2015 (3) TMI 550 - HC - Companies Law

Court sets aside CLB's order, limits powers under section 247(1A). Emphasizes procedural propriety and natural justice.

The court set aside the CLB's interim order, emphasizing that CLB's powers under section 247(1A) should be exercised only in relation to the company ... Aggrieved by order of Company Law Board (CLB) - Violation of principles of natural justice - Invocation of powers of the CLB under section 247(1A) of the Companies Act - Held that:- Section 247(1A) would not empower the CLB to direct investigation into the affairs of a company which is merely party to the proceedings but is not the company in respect of which there is any allegation of oppression and mismanagement.The use of the expression “the company” implies further that it refers to the company in respect of which the proceedings are pending before the CLB. The use of the expression “in the course of any proceeding before it” cannot be read liberally so as to empower the CLB to direct investigation into the affairs of any company connected or unconnected with the proceedings or which is merely a party to the proceedings. The same principles have laid down in the case of Uniworth Textiles limited [2013 (3) TMI 323 - CALCUTTA HIGH COURT]. In the case at hand, the CLB has passed the order in the nature of an interim order in an application seeking impleadment. There is clearly no formation of opinion by the CLB that the „true persons‟ who are or have been financially interested in the success or failure of the company, are different from the persons who appear to be the members of the company or the „true persons‟ who are or have been able to control or materially influence the policy of the company, are different from the persons who appear to be in the control of the company and a probe into the company's affairs is desirable in the interest of the company itself, and/or in public interest and that such an investigation was required into the affairs of WIPL. There was admittedly no request or prayer made by the respondent for the same. Parties have not even been put to notice that such an order was contemplated. Parties have admittedly not been heard on this issue. There is clearly a violation of the principles of natural justice. Furthermore, the proceedings in which directions have been issued in suo moto exercise of powers under section 247(1A), in respect of WIPL, are not proceedings in respect of WIPL. WIPL is not even a party to the said proceedings. Though an application seeking impleadment of WIPL is pending but it is yet to be decided by the CLB. Even if the said application were to be allowed and WIPL was impleaded as a party, it would make no difference as the proceedings do not relate to the affairs of the company WIPL. Merely because WIPL is impleaded as a party to the proceedings would not empower CLB to direct an investigation into its affairs as permitting so would render the very words “in the course of the proceedings before it” otiose. The proceedings pending before the CLB are not proceedings in respect of WIPL. In view of the above, the appeals are allowed. The impugned order dated 09.05.2014 is set aside. The CLB is directed to decide the pending applications in accordance with law and the principles as elucidated here in above. - Decided in favour of appellants. Issues Involved:1. Allegations of oppression and mismanagement under sections 397-398 of the Companies Act, 1956.2. Validity of the agreement dated 30.01.2013 and subsequent addendums.3. Exercise of suo moto powers by the Company Law Board (CLB) under section 247(1A) of the Companies Act.4. Procedural propriety and principles of natural justice in CLB's interim orders.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The respondent filed a Company Petition alleging oppression and mismanagement by certain individuals in respect of M/s Positiv Television Pvt. Ltd. (PTPL) and other group companies. The respondent sought relief including the declaration of certain share allotments as null and void and challenged her removal as a Director of PTPL. The CLB initially directed a status quo regarding the fixed assets and shareholdings of the respondent companies.2. Validity of the Agreement Dated 30.01.2013 and Subsequent Addendums:The CLB found that the agreement dated 30.01.2013 between PTPL and WIPL aimed at a complete takeover of PTPL by WIPL was fraudulent, mischievous, and in breach of previous orders. The CLB declared the agreement a nullity. The appellants contended that if the agreement was void, PTPL and the respondent must first restore the Rs. 150 Crores obtained from WIPL under the said agreement. The CLB's finding was challenged on the grounds that it was made without a proper hearing and violated principles of natural justice.3. Exercise of Suo Moto Powers by the CLB under Section 247(1A):The CLB exercised suo moto powers under section 247(1A) to direct an investigation into WIPL's affairs to determine the true persons financially interested in PTPL. The appellants argued that the CLB did not have the authority to direct such an investigation as WIPL was not the company in respect of which the proceedings were pending. The court held that section 247(1A) applies only to the company that is the subject matter of the proceedings before the CLB, and the CLB's direction for investigation into WIPL's affairs was not sustainable.4. Procedural Propriety and Principles of Natural Justice:The appellants contended that the CLB issued directions without notice or hearing, violating principles of natural justice. The court found that the CLB's directions, including the appointment of a nominee director on PTPL's Board and restrictions on board meetings and shareholdings, were made without affording an opportunity to the affected parties. The directions were beyond the scope of the application for impleadment and not sustainable.Conclusion:The court set aside the CLB's interim order dated 09.05.2014, directing the CLB to decide the pending applications in accordance with law and principles elucidated in the judgment. The court emphasized that the CLB's powers under section 247(1A) should be exercised only in respect of the company that is the subject matter of the proceedings before it, and any directions should comply with the principles of natural justice.