1998 (5) TMI 333 - HC - Companies Law

Summary

Issues Involved:
1. Whether the Company Law Board (CLB) can issue directions under Section 248 of the Companies Act without any other proceedings pending before it.
2. Whether the provisions of Sections 247 and 248 of the Companies Act operate in the same field or different fields.
3. The tenability of an application seeking investigation under Section 248 without seeking any further relief.
4. The interpretation and application of Section 250 in relation to Sections 247 and 248.

Detailed Analysis:

1. Directions under Section 248 Without Pending Proceedings:

The appellant challenged the CLB's decision, which dismissed the application under Section 248 on the grounds that such a direction could only be issued if other proceedings were pending before the CLB. The appellant argued that Section 248 provides a substantive remedy for investigating the ownership of shares or debentures and does not require other pending proceedings. The court agreed with the appellant, stating that the words "in any proceedings before it" in Section 248 should not be interpreted to mean that other proceedings must be pending. Instead, these words indicate that the CLB can exercise its power under Section 248 if proceedings are initiated invoking that power. The court concluded that an application under Section 248 without seeking additional relief is tenable and can be entertained.

2. Sections 247 and 248 - Same or Different Fields:

The court examined whether Sections 247 and 248 operate in the same or different fields. Section 247 allows the CLB to direct the Central Government to appoint an inspector to investigate the company's affairs, focusing on determining the true persons financially interested in the company's success or failure. In contrast, Section 248 permits the CLB or the Central Government to investigate the ownership of shares or debentures without appointing an inspector. The court found that the area of enquiry under Section 247 is broader than under Section 248, and the methods of enquiry differ. Therefore, the court concluded that Sections 247 and 248 operate in different fields, and withdrawal of proceedings under Section 247 does not affect the maintainability of proceedings under Section 248.

3. Tenability of Application Under Section 248:

The appellant contended that the CLB should have considered the material placed before it on merits to determine if an investigation under Section 248 was warranted. The court agreed, stating that the CLB must first be satisfied that a case for investigation into the ownership of shares is made out before deciding the purpose for which the information will be used. The court emphasized that the remedy provided by Section 248 is an end in itself and does not need to be in aid of other proceedings.

4. Interpretation and Application of Section 250:

The court noted that Sections 247, 248, 249, and 250 are interconnected. Section 250 provides the CLB with the power to make interim orders to facilitate investigations ordered under the preceding sections. These orders are not final but are meant to aid the investigation. The court clarified that once an investigation is ordered under Sections 247 or 248, the CLB can use Section 250 to make necessary interim orders to support the investigation.

Conclusion:

The court allowed the appeal, setting aside the CLB's impugned order and remanding Company Petition No. 36 of 1997 back to the CLB for reconsideration and decision in accordance with the law. The CLB was directed to consider the appellant's application for interim relief on the specified date or any subsequent date. The interim applications were rejected as they did not survive in view of the orders passed.