2015 (9) TMI 1587 - HC - Companies Law

Unreasoned order of the Company Law Board - Siphoning off funds in favour of an entity controlled by those in control of the company - direction as to production of records or the substantive injunction - Held that - The grievance of the petitioners before the CLB was that the company was fraudulently siphoning off funds in favour of an entity controlled by those in control of the company and to the prejudice of its genuine creditors, particularly the petitioners before the CLB in whose favour of the assets of the company remained charged. Such factual position was necessary to be pleaded and demonstrated for the purpose of obtaining an order of investigation. But it would be evident from, in particular, Section 247 of the Act that the ultimate purpose of the exercise is to obtain an order of investigation. It cannot be said that an adjudication of the company s alleged liability to the petitioners before the CLB or the company s alleged liability to another creditor could have been undertaken by the CLB in course of the proceedings before it. If such is the case, the CLB did not have any authority to pass the order impugned, particularly to restrain the company from making any payment to a creditor. The constitutional scheme of things requires Courts or quasi judicial authorities to operate within the bounds of their authority. Merely because there is a complaint or some wrong-doing is alleged, is not enough for a Court or a quasi judicial authority to be excited to correct the percei ved wrong, however evil such wrong may be. It is incumbent on a Court or a quasi judicial authority to first discover the extent of its authority before embarking on an exercise of remedying the wrong complained of. If the system of Courts and quasi judicial authorit ies are to maintain order in society, they have to guard against their own indisciplin e to tread beyond the limits of their jurisdiction. The nature of the proceedings before the CLB did not permit it to issue the direction as to production of records or the substantive injunction. Neither was in aid of the ultimate reliefs that could be sought under Sections 237, 247 and 250 of the Act. The order impugned cannot stand both because it does not give reasons in support thereof and since it appe ars, ex facie, to be in excess of the authority available to the CLB in the context of the petition before it. Thus setting aside the order impugned dated August 10, 2015 and by requesting the CLB to take up the matter afresh at the ad interim stage upon notice to the parties and pass such order as may be warranted and within the bounds of the CLB s authority

Summary

Issues: Jurisdiction of Company Law Board under Sections 237, 247, and 250 of the Companies Act, 1956 to pass orders restraining payment to creditors.

In this case, the High Court of Calcutta considered an appeal against an order of the Company Law Board (CLB) related to proceedings under Sections 237, 247, and 250 of the Companies Act, 1956. The main contention was the CLB's authority to issue directions and injunctions. The court noted that a tribunal, unlike a court, cannot assume jurisdiction not granted by the statute. The order in question directed the company to provide financial reports to the petitioners and restrained it from making payments to a creditor until the next hearing. The appellants argued that the CLB lacked authority to issue such directions and injunctions. They relied on legal precedents to support their argument that the tribunal must have specific statutory authority to pass such orders. The court emphasized that tribunals must operate within the limits of their statutory authority and cannot exceed their jurisdiction. The order was set aside, and the matter was remanded to the CLB for reconsideration within the bounds of its authority under the relevant provisions.

The court analyzed the provisions of Sections 237, 247, and 250 of the Companies Act and observed that there was no explicit authorization for the CLB to issue substantive orders restraining payment to creditors. The petitioners alleged fraudulent diversion of funds by the company to the detriment of genuine creditors. However, the court clarified that the purpose of the proceedings under these sections was to obtain orders of investigation, not to adjudicate on the company's liabilities to specific creditors. Therefore, the CLB did not have the authority to restrain the company from making payments to creditors based on the allegations presented before it. The court stressed the importance of tribunals adhering to their statutory powers and not overstepping their jurisdiction, even in the face of alleged wrongdoing.

The court highlighted the need for tribunals to act within the confines of their statutory authority and refrain from addressing issues beyond their mandate. It emphasized that the mere existence of complaints or allegations of misconduct is not sufficient grounds for a tribunal to intervene without proper statutory backing. The judgment underscored the importance of maintaining the integrity of the judicial system by ensuring that courts and quasi-judicial bodies operate within their prescribed limits. The court concluded that the impugned order was unsupported by reasons and exceeded the CLB's authority in the context of the petition before it. Consequently, the order was set aside, and the matter was remanded for fresh consideration by the CLB while staying within the boundaries of its statutory powers.