While rejecting the prayer made through a petition, the CLB in its order dated January 15 has observed that "appointment of an administrator or a nominee of CLB on the (BDA) board...is premature...when even forming a prima-facie opinion is difficult on the basis of the petition."

However, the CLB after considering "there is every possibility that allegations are likely to be leveled by either of the parties as to what transpires in the board meetings of the company" and "in the interest of both parties" decided to appoint Mr AN Misra, former chairman of the Income Tax Settlement Commission, "an independent observer" to observe the proceedings of the board meetings, if any, till the petition is disposed of.The order further specifies that "replies should be filed by February 5 andrejoinder, if any, by February 20."

Kishore Chhabria is seeking to take over Herbertsons Ltd in a parallel move, and the battle before the Company Law Board is part of the larger legal battle which has continued for more than a year and a half.

The CLB, in its order, further stated that "the main apprehension of the petitioner is that there is likelihood of siphoning of funds through Royal Wines, which in view of the statement of the counsel that the agreement has been terminated, no longer survives."

Herbertsons had earlier moved a petition before CLB alleging mismanagement at BDA and siphoning of funds from the company under the guise of some marketing arrangement with Royal Wines.

Arguing for the petitioner company Herbertsons Ltd, senior advocate TR Andhyarujina alleged that BDA is "thoroughly mismanaged by KR Chhabria, the chairman of the board of the company," and that "there have been various instances of siphoning of funds of the company and that the statutory auditors' reports contain a largenumber of qualifications in the annual reports for the year ended March 1995, 1996 and 1997." Herbertsons has also alleged in its petition that Chhabria has been diverting a large amount of money of the company through Royal Wines and Chhabria Marketing Ltd which are under his control in the guise of some marketing agreements and the amount of such diversion for a period of five years approximately comes to Rs 65 crore.

Andhyarujina submitted that to prevent further siphoning of funds and to protect the interest of the company till the petition is disposed of, the agreements between BDA and Chhabria Marketing Ltd as well as Royal Wines should be suspended, and an administrator should be appointed to take control of the company or in the alternative an independent person should be appointed on the board of BDA."

Arguing for the respondents Kishore Chhabria and others, senior advocate Kapil Sibal stated that in view of the Bombay high court proceedings and the hearings scheduled by the court on February 9,it would be appropriate to postpone the CLB hearings till a later date.

He pointed out that in the suit pending in the high court, more or less similar allegations have been made in relation to the acquisition of shares in Herbertsons by Chhabria and certain interim directions have also been granted by the Bombay high court. He pointed out that the prayer for the appointment of an administrator does not figure in the original petition of Herbertsons and should therefore not be asked for on the basis of oral submission.

Two dates, February 23 and 24, have been fixed for the next hearing of the matter, which will be after the February 9 Bombay high court hearing. The Court hearing is expected to decide the outcome of the polling at the annual general meeting of Herbertsons held on December 30, when resolutions proposing removal of nine directors of Herbertsons including Vijay Mallya, the chairman and SD Lalla, the managing director, were moved.

On the issue of mismanagement and funds siphoning, Sibalnoted that the agreement with Royal Wines had already been terminated, and anyway since Herbertsons had four nominees on the BDA board, they were fully aware of the marketing arrangements with Royal Wines and Chhabria Marketing Ltd.