2015 (1) TMI 1350 - HC - Companies Law

Appeal under Section 10-F of the Companies Act, 1956 - Held that - Observer-cum-facilitator is entitled to ensure that the sale proceeds received from the sale of the Company assets are appropriated towards discharge of the genuine liability of the respondent No.1 Company. Since the Observer-cum-facilitator is a retired Hon ble Judge of this Court, therefore, the said observation made by the Company Law Board cannot be doubted. In respect of the prayer for forensic audit, the Company Law Board has rejected the prayer noting that such a prayer does not arise at this stage, meaning thereby it is open to the appellants to file an appropriate repeat application in this regard at the appropriate stage. Since the appellant has the liberty to pray for the forensic audit at the appropriate stage, therefore, such a prayer can be made by the appellant again along with the prayer for forensic audit because the said prayer has not been examined by the Company Law Board and Company Law Board has observed that interim relief cannot be sought by the appellant in piecemeal. The issues which the appellant is raising before this Court are factual issues and the appeal does not involve any substantial question of law requiring consideration under Section 10-F of the Companies Act.

Summary

Issues:
Appeal under Section 10-F of the Companies Act challenging Company Law Board's order dated 5.9.2014; Allegations of oppression and mismanagement in Company Petition No.17/2014; Rejection of applications C.A. No.225/2014 and C.A. No.226/2014 by the Company Law Board; Scope of appeal under Section 10-F limited to questions of law.

Analysis:
The appeal before the High Court arose from the original petitioners challenging an order passed by the Company Law Board related to allegations of oppression and mismanagement in a company. The appellants sought modification of the order dated 25.4.2014 and appointment of an administrator or special officer for the company's affairs. They also requested permission for the sale of certain company assets after necessary audit. However, both applications, C.A. No.225/2014 and C.A. No.226/2014, were rejected by the Company Law Board.

The appellants contended that the Company Law Board erred in rejecting their applications without considering their entitlement to the interim relief sought. On the other hand, the respondents supported the Board's decision, arguing that no error was committed. The High Court noted that the scope of appeal under Section 10-F of the Companies Act is limited to questions of law. It emphasized that unless the Board's findings are perverse, based on no evidence, or arbitrary, interference is not warranted as the Board is the final authority on facts.

The Company Law Board's rejection of C.A. No.225/2014 was based on the role of the Observer-cum-facilitator in ensuring proper appropriation of sale proceeds for company liabilities. The Board also dismissed the request for a forensic audit at that stage, suggesting the appellants could file a repeat application later. Regarding C.A. No.226/2014, which aimed to expand the facilitator's role, the Board held that such requests should not be made piecemeal. The High Court determined that the issues raised were factual and did not involve substantial legal questions necessitating consideration under Section 10-F. As the prayers in the applications were interim in nature and the Board's order was interlocutory, the appeal was dismissed with liberty for the appellants to file a fresh application if needed.

In conclusion, the High Court upheld the Company Law Board's decision, emphasizing the limited scope of appeal under Section 10-F of the Companies Act and the need for substantial legal questions to warrant interference. The judgment highlighted the importance of following proper procedures and the possibility for the appellants to seek relief in changed circumstances through lawful means.