2025 (5) TMI 2107 - AT - Companies Law

Orders under Companies Act enforceable as if decrees under s.424(3) but not CPC decrees; CPC-style drawing not maintainable

NCLAT held that orders of the Tribunal under the Companies Act, though enforceable as if decrees under s.424(3), are not decrees under the CPC and cannot ... Oppression and Mismanagement - 'decree' as defined under the Code of Civil Procedure (CPC), 1908 - recovery of funds allegedly diverted from the company - HELD THAT:- The decree in itself is not a Judgment, but rather, it is a formal expression of an adjudication which based on reasons given in a Judgment, made by the “Civil Courts”, conclusively determining the rights and liabilities of the parties in the matters which are in controversy “in the Suit”, and can be in the nature of preliminary, final or part preliminary and part final. Even if the orders passed by this Tribunal or the Appellate Tribunal are made enforceable as per Sub-Section (3) of Section 424 like a “Decree” passed by the Civil Court, this mechanism of its enforceability in itself will not make the said Order as to be a decree, which has been passed by the competent Civil Court in a Suit, because, the enforceability of the Order of a Tribunal as a decree as contemplated under the Companies Act, it does not include within itself a mechanism of enforceability unlike a decree passed in the Civil Suit which has a mechanism of enforceability under the provisions contained under Order XXI of C.P.C. The learned Adjudicating Authority has observed that, though Sub-Section (3) of Section 424, contemplates for an Order passed by the Tribunals created under the Companies Act to be executed as a decree of a Civil Court, that in itself will not mean that the orders passed by the Tribunal or Appellate Tribunal, will in itself take a shape of the decree, which could be permitted to be formulated, as it was prayed for in the respective Applications preferred under Rule 11 to be read with Rule 102 of the NCLT Rules, 2016, to be read in conjunction with the provisions of Order XX Rule 6A & Section 47 of the C.P.C., and accordingly has taken the view that merely because of the provisions contained under Sub-Section (3) of Section 424, it does not cast a judicial liability on the Tribunal to formulate a decree, in the shape of a decree contemplated under the Civil laws, provided under Order XX of C.P.C. The learned NCLT has observed that the authorization given to the Administrator by the Order of 28.08.2018, to take all steps to recover the amount, will not amount to a judicial power vested with the Administrator and that it is only an arrangement made by the Tribunal to evolve a mechanism for recovery of the amount said to be diversified which was the subject matter before it and therefore, any determination made by the Administrator in this regard, for all practical purposes cannot be treated as to be a determination made by a Civil Court, on basis of which a decree could be formulated under an Order XX Rule 6A of the C.P.C., to be treated as a decree to be executed as per Order XXI of C.P.C. or under Section 424(3) of the Companies Act - The Tribunal has rightly observed that the prayer for drawing of a decree on the basis of the report of the Administrator itself is a concept which is alien to the Civil proceedings leading to formulation of a decree. As a matter of fact, Courts created under the Statute, have an inherent power vested in them to modulate the relief so as to meet the ends of justice and a rigid straight jacketed formula is not to be adopted and applied in a manner to deceive the very purpose of an earlier adjudication of the controversy between the parties, owing to the hyper technical view that since prayer was for formulation of decree, which falls outside the ambit of powers vested with the Tribunal, the applications are liable to be dismissed. The relief as sought for by the Appellant in the Application preferred before the learned Tribunal in compliance of the Order dated 08.04.2022, is reasonably modified to be read as “to pass an Order”, which is executable under Sub-Section (3) of Section 424 of the Companies Act and accordingly, the order passed in favour of the Appellant under Section 241 & 242 of the Companies Act, is directed to be executed as per the provisions contained under Sub-Section (3) of Section 424 of the Companies Act. Conclusion - i) The applications seeking drawing of decrees were not maintainable and rightly dismissed by the learned Adjudicating Authority. ii) The orders passed by the Tribunal are enforceable as if decrees but are not decrees under the CPC and cannot be formally drawn as such. Appeal disposed off. 1. The core legal questions considered by the Tribunal in these consolidated Company Appeals include:- Whether an order passed by the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) under the Companies Act, 2013 can be equated to a 'decree' as defined under the Code of Civil Procedure (CPC), 1908, and whether such orders can be formally drawn as decrees for the purpose of execution.- Whether the Administrator appointed under the NCLT order, empowered to recover funds allegedly diverted from the company, can seek execution of recovery by filing applications under Rule 11 read with Rule 102 of the NCLT Rules, 2016, and Section 424(3) of the Companies Act, 2013, praying for drawing a decree for recovery of money.- The scope and interpretation of Section 424(3) of the Companies Act, 2013, regarding enforcement of Tribunal orders 'in the same manner as if it were a decree made by a court in a suit pending therein.'- The maintainability of Miscellaneous Applications filed by the Administrator seeking formulation of a decree based on demand notices and auditor reports, and whether the NCLT has the jurisdiction or power to formulate such decrees akin to Civil Courts under Order XX of the CPC.- The procedural and substantive distinctions between an order passed by the Tribunal under the Companies Act and a decree passed by a Civil Court under the CPC, including the implications for execution proceedings.- Whether the Tribunal erred in dismissing the Miscellaneous Applications on the ground that the prayer for drawing a decree was outside its jurisdiction and powers.- The appropriate remedy and procedural course for recovery of diverted funds under the Companies Act framework.2. Issue-wise detailed analysis:Issue 1: Whether orders passed by the Tribunal under the Companies Act can be treated as decrees under the CPC and drawn as such for executionRelevant legal framework and precedents:Section 424(3) of the Companies Act, 2013 provides that any order made by the Tribunal or Appellate Tribunal may be enforced 'in the same manner as if it were a decree made by a court in a suit pending therein.' The CPC defines 'decree' under Section 2(2) as the formal expression of an adjudication conclusively determining the rights of parties in a suit, which may be preliminary or final. Order XX of the CPC governs the drawing and execution of decrees in Civil Courts.Court's interpretation and reasoning:The Tribunal held that while Section 424(3) allows enforcement of Tribunal orders as if they were decrees, this does not transform the orders into decrees as defined under the CPC. The orders passed by the Tribunal do not satisfy the procedural and substantive requirements of a decree under the CPC, such as formal adjudication based on issue determination and compliance with Order XX rules. The legislative reference in Section 424(3) is by 'reference' and not by 'incorporation,' meaning the Tribunal's orders are not decrees per se but may be enforced similarly.Key evidence and findings:The Tribunal analyzed the definition of decree under CPC Section 2(2) and Order XX, noting that drawing a decree requires formal adjudication and determination of rights, which is not the nature of the Tribunal's orders. The Administrator's applications seeking drawing of decrees based on demand notices and auditor reports were found to lack the judicial determination necessary for a decree.Application of law to facts:The Tribunal concluded that the applications praying for drawing a decree were not maintainable as the Tribunal lacks power to formulate decrees in the manner Civil Courts do. The orders passed under the Companies Act are enforceable as if decrees but are not decrees themselves and thus cannot be 'drawn' as decrees under CPC procedural rules.Treatment of competing arguments:The Appellants contended that the Tribunal's orders should be treated as decrees and executable accordingly. The Tribunal rejected this, emphasizing the distinction between enforceability and formal decree status. The Tribunal also rejected the argument that the Administrator's applications were filed as per directions of the Tribunal, clarifying that the direction was to file appropriate applications for executable orders, not to seek drawing of decrees.Conclusions:The Tribunal held that orders passed under the Companies Act cannot be equated to decrees under the CPC for the purpose of formal drawing and execution. Enforcement of such orders must follow the procedure under the Companies Act and NCLT Rules, not the CPC decree-drawing process.Issue 2: Maintainability of Miscellaneous Applications filed by the Administrator seeking drawing of decrees for recovery of diverted fundsRelevant legal framework and precedents:The Administrator filed applications under Rule 11 read with Rule 102 of the NCLT Rules, 2016 and Section 424(3) of the Companies Act praying for drawing decrees for recovery of amounts allegedly diverted from the company. The CPC provisions relating to drawing of decrees (Order XX Rule 6A) were also invoked by the Appellants.Court's interpretation and reasoning:The Tribunal found that the applications were flawed in seeking formal drawing of decrees based on demand notices and reports, which do not constitute judicial adjudication. The Tribunal observed that the Administrator's mandate was to manage the company and take steps for recovery but did not vest judicial power to determine rights conclusively or formulate decrees. The Tribunal further held that the applications misinterpreted the earlier order dated 08.04.2022, which only granted liberty to file applications for executable orders, not to draw decrees.Key evidence and findings:The Tribunal relied on the order dated 08.04.2022 dismissing the Execution Petition EP/01/KOB/2021, which clarified that no specific order/decree existed to be executed and that executable orders could be passed only after hearing parties on specific applications. The Tribunal noted that the Administrator's applications sought to shortcut this process by praying for decrees based on reports and demand notices.Application of law to facts:The Tribunal dismissed the applications as not maintainable, emphasizing that the recovery process must be through passing executable orders after adjudication, not by drawing decrees mechanically. The Tribunal observed that the Administrator's role was executive and managerial, not judicial.Treatment of competing arguments:The Appellants argued the applications were filed pursuant to Tribunal directions and were necessary for recovery. The Tribunal rejected the argument, holding that the applications misinterpreted the directions and that the Tribunal's order did not authorize drawing of decrees in this manner.Conclusions:The Tribunal concluded that the Miscellaneous Applications seeking drawing of decrees were not maintainable and rightly dismissed by the learned Adjudicating Authority.Issue 3: Appropriate procedural course for recovery of diverted funds under the Companies Act frameworkRelevant legal framework and precedents:Section 241 and 242 of the Companies Act, 2013 empower the Tribunal to address oppression and mismanagement, including appointing an Administrator to manage affairs and recover diverted funds. Section 424(3) allows enforcement of Tribunal orders as if they were decrees. The NCLT Rules provide for filing of appropriate applications for execution of orders.Court's interpretation and reasoning:The Tribunal emphasized that recovery of diverted funds must be through filing appropriate applications before the Tribunal seeking executable orders after hearing the parties. The Tribunal highlighted that the Administrator's demand notices and reports are evidentiary but do not constitute enforceable decrees or orders by themselves. The Tribunal underscored the need for a pragmatic approach, allowing modification of relief sought to pass executable orders rather than rigidly dismissing applications on technical grounds.Key evidence and findings:The Tribunal noted the appointment orders of the Administrator, the directions given by the Tribunal, and the procedural history showing attempts to recover funds through execution petitions and miscellaneous applications. The Tribunal found that the Administrator's mandate was to manage and initiate recovery, but judicial determination and passing of executable orders remain within the Tribunal's domain.Application of law to facts:The Tribunal modified the relief sought in the applications from 'drawing a decree' to 'passing an order' executable under Section 424(3) of the Companies Act. It allowed the Appellants liberty to file appropriate applications for execution of the orders passed under Sections 241 and 242 of the Companies Act.Treatment of competing arguments:The Appellants sought to enforce recovery through decree-drawing applications. The Tribunal balanced the need for effective recovery with adherence to procedural propriety, rejecting hyper-technical dismissal and promoting a flexible approach to achieve justice.Conclusions:The Tribunal held that the relief sought should be treated as a prayer for executable orders and directed that the recovery process be pursued accordingly, with liberty to file appropriate applications for execution under the Companies Act.3. Significant holdings:'Though Sub-Section (3) of Section 424 contemplates for an Order passed by the Tribunals created under the Companies Act to be executed as a decree of a Civil Court, that in itself will not mean that the orders passed by the Tribunal or Appellate Tribunal, will in itself take a shape of the decree, which could be permitted to be formulated, as it was prayed for in the respective Applications preferred under Rule 11 to be read with Rule 102 of the NCLT Rules, 2016, to be read in conjunction with the provisions of Order XX Rule 6A & Section 47 of the C.P.C.''The concept of drawing a 'decree' as defined under the Code of Civil Procedure, in pursuance to an order which was passed under the proceedings held under the Companies Act, is not a concept, which is contained under the Companies Act.''The authorization given to the Administrator by the Order of 28.08.2018 to take all steps to recover the amount, will not amount to a judicial power vested with the Administrator and it is only an arrangement made by the Tribunal to evolve a mechanism for recovery of the amount said to be diverted.''The prayer for drawing of a decree on the basis of the report of the Administrator itself is a concept which is alien to the Civil proceedings leading to formulation of a decree.''The relief as sought for by the Appellant in the Application preferred before the learned Tribunal in compliance of the Order dated 08.04.2022, is reasonably modified to be read as 'to pass an Order', which is executable under Sub-Section (3) of Section 424 of the Companies Act.'Core principles established include:- Orders passed by the NCLT or NCLAT under the Companies Act are enforceable as if they were decrees but do not become decrees in the formal sense defined under the CPC.- The Tribunal does not have the power to draw decrees under CPC procedural rules; enforcement must be pursued through appropriate applications for executable orders under the Companies Act and NCLT Rules.- The Administrator's role is managerial and executive, not judicial; recovery actions must be sanctioned by the Tribunal through executable orders.- A pragmatic and flexible approach should be adopted to modulate relief and avoid hyper-technical dismissals, to facilitate effective enforcement of Tribunal orders.Final determinations on each issue:- The applications seeking drawing of decrees were not maintainable and rightly dismissed by the learned Adjudicating Authority.- The orders passed by the Tribunal are enforceable as if decrees but are not decrees under the CPC and cannot be formally drawn as such.- The Appellants are granted liberty to file appropriate applications for execution of the orders passed under Sections 241 and 242 of the Companies Act, which the Tribunal will consider and pass executable orders accordingly.