2025 (6) TMI 774 - AT - Companies Law

Supreme Court Upholds NCLT Order Denying Interim Relief Due to Appellant's Misconduct and Violation of Clean Hands Doctrine

Smt. Dr. Thoyajakshi Bai Sakranaik Versus Patanjali Hospitals Private Limited, Dr. Sathyanarayana Rao Mukunda Rao Kodaganur and Smt. Latha Mukunda Rao, Chitradurga

SC affirmed NCLT's denial of interim relief in a corporate dispute involving alleged oppression and mismanagement. The Appellant's misconduct, including ... Oppression and Mismanagement - Declination to grant an Interim Order prayed for to the effect of keeping the proposal of the proposed EGM of Respondent No. 1 in abeyance - entitlement to the discretionary remedy of interim relief under Sections 241 and 242 of the Companies Act, 2013 - Breach of service contract - HELD THAT:- Looking into the findings and particularly the observations that the Appellant has to come with clean hands for grant of equitable relief, the rejection of the prayer for the grant of interim relief cannot be legally faulted with, because the actions of the Appellant have prima facie have resulted in continuous breach of service contract. Besides that, the grant of an interim relief in a judicial proceeding, is absolutely a discretionary remedy depending upon the establishment of the prima facie case. It is not mandatory to exercise discretion by the court exercising the judicial powers, in a manner expected by the Applicant to the proceedings, for the grant of an interim relief - a denial to grant the interim relief by the impugned order of 01.05.2025 owing to the conduct which, was considered by the Ld. Tribunal as unbecoming of a medical officer for Respondent No. 1, to whom the Appellant owed an allegiance, does not suffer from any legal vices and hence does not call for any interference. Conclusion - The interlocutory orders are discretionary and need not be granted merely because the applicant desires it. The denial of interim relief in the present case was consistent with the established principles governing such remedies and did not prejudice the Appellant's right to seek substantive adjudication. Apart from the fact that, it is an interlocutory order, the impugned order is based on sound reasoning, and the equity does not support the case of the Appellant. The appeal is ‘misconceived’ and the same is accordingly ‘rejected’ 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:Whether the impugned order of the National Company Law Tribunal (NCLT), Bengaluru Bench, declining to grant an interim order to keep the proposal of the Extraordinary General Meeting (EGM) of the Respondent Company in abeyance, was legally sustainable;Whether the Appellant was entitled to the discretionary remedy of interim relief under Sections 241 and 242 of the Companies Act, 2013, in the context of alleged oppression and mismanagement;Whether the Appellant's conduct, including alleged misappropriation of funds and breach of contractual obligations as a medical professional, disentitled her from seeking equitable relief;Whether the proposed EGM and the related proceedings suffered from any legal infirmities or vices warranting judicial intervention at the interlocutory stage;Whether the rejection of the interim relief prejudiced the Appellant's substantive rights, or whether it was an interlocutory order that could be revisited after full adjudication.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality and sustainability of the impugned order declining interim reliefThe legal framework governing the grant of interim relief in proceedings under Sections 241 and 242 of the Companies Act, 2013, is well established as being discretionary. The Court emphasized that such relief is 'in the nature of an absolutely discretionary remedy' dependent on the establishment of facts, the rights involved, and the likelihood of prejudice to the applicant.The Tribunal noted that the NCLT had considered the submissions and material on record, including the Audit Report and related documents, before declining the interim order. The impugned order was found to be based on sound reasoning and did not suffer from any legal vices. The Court held that the refusal to grant interim relief was not an adjudication on substantive rights but a discretionary interlocutory order that could be revisited after full trial.The Tribunal underscored that the Appellant's failure to come with clean hands, due to non-disclosure of ongoing litigations and conduct unbecoming of a medical professional, weighed heavily against the grant of equitable relief.Issue 2: Appellant's alleged misconduct and its impact on entitlement to reliefThe Audit Report submitted by M/s. Yedida and Associates revealed significant discrepancies in cash collections from patients vis-`a-vis amounts remitted to the hospital's cash counter, with an alleged misappropriation amounting to over Rs. 82 lakhs attributed to the Appellant. The report, however, did not single out the Appellant alone but mentioned other doctors as well.Further, the Appellant was found to have breached the service contract by attending to outside patients and providing medical services outside the permitted terms, which was detrimental to the Respondent Company's interests. This conduct was held to potentially attract provisions under Section 166 of the Companies Act, 2013, relating to duties of directors.The Tribunal observed that the Appellant's actions amounted to continuous breach of contractual obligations and were inconsistent with the claim of oppression. The principle that equitable relief requires the applicant to come with clean hands was applied strictly, leading to the conclusion that the Appellant was not entitled to interim protection.Issue 3: Validity of the proposed EGM and absence of legal vices in the proceedingsThe NCLT had recorded that the meeting of the Board of Directors, which passed the resolution to hold the EGM for considering the removal of the Appellant, was convened in accordance with procedural requirements. The resolution to appoint a Forensic Auditor was not objected to by the Appellant until the stay application was filed.The Tribunal found no legal infirmity or procedural irregularity in the conduct of the proposed EGM or the underlying proceedings. The Appellant failed to establish any prima facie case that the EGM or the resolutions were oppressive or prejudicial to her rights.Issue 4: Effect of interlocutory nature of the impugned order on substantive rightsThe Court reiterated that the refusal to grant interim relief is an interlocutory order and does not constitute a final adjudication on the merits of the dispute. The substantive rights of the parties remain open for full trial after pleadings and evidence are exchanged.The Tribunal emphasized that interlocutory orders are discretionary and need not be granted merely because the applicant desires it. The denial of interim relief in the present case was consistent with the established principles governing such remedies and did not prejudice the Appellant's right to seek substantive adjudication.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'An interlocutory application, which seeks for grant of an interim order in a pending proceeding under Sections 241 & 242 of the Companies Act, 2013, or for that matter, in any judicial proceedings before a court of law engaging deciding a right of a party, is in the nature of an absolutely discretionary remedy, which would be exclusively depending upon the establishment of a fact and the right and the likelihood of prejudice, which will be caused to the applicant who has applied for the grant of such interim order.''The Appellant has to come with clean hands for grant of equitable relief... the rejection of the prayer for the grant of interim relief cannot be legally faulted with, because the actions of the Appellant have prima facie resulted in continuous breach of service contract.''The proceedings drawn by way of carrying out the proposed Extraordinary General Meeting of the Respondent Company does not appear to suffer from any legal vices.''A denial to grant the interim relief by the impugned order owing to the conduct which was considered by the Ld. Tribunal as unbecoming of a medical officer for Respondent No. 1, to whom the Appellant owed an allegiance, does not suffer from any legal vices and hence does not call for any interference.'Core principles established include the discretionary nature of interim relief under the Companies Act, the necessity of clean hands doctrine for equitable relief, and the non-interference with valid corporate governance actions such as EGMs convened in accordance with law.The final determination was the dismissal of the appeal, affirming the NCLT's order declining interim relief, with the substantive dispute left open for adjudication.