2020 (12) TMI 874 - AT - Insolvency and Bankruptcy

Tribunal overturns order citing lack of fair hearing, directs fresh consideration

The Tribunal set aside the ex-parte ad-interim order dated 05.10.2020 due to a violation of natural justice principles. The matter was remitted back to ... Restraint from selling the property of the Respondent No. 1 till further orders - direction to Respondents not to change the shareholding pattern of the first Respondent Company without seeking prior permission from this Tribunal, etc. - HELD THAT:- In the instant case, although the Appellants have come out with the plea that the Appellant No. 2, his wife and both children were tested positive for COVID 19 and were self-home-quarantine on 05.10.2020 and that the Appellant No. 3 and 4 were out of station along with their family and friends for excursion during the weekend of 2nd October, 2020 to 6th October, 2020 etc. and none of the Appellant Nos. 2 to 4 were aware of any such hearing on 05.10.2020 and neither in a situation to attend the hearing or nor was in a position to appoint any Advocate for them to attend the hearing, and not withstanding the fact that the name of Appellant Nos. 2 to 4 were wrongly shown in the appearance column of the impugned order as Advocates, this Tribunal without precipitating the matter any further and not delving deep in this regard is of the considered view that a latent and patent error had crept in the appearance column of the impugned order and by mistake the Appellants Nos. 2 to 4 were shown as Advocates and this Tribunal at this juncture is of the earnest view that utmost diligence, care, caution and circumspection are required on the concerned person(s) of the Tribunal while marking / noting the appearance of Learned Advocates / Parties/Representatives and quite in the fitness of things, this Tribunal hope and trust such an inadvertent error will not recur again in the near future. It is to be pointed out that the Tribunal as per Section 241 of the Companies Act, 2013 has wide powers to grant relief in cases of oppression etc. It can pass interim orders pertaining to the functioning of the Company in case of oppression and mismanagement. Apart from that, the Tribunal has discretion in moulding the relief even when the concerned petitioner fails to make out a case of an oppression and mismanagement. The Tribunal has to weigh equitable considerations, to be super imposed on legal rights. However, whether an act is an oppressive one or not is basically a question of fact - Undoubtedly, the Tribunal has power to decide whether a particular transaction is a bonafide one entered into in the ordinary course of business without notice of any internal squabbles of the Directors of a Company. In a petition u/s 241 of the Companies Act, 2013 (i) materials ought to be supplied (ii) figures are to be furnished (iii) the allegations are to be proved. The plea of limitation is a mixed question of Law. The power of the Tribunal is to correct oppressive conduct and the said power under section 241-242 of the Companies Act, 2013 is a statutory one - Section 420(1) of the Companies Act, 2013 enjoins that the Tribunal may, after giving the parties to any proceeding before it, a reasonable opportunity of being heard, pass such orders thereon as it thinks fit. The settled legal proposition is that the rules of justice are to supplement the law and not to supplant the same. The term natural justice relates to the quality of fairness to be adopted and the term ‘Natural Justice’ is another name for common justice. Audi Alteram Partem. In the present case the Appellants have come out with a plea that the impugned order of the Tribunal has paralysed, jeopardized and completely affected the operations of the First Appellant/Company in a grave manner thereby affecting the ‘Allottees’ ‘Bankers’ and ‘Creditors’. This Tribunal, based on the surrounding facts and circumstances of the instant case in a conspectus manner and especially bearing in mind the ex-parte impugned order dated 05.10.2020 was passed by the Tribunal in Company Petition No./133/2020 which has adverse civil consequences of affecting the First Appellant / Company’s business arising thereto without expressing any opinion on the merits of the subject matter in issue, one way or other comes to a consequent conclusion that the said impugned order is in negation of the ‘Principles of Natural Justice’ and, therefore, to prevent an aberration of justice and to promote substantial cause of justice the said impugned order dated 05.10.2020 in Company Petition No./133/2020 is set aside by this Tribunal. Further, this Tribunal remits back the matter to the ‘National Company Law Tribunal’, New Delhi, Court No.- II for denovo consideration and appreciation of the whole gamut of the controversies centering around the main Company Petition. Appeal allowed. Issues Involved:1. Validity of the ex-parte ad-interim order dated 05.10.2020.2. Allegations of misappropriation and mismanagement by the Respondents.3. Compliance with principles of natural justice.4. Jurisdiction and powers of the Tribunal under Sections 241 and 242 of the Companies Act, 2013.5. Procedural lapses and the right to a fair hearing.Issue-wise Detailed Analysis:1. Validity of the ex-parte ad-interim order dated 05.10.2020:The Appellants challenged the ex-parte ad-interim order passed by the National Company Law Tribunal (NCLT), New Delhi, on 05.10.2020, which restrained the Respondents from selling the property of the First Respondent company and from changing the shareholding pattern without prior permission. The Appellants contended that they were not informed about the hearing and were added to a WhatsApp group without prior notice, leading to an ex-parte order that adversely affected their business operations.2. Allegations of misappropriation and mismanagement by the Respondents:The Appellants argued that the Respondents falsely claimed a 49% shareholding and made baseless allegations of misappropriation. They contended that the Respondents were not 'Quasi Shareholders' and had no right to file the Company Petition. The Appellants also highlighted various instances of alleged mismanagement by the Respondents, including unauthorized transactions, siphoning off funds, and making false complaints to the company's banker.3. Compliance with principles of natural justice:The Tribunal emphasized the importance of the principles of natural justice, particularly the 'audi alteram partem' rule, which mandates that no one should be condemned unheard. The Tribunal noted that the ex-parte order was passed without providing the Appellants a reasonable opportunity to be heard, thereby violating the principles of natural justice. The Tribunal highlighted that reasons must be assigned in an order to ensure fairness in decision-making and to provide an opportunity for the affected parties to challenge the order before a higher forum.4. Jurisdiction and powers of the Tribunal under Sections 241 and 242 of the Companies Act, 2013:The Tribunal reiterated that it has wide powers under Sections 241 and 242 of the Companies Act, 2013, to grant relief in cases of oppression and mismanagement. The Tribunal can pass interim orders to protect the interests of the company and its stakeholders. However, the Tribunal must weigh equitable considerations and ensure that the relief granted is in the best interest of the company.5. Procedural lapses and the right to a fair hearing:The Tribunal acknowledged that a procedural lapse occurred when the Appellants were not properly informed about the hearing, and their names were wrongly shown as Advocates in the appearance column of the impugned order. The Tribunal emphasized that utmost diligence and caution are required while marking the appearance of parties and their representatives. The Tribunal directed that the registry must furnish requisite information to the parties well in advance to enable them to prepare for their matters.Conclusion:The Tribunal concluded that the ex-parte ad-interim order dated 05.10.2020 was passed in negation of the principles of natural justice. Consequently, the Tribunal set aside the impugned order and remitted the matter back to the NCLT, New Delhi, for de novo consideration. The Tribunal directed the NCLT to provide a fair hearing to all parties, consider their submissions, and pass a reasoned order in compliance with the principles of natural justice. The appeal was allowed, and the stay application was closed.