2016 (3) TMI 466 - HC - Companies Law

Court allows inspection of statutory records but sets aside conditions imposed by Company Law Board.

The court held that the appellants have the right to inspect statutory records, but the use of information derived was contentious. It found that the ... Inspection of the statutory records of the concerned companies in which shares held - Held that:- The appellants will have the right to inspect the statutory records of FKIPL and KIPL. The information so derived will be placed before the CLB. The CLB will, thereafter, ascertain as to the manner and the forum before which the appellants wish to use the information. In case the CLB, on receipt of such information, if inclined to injunct the appellants from using the information, it would first deal with the submission of the appellants that it would have no jurisdiction to prevent them from using the information, so derived, before a forum which is not subordinate to it. In this context, the CLB will, inter alia, keep in mind the fact that, if, information derived discloses a cognizable offence, whether it would have the jurisdiction to prevent its use, by the appellants, while exercising powers under Section 402 and 403 of the 1956 Act. Issues Involved:1. Whether appellants can be given inspection of the statutory records of the concerned companies in which they hold shares, without any fetter.2. Whether the Company Law Board (CLB) has the power to stipulate conditions for seeking inspection of statutory records.3. Whether the CLB can restrict the use of information derived from the inspection to specific forums.4. Whether the CLB has jurisdiction to prevent appellants from using the information in other legal proceedings.5. Whether the impugned orders are bereft of reasons and do not address the arguments advanced by the appellants.Detailed Analysis:1. Inspection of Statutory Records:The appellants filed petitions under Sections 397, 398, and 402 of the Companies Act, 1956, alleging oppression and mismanagement. They sought inspection of the statutory records of the concerned companies. The CLB allowed inspection but imposed conditions that the information derived could only be used before the CLB and not before any other forum without prior approval.2. Power of CLB to Stipulate Conditions:The appellants argued that they have an unfettered right to inspect the records and that the CLB has no authority to impose conditions on this right. They contended that the CLB's imposition of conditions was not articulated during the hearings and was only communicated later, which was improper.3. Restriction on Use of Information:The CLB's orders restricted the use of information derived from the inspection to the proceedings before it. The appellants challenged this restriction, arguing that it impeded their legal rights to use the information in other forums, including reporting to the police if the information disclosed a cognizable offense.4. Jurisdiction of CLB:The appellants contended that the CLB has no jurisdiction to prevent them from using the information in other legal proceedings. They relied on Section 41(b) of the Specific Relief Act, 1963, and relevant case law to support their argument that the CLB cannot injunct them from prosecuting their legal rights in other forums.5. Impugned Orders Lacking Reasons:The appellants argued that the impugned orders were bereft of reasons, as the CLB did not address their arguments regarding the unrestricted use of information. The orders simply imposed conditions without providing a rationale, which the appellants found inadequate.Court's Findings:1. Right to Inspection:The court acknowledged that the appellants have the right to inspect the statutory records. However, the use of the information derived from the inspection was the main point of contention.2. Conditions Imposed by CLB:The court noted that the CLB imposed conditions on the use of information without addressing the appellants' arguments. The court found that the CLB should have considered whether it had the jurisdiction to impose such conditions.3. Use of Information:The court held that the stage to impose conditions on the use of information can only arise once the information is derived and its intended use is known. The CLB should have allowed the appellants to place the information before it and then decide on the conditions, if any, based on the intended use.4. Jurisdiction of CLB:The court agreed with the appellants that the CLB must first address whether it has the jurisdiction to prevent the use of information in other forums, especially if the information discloses a cognizable offense.5. Setting Aside Impugned Orders:The court set aside the impugned orders and directed that the appellants be allowed to inspect the statutory records. The information derived should be placed before the CLB along with an affidavit indicating the intended use. The CLB should then decide on the conditions, if any, after hearing the parties and considering the jurisdictional issue.Conclusion:The court disposed of the appeals and applications, directing that the appellants be given inspection of the statutory records within ten days. The information derived should be placed before the CLB, which will then pass a fresh order after considering the arguments and jurisdictional issues.