ORDER
K.K. Balu, Member
1. This is an application filed by M/s. Jindal Praxair Oxygen Company Private Limited (“the Company”) under Section 167 of the Companies Act, 1956 (“the Act”) read with Regulation 44 of the Company Law Board Regulations, 1991 (“the Regulations”) seeking directions for stay of the proceedings initiated by M/s. Jindal Vijayanagar Steel Limited (JVSL) under Section 224(3) of the Act before the third respondent for the appointment of auditor of the Company by the Central Government, pending disposal of the application (C.A.70/2004) filed on 29.09.2004 under Section 167 of the Act by M/s. Praxair Pacific Limited (PPL) for directing the Company, inter alia, to call for a general meeting for the purpose of appointing its statutory auditor and give suitable ancillary or consequential directions in relation to the calling, holding and conducting of the meeting.
2. The facts in brief leading to the present application are that the Company is a joint venture company, incorporated pursuant to a Shareholders Agreement dated 30.06.1995, entered into between PPL and JVSL, with the present shareholding at the ratio of 74% and 26% respectively. At the 8th annual general meeting held on 20.12.2003, every item of the business was duly transacted by the shareholders save the re-appointment of M/s. Price Waterhouse & Co., as the statutory auditor, who has been the statutory auditor of the Company, for the past 8 years in terms of the SHA dated 30.06.1995, on account of the differences between them, which resulted in adjournment of the annual general meeting on several occasions for the sole and specific purpose of completing the business of appointment of the statutory auditor. However, at the adjourned annual general meetings, the statutory auditor could not be appointed for want of a quorum on account of JVSL purportedly staying away from the said meetings. In view of the irreconcilable differences between the shareholders on the re-appointment of M/s. Price Waterhouse & Co., JVSL filed an application on 18.08.2004 before the third respondent under Section 224(3) for the appointment of any other statutory auditor by the Central Government. Any order, which may be passed by the third respondent under Section 224 (3), according to the Company, would render the proceedings under Section 167 infructuous. Hence the present application.
3. Shri Arvind P. Datar, learned Senior Counsel, appearing for PPL and supported by Shri S. Saravanan, learned Counsel for the Company urged for appropriate directions staying the proceedings under Section 224(3) before the third respondent on the following among other grounds:
* The authority of the third respondent in terms of Section 224 (3) would arise only when there is no auditor appointed and the annual general meeting is concluded without such appointment. In the present case, the 8th annual general meeting has only been adjourned for want of a quorum and is yet to be concluded. The application under Section 224(3) is grossly premature and amounts to abuse of the process.
* The proceedings before the third respondent would amount to judicial impropriety, in view of the pendency of the proceedings before the CLB. Despite the Company’s stand that the third respondent does not have jurisdiction in the matter in view of the fact that the proceedings of the 8th annual general meeting are not yet concluded, the latter showed undue haste and proceeded with hearing of the application under Section 224(3), without affording any opportunity to the Company to file its further objections on the merits of the matter.
* The prayer for stay of the proceedings under Section 24(3) is incidental and necessary for hearing of the application under Section 167, denial of which would frustrate the CLB proceedings. Any order under Section 224(3) would result in a serious intrusion on the rights of PPL, in its entitlement to participate in the annual general meeting and to appoint the Company’s statutory auditor, denying the applicant to reap the fruits of the litigation.
*The application under Section 224(3) must be made by the Company and JVSL has no locus standi to file any such application with the third respondent, who cannot act in terms of Section 224(3), during the pendency of the proceedings before the CLB having wider powers and cannot usurp the power of the CLB. The CLB, in exercise of the inherent power under Regulation 44, which is analogous to the provisions of Section 151 of the Code of Civil Procedure, 1908 is empowered to stay the proceedings under Section 224(3).
* JVSL further gave a special notice for moving a resolution in terms of Section 225 of the Act to appoint another auditor in the place of M/s. Price Waterhouse & Co, which is pending, in which case JVSL cannot invoke the provisions of Section 224(3).
* The counter affidavit filed on behalf of the third respondent has been signed by the Joint Director whose authority is not known and must be ignored.
* While claiming that the power under Section 167 cannot be extended to include stay of any proceedings before the third respondent exercising the power under the Act, JVSL is in a hurry-to file a caveat before the High Court of Karnataka, anticipating any action by PPL against the order which may be passed by the third respondent.
* The subject matter and parties before the CLB and the third respondent are the same and the extraordinary facts and circumstances of the present case warrant the immediate interference by the CLB.
* In the event of the proceedings under Section 224(3) are not being stayed, Shri Datar, learned senior Counsel, sought for a short time to obtain appropriate relief before the High Court of Karnataka.
Shri Datar, learned Senior Counsel, in support of his legal submissions relied upon following decisions:
Income Tax Officer, Cannanore v. M.K. Mohammed Kunhi – AIR 1969 SC 430- to show that the Income Tax Appellate Tribunal, in exercise of the inherent power is empowered to stay the proceedings relating to the recovery of penalty or tax due from an assessee, even if the powers have not been expressly conferred upon the Appellate Tribunal, where it is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal. This is on account of the principle that the successful party is to reap the fruits of the litigation and not obtain merely a barren success.
Shree Cement Ltd. v. Power Grid Corporation Ltd. – 1998 Vol. 93 CC 854- to show that the inherent powers have their roots in necessity and it is co-extensive with the necessity. The CLB must exercise the inherent power to avoid abuse of the process of the Court and also where non-exercise of such power may result in failure of justice.
New India Assurance Co. Ltd. v. R. Srinivasan – AIR 2000 SC 941- to show that every procedure is to be understood as permissible till it is shown to be prohibited by the law. In the present case the CLB is not prohibited from restraining the third respondent from proceeding with application filed by JVSL under Section 224(3) and therefore the CLB is with in its authority to pass any appropriate order.
Union of India v. Paras Laminate (P) Ltd. – AIR 1991 SC 696- to show that a Tribunal constituted under Section 129 of the Customs Act, 1962 functions as a court within the limits of its jurisdiction and has all those incidental and ancillary powers which are necessary to make fully effective the express grant of statutory powers.
4. Shri C. Harikrishnan, learned Counsel appearing for JVSL vehemently opposed the application on the following grounds:
The CLB must exercise the powers under Section 167 and Regulation 44, in order to meet the ends of justice and to prevent abuse of the process of this Bench. Any exercise of the inherent jurisdiction must be made for exercise of the powers permitted under law. If under law, no powers could be exercised, the CLB cannot invoke Regulation 44, exercising the inherent power. In the present case the CLB by virtue of Section 167 is empowered to call or direct the calling of a meeting of the members and to give such ancillary or consequential directions, which are expedient in relation to the calling, holding and conducting of the meeting. Any interim relief must be confined to the reliefs sought for in the main petition. This power of the CLB cannot be extended to include stay of any proceedings before a quasi-judicial or statutory authority. The third respondent is exercising its jurisdiction under Section 224 (3). The CLB a statutory Tribunal constituted under Section 10E does not have writ or appellate jurisdiction over the third respondent, a statutory authority exercising powers under the provisions of the Act, in which case the CLB cannot exercise the inherent power under Regulation 44, prohibiting such authority from validly exercising its statutory functions under Section 224(3). Any such interference would amount to abuse of the process of a statutory authority. The applicant is at liberty to challenge any order, which may be passed by the third respondent in a competent court of law.
The third respondent is not a party to the application made by PPL before the CLB under Section 167. The application made before the third respondent under Section 224(3) is an independent one and cannot be linked to the application made under Section 167, more so when the reliefs claimed in the respective applications are different and the application made under Section 224 (3) is prior in time. Hence, no order can be passed by the CLB restraining the third respondent from exercising its jurisdiction under Section 224(3).
The Supreme Court in Income Tax Officer v. M.K. Mohammed Kunhi, (supra) upheld the inherent power of the Income Tax Appellate Tribunal in view of the fact that the Tribunal, being an appellate authority was having jurisdiction to hear the appeal against the assessment order. In the present case, the CLB has no jurisdiction to deal with the matter, which is vested in the third respondent under Section 224(3), in exercise of the inherent power under Regulation 44 and the interim order of this Bench may be vacated.
5. Shri M.T. Arunan, learned Central Government standing Counsel contended that the powers vested in Sub-section (3) of Section 224 with the Central Government are delegated in favour of the third respondent under Section 637 of the Act. The statutory power of the third respondent under Section 224(3) would come under the writ jurisdiction, which cannot be exercised by the CLB. The third respondent has not usurped the power of the CLB but duly exercised his power under Section 224(3). He further pointed out that hearing of the application beyond the office hours can in no way be questioned. Sections 167 and 224(3) are independent provisions, exercisable by the different authorities. The CLB having no jurisdiction under Section 224(3) cannot prohibit the third respondent from exercising its statutory authority under Section 224(3). The applicant by obtaining an order of stay of the proceedings of the third respondent is abusing the process of law and the order of status quo must immediately be vacated.
6. Shri S. Saravanan, learned counsel appearing for the applicant submitted that it is only the Company, which can approach the third respondent invoking the provisions of Section 224(3) in case the annual general meeting has been concluded. In the present case, the 8th annual general meeting remains inconclusive and the application before the third respondent has been filed not by the Company but by JVSL and, therefore, the application before the third respondent is not maintainable.
7. After considering the pleadings and arguments of learned senior Counsel, the short question that arises for my consideration is whether the CLB in exercise of the inherent power shall stay the proceedings under Section 224(3) pending before the third respondent, in the facts and circumstances of the present case, before which, I think it fit that the relevant material provisions of the Act and Regulation 44 must be borne in view. By virtue, of Section 10E(1A), the Company Law Board shall exercise and discharge such powers and functions as may be conferred on it, by or under this Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under this Act or any other law as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law and shall be guided by the principles of natural justice and must act in its discretion and regulate its own procedure as envisaged in Sub-section (5) & (6) of Section 10E.
Section 167 provides that in case of default in holding an annual general meeting, as required by Section 166, the CLB may exercise the power to call or direct the calling of the annual general meeting on the application of any member of the Company and give such ancillary or consequential directions as the CLB thinks expedient in relation to the calling, holding and conducting of the meeting.
Section 224(3) stipulates that where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy.
A perusal of the relevant provisions of the Act shows that the CLB is empowered to exercise and discharge such powers and functions which are conferred under the Act or any other law. By virtue of Section 167, the CLB is clothed with the power of directing the calling of the annual general meeting as specified therein, which shall include the requisite ancillary or consequential directions in relation to the calling, holding and conducting of the meeting. Section 224 (3) authorizes the Central Government to appoint auditors in the event of non appointment or re-appointment of auditors at the annual general meeting, towards which the application has to be made to the Regional Director to whom the powers of the Central Government under Sub-section (3), (4), (8) (a) of Section 224 have been delegated. The power of appointment of auditors is under the exclusive domain of the Regional Director, who is arrayed as the third respondent in the present proceedings. It shall now be examined whether the CLB in exercise of the inherent power under Regulation 44 is empowered to give ancillary or consequential directions as envisaged in Section 167 to stay the proceedings under Section 224(3), now pending with the third respondent. Regulation 44 provides that “Noting in these rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench”. It is clear that the CLB has the inherent power to pass such orders as may be necessary to meet to ends of justice and to prevent abuse of the process of the CLB. Nevertheless, the CLB shall be guided by the principles of natural justice and act in its discretion in terms of Sub-section (5) of Section 10E of the Act and further according to the rules of reason, justice and law, without any violation of the provisions of the Act and the discretion has to be regulated according to the known rules of law, in support of which reference is invited to the decision of this Board in Cannanore Whole Body Scan v. Saibunnisa – (1998) Vol. 93 CC 99, the relevant portion of which is reproduced here below:
“…by virtue of Regulation 44 of the Company Law Board Regulations, 1991, this Bench has inherent powers to pass such orders as may be necessary to meet the ends of justice. It is also true that this Bench while exercising its powers under the Act, shall be guided by the principles of natural justice and shall act in its discretion as enunciated in Sub-section (5) of Section 10E of the Act. At the same time, this Bench shall necessarily act according to the rules of reason, justice and law. There cannot be any violation of the provisions of the Act. The discretion has to be regulated according to the known rules of law. There are innumerable decisions to the above effect”.
Furthermore, the Supreme Court in Cotton Corporation of India v. United Industrial Bank Ltd., – (1983) 4 SCC 625 held that the inherent power of the Civil Court under Section 151 of the Civil Procedure Code 1908 must be exercised subject to statutory provision. This shall equally apply to the CLB while exercising the inherent power under Regulation 44. The power to appoint auditors under Section 224(3) is delegated by the Central Government by virtue of Section 637 in favour of the Regional Director. The exercise of inherent power by the CLB under Regulation 44 shall not be in violation of this statutory provision of Section 224(3). The exercise of inherent powers is circumscribed by various restrictions and conditionalities, which are enumerated in Shree Cement Ltd. v. Power Grid Corporation Ltd. (Supra). They are:
(i) The power cannot be invoked if there is an alternative remedy available;
(ii) If the order can be appealed against, the inherent power cannot be resorted to;
(iii) The power cannot be invoked, if it would conflict with any specific provision of law which prohibits such a remedy;
(iv) Non-exercise of the inherent power may result in abuse of the process of the Court; and
(v) Non-exercise of the power may result in failure of justice.
In the present case the applicant, if aggrieved, is entitled to challenge the order of the third respondent in a manner known to law and thus the applicant has an alternative remedy. Furthermore, the exercise of inherent power would be in conflict with the provision of Section 224 (3). The plea of Shri Datar, learned Senior Counsel that non-exercise of the inherent power may result in abuse of the process of the CLB and may ultimately result in failure of justice does not hold good especially when the CLB while exercising the inherent power “cannot go against any statutory prescription”, by interfering with the statutory function of the third respondent in violation of the provisions of Section 224(3). The decision in Income Tax Officer, Cannanore v. M.K. Mohammed Kunhi, in my view, would not lend any support to the applicant in view of the fact that the Income Tax Appellate Tribunal exercised the appellate jurisdiction while staying the recovery proceedings during the pendency of the appeal. Whereas, in the present case the CLB has no jurisdiction in the matter of Section 224(3) in which case no consequential directions in pursuance of Section 167 would arise so as to stay the proceedings under Section 224(3), in exercise of the inhernet power of the CLB. Similarly, the CLB shall function within the limits of its jurisdiction and has all the powers conferred expressly by the statue as in the case of a Tribunal constituted under the Customs Act 1962 and held by the apex court in Union of India v. Paras Laminates (P) Ltd. (Supra). Merely, because there is no enabling provision prohibiting the CLB from staying the proceedings before the third respondent as urged by Shri Datar learned Senior Counsel, relying upon the decision in New India Assurance Co. Ltd. v. R. Srinivasan (Supra), the CLB cannot exercise the inherent power in violation of provisions of the Act. The Madras High Court in PPN Power Generating Company Limited v. PPN (Mauritius) Company (order dated 08.10.2004 in C.M.A.N.P.D. (B) No. 2101 of 2004), while dealing, inter alia, with the question of the CLB having any inherent power, on an analysis of a plethora of decisions including the decision in Income Tax Officer, Cannanore v. M.S. Mohammed Kunhi cited supra came to the following conclusion: –
“From the above said decisions, though it is held that even in the absence of any specific provision, the Courts are having inherent power to grant injunction and such inherent power has been conferred upon the court by virtue of its duty to do justice. We need not go into the said aspect in this case, as Regulation No. 44 and Section 402 of the Companies Act contemplate such power on the CLB. So there cannot be any difficulty in accepting the proposition that the CLB is having such inherent power to grant injunction in a given case if it has jurisdiction to deal with the same.”
It is, therefore, beyond doubt that the CLB’s inherent power under Regulation 44 to grant injunction is subject to its jurisdiction to deal with the matter in dispute, notwithstanding the facts that the proceedings of Section 167 will be rendered nugatory and that the applicant may be left with a barren success in the proceedings before the CLB. There is no need for me to consider whether the application made under Section 224(3) is premature or whether the application has been made by the proper party under Section 224(3). These issues are entirely left to the authority vested in the third respondent under Section 224(3) and shall not be interfered in the present proceedings. Accordingly, the application is dismissed.