2004 (1) TMI 378 - SC - Companies Law

Interim protection via show-cause notice requires stated reasons; absence of explanation makes the interim order procedurally deficient

Special Director Versus Mohd. Ghulam Ghouse

The SC held that a Division Bench of the HC granted interim protection via a show-cause notice without stating reasons, which was improper. While detailed ... Legality of the show-cause notice - Interim order passed by a Division Bench of the Bombay High Court - Held that:- The High Court has not indicated any reason while giving interim protection. Though, while passing interim orders, it is not necessary to elaborately deal with the merits, it is certainly desirable and proper for the High Court to indicate the reasons which has weighed with it in granting such an extraordinary relief in the form of an interim protection. This, admittedly has not been done in the case at hand. Issues:Challenge to interim order passed by Bombay High Court regarding show-cause notice legality and granting of interim relief.Analysis:The Supreme Court addressed the challenge to an interim order passed by the Bombay High Court regarding a show-cause notice issued by the Union of India and the Special Director, Enforcement Directorate. The respondent had filed a writ petition questioning the legality of the show-cause notice and sought an injunction against any proceedings related to it. The High Court had granted interim relief by ordering 'status quo' on the matter. The appellants argued that the writ petition was misconceived as it challenged a show-cause notice, and the High Court should not have granted such interim relief, especially considering the serious financial irregularities involved. They contended that the respondent should have raised their points before the issuing authority instead of rushing to the High Court. The Enforcement Directorate had highlighted various infractions leading to illegal transactions amounting to over Rupees 270 crores under the Foreign Exchange Regulation Act and Foreign Exchange Management Act. On the other hand, the respondent's counsel argued that the show-cause notice was unfounded in law and warranted the High Court's intervention.The Supreme Court emphasized that High Courts should refrain from entertaining writ petitions challenging show-cause notices unless there is a clear lack of jurisdiction. It was noted that parties should participate in the investigative process to ascertain facts before seeking judicial intervention. The Court highlighted that jurisdictional issues regarding the legality of show-cause notices should be raised before the issuing authority before approaching the Court. The Court also stressed the importance of ensuring that statutory functionaries retain the power to decide matters initially, without being preempted by interim orders granting immediate relief to writ petitioners. In this case, the High Court had not provided reasons for granting interim protection, which was deemed undesirable by the Supreme Court.The Supreme Court, after hearing both sides, disposed of the appeal by directing that proceedings related to the show-cause notice should continue, but the final order should not be communicated to the respondent without further orders from the High Court. The Court instructed that the writ petition should be decided on its merits in accordance with the law. The Court clarified that its observations should not be construed as expressing any opinion on the pending matter before the High Court. The Supreme Court urged the High Court to expedite the disposal of the writ petition due to the limited yet serious nature of the controversy. The appeal was allowed with no order as to costs, emphasizing the need for a fair and thorough examination of the issues involved.