2012 (6) TMI 74 - HC - Companies Law

Court admits appeal despite maintainability objection, emphasizes right to appeal on substantive issues. Procedural formalities to be completed.

The court rejected the preliminary objection on maintainability and admitted the appeal, emphasizing that dismissing the appeal solely on maintainability ... Maintainability of appeal - petitioners have alleged/various illegal acts on the part of the existing management of the company, and the prayers of the petitioner centre around preventing the existing management from running the affairs of the company - allegation is that the petition is a motivated one and for a collateral purpose and instigated by Birla groups and the petitioners and the consenting shareholders who had acquired shares recently cannot voice any grievance relating to alleged acts of oppression/mismanagement in the past – Held that:- once the qualification test laid down in section 399 of the Companies Act for maintaining an application under the provisions of sections 397 and 398 of the Act is satisfied, there is no further necessity to enquire into the quality of the applicant members before entertaining a petition of this nature. An appellant assailing an order of the Company Law Board is not usually required to obtain any entry-permit from the court before being allowed into the arena of adjudication at the appellate stage. If this established course is to be followed then the only enquiry at the stage of admission would be to ascertain from the memorandum of appeal as to whether the grounds on questions of law have been formulated or not, with a very broad correlation with the finding of the Company Law Board in the judgment under appeal. The scope of enquiry thus has to be minimal at this stage. Applying such minimal scrutiny test, in my opinion the appellants have made out a case for admission of the appeal. Pre-admission objection on the question of maintainability of the appeal is rejected. Issues Involved:1. Maintainability of the appeal.2. Qualitative aspect of the petitioners.3. Factual findings and their scrutiny.4. Points of law versus points of fact.5. Impact of the judgment on the merits of the case.Detailed Analysis:1. Maintainability of the Appeal:The respondents raised a preliminary objection regarding the maintainability of the appeal, arguing that the Company Law Board's (CLB) finding that the petition was not maintainable was based on factual issues. The respondents contended that under section 10F of the Companies Act, no appeal lies against a finding on fact. The judgment stated, 'the appeal ought not to be admitted since in the judgment under appeal, the Company Law Board has come to a finding that the petition is not maintainable and such finding is based on factual issues.'2. Qualitative Aspect of the Petitioners:The CLB's judgment included a novel consideration of the qualitative aspect of the petitioners. The judgment noted, 'while examining the eligibility under section 399, the qualitative aspect of a member should also be taken into account.' The CLB found that the petitioners did not have a real interest in the affairs of the company and had acquired shares only to qualify to file the petition. The judgment stated, 'it is clear that the consenters have no real stake or interests in the company and therefore their fulfilling the requirements of section 399 is of no consequence.'3. Factual Findings and Their Scrutiny:The appellants argued that the CLB's judgment was perverse and not based on evidence. They contended that even findings of fact could give rise to points of law. The judgment referenced the Supreme Court's decision in Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan, stating, 'if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law.'4. Points of Law versus Points of Fact:The judgment discussed whether the qualitative test of a member could raise a point of law. It concluded that 'the appeal cannot be rejected outright for not involving any point or question of law at the admission stage.' The judgment highlighted that the CLB's finding on the qualitative aspect was unique and intertwined with the merits of the case.5. Impact of the Judgment on the Merits of the Case:The judgment noted that the CLB had addressed the merits of the case and various interlocutory applications, not just the preliminary issue of maintainability. It stated, 'the judgment also addresses the questions on merit of the petition.' The court emphasized that dismissing the appeal on maintainability alone would render the right of appeal nugatory concerning other issues decided on merit.Conclusion:The court rejected the preliminary objection on maintainability and admitted the appeal, stating, 'Pre-admission objection on the question of maintainability of the appeal is rejected.' The court directed procedural formalities to be completed within four weeks and allowed the parties to mention the appeal for listing for hearing after completion of formalities.