GHARIB RAM SHARMA Vs. DAULAT RAM KASHYAP

JUDGEMENT

(1.) THIS company appeal has been filed under Section 10F of the Companies Act, 1956 (for short, 'the Act'), with a prayer to quash the order dated July 30, 1993, passed by the Company Law Board in Company Petition No. 6 of 1993, Gharib Ram Sharma v. Danlat Ram Kashyap.

(2.) RESPONDENT No. 3 is a private limited company incorporated with the object to carry on business as manufacturers, exporters, importers and dealers in plywood, hardwood, veneer, blocks of flooring and various other purposes. The authorised capital of the company is Rs. 4 lakhs only divided into 4,000 equity shares of Rs. 100 each. These shares are divided into two groups, one led by respondent No. 2 and the other led by respondent No. 1. Respondents Nos. 1 and 2 were the first two directors of the company and this position continued till May 7, 1991. On May 7, 1991, respondent No. 2 ceased to be a director because he absented himself from three consecutive meetings of the board of directors held on December 15, 1990, February 28, 1991, and April 10, 1991. On May 7, 1991, the appellant was taken as a director on the board of directors of the company. After the appellant took over as one of the directors of respondent No. 3, a number of developments have taken place. A criminal case has also been instituted between the parties. According to the appellant, respondent No. 1 took steps for revival of the unit, and since the company has been making steady progress, respondent No. 2, who had gone out of the picture, filed a petition under Sections 397 and 398 of the Act against respondents Nos. 1 and 5 alleging mismanagement and oppression. The appellant has not been impleaded as a party in the said petition even though he has been described as a stranger in the petition filed by respondent No. 2. In the reply filed by respondent No. 1, it came to be alleged that the appellant has been inducted as director of the company. A rejoinder came to be filed by respondent No. 2 before the Company Law Board. But he did not take any step to implead the appellant as a party before the Company Law Board. Final arguments were heard by the Company Law Board even in the absence of the appellant and after hearing the final arguments, the Company Law Board passed the impugned order dated July 30, 1993, directing that the petitioner, O.S. Dhawan (respondent No. 2 in the appeal), and Daulat Ram Kashyap (respondent No. 1 in the appeal), who are only directors of the company will jointly manage the business and no transaction, including sale or purchase of any raw material or finished product disposal of the assets of the company and any other matter arising out of the ordinary course of business can be conducted unless it is approved by both the directors.

(3.) SHRI C.K. Garg, learned counsel for the appellant, has argued that once the appellant has been lawfully inducted as a director of the company, no order could be made by the Company Law Board affecting the business of the company without a notice to the appellant. Shri Garg argued that the Company Law Board had no authority to pass an order in the nature of one passed on July 30, 1993. Shri Garg drew the attention of the court to the provisions of Section 10 of the Act and submitted that Section 10E of the Act contains a statutory adoption of the principles of natural justice and this provision has been breached by the Company Law Board.