2009 (2) TMI 471 - HC - Companies Law

Bogus transactions - whether the transfer of these 200 shares are true? - Injunction - Held that - There is nothing whatsoever to indicate any mala fides on the part of the Appellant or collusion between the Appellant and the other Respondents as regards the transfer of the said 200 shares. The Petitioner admittedly had done nothing since November, 2005 when his father expired, up to 15-12-2008 when he filed the petition to protect his alleged rights. As a result of his negligence and inaction in protecting his alleged right, the Appellant an innocent third party has irreversibly altered its position to its detriment. Admittedly, the records of the company did not even remotely indicate any subsisting right of the Petitioner in respect of the said 200 shares. Nor was there anything on the record of the company which ought to have put the Appellant to Notice of any such right. It was rightly contended on behalf of the Appellants before the Company Law Board that it had advanced a sum of ₹ 1,640 crores to the company under a valid and legal transaction. Thus, the basis for granting the injunction against the Appellant is unsustainable in law and on facts. Appeal allowed.

Issues Involved:
1. Challenge to the interim order passed by the Company Law Board under sections 111, 397, and 398 of the Companies Act, 1956.
2. Maintainability of the petition and the scope of interference with a third-party contract.
3. Prima facie case, balance of convenience, and irreparable injury.
4. Alleged transfer of shares and the petitioner's rights.
5. Conduct of the petitioner and the implications of false statements.
6. Impact of the interim order on the appellant's rights and the financial transaction.

Detailed Analysis:

1. Challenge to the Interim Order:
This appeal challenges an interim order passed by the Company Law Board (CLB) dated 21-1-2009 under sections 111, 397, and 398 of the Companies Act, 1956. The interim order restrained the Board of Directors of the company from allotting shares to the appellant based on the conversion of debentures held by the appellant.

2. Maintainability of the Petition and Scope of Interference:
The judgment raises several questions of law under the Companies Act, including sections 84, 111, and 402, pertaining to the maintainability of the petition, limitation, and the scope of interference with a third-party contract. The judgment emphasizes that the CLB must follow well-established rules regarding the grant of interlocutory orders, including assessing a prima facie case, balance of convenience, and irreparable injury.

3. Prima Facie Case, Balance of Convenience, and Irreparable Injury:
The CLB failed to consider whether the petitioner had a strong prima facie case on facts, ignored the balance of convenience, and did not assess whether the petitioner would suffer irreparable injury if the interim reliefs were not granted. The judgment cites the Supreme Court's principles in Dale & Carrington Invt. (P.) Ltd. v. P.K. Prathapan and United Commercial Bank v. Bank of India, emphasizing the necessity of these considerations in interlocutory applications.

4. Alleged Transfer of Shares and the Petitioner's Rights:
The petitioner's claim is based on the alleged right to 200 shares held by his deceased father. The shares were transferred to respondent Nos. 3 and 4 on 26-3-2003. The petitioner, who remained a director of the company until October 2004, raised the issue five years after his father's death. The judgment scrutinizes the petitioner's explanation for the delay and finds it not credible, indicating mala fides on the petitioner's part.

5. Conduct of the Petitioner and False Statements:
The petitioner made false statements about "informal correspondence" with the company and made an ex parte application without notice, misleading the CLB. The judgment highlights the petitioner's dishonest conduct, including false instructions and obtaining orders beyond what was fair and reasonable.

6. Impact of the Interim Order on the Appellant's Rights:
The appellant, an innocent third party, invested Rs. 1,640 crores in the company through debentures. The interim order severely prejudiced the appellant by preventing the enforcement of its security against the company. The judgment criticizes the CLB for not considering the appellant's rights and the severe consequences of the injunction on the appellant's investment.

Conclusion:
The appeal is allowed, and the impugned order is set aside. The judgment emphasizes the necessity of following established legal principles in interlocutory applications and highlights the petitioner's dishonest conduct and the severe prejudice caused to the appellant. The judgment does not address certain questions of law raised by the appellant, focusing instead on the unsustainable nature of the interim order and the petitioner's failure to establish a prima facie case.

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