2015 (4) TMI 111 - HC - Companies Law

Refusal of the Company Law Board to entertain a counter reply - The appellant who is only a co-respondent, to the reply filed by another respondent - Principles of natural justice - Held that - The co-respondent before the Company Law Board is not seeking any relief as against the appellant herein. Though the co-respondent is supporting the case of the main company petitioner, the main company petition cannot be decided by the Company Law Board on the strength of the averments made by the co-respondent in support of the main petitioner's case. In other words, the Company Law Board cannot today draw any adverse inference against the appellant, on the basis of the averments made by the co-respondent against the appellant. Once it is clear that the appellant, as a respondent, cannot file a counter reply to the reply of one of the respondents, I do not think that the appellant can be made to suffer by the Court drawing any adverse inference against the appellant and holding him guilty. This safeguard is available to him even under common law. Therefore, holding that the refusal of the Company Law Board to entertain a counter reply from the appellant who is only a co-respondent, to the reply filed by another respondent, is perfectly justified in terms of Regulation 23, this appeal is dismissed. However, I make it clear that the Company Law Board cannot hold the allegations made against the appellant by the co-respondent to have gone uncontroverted. It should be pointed out that the fundamental principle of natural justice is that a man shall not be condemned unheard. Once I have ensured that the allegations made against the appellant cannot be held against him without permitting him to file a counter reply, the question of condemning the appellant unheard may not arise. Appeal dismissed.

Summary

Issues:
- Entitlement of a respondent to file a reply to the counter filed by a co-respondent before the Company Law Board under Sections 397 and 398.

Analysis:
1. The Company Appeal arose from the Company Law Board's order rejecting an application by the appellant to file a rejoinder to the counter filed by the fifth respondent. The key legal question was whether a respondent in a petition under Sections 397 and 398 is allowed to file a reply to the counter filed by a co-respondent.

2. The Company Law Board Regulations 1991 govern the procedure for hearing petitions under the Companies Act. Regulations 22 and 23 outline the process for respondents to file replies and for the petitioner to file a counter-reply. Regulation 44 grants inherent powers to the Board for the ends of justice or to prevent abuse of process.

3. The regulations clearly specify that only the main petitioner can file a counter-reply to a respondent's reply. This contrasts with the Civil Procedure Code's Order VIII, Rule 9, which allows subsequent pleadings with court permission. The appellant could not rely on Regulation 44 as the issue was covered by Regulation 23.

4. The appellant argued that allegations in the fourth respondent's counter required a response to avoid adverse inferences. However, the Court held that the appellant's inability to file a counter-reply did not prejudice him, as the Board could not base decisions on a co-respondent's averments.

5. The Court dismissed the appeal, upholding the Board's decision not to entertain the appellant's counter-reply. It clarified that the Board could not consider the co-respondent's allegations as uncontroverted against the appellant.

6. The appellant also invoked Section 10-E(5) regarding the Board's obligation to follow principles of natural justice. However, the Court found that since the appellant's rights were safeguarded and he was not condemned unheard, Section 10-E(5) did not apply.

7. Ultimately, the Company Appeal was dismissed with no costs, affirming the Board's decision and clarifying the appellant's rights in the proceedings.