Execution Of Orders Passed By The Tribunals Under Company Law

Vide order dated 08.04.2022, NCLT,KOCHI BENCH, dismissed a series of Execution Petition (EP/01/KOB/2021 to EP/6/KOB/2022) IN TCP/21/KOB/2019) observing that an executable order has to be passed by the Tribunal in the absence of any specific order passed for execution by the NCLT, Chennai.

The Tribunal erred to to appreciate the scope Sub-Section 3 of section 424 of the Companies Act,2013 and came to an erroneous conclusion against the legislative intent behind the introduction of Sub Section 3 to Section 424 of the Act. Can a Tribunal hold that its own order is incapable of enforcement/execution? A question arises what is meant by execution as per section 424(3) of the Companies Act, 2013.

Meaning of execution?

The word 'Execution' has not been defined anywhere in the Companies Act,2013 or in the NCLT Rules,2016. As per Rule 57 of NCLT Rules on receipt of an application under Rule 56 the Tribunal shall issue a process for execution of its order in Form NCLT.8. For a better understanding Rule 57 is extracted below:-

57. Issue of process of execution. -

(1) On receipt of an application under rule 56 the Tribunal shall issue a process for execution of its order in such Form as provided in the Code of Civil Procedure, 1908 (5 of 1908).

(2) The Tribunal shall consider objection, if any, raised by the respondent and make such order as it may deem fit and shall issue attachment or recovery warrant in such form as provided in the Code of Civil Procedure, 1908 (5 of 1908), as the case may be.

At this juncture it is also good to read Sub-Section 3 and 4 of Section 424 of the Act. It read as follows:-

Section 424: Procedure before Tribunal and Appellate Tribunal.

424. (1) …..(2)....Omitted since not relevant for the issues dealt with in this article.

(3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction,—

(a) in the case of an order against a company, the registered office of the company is situate; or

(b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

(4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.

A conjoint reading of s.424(3) with Rule 56 & 57 of NCLT Rules,2016, it is made clear that for the purpose of enforcement of an order of Tribunal or Appellate Tribunal passed under the provisions of the Companies,Act,2013, the Tribunal shall be deemed to a Civil Court and the order to be enforced is a deemed decree.

It is also good to read Section 340 and 246 of the Companies Act, 2013 in order to understand the power of the Tribunal in regards to the enforcement of its own order.

Section 340: Power of Tribunal to assess damages against delinquent directors, etc.

*340. (1) If in the course of winding up of a company, it appears that any person who has taken part in the promotion or formation of the company, or any person, who is or has been a director, manager, Company Liquidator or officer of the company—

(a) has misapplied, or retained, or become liable or accountable for, any money or property of the company; or

(b) has been guilty of any misfeasance or breach of trust in relation to the company,

the Tribunal may, on the application of the Official Liquidator, or the Company Liquidator, or of any creditor or contributory, made within the period specified in that behalf in sub-section (2), inquire into the conduct of the person, director, manager, Company Liquidator or officer aforesaid, and order him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Tribunal considers just and proper, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal considers just and proper.

(2) An application under sub-section (1) shall be made within five years from the date of the winding up order, or of the first appointment of the Company Liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer.

(3) This section shall apply, notwithstanding that the matter is one for which the person concerned may be criminally liable.

Section 246: Application of certain provisions to proceedings under section 241 or section 245.

*246. The provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis, in relation to an application made to the Tribunal under section 241 or section 245.

It is worthwhile to note that the power of the Tribunal enshrined under the section 424(3) read with section 340 and 246 and Rule 56 and 57 of NCLT Rules,2016 made it clear that the Tribunal has the power to enforce its order as if it is a 'deemed decree' for the purpose execution of the order. Moreover an Administrator stands in the foot of the liquidator as referred to u/s 324 and he can file an application for restoration of the funds misappropriated by the superseded directors within 5 years of the date of the order. That being so, an application filed for execution could be perfectly maintainable and is proper and legal and the administrator or the liquidator as the case may be need not keep his fingers crossed feeling that he has reached a cul-de-sac without further way out.

Civil Court Power of Execution;

At this juncture it is also worthwhile to look into the Civil court's power of execution. The term Execution is also not defined in the CPC. Enforcing or giving effect to an order or a judgement passed by the court of justice inclusive of the Tribunal means execution. By ordering execution the respondent/judgement debtor is compelled to carry out the mandate of the decree or order and enable the decree holder to recover the thing granted to the decree holder by the judgement/order. The principles governing the execution of a decree or order are given in Section 36 to Section 74 (substantive law) and Order 21 of the Code which provides for procedural law.

Rule 2(e) Civil Rules of Practice define Execution Petition as a petition to the Court for the execution of any decree or order. As per Rule 2(f) Civil Rules of practice "Execution Application:" means an application to the Court made in a pending execution petition, and includes an application for transfer of a decree.

So also reading Section 37 and 38 of CPC,1908 it is revealed that a decree can be executed either by the Court of the first instance or by the Court to which it has been sent for execution. Section 37 of the Code further establishes the scope of the expression "court which passed a decree" with the object of enabling a decree-holder to recover the fruits of the decree.

As stated above , NCLT in execution has the same power as that of a civil court and can issue attachment and recovery warrants to enforce the order. Moreover, Section 424(3) of the Act empowers the NCLT to enforce its own order in the same manner as if it were a decree made by a civil court. Implying that in order to enforce its order, the NCLT would be guided by the principles laid down under Order 21 of the Code of Civil Procedure, 1908 ("CPC") which comprehensively lays down the procedure for execution of decrees and orders. Further, Rules 56 and 57 of the NCLT Rules, 2016 ("the Rules") give teeth to the executory powers of the NCLT laid down under Section 424(3) of the Act. Rule 56 lays down the format for execution application. Rule 57(2) states that while enforcing its order, the NCLT can issue attachment or recovery warrants. Further a penalty can be levied by NCLT on non-compliance of the order. Rule 57(2) states that while enforcing its order, the NCLT can issue attachment or recovery warrants. Further a penalty can be levied by NCLT on non-compliance of the order.

The above discussions lead to a conclusion that execution simply means the process for enforcing the order or decree that is passed in favour of the decree-holder by a competent court.

In Ghan Shyam Das V. Anant Kumar Sinha, the Supreme Court observed that numerous provisions of Order 21 take care of various situations providing effective remedies to judgement-debtors, decree-holders and claimant-objectors. In the cases, where provisions are not capable of giving relief inadequate measures and appropriate time, to an aggrieved party, then filing a regular suit in the civil court is the available solution.

The Court further explained that the judicial quality of the remedy under Civil Procedure Code,1908 is considered to be superior as compared to other statutes therefore, the judges are expected to do better as they are entrusted with the administration of justice.

Applying this ratio to the issue in hand, let me see the power of the Tribunal in executing the order passed under section 241-242 of the Companies Act,2013.

A reading of the above discussion one may doubt as to whether an order of a Tribunal can be equated with a decree passed under CPC. To understand the meaning of decree I may take you to section 2 (2) of CPC. The Code of Civil Procedure lays down provisions to pronounce and issue the decision of the Court and decree is one of them. A decree in the decision of a court which determines the rights in dispute between the parties to the suit. There is also a concept of the deemed decree.

Section 2 (2) of CPC defines a "decree" means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final.

So a decree is a formal expression of adjudication by which the court determines the rights of parties regarding the matter in controversy or dispute. So in order to consider any decision to be considered as a decree, the adjudication must have been done in a suit or in an application. There are several specific provisions which enable certain applications to be treated as suits such as proceedings under the Hindu Marriage Act, the Indian Succession Act etc. and the decisions therein are to be considered as a decree. Similarly an order passed under Sections 241-242 which leads to enforcement of any right which is otherwise gained finality is a deemed decree within the purview of section 424(3) of the Companies Act,2013. In the given case the order becomes final and the order for enforcement is described in the last para of the impugned order. It is extracted below:

"The Administrator will manage the affairs of the company immediately and he will look into the allegations raised by the Petitioners in the present petition and also examine whether the disbursement of the funds is in accordance with the Articles of Association. He will also return back the money received from R7 to R10 from the accounts of the Company as it is held that the agreements of sale entered into by the Company are illegal, null and void. The Administrator will take all the necessary steps to bring back the sold properties of the Company to the account of the Company. If the Administrator finds that any loss has been caused to the company due to the disbursement of any funds in whatsoever manner in contravention to the provisions of AOA, then R2 to R6 shall compensate such loss made to the company. The administrator will also look in to the matter of diversion of funds of the Company to M/s Bhagyodayam Kuries Private Limited incorporated by the R2 and others and shall take all steps to recover the money from the said company including R2 and other promoters of the Company if such diversions are against the norms laid down in the AOA or in contravention to the directions of Court orders. After complying with the above directions within a span of 6 months, the Administrator shall conduct election of the board of directors in accordance with Clause 26 of the AOA and once the board is elected, he shall hand over the charge to the board and relinquish from the post of the Administrator. The fee payable to the administrator shall commensurate the work done by him and shall be borne by the Company".

The above paragraph is the operative portion of the order which is to be enforced. The rights of the parties in disputes were determined finally and the Respondents who were aggrieved filed an appeal and failing to get a favourable order filed civil appeal before the Supreme Court and Supreme Court dismissed the appeal. Thus the order under consideration in this EP is a final order determining the rights of parties and the amount recoverable is quantified as per the books of account of the Company.

The Company Act is equipped with all measures to prevent the oppression and mismanagement of the company and introduction of sub Section 3 to 424 of the Companies Act,213 is for giving effect of the order to be passed u/s 241-242 so that the company's assets and funds to be restored to original position. It clearly appears from the above discussion that execution means implementing or enforcing or giving effect to an order or a judgement passed by the court of justice or equity. The provisions contained in Order 21 of CPC covers different types of situations and provide effective remedies to the judgement-debtors, claimant objectors and third parties apart from the decree-holder. The then Company Law Board and co-ordinate Bench of NCLT moved in the right perspective by entertaining similar applications within the respective powers given as per the new Act and old Company Law Act. By the new Act,2013, the NCLT is given more discretion in exercising its power as provided under the Act and the Tribunal's findings in the given case is perverse by giving room to the wrongdoer to have a second round of litigation without allowing the Company to enjoy the fruit of the order after having become final. No doubt execution implies giving effect to an order or judgement/order of a court of justice/equity. When the decree-holder gets the thing granted to him by judgement, decree or order, the execution is complete. An order passed u/s 241-242 is an order enforceable as if it is a decree by invoking Order 21 of CPC. Ordering to file a miscellaneous application as a precondition to draw a decree is not at all warranted in the given set of facts. Thus my respectful view is that the order requires a relook and ought to be set aside at the earliest to prevent the mischief caused by the said order, if treated as a guiding light to the orders that will be passed by the NCLTs in the country under Section 241 of the Companies Act, 2013 invoking the various powers specifically enumerated under Section 242 of the Companies Act,2013.As it is said in the Bible,(Isaiah Chapter 5:7) "he looked for judgement, but behold oppression; for righteousness, but behold a cry".

Reference:

1. 1991 AIR 2251
2. Civil procedure Code,1908,
3. Civil rules of Practice,
4. EP/01/KOB/2021 TO EP/06/KOB/2022