2013 (3) TMI 323 - HC - Companies Law

CLB cannot entertain standalone petitions under Section 247(1A) of Companies Act.

UNIWORTH TEXTILES LIMITED Versus ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED

The court held that the Company Law Board (CLB) cannot entertain an independent petition under Section 247(1A) of the Companies Act, 1956, as it must be ... Stand-alone petition under Section 247(1A) of the Companies Act - Can an independent petition u/s 247(1A) may be carried before CLB for an order of investigation thereunder in the absence of the word “other” before the word “proceedings” in the relevant expression? - Held that:- The expression “in the course of any proceedings before it” would, loosely, imply “during any proceedings”. If Section 247(1A) is read as giving the CLB unfettered authority in all circumstances to declare by an order that the affairs of a company ought to be investigated as regards the matters specified in such provision, it would result in the expression “in course of any proceedings before it” being rendered otiose. That would be impermissible by any rule of construction. The authority under Section 247(1A) of the Act can, doubtless, be exercised suo motu by the CLB. But the caveat that the expression “in the course of any proceedings before it” introduces in the provision, mandates that the suo motu authority be exercised only during the pendency of any proceedings before the CLB. If the appropriate interpretation of Section 247(1A) of the Act is that the authority to direct an investigation thereunder may be exercised by the CLB suo motu or at the instance of any other person, in the absence of any express provision making a distinction between the two situations, the expression “in the course of the proceedings before it” would apply to either, and, as a corollary, it would carry the same meaning in either case. Though the word “any” in the relevant expression would exclude any limitation or qualification, such word cannot be read in isolation of the words “in course of” appearing in the same cluster of words. The words “in course of” govern the words “any proceedings” and imply that the nature of the proceedings would be irrelevant as long as the authority is invoked or exercised in course of such proceedings. The extent of exercise of the authority will, however, be guided by the nature of the pending proceedings. There are lesser reasons for discerning that Section 247(1A) of the Act does not contemplate a stand-alone petition for invoking the authority prescribed thereunder. In several provisions, or clusters of provisions, in the Act which are capable of being directly invoked without reference to any other, the circumstances giving the right to apply thereunder are generally specified. Since Section 247(1A) of the Act was not meant to be directly invoked – or such provision being taken recourse to only for the purpose of an investigation being directed thereunder – it does specify who may apply thereunder or who may be heard in course thereof. In the absence of the guidelines in the provision itself as to when and how the authority thereunder may be invoked or exercised – the two inevitable questions on the bounds of authority in any judicial or quasi-judicial jurisdiction, where limitlessness may not be presumed unless expressly specified or by unavoidable implication – the answers to the questions have necessarily to be found in the expression “in the course of the proceedings before it” in Section 247(1A). The clue to when such power may be exercised is in the understanding of the expression to imply “during any pending proceedings”, which, in turn, will bring the scope of the pending proceedings into play to provide a key to how the authority may be exercised. Section 247(1A) of the Act provides for wide inquisitorial powers being exercised by the CLB. The order sought were only in furtherance of the investigation under Section 247(1A) of the Act. That is not to suggest that Section 247(1A) of the Act could have been invoked only on the strength of a prayer under Section 237(b) of the Act being carried in the same petition, but that is an altogether different matter. The appeal and the application are allowed. Issues Involved:1. Authority of the Company Law Board (CLB) to receive a stand-alone petition under Section 247(1A) of the Companies Act, 1956.2. Interpretation of the expression 'in the course of any proceedings before it' in Section 247(1A).3. Applicability and scope of Sections 237(b) and 247(1A) of the Companies Act, 1956.4. Whether the petition filed before the CLB was maintainable.Issue-Wise Detailed Analysis:1. Authority of the Company Law Board (CLB) to receive a stand-alone petition under Section 247(1A) of the Companies Act, 1956:The primary issue was whether the CLB could entertain an independent petition under Section 247(1A) for investigating the ownership of a company. The appellant argued that Section 247(1A) could not be invoked independently and must be part of ongoing proceedings. The court agreed, stating that the expression 'in the course of any proceedings before it' implies that the authority under Section 247(1A) should be exercised during existing proceedings and not as a stand-alone petition.2. Interpretation of the expression 'in the course of any proceedings before it' in Section 247(1A):The court emphasized that the phrase 'in the course of any proceedings before it' should be understood to mean 'during any proceedings.' The court noted that interpreting this phrase to allow for an independent petition would render the expression meaningless. The court concluded that the authority under Section 247(1A) could only be exercised during the pendency of other proceedings before the CLB.3. Applicability and scope of Sections 237(b) and 247(1A) of the Companies Act, 1956:The court examined the relationship between Sections 237(b) and 247(1A) and found that while Section 237(b) allows for an investigation into the affairs of a company at the discretion of the Central Government or the CLB, Section 247(1A) specifically pertains to investigating the ownership of a company. The court held that Section 247(1A) could not be invoked independently and must be part of ongoing proceedings, whereas Section 237(b) could be invoked more broadly.4. Whether the petition filed before the CLB was maintainable:The court examined the petition filed by the respondent and concluded that it primarily sought relief under Section 247(1A) without conforming to the requirements of Section 237(b). The court held that since the petition did not seek any relief under Section 237(b) and was solely based on Section 247(1A), it was not maintainable. The court set aside the CLB's judgment and dismissed the petition as not maintainable.Conclusion:The court allowed the appeal, set aside the CLB's judgment, and dismissed the respondent's petition as not maintainable. The court emphasized that Section 247(1A) could not be invoked independently and must be part of ongoing proceedings before the CLB. The court did not impose any costs, recognizing that the respondent's attempt to invoke the CLB's authority was not ignoble.