fraudulent conduct of business - mens rea

Application under Section 542/543 of the Companies Act, 1956 for fraudulent conduct of business - such allegation which is criminal nature in nature, it is necessary to prove that such an allegation which is criminal in nature, it is necessary to specifically plead and prove, and mens rea is required.
OL v. V. Selvaraj (Madras) SCL (mag) 56

Change in Director / Liability of the Company

A company must take steps to see that it is aware of all the changes that it has to notify to the Registrar, and if it fails to do so, then the company becomes liable for default. [Public Prosecutor v. Coimbatore National Bank Ltd. (1943) 13 Comp Cas 50 (Mad); see also Trichinopally Mills Ltd, In re (1941) 11 Com Cas 4 (Mad)].

Section 303 of the Companies Act, 1956

http://indiankanoon.org/doc/141028/

Section 543 of the Companies Act - preference

Under S 543 of the Companies Act only a member or a creditor could make an application, not the Government (SFIO).
While SFIO can approach the board under Section 401, but it has to show ingredients necessary for 397/398.


Pradeep Vakil v. Union of India, [2011] 161 Comp Cas 231 (CLB - Mum)

Arbitration and 397/398 Company Law Board

20th Century Finance Corporation Ltd v. Union of India, [2011] 161 Comp Cas 247 (Delhi)

"The grievance of the appellant was that the respondent had not adhered to the clauses of the sponsorship agreement. The right to get the memorandum and the articles of association amended had accrued to the appellant and the pre-requisite for the appellant was to fulfill all the obligations imposed on it by the sponsorship agreemnt as it was disputed by the respondents for the amendment of the mem/arts.... It flowed from the contractual obligations contained in the sponsorship agreement and had to be necessarily determined through means of arbitration as contained in the article 8(2) of the sponsorship agreement. "

Arrangement without consideration S 391

expression 'arrangement' contemplates give and take between the parties and where there was no consideration, i.e. no give and take between the parties, same was not an arrangement under section 391 of the companies act and therefore not reconstruction capable of being sanctioned under section 391. [2001 105 SCL 301 (Guj)]

NOTE: This case has received adverse comments from commentators and senior counsels. 

winding-up should not be a method to arm twist

See IBA Health (I) P Ltd v. Info Drive Systems Sdn Bhd., [2010] 104 SCL 367 (SC)

A company court therefore should be guarded from such vexatious abuse of the process and cannot function as a Debt collecting agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere.

CLB and Arbitration : Articles v. Agreement

Gautam Kapoor v. Limrose Engg, [2007] 137 Comp Cas 513 (CLB - New Delhi)
if the allegations could be examined without reference to the terms of the agreement containing the arbitration clause, then the parties need not be referred to arbitration even if the subject-matter is covered in the arbitration agreement.


Enercom GmBH [2009] 91 SCL 60 (CLB - New Delhi)
if the subject-matter brought before this Board is the subject matter of Arbitration Agreement, the Board is bound to refer the parties to arbitration.
Relied in [2010]  104 SCL 13


Also:
Escorts Finance Limited v GR Solvents and Allied Industries Ltd., [1999] 96 Comp Cas 323 
we are of the view that the present disputes being disputes arising out of or in connection with the sponsorship agreement which provides for arbitration clause have to be referred to arbitration.... 


relied upon in [2011] 161 comp cas 427 (clb) - where apart from breach of agreement no allegation of oppression and mismanagement was made.

Appeal - Impleadment

Nagarjuna Finance Ltd v. RBI, 2010 159 Comp Cas 249 (AP).

Party not a part of proceedings before the CLB cannot be impleaded as a party in Appeal. 

Cheque Dishonour and Scheme of Arrangement

Offence of Dishonour of Cheques is not compounded by passing of scheme of arrangement with said creditors. JIK Industries Ltd. v. Sunil Ranchorlal Bajaj, 2010 159 Comp Cas 485 (Bom)

Fraudulent Preference

In Official Liquidator of Piramal Financial Ltd. v. Reserve Bank of India, [2004] 51 SCL 691 (Guj), the Gujarat High Court has held that “the use of word ‘preference’ implies an act of free will and that would by itself make it necessary to consider whether pressure was or had not been used. A payment made under the impression that unless a particular creditor was paid, the Company would go into liquidation is not done out of free will and volition. If the object was to save the company, it may not amount to fraudulent preference”. Further in Monark Enterprises v. Kishan Tulpule, [1992] 74 Comp Cas 89 (Bombay), the Bombay High Court has held that “if the transaction was entered into as a result of lawful pressure  of a bonafide creditor to recover his dues, the transaction of transfer could not be treated as a fraudulent preference.”  

 transaction by a company to “save its own skin” for its own benefit in the circumstances then prevailing, may     not be construed as fraudulent preference.

Approbate Reprobate

In this respect, recently in Mumbai International Airports Limited v. Golden Chariot Airports, decided by the Supreme Court on September 22, 2010, the Court has held that a person cannot be allowed to take inconsistent stand in litigation, and once having elected to take a stand cannot be allowed to resile from such a position.

Disclosure in Scheme Petition

From RNRL v. RIL, Supreme Court, [2010]156CompCas455(SC), JT2010(5)SC413, 2010(5)SCALE223, 2010(4)UJ2400(SC)   

145. The Companies (Amendment) Act, 1965, based on the recommendations of Daphtary-Sastri Committee specifically provided that the applicants for a scheme shall "disclose by affidavit all material facts". (See: Section 391(2) of the Companies Act, 1956). In as much as the terms and conditions of gas supply, as specified in the MoU, were not specifically informed to all the shareholders and stakeholders, including in this case the GoI (as a party to the PSC), we simply fail to see how the MoU can be read into the Scheme itself. It doesn't matter whether one calls MoU the guiding light or a tool for interpretation or a foundation - the sheer fact that the terms of gas supply contained in the MoU were withheld from the shareholders implies that it cannot now be imported into the Scheme. The argument that contracts are entered into all the time, and are treated as day to day affairs for the management and the Board, fails at the point of division of a company. Where, in regular times a shareholder or a stakeholder can demand and obtain information and have time to try and monitor such contracts and the actions of the management, the act of hiving off an undertaking is a much more crucial point, when the shareholders have to be even more careful about the transfer of value. The whole purpose of Section 293 which prohibits the Board from hiving off an undertaking without shareholders approvals, is to prevent such transfers being effectuated on a permanent basis without the knowledge of the shareholders. The very essence of the requirement that all material facts be disclosed would have been decimated. Consequently, we hold that the Scheme as propounded by the Board, placed before and approved by shareholders and stakeholders and sanctioned by the court is completely different from the MoU. The MoU may have been the starting point. The end point is significantly, substantially and materially different from it and it cannot now be brought back in the guise of interpretation.   

Recalling winding-up

Simply because the winding up order is passed, the company cannot be restrained from approaching the court for the purpose of recalling or reviewing the winding up order.


Shreeji Concast v. Shreeji Oxygen, [2007]138CompCas717(Guj)

Creditors

Foreign creditors and Indian creditors stand at par. AIR1959Cal762

Scheme of Arrangement Voting

Votes with conditions atached not to be counted - 2002 111 Comp Cas 118 (Guj)

Indemnity v. Damages: distinction

AIR 1938 Rangoon 359
AIR 1928 Madras 43

Appointment of Provisional Liquidator - Factors to be considered

Darshan Anilkumar Patel v. Gitaneel Hotel Pvt Ltd, [1994] 81 Comp Cases 805

Company court and civil court

CDS Financial Services v. BPL communications, 2004 121 comp cas 374

If the right is traceable to the general law of contracts or it is a common law right, it can be enforced through the civil court, even though the forum under the statute also will have jurisdiction to enforce that right.

Section 397/398 provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies.

Scrutiny of scheme of arrangement

*(2008) 3 Comp LJ 345 (AP): [2007] 80 SCL 496 (AP)*
*
*
*Magnaquest Solutions (P) Ltd.*

while exercising powers under section 391(2), company court should examine whether proposed scheme of arrangement is violative of any provision of law and is not contrary to public policy, and for ascertaining real purpose underlying the scheme, the court if necessary can pierce veil of apparent corporate purpose underlying scheme and can judiciously x-ray same.


It should not be unfair / unconscionable or contrary to public policy.


Latest auditors report connotes the latest auditors report available or which should normally be available at the time of filing of the petition. --thats the one that should be filed.

Notice in scheme of arrangement

LG Electronics System India Ltd. 2003 42 SCL 554 (Delhi)

When under rule 75 a copy of the scheme is not provided, normally such a conduct by the transferor and transferee companies would immediately invite suspicion in the mind of the judge and may even lead to the rejection of the proposed scheme on this short ground.