations, Chennai seeking permission to proceed in terms of the Joint Development Agreement dated 23.5.2008 entered into with the second respondent company. The said application came to be allowed by the Company Law Board, which made the appellant to approach this Court by filing the present appeal against the said order.

9. Learned Senior Counsel appearing for the appellant mainly contended that –

(i) maintainability of the said application filed by the first respondent herein was canvassed before the Company Law Board, but, however, no finding was given by the Company Law Board;

(ii) the application filed by the first respondent under Section 403 of the Act is not at all maintainable since Section 403 does not contemplate filing of such application;

(iii) the properties worth about several Crores have been sold to respondents 6 and 7, who are none else than the sons of the fifth respondent;

(iv) the Company Law Board has not considered whether a prima facie case was made out by the respondents and whether the balance of convenience is in favour of the first respondent while ordering the application filed by the first respondent;

(v) when the main company petition itself was posted for hearing, the Company Law Board ought not to have entertained the interim application filed at the instance of the first respondent.

10. On the other hand, it was contended on behalf of the respondents that –

(i) the entire action in selling the properties was necessitated since SARFAESI proceeding were initiated against the properties owned by the company. Hence, in order to preserve the properties and also for the benefit of the company, the properties in question have been sold to respondents 6 and 7;

(ii) the appeal filed against the interlocutory order passed by the Company Law Board is not maintainable.

(iii) The appellant has sought for interim injunction restraining the first respondent from proceeding further with the project or implementation of the Joint Development Agreement, but, however, no interim order has been granted in favour of the appellant by the Company Law Board. On the contrary, the Bench directed respondents 2 to 7 to furnish all particulars including receipts and payments in relation to the Joint Development Agreement and financial position of the company. While so, there cannot be any impediment to proceed with the project by the first respondent.

(iv) The overall value of the property in the hands of respondents 2, 6 and 7 will not be diluted on account of the Joint Development Agreement since 36% of the superstructure to be constructed will fall to the share of the owners and the owners will still be retaining 36% of the land. The interest of the appellant in the company could very well be safeguarded from out of the said share.

11. The first and foremost submission that was made on behalf of the appellant by the learned Senior counsel appearing for the appellant is that the application filed by the first respondent before the Company Law Board is not at all maintainable since Section 403 of the Act does not contemplate filing of such application. Before adverting to the said contention, it would be useful to extract Section 403 of the Act, which is extracted here under:-

“403. Interim order by Tribunal:- Pending the making by it of a final order under SECTION 397 or 398, as the case may be, the Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs, upon such terms and conditions as appear to it to be just and equitable.”

12. The above said provision makes it very clear that interim application could be filed pending final orders under SECTION 397/398 of the Act for regulating the conduct of the companies’ affairs. Admittedly, the first respondent has moved the application under Section 403 of the Act not for regulating the conduct of the affairs of the second respondent company. The first respondent had filed the said application seeking a direction to proceed with the Joint Development Agreement dated 23.5.2008. In the counter affidavit of the appellant, who is first respondent in the said application, it is clearly stated that “there is no provision under Section 403 of the Act which permits a respondent to apply for this type of relief. The powers are confined to regulating the affairs of the company…..” when such a plea was taken before the Company Law Board by the appellant herein, the Company Law Board has not dealt with the same in its order. That is why the learned Senior Counsel appearing for the appellant contended that though the said plea was taken by the appellant in its counter before the Company Law Board, the Company Law Board has not given any finding and the said order is liable to be set aside. I did see force in the said contention.

13. That apart, as rightly contended by the learned Senior Counsel appearing for the appellant, interim order could be passed by the Company Law Board only for regulating the conduct of the affairs of the company and nothing more. Since in the present case on hand, interim order was passed not for regulating the conduct of the affairs of the second respondent company, the same is not maintainable in view of Section 403 of the Act.

14.1. On merits of the matter, both the learned Senior Counsel appearing for the appellant as well as first respondent and the learned counsel appearing for respondents 2 to 7 have made their submissions. It is contended by the learned Senior Counsel appearing for the appellant that the properties worth about several Crores have been sold to respondents 6 and 7 by respondents 3 and 5, who are none else than the sons of the fifth respondent. On the other hand, it is contended on behalf of the respondents that the sale came to be effected because of the SARFAESI proceedings initiated by the Bank. In order to preserve the property, such action was taken. That apart, the properties have been sold not for a meagre amount, but, on the market value prevailing thereon. I am of the considered opinion that these matters have to be considered only by the Company Law Board when it takes up the matter for final disposal of the company petition initiated by the appellant. At this stage, there need be no finding regarding the same.

14.2. It is further contended on behalf of the appellant by the learned Senior Counsel appearing for the appellant that by sale of the assets to respondents 6 and 7, the company has lost several Crores. It is contended that the project involves construction of 10,61,976 sq.ft., and the owners would be getting 3,82,311 sq.ft. If the sale is made by the first respondent by proceeding with the project, even if it is sold at the rate of Rs.2,000/- per sq.ft., the value of the project would be around Rs.212 Crores. Out of this, the value of the share of the owners would be around Rs.76.46 Crores. Due to the sale of the lands to respondents 6 and 7, the share of the company would be approximately about Rs.25.48 Crores and respondents 6 and 7, because of the sale deed by the company, would be getting Rs.51 Crores. That apart, the first respondent seems to have parted with Rs.3.65 Crores for Joint Development Agreement, out of which Rs.2 Crores have gone to respondents 6 and 7 in view of the sale effected in their favour. These are the matters to be gone into at the time of final disposal of the matter before the Company Law Board. While so, the Company Law Board ought not to have allowed the application filed by the first respondent to proceed with the project. Further, when the appellant filed a counter affidavit putting forth these pleas, the Company Law Board should have considered the same before allowing the application filed by the first respondent.

14.3. It is further contended on behalf of the respondents that the appellant was not taking much interest over the affairs of the company and that the entire action in selling the properties was necessitated since SARFAESI proceedings are initiated against the properties owned by the company. This contention also requires a detailed consideration by the Company Law Board when it takes up the main matter initiated by the appellant.

15. The next contention that is required to be considered is, whether any safeguard has been made by the Company Law Board while granting the relief to the first respondent in its application as contended by respondents?

15.1. It is vehemently contended on behalf of the respondents that the overall value of the property in the hands of respondents 2, 6 and 7 will not be diluted on account of the Joint Development, but, on the contrary, it will only get enhanced since 36% of the superstructure to be constructed will fall to the share of the owners and the owners will still be retaining 36% of the land area. The petitioner’s interest could very well be safeguarded from out of this owners’ share. Thus, it is contended that the total value of the properties owned by the company would not be depleted, but would only get enhanced. That apart, any cash flow arising out of the Joint Development Agreement in the hands of the company will obviously accrue only to the benefit of the company.

15.2. I am not inclined to accept the said contention raised on the side of the respondents for the following reasons:-

(i) It is the case of the appellant that he is holding 20.29% of the shares of the company, but, however, it is contended by the respondents that the appellant is having only 14.81% paid up share capital. The shares of the appellant cannot be considered at this stage. But, however, when the appellant has questioned the sale of company assets to respondents 6 and 7 herein, viz., “to declare that the impugned sale of the land belonging to the company which is an extent of 6.63 acres made under the Deed Indentures dated 9.12.2005 and 20.12.2005 and sale deed dated 21.7.2007 to respondents 5 and 6 are illegal, non-est and void in law”, the first respondent cannot be allowed to proceed with the Joint Development Agreement. In the event of setting aside the sale in favour of respondents 6 and 7, the Joint Development Agreement entered with the first respondent will be non-est.

(ii) It is not for the first respondent to state that the appellant and the other respondents could work out their remedies out of 36% of the shares of the company over the constructed area.

(iii) As stated earlier, even assuming that the appellant can work out his remedy out of 36% shares of the company over the constructed area, in the event of setting aside the sale deed executed in favour of respondents 6 and 7, the prospective purchasers of the apartments from the respondents will be made to suffer. The first respondent is not going to proceed with the construction without collecting money from the prospective purchasers of the apartments. Thus, the public money will be involved in the project.

16. Yet another submission that was made on behalf of the respondents is that the Company Law Board refused to grant interim order restraining the first respondent to proceed with the implementation of the Joint Development Agreement. Hence, there cannot be any impediment to grant the relief that has been sought for by the first respondent to proceed with the project, when the first respondent wants the purchasers to have a clear title over the properties, in which it is going to put up a construction. Paragraphs 5 and part of paragraph 6 are re-produced here under:-

“5. The applicant begs to point out that the Hon’ble Bench has not restrained the further progress of the project of the implementation of the Joint Development Agreement even though such interim prayers have been sought for in the Company petition by the first respondent. On the contrary, this Bench directed respondents 2 to 7 to furnish all particulars including receipts and payments in relation to the Development Agreement and financial position of the company. The Bench has also subsequently noted that such details / particulars as directed by the Bench have been furnished by respondents 2 to 7.

6. It is submitted that given the fact that the applicant is a third party vis-à-vis the company and its promoters, and given the reputation that the applicant enjoys in the market, the applicant is different about proceeding with the project, even in the absence of any injunction order. The applicant who will be selling the constructed area with undivided share in the land and the purchasers have to be given clear title. In view of the above petition, the prospective purchasers cannot be given clear title. Hence, the applicant is approaching this Hon’ble Bench seeking direction by this Hon’ble Bench that the rights and remedies of the first respondent would be worked out from the share falling to the owners under the Joint Development Agreement.”

17. In the affidavit filed on behalf of respondents 2 and 3 in the company application, it is stated as follows:-

“At the outset it is submitted that there is no interim order passed by this Honourable Bench restraining alienation or further implementation of the Joint Development Agreement dated 23.7.2008. On the contrary, when injunction restraining alienation and further implementation of the Joint Development Agreement was pressed for by the first respondent in terms of his prayer in the company petition, this Honourable Bench did not grant such relief. On the contrary, vide order dated 30.1.2009, this Honourable Bench only directed these respondents to furnish all receipts and payment particulars relating to the Joint Development Agreement and complete particulars about the financial position of the second respondent company. In compliance with the order, all such particulars were furnished and the compliance of the order was duly recorded by the Honourable Bench at the subsequent hearing held on 20.2.2009. In the circumstances, it could be seen that the Honourable Bench was not convinced enough to grant any order impeding implementation of the Joint Development Agreement. In the circumstances and in the absence of any interim order, there is no impediment whatsoever in the applicant proceeding further with the Joint Development Agreement nor is there any difficulty in giving clear title to the prospective purchasers.”

18. When the first respondent was conscious of the fact that there is no interim order against it for proceeding with the project, it is not known why it has approached the Company Law Board seeking direction to proceed with the project. Perhaps, it seeks a seal of approval to proceed with the project. By getting a seal of approval from the Company Law Board, it wants to attract the purchasers on its project. The first respondent cannot be allowed to have a seal of approval for proceeding with the project especially when the main proceedings are pending before the Company Law Board.

19. That apart, the prayer sought for by the first respondent cannot be granted unless and until a full-fledged trial is carried out. The substantial issues raised in the company petition require a full-fledged enquiry into the affairs of the company and the conduct of the parties. It amounts to deciding the main issue without even commencing the enquiry and denying the relief that has been sought for by the appellant in his company petition. When the main petition itself was posted for hearing on 23.6.2010, the Company Law Board should not have passed an order in the application filed by the first respondent on 12.7.2010, which is few days before the date of hearing of main company petition.

20. Learned Senior Counsel appearing for the appellant contended that the appeal filed against the impugned order is maintainable even though the appeal is permissible only on the question of law, if the appellant is able to establish that the order of the Company Law Board is perverse and is based on no evidence. In this connection, he relied on the decision of the Hon’ble Apex Court reported in (2005) 1 Supreme Court Cases 212 – Dale & Carrington Invt. (P) Ltd., and another vs. P.K. Prathapan and others. Paragraph No.36 of the said judgment is re-produced here under:-

“36. Section 10-F refers to an appeal being filed on a question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and, therefore, the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for the appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter. As already stated, the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujam and whether the allotment of additional shares was an act or oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same.

In the given case on hand, as pointed by me earlier, even though the appellant has raised a plea that the application filed by the first respondent was not maintainable, the Company Law Board has not considered the said aspect. That apart, the appellant has raised several grounds for dismissing the claim made by the first respondent. However, the same was not considered by the Company Law Board. Hence, I am of the considered view that the decision cited by the learned Senior Counsel appearing for the appellant is squarely applicable to the case of the appellant and the appeal filed by the appellant is perfectly valid.

21. Learned counsel appearing for respondents 2 to 7 relied on the decision reported in (2008) 6 MLJ 1081 – Palanisamy and another vs. Milka Nutrients Private Limited, Erode and others and contended that the interim order made by the Company Law Board which had exercised its discretion, cannot be interfered with. Paragraph 8 on which emphasis has been made, is usefully extracted here under:-

“As per clause 41 of the Articles of Association, “subject to the direction and control of the Board of Directors, the general Management of the business of the company shall be carried on by the Managing Director. He shall by himself have absolute powers to operate the bank accounts of the company. Of course, hitherto the Managing Director and the Appellant were jointly operating the bank account as is seen from the cheques issued by the company. In the proposed BGM Resolution is sought to be passed in terms of clause 41 of the Articles of Association authorizing Managing Director to solely operate the bank accounts of the company and authorizing to sign cheques, instruments and necessary documents. Having regard to clause 41 of the Articles of Association, CLB has passed the order that any Resolution will not be implemented without leave of CLB, save in the matter of operation of the bank account by the Managing Director in the light of the authority envisaged in clause 41 of the Articles of Association. During the pendency of the company petition under SECTION 397 and 398, CLB has wide powers under Section 403 to make any interim order, which it thinks fit for regulating the conduct of the companies affairs, on such terms as appears to CLB as just and equitable. When CLB has passed the interim order for regulating the company affairs in the best manner, such discretionary order cannot be interfered with.”

That is the case where the appellant has sought for interim injunction restraining the Directors of the company from conducting and holding the proposed EGM of the company. While deciding the issue, this Court considering the aspect that during the pendency of the company petition, the Company Law Board has wide power under Section 403 of the COMPANIES ACT to make any interim order which it thinks fit for regulating the conduct of the companies affairs, on such terms as appears to Company Law Board as just and equitable. In those circumstances, it has been held by this Court that the discretion to order for regulating the company’s affairs in the best manner cannot be interfered with. Hence, the said judgment may not be useful to the case of the respondents.

22. Learned Senior Counsel appearing for respondents 2 to 7 contended that the appellant being a shareholder has no right over the assets of the company and hence, he cannot stop the first respondent from proceeding with the Joint Development Agreement. In this connection, he relied on the judgment reported in AIR 1955 Supreme Court 74 (1) – Mrs. Bacha F. Guzdar, Bombay vs. Commissioner of Income Tax, Bombay. Paragraph 9 of the said judgment is usefully extracted here under:-

“9. It was argued that the position of shareholders in a company is analogous to that of partners inter se. This analogy is wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinct from the shareholders. In Halsbury’s Laws of England, Vol. 6 (3rd Edn.), p. 234, the law regarding the attributes of shares is thus stated:

“A share is a right to a specified amount of the share capital of a company carrying with it certain rights and liabilities while the company is a going concern and in its winding up. The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles, and are not of the nature of real estate.”

Even assuming that the appellant has no right over the assets of the company being a shareholder, he can very well question the sale made by the Directors of the Company if he is able to establish that the sale is detrimental to the company and its shareholders. Hence, the contention of the learned counsel appearing for respondents 2 to 7 that the appellant being a shareholder, has no right over the affairs of the company and he cannot question the Joint Development Agreement entered into with the first respondent and cannot prevent the first respondent from proceeding with the construction as per the Joint Development Agreement cannot be accepted.

23. In view of the above facts and circumstances, I am of the considered view that the impugned order dated 12.7.2010 made in Company Application No.84 of 2010 in Company Petition No.7 of 2009 passed by the Company Law Board is liable to be set aside and accordingly set aside.

24. In fine, the company appeal stands allowed. The Company Law Board is directed to hear the main company petition in C.P.No.7 of 2009 and pass appropriate orders as expeditiously as possible, however, within two months from the date of receipt of a copy of this order. No order as to costs. Consequently, connected miscellaneous petition is closed.

Note: the judgment exposes the complications in a proceeding under section 397/398 of the Companies Act, 1956. The judgment is provided only with academic interest though it is published by other journals and the above extract can not be used for any purpose except for reading and academic purpose.

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