Facts leading to section 403 dispute
Dr. K. Balasundaram filed 397/398 petition against Coromandel Engineering Company Ltd alleging oppression. His grievance was sale of 6.63 acres of company land to respondents 6 and 7, sons of 5th respondent, at below market value, and Joint Development Agreement with Coromandel Engineering Ltd. While main CP No.7 of 2009 was pending, first respondent filed C.A.No.84 of 2010 under section 403 read with CLB Regulation 44 seeking permission to proceed with JDA dated 23.5.2008. CLB allowed it on 12.7.2010. Appellant challenged before Madras HC under section 10F. Main issues were sale to relatives, mortgage to Dena Bank, and whether interim relief could be given to third party.
Scope of section 403 explained by madras hc
Section 403 says: "Pending final order under 397 or 398, Tribunal may on application of any party make any interim order which it thinks fit for regulating conduct of company's affairs". Madras HC Justice K. Venkataraman held this is key. Interim order can be only for regulating conduct of company’s affairs. In present case, first respondent was not asking to regulate affairs. It wanted direction to proceed with JDA. That is not covered by section 403. CLB failed to deal with this maintainability objection raised in counter. Therefore order was bad. Court said power under 403 is limited and cannot be used to give seal of approval to third party.
Why clb order was set aside
HC found several problems. First, application was by third party seeking to proceed with JDA, not for regulating company. Second, main petition was posted for hearing on 23.6.2010 but CLB passed order on 12.7.2010, effectively deciding main issue without trial. Third, sale to 6 and 7 was under challenge as illegal. If sale is set aside, JDA becomes non-est. Allowing JDA to proceed would involve public money from prospective buyers and cause prejudice. Fourth, CLB did not consider prima facie case or balance of convenience. Relying on Dale & Carrington 2005 SC, HC said perverse finding based on no evidence can be interfered even in section 10F appeal. Therefore impugned order was set aside and CLB directed to decide main CP within 2 months.
Corporate complications shown in this case
This judgment is classic example of corporate complications. Family dispute after death of Kandaswamy. Allegation of siphoning property to sons. Mortgage of company property for group company debt. SARFAESI proceedings used as reason for sale. Third party developer wants to proceed despite pending 397/398. CLB tried to balance but overstepped section 403. Shareholder holding 28.29% was kept in dark. Valuation dispute: land worth 15 Cr sold for 51 lakhs. Project value claimed at 212 Cr. All these show how 397/398 petitions become messy with property, bank, third party and public interest. HC reminded that interim orders must protect company, not facilitate transaction under challenge.
Conclusion
Section 403 companies act 1956 interim order is only for regulating company affairs pending 397/398. It cannot be used by third party to proceed with contract when title itself is under challenge. Madras HC 2010 in Balasundaram case clarifies limits of CLB power and warns against passing interim orders that decide main petition. Corporate disputes need careful handling to avoid prejudice to minority and public.
