BIRLA EDUCATION TRUST AND ORS. V. BIRLA CORPORATION AND ORS.

Citation: A.C.O. No. 136 of 2013, A.P.O. No. 216 of 2013 and C.P. No. 1 of 2010

Coram: J. Bhattacharya, J.

Type of case: Company Law Board, Ongoing.

INTRODUCTION

Company Law (also called Corporate Law in some countries) is the collection of various
legal aspects that govern the formation, running and dissolution of a Company (or
Corporation). The Company Law is a Central subject in some countries and a State subject in
others.

A company is a distinct entity separate from the owners of the company where management
and ownership is separated by a thin line of roles and responsibilities bestowed upon
themselves.

In a broad sense it is a group of persons who have come together or who have contributed
money for some common purpose and have incorporated themselves into distinct legal entity.
The whole scheme of the Companies Act, is to ensure proper conduct of the affairs of the
company in public interest and preservation of image of country in public interest.

“Like any juristic person, a company is legally an entity apart from its members, capable of
rights and duties of its own, and endowed with the potential of perpetual succession.” The
fundamental attribute of corporate personality from which indeed all the other consequences
flow is that the corporation is a legal entity distinct from its members.

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ABOUT THE TOPIC

Chapter XVI of the Companies Act, 2013 deals with the provisions relating to prevention of
oppression and mismanagement of a company. Oppression and mismanagement of a
company mean that the affairs of the company are being conducted in a manner that is
oppressive and biased towards the minority shareholders or any member or members of the
company. To prevent the same, there are provisions for the prevention and mismanagement
of a company.

The word oppression in common parlance refers to a situation or an act or instance of

oppressing or subjecting to cruel or unjust impositions or restraints.

The term mismanagement refers to the process or practice of managing ineptly,

incompetently, or dishonestly.

However it is to be noted that the terms are not defined under the companies act and is left to
the discretion of the court to decide on the facts of the case whether there is oppression or
mismanagement of minority or not.

It is to be noted that this section can be invoked whenever there is oppression of the minority
or there is mismanagement of the affairs of a company which is prejudicial to the public
interest or to the interest of the company and its members.

Thus, where a director is oppressed he does not have remedy under this section unless he is
also a shareholder of the company. This section also specifies the circumstances in which an
application may be made to the Tribunal by a member of a company or by the central
Government for relief in cases of oppression and mismanagement.

The meaning of ‘Interlocutory application is given in the Rule 2 (j) of A.P. Civil Rules of
Practice and Circular Orders, 1980. It reads: ‘Interlocutory application’ means an application
to the court in any suit, appeal or proceeding already instituted in such court, other than a
proceeding for execution of a decree or order.

There is no specific definition in Civil Procedure Code,1908 to this phrase ‘ Interlocutory

application’. Rules 53 to 60 deal with Interlocutory Proceedings. Further, the word
“application” is defined in Rule 2 (c) that includes execution application, execution petition
and interlocutory application, both written and oral.

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A comprehensive reading of the definition as above would unveil that interlocutory
application is one species of a broader term of ‘application’, but the execution application is
not an interlocutory application. For the purpose of applications in the execution, the
definitions are given in the Civil Rules of Practice.

They read:

Rule 2(e) “Execution Petition” means a petition to the court for the execution of any decree
or order;

Rule 2(f) “Execution Application” means an application to the court made in a pending
execution petition, and includes an application of transfer, of a decree.
These definitions would denote that the term “interlocutory application” will be generally
used in Suits and proceedings similar to suits. The other relevant provision in the Civil
Procedure Code relating to the interlocutory applications is Section 141 CPC.

Further, Sec. 141 is also relevant in this context. It says about ‘Miscellaneous proceedings’.
The procedure provided in this Code in regard to suit shall be followed, as far as it can be
made applicable, in all proceedings in any Court of civil jurisdiction.
Explanation: In this section, the expression “proceedings” includes proceedings under Or IX,
but does not include any proceeding under Art.226 of the Constitution

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FACTS OF THE CASE

The Company Law Board (CLB) after considering two previous orders passed by this court
in the aforesaid appeals, ultimately formed an opinion that the effect of earlier order which
was passed by this court on 26th September, 2011 in A.P.O. No. 267 of 2011 and A.P.O. No.
268 of 2011 directing the CLB to reconsider these two interlocutory applications relating to
interim injunction matter lost its force in view of the subsequent order passed by this court on
10th May, 2013 in subsequent appeal being A.P.O. No. 154 of 2011 whereby the main case
was directed to be considered on merit and thus by following the subsequent directions
passed by this court in the said appeal, the Company Law Board (CLB) passed an order on
15th July 2013, by directing the petitioner to argue the main case first and thereafter to argue
the aforesaid interlocutory applications. The legality of the said order is under challenge in
this appeal.

Though initially no relief by way of permanent injunction restraining the respondents herein
from siphoning the fund of the said company by way of donation through Madhav Prasad
Priyamvada Birla Apex Charitable Trust was prayed for in the main company petition, but
subsequently such relief was introduced in the main petition by way of amendment. Identical
relief by way of interim injunction during the pendency of the main proceeding being C.P.
No. 01 of 2010 was also prayed for by the petitioner in their interlocutory application which
was registered as C.A. No. 332 of 2011.

Considering the fact that a common issue was involved in both the main case and the
interlocutory proceedings, the Company Law Board might have thought that for speedy and
expeditious disposal of the main proceeding, both the main case and the interlocutory
applications should be heard analogously. In fact, parties also thought that justice would be
sub-served if the main proceeding being C.P. No. 01 of 2010 was heard along with the
aforesaid two interlocutory applications.

Accordingly, with the consent of the parties, the company petition No. 01 of 2010 was listed
along with those two interlocutory applications for hearing on 19th, 20th & 21st March,
2012. In fact, on 2nd May, 2013 the petitioners' interlocutory application being C.A. No. 332
of 2011 was taken up for hearing and the petitioners' counsel was heard-inpart on that date.
However, subsequently, the said part-heard matter was released from the Bench on the
personal ground of the Judicial member of the Company Law Board.

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Thereafter when the petitioners' said interlocutory application was placed for hearing before
the other Judicial Member of the Company Law Board on 15.07.2013 the said Bench of the
Company Law Board, decided to change the order of hearing of the interlocutory applications
and main company petition by taking note of the direction passed by this High Court on 10th
May, 2013 in A.P.O. No. 154 of 2011 and directed the petitioner to argue the main case first
and thereafter the interlocutory applications.

Relevant Sections dealt with in the previous appeals of this “ongoing” case are:

 Sections 235, 237, 247, 250 of the Companies Act 2016, which dealt with the
investigation of a company.

 397, 398 which deal with the application for relief in cases of oppression:
1. Any member of a company who complain that the affairs of the company are
being conducted in manner oppressive to any member, may apply to the Company
Law Tribunal (CLT) for an order under this section, provided such members have
a right so to apply in virtue of section 399.
2. If, on any application, the Court is of opinion that the company’s affairs are being
conducted in a manner oppressive to any member, the CLT may, with a view to
bringing to an end the matters complained of, make such order as it thinks fit.

 402 of Companies Act, 1956, which dealt with the Powers of Company Law Board on
application, under section 397 or 398.

In the recent Act, i.e. Companies Act 2013, the sections have been changed and modified
because Companies Act, 1956 has been repealed.

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KEY CONTENTIONS

The appellants/petitioners herein filed a company petition being C.P. No. 01 of 2010 claiming
various reliefs therein by alleging oppression and mismanagement of the company concerned
viz., Birla Corporation Ltd. Amongst various allegations on which the said company petition
was found, siphoning of the fund of the said company by way of donation through Madhav
Prasad Priyamvada Birla Apex Charitable Trust, is the major allegation against the
respondents herein.

If the main company petition is considered along with the said interlocutory application as
identical issue relating to siphoning of the company's fund by way of donation through a
particular group of trust managed by the Lodha Family is involved in both the main company
petition and the interlocutory application filed by the petitioners, seeking interim injunction
but this, apparent view cannot be maintained ultimately as the very object of filing the said
interlocutory application will be ultimately frustrated if the said application is taken up for
hearing with the main proceeding.

In contention of the original case were the assets of a jute and cement manufacturer, a modest
performer. The reason it set the dovecotes aflutter at Birla House is that Priyamvada Birla,
widow of Birla Corporation promoter Madhav Prasad (grand uncle to Kumar Mangalam
Birla of the Aditya Birla Group, probably the best-known Birla today) had bequeathed her
estate, believed to be around Rs 5,000 crore, to well-known Kolkata-based chartered
accountant, Rajendra Singh Lodha in July 2004 who also happened to be the sole executor of
the will, allegedly written in 1999.

The case made out by the appellants/petitioners in their main company petition was mostly
reiterated by them in their interlocutory application. The defence which the respondents made
out against the petitioners' said interlocutory application is almost identical to the defence
which they made out in the objection to the main petition being C.P. No. 01 of 2011.

The said interlocutory application was filed, seeking interim injunction for restraining the
respondents from siphoning the Birla Company's fund by way of gift through a particular
trust managed by Lodha group during the pendency of the main proceeding.

Thus if this interlocutory application is considered after the disposal of the main matter or
along with the main matter, then the interim protection which the petitioners are seeking in
aid of their ultimate relief and/or for protecting the status quo of the subject matter of dispute,

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pending disposal of the main matter cannot be achieved by them even if it is ultimately found
that it was a fit case where such protection ought to have been granted at the interim stage for
preventing siphoning of the company's fund pending hearing of main matter.

That apart interlocutory application for injunction is considered by applying three well-
established principles of law i.e., (1) Prima facie case, (2) Balance of convenience and
inconvenience and (3) Irreparable loss and injury which cannot be compensated in terms of
money value. Whereas the relief by way of permanent injunction claimed in the main
proceeding is considered on the basis of the pleadings and evidence of the respective parties
with reference to their conflicting claims over their full-proof legal rights relating to the
subject matter of dispute in the main proceeding.

As such even though a common issue is raised in the parent proceeding as well as in the
interlocutory proceeding, the said issue cannot be decided by consolidating the hearing of the
parent proceeding with the interlocutory proceeding as the principles on which the said issue
is required to be decided at different stages of the parent proceeding is different from each
other. In my view the very object of seeking interlocutory relief by way of injunction will be
frustrated if such interlocutory application is taken up for hearing after conclusion of the
argument of the main proceeding as suggested by the Company Law Board in the impugned
order.

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HELD

The court felt that justice would be sub-served if the interlocutory application filed by the
petitioner for interim injunction and the application filed by the respondent for dismissal
thereof are considered in isolation of the main proceeding and prior to its disposal.

However, since the hearing of the main case was consolidated with the hearing of these two
interlocutory application, with consent of parties, this court, by giving effect to such
agreement arrived at between the parties, disposes of this appeal by directing the Company
Law Board to hear out those two interlocutory applications along with the parent proceeding
being C.P. No. 01 of 2011 and dispose of all at a time by passing a common judgment and/or
order as early as possible but positively within one month from the date of communication of
this order with this rider that in the event the Company Law Board finds that the main
proceeding being C.P. No. 01 of 2010 cannot be disposed of within the time limit as fixed
above, the Company Law Board will have to decide and dispose of those two interlocutory
applications filed by the respective parties within the time as fixed above and thereafter will
proceed to dispose of the main proceeding as expeditiously as possible so that main
proceeding can also be disposed of by the end of December, 2013.

The impugned order is thus modified. In case those two interlocutory applications cannot be
disposed of within the time limit fixed above for any reason whatsoever, the parties are at
liberty to mention this matter for suitable direction.

The company appeal was thus disposed.

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RELEVANT CASES

The Hon’ble Madras High Court, in Company Appeal No.6 of 2009, between K.
Muthusamy & Another Vs. S. Balasubramanian& Others, CDJ 2011 MHC 959, was
pleased to observe as follows:

The second contention of the appellants is that the law of pleadings and the provisions of the
Indian Evidence Act, apply to the proceedings before the Company Law Board. Therefore,
the Company Law Board ought not to have taken note of the new pleadings made by the
impleaded parties and ought not to have accepted the pleadings made without any evidence.

Sub section (5) of Section 10E states that the Board, in the exercise of its powers and
discharge of its functions, shall be guided by the principles of natural justice and shall act in
its discretion. Sub section (6) of Section 10E also empowers the Board to regulate its own
procedure.

Therefore, it is clear that strict rules of pleading and proof, as required in Civil Courts, are not
applicable to the proceedings before the Company Law Board. As a matter of fact, the rules
of procedure to be followed by this Court as a Company Court are regulated by The
Companies (Courts) Rules 1959. Rule 2(4) defines the word "Code" to mean the Code of
Civil Procedure, 1908 and Rule 6 of The Companies (Courts) Rules, 1959, makes it clear that
the practice and procedure of the Court and the provisions of the Code, so far as applicable,
shall apply to all proceedings under the Act and these rules. Rule 6 also states that the
Registrar (Registrar of the Company Court) may decline to accept any document which is
presented otherwise than in accordance with these rules or the practice and procedure of the
Court.

In contrast, the Company Law Board Regulations 1991, issued in exercise of the powers
conferred by Section 10E(6) of the Act, do not either define the word "Code" or contain a
provision similar to Rule 6 of the Companies (Courts) Rules 1959. Regulations 11 to 13
indicate the form and contents of a petition to be filed before the Board. Regulation 14
prescribes the procedure for filing the petition. Regulation 18 makes it necessary to enclose
documents as prescribed in Annexure III, to the petition.

Regulation 22 requires every respondent before the Board to file a reply to the petition along
with the documents relied upon by the respondents. Regulation 38 imposes a bar upon the

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withdrawal of a petition under Section 397 or 398, without the leave of the Board. Regulation
47 declares that the Bench of the Board will be deemed to be a Court for the purpose of
prosecution or punishment of a person who willfully disobeys any order of the Bench. More
importantly, Regulation 48 empowers the Board, for reasons to be recorded in writing, to
dispense with the requirements of any of these regulations subject to such terms and
conditions as may be specified.

In Needle Industries (India) Ltd., the Supreme Court observed as follows:-

"It is generally unsatisfactory to record a finding involving grave consequences to a person

on the basis of affidavits and documents without asking that person to submit himself to
cross-examination. It is true that men may lie but documents will not and often, documents
speak louder than words. But a total reliance on the written word, when probity and fairness
of conduct are in issue, involves the risk that the person accused of wrongful conduct is
denied an opportunity to controvert the inference said to arise from the documents".

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CONCLUSION

The case in dispute is an ongoing case which has been in the highlights of the media from a
long time. It is between the Birla Family and the Lodha Family who were given the reins of
the business post the death of Priyamvada Birla, who was a major shareholder.

The MP Birla group has come under the Lodhas’ control as per a will that came to light after
the death of MP Birla's widow Priyamvada. While RS Lodha, Harsh Lodha’s father, had said
the will was written by Priyamvada, the Birla family had challenged the contents of the will
and the matter is still in court.

After the contents of the will were brought in light, many other matters arose along with it.
The most suspicious thing about the will according to the Birla’s was that RS Lodha, who
was a C.A., was the sole executor of will which according to him was written in 1999 by Late
Priyamvada Birla. The Birla’s claimed that an outsider had come in and destroyed their
family name and the reputation their forefathers had earned.

The case then proceeded when the issue of siphoning of funds along with the charges of
oppression was raised after the death of RS Lodha, when Harsh Lodha, his son, took charge
of the company. The current order is about interlocutory applications introduced in the main
petition. The CLB had clubbed the last Interlocutory application of the plaintiff with the main
petition and the objection was thus raised because an Interlocutory application must be heard
separately.

The petitioners claimed that their right to justice would be hampered if the interlocutory
application was heard with the main petition as the major focus would be on the petition
which would again be carry forwarded. This basically defeats the purpose of the interlocutory
order. The CLB had clubbed both the petitions so as to save their time because both of them
were on the same grounds and had similar reliefs.

The court decided that no matter how similar the main petition is to the interlocutory order,
both must be heard separately.

The main petition is still ongoing in the Calcutta High Court.

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REFERENCES

 G.K. Kapoor, Company Law: A comprehensive Textbook on Companies Act 2013,

Taxmann, (20th ed.).
 Manupatra (www.manupatra.com)
 Black Law’s Dictionary

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