Background of balasundaram vs coromandel case
Second respondent company incorporated 1980. After death of G. Kandaswamy, dispute arose between his sons. Appellant Balasundaram holds around 28% shares. He filed 397/398 petition alleging sale of 10 acre land, 6.63 acres sold to sons of 5th respondent at low price, and JDA with first respondent. He sought declaration of sale as void, investigation, and management committee. While petition pending, first respondent filed section 403 application to proceed with JDA. CLB allowed it. HC framed 5 questions of law on whether CLB can pass order favoring third party and whether it amounted to deciding main petition.
Section 403 does not permit third party relief
Court extracted section 403 and held interim order must be for regulating conduct of company's affairs. First respondent’s prayer was to proceed with JDA. That is not regulation of affairs. Appellant raised this in counter but CLB gave no finding. HC said that itself makes order liable to be set aside. Section 403 cannot be used to get approval for transaction when ownership of property is under challenge in main petition. If sale to 6 and 7 is set aside, JDA automatically fails. Hence allowing JDA at interim stage is premature.
Interim order cannot decide main petition
HC noted main CP was listed for hearing. Passing order on JDA few days before hearing amounts to deciding main issue without evidence. Court referred to Dale & Carrington 2005 SC: even in appeal on question of law, perverse finding with no evidence can be set aside. Here CLB ignored maintainability and merits. Further, if JDA proceeds, purchasers will pay money and get involved. If sale is later set aside, they will suffer. Public interest is also involved. Therefore interim relief to third party was improper.
Shareholder right to challenge even without asset ownership
Respondents argued shareholder has no right over company assets, citing Bacha F. Guzdar 1955 SC. HC did not accept this blindly. It said shareholder can question sale if detrimental to company. Just because shares are personal property does not mean director can sell assets to relatives at undervalue. Purpose of 397/398 is to check such acts. Court also distinguished Palanisamy case where CLB regulated bank operation under Articles. That was proper use of 403. Here it was not.
Conclusion
Madras hc section 403 clb interim order 2010 makes it clear that CLB power is limited to regulating affairs, not approving disputed transactions. Allowing third party to proceed during 397/398 petition creates complications and prejudices minority. Corporate disputes involving property, family and developers must be decided finally before any interim permission. HC set aside order and directed early disposal of main petition. This case is warning that section 403 should not become tool to bypass 397/398 scrutiny.
