CLB cannot exercise its inherent powers to pass orders without jurisdiction

SUMMARY OF CASE LAW

The CLB cannot exercise its inherent powers to pass orders without jurisdiction or in utter disregard to orders passed by the Supreme Court or the High Court; an interim order passed by the CLB without jurisdiction and without giving reasons and in utter disregard to the orders passed by the Supreme Court and the High Court cannot be sustained.

Appeal No.: Company Appeal No. 45 of 2009, In Company Application No. 138 of 2009, In  Company Petition No. 45/297-298/CLB/ MB/2009, With Company Application No. 847 of 2009

RELEVANT PARAGRAPH

3. The questions of law arising in this appeal are:

(i) Whether the Company Law Board can grant interim reliefs pertaining to matter/s which is/are not a part or subject matter of the petition, more so, in view of the decision of the Hon¡ ble Apex Court in Shanti Prasad Jain v/s. Kalinga Tubes Ltd. etc., reported in AIR 1965 SC 1535, and the decision of this Court in appeal no.35 of 2009 dated 16th July 2009;

(ii) whether the Company Law Board under Regulation 44 of the Company Law Board Regulations, 1991, has the powers to extend time granted by this Court for a specific purpose or grant reliefs without assigning any reason where reliefs are neither prayed for nor any submissions are made in the company application in support of grant of such reliefs.

7 I have considered the submissions advanced on behalf of the senior Advocates appearing for the appellant as well as respondent no.1. Admittedly, the company petition was filed on 14th may, 2009 and served on the appellant on 16th May, 2009. An application for interim reliefs was to be made by the petitioners on 21st May, 2009. In the meantime at the meeting of the Board of Directors held on 18th May 2009, a decision in relation to the issue of convertible warrants of equity shares on preferential basis was taken. Since the said decision was taken subsequent to the filing of the petition, admittedly it did not form the subject matter of the petition. However, on 21st May, 2009 respondent no.1 tendered Company Application No. 95 of 2009 before the Company Law Board and inter alia sought to restrain the appellant from giving effect to the decision in relation to the issue of convertible warrants, taken at the Board meeting of the appellant held on 18th May, 2009. This relief sought by respondent no.1 was granted by the Company Law Board by its order dated 22nd May, 2009. The said order dated 22nd May, 2009, passed by the Company Law Board was set aside by this Court by its order dated 16th July, 2009 in Appeal No.35 of 2009 which was also filed by the present appellant. This Court in its said order dated 16th July, 2009 whilst setting aside the order of the Company Law Board dated 22nd May, 2009, inter-alia held/observed/ directed as follows:

i) The Decision taken by the Board of Directors in its meeting held on 18th May, 2009 had not been challenged in the main petition. In paragraph 35 of the decision of the Hon¡ ble Apex Court in the case of Shantiprasad Jain (supra) the Hon’ ble Apex Court has observed that the matters which were not part of the petition cannot be taken into account for considering the interim application.

ii) No reason has been recorded by the Company Law Board which necessitated issuance of an injunction as is ordered against the appellant and its Board of Directors. It would be a different matter if the Board were to consider all relevant aspects for grant or non grant of interim reliefs such as prima facie case, balance of convenience and irreparable loss and record its opinion one way or the other on the contentious issue.

iii) In the circumstances the only option available to the Court is to set aside the impugned order and to relegate the parties for reconsideration of application on its own merits in accordance with law.

iv) The impugned decision is manifestly wrong and untenable. The appropriate course is to set aside the impugned decision and instead relegate the parties before the Board for reconsideration of the application no.95 of 2009, which will have to be considered on its own merits and in accordance with law after giving fair opportunity to both sides to file the affidavit and/or to amend the pleadings, as may be advised if permissible by law.

v) Upon submission of the Counsel for the respondents, that the respondents may consider taking the matter in appeal an order directing the appellant to maintain status quo for a period of two weeks, is ordered directing the appellant not to precipitate the matter with regard to preferential issue for a period of two weeks.

7 After the aforesaid order was passed by this Court on 16th July, 2009, respondent no.1 admittedly preferred an SLP before the Hon’ble Supreme Court of India being SLP (Civil) No(s) 177715-17716/ 09 impugning the order passed by this Court dated 16th July, 2009.

8 Respondent no.1 also moved the Company Law Board by way of Company Application No. 138 of 2009 seeking amendments of the Company Petition. Respondent no.1 by the said amendment application sought to add to the petition the facts pertaining to the decision of the Board of Directors of the appellant dated 18th May 2009 and also seek reliefs against the said decision. The said Company Application was served on the appellant on 23 rd July, 2009 and was circulated for urgent reliefs on 27th July, 2009. At the request of the appellant, the Company Law Board by its order dated 27th July, 2009, placed the amendment application on 6th August, 2009, for hearing i.e. after 10 days. The learned Member of Company Law Board inter alia also passed the following order on the oral application of respondent no.1. ½ Till the amendments to the petition are completed and interim prayer is heard the respondents are directed not to precipitate the matter as envisaged by Justice Khanwilkar at Bombay High Court and the said two weeks extension given by the Hon’ble High Court is further extended till interim relief in this petition is decided by this Bench. This order is issued under Rule 44 of the Company Law Board Regulations, 1991.

9 When the aforesaid order dated 27th July, 2009, was passed by the Company Law Board, the order passed by this Court dated 16th July, 2009, setting aside a similar order passed by the Company Law Board on 22nd May, 2009, was admittedly before the Company Law Board. However, the Company Law Board has clearly disregarded the order passed by this Court dated 16th July 2009 and in effect passed the same order on 27th July 2009 which

becomes clear from the following:

i) Though the amendment application pertaining to the decision of the Board of Directors of the appellant dated 18th May 2009 was not allowed on 27th July 2009 and, therefore, was not part of the petition on 27th July 2009 the Company Law Board disregarded the decision of the Hon’ble Apex Court in Shanti Prasad Jain (supra), observing that the matters which were not part of the petition cannot be taken into account for considering the interim application and the decision of this Court dated 16th July, 2009, setting aside a similar earlier order of the Company Law Board and once again passed the same interim order, pertaining to the decision of the Board of Directors of the Appellant dated 18th May,2009. ii) Though in the order of this Court dated 16th July 2009 whilst setting aside the earlier order of the Company Law Board dated 22nd May, 2009, it was categorically observed that no reason has been recorded by the Company Law Board which necessitated issuance of the injunction order dated 22nd May, 2009 and that it would be a different matter if the Board were to consider all the relevant aspects for grant or non grant of interim relief such as prima facie case, balance of convenience and irreparable loss and record its opinion one way or the other on the contentious issue, the Company Law Board in its impugned order once again passed an interim order having the same effect as that of its earlier interim order dated 22nd May, 2009, without giving any reasons and without considering all the relevant aspects. iii) The earlier order of injunction dated 22nd May, 2009, passed by the Company Law Board against the appellant in application no.95 of 2009, was set aside by this Court as being manifestly wrong and untenable and it was categorically observed by this Court that the said application no.95 of 2009 will have to be considered on its own merits in accordance with law after giving fair opportunity to both sides to file the affidavit/s and/or to amend the pleadings, as may be advised if permissible by law. Despite the said order of this Court, an oral application was made for the same reliefs prayed for in application no.95 of 2009 and orders having effect of the reliefs sought in application no.95 of 2009 were passed without giving fair opportunity to both sides to file the affidavits and/or to amend the pleadings pending hearing and final disposal of application no.95 of 2009.

10 Respondent no.1 was well aware that the order of status quo granted against the appellant for a period of two weeks by an order of this Court dated 16th July, 2009, was only to enable the respondent no.1 to prefer an appeal from the said order dated 16th July, 2009 pursuant to which an SLP was in fact filed before the Hon¡ ble Supreme Court impugning the order of this Court dated 16 th July 2009. The Company Law Board wrongly proceeded to extend the said order, that too on an oral application of respondent no.1 and without giving any reasons in support thereof. The Company Law Board has in the impugned order recorded that the order is issued under Rule 44 of the Company Law Board Regulations 1991. Rule 44 of the Company Law Board Regulations reads as under: ½ 44. Saving of inherent power of the Bench: Nothing in these Rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench. Apart from the fact that the Company Law Board cannot use its inherent power to extend the time granted by this Court to the first respondent no.1 for a specific purpose, the Company Law Board cannot exercise its inherent powers to pass orders without jurisdiction or in utter disregard to the orders passed by the Hon’ ble Apex Court or the High Court.

11 The submission advanced by Mr. Bookwala, Senior Advocate on behalf of respondent no.1 that the appellant company has abandoned its decision taken at the meeting of the Board of Directors on 18th May 2009 is not admitted by the appellant. The submission of Mr.Bookwala that the impugned order was passed because the appellant asked for time to file an affidavit, needs to be forthwith rejected. An interim order passed by the Company Law Board without jurisdiction and without giving reasons and in utter disregard to the orders passed by the Hon’ ble Supreme Court and this Court, cannot be sustained on the ground submitted by Mr. Bookwala. For the very same reasons, the decision in the case of Dr. Bais Surgical and Medical Institute Private Limited (supra) will be of no assistance to respondent no.1.

12 Before I part with this order, I am inclined to observe that one of the main pillars on which the legal system in any society rests, is Judicial discipline. If judicial discipline is not adhered to the legal system would fail. One of the cardinal principles of judicial discipline is that every judicial officer, be it a member of a Tribunal or the Judge of any Court has to respect and follow the directions/decision s of a Court which is above it in the hierarchy, even if his view differs on a particular issue. No order of any judicial officer/Judge is expected to even remotely give an impression that it is trying to overreach the order of a higher court. Unfortunately, the impugned order falls short of such expectation.

13 In view of the aforesaid, I pass the following order :

i) Both the questions of law raised in paragraph three above are answered in the negative.