1978 (9) TMI 131 - SC - Companies Law

Order under section 18AA of the Industries (Development and Regulation) Act, 1951 challenged - Held that - Appeal allowed. By virtue of that appointment, the entire company comes under the control of the authorised person appointed under that provision, it is not for us to explore here the effect and import of the order of the Central Government under section 18AA and we desist from doing so. All that we need do and that we can do in the present appeal is to allow it so that the Company Law Board s direction in regard to seven additional directors will come into full force until the final decision of the High Court. We may make it clear that the learned Additional Solicitor-General did assure the court that nothing which will stultify the two writ petitions before the High Court will be done by the Company Law Board or the Central Government. We hope the High Court will dispose of the case very expeditiously.

Summary

Issues:
Challenge to an ad-interim order of stay passed by the High Court of Delhi regarding an order of the Company Law Board appointing additional directors to a company.

Analysis:
The Supreme Court was approached to challenge the ad-interim order of stay passed by the High Court of Delhi regarding the appointment of additional directors to a company by the Company Law Board under section 408(1) of the Companies Act, 1956. The Supreme Court acknowledged the usual practice of hesitating to interfere with interlocutory orders but emphasized that when the repercussions are significant and the basis of the direction is unclear, the ends of justice must prevail. The Company Law Board had appointed seven additional directors to the company due to the prejudicial conduct of its affairs, affecting both the company's interests and public interest.

The High Court, after hearing arguments from both sides, stayed the operation of the Company Law Board's order, except for three directors, and directed that these three directors would not vote at board meetings until the disposal of the writ petition. The Supreme Court noted the importance of the Company Law Board's role in overseeing corporate processes, especially for companies with substantial financial dimensions and public resource investments. The Court highlighted the need to respect the Board's conclusions unless there are compelling reasons to the contrary.

The Supreme Court refrained from commenting on the merits of the case pending before the High Court but emphasized that the benefit of reasonable doubt should be given to the specialized body like the Company Law Board. The Court expressed concerns over the lack of clarity in the High Court's order and the partial eclipse of certain directors without sufficient explanation. The Court decided to nullify the interim stay imposed by the High Court, allowing the Company Law Board's direction regarding the additional directors to take full force until the final decision by the High Court.

Additionally, there was a mention of an order under section 18AA of the Industries (Development and Regulation) Act, 1951, impacting the impugned order. However, the Supreme Court did not delve into the effects of that order, focusing solely on allowing the Company Law Board's direction to stand until the High Court's final decision. The Court urged the High Court to expedite the case's disposal and ensure that nothing hinders the writ petitions before it. The appeal was allowed, overturning the High Court's stay order.