1994 (1) TMI 209 - HC - Companies Law

Court quashes Company Law Board order, citing violation of natural justice.

Gharib Ram Sharma Versus Daulat Ram Kashyap

The High Court allowed the appeal under section 10F of the Companies Act, 1956, to quash the Company Law Board's order dated July 30, 1993. The Court ... Companies Law Board – Power of Issues:- Appeal under section 10F of the Companies Act, 1956 to quash the Company Law Board's order dated July 30, 1993.- Allegations of mismanagement and oppression against directors of a private limited company.- Jurisdiction of the Company Law Board and principles of natural justice.- Maintainability of the appeal under section 10F.- Violation of natural justice in passing the impugned order.Analysis:The case involves an appeal filed under section 10F of the Companies Act, 1956, seeking to quash the Company Law Board's order dated July 30, 1993. The respondent, a private limited company, was embroiled in allegations of mismanagement and oppression between the directors. The company had two groups of directors, with the appellant being appointed as a director on May 7, 1991. The impugned order directed joint management by two directors, restricting business transactions without their approval. The appellant challenged the order on grounds of jurisdiction, natural justice, and arbitrariness.The appellant argued that the Company Law Board lacked the authority to pass the order affecting the company's business without notice to the appellant, who was lawfully inducted as a director. The respondent contended that the appeal was not maintainable under section 10F as the order did not finally decide the parties' rights. The respondent also alleged the removal of a director was unlawful and based on fraudulent acts.The judgment delves into the legal provisions of sections 10E and 10F of the Act, highlighting the powers and functions of the Company Law Board and the appeal process to the High Court. The Court emphasized that an appeal can be filed against any decision or order of the Company Law Board, including those not finally deciding the rights of the parties. The Court rejected the narrow interpretation proposed by the respondent, holding the appeal as maintainable against the impugned order.On the merits, the Court found in favor of the appellant, primarily on the grounds of a violation of natural justice. The Court noted that the Company Law Board passed the order without due regard to the principles of natural justice, as the appellant, a director, was not given a hearing opportunity. The Board's assumption that only two directors existed disregarded the appellant's position, leading to a breach of natural justice principles. Consequently, the Court allowed the appeal, declaring the impugned order illegal and quashing it, with parties bearing their own costs.In conclusion, the judgment addressed the jurisdictional issues, principles of natural justice, and the maintainability of the appeal under section 10F, ultimately setting aside the impugned order due to a violation of natural justice principles.