2016 (3) TMI 123 - HC - Companies Law

3rd party rights over Swami Samarth Nagar property - whether the appellants are not parties to the company petition pending before the Company Law Board - Held that - The Company Law Board has passed the order on the basis that there was no entry showing that the money of ₹ 9,51,00,000/- shown as consideration to respondent no.3-company has come into the account of the company. The Company Law Board has also passed the order on the basis that prima facie it was satisfied that respondent no.4 had no authority to create rights in favour of appellants for development of Swami Samarth Nagar and that Respondent no.4 has acted prejudicial to the interest of respondent no.1 & respondent no.2 and also respondent no.3 company. In fact, the Company Law Board has appreciated that the appellant no.1 is required to be shown as a party and to be heard. I do not find any perversity in that order. Until the matter is properly heard, the Company Law Board has passed the interim arrangement order. The counsel for the appellants stated that the appellants have received IOD from the municipal authorities, they have spent lot of money etc. and therefore, the interim order passed by the Company Law Board is hurting them and the balance of convenience is in their favour. But none of these facts have been placed before the Company Law Board by the appellants. The Company Law Board has given them an opportunity to place all these facts by including them in the reply to the issue as to whether the appellants can be impleaded as a party at all. I do not find any patent error on a fundamental principle of law. The Company Law Board in exercise of its discretion at the preliminary or interlocutory stage of the company application, awaiting the pleadings of the respondents viz. the appellants herein, has passed the impugned order. Therefore, as it is not a final verdict on the interim application, it lacks the essential precondition to maintain an appeal under Section 10F- existence of a question of law arising from the decision . In my view, therefore, this appeal is not maintainable.

Summary

Issues Involved:
1. Impugned order of the Company Law Board restraining appellants from alienating or creating third-party rights over Swami Samarth Nagar property.
2. Allegations of oppression and mismanagement against respondent nos. 4 & 5.
3. Authority of respondent no. 4 to transfer development rights.
4. Applicability of Sections 397, 398, 402, and 403 of the Companies Act, 1956.
5. Maintainability of the appeal under Section 10F of the Companies Act, 1956.
6. Balance of convenience and interim relief principles.

Issue-wise Detailed Analysis:

1. Impugned Order of the Company Law Board:
The appellants challenged the order dated 18.8.2015 by the Company Law Board, which restrained them from alienating or creating third-party rights over the Swami Samarth Nagar property and directed them to maintain status-quo. The Company Law Board passed this order pending the disposal of the main company application, where the relief sought was to implead the appellants as party respondents.

2. Allegations of Oppression and Mismanagement:
Respondent nos. 1 & 2 filed the main company petition alleging oppression and mismanagement against respondent nos. 4 & 5 in the conduct of respondent no. 3-company's affairs. They invoked the jurisdiction of the Company Law Board under Sections 397 and 398 read with Sections 402 & 403 of the Companies Act, 1956. The petitioners held about 25.8% shares in respondent no. 3.

3. Authority of Respondent No. 4 to Transfer Development Rights:
Respondent nos. 1 & 2 alleged that respondent no. 4 had no authority to transfer the development rights of respondent no. 3-company's Swami Samarth Nagar property to the appellants. They claimed there were no Board Resolutions or Shareholders' meetings authorizing respondent no. 4 to make such a transfer. Additionally, it was alleged that the purported consideration of Rs. 9,51,00,000/- was not received by the company.

4. Applicability of Sections 397, 398, 402, and 403 of the Companies Act, 1956:
The appellants argued that the provisions of Section 402F were not applicable and that any application should have been filed within three months, as prescribed under Section 402F. They contended that Section 403 does not permit interim orders against third parties who are neither shareholders nor directors of the company.

5. Maintainability of the Appeal under Section 10F:
The court examined whether the appeal was maintainable under Section 10F, which requires the existence of a question of law arising from the decision of the Company Law Board. The court concluded that the impugned order was an exercise of discretion at an introductory stage of the proceedings and did not constitute a final verdict. Therefore, the appeal lacked the essential precondition of a question of law and was deemed not maintainable.

6. Balance of Convenience and Interim Relief Principles:
The court referred to the principles governing the grant of interlocutory injunctions, emphasizing the need to balance the protection of the petitioner's rights against the potential injury to the defendant. It noted that the Company Law Board's interim order was intended to preserve the status-quo pending a full hearing. The court found no perversity in the Company Law Board's order and concluded that the interim arrangement was appropriate given the circumstances.

Conclusion:
The court dismissed the appeal, finding no patent error on a fundamental principle of law in the Company Law Board's interim order. The application to implead the appellants was still pending, and the Company Law Board had provided an opportunity for the appellants to present their case. The court extended the time for the appellants to file their reply to the company application by two weeks.

Final Order:
The appeal and interim application were dismissed. The Company Law Board was requested to expedite the hearing and disposal of the matter. The time for the appellants to file their reply was extended by two weeks, with a rejoinder to be filed within two weeks thereafter.