SUBHASH MOHAN DEV Vs. SANTOSH MOHAN DEV

JUDGEMENT

(1.) This appeal is directed against the two orders passed by the Company Law Board in Company Petition No. 52/98 U/s 397/398 of the Companies Act which has arisen in the following circumstances.

(2.) Crozier's Agency Private Limited, proforma respondent No. 6, is a Company belonging to one family consisting of three brothers each with shareholding in the proportion of one third. Two of the brothers, who are respondents in this proceeding, brought an action before the Company Law Board (hereinafter referred to as the CLB) alleging inter alia that the shareholding position has altered by issue of additional shares in favour of the appellant group and that one of the respondents was removed from the office of the Director. Considering all the aspect of the matter the CLB suggested the parties for resolving the dispute amicably. The CLB accordingly passed an order on 16.12.98 suggesting for restoration of parity in the shareholding and ordering one of the petitioners to continue in the Board of Directors alongwith the independent nominee of the CLB. The CLB also appointed M/s Batliboi & Co. of M/s. Price Waterhouse to verify the accounts of the Company and to ascertain the amounts invested by the appellant into the Company. It was further ordered that on completion of the audit and on restoring the parity in the shareholding in the original level the parties should discuss the method of settlement of the entire family properties including the company. The CLB with the consent of the parties passed a consent order and disposed the petition accordingly vide order dated 25th May, 1999. The appellant thereafter submitted an application seeking for recalling of the consent order that was passed on 25th May, 99 before the CLB, which was numbered as Company Petition No. 52/98, alleging inter alia that because of the obdurate conduct of one of the respondents the order of the Board became unworkable. The CLB after hearing the parties and considering the respective claims of the parties and on evaluation of facts turned down the application vide order dated 22.7.99 and reached the following conclusion:- "8. It is an admitted position as revealed from the various orders that we have issued, that both the parties expressed their desire, more particularly the 2nd respondent, to resolve the disputes amicably. The liberty granted to the parties to apply in case of any difficulties in working out the consent order was only with a view to assist the parties in case of any difficulty faced by them in implementing the said order. This liberty cannot extend to pray for recalling of the consent order. Once a consent order is passed, as pointed out by Shri Kapur, cannot be recalled unless and otherwise all the parties agree. As pointed out by him, tne petitioners have discharged their obligations under the consent terms by bringing necessary funds to the company to pay of the 2nd respondent and after which other terms in that order like issue of shares to the petitioners holding of an EOGM and amending the Articles have also been completed. It is a well settled law that once parties have entered into terms of consent and obtained an order incorporating the consent terms, then, such an order becomes binding on the parties unless and otherwise the same is assailed on the grounds of fraud, coercion, mistake or fraudulent misrepresentation or being illegal or being against the provisions of law or other similar grounds which would invalidate a private agreement. In the present case, the respondents do not question the validity of the terms of consent but they are seeking recalling of the order only on the grounds of subsequent conduct of the 3rd petitioner that after the consent order was passed, the 3rd petitioner has acted against the interest of the 2nd respondent, by writing a letter to the bank and taking away the letter heads etc. While we feel that the 3rd petitioner had not acted in any way prejudicial to the interest of the respondents/ company in writing a letter to the bank to honour only those cheques jointly signed both by himself and the 2nd respondent, we also feel that the 2nd petitioner need not have taken possession of letter heads etc without the consent of the 2nd respondent. We feel that the 3rd petitioner should have had the mandate of the interim Board before taking any action in furtberance to the consent order. The same way we also feel that the 2nd respondent has also over acted by lodging a police complaint as well as bv filing a criminal case against the 3rd petitioner. The real outcome of the consent order is the restoration of the status quo ante before the disputes started and has not brought about any new relationship between the parties. As a matter of fact, this order provides safeguards against possible allegations of oppression by providing for right issue of further shares and for proportional representation on the Board. There is nothing in the consent terms governing the subsequent conduct of the parties nor the respondents have alleged that the petitioners have acted against the terms of the consent. Therefore, we do not find any justification to recall the consent order and as such we dismiss CA 153 of 1999." Hence the appeal challenging the legality and validity of the orders dated 25.5.99 and 11.8.99.

(3.) Mr R. Gogoi, learned Sr Counsel appearing on behalf of the appellant questioned the legitimacy of the consent order dated 25.5.99 and submitted that the impugned consent order is prejudicial to the interest of the Company. Mr Gogoi, learned Sr. Counsel more specifically referred to the resolution of the Board of Directors seeking to liquidate the loan of Rs.54,66,700/- alongwith interest thereon from the equity capital. The learned counsel submitted that if the unsecured amount of Rs.54,66,700/- together with interest is repaid to M/s S.M. Dey & Associates from the capital of the Company it will effect the credibility and interest of the Company which may in turn comped the Banker of the Company to recall the loan amount advanced to the Company for the hotel project. The learned counsel submitted that the CLB refusing to recall the order fell into serious error which effected the ultimate decision of the CLB.