CLB Order Does Not Become Unenforceable Merely Because Forum Ceased To Exist: NCLT Guwahati

The National Company Law Tribunal (NCLT), Guwahati, on 16 September held that the abolition of the erstwhile Company Law Board (CLB) does not render a final order passed by the CLB incapable of enforcement.

A Bench comprising Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh rejected the objection to execution of a final CLB order and directed Prag Bosimi Synthetics to take necessary steps to give effect to the order in favour of 3A Capital Services within four weeks. The Tribunal observed:

“The statutory scheme therefore clearly recognises execution as an integral and consequential proceeding for giving effect to an order of the Tribunal. The fact that the institution of the CLB was subsequently replaced by the NCLT cannot, by itself, lead to the anomalous conclusion that an adjudicated right under an order of the predecessor forum becomes incapable of enforcement merely because the original forum has ceased to exist.”

The dispute arose from a final order dated 27 May 2016 passed by the CLB, Kolkata Bench, holding 3A Capital Services to be the rightful owner of 30 lakh Redeemable Cumulative Convertible Preference (RCCP) shares aggregating to Rs. 30 crore. The CLB directed Prag Bosimi Synthetics to transfer the shares in favour of 3A Capital Services within four weeks.

Prag Bosimi challenged the CLB order before the Gauhati High Court. The High Court dismissed the appeal on 12 July 2017. The challenge before the Supreme Court was subsequently dismissed on 2 February 2018, resulting in the CLB order attaining finality.

Opposing execution before the NCLT, the respondents contended that the CLB had ceased to exist and that no execution proceeding had been pending before it when the NCLT came into existence. They further argued that the shares had already been cancelled pursuant to an earlier order of the Gauhati High Court and were therefore incapable of being transferred.

The Tribunal rejected the jurisdictional objection, relying on Section 424(3) of the Companies Act, 2013 and Rule 56 of the NCLT Rules, 2016. It held that the statutory scheme recognises execution as an integral and consequential proceeding for giving effect to an adjudicated order.

Further, the Bench held that Section 434 of the Companies Act primarily concerns the transfer of pending proceedings and does not bar consequential proceedings for enforcement of a final adjudication. The replacement of the CLB by the NCLT, therefore, could not render the adjudicated right incapable of enforcement.

It also held that the respondents could not reopen the issue of cancellation of the shares at the execution stage, particularly when the same circumstance had already been placed before the Gauhati High Court while challenging the CLB order.

Accordingly, the NCLT directed Prag Bosimi Synthetics to take necessary steps, in accordance with the CLB order and applicable law, to give effect to the 2016 order within four weeks. It clarified that execution could not modify or vary the original adjudication.