2009 (7) TMI 787 - HC - Companies Law

Whether the interim relief granted by the Board during the pendency of the main petition without recording any tangible reason and more so objectively analysing the objection raised by the opposite party, can stand the test of judicial scrutiny and be said to be an order suffering from the vice of material irregularity ? Held that - It would be a different matter if the Board were to consider all 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 issues. In the circumstances, the only option available to this Court is to set aside the impugned order and to relegate the parties for reconsideration of the application on its own merits in accordance with law. Besides, the appellants contend that the grievance of the appellants that the information has been pressed by the petitioners so as to misuse the same as they have been set up by the competitor builders, has been lightly brushed aside without examining the same on its own merits. Even this direction will have to be reconsidered by the Board and record a clear opinion as to the justification for issuing such direction against the appellant-company. The appropriate course is to set aside the impugned decision and instead relegate the parties before the Board for reconsideration of Application

Summary

Issues:
Interim relief granted by the Company Law Board without tangible reason, Justification for directing the appellant to provide necessary information, Reversal of impugned decision and reconsideration of the application.

Interim Relief without Tangible Reason:
The appeal challenges the Company Law Board's decision restraining the appellant-company from implementing a decision on issuing convertible warrants until the main petition's disposal. The main issue is whether the interim relief granted by the Board without recording tangible reasons and objectively analyzing objections can withstand judicial scrutiny. The appellant argues that the Board failed to provide any reason necessitating the direction, as required by law. The appellant cites the Supreme Court's decision in Shanti Prasad Jain v. Kalinga Tubes Ltd., emphasizing that matters not part of the petition should not influence interim applications. The Court concludes that the Board's decision lacks justification and sets it aside, directing reconsideration based on legal principles.

Direction to Provide Necessary Information:
The second issue concerns the Board's direction for the appellant to furnish information requested by the petitioner without providing any justification. The appellant argues that the information sought is not covered under the Companies Act, and the petitioner may not be entitled to such relief. Additionally, the appellant alleges that the information request might be a ploy by competitor builders. The Court agrees with the appellant's contention that the Board failed to justify this direction and orders reconsideration with a clear opinion on its necessity.

Reversal of Impugned Decision:
The Court deems the Board's decision as manifestly wrong and untenable and decides to set it aside. The parties are to be sent back to the Board for a fresh consideration of the application, ensuring fair opportunities for both sides to present their case. The Court emphasizes that the application should be reviewed based on its merits and in compliance with legal procedures.

Additional Directions:
The Court directs the appellant to maintain the status quo for two weeks, preventing any hasty actions regarding the preferential issue of board directors. However, this order does not hinder the Company Law Board from proceeding with the main petition's hearing as per the directions for early disposal issued by the Apex Court.